<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Filed Pursuant to Rule 424(a)
Registration Nos. 333-47823
333-47823-01
SUBJECT TO COMPLETION, DATED MARCH 18, 1998
[LOGO]
PROSPECTUS
1,200,000 PREFERRED SECURITIES
NCBE CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
NATIONAL CITY BANCSHARES, INC.
------------------------
The % Cumulative Trust Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of NCBE Capital Trust I, a statutory business trust created under the laws of
the State of Delaware ("NCBE Trust"). National City Bancshares, Inc., an Indiana
corporation (the "Company"), will own all of the common securities (the "Common
Securities" and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of NCBE Trust. The
Preferred Securities have been approved for listing on the Nasdaq National
Market, subject to notice of issuance, under the symbol "NCBEP."
(CONTINUED ON NEXT PAGE)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES.
---------------------
THE SECURITIES 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. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR SAVINGS ACCOUNTS, ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NON-BANKING AFFILIATE OF THE
COMPANY (EXCEPT TO THE EXTENT THAT THE PREFERRED SECURITIES ARE
GUARANTEED BY THE COMPANY AS DESCRIBED HEREIN), ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1)(2) NCBE TRUST(2)(3)
<S> <C> <C> <C>
Per Preferred Security.......................... $25.00 (2) $25.00
Total(4)........................................ $30,000,000 (2) $30,000,000
</TABLE>
(1) The Company and NCBE Trust have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Because the proceeds of the sale of the Preferred Securities will be
invested in the Subordinated Debentures, the Company has agreed to pay the
Underwriters, as compensation (the "Underwriters' Compensation") for
arranging the investment therein of such proceeds, $ per Preferred
Security (or, in the aggregate, $ ). See "Underwriting."
(3) Expenses of the offering to be paid by the Company are estimated to be
approximately $275,000.
(4) NCBE Trust has granted the Underwriters an option for 30 days to purchase up
to an additional 180,000 Preferred Securities on the same terms set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to the Public and Proceeds to NCBE Trust will be
$34,500,000 and the aggregate Underwriters' Compensation will be $ .
See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the Preferred Securities will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company on or about
, 1998, against payment therefor in immediately available funds.
<PAGE>
J.J.B. HILLIARD, W.L. LYONS, INC. NATCITY INVESTMENTS, INC.
, 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Wilmington Trust Company is the Property Trustee (as defined herein) of NCBE
Trust. NCBE Trust exists for the purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated
Debentures (the "Subordinated Debentures") of the Company. The Subordinated
Debentures will mature on March 31, 2028 (the "Scheduled Maturity Date"), which
date may be (i) extended at the option of the Company to a date not later than
March 31, 2037, subject to the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") if then required under applicable
capital guidelines or policies of the Federal Reserve ("Federal Reserve
Approval"), or (ii) shortened (a) by redemption at the option of the Company on
or after March 31, 2003, subject to Federal Reserve Approval, or (b) by
declaration of acceleration, notice of redemption (including redemption
following a Tax Event, Investment Company Event, or Capital Event, as described
below), or otherwise. The term "Maturity Date" shall mean the date the principal
becomes due and payable pursuant to the prior sentence, and includes the
Redemption Date. The Preferred Securities will have a preference under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See
"Description of the Preferred Securities-- Subordination of Common Securities."
Holders of the Preferred Securities will be entitled to receive preferential
cumulative cash distributions ("Distributions") accumulating from
, 1998, the date of original issuance, and payable quarterly in
arrears on the last day of March, June, September and December of each year
(each, a "Distribution Date"), commencing on June 30, 1998, at the annual rate
of % of the liquidation amount of $25 per Preferred Security (the "Liquidation
Amount"). The amount of Distributions payable for any period will include the
amount of additional interest accrued on interest in arrears and paid on a like
amount of Subordinated Debentures. The Company has the right, under certain
circumstances, to defer payment of interest on the Subordinated Debentures at
any time or from time to time for a period not to exceed 20 consecutive calendar
quarters (including the first calendar quarter during the extension period) with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Maturity Date of the Subordinated
Debentures or end on a date other than an Interest Payment Date (as defined
herein). Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Subordinated Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred, and the Company will not be permitted, subject
to certain exceptions described herein, to declare or pay any cash distributions
with respect to its capital stock or pay interest, principal or premium on or
repay, repurchase or redeem any debt securities that rank PARI PASSU with or
junior to the Subordinated Debentures. WHILE THE COMPANY INTENDS TO TAKE THE
POSITION THAT THE SUBORDINATED DEBENTURES WILL NOT BE DEEMED TO BE ISSUED WITH
ORIGINAL ISSUE DISCOUNT ("OID"), DURING AN EXTENSION PERIOD, INTEREST ON THE
SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS
TO WHICH THE HOLDERS OF THE PREFERRED SECURITIES ARE ENTITLED WILL ACCUMULATE)
AT THE RATE OF % PER ANNUM, COMPOUNDED QUARTERLY, AND THE HOLDERS OF THE
PREFERRED SECURITIES WILL BE REQUIRED TO INCLUDE INTEREST INCOME AS OID IN THEIR
GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT
OF THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. A
HOLDER OF PREFERRED SECURITIES THAT DISPOSES OF ITS PREFERRED SECURITIES BETWEEN
RECORD DATES FOR PAYMENTS OF DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT RECEIVE A
DISTRIBUTION FROM NCBE TRUST FOR THE PERIOD PRIOR TO SUCH DISPOSITION) WILL
NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST OR OID, IF ANY,
ON THE SUBORDINATED DEBENTURES THROUGH THE DATE OF DISPOSITION IN INCOME AS
ORDINARY INCOME AND TO ADD THE AMOUNT OF ANY ACCRUED OID TO ITS ADJUSTED TAX
BASIS IN ITS PRO RATA SHARE OF THE UNDERLYING SUBORDINATED DEBENTURES DEEMED
DISPOSED OF. See "Description of the Subordinated Debentures--Option to Extend
Interest Payment Period," "Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original Issue Discount" and
"--Disposition of the Preferred Securities."
(CONTINUED ON NEXT PAGE)
2
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Company and NCBE Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of NCBE Trust's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, the Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payments of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by NCBE Trust, as described herein. See "Description of
the Guarantee." If the Company does not make interest payments on the
Subordinated Debentures held by NCBE Trust, NCBE Trust will have insufficient
funds to pay Distributions on the Preferred Securities. The Guarantee does not
cover payments of Distributions when NCBE Trust does not have sufficient funds
to pay such Distributions. The obligations of the Company under the Guarantee
and the Preferred Securities are subordinate and junior in right of payment to
all Senior Debt and Additional Senior Obligations (each as defined herein). See
"Description of the Subordinated Debentures--Subordination." As of December 31,
1997, the Company had total Senior Debt and Additional Senior Obligations of
$25.9 million, all of which will rank senior to the Guarantee.
The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at their Maturity Date.
Subject to Federal Reserve Approval, the Subordinated Debentures are redeemable
at the option of the Company (i) on or after March 31, 2003, in whole at any
time or in part from time to time, or (ii) at any time, in whole (but not in
part), upon the occurrence and during the continuance of a Tax Event, an
Investment Company Event or a Capital Event (each as defined herein), in each
case at a redemption price equal to the accrued and unpaid interest on the
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof. See "Description of the Preferred
Securities--Redemption."
The Company will have the right at any time to dissolve NCBE Trust and,
after satisfying all liabilities to creditors of NCBE Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to holders
of Preferred Securities in liquidation of NCBE Trust, subject to Federal Reserve
Approval. See "Description of the Preferred Securities--Redemption."
In the event of the dissolution of NCBE Trust, after satisfaction of
liabilities to creditors of NCBE Trust as required by applicable law, the
holders of Preferred Securities will be entitled to receive a Liquidation Amount
of $25 per Preferred Security, plus accumulated and unpaid Distributions thereon
to the date of payment, which may be in the form of a distribution of a like
amount of Subordinated Debentures, subject to certain exceptions. See
"Description of the Preferred Securities--Liquidation Distribution Upon
Dissolution."
------------------------
NATIONAL CITY BANCSHARES, INC. AND NCBE CAPITAL TRUST I ARE NOT AFFILIATES
OF NATIONAL CITY CORPORATION AND ITS SUBSIDIARIES, INCLUDING NATCITY
INVESTMENTS, INC., ONE OF THE UNDERWRITERS IN THIS OFFERING.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, THE PURCHASE OF PREFERRED SECURITIES TO COVER SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF SUCH ACTIVITIES, SEE
"UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
3
<PAGE>
[MAP]
The Company will provide quarterly reports containing unaudited financial
statements to the holders of Preferred Securities if such reports are furnished
to the holders of the Company's common stock, and annual reports containing
financial statements audited by the Company's independent auditors. The Company
will also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q
free of charge to holders of Preferred Securities who so request in writing
addressed to National City Bancshares, Inc., 227 Main Street, P.O. Box 868,
Evansville, Indiana 47705-0868; Attention: Secretary.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
GENERAL
National City Bancshares, Inc. is a multi-bank and thrift holding company
headquartered in Evansville, Indiana. As of March 6, 1998, the Company owned 13
financial institutions which conduct their business from a total of 44 banking
offices, serving 33 communities in Indiana, Kentucky and Illinois. The Company
also has wholly-owned subsidiaries which conduct leasing and financial services
businesses. As of December 31, 1997, the Company had total consolidated assets
of $1.3 billion and total consolidated deposits of $964.0 million, making it the
sixth largest independent bank holding company headquartered in the State of
Indiana (ranked by asset size) as of such date.
Through its subsidiaries, the Company provides a comprehensive range of
consumer and commercial banking services to individuals and businesses located
throughout the tri-state area of Indiana, Kentucky and Illinois surrounding
Evansville, Indiana. Services offered include taking demand and time deposits,
lending on a secured and unsecured basis, providing cash management services,
issuing letters of credit, providing personal and corporate trust services and
originating leases to businesses.
The principal executive office of the Company is 227 Main Street, P.O. Box
868, Evansville, Indiana 47705-0868, and its telephone number is (812) 464-9677.
OPERATING PHILOSOPHY
Other than its banking operations within the Evansville metropolitan area,
the Company operates in predominately rural and suburban markets and embraces a
community banking philosophy that emphasizes personal service and convenience,
community involvement, local decision-making, quick responses to loan requests
and customized services. The Company's subsidiaries endeavor to provide their
branch managers, lending officers, tellers and deposit service personnel with
the authority to act promptly in service of its customers within the scope of
Company policies. This highly responsive attitude is enhanced by an efficient
corporate support staff and an investment in technology. Management believes the
benefits of this operating philosophy contribute to the Company's success while
providing improved operating efficiencies, effective internal controls and sound
credit underwriting standards.
Management believes that commercial customers of the Company's subsidiaries
generally prefer to bank with locally managed institutions which can provide a
full-service banking relationship meeting the customer's commercial banking
needs as well as the personal needs of its management and employees. The Company
provides its subsidiaries with the advantages of affiliation with a multi-bank
holding company, including services such as data processing services, credit
policy formulation, accounting services, investment portfolio management and
specialized staff support while generally granting substantial autonomy to
management of the subsidiaries. Management believes this autonomy allows the
Company's subsidiaries to better serve customers in their respective
communities, thereby enhancing business opportunities and operations. The
Company also maintains local bank charters and boards of directors.
5
<PAGE>
LONG-TERM GOALS AND BUSINESS STRATEGIES
The Company's long-term goals are to grow its banking activities through
acquisitions of financial institutions and branches of financial institutions to
enhance its market positions within its primary market area by employing the
following business strategies:
- PURSUE EXPANSION OPPORTUNITIES. The Company is actively engaged in
seeking acquisitions of financial institutions whose management can continue to
operate autonomously, yet benefit from the expertise and resources of the
Company in such areas as audit, loan review, compliance, personnel, asset/
liability modeling, investment management and data processing. The Company
believes that its record of allowing its subsidiaries to operate autonomously is
a significant competitive advantage in successfully completing acquisitions. The
Company generally seeks acquisitions within or near its primary market area,
which it considers to be the portions of Indiana, Kentucky and Illinois that are
within 250 miles of Evansville, Indiana. Since January 1, 1995, the Company has
acquired ten financial institutions or branches of financial institutions.
- INTERNAL GROWTH. Management believes vigorous internal growth is a key
component of corporate earnings performance. Management's focus is to remain
loan-driven to increase leverage, although other opportunities will be
considered. Affiliates in place for more than two years and operating at
acceptable levels are expected to report annual internal earnings growth of at
least 4%.
- CONTROL COSTS. The Company seeks to control costs of its subsidiaries
while expanding the range of services offered to customers. Management plans to
continue to consolidate back-office operations of its subsidiaries, which are
transparent to the customer, to control costs through economies of scale, to
outsource functions to improve efficiency, and to move toward more
incentive-based compensation. Products that have already been developed by the
Company for its subsidiaries will be available to all new acquisitions,
including MasterCard, PhoneBank, Express Bill Payer, ATM/Check Card, Paycheck
Express Employee Benefits Program and Direct Access Cash Management business
software.
- MANAGE CREDIT QUALITY. The Company and its subsidiaries have adopted
credit management policies under which loan officers maintain responsibility for
the quality of the credits they originate and manage. The credit management
process is supported by a collective and collaborative review and approval
process and is balanced by a review, evaluation and grading process undertaken
by the Company's loan review function. Senior management is actively involved in
monitoring the credit quality of the loan portfolio. In addition, management's
incentive compensation is affected by the Company's overall credit experience.
RECENT DEVELOPMENTS
Since December 31, 1997, the Company has completed two acquisitions (the
"Recent Acquisitions") and has agreed to make three additional acquisitions (the
"Pending Acquisitions"). The following table sets forth certain information
concerning these transactions:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
------------------------ NET INCOME
ASSETS DEPOSITS TO AVERAGE
NAME (MILLIONS) (MILLIONS) ASSETS (1997) STATUS (DATE CLOSED)
- ------------------------------------------ ----------- ----------- --------------- ----------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Mayfield Branch........................... N/A $ 65.7 N/A Closed (January 8, 1998)
Bank of Illinois in Mt. Vernon............ $ 163.5 127.7 1.20% Closed (March 6, 1998)
Illinois One Bank, N.A.................... 88.1 76.4 1.35 Pending
Trigg County Farmers Bank................. 96.4 72.3 1.47 Pending
Community First Bank of Kentucky.......... 55.4 48.6 2.69 Pending
Community First Bank, N.A................. 74.3 65.4 2.34 Pending
</TABLE>
6
<PAGE>
The Pending Acquisitions are subject to various conditions, including
shareholder and regulatory approval. No assurance can be given that the Pending
Acquisitions will be consummated. See "The Company--Recent Acquisitions" and
"--Pending Acquisitions."
STOCK OWNERSHIP OF MANAGEMENT
As of February 28, 1998, the directors and officers of the Company and its
subsidiaries owned approximately 20% of the Company's common stock. If all of
the Pending Acquisitions are completed, the directors and officers of the
Company and its subsidiaries are expected to own approximately 30% of the
Company's common stock then outstanding.
NCBE TRUST
NCBE Capital Trust I is a statutory business trust created under Delaware
law pursuant to (i) a trust agreement dated as of February 12, 1998, executed by
the Company, as depositor, and the trustees of NCBE Trust (together with the
Property Trustee, the "Trustees"), and (ii) a certificate of trust filed with
the Secretary of State of the State of Delaware on February 12, 1998. The
initial trust agreement will be amended and restated in its entirety (as so
amended and restated, the "Trust Agreement") substantially in the form filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The Trust Agreement will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the
Preferred Securities, the purchasers thereof will own all of the Preferred
Securities. The Company will acquire all of the Common Securities which will
represent an aggregate liquidation amount equal to at least 3% of the total
capital of NCBE Trust. The Common Securities will rank PARI PASSU, and payments
will be made thereon pro rata, with the Preferred Securities, except that upon
the occurrence and during the continuance of an Event of Default (as defined
herein) under the Trust Agreement resulting from a Debenture Event of Default,
the rights of the Company as a holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the Preferred Securities.
See "Description of the Preferred Securities--Subordination of the Common
Securities." NCBE Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
NCBE Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures issued by the Company, and (iii) engaging in only those
other activities necessary, advisable, or incidental thereto. Payments under the
Subordinated Debentures are expected to be the only revenue of NCBE Trust. NCBE
Trust has a term which expires March 31, 2037, but may dissolve earlier as
provided in the Trust Agreement. The principal executive office of NCBE Trust is
227 Main Street, P.O. Box 868, Evansville, Indiana 47705-0868, and its telephone
number is (812) 464-9677.
The number of Trustees will, pursuant to the Trust Agreement, initially be
four. Three of the Trustees (the "Administrative Trustees") will be persons who
are employees or officers of, or who are affiliated with, the Company. The
fourth trustee will be a financial institution that is unaffiliated with the
Company, which trustee will serve as institutional trustee under the Trust
Agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Property Trustee"). Wilmington Trust
Company, a Delaware banking corporation, will be the Property Trustee until
removed or replaced by the holder of the Common Securities and the Delaware
Trustee. For purposes of compliance with the provisions of the Trust Indenture
Act, Wilmington Trust Company will also act as trustee (the "Guarantee Trustee")
under the Guarantee and as Debenture Trustee (as defined herein) under the
Indenture.
Initially, the Property Trustee will hold title to the Subordinated
Debentures for the benefit of the holders of the Trust Securities and in such
capacity will have the power to exercise all rights, powers and privileges of
such a holder under the Indenture. The Property Trustee and its agents and any
Paying Agent will also maintain exclusive control of a segregated
non-interest-bearing bank account (the "Payment Account") to hold all payments
made in respect of the Subordinated Debentures for the benefit of the
7
<PAGE>
holders of the Trust Securities. The Property Trustee or Paying Agent will make
payments of Distributions and payments on liquidation, redemption and otherwise
to the holders of the Trust Securities out of funds from the Payment Account.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities. The Company, as the holder of all the Common
Securities, will have the right to appoint, remove or replace any Trustee and to
increase or decrease the number of Trustees. The Company will pay all fees and
expenses related to NCBE Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,200,000 Preferred Securities having a Liquidation
Amount of $25 per Preferred Security. The Preferred
Securities represent preferred undivided beneficial
interests in the assets of NCBE Trust. NCBE Trust has
granted the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase
up to an additional 180,000 Preferred Securities at the
initial offering price, solely to cover over-allotments,
if any.
Distributions..................... The Distributions payable on each Preferred Security
will be fixed at a rate per annum of % of the
Liquidation Amount of $25 per Preferred Security, will
be cumulative, will accumulate from , 1998, the date
of original issuance of the Preferred Securities, and
will be payable quarterly in arrears, on March 31, June
30, September 30 and December 31 of each year,
commencing June 30, 1998. The amount of Distributions
payable for any period will include the amount of
additional interest accrued on interest in arrears and
paid on a like amount of Subordinated Debentures. See
"Description of the Preferred
Securities--Distributions--Payment of Distributions."
Option to Extend Interest
Payment Period.................. The Company has the right, at any time, so long as no
Debenture Event of Default has occurred and is
continuing, to defer payments of interest on the
Subordinated Debentures for a period not exceeding 20
consecutive quarters (including the first calendar
quarter during the Extension Period); provided, that no
Extension Period may extend beyond the Maturity Date of
the Subordinated Debentures or end on a date other than
an Interest Payment Date. As a consequence of the
extension by the Company of the interest payment period,
quarterly Distributions on the Preferred Securities will
be deferred (though such Distributions would continue to
accumulate with interest thereon compounded quarterly,
since interest will continue to accrue and compound on
the Subordinated Debentures) during any such Extension
Period. During an Extension Period, the Company will be
prohibited, subject to certain exceptions described
herein, from declaring or paying any cash distributions
with respect to its capital stock or debt securities
that rank PARI PASSU with or junior to the Subordinated
Debentures. Upon the termination of any Extension Period
and
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the
foregoing requirements. See "Description of the
Preferred Securities-- Distributions--Extension Period"
and "Description of the Subordinated Debentures--Option
to Extend Interest Payment Period." SHOULD AN EXTENSION
PERIOD OCCUR, THE HOLDERS OF PREFERRED SECURITIES WILL
BE REQUIRED TO ACCRUE INTEREST INCOME IN THEIR GROSS
INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN
ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH
RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. See "Certain
Federal Income Tax Consequences--Potential Extension of
Interest Payment Period and Original Issue Discount."
Redemption........................ The Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment or
redemption of the Subordinated Debentures at the
Maturity Date. Subject to Federal Reserve Approval, the
Subordinated Debentures are redeemable prior to the
Scheduled Maturity Date at the option of the Company (i)
on or after March 31, 2003, in whole at any time or in
part from time to time, or (ii) at any time, in whole
(but not in part), within 180 days following the
occurrence of a Tax Event, an Investment Company Event
or a Capital Event (such 180 days being subject to
extension following a Tax Event) in each case at the
redemption price equal to 100% of the principal amount
of the Subordinated Debentures, together with any
accrued but unpaid interest to the date fixed for
redemption. Any partial redemption of the Subordinated
Debentures will be effected by the redemption of an
equivalent amount of Trust Securities, to be allocated
pro rata between the Preferred Securities and the Common
Securities unless, under certain circumstances, an Event
of Default resulting from a Debenture Event of Default
shall have occurred and be continuing as of the
applicable Redemption Date or Distribution Date. See
"Description of the Preferred Securities--Redemption."
If a partial redemption of the Subordinated Debentures
would result in the de-listing of the Preferred
Securities, the Company may only redeem the Subordinated
Debentures in whole. See "Description of the
Subordinated Debentures--Redemption."
Guarantee......................... The Company has guaranteed the payment of Distributions
and payments on liquidation or redemption of the
Preferred Securities, but only in each case to the
extent that NCBE Trust has funds legally and immediately
available to pay such Distributions. If the Company does
not make principal or interest payments on the
Subordinated Debentures, NCBE Trust will not have
sufficient funds to make Distributions on the Preferred
Securities; in which event, the Guarantee will not apply
to such Distributions until NCBE Trust has sufficient
funds available therefor. The Company and NCBE Trust
believe that, taken together, the obligations of the
Company under the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense
Agreement provide, in the
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
aggregate, a full, irrevocable and unconditional
guarantee, on a subordinated basis, of all of the
obligations of NCBE Trust under the Preferred
Securities. The obligations of the Company under the
Guarantee and the Preferred Securities are subordinate
and junior in right of payment to all Senior Debt and
Additional Senior Obligations of the Company. See
"Description of the Guarantee."
Voting Rights..................... The holders of the Preferred Securities will have no
voting rights except in limited circumstances. See
"Description of the Preferred Securities--Voting Rights;
Amendment of Trust Agreement."
Subordinated Debentures........... NCBE Trust will invest the proceeds from the issuance of
the Trust Securities in an equivalent principal amount
of Subordinated Debentures. The Subordinated Debentures
will be subordinate and junior in right of payment to
all indebtedness for borrowed money and other
obligations of the Company included in the definitions
of Senior Debt and Additional Senior Obligations. See
"Description of the Subordinated
Debentures--Subordination."
Distribution of Subordinated
Debentures...................... The Company has the right at any time to dissolve NCBE
Trust and, after satisfaction of NCBE Trust's
liabilities, cause the Subordinated Debentures to be
distributed to the holders of the Preferred Securities
in liquidation of NCBE Trust, subject to Federal Reserve
Approval. See "Description of the Preferred
Securities--Redemption" and "--Liquidation Distribution
upon Dissolution."
Use of Proceeds................... The net proceeds to be received by the Company from the
sale of the Subordinated Debentures to NCBE Trust will
be used to repay indebtedness incurred in recent
acquisitions and for general corporate purposes. Pending
any such use, the net proceeds will be invested in
short- to medium-term investment grade financial
instruments. See "Use of Proceeds."
Nasdaq National Market
Symbol.......................... The Preferred Securities have been approved for listing
on the Nasdaq National Market, subject to notice of
issuance, under the symbol "NCBEP."
</TABLE>
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The consolidated financial data below summarizes historical consolidated
financial information of the Company for the periods indicated and should be
read in conjunction with the other information included elsewhere in this
Prospectus and the consolidated financial statements of the Company and the
notes thereto which are incorporated by reference in this Prospectus. See
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY RESULTS 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
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 COMMON SHARE:(1)
Net income per share:
Basic.......................................... $ 1.72 $ 1.52 $ 1.30 $ 0.97 $ 0.97
Diluted........................................ 1.69 1.52 1.30 0.97 0.97
Cash dividends declared.......................... 0.64 0.55 0.40 0.40 0.38
Book value, end of year.......................... 13.69 12.12 11.71 10.47 10.23
Weighted average common shares outstanding:
Basic.......................................... 10,679,448 10,843,295 11,095,116 11,040,906 11,146,280
Diluted........................................ 10,832,943 10,843,295 11,095,116 11,040,906 11,146,280
AT YEAR END:
Loans............................................ $ 916,356 $ 800,622 $ 736,997 $ 645,235 $ 579,556
Total assets..................................... 1,298,260 1,172,057 1,081,921 1,004,160 993,468
Deposits......................................... 964,046 913,350 864,136 849,306 848,808
Shareholders' equity............................. 146,803 129,694 130,606 114,750 113,975
PROFITABILITY 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 9.76
Net interest margin.............................. 4.87 4.90 4.77 4.49 4.29
CAPITAL RATIOS:
Average equity to average assets................. 10.98% 11.48% 11.93% 11.59% 11.17%
Leverage ratio(2)................................ 9.74 10.52 12.41 11.77 11.34
Risk-based capital ratios:
Tier 1 capital................................. 13.39 14.96 17.16 17.07 18.19
Total capital.................................. 14.25 15.84 17.99 17.92 19.09
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS:(3)
Excluding deposit interest..................... 9.24x 12.75x 26.70x 36.58x 46.76x
Including deposit interest..................... 1.59 1.65 1.64 1.60 1.54
</TABLE>
- ------------------------------
(1) The data have been adjusted for all stock dividends and stock splits.
(2) The leverage ratio is Tier 1 capital divided by adjusted total assets after
deducting intangible assets.
(3) Earnings consist of income before income tax plus interest expense. Fixed
charges consist of interest expense. The Company does not currently have any
preferred stock outstanding.
11
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER
INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS AND NCBE TRUST
BEFORE PURCHASING THE PREFERRED SECURITIES OFFERED HEREBY. CERTAIN STATEMENTS IN
THIS PROSPECTUS OR IN CERTAIN DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
INCLUDING WITHOUT LIMITATION STATEMENTS UNDER THIS SECTION AND UNDER THE
HEADINGS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," AND "THE COMPANY," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (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 THE COMPANY 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 THE COMPANY'S LOAN AND
INVESTMENT PORTFOLIOS. THE COMPANY 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.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of the Preferred Securities and under the
Subordinated Debentures are unsecured and rank subordinate and junior in right
of payment to the prior payment in full of all Senior Debt and Additional Senior
Obligations of the Company. As of December 31, 1997, the aggregate outstanding
Senior Debt and Additional Senior Obligations of the Company were approximately
$25.9 million. Because the Company is a holding company, the right of the
Company to participate in any distribution of assets of any of its subsidiaries
upon any such subsidiary's liquidation or reorganization or otherwise (and thus
the ability of holders of the Preferred Securities to benefit indirectly from
such distribution) is subject to the prior claims of creditors of that
subsidiary, except to the extent that the Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
subsidiaries, and holders of Subordinated Debentures and Preferred Securities
should look only to the assets of the Company for payments on the Subordinated
Debentures. None of the Indenture, the Guarantee or the Trust Agreement places
any limitation on the amount of secured or unsecured debt, including Senior Debt
and Additional Senior Obligations, that may be incurred by the Company. See
"Description of the Guarantee--Status of the Guarantee" and "Description of the
Subordinated Debentures--Subordination."
The ability of NCBE Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company's making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no Debenture Event of Default (as defined below) has occurred and
is continuing, the Company has the right under the Indenture at any time during
the term of the Subordinated Debentures to defer the payment of interest on the
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive calendar quarters (including the first calendar quarter
during the Extension Period) with respect to each such period, provided that no
Extension Period may extend beyond
12
<PAGE>
the Maturity Date (including any extension thereof) of the Subordinated
Debentures or end on a date other than an Interest Payment Date. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by NCBE Trust will be deferred (and the amount of Distributions to
which holders of the Preferred Securities are entitled will accumulate
additional interest thereon, including Additional Sums, at the Coupon Rate,
compounded quarterly from the relevant payment date for such Distributions to
the date of payment) during any such Extension Period. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock, or (ii) make any payment of principal,
interest or premium, if any, on, or repay, repurchase or redeem any debt
securities of the Company, that rank PARI PASSU with, or are junior in interest
to, the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company, if such guarantee ranks PARI PASSU with, or is junior in interest to,
the Subordinated Debentures (other than (a) dividends or distributions in
Company common stock, (b) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the rights under any of the Company's benefit plans for its
directors, officers or employees). Prior to the termination of any such
Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period (with all previous and further extensions) may
exceed 20 consecutive quarters (including the first calendar quarter during the
Extension Period) or extend beyond the Maturity Date or end on a date other than
an Interest Payment Date. Upon the termination of any Extension Period and the
payment of all interest then due, the Company may elect to begin a new Extension
Period, subject to the above requirements. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of the Preferred Securities--Distributions"
and "Description of the Subordinated Debentures--Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will be
required to accrue and recognize income (in the form of original issue discount)
in respect of its pro rata share of the interest accruing on the Subordinated
Debentures held by NCBE Trust for United States federal income tax purposes. As
a result, a holder of Preferred Securities will include such income in gross
income for United States federal income tax purposes in advance of the receipt
of cash, and will not receive the cash related to such income from NCBE Trust if
the holder disposes of the Preferred Securities prior to the record date for the
payment of the related Distributions. See "Certain Federal Income Tax
Consequences--Potential Extension of Interest Payment Period and Original Issue
Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of the Company's right to defer interest
payments, the market price of the Preferred Securities may be more volatile than
the market prices of other securities on which original issue discount accrues
that are not subject to such optional deferrals.
REDEMPTION UPON TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL EVENT
Upon the occurrence and during the continuance of a Tax Event, Investment
Company Event or Capital Event (whether occurring before or after March 31,
2003), the Company has the right to redeem the Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of such Tax Event,
Investment Company Event or Capital Event (such 180 days being subject to
extension following a Tax Event) and, therefore, cause a mandatory redemption of
the Preferred Securities. The exercise of such right is subject to Federal
Reserve Approval. See "Description of the Subordinated Debentures--Redemption."
13
<PAGE>
EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company will have the right at any time to dissolve NCBE Trust and,
after satisfying all liabilities to creditors of NCBE Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of NCBE Trust. The exercise of
such right is subject to Federal Reserve Approval. See "Description of the
Preferred Securities--Redemption."
REDEMPTION OF SUBORDINATED DEBENTURES
The Company will have the right at any time to redeem, in whole or in part,
the Subordinated Debentures on or after March 31, 2003, subject to Federal
Reserve Approval.
EXTENSION OF MATURITY DATE OF SUBORDINATED DEBENTURES
The Company will also have the right, at any time before the day which is 90
days before the Scheduled Maturity Date, to extend the maturity of the
Subordinated Debentures (whether or not NCBE Trust is dissolved and the
Subordinated Debentures are distributed to holders of the Preferred Securities)
to a date no later than March 31, 2037, provided that the Company can extend the
maturity, only if at the time notice of such election is provided and as of the
Scheduled Maturity Date, (i) the Company is not in bankruptcy, otherwise
insolvent or in liquidation, (ii) the Company is not in default in the payment
of any interest or principal on the Subordinated Debentures, and (iii) NCBE
Trust is not in arrears on payments of Distributions on the Preferred Securities
and no deferred Distributions are accumulated.
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees, on a subordinated basis, to the holders of the
Preferred Securities the following payments, to the extent not paid by or on
behalf of NCBE Trust: (i) any accumulated and unpaid Distributions required to
be paid on the Preferred Securities, to the extent that NCBE Trust has funds
legally and immediately available therefor, (ii) the redemption price with
respect to any Preferred Securities called for redemption, to the extent that
NCBE Trust has funds legally and immediately available therefor at such time,
and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation
of NCBE Trust (unless the Subordinated Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment to
the extent that NCBE Trust has funds legally and immediately available therefor
at such time and (b) the amount of assets of NCBE Trust remaining available for
distribution to holders of the Preferred Securities. An event of default under
the Guarantee will occur upon the failure of the Company to perform any of its
payment or other obligations thereunder. The holders of not less than a majority
in aggregate Liquidation Amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against NCBE Trust, the
Guarantee Trustee or any other person. If the Company were to default on its
obligation to pay amounts payable under the Subordinated Debentures, NCBE Trust
would lack funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event, holders
of Preferred Securities would not be able to rely upon the Guarantee for such
amounts. Instead, in the event a Debenture Event of Default (as hereafter
defined) shall have occurred and be continuing and such event is attributable to
the failure of the Company to pay interest on or principal of the Subordinated
Debentures on the payment date on which such payment is due and payable, then a
holder of Preferred Securities may institute a legal proceeding directly against
the Company for enforcement of payment to such holder of the principal of or
interest on such Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such holder (a
"Direct Action"). In connection with such Direct Action, the Company will
14
<PAGE>
have a right of set-off under the Indenture to the extent of any payment made by
the Company to such holder of Preferred Securities in the Direct Action. Except
as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Subordinated
Debentures or assert directly any other rights in respect of the Subordinated
Debentures unless there shall have been an Event of Default under the Trust
Agreement. See "Description of the Subordinated Debentures--Debenture Events of
Default," "--Enforcement of Certain Rights by Holders of Preferred Securities"
and "Description of the Guarantee." The Trust Agreement provides that each
holder of Preferred Securities by acceptance thereof agrees to the provisions of
the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will generally have limited voting rights
relating only to the modification of the Preferred Securities and the exercise
of NCBE Trust's rights as holder of Subordinated Debentures and the Guarantee.
Holders of Preferred Securities will not be entitled to vote to appoint, remove
or replace the Property Trustee or the Delaware Trustee, and such voting rights
are vested exclusively in the holder of the Common Securities except upon the
occurrence of certain events described herein. The Trust Agreement may be
amended without the consent of holders of Preferred Securities to ensure that
NCBE Trust will be classified for United States federal income tax purposes as a
grantor trust and not be treated as an "investment company" under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), even if such
action adversely affects the interests of such holders. See "Description of the
Preferred Securities--Removal of Trustees" and "--Voting Rights; Amendment of
Trust Agreement."
POSSIBLE TAX LAW CHANGES
Certain legislative proposals were made in 1996 and 1997 which were designed
to eliminate the ability of issuers of certain instruments to deduct interest
paid on those instruments. These proposals were not, however, incorporated into
the legislation recently enacted as the Taxpayer Relief Act of 1997.
Nevertheless, there can be no assurance that other legislation enacted after the
date hereof will not otherwise adversely affect the ability of the Company to
deduct interest payable on the Subordinated Debentures, and such legislation
could be retroactive in effect. Consequently, there can be no assurance that a
Tax Event will not occur. A Tax Event would permit the Company, upon Federal
Reserve Approval, to cause a redemption of the Preferred Securities before, as
well as after, March 31, 2003. See "Description of the Subordinated
Debentures--Redemption" and "Description of the Preferred
Securities--Redemption-- Tax Event Redemption, Investment Company Event
Redemption or Capital Event Redemption." See also "Certain Federal Income Tax
Consequences--Possible Changes in Tax Laws."
MARKET PRICES
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a liquidation of NCBE Trust occurs. Accordingly, the
Preferred Securities, or the Subordinated Debentures that a holder of Preferred
Securities may receive on liquidation of NCBE Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. In addition, there can be no assurance that the Company will not
exercise its option to extend the Maturity Date of the Subordinated Debentures
as permitted by the terms thereof and of the Indenture. Because holders of
Preferred Securities may receive Subordinated Debentures on liquidation of NCBE
Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein. See "Description of the Subordinated Debentures."
15
<PAGE>
TRADING CHARACTERISTICS OF THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol "NCBEP." The
Preferred Securities may trade at a price that does not accurately reflect the
value of accrued but unpaid interest with respect to the underlying Subordinated
Debentures. A holder that disposes of its Preferred Securities prior to the
record date for payment of a Distribution (and consequently does not receive the
Distribution from NCBE Trust for the period prior to such disposition) will be
required to include as ordinary income either original issue discount ("OID"),
if applicable, or accrued but unpaid interest on the Subordinated Debentures
through the date of disposition. To the extent the amount realized is less than
the holder's adjusted tax basis, a holder will generally recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Disposition of the Preferred
Securities."
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") or by any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
The Company is a legal entity separate and distinct from its subsidiaries,
although the principal source of the Company's cash revenues is dividends from
its subsidiaries. The right of the Company to participate in the assets of any
subsidiary upon the latter's liquidation, reorganization or otherwise (and thus
the ability of the holders of Preferred Securities to benefit indirectly from
any such distribution) will be subject to the claims of the subsidiaries'
creditors, which will take priority except to the extent that the Company may
itself be a creditor with a recognized claim.
The Company'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 in the aggregate plus a portion of 1998 net profits can be paid by the
banking subsidiaries to the Company 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 the Company 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 the Company or any of the Company's nonbanking subsidiaries are
limited in amount to 10% of such subsidiary's capital and surplus and, with
respect to the Company 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
The Company has experienced significant growth as a result of acquisitions.
Since January 1, 1995, the Company has acquired ten financial institutions or
branches of financial institutions. As the banking industry continues to
consolidate, the Company expects to pursue other acquisitions in the future. The
Company'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 the Company will
depend, in part, 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
16
<PAGE>
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 intangible assets, any of
which could have a material adverse effect on the Company. In addition, as
consolidation of the banking industry continues, the competition for suitable
acquisition candidates can be expected to increase. The Company competes with
other banking companies for acquisition opportunities and many of these
competitors have greater financial resources and acquisition experience than the
Company. See "The Company--Recent Developments." In addition, an unsatisfactory
rating on Year 2000 compliance issues by one or more of the banking regulatory
agencies could adversely affect the Company's plans to grow by acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
IMPACT OF INTEREST RATE CHANGES
The Company'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, the Company'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. 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CREDIT RISK AND LOAN CONCENTRATION
The Company 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 the
Company's operating results.
A primary risk facing the Company, 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, the Company'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 30.0% of
total loans, and consumer loans, $149.5 million or 16.3% of total loans. The
Company'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. The
Company'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 the financial institutions industry are
undergoing continuous change, and the ultimate effect of such changes cannot be
predicted. Regulations and laws affecting the Company 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 the Company and its subsidiaries.
17
<PAGE>
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of the Company 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, the
Company's subsidiaries provide financial and banking services to customers in
the tri-state area of Indiana, Kentucky and Illinois surrounding Evansville,
Indiana. No assurance can be given concerning the economic conditions which will
exist in such markets.
COMPETITION
The Company'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 the Company's subsidiaries. Competing providers may have greater
financial resources than the Company and offer services within and outside the
market areas served by the Company's subsidiaries.
USE OF PROCEEDS
NCBE Trust will use the proceeds of the sale of the Preferred Securities to
acquire the Subordinated Debentures from the Company. The Company will receive
approximately $28.7 million ($33.0 million if the Underwriters' over-allotment
option is exercised in full) as the net proceeds from the sale of the
Subordinated Debentures to NCBE Trust. The Company intends to use substantially
all of the net proceeds to repay loans incurred to finance recent acquisitions
(the "Acquisition Loans") and the remaining portion, if any, for general
corporate purposes. The Acquisition Loans currently have outstanding principal
balances of $19.0 million and $10.0 million and mature in June 1998 and October
1998, respectively. The Acquisition Loans bear interest at a variable rate equal
to 75 basis points over the lender's cost of funds. Pending any such use, the
net proceeds may be invested in short- to medium-term investment grade financial
instruments.
Substantially all of the aggregate Liquidation Amount of the Preferred
Securities offered hereby are expected to qualify as Tier 1 capital or core
capital with respect to the Company under the risk-based capital guidelines
established by the Federal Reserve. Under such guidelines, capital received from
the proceeds of the sale of the Preferred Securities cannot constitute more than
25% of the total Tier 1 capital of the Company (the "25% Capital Limitation").
Consequently, any amount of Preferred Securities in excess of the 25% Capital
Limitation will constitute Tier 2 capital, or supplementary capital, of the
Company. If the Company consummates any of the Pending Acquisitions, all of the
aggregate amount of the Preferred Securities is expected to qualify as Tier 1
capital.
18
<PAGE>
MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol "NCBEP."
Although the Underwriters have informed the Company that they presently intend
to make a market in the Preferred Securities, there can be no assurance that an
active and liquid trading market will develop or, if developed, that such a
market will continue. The offering price and percentage rate for Distributions
have been determined by negotiations among representatives of the Company and
the Underwriters, and the offering price of the Preferred Securities may not be
indicative of the market price following this offering. See "Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, NCBE Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of NCBE Trust will be included in
the consolidated financial statements of the Company. The Preferred Securities
will be presented as long-term debt in the consolidated balance sheet of the
Company under the caption "Guaranteed preferred beneficial interests in the
Company's Subordinated Debentures," and appropriate disclosures about the
Preferred Securities, the Guarantee and the Subordinated Debentures will be
included in the notes to the consolidated financial statements. The Company will
record Distributions payable on the Preferred Securities as interest expense in
its consolidated statements of income for financial reporting purposes.
All future reports of the Company filed under the Exchange Act while the
Preferred Securities are outstanding will (a) present the Trust Securities
issued by NCBE Trust on the balance sheet as a long-term debt item entitled
"Guaranteed preferred beneficial interests in the Company's Subordinated
Debentures," and (b) include in a footnote to the financial statements
disclosure that the Company owns all of the Common Securities of NCBE Trust, the
sole assets of NCBE Trust are the Subordinated Debentures (including the
outstanding principal amount, interest rate and Maturity Date of such
Subordinated Debentures), and the back-up obligations, in the aggregate,
constitute a full and unconditional guarantee by the Company of the obligations
of NCBE Trust under the Preferred Securities.
19
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company, (i) as reported at December 31, 1997 and (ii) as adjusted, to give
effect to the issuance of the Preferred Securities hereby offered by NCBE Trust,
as if such sale had been consummated on December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Guaranteed preferred beneficial interests in the Company's Subordinated
Debentures(1)........................................................................ $ 0 $ 30,000
---------- -----------
Total long-term debt................................................................. $ 0 $ 30,000
---------- -----------
SHAREHOLDERS' EQUITY:
Common Stock, $1.00 stated value; 20,000,000 shares authorized; 10,727,247 shares
issued and outstanding............................................................... $ 10,727 $ 10,727
Capital surplus........................................................................ 79,725 79,725
Retained earnings...................................................................... 52,858 52,858
Unrealized gain on securities available for sale....................................... 3,493 3,493
---------- -----------
Total shareholders' equity........................................................... 146,803 146,803
---------- -----------
Total capitalization............................................................... $ 146,803 $ 176,803
---------- -----------
---------- -----------
CAPITAL RATIOS:
Shareholders' equity to total assets................................................... 11.31% 13.62%
Leverage ratio(2)(3)................................................................... 9.74 11.82
Risk-based capital ratios(3)(4):
Tier 1 capital to risk-weighted assets............................................... 13.39 16.53
Total risk-based capital to risk-weighted assets..................................... 14.25 17.39
</TABLE>
- ------------------------
(1) In connection with the issuance of the preferred beneficial interests in the
Company's Subordinated Debentures, the Company estimates it will pay
Underwriters' Compensation of $1.1 million ($1.2 million if the
over-allotment option is exercised in full) and incur additional expenses of
$275,000. The Subordinated Debentures will mature on March 31, 2028, which
date may be, if certain conditions are met, (a) shortened to a date not
earlier than March 31, 2003 (or earlier following a Tax Event, Investment
Company Event or Capital Event), or (b) extended to a date not later than
March 31, 2037.
(2) The leverage ratio is Tier 1 capital divided by adjusted total assets after
deducting intangible assets.
(3) The capital ratios, as adjusted, are computed including the total estimated
proceeds from the sale of the Preferred Securities, in a manner consistent
with Federal Reserve guidelines.
(4) Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limit the amount of cumulative preferred stock which
can be included in Tier 1 capital to 25% of total Tier 1 capital.
Notwithstanding such limitation, substantially all of the Preferred
Securities offered hereby will be included as Tier 1 capital for the
Company.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth on a consolidated basis certain selected
financial data of the Company and is based on the consolidated financial
statements of the Company, including the notes thereto, incorporated by
reference in this Prospectus. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY RESULTS 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
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 COMMON SHARE:(1)
Net income per share:
Basic.......................................... $ 1.72 $ 1.52 $ 1.30 $ 0.97 $ 0.97
Diluted........................................ 1.69 1.52 1.30 0.97 0.97
Cash dividends declared.......................... 0.64 0.55 0.40 0.40 0.38
As a percentage of basic earnings per share.... 37.78% 36.15% 30.82% 41.07% 39.30%
Book value, end of year.......................... $ 13.69 $ 12.12 $ 11.71 $ 10.47 $ 10.23
Weighted average common shares outstanding:
Basic.......................................... 10,679,448 10,843,295 11,095,116 11,040,906 11,146,280
Diluted........................................ 10,832,943 10,843,295 11,095,116 11,040,906 11,146,280
AT YEAR END:
Loans............................................ $ 916,356 $ 800,622 $ 736,997 $ 645,235 $ 579,556
Securities....................................... 279,328 282,894 258,895 268,103 269,098
Total assets..................................... 1,298,260 1,172,057 1,081,921 1,004,160 993,468
Deposits......................................... 964,046 913,350 864,136 849,306 848,808
Shareholders' equity............................. 146,803 129,694 130,606 114,750 113,975
PROFITABILITY 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 9.76
Net interest margin.............................. 4.87 4.90 4.77 4.49 4.29
CAPITAL RATIOS:
Average equity to average assets................. 10.98% 11.48% 11.93% 11.59% 11.17%
Leverage ratio(2)................................ 9.74 10.52 12.41 11.77 11.34
Risk-based capital ratios:
Tier 1 capital................................. 13.39 14.96 17.16 17.07 18.19
Total capital.................................. 14.25 15.84 17.99 17.92 19.09
OTHER RATIOS:
Allowance to net loans, end of year.............. 0.87% 0.90% 0.84% 0.89% 0.95%
Allowance to underperforming assets, end of
year........................................... 175.49 193.93 281.62 252.19 184.08
Net charge-offs to average loans................. 0.19 0.27 0.02 0.02 0.21
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS:(3)
Excluding deposit interest..................... 9.24x 12.75x 26.70x 36.58x 46.76x
Including deposit interest..................... 1.59 1.65 1.64 1.60 1.54
</TABLE>
- ------------------------------
(1) The data have been adjusted to reflect all stock dividends and stock splits.
(2) The leverage ratio is Tier 1 capital divided by adjusted total assets after
deducting intangible assets.
(3) Earnings consist of income before income tax plus interest expense. Fixed
charges consist of interest expense. The Company does not currently have any
preferred stock outstanding.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
INTRODUCTION
The discussion and analysis which follows is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of National City Bancshares, Inc. and its subsidiaries as presented
in the consolidated financial statements and related notes. The text of this
review is supplemented with various financial data and statistics. All
information has been restated to include bank acquisitions accounted for using
the pooling of interests method and to give effect to all stock dividends and
the two-for-one stock split issued in 1996.
The Company continues to grow rapidly by acquiring community banks. The
financial results of the acquisitions can best be assessed from the Company's
financial statements on a quarterly, as-reported basis. After each acquisition
accounted for as a pooling of interests, the Company's financial statements are
restated to include the results of the acquiree. From the beginning of 1995 to
the end of 1997, the Company acquired assets of $278,209 (measured at the time
of each acquisition) in 3 transactions accounted for as poolings of interests.
Since the beginning of 1995, the Company has also acquired $172,581
(measured at the time of each acquisition) in assets through transactions
accounted for as purchases. Financial statements are not restated following a
transaction accounted for as a purchase; instead, the Company's financial
statements include the results of each acquiree following acquisition.
Transactions accounted for as purchases typically result in the Company's
recording intangible assets, including goodwill, which the Company amortizes on
a straight-line basis. The Company has recorded $19,716 (measured at the time of
each acquisition) in intangible assets as the direct result of purchases
consummated between the beginning of 1995 and the end of 1997.
In 1997, First Federal Savings Bank of Leitchfield and First National Bank
of Bridgeport became subsidiaries of the Company in transactions accounted for
as purchases. As a result of the purchases, the Company's assets increased
$97,335 and it recorded intangible assets of $12,142. First Bank of Huntingburg
also became a subsidiary of the Company in 1997. This acquisition was accounted
for as a pooling of interests; accordingly, financial results for periods prior
to the acquisition reported in the following sections and in the financial
statements have been restated to include the results of First Bank of
Huntingburg, including $108,109 in assets.
Since the end of 1997, the Company has acquired Bank of Illinois in Mt.
Vernon and a subsidiary of the Company has acquired a branch office in Mayfield,
Kentucky. Both transactions were accounted for as purchases. Bank of Illinois in
Mt. Vernon had assets at December 31, 1997 of $163,450. The branch purchase
increased the Company's deposits by $65,639. The Company will record
approximately $19,601 in intangible assets as a result of both transactions.
As of March 9, 1998, the Company had entered into definitive merger
agreements with Illinois One Bancorp, Inc., Trigg Bancorp, Inc., and Community
First Financial, Inc. Together, the potential acquirees have assets of
approximately $315,000. The acquisitions remain subject, among other things, to
regulatory approval, shareholder approval of the acquirees, and other customary
conditions. The Company intends to account for these transactions as poolings of
interests; however, any or all may be accounted for as purchases if they fail to
qualify for pooling treatment.
Management expects to continue to pursue acquisition opportunities as they
arise. Management believes other community banks located in the Company's
general geographic area (which may extend beyond the tri-state region currently
served) will find the Company an attractive partner because the Company shares a
commitment to local communities and provides the opportunity to retain much of
the
22
<PAGE>
operational decision making in those communities while recognizing the
efficiencies of affiliation with a larger organization.
FINANCIAL CONDITION
Basic earnings per share for 1997 were $1.72, representing a 13% increase
over the 1996 results. The increase in earnings per share was the result of a
combination of increased net interest income, improved non-interest income, and
continued cost control. During 1997, book value per share increased by $1.57 to
$13.69 and resulted in a ratio of average equity capital to average assets of
10.98%.
Average earning assets increased $112,207, or 10.7%, and $78,141, or 8.1%,
in l997 and 1996, respectively. Growth in average assets in 1997 was $130,254,
or 11.7%, compared to $87,238, or 8.5%, in 1996. During 1997, average interest
bearing deposits in banks decreased $925, or 19.7%, and average federal funds
sold decreased $1,401, or 26.0%. Average securities increased $24,124, or 9.1%,
with the largest increase being in tax-exempt municipals which increased by
$63,042, or 71.4%. Taxable municipals increased $355, or 11.8%. U.S. Government
and agencies decreased $33,674, or 22.8%, and all other types of securities
decreased $7,249, or 28.3%. The average market value adjustment on securities
available for sale increased to an unrealized gain of $1,227 from an unrealized
loss of $423 in 1996. Average loans increased $90,409, or 11.7%. All types of
loans increased during the year. Average commercial loans increased $36,820, or
13.5%; average consumer loans increased $4,879, or 3.2%; and average mortgage
loans increased $45,253, or 13.5%. All other types of loans increased $3,457, or
31.2%. The growth in the loan portfolio was due mainly to purchase acquisitions
in which average loans increased by $41,784. The remaining growth in the loan
portfolio was attributable to a strong loan demand. The change in the earning
asset mix was intended to and did result in improved earnings in 1995, 1996, and
1997.
Average certificate of deposit and other time deposit balances increased by
$62,192, or 12.9%, in 1997. Average balances of money market accounts decreased
$361, or 0.5%. Savings and interest bearing checking accounts increased $3,540,
or 1.6%. Average federal funds purchased and securities sold under agreements to
repurchase increased $14,735, or 33.7%. Average other borrowings increased
$32,510, or 76.9%. Average noninterest-bearing deposits increased $7,548, or
7.1%.
SECURITIES PORTFOLIO
Securities comprised 24.9% of the 1997 average earning assets compared to
25.2% and 26.1% in 1996 and 1995, respectively. They represent the second
largest earning asset component after loans. The Company holds various types of
securities, including mortgage-backed securities. Inherent in mortgage-backed
securities is prepayment risk, which occurs when borrowers prepay their
obligations due to market fluctuations and rates. In an effort to reduce this
risk, management monitors the amount of mortgage-backed securities contained in
the portfolio. The Company has no securities of any single issuer, with the
exception of the U. S. Government, exceeding 10% of shareholders' equity. The
Company manages the quality and risk of securities through its Asset/Liability
Committee, which recommends and monitors the composition of the overall security
portfolio as approved by the Company's Board of Directors. Among other things,
the investment policy establishes guidelines for the level, type, quality, and
mix of securities appropriate for the portfolio. The securities portfolio at
December 31, 1997, included $1,748 in structured notes, which were comprised of
$1,000 in an indexed amortizing note, $500 in a delevered floating note,
23
<PAGE>
and $248 in a capped floating rate note. These securities have risk
characteristics which are well within the constraints of the non-structured
securities held in the securities portfolio.
<TABLE>
<CAPTION>
CARRYING VALUE AT DECEMBER 31
---------------------------------------------------------------
1997 1996 1995
----------- ------------------------ ------------------------
AVAILABLE HELD TO AVAILABLE HELD TO AVAILABLE
SECURITIES PORTFOLIO FOR SALE MATURITY FOR SALE MATURITY FOR SALE
- -------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury securities........................ $ 9,915 $ -- $ 13,598 $ 500 $ 33,880
U.S. Government agencies........................ 29,067 21,877 38,662 5,448 61,568
Taxable municipals.............................. 3,473 2,775 -- 3,120 --
Tax-exempt municipals........................... 170,301 120,805 -- 64,250 --
Corporate securities............................ 5,986 11,161 3,056 17,165 4,638
Mortgage-backed securities...................... 47,860 7,985 56,082 6,459 56,096
----------- ----------- ----------- ----------- -----------
Total debt securities......................... 266,602 164,603 111,398 96,942 156,182
Equity securities................................. 1,355 -- 1,402 -- 1,500
----------- ----------- ----------- ----------- -----------
Total securities.............................. $ 267,957 $ 164,603 $ 112,800 $ 96,942 $ 157,682
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AFTER 1 YEAR AFTER 5 YEARS
BUT WITHIN 5 BUT WITHIN 10
WITHIN 1 YEAR YEARS YEARS AFTER 10 YEARS TOTAL
MATURITY ANALYSIS -------------- -------------- -------------- -------------- --------
DECEMBER 31, 1997 AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
- ------------------------------------------------ ------- ----- ------- ----- ------- ----- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES CLASSIFIED AS AVAILABLE FOR SALE:
U.S. Treasury securities........................ $5,314 6.60% $4,601 6.84% $ -- -- $ -- -- $ 9,915
U.S. Government agencies........................ 14,078 5.88% 11,272 6.32% 3,455 8.09% 262 9.38% 29,067
Taxable municipals.............................. 970 5.60% 2,098 6.93% 405 7.80% -- -- 3,473
Tax-exempt municipals........................... 9,725 7.43% 28,406 8.17% 45,075 8.30% 87,095 8.62% 170,301
Corporate securities............................ 5,687 7.42% 299 5.76% -- -- -- -- 5,986
------- ----- ------- ----- ------- ----- ------- ----- --------
Total maturing securities................... $35,774 6.64% $46,676 7.52% $48,935 8.28% $87,357 8.62% 218,742
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
Mortgage-backed securities...................... 47,860
Equity securities............................... 1,355
--------
Total securities............................ $267,957
--------
--------
<CAPTION>
MATURITY ANALYSIS
DECEMBER 31, 1997 YIELD
- ------------------------------------------------ -----
<S> <C>
SECURITIES CLASSIFIED AS AVAILABLE FOR SALE:
U.S. Treasury securities........................ 6.71%
U.S. Government agencies........................ 6.34%
Taxable municipals.............................. 6.66%
Tax-exempt municipals........................... 8.39%
Corporate securities............................ 7.34%
-----
Total maturing securities................... 7.99%
Mortgage-backed securities...................... 6.32%
Equity securities............................... 6.69%
-----
Total securities............................ 7.69%
-----
-----
</TABLE>
Securities classified as held to maturity are carried at amortized cost, and
those classified as available for sale are carried at fair value. The
available-for-sale securities included unrealized gains of approximately $6,283
and unrealized losses of $540 at December 31, 1997. At December 31, 1997,
available-for-sale securities included $47,860 in mortgage-backed securities, or
17.9% of the available-for-sale portfolio. The weighted average maturity of the
available-for-sale portfolio at December 31, 1997, was 9.3 years. The weighted
average maturity of the available-for-sale and the held-to-maturity portfolios
at December 31, 1996 was 7.3 years and 7.9 years, respectively. The weighted
average yields on municipal securities that are tax-exempt have been computed on
a federal-tax-equivalent basis using a 35.0% tax rate.
LOANS
Each subsidiary bank follows loan policies approved by its board of
directors. These policies are compatible with the Company's loan policy approved
by its Board of Directors. The lending policies address risks associated with
each type of lending, collateralization, loan-to-value ratios, loan
concentrations, insider lending, and other pertinent matters. These functions
are monitored by subsidiary and corporate loan review personnel and by the loan
committees of the subsidiaries' boards of directors for compliance and loan
quality. Management believes that careful loan administration and high credit
24
<PAGE>
standards minimize credit risk, as evidenced by the ratio of underperforming
loans to total loans. Speculative loans are prohibited and the loan portfolio
contains no foreign loans.
The Company's loan portfolio is diversified by type of loan and industry,
and, within its market area, by geographic location, which minimizes economic
risk. The loan portfolio contained 29% commercial loans, 55% real estate loans
(primarily residential), and 16% consumer loans at December 31, 1997. The
Company's subsidiary banks lend to customers in various industries including
manufacturing, agricultural, health and other services, transportation, mining,
wholesale, and retail.
Commercial and industrial loans increased $24,830, of which approximately
30% was due to acquisitions accounted for under the purchase method. The
remaining increase was due to a general increase in business among the
communities the Company's banks serve. Growth in consumer lending was primarily
due to acquisitions accounted for under the purchase method.
<TABLE>
<CAPTION>
LOAN PORTFOLIO AT YEAR END, FIVE-YEAR SUMMARY 1997 1996 1995 1994 1993
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate loans.................................... $ 501,882 $ 425,507 $ 393,082 $ 368,989 $ 342,616
Agricultural loans................................... 31,788 31,154 30,345 29,297 28,112
Commercial and industrial loans...................... 201,402 176,572 165,217 127,389 109,880
Economic development loans and other obligations of
state and political subdivisions................... 13,997 11,214 9,887 13,138 10,011
Consumer loans....................................... 149,505 143,485 131,477 105,812 89,387
Direct lease financing............................... 13,146 12,331 6,960 518 503
Leveraged leases..................................... 4,661 -- -- -- --
All other loans...................................... 415 582 344 396 1,398
---------- ---------- ---------- ---------- ----------
Total loans--gross............................... 916,796 800,845 737,312 645,539 581,907
Unearned income on loans............................. 440 223 315 304 2,351
---------- ---------- ---------- ---------- ----------
Total loans--net of unearned income.............. 916,356 800,622 736,997 645,235 579,556
Less: allowance for loan losses...................... 7,969 7,189 6,176 5,750 5,528
---------- ---------- ---------- ---------- ----------
Total loans--net................................. $ 908,387 $ 793,433 $ 730,821 $ 639,485 $ 574,028
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AFTER 1
YEAR BUT
LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 1997 WITHIN 1 WITHIN 5 OVER 5
ON AGRICULTURAL, COMMERCIAL, AND TAX-EXEMPT LOANS YEAR YEARS YEARS TOTAL
- ------------------------------------------------------------------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Rate sensitivities:
Fixed rate loans................................................ $ 38,128 $ 41,572 $ 20,596 $ 100,296
Variable rate loans............................................. 141,161 4,090 770 146,021
---------- ----------- --------- ----------
Subtotal...................................................... $ 179,289 $ 45,662 $ 21,366 246,317
---------- ----------- ---------
---------- ----------- ---------
Percent of subtotal........................................... 72.79% 18.54% 8.67%
Nonaccrual loans.................................................. 870
----------
Total loans net of unearned income............................ $ 247,187
----------
----------
</TABLE>
Real estate loans increased $76,375, of which approximately 40% was due to
purchase acquisitions. The remaining increase was a direct result of strong loan
demand in the markets served by the Company's banks supported by a favorable
interest rate environment. This portfolio primarily consists of single-family,
owner-occupied housing. The Company's guidelines for residential mortgage
lending were followed and advances normally did not exceed 80% of appraised
value.
25
<PAGE>
At December 31, 1997, there was no concentration of credit risk from
borrowers engaged in the same or similar industries exceeding 10% of total
loans. Geographic diversification is provided by the Company's policy to extend
credit to customers in its geographic market areas in and around the subsidiary
banks' banking offices in Southwestern Indiana, Southeastern Illinois, and
Western Kentucky.
UNDERPERFORMING ASSETS
Underperforming assets consist of nonaccrual securities and loans,
restructured loans, loans past due 90 days or more, and other real estate held.
Nonaccrual securities are those which have defaulted on interest payments.
Nonaccrual loans are loans on which interest recognition has been suspended
because of doubts as to the borrower's ability to repay principal or interest.
Loans are generally place on nonaccrual status after becoming 90 days past due
if the ultimate collectibility of the loan is in question. Loans which are
current, but as to which serious doubt exists about repayment ability, may also
be placed on nonaccrual status. Restructured loans are loans where the terms
have been changed to provide a reduction or deferral of principal or interest
because of the borrower's financial position. Past-due loans are loans that are
continuing to accrue interest but are contractually past due ninety days or more
as to interest or principal payments. Other real estate owned represents
properties obtained for debts previously contracted. Management is not aware of
any loans which have not been disclosed as underperforming assets that represent
or result from unfavorable trends or uncertainties which management reasonably
believes will materially adversely affect future operating results, liquidity,
or capital resources, or represent material credits as to which management has
serious doubt as to the ability of such borrower to comply with loan repayment
terms.
Past due 90 days or more, nonaccrual, and restructured loans were 0.5% of
total loans at the end of 1997 and 1996. Of the loans in these categories,
$2,102, or 46.3%, were secured by real estate at the end of 1997, compared to
$1,977, or 53.3%, at the end of 1996. Additional interest income that would have
been recorded, if nonaccrual and restructured loans had been current in
accordance with their original terms, was $324, $218, and $134 in 1997, 1996,
and 1995, respectively. The interest recognized on nonaccrual loans was
approximately $56, $23, and $58 in 1997, 1996, and 1995, respectively.
<TABLE>
<CAPTION>
UNDERPERFORMING ASSETS AT YEAR END, FIVE-YEAR SUMMARY 1997 1996 1995 1994 1993
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Underperforming loans:
Nonaccrual..................................................... $ 3,672 $ 2,438 $ 1,049 $ 1,274 $ 2,441
Restructured................................................... 75 114 143 223 222
90 days past due............................................... 794 1,155 1,001 783 340
--------- --------- --------- --------- ---------
Total underperforming loans.................................. 4,541 3,707 2,193 2,280 3,003
Nonaccrual municipal securities.................................. 61 31 -- -- 81
Other real estate owned.......................................... 79 66 383 671 1,148
--------- --------- --------- --------- ---------
Total........................................................ $ 4,681 $ 3,804 $ 2,576 $ 2,951 $ 4,232
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
In addition to those loans classified as underperforming, management was
monitoring loans of approximately $38,460 and $46,386 as of the end of 1997 and
1996, respectively, for the borrowers' abilities to comply with present loan
repayment terms.
The Company monitors credit quality through a periodic review and analysis
of each subsidiary bank's loan portfolio. On a quarterly basis, each subsidiary
bank performs an evaluation of the adequacy of its allowance for loan losses.
The evaluation includes an analysis of past due loans, loans criticized during
regulatory examinations, internally classified loans, delinquency trends, and
other relevant factors. The results of these evaluations are used by the Company
to determine the adequacy of the consolidated allowance for loan losses.
26
<PAGE>
RISK MANAGEMENT
As of December 31, 1997, management considered the allowance for loan losses
adequate to provide for potential losses in the loan portfolio. Management
reviews delinquent and problem loans weekly. Loans which are judged
uncollectible are charged off on a timely basis. The allowance for loan losses
is reviewed quarterly in order to evaluate and maintain its adequacy based on an
analysis of the entire loan portfolio. Some of the factors used in this review
include current economic conditions and forecasts, risk by type of loan,
previous loan loss experience, and evaluation of specific borrowers and
collateral. The Company and its banks monitor loan portfolios using models
designed in part by regulatory agencies.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES) 1997 1996 1995 1994 1993
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, January 1................. $ 7,189 $ 6,176 $ 5,750 $ 5,528 $ 5,986
Allowance associated with purchase acquisitions...... 516 379 140 -- --
Loans charged off:
Commercial......................................... 624 879 263 239 1,345
Real estate mortgage............................... 355 483 88 267 248
Consumer........................................... 1,486 1,155 393 222 308
Direct lease financing............................. -- 67 -- -- --
---------- ---------- ---------- ---------- ----------
Total............................................ 2,465 2,584 744 728 1,901
---------- ---------- ---------- ---------- ----------
Recoveries on charged-off loans:
Commercial......................................... 255 115 320 215 393
Real estate mortgage............................... 327 229 197 227 188
Consumer........................................... 256 165 114 430 126
Direct lease financing............................. -- 5 -- -- --
---------- ---------- ---------- ---------- ----------
Total............................................ 838 514 631 872 707
---------- ---------- ---------- ---------- ----------
Net charge-offs................................ 1,627 2,070 113 (144) 1,194
Provision for loan losses............................ 1,891 2,704 399 78 736
---------- ---------- ---------- ---------- ----------
Allowance for loan losses, December 31............... $ 7,969 $ 7,189 $ 6,176 $ 5,750 $ 5,528
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total loans at year end.............................. $ 916,356 $ 800,622 $ 736,997 $ 645,235 $ 579,556
Average loans........................................ 861,778 771,369 689,514 606,206 569,313
As a percent of year-end loans:
Net charge-offs.................................... 0.18% 0.26% 0.02% (0.02)% 0.21%
Provision for loan losses.......................... 0.21 0.34 0.05 0.01 0.13
Year-end allowance balance......................... 0.87 0.90 0.84 0.89 0.95
As a percent of average loans:
Net charge-offs.................................... 0.19% 0.27% 0.02% (0.02)% 0.21%
Provision for loan losses.......................... 0.22 0.35 0.06 0.01 0.13
Year-end allowance balance......................... 0.92 0.93 0.90 0.95 0.97
Allowance for loan losses as a percent of
underperforming loans.............................. 175.49% 193.93% 281.62% 252.19% 184.08%
</TABLE>
Total loans charged off during 1997 decreased $119, or 4.6%, and recoveries
were $324, or 63.0%, higher than in 1996. The provision for loan losses for 1997
was decreased based on the Company's periodic analysis of the subsidiary banks'
loan portfolios. The provision for loan losses for 1996 was increased as a
result of the increase in net charge-offs and growth of the loan portfolio. In
1995, the provision for loan
27
<PAGE>
losses was increased due to increased loan volume. In 1994, the provision for
loan losses was decreased as a result of significant reductions in
underperforming loans and net charge-offs.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31
<TABLE>
<CAPTION>
PERCENT OF LOANS TO
ALLOWANCE APPLICABLE TO TOTAL GROSS LOANS
----------------------------------------------------- -------------------------------------
LOAN TYPE 1997 1996 1995 1994 1993 1997 1996 1995
- ---------------------------------- --------- --------- --------- --------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial........................ $ 2,599 $ 2,189 $ 2,395 $ 2,006 $ 1,670 29% 29% 29%
Real estate mortgage.............. 1,576 1,622 1,571 1,579 1,511 55% 53% 53%
Consumer.......................... 1,887 1,444 986 635 668 16% 18% 18%
--------- --------- --------- --------- --------- --- --- ---
Allocated..................... 6,062 5,255 4,952 4,220 3,849 100% 100% 100%
--- --- ---
--- --- ---
Unallocated....................... 1,907 1,934 1,224 1,530 1,679
--------- --------- --------- --------- ---------
TOTAL......................... $ 7,969 $ 7,189 $ 6,176 $ 5,750 $ 5,528
--------- --------- --------- --------- ---------
<CAPTION>
LOAN TYPE 1994 1993
- ---------------------------------- ----- -----
<S> <C> <C>
Commercial........................ 27% 26%
Real estate mortgage.............. 57% 59%
Consumer.......................... 16% 15%
--- ---
Allocated..................... 100% 100%
--- ---
--- ---
Unallocated.......................
TOTAL.........................
</TABLE>
DEPOSITS
The Company's Asset/Liability Committee manages the deposits of its banks to
achieve short-term and long-term benefits of deposit growth. Average deposits
increased $72,919, or 8.2%, during 1997, compared to $31,129, or 3.6%, in 1996.
Of the increase in 1997, $43,549 was due to purchase acquisitions. Average time
deposits of $100,000 or more increased $20,683, or 16.3%, compared to $24,653,
or 24.2%, in 1996. The increase in time deposits of $100,000 or more in 1996
included $13,000 in brokered deposits. As of December 31, 1997, the Company had
no brokered deposits. Management uses brokered deposits to supplement local
deposits under guidelines and limits established by the Company's
Asset/Liability Committee. Time deposits of $100,000 or more are not considered
to present an undue risk.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
AVERAGE DEPOSITS AMOUNT RATE AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand............................. $ 113,616 -- $ 106,068 -- $ 98,109 --
Money market accounts.................................. 79,397 3.62% 79,758 3.55% 74,079 3.79%
Interest-bearing demand................................ 142,063 1.65% 140,183 1.86% 145,107 2.30%
Savings................................................ 80,119 2.29% 78,459 2.45% 83,525 2.61%
Time deposits of $100,000 or more...................... 147,339 5.14% 126,656 5.38% 102,003 5.71%
Other time deposits.................................... 397,827 5.40% 356,318 5.30% 353,490 5.13%
---------- ---------- ----------
Total.............................................. $ 960,361 $ 887,442 $ 856,313
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maturing:
3 months or less........................................................... $ 60,652 $ 60,705 $ 34,892
Over 3 to 6 months......................................................... 29,239 29,358 45,968
Over 6 to 12 months........................................................ 20,029 20,599 15,210
Over 12 months............................................................. 19,469 18,872 5,057
---------- ---------- ----------
Total.................................................................... $ 129,389 $ 129,534 $ 101,127
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
28
<PAGE>
CAPITAL RESOURCES
At the end of 1997, shareholders' equity totaled $146,803, an increase of
$17,109, or 13.2%, from 1996. The average equity to average asset ratio was
10.98% and 11.48% for 1997 and 1996, respectively. The decrease is attributable
to the Company's repurchase of 426,508 shares of its common stock for
approximately $16,200, during 1997. The dividend payout ratio for 1997 was
36.74%, compared to 37.05% in 1996.
In 1995, The National City Bank of Evansville committed to build an addition
to its main office to be completed in the second quarter of 1998. The
approximate cost of the addition and renovation of the main office of The
National City Bank of Evansville is $18,000. The National City Bank of
Evansville and the Company will occupy three floors of the facility, at a cost
of approximately $10,000, with the other six floors being sold as condominiums.
Four of these six floors have been sold to non-affiliated entities. The Company,
through its subsidiary Twenty-One Southeast Third Corporation, funded the
project, including financing for the purchasers of the condominiums, through the
proceeds of a $15,000 term loan. Payments from the purchasers will be used to
repay the term loan. As of December 31, 1997, there were no other material
commitments for capital expenditures.
Guidelines for minimum capital levels have been established for the Company
by the Federal Reserve Board. Tier 1 (core) capital consists of shareholders'
equity less goodwill, other identifiable intangible assets, and unrealized
losses on marketable equity securities. Total capital consists of Tier 1 capital
plus allowance for loan losses. Minimum capital levels are 4% for the leverage
ratio which is defined as Tier 1 capital as a percentage of total assets less
goodwill and other identifiable intangible assets; 4% for Tier 1 capital to
risk-weighted assets; and 8% for total capital to risk-weighted assets. The
Company has exceeded each of these levels. Its leverage ratio was 9.74% and
10.52%; Tier 1 capital to risk-weighted assets was 13.39% and 14.96%; and total
capital to risk-weighted assets was 14.25% and 15.84% at the end of 1997 and
1996, respectively. In addition, each subsidiary bank has exceeded minimum
regulatory capital guidelines.
SHORT-TERM BORROWINGS
Federal funds purchased are borrowings from other financial institutions
maturing daily. Securities sold under agreements to repurchase are secured
transactions with customers. Securities sold under agreements to repurchase
generally mature within six months. Notes payable U.S. Treasury are demand notes
created by treasury tax and loan account funds transfers. Short-term borrowings
increased $9,552, or 14.2%, during 1997. At December 31, 1997, federal funds
purchased were $55,000, reflecting an $825, or 1.5%, increase over 1996.
Securities sold under agreements to repurchase and notes payable U.S. Treasury
increased during 1997 by $4,532, or 39.5%, and $4,195, or 243.8%, respectively.
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS AT DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal funds purchased.......................................................... $ 55,000 $ 54,175 $ 34,500
Securities sold under agreements to repurchase................................... 16,001 11,469 18,329
Notes payable U.S. Treasury...................................................... 5,916 1,721 2,769
--------- --------- ---------
Total........................................................................ $ 76,917 $ 67,365 $ 55,598
--------- --------- ---------
--------- --------- ---------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SECURITIES
SOLD UNDER NOTES
FEDERAL AGREEMENTS PAYABLE
FUNDS TO U.S.
PURCHASED REPURCHASE TREASURY
----------- ----------- -----------
<S> <C> <C> <C>
1997
AVERAGE AMOUNT OUTSTANDING..................................................... $ 42,588 $ 15,924 $ 2,064
MAXIMUM AMOUNT AT ANY MONTH END................................................ 69,400 26,146 5,916
WEIGHTED AVERAGE INTEREST RATE:
DURING YEAR.................................................................. 5.67% 4.00% 5.36%
END OF YEAR.................................................................. 6.74% 3.48% 5.25%
1996
Average amount outstanding..................................................... $ 26,329 $ 17,448 $ 1,378
Maximum amount at any month end................................................ 54,175 28,153 3,270
Weighted average interest rate:
During year.................................................................. 5.50% 4.35% 5.17%
End of year.................................................................. 6.65% 3.66% 5.15%
1995
Average amount outstanding..................................................... $ 4,665 $ 17,064 $ 2,655
Maximum amount at any month end................................................ 34,500 20,649 6,647
Weighted average interest rate:
During year.................................................................. 5.90% 4.64% 5.67%
End of year.................................................................. 5.90% 4.10% 5.15%
</TABLE>
LIQUIDITY
Liquidity of a banking institution reflects the ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding loan requests,
providing for liability outflows, and managing interest rate fluctuations
require continuous analysis in order to match maturities of specific categories
of short-term and long-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms of
the nature of mix of the banking institution's sources and uses of funds.
For the Company, the primary sources of short-term liquidity have been
federal funds sold, interest-bearing deposits in banks, and U.S. Government and
agency securities available for sale.
In addition to these sources, short-term liquidity is provided by maturing
loans and securities. The balance between these sources and needs to fund loan
demand and deposit withdrawals is monitored by the Company's asset/liability
management program and by each subsidiary bank to provide liquidity without
penalizing earnings. When these sources are not adequate, the Company utilizes
federal funds purchased, brokered deposits, and its lines with Federal Home Loan
Banks as alternative sources of liquidity. The increased loan demand throughout
the year was funded by an increase in deposits and other borrowings.
Additionally, the Company's underwriting standards for its mortgage loan
portfolio comply with standards established by government housing agencies; as a
result, a portion of the mortgage loan portfolio could be sold to provide
additional liquidity. At December 31, 1997 and 1996, respectively, federal funds
sold were $1,500 and $600, interest-bearing deposits in banks were $2,485 and
$2,983, and U.S. Government and agency securities available for sale were
$38,982 and $52,260.
These sources and other liquid assets also satisfy long-term liquidity
needs. Long-term liquidity is managed in the same way, only with longer
maturities, to provide for future needs while maintaining interest margins.
The Company (parent company) maintains credit lines to provide an
alternative source of liquidity. At December 31, 1997, the Company had a
$10,000, unsecured, revolving credit agreement with a bank. On
30
<PAGE>
January 22, 1998, the line was increased to $45,000. The Company intends to use
the line to provide short-term funding for acquisitions and other corporate
purposes.
The ability of the Company to pay cash dividends to its shareholders is
dependent on the receipt of cash from its subsidiary banks. Banking regulations
impose restrictions on the ability of subsidiaries to pay dividends to the
Company. The amount of dividends that could be paid is further restricted by
management to maintain prudent capital levels.
INTEREST RATE SENSITIVITY
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the most significant market
risk affecting the Company. Other types of market risk do not arise in the
normal course of the Company's business activities. Interest rate risk is the
potential economic loss due to future interest rate changes. This economic loss
can be reflected as a loss of future net interest income and/or a loss of
current fair market values.
The Company's net income is dependent, to a significant degree, on its net
interest income. Net interest income is susceptible to interest rate risk to the
degree that interest-bearing liabilities reprice or mature on a different basis
than interest-earning assets. When interest-bearing liabilities reprice or
mature more quickly than interest-earning assets, an increase in market rates
could adversely affect net interest income. Similarly, if interest-earning
assets reprice or mature more quickly than interest-bearing liabilities, a
decrease in market rates could adversely affect net interest income. Changes in
market rates can also cause losses in the current fair values of financial
instruments.
In order to manage its exposure to changes in interest rates, the Company
monitors interest rate risk through analysis of standard gap reports and
interest rate shock simulation reports on the effect of changes in interest
rates on net interest income and on the economic value of equity (the present
value of expected cash flows from existing assets minus the present value of
expected cash flows from existing liabilities). The following table sets forth,
at December 31, 1997, an analysis of the Company's interest rate risk as
measured by the estimated change in economic value of equity (EVE) following
parallel shifts in the yield curve.
<TABLE>
<CAPTION>
ESTIMATED INCREASE
(DECREASE) IN EVE
ESTIMATED ----------------------
CHANGE IN INTEREST RATES EVE AMOUNT AMOUNT PERCENT
- ------------------------------------------------------------ ------------ --------- -----------
<S> <C> <C> <C>
(Basis Points)
+200...................................................... $ 176,695 $ (6,479) (3.54)%
183,174 -- --
(200).................................................... 186,814 3,640 1.99
</TABLE>
Certain assumptions were employed in preparing data in the preceding table.
These assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. Even if interest rates change in the designated amounts, there can be
no assurance that the Company's assets and liabilities would perform as set
forth. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the EVE than indicated above.
Derivative financial instruments include futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Company does not enter into futures, forwards, swaps, or
options. In the normal course of business, however, the Company is a party to
financial instruments with off-balance-sheet risk to meet the financing needs of
its customers. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheet.
The contractual or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
31
<PAGE>
Corporate asset liability gap positions are targeted at plus or minus 15% at
the six-month and one-year horizons. At December 31, 1997, all subsidiary banks
were within, or close to, their targeted spreads. The cumulative gap position
through one year of negative $133,852 at the end of 1997 was 10.3% of total
assets, which management believes is a relatively balanced position.
RESULTS OF OPERATIONS
Net income for 1997 was $18,351, reflecting a $1,855, or 11.2%, increase
over 1996. Net income for 1996 increased $2,097, or 14.6%, over 1995. Basic
earnings per share in 1997 were $1.72, compared to $1.52 in 1996 and $1.30 in
1995. Increases in both rates and volumes of earning assets resulted in growth
in net interest income of $3,389, or 7.0%, in 1997 and $4,173, or 9.4%, in 1996.
Noninterest income increased $1,482, or 17.2%, in 1997 and $1,489, or 20.9%, in
1996. Noninterest expense increased $4,424, or 14.8%, in 1997 and $998, or 3.4%,
in 1996. The provision for loan losses decreased $813 in 1997 due to lower net
charge-offs, and increased $2,305 in 1996 due to higher net charge-offs and loan
growth.
Changes in net interest income for the last two years are presented in the
following schedule with dollar changes allocated to rate and volume variances.
The combined rate-volume variances are included in the total volume variances.
In addition to this schedule, at the end of Management's Discussion is a
three-year balance sheet analysis on an average basis and an analysis of net
interest income.
The following discussion of results of operations is on a
federal-tax-equivalent basis. Average loans increased 11.7% during 1997 compared
to an increase of 11.9% during 1996. Approximately 46% of the growth in average
loan balances was attributable to acquisitions accounted for as purchases. Loan
income increased 11.6% in 1997 and 12.4% in 1996, principally due to increased
loan volumes. The average yield on loans decreased slightly from 9.13% in 1996
to 9.12% in 1997.
Average securities before market value adjustments increased 8.5% in 1997
and 4.1% in 1996. Approximately 33% of the increase in average securities
balances in 1997 was due to two purchase acquisitions. Securities income
increased 14.7% and 11.0% in 1997 and 1996, respectively. The yield on
securities increased from 6.91% in 1996 to 7.30% in 1997. During 1997, 61.2% of
the increase in interest income on securities was due to volume increases and
38.8% was attributable to rate increases, while in 1996, 60.1% of the increase
was due to rate and 39.9% was due to volume. Average earning assets increased
$112,207, or 10.7%, in 1997 and $78,141, or 8.1%, in 1996. Purchase acquisitions
accounted for 44.4% of the increase in 1997 and 20.9% in 1996. The average yield
on total earning assets increased from 8.53% in 1996 to 8.63% in 1997, due
principally to increased in yields on securities in 1997. Increase in volumes of
earning assets accounted for 90.6% and 85.4% of the growth in interest income in
1997 and 1996, respectively.
Average total interest-bearing deposits increased 8.4% during 1997 and 3.1%
during 1996. Internal growth of average deposits accounted for 35.9% of the
increase, while 64.1% was due to purchase acquisitions. The average cost of
interest bearing deposits decreased from 4.26% to 4.23% in 1996 and increased
from 4.23% to 4.27% in 1997. Interest expense on deposits increased $3,077, or
9.3%, in 1997 and $750, or 2.3%, in 1996. In 1997, 90.6% of the increase in
interest expense on deposits was due to volume increases. In 1996, interest
expense on deposits increased due to volume increases which were partially
offset by rate decreases. Interest expense on federal funds purchased and other
borrowings increased $2,613 in 1997 and $2,782 in 1996. The increases were
principally due to increases in volumes.
32
<PAGE>
The Company uses federal funds purchased and Federal Home Loan Bank advances,
selectively, as alternative funding sources to meet short and intermediate-term
funding needs.
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
------------------------------------- -------------------------------------
CHANGE DUE TO A CHANGE CHANGE DUE TO A CHANGE
IN IN
CHANGES IN NET INTEREST INCOME ---------------------- ----------------------
(INTEREST ON A FEDERAL-TAX-EQUIVALENT BASIS) VOLUME RATE TOTAL CHANGE VOLUME RATE TOTAL CHANGE
- ------------------------------------------------ ----------- --------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income increase (decrease)
Loans......................................... $ 8,243 $ (66) $ 8,177 $ 7,470 $ 285 $ 7,755
Securities.................................... 1,641 1,040 2,681 721 1,086 1,807
Other short-term investments.................. (129) 35 (94) (811) (114) (925)
----------- --------- ------------- ----------- --------- -------------
Total interest income....................... 9,755 1,009 10,764 7,380 1,257 8,637
----------- --------- ------------- ----------- --------- -------------
Interest expense increase (decrease)
Deposits...................................... 2,788 289 3,077 980 (230) 750
Borrowings.................................... 2,663 (50) 2,613 2,744 38 2,782
----------- --------- ------------- ----------- --------- -------------
Total interest expense...................... 5,451 239 5,690 3,724 (192) 3,532
----------- --------- ------------- ----------- --------- -------------
Net interest income increase (decrease)......... $ 4,304 $ 770 $ 5,074 $ 3,656 $ 1,449 $ 5,105
----------- --------- ------------- ----------- --------- -------------
----------- --------- ------------- ----------- --------- -------------
</TABLE>
In 1997 and 1996, net interest income increased $5,074 and $5,105,
respectively. Increases in volumes accounted for 84.8% of the increase in 1997
and 71.6% in 1996. The net interest income of purchase acquisitions accounted
for $2,137, or 42.5%, of the increase in net interest income in 1997 and $693,
or 13.6%, in 1996.
NONINTEREST INCOME
Noninterest income increased $1,482, or 17.2%, during 1997 and $1,489, or
20.9%, during 1996. Service charges on deposit accounts, the largest item in
this category, increased $331, or 9.1%, during 1997 and $691, or 23.4%, during
1996. Other service charges and fees increased $273, or 11.6%, in 1997 and $544,
or 30.0%, in 1996. Trust fees increased $179, or 10.2%, during 1997 and $245, or
16.3%, during 1996. Trust fees fluctuate with changes in the number of estates
managed each year and with changes in the market value of assets under
management. Security gains increased from $42 in 1996 to $794 in 1997. Other
types of noninterest income decreased $53, or 6.6%, during 1997 and $7, or 0.9%,
during 1996.
NONINTEREST EXPENSE
Noninterest expense increased $4,424, or 14.8%, during 1997 and $998, or
3.4%, in 1996. Salaries and other employee benefits increased $2,785, or 16.7%,
during 1997 and $117, or 0.7%, in 1996. Occupancy expense of bank premises
increased $121, or 6.1%, during 1997 and $13, or 0.7%, during 1996. Furniture
and equipment expense increased $152, or 6.5%, during 1997 and $263, or 12.6%,
in 1996. The FDIC assessment decreased $623, or 78.1%, during 1997 and $284, or
26.2%, during 1996 due to lower premium requirements. The 1996 FDIC expense
included $595 representing the cost of a special assessment on Savings
Association Insurance Fund (SAIF) insured deposits to recapitalize the SAIF.
Other types of noninterest expense increased $1,989, or 24.4%, during 1997 and
$889, or 12.3%, during 1996.
YEAR 2000 COMPLIANCE
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.
33
<PAGE>
In 1996, the Company started the process of identifying the hardware and
software issues required to be addressed to assure year 2000 compliance. The
Company began by assessing the issues related to the year 2000 and the potential
for those issues to adversely affect the Company's own operations and those of
its subsidiaries.
Since that time, the Company 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 the Company'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. The
Company 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.
The Company 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 the Company and to gain an
understanding of how customers are managing the risks associated with the year
2000.
Management believes that the expenditures required to bring systems into
compliance will not have a materially adverse effect on the Company'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.
The Company 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, the Comptroller of the Currency, the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation, and state banking
agencies. Based upon a recent examination of one of its banking subsidiaries,
the Company expects that the subsidiary will receive a rating of "needs
improvement" with regard to the subsidiary's year 2000 compliance program. The
program examined for the subsidiary is the Company's year 2000 compliance
program for the Company and all of its subsidiaries. Such a rating may result in
a similar rating for the Company. If such a rating is issued and the examining
agency does not issue a more satisfactory rating, the Company may 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 the acquisition of Illinois One Bank, N.A., which was
approved by the Federal Reserve on March 12, 1998) or future acquisitions or
otherwise adversely affect the Company's ability to continue to grow through
acquisition.
34
<PAGE>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
BALANCES & FEES COST BALANCES & FEES COST BALANCES & FEES COST
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits in
banks....................... $ 3,780 $ 214 5.66% $ 4,705 $ 273 5.80% $ 9,533 $ 509 5.34%
Short-term money market
investments................. -- -- -- -- -- -- 1,317 87 6.61%
Federal funds sold............ 3,985 218 5.47% 5,386 253 4.70% 14,807 855 5.77%
Securities:
U.S. Government and
agency.................... 113,748 7,267 6.39% 147,422 9,276 6.29% 173,960 10,312 5.93%
Taxable municipals.......... 3,359 222 6.61% 3,004 203 6.76% 2,806 182 6.49%
Tax-exempt municipals....... 151,316 12,174 8.05% 88,274 7,199 8.16% 48,018 4,235 8.82%
Other....................... 18,393 1,286 6.99% 25,642 1,590 6.20% 29,127 1,732 5.95%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Securities before market
value adjustment........ 286,816 20,949 7.30% 264,342 18,268 6.91% 253,911 16,461 6.48%
Market value adjustment on
securities available for
sale...................... 1,227 (423) (1,844)
---------- ---------- ----------
Total securities.......... 288,043 263,919 252,067
Loans:
Commercial.................. 308,803 28,341 9.18% 271,983 25,378 9.33% 234,167 21,864 9.34%
Consumer.................... 157,924 16,251 10.29% 153,045 15,147 9.90% 124,877 12,392 9.92%
Real estate mortgage........ 380,512 32,623 8.57% 335,259 28,847 8.60% 320,315 27,359 8.54%
Economic development and
other municipal loans..... 14,539 1,358 9.34% 11,082 1,024 9.24% 10,155 1,026 10.10%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total loans............... 861,778 78,573 9.12% 771,369 70,396 9.13% 689,514 62,641 9.08%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total earning assets...... 1,157,586 $99,954 8.63% 1,045,379 $89,190 8.53% 967,238 $80,553 8.33%
-------- -------- --------
-------- -------- --------
NON-EARNING ASSETS:
Allowance for loan losses..... (7,621) (6,516) (5,939)
Cash and due from banks....... 32,423 32,822 31,089
Premises and equipment........ 28,420 19,178 15,550
Other assets.................. 34,469 24,160 19,847
---------- ---------- ----------
TOTAL ASSETS.................. $1,245,277 $1,115,023 $1,027,785
---------- ---------- ----------
---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Savings and interest-bearing
demand...................... $ 222,182 $ 4,182 1.88% $ 218,642 $ 4,533 2.07% $ 228,632 $ 5,517 2.41%
Money market accounts......... 79,397 2,875 3.62% 79,758 2,831 3.55% 74,079 2,809 3.79%
Certificates of deposit and
other time.................. 545,166 29,061 5.33% 482,974 25,677 5.32% 455,493 23,965 5.26%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total interest-bearing
deposits................ 846,745 36,118 4.27% 781,374 33,041 4.23% 758,204 32,291 4.26%
Federal funds purchased and
securities sold under
agreements to repurchase.... 58,512 3,054 5.22% 43,777 2,206 5.04% 21,729 1,067 4.91%
Other borrowings.............. 74,790 4,461 5.96% 42,280 2,696 6.38% 16,155 1,053 6.52%
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Total interest-bearing
liabilities............. 980,047 $43,633 4.45% 867,431 $37,943 4.37% 796,088 $34,411 4.32%
-------- -------- --------
-------- -------- --------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Noninterest-bearing demand
deposits.................... $ 113,616 $ 106,068 $ 98,109
Other liabilities............. 14,866 13,508 10,971
Shareholders' equity.......... 136,748 128,016 122,617
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........ $1,245,277 $1,115,023 $1,027,785
---------- ---------- ----------
---------- ---------- ----------
Interest income/earning
assets...................... $99,954 8.63% $89,190 8.53% $80,553 8.33%
Interest expense/earning
assets...................... 43,633 3.77% 37,943 3.63% 34,411 3.56%
-------- ------ -------- ------ -------- ------
Net interest income/earning
assets...................... $56,321 4.87% $51,247 4.90% $46,142 4.77%
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
</TABLE>
- ------------------------------
Note: Income is on a federal-tax-equivalent basis using a 35% tax rate.
Average volume includes nonaccrual loans.
Loans are classified by department.
35
<PAGE>
THE COMPANY
GENERAL
The Company is registered with the Federal Reserve as a bank holding
company. The Company was incorporated on October 18, 1984, under the laws of the
State of Indiana. As of December 31, 1997, the Company had total consolidated
assets of $1.3 billion and total consolidated deposits of $964.0 million, making
it the sixth largest independent bank holding company headquartered in the State
of Indiana (ranked by asset size) as of such date.
As of March 6, 1998, the Company owned 13 financial institution
subsidiaries, consisting of 12 commercial banks and one savings bank. The
following is a list of the Company's banking subsidiaries, type of charter,
location of main banking office, total number of banking offices and date of
affiliation with the Company:
<TABLE>
<CAPTION>
DATE OF
LOCATION OF NUMBER OF BANKING AFFILIATION WITH
NAME TYPE OF CHARTER MAIN OFFICE OFFICES THE COMPANY
- --------------------------- ------------------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
The National City
Bank of Evansville....... National Commercial Bank Evansville, Indiana 11 May 6, 1985
The Peoples National
Bank of Grayville........ National Commercial Bank Grayville, Illinois 1 May 16, 1988
First Kentucky Bank........ Kentucky Commercial Bank Sturgis, Kentucky 6 November 30, 1990
Lincolnland Bank........... Indiana Commercial Bank Dale, Indiana 5 December 17, 1993
The Bank of Mitchell....... Indiana Commercial Bank Mitchell, Indiana 4 December 17, 1993
Pike County Bank........... Indiana Commercial Bank Petersburg, Indiana 3 December 17, 1993
Alliance Bank (1).......... Indiana Commercial Bank Vincennes, Indiana 3 December 17, 1993
White County Bank.......... Illinois Commercial Bank Carmi, Illinois 1 June 30, 1995
The First National
Bank of Wayne City....... National Commercial Bank Wayne City, Illinois 1 August 31, 1996
First Federal Savings
Bank of Leitchfield...... Federal Savings Bank Leitchfield, 2 March 1, 1997
Kentucky
First National Bank of
Bridgeport............... National Commercial Bank Bridgeport, Illinois 1 August 1, 1997
First Bank of
Huntingburg.............. Indiana Commercial Bank Huntingburg, Indiana 3 December 31, 1997
Bank of Illinois in Mt.
Vernon................... Illinois Commercial Bank Mount Vernon, 3 March 6, 1998
Illinois
</TABLE>
- ------------------------------
(1) Alliance Bank was formed on June 30, 1997 as the result of the merger of The
State Bank of Washington and United Federal Savings Bank, which were
acquired by the Company on December 17, 1993 and August 31, 1995,
respectively.
The Company also has direct and indirect subsidiaries which offer leasing
and other financial services to the public.
Through its subsidiaries, the Company provides a comprehensive range of
consumer and commercial banking services to individuals and businesses located
throughout the tri-state area of Indiana, Kentucky and Illinois surrounding
Evansville, Indiana, including taking demand and time deposits, lending on a
secured and unsecured basis, providing cash management services, issuing letters
of credit, providing personal and corporate trust services and originating
leases to businesses.
OPERATING PHILOSOPHY
Other than its banking operations within the Evansville metropolitan area,
the Company operates in predominately rural and suburban markets and embraces a
community banking philosophy that emphasizes personal service and convenience,
community involvement, local decision-making, quick responses to
36
<PAGE>
loan requests and customized services. The Company's subsidiaries endeavor to
provide their branch managers, lending officers, tellers and deposit service
personnel with the authority to act promptly in service of its customers within
the scope of Company policies. This highly responsive attitude is enhanced by an
efficient corporate support staff and an investment in technology. Management
believes the benefits of this operating philosophy contribute to the Company's
success while providing improved operating efficiencies, effective internal
controls and sound credit underwriting standards.
Management believes that commercial customers of the Company's subsidiaries
generally prefer to bank with locally managed institutions which can provide a
full-service banking relationship meeting the customer's commercial banking
needs as well as the personal needs of its management and employees. The Company
provides its subsidiaries with the advantages of affiliation with a multi-bank
holding company, including services such as data processing services, credit
policy formulation, accounting services, investment portfolio management and
specialized staff support while generally granting substantial autonomy to
management of the subsidiaries. Management believes this autonomy allows the
Company's subsidiaries to better serve customers in their respective
communities, thereby enhancing business opportunities and operations. The
Company also maintains local bank charters and boards of directors.
LONG-TERM GOALS AND BUSINESS STRATEGIES
The Company's long-term goals are to grow its banking activities through
acquisitions of financial institutions and branches of financial institutions to
enhance its market positions within its primary market area by employing the
following business strategies:
- PURSUE EXPANSION OPPORTUNITIES. The Company is actively engaged in
seeking acquisitions of financial institutions whose management can continue to
operate autonomously, yet benefit from the expertise and resources of the
Company in such areas as audit, loan review, compliance, personnel, asset/
liability modeling, investment management and data processing. The Company
believes that its record of allowing its subsidiaries to operate autonomously is
a significant competitive advantage in successfully completing acquisitions. The
Company generally seeks acquisitions within or near its primary market area,
which it considers to be the portions of Indiana, Kentucky and Illinois that are
within 250 miles of Evansville, Indiana. Since January 1, 1995, the Company has
acquired ten financial institutions or branches of financial institutions.
- INTERNAL GROWTH. Management believes that vigorous internal growth is an
important component of corporate earnings performance. Management's focus is to
remain loan-driven to increase leverage, although other opportunities will be
considered. Affiliates in place for more than two years and operating at
acceptable levels are expected to report annual internal earnings growth of at
least 4%.
- CONTROL COSTS. The Company seeks to control costs of its subsidiaries
while expanding the range of services offered to customers. Management plans to
continue to consolidate back-office operations of its subsidiaries, which are
transparent to the customer, to control costs through economies of scale, to
outsource functions to improve efficiency, and to move toward more
incentive-based compensation. Products that have already been developed by the
Company for its subsidiaries will be available to all new acquisitions,
including MasterCard, PhoneBank, Express Bill Payer, ATM/Check Card, Paycheck
Express Employee Benefits Program and Direct Access Cash Management business
software.
- MANAGE CREDIT QUALITY. The Company and its subsidiaries have adopted
credit management policies under which loan officers maintain responsibility for
the quality of the credits they originate and manage. The credit management
process is supported by a collective and collaborative review and approval
process and is balanced by a review, evaluation and grading process undertaken
by the Company's loan review function. Senior management is actively involved in
monitoring the credit quality of the loan portfolio. In addition, management's
incentive compensation is affected by the Company's overall credit experience.
37
<PAGE>
RECENT ACQUISITIONS
The following is a brief description of the two acquisitions that the
Company has completed since December 31, 1997:
MAYFIELD BRANCH. On January 8, 1998, the Company'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, the Company 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. The Company paid $27.5 million in cash for all of the outstanding
stock. 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 the Company's consolidated results of
operations from the date of acquisition.
PENDING ACQUISITIONS
The following is a brief description of the terms of the Pending
Acquisitions:
ILLINOIS ONE BANK, NATIONAL ASSOCIATION. The Company is a party to an
Agreement and Plan of Merger dated December 15, 1997 with Illinois One Bancorp,
Inc. ("IOBI"), the holding company for Illinois One Bank, National Association
("IOB"), a national banking association with offices in Shawneetown,
Elizabethtown and Golconda, Illinois. The agreement relates to the acquisition
of IOB in a merger transaction in which up to 577,417 shares of Company common
stock would be issued. As of December 31, 1997, IOB had total assets of $88.1
million, net loans of $48.4 million, total deposits of $76.4 million and total
shareholders' equity of $10.9 million. The acquisition is subject to the
approval of the shareholders of IOBI and the Federal Reserve. The acquisition is
expected to qualify for the pooling of interests method of accounting. The
parties expect to close the merger in the second quarter of 1998.
TRIGG COUNTY FARMERS BANK. The Company 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 the
Company's common stock 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. The Company
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 the Company's common stock would be issued to shareholders of CFF. As
of December 31, 1997, CFF's subsidiary banks 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 of CFF 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.
38
<PAGE>
MANAGEMENT
MICHAEL F. ELLIOTT is the Chairman of the Board and Chief Executive Officer
of the Company, positions he has held since January 1998. Mr. Elliott was the
Executive Vice President of the Company from December 1993 to December 1997 and
Vice Chairman of the Board from January 1996 to December 1997. Previously, he
was the Chairman of the Board, President and Chief Executive Officer of Sure
Financial Corporation which the Company acquired in December 1993.
ROBERT A. KEIL is the President of the Company, a position he has held since
June 1993. From January 1991 to June 1993, he was an Executive Vice President of
the Company. Mr. Keil first became an officer of the Company in 1985.
CURTIS D. RITTERLING, age 41, is the Company's Executive Vice President, a
position he has held since November 1997. From May 1995 to June 1997, he was
Chairman of the Board, President and Chief Executive Officer of Boatman's Bank
of South Central Illinois. From December 1990 to May 1995, he was Chairman of
the Board, President and Chief Executive Officer of Boatman's Bank of Marshall,
Missouri.
Executive officers of the Company serve at the discretion of the Board of
Directors.
The Company's Board of Directors is divided into three classes of three or
four directors each, with each class serving a staggered term of three years.
The following table sets forth certain information respecting directors of the
Company as of February 28, 1998:
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE SINCE EXPIRES PRESENT PRINCIPAL OCCUPATION
- -------------------------------------- --- ----------- ----------- ----------------------------------------------
<S> <C> <C> <C> <C>
Janice L. Beesley..................... 44 1995 1999 Chairman of the Board and Chief
Executive Officer, Alliance Bank
Michael F. Elliott.................... 46 1994 1999 Chairman of the Board of Directors and
Chief Executive Officer of the Company
Susanne R. Emge....................... 56 1985 2000 Executive Director, St. Mary's Medical
Center Foundation
Donald G. Harris...................... 65 1986 1999 Retired (1)
Dr. H. Ray Hoops...................... 58 1996 1998 President, University of Southern Indiana
Robert A. Keil........................ 54 1993 2000 President of the Company
John D. Lippert....................... 64 1985 1998 Retired (2)
Ronald G. Reherman.................... 61 1985 1998 Chairman of the Board, President and
CEO, SIGCORP, Inc.; Chairman of
the Board, Southern Indiana Gas and
Electric Company
Laurence R. Steenberg................. 59 1985 2000 President, BST Corporation and Lot
Resources
Richard F. Welp....................... 56 1998 1999 South Region Manager, Countrymark
Cooperative, Inc.
</TABLE>
- ------------------------
(1) Mr. Harris was the President of Mead John Nutritional Group from 1989
through 1993.
(2) Mr. Lippert was the Chairman of the Board and Chief Executive Officer of the
Company from 1993 through 1997.
39
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement is qualified as an indenture under the Trust
Indenture Act. Initially, Wilmington Trust Company will be the Property Trustee
and will act as trustee for the purpose of complying with the Trust Indenture
Act. The terms of the Preferred Securities will include those stated in the
Trust Agreement and those made part of the Trust Agreement by the Trust
Indenture Act. This summary of the material terms and provisions of the
Preferred Securities and the Trust Agreement does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Trust Agreement, including the definitions therein of certain
terms, and the Trust Indenture Act. Wherever particular defined terms of the
Trust Agreement (as amended or supplemented from time to time) are referred to
herein, such defined terms are incorporated by reference herein. The form of the
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees,
on behalf of NCBE Trust, will issue the Trust Securities. The Trust Agreement
does not permit NCBE Trust to issue any securities other than the Trust
Securities. All of the Common Securities, which will represent an aggregate
liquidation amount equal to at least 3% of the total capital of NCBE Trust, will
be owned by the Company.
The Preferred Securities will represent undivided preferred beneficial
interests in the assets of NCBE Trust and the holders thereof will be entitled
to a preference in certain circumstances with respect to Distributions and
amounts payable on redemption or liquidation over the holders of the Common
Securities of NCBE Trust, as well as other benefits as described in the Trust
Agreement. The Preferred Securities will rank PARI PASSU, and payments will be
made thereon pro rata, with the Common Securities of NCBE Trust based on
Liquidation Amounts, except as described under "--Subordination of Common
Securities."
Legal title to the Subordinated Debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Preferred Securities and
Common Securities. The Guarantee executed by the Company for the benefit of the
holders of the Preferred Securities will be a guarantee on a subordinated basis
with respect to the Preferred Securities, but will not guarantee payment of
Distributions or amounts payable on redemption or liquidation of such Preferred
Securities when NCBE Trust does not have funds legally and immediately available
to make such payments. See "Description of the Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Distributions on each Preferred Security will be
payable at the annual rate of % of the stated Liquidation Amount of $25,
accruing from the date of original issuance and payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, to the holders of
the Preferred Securities on the relevant record dates (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). The amount of Distributions payable for any period will include the
amount of additional interest accrued on interest in arrears and paid on a like
amount of Subordinated Debentures. The record date will be, for so long as the
Preferred Securities remain in book-entry form, one Business Day prior to the
relevant Distribution Date and, in the event the Preferred Securities are not in
book-entry form, the 15th day of the month in which the relevant Distribution
Date occurs. Distributions will accumulate from the date of original issuance.
The first Distribution Date for the Preferred Securities will be June 30, 1998.
The amount of Distributions payable for any full period will be computed on the
basis of a 360-day year of twelve 30-day months and for any period of less than
a full month will be computed on the number of days elapsed in such month. In
the event that any date on which Distributions are payable on the Preferred
Securities is not a Business Day, then payment of the Distributions payable on
such date will be made on the next succeeding day that is a Business Day (and
40
<PAGE>
without any additional Distributions, interest or other payment in respect of
any such delay), in each case with the same force and effect as if made on the
date such payment was originally payable. As used in this Prospectus, a
"Business Day" shall mean any day other than a Saturday or a Sunday, or a day on
which banking institutions in The City of New York are authorized or required by
law or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for business.
EXTENSION PERIOD. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Subordinated Debentures at any time and from time to
time for a period not exceeding 20 consecutive calendar quarters, including the
first calendar quarter of such Extension Period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Maturity Date or end on
a date other than an Interest Payment Date. As a consequence of any such
election, quarterly Distributions on the Preferred Securities will be deferred
by NCBE Trust during any such Extension Period. At the end of an Extension
Period, the Company will pay on the Subordinated Debentures all interest then
accrued and unpaid (together with interest thereon at the Coupon Rate,
compounded quarterly, to the extent permitted by applicable law), which amounts
will then be included in "Distributions." During any such Extension Period, the
Company may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank PARI PASSU with or junior in interest to the Subordinated
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks PARI PASSU with or junior in interest to the Subordinated
Debentures (other than (a) dividends or distributions in Company common stock,
(b) any declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee and (d) purchases of common stock under any of the
Company's benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may defer the payment of
interest, provided that no Extension Period may exceed 20 consecutive calendar
quarters (including the first calendar quarter of the extension period), or
extend beyond the Maturity Date of the Subordinated Debentures or end on a date
other than an Interest Payment Date. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
CUMULATIVE DISTRIBUTIONS. The funds of NCBE Trust available for
distribution to holders of its Preferred Securities will be limited to payments
under the Subordinated Debentures. See "Description of the Subordinated
Debentures." If the Company does not make interest payments on the Subordinated
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Preferred Securities. The payment of Distributions (if and
to the extent NCBE Trust has funds legally and immediately available for the
payment of such Distributions) is guaranteed by the Company. See "Description of
the Guarantee."
REDEMPTION
The Company will have the right to redeem the Subordinated Debentures (i) on
or after March 31, 2003, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital Event (such
180 days being subject to extension following a Tax Event), in each case subject
to Federal Reserve Approval.
41
<PAGE>
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in
part, of any Subordinated Debentures, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount (as
defined below) of the Trust Securities, upon not less than 30 nor more than 60
days notice, at a redemption price (the "Redemption Price") equal to the
aggregate Liquidation Amount of such Trust Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption Date")
plus the related amount of the premium, if any, paid upon the concurrent
redemption of a Like Amount of the Subordinated Debentures. See "Description of
the Subordinated Debentures--Redemption." If less than all of the Subordinated
Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds
from such repayment or redemption shall be allocated to the redemption of the
Preferred Securities and the Common Securities pro rata based on Liquidation
Amounts.
DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to Federal Reserve
Approval, the Company will have the right at any time to dissolve NCBE Trust
and, after satisfaction of the liabilities to creditors of NCBE Trust as
provided by applicable law, cause the Subordinated Debentures to be distributed
to the holders of Trust Securities in the liquidation of NCBE Trust.
TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION OR CAPITAL EVENT
REDEMPTION. If a Tax Event, an Investment Company Event or a Capital Event in
respect of the Trust Securities shall occur and be continuing, the Company has
the right to redeem the Subordinated Debentures in whole (but not in part) and
thereby cause a mandatory redemption of the Trust Securities in whole (but not
in part) at the Redemption Price within 180 days following the occurrence of
such Tax Event, Investment Company Event or Capital Event. In the event a Tax
Event, Investment Company Event or Capital Event in respect of the Trust
Securities has occurred and is continuing and the Company does not elect to
redeem the Subordinated Debentures and thereby cause a mandatory redemption of
such Trust Securities or to dissolve NCBE Trust and cause the Subordinated
Debentures to be distributed to holders of such Trust Securities in liquidation
of NCBE Trust as described below, such Trust Securities will remain outstanding
and, in the event of a Tax Event (or otherwise), Additional Sums (as defined
below) may be payable on the Subordinated Debentures. With respect to a Tax
Event, if the Company can eliminate within the 180-day period the Tax Event by
taking some ministerial action that has no adverse effect on the Company, the
holders of Subordinated Debentures or Trust Securities, or NCBE Trust, the
Company will take such action and may not cause a redemption during that period.
If the Company pursues such ministerial action, the time for redemption shall be
extended an additional 180 days.
"Additional Sums" includes additional amounts as may be necessary in order
that the amount of Distributions then due and payable by NCBE Trust on the
outstanding Trust Securities shall not be reduced as a result of any additional
taxes, duties, assessments and other governmental charges of whatever nature to
which NCBE Trust has become subject.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
aggregate Liquidation Amounts of such classes and the proceeds of which will be
used to pay the Redemption Price of such Trust Securities, and (ii) with respect
to a distribution of Subordinated Debentures to holders of Trust Securities in
connection with a termination or liquidation of NCBE Trust, Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Subordinated Debentures are
distributed which Subordinated Debentures will carry accumulated interest in an
amount equal to the accumulated and unpaid interest then due.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
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REDEMPTION PROCEDURES. Preferred Securities redeemed on each Redemption
Date shall be redeemed at the Redemption Price with the applicable proceeds from
the contemporaneous redemption of the Subordinated Debentures. Redemptions of
the Preferred Securities shall be made and the Redemption Price shall be payable
on each Redemption Date only to the extent that NCBE Trust has funds on hand
available for the payment of such Redemption Price. See "--Subordination of
Common Securities."
If the Property Trustee gives a notice of redemption in respect of its
Preferred Securities, then, by 12:00 noon, New York City Time, on the Redemption
Date, to the extent funds are legally and immediately available, and as long as
the Preferred Securities are in book-entry form, the Property Trustee will
deposit with the Depositary funds sufficient to pay the Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price. See "Book-Entry Issuance." If such Preferred Securities are no
longer in book-entry form, the Property Trustee, to the extent funds are legally
and immediately available, will deposit with the Paying Agent for such Preferred
Securities funds sufficient to pay the aggregate Redemption Price and will give
such Paying Agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of the certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of such Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price and any Distributions payable on or
prior to the Redemption Date, but without interest and such Preferred Securities
will cease to be outstanding. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a Business
Day (and without any additional Distribution, interest or other payment in
respect of any such delay). In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by NCBE Trust or by the Company pursuant to the
Guarantee, Distributions on such Preferred Securities will continue to accrue at
the then applicable rate, from the Redemption Date originally established by
NCBE Trust for such Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price. See "Description of
the Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities shall
be made to the applicable record holders thereof as they appear on the register
for such Preferred Securities on the relevant record date, which date shall be
one Business Day prior to the relevant Redemption Date; provided, however, that
in the event that any Preferred Securities are not in book-entry-only form, the
relevant record date for such Preferred Securities shall be a date at least 15
days prior to the Redemption Date.
If less than all of the Trust Securities issued by NCBE Trust are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Securities based upon the relative aggregate Liquidation Amounts of each class.
The particular Preferred Securities to be redeemed shall be selected by the
Property Trustee from the outstanding Preferred Securities not previously called
for redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of the Preferred Securities of a denomination larger than
$25. The Property Trustee shall promptly notify the trust registrar in writing
of the Preferred Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For
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all purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of the Preferred Securities shall relate
to the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Subordinated Debentures, on and after the Redemption
Date interest will cease to accrue on such Subordinated Debentures or portions
thereof (and Distributions will cease to accrue on the related Preferred
Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the relative aggregate Liquidation Amounts of the Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date an Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution on, or
Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price, the full amount of such Redemption Price on all of the
outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Preferred Securities then due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company, as holder of the Common Securities, will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of all such Events of Default with respect to
such Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities have been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company as holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of NCBE Trust, after satisfaction of liabilities to creditors, is
$25 per Preferred Security plus accrued and unpaid Distributions thereon to the
date of payment, which may be in the form of a distribution of such amount in
Subordinated Debentures, subject to certain exceptions.
The Company, as the holder of the Common Securities, will have the right at
any time to dissolve NCBE Trust and, after satisfying all liabilities to
creditors of NCBE Trust as required by applicable law, cause the Subordinated
Debentures to be distributed to the holders of the Preferred Securities. Such
right is subject to Federal Reserve Approval.
In addition, pursuant to the Trust Agreement, NCBE Trust shall automatically
dissolve upon expiration of its term and shall earlier dissolve on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company; (ii) the distribution of a Like Amount of the Subordinated Debentures
to the holders of its Trust Securities, if the Company, as Depositor, has given
written direction to the Property Trustee to dissolve NCBE Trust at any time
(which direction is optional and wholly within the discretion of the Company, as
Depositor), subject to Federal Reserve Approval; (iii) redemption of all
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of the Preferred Securities as described under "--Redemption;" and (iv) the
entry of an order for the dissolution of NCBE Trust by a court of competent
jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, NCBE Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of NCBE Trust as provided by applicable law, to the
holders of such Trust Securities a Like Amount of the Subordinated Debentures,
unless such distribution is determined by the Property Trustee not to be
practical, in which event such holders will be entitled to receive out of the
assets of NCBE Trust available for distribution to holders, after satisfaction
of liabilities to creditors of NCBE Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because NCBE Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by NCBE Trust on the Preferred
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Preferred Securities, except that if a
Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Trust Securities (i) such Preferred Securities will no longer be
deemed to be outstanding, (ii) The Depository Trust Company, its nominee or
successor (the "Depositary"), as the record holder of the Trust Securities, will
receive a registered global certificate or certificates representing a Like
Amount of Subordinated Debentures to be delivered upon such distribution, (iii)
the Company will use reasonable effort to cause the Subordinated Debentures to
be approved for listing on the Nasdaq National Market (or other exchange on
which the Preferred Securities are then listed or approved for quotation), (iv)
any certificates representing Trust Securities not held by the Depositary or its
nominee will be deemed to represent the Subordinated Debentures having a
principal amount equal to the Liquidation Amount of such Trust Securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on the Trust Securities until such certificates are presented to
the Securities Registrar or their agent for transfer or reissuance and (v) all
rights of the holders of Trust Securities will cease except the right to receive
Subordinated Debentures upon surrender of the certificates evidencing the Trust
Securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, NCBE Trust is treated as a grantor trust, a distribution
of the Subordinated Debentures should not be a taxable event to holders of the
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to holders of the Preferred Securities. See "Certain
Federal Income Tax Consequences." If the Company elects neither to redeem the
Subordinated Debentures, nor to liquidate NCBE Trust and distribute the
Subordinated Debentures to holders of the Preferred Securities, the Preferred
Securities will remain outstanding until the repayment of the Subordinated
Debentures.
If the Company elects to dissolve NCBE Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of NCBE Trust, the Company shall continue to have the right to
shorten or extend the maturity of such Subordinated Debentures, subject to
certain conditions. See "Description of the Subordinated Debentures--General."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of NCBE Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase, or
the Subordinated Debentures that the investor may receive on dissolution and
liquidation of NCBE Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
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EVENTS OF DEFAULT AND NOTICE
Any one of the following events constitutes an Event of Default under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of the Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by NCBE Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the NCBE Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clauses (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the defaulting Trustee or Trustees by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred Securities, a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as Depositor, unless such Event of
Default shall have been cured or waived. The Company, as Depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities upon
dissolution of NCBE Trust as described above. See "--Liquidation Distribution
Upon Dissolution." The existence of an Event of Default does not entitle the
holders of Preferred Securities to accelerate the maturity thereof.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by the holders of the Common Securities.
If a Debenture Event of Default has occurred and is continuing, the Property
Trustee and the Delaware Trustee may be removed at such time by the holders of
at least a majority of in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
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CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property, as
defined in the Indenture, may at the time be located, the Company, as the holder
of the Common Securities, shall have power (and at the request of the Property
Trustee will execute documents necessary) to appoint one or more persons either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
such Trust Property, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, or the Company does not join in such appointment
within 15 days after receipt of request, the Property Trustee alone shall have
power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Trust Agreement,
provided such person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF NCBE TRUST
NCBE Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or above under "--Liquidation Distribution Upon Dissolution."
NCBE Trust may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State; provided, that (i)
such successor entity either (a) expressly assumes all of the obligations of
NCBE Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee in its
capacity as the holder of the Subordinated Debentures, (iii) the Successor
Securities are quoted, or any Successor Securities will be approved for
quotation upon notification of issuance, on the Nasdaq National Market or any
national securities exchange or other organization on which the Preferred
Securities are then approved for quotation or listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, (v) such successor entity has a purpose substantially identical to that
of NCBE Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an opinion
from independent counsel to NCBE Trust experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
NCBE Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act and (vii) the Company or any
permitted successor or assignee owns all of the common securities of such
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successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, NCBE Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Preferred Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause NCBE Trust or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) in connection with the appointment of a
successor Trustee, (ii) to cure any ambiguity, correct or supplement any
provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (iii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as shall be necessary to
ensure that NCBE Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that NCBE Trust will not be treated as an "investment
company" under the Investment Company Act; provided, however, that in the case
of clause (ii), such action shall not adversely affect in any material respect
the interests of any holder of Trust Securities, and any such amendments of such
Trust Agreement shall become effective when notice thereof is given to the
holders of Trust Securities. The Trust Agreement may be amended by the Trustees
and the Company with (i) the consent of holders representing not less than a
majority in the aggregate Liquidation Amount of the outstanding Trust
Securities, and (ii) receipt by the Trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power granted to the Trustees
in accordance with such amendment will not affect NCBE Trust's status as a
grantor trust for United States federal income tax purposes or NCBE Trust's
exemption from status as an "investment company" under the Investment Company
Act. Notwithstanding anything in this paragraph to the contrary, without the
consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date or (ii)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Subordinated Debentures are held by the Property Trustee, the
Property Trustee shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures shall be due and payable or (iv)
consent to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the holders of at least a majority in
aggregate Liquidation Amount of all outstanding Preferred Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Subordinated Debentures affected thereby, no such consent shall
be given by the Property Trustee without the prior consent of each holder of the
Preferred Securities. The Property Trustee shall not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee shall notify each
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holder of Preferred Securities of any notice of default with respect to the
Subordinated Debentures. In addition to obtaining the foregoing approvals of the
holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Property Trustee shall obtain an opinion of counsel experienced in
such matters to the effect that NCBE Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for NCBE Trust to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Preferred Security"). Beneficial interests in the Preferred Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by participants in the Depositary. Except as described below,
Preferred Securities in certificated form will not be issued in exchange for the
global certificates. See "Book-Entry Issuance."
A global security shall be exchangeable for Preferred Securities registered
in the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as a
depositary for such global security and is unable to appoint a qualified
successor depositary or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act, at a time when the Depositary is
required to be so registered to act as such Depositary, (ii) the Company in its
sole discretion determines that such global security shall be so exchangeable,
or (iii) there shall have occurred and be continuing a Debenture Event of
Default and owners of Preferred Securities aggregating at least a majority of
the aggregate Liquidation Amount, request, in writing, a change in the
Depositary. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as the Depositary shall direct. It is expected that such instructions will
be based upon directions received by the Depositary with respect to ownership of
beneficial interests in such global security. In the event that Preferred
Securities are issued in definitive form, such Preferred Securities will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payments on Preferred Securities represented by a global security will be
made to the Depositary, as the depositary for the Preferred Securities. In the
event the Preferred Securities are issued in definitive form, Distributions will
be payable, at the corporate office of the Property Trustee in Wilmington,
Delaware, or at the offices of any Paying Agent appointed by the Administrative
Trustees, provided that payment of any Distribution may be made at the option of
the Administrative Trustees by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Preferred Securities
are issued in certificated form, the record dates for payment of Distributions
will be the 15th day of the month in which the relevant Distribution Date
occurs. The transfer of Preferred Securities will be registrable at the
corporate offices of the registrar of Trust Securities which shall initially be
the Property Trustee. For a description of the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance."
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Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the Depositary, the Depositary
for such Global Preferred Security or its nominee will credit, on its book-entry
registration and transfer system, the respective aggregate Liquidation Amounts
of the individual Preferred Securities represented by such Global Preferred
Securities to the accounts of persons having accounts with the Depositary
("Participants"). Such accounts shall be designated by the dealers, underwriters
or agents with respect to such Preferred Securities. Ownership of beneficial
interests in a Global Preferred Security will be limited to Participants or
persons that may hold interests through Participants. Ownership of beneficial
interests in such Global Preferred Security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
applicable Depositary or its nominee (with respect to interests of Participants)
and the records of Participants (with respect to interests of persons who hold
through Participants). The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Preferred Security.
So long as the Depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Preferred Securities represented by such Global Preferred Security for all
purposes under the Trust Agreement governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a Global Preferred Security
will not be entitled to have any of the individual Preferred Securities
represented by such Global Preferred Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Preferred
Securities in definitive form and will not be considered the owners or holders
thereof under the Trust Agreement.
None of the Company, NCBE Trust, the Property Trustee, any Paying Agent, or
the Securities Registrar for such Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Preferred Security representing such Preferred Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount, Redemption Price
or Distributions in respect of the Global Preferred Security immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Preferred Security as shown on the records of such Depositary or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to the Paying
Agent, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Preferred Securities are not held by
the Depositary, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the register of
holders of Preferred Securities. The Paying Agent shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee,
the Administrative Trustees and the Company. In the event that the Property
Trustee shall no longer be the Paying Agent, the Administrative Trustees shall
appoint a successor (which shall be a bank or trust company acceptable to the
Administrative Trustees) to act as Paying Agent.
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REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities. Registration of transfers of Preferred Securities will be
effected without charge by or on behalf of NCBE Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. NCBE Trust will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee shall take such action as is directed by the Company and if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate NCBE Trust in such a way that NCBE Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United Stated
federal income tax purposes. In this connection, the Company and the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of NCBE Trust or the Trust Agreement,
that the Company and the Administrative Trustees determine in their discretion
to be necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the related
Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, NCBE Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in the Subordinated Debentures to be issued by the
Company. The Subordinated Debentures will be issued as unsecured debt under the
Indenture, dated as of March , 1998 ("Indenture"), between the Company and
Wilmington Trust Company, as trustee (the "Debenture Trustee"). The following
summary of the material terms and provisions of the Subordinated Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture, which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and to the Trust Indenture Act. The Indenture will be qualified under the
Trust Indenture Act. Whenever particular defined terms of the Indenture are
referred to herein, such defined terms are incorporated herein by reference.
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GENERAL
The Subordinated Debentures will bear interest at the annual rate of %
(the "Coupon Rate") of the principal amount thereof, on any overdue principal
and (to the extent enforceable under applicable law) on any overdue installment
of interest, payable quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year (each, an "Interest Payment Date") beginning June
30, 1998, to the person in whose name each Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the fifteenth day of
the last month of the calendar quarter. The term "interest" as used herein shall
also include Additional Sums (as defined below), as applicable. Interest will
begin to accrue from the date of original issuance of the Subordinated
Debentures. It is anticipated that, until the liquidation, if any, of NCBE
Trust, the Subordinated Debentures will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Preferred Securities. The
amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30-day months and, for any period of less than a full
calendar month, the number of days elapsed in such month. In the event that any
date on which interest is payable on the Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) with the same force and effect as if
made on the date such payment was originally payable.
The Subordinated Debentures will mature and the unpaid principal thereon
will be payable on the Scheduled Maturity Date, March 31, 2028, which date may
be (i) extended at the option of the Company to a date not later than March 31,
2037, subject to Federal Reserve Approval, or (ii) shortened (a) by redemption
at the option of the Company on or after March 31, 2003, subject to Federal
Reserve Approval, or (b) by declaration of acceleration, notice of redemption
(including redemption following a Tax Event, Investment Company Event, or
Capital Event, as described below), or otherwise.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt and Additional Senior
Obligations (each as defined herein) of the Company. See "--Subordination."
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any of its subsidiaries, upon any
such subsidiary's liquidation or reorganization or otherwise (and thus the
ability of holders of the Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Company may itself be recognized as a creditor of
such subsidiary. Accordingly, the Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Subordinated Debentures should look only to the
assets of the Company for payments on the Subordinated Debentures. The Indenture
does not limit the incurrence or issuance of other secured or unsecured debt of
the Company, including Senior Debt or Additional Senior Obligations, whether
under the Indenture or any existing indenture or other indenture that the
Company may enter into in the future or otherwise. See "--Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture at any time during the term of the
Subordinated Debentures to defer the payment of interest for a period not
exceeding 20 consecutive calendar quarters, including the first calendar quarter
of such period (each such period an "Extension Period"), provided that no
Extension Period may extend beyond the Maturity Date of the Subordinated
Debentures or end on a date other than an Interest Payment Date. At the end of
such Extension Period, the Company must pay all interest then accrued and
unpaid, including Additional Sums (together with interest thereon at the Coupon
Rate, compounded
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quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Subordinated Debentures
(or holders of Preferred Securities while such securities are outstanding) will
be required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Potential Extension of
Interest Payment Period and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other
Subordinated Debentures) that rank PARI PASSU with or junior in interest to the
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks PARI PASSU or junior in interest to the Subordinated
Debentures (other than (a) dividends or distributions in Company common stock,
(b) any declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, and (d) purchases of common stock related to
rights under any of the Company's benefit plans for its directors, officers or
employees).
Prior to the termination of any Extension Period, the Company may further
extend the interest payment period, provided that no Extension Period (with all
previous and further extensions thereof) may exceed 20 consecutive calendar
quarters (including the first calendar quarter of the extension period), extend
beyond the Maturity Date of the Subordinated Debentures or end on a date other
than an Interest Payment Date. Upon the termination of any such Extension Period
and the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof, but the Company may prepay at any time, without
premium or penalty, all or any portion of any amounts accrued during the
Extension Period. The Company must provide notice of its election pursuant to
the Indenture and the Administrative Trustees shall give notice of the Company's
election to begin a new Extension Period to the holders of the Preferred
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period.
SHORTENING OR EXTENDING MATURITY DATE
The Subordinated Debentures will mature on the Scheduled Maturity Date,
March 31, 2028, which date may be shortened (a) by redemption at the option of
the Company on or after March 31, 2003, subject to Federal Reserve Approval, or
(b) by declaration of acceleration, notice of redemption (including redemption
following a Tax Event, Investment Company Event, or Capital Event, as described
below), or otherwise. Such date may also be extended at any time before the day
which is 90 days before the Scheduled Maturity Date at the election of the
Company, but in no event to a date later than March 31, 2037, provided that at
the time such notice of such election is provided and as of the Scheduled
Maturity Date, (i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) the Company is not in default in the payment of any interest
or principal on the Subordinated Debentures, and (iii) NCBE Trust is not in
arrears on payments of Distributions on the Preferred Securities and no deferred
Distributions are accumulated. In the event that the Company elects to extend
the Maturity Date of the Subordinated Debentures, it shall give notice to the
Debenture Trustee, to NCBE Trust and to the holders of the Subordinated
Debentures no more than 180 days and no less than 90 days prior to the Scheduled
Maturity Date. Such extension is also subject to Federal Reserve Approval.
ADDITIONAL SUMS
If the Property Trustee or NCBE Trust is required to pay any additional
taxes, duties, assessments or other governmental charges of whatever nature
(other than withholding taxes), the Company will pay as
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additional amounts on the Subordinated Debentures such additional amounts
("Additional Sums") as shall be required so that the Distributions payable by
NCBE Trust shall not be reduced as a result of any such additional taxes, duties
or other governmental charges.
REDEMPTION
Subject to Federal Reserve Approval, the Subordinated Debentures are
redeemable prior to maturity at the option of the Company (i) on or after March
31, 2003, in whole at any time or in part from time to time or (ii) at any time
in whole (but not in part) upon the occurrence and during the continuance of a
Tax Event, an Investment Company Event or a Capital Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Subordinated
Debentures so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof.
With respect to a Tax Event, if the Company can eliminate within the 180-day
period, the Tax Event by taking some ministerial action that has no adverse
effect on the Company, the holders of Subordinated Debentures or Trust
Securities, or NCBE Trust, the Company will take such action and may not cause a
redemption during that period. If the Company pursues such ministerial action,
the time for redemption shall be extended an additional 180 days.
"Tax Event" means the receipt by NCBE Trust of an opinion of counsel (which
may be counsel to the Company) experienced in such matters to the effect that,
as a result of any amendment to, or change in (including any announced
prospective change), the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Subordinated Debentures, there is more than an insubstantial
risk that (i) interest payable by the Company on the Subordinated Debentures is
not, or within 90 days after the date of such opinion will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes,
(ii) NCBE Trust is, or will be within 90 days after the date of such opinion,
subject to United States federal income tax with respect to interest received or
accrued on the Subordinated Debentures, or (iii) NCBE Trust is, or will be
within 90 days after the date of such opinion, subject to more than a de minimis
amount of other taxes, duties, assessments or other governmental charges.
An "Investment Company Event" means the receipt by NCBE Trust of an opinion
of counsel (which may be counsel to the Company) experienced in such matters to
the effect that, as a result of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that NCBE Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act,
which change becomes effective on or after the date of original issuance of the
Preferred Securities.
A "Capital Event" means that NCBE Trust has received an opinion of counsel
(which may be counsel to the Company) experienced in such matters that the
Company cannot, or within 90 days after the date of such opinion, will not be
permitted by the applicable regulatory authorities, due to a change in law,
regulation, policy or guideline or change in interpretation or application of
law or regulation, policy or guideline, to account for the Preferred Securities
as Tier 1 Capital under the capital guidelines or policies of the Federal
Reserve.
Any partial redemption of the Subordinated Debentures will be effected by
the redemption of an equivalent amount, based on Liquidation Amounts, of Trust
Securities, to be allocated pro rata between the Preferred Securities and the
Common Securities unless an Event of Default resulting from a Debenture Event of
Default shall have occurred and be continuing as of the applicable Redemption
Date or Distribution Date. See "Description of the Preferred
Securities--Redemption." If a partial redemption of the Subordinated Debentures
would result in de-listing the Preferred Securities from the Nasdaq
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National Market (or any other organization or national securities exchange on
which the Preferred Securities are then listed or approved for quotation), the
Company may only redeem the Subordinated Debentures in whole.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures to
be redeemed at its registered address. Unless the Company defaults in payment of
the redemption price, on and after the redemption date interest ceases to accrue
on such Subordinated Debentures or portions thereof called for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities--Liquidation
Distribution Upon Dissolution," under certain circumstances involving the
termination of NCBE Trust, the Subordinated Debentures may be distributed to the
holders of the Preferred Securities in liquidation of NCBE Trust after
satisfaction of liabilities to creditors of NCBE Trust as provided by applicable
law. If distributed to holders of Preferred Securities in liquidation, it is
anticipated that the Subordinated Debentures will initially be issued in the
form of one or more global securities and the Depositary, or any successor
depositary for the Preferred Securities, will act as depositary for the
Subordinated Debentures. It is anticipated that the depositary arrangements for
the Subordinated Debentures would be substantially identical to those in effect
for the Preferred Securities. If the Subordinated Debentures are issued as
global securities in connection with the distribution to the holders of
Preferred Securities upon the liquidation of NCBE Trust, the Company will use
its best efforts to have the Subordinated Debentures approved for listing on the
Nasdaq National Market or such stock exchange, if any, on which the Preferred
Securities are then listed or approved for quotation. There can be no assurance
as to the market price of any Subordinated Debentures that may be distributed to
the holders of Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event that would constitute
a Debenture Event of Default, (ii) the Company shall be in default with respect
to its payment of any obligations under the Guarantee, or (iii) the Company
shall have given notice of its election of an Extension Period as provided in
the Indenture with respect to the Subordinated Debentures or such Extension
Period, or any extension thereof, shall be continuing, the Company will not (a)
declare or pay any dividends on or make any distributions with respect to, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Company's capital stock or (b) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of the
Company that rank PARI PASSU with or junior in interest to the Subordinated
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks PARI PASSU or junior in interest to the Subordinated Debentures
(other than (1) dividends or distributions in Company common stock, (2) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (3)
payments under the Guarantee and (4) purchases of common stock related to rights
under any of the Company's benefit plans for its directors, officers or
employees).
SUBORDINATION
The Indenture provides that any Subordinated Debentures issued thereunder
will be subordinate and junior in right of payment to the prior payment in full
of all Senior Debt and Additional Senior Obligations. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution,
winding-up, reorganization, or any bankruptcy, insolvency, or other proceedings
in connection with any insolvency or bankruptcy proceeding of the Company, the
holders of Senior Debt and Additional Senior Obligations will first be entitled
to receive payment in full of principal of (and premium, if any) and interest,
if any, on such Senior Debt and Additional Senior Obligations before the holders
of Subordinated
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Debentures will be entitled to receive any payment in respect of the principal
of or interest, if any, on the Subordinated Debentures.
No payments on account of principal or interest (including redemption and
sinking finance payments), if any, in respect of the Subordinated Debentures may
be made if there shall have occurred and be continuing a default in any payment
with respect to Senior Debt or Additional Senior Obligations or an event of
default with respect to any Senior Debt or Additional Senior Obligations
resulting in the acceleration of the maturity thereof.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent, (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another person
and all dividends of another person the payment of which, in either case, such
person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Subordinated Debentures or to other Debt
which is PARI PASSU with, or subordinated to, the Subordinated Debentures;
provided, however, that Senior Debt shall not be deemed to include (i) any Debt
of the Company which when incurred and without respect to any election under
section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company, (iv) Debt which by its
terms is subordinated to trade accounts payable or accrued liabilities arising
in the ordinary course of business to the extent that payments made to the
holders of such Debt by the holders of the Subordinated Debentures as a result
of the subordination provisions of the Indenture would be greater than they
otherwise would have been as a result of any obligation of such holders to pay
amounts over to the obligees on such trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject.
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations do not include claims in
respect of Senior Debt or obligations which, by their terms, are expressly
stated to be not superior in right of payment to the Subordinated Debentures or
to rank PARI PASSU in right of payment with the Subordinated Debentures. For
purposes of this definition, "claim" shall have the meaning assigned thereto in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Company. The Company expects from time to time to
incur additional indebtedness constituting Senior Debt and Additional Senior
Obligations.
DENOMINATIONS, REGISTRATION AND TRANSFER
Initially, the Subordinated Debentures will be registered in the name of the
Property Trustee. If the Subordinated Debentures are distributed to the holders
of the Preferred Securities upon the liquidation of
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NCBE Trust, it is anticipated that the Subordinated Debentures will then be
represented by global certificates registered in the name of the Depositary or
its nominee. Beneficial interests in the Subordinated Debentures will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depositary. If the Subordinated Debentures are maintained by the Depositary,
it is anticipated that substantially the same procedures will be applicable to
the Subordinated Debentures as are described under "Description of the Preferred
Securities--Global Preferred Securities." See also "Book-Entry Issuance."
The Company will appoint the Debenture Trustee as securities registrar under
the Indenture (the "Securities Registrar"). Subordinated Debentures may be
presented for exchange as provided above, and may be presented for registration
of transfer (with the form of transfer endorsed thereon, or a satisfactory
written instrument of transfer, duly executed), at the office of the Securities
Registrar. The Company may at any time rescind the designation of any such
registrar or approve a change in the location through which any such registrar
acts. The Company may at any time designate additional transfer agents with
respect to the Subordinated Debentures. In the event of any redemption, neither
the Company nor the Securities Registrar shall be required to (i) issue,
register the transfer of or exchange Subordinated Debentures during a period
beginning at the opening of business 15 days before the day of selection for
redemption of Subordinated Debentures and ending at the close of business on the
day of mailing of the relevant notice of redemption or (ii) transfer or exchange
any Subordinated Debentures so selected for redemption, except, in the case of
any Subordinated Debentures being redeemed in part, any portion thereof not to
be redeemed.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures
initially will be made at the office of the Debenture Trustee in the City of
Wilmington, Delaware, except that at the option of the Company payment of any
interest may be made (i) by check mailed to the address of the person entitled
thereto as such address shall appear in the securities register or (ii) by wire
transfer to an account maintained by the person entitled thereto as specified in
the securities register, provided that proper transfer instructions have been
received by the record date. Notwithstanding the foregoing, so long as the
Property Trustee holds the Subordinated Debentures, payments shall be made at
the time and place designated by the Property Trustee. Payment of any interest
on Subordinated Debentures will be made to the person in whose name such
Subordinated Debentures is registered at the close of business on the record
date for such interest payment, except in the case of Defaulted Interest. So
long as the Subordinated Debentures remain outstanding, the Company will
maintain an office or agency in Evansville, Indiana, or the office of the
Property Trustee, and unless the Property Trustee is the only registered holder
of the Subordinated Debentures, in the Borough of Manhattan, New York City.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of or interest on
the Subordinated Debentures and remaining unclaimed for two years after such
principal or interest has become due and payable shall, at the written request
of the Company, be repaid to the Company and the holder of such Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in aggregate principal amount
of the outstanding Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of the Subordinated Debentures; provided,
that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture,
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extend the maturity of the Subordinated Debentures beyond the Scheduled Maturity
Date (other than in accordance with the terms of the Indenture governing such
extensions), or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, reduce the percentage of
principal amount of Subordinated Debentures the holders of which are required to
consent to any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default ("Debenture Event of Default") with
respect to the Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal on the Subordinated Debentures when
due and payable whether at the Scheduled Maturity Date, upon redemption, by
declaration of acceleration or otherwise (subject to the deferral of any due
date in the case of an Extension Period); or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after proper written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company; or
(v) under certain circumstances, the dissolution, winding up, or
termination of NCBE Trust.
Within the limits of the Indenture, and subject to the Indenture Trustee's
rights to decline to take action exposing it to personal liability, the holders
of a majority in aggregate outstanding principal amount of the Subordinated
Debentures have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee. The Debenture
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the Subordinated Debentures may declare the principal due and payable
immediately upon a Debenture Event of Default. The holders of a majority in
aggregate outstanding principal amount of the Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Subordinated Debentures which has become due
solely by such acceleration) has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee, amounts payable to
the Debenture Trustee have been paid, and all Debenture Events of Default (other
than the non-payment of the principal of the Subordinated Debentures which has
become due solely by such acceleration) have been removed or waived. Should the
holders of the Subordinated Debentures fail to annul such declaration and waive
such default, the holders of a majority in aggregate Liquidation Amount of the
Preferred Securities shall have waiver rights.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing, and as
long as the Property Trustee is the holder of the Subordinated Debentures, the
Property Trustee will have the right to declare the principal of and the
interest on such Subordinated Debentures, and any other amounts payable under
the Indenture, to be forthwith due and payable and to enforce its other rights
as a creditor with respect to such Subordinated Debentures.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Subordinated Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, on the Redemption Date), a
holder of Preferred Securities may institute a Direct Action. The Company may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. If the right to bring a Direct Action is removed, NCBE Trust may
become subject to the periodic reporting obligations of the Exchange Act. The
Company has the right under the Indenture to set-off any payment made to such
holder of Preferred Securities by the Company in connection with a Direct
Action.
The holders of the Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities--Events of Default and Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may consolidate with or merge into any other Person or sell,
convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, subject to the following covenants
and agreements: (i) in case the Company consolidates with or merges into another
Person or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any state or the District of Columbia, and such successor
Person expressly assumes the Company's obligations on the Subordinated
Debentures issued under the Indenture; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at their
Maturity Date within one year or (iii) or are to be called for redemption within
one year under arrangements satisfactory to the Debenture Trustee for the giving
of notice, and the Company deposits or causes to be deposited with the Debenture
Trustee funds, in trust, for the purpose and in an amount in which the
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation, for the principal and interest to the
Maturity Date, and the Company pays all other sums payable under the Indenture,
then the Indenture will cease to be of further effect (except as to certain
administrative and other obligations) and the Company will be deemed to have
satisfied and discharged the Indenture.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Indiana.
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INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Debenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Debenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
The Company has covenanted, as to the Subordinated Debentures, (i) to
maintain directly or indirectly 100% ownership of the Common Securities,
provided that certain successors which are permitted pursuant to the Indenture
may succeed to the Company's ownership of the Common Securities, (ii) not to
voluntarily dissolve, wind-up or liquidate NCBE Trust, except upon prior
approval of the Federal Reserve if then so required under applicable capital
guidelines or policies of the Federal Reserve, and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the NCBE Trust Agreement,
to cause (a) NCBE Trust to remain classified as a grantor trust and not as an
association taxable as a corporation or partnership for United States federal
income tax purposes and (b) each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Subordinated Debentures.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Preferred
Securities. The Preferred Securities will be issued only as fully-registered
securities registered in the name of Cede & Co. (the Depositary's nominee). One
or more fully-registered global certificates will be issued for the Preferred
Securities and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. Access to the Depositary
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain custodial relationships with
Direct Participants, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with the
Commission.
Purchases of Preferred Securities within the Depositary system must be made
by or through Direct Participants, which will receive a credit for the Preferred
Securities on the Depositary's records. The ownership interest of each actual
purchaser of each Preferred Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchases,
but Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
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receive certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities of NCBE Trust is discontinued.
To facilitate subsequent transfer, all Preferred Securities deposited by
Participants with the Depositary are registered in the name of the Depositary's
partnership nominee, Cede & Co. The deposit of Preferred Securities with the
Depositary and their registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the actual Beneficial
Owners of the Preferred Securities; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of the Preferred Securities are being
redeemed, the Depositary will determine by lot the amount of interest of each
Direct Participant in such Preferred Securities to be redeemed. Although voting
with respect to the Preferred Securities is limited to the holders of record of
the Preferred Securities, in those instances in which a vote is required,
neither the Depositary nor Cede & Co. will itself consent or vote with respect
to Preferred Securities. Under its usual procedures, the Depositary would mail
an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts such
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made by the Paying
Agent to the Depositary. The Depositary's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on the Depositary's records unless the Depositary has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices as is the case with securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participant and not of the Depositary, the relevant
Trustee, NCBE Trust or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of Distributions to
the Depositary is the responsibility of the Paying Agent, disbursement of such
payments to Direct Participants is the responsibility of the Depositary, and
disbursements of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Preferred Securities at any time by giving
reasonable notice to the relevant Trustee and the Company. In the event that a
successor securities depositary is not obtained, definitive Preferred Security
certificates representing such Preferred Securities are required to be printed
and delivered. The Company, at its option, may decide to discontinue use of the
system of book-entry transfers through the Depositary (or a successor
depositary). After a Debenture Event of Default, the holders of a majority in
aggregate Liquidation Amount of Preferred Securities may determine to
discontinue the system of book-entry transfers through the Depositary. In any
such event, definitive certificates for such Preferred Securities will be
printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that NCBE Trust
and the Company believe to be accurate, but NCBE Trust and the Company assume no
responsibility for the accuracy thereof. Neither NCBE Trust nor the Company has
any responsibility for the performance by the Depositary or its Participants of
their
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respective obligations as described herein or under the rules and procedures
governing their respective operation.
In the event that NCBE Trust is dissolved and the Subordinated Debentures
are distributed to the Depositary (as holder of the Preferred Securities), the
depository arrangements and book-entry system applicable thereto will be
substantially similar to those applicable to the Preferred Securities. See
"Description of the Preferred Securities--Global Preferred Securities."
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
Wilmington Trust Company will act as trustee under the Guarantee (the "Guarantee
Trustee") for the purposes of compliance with the Trust Indenture Act, and the
Guarantee will be qualified as an indenture under the Trust Indenture Act. The
following summary of the material terms and provisions of the Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee, including the definitions
therein of certain terms, and the Trust Indenture Act. The form of the Guarantee
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably agree to pay in full
on a subordinated basis, to the extent set forth therein, the Guarantee Payments
(as defined below) to the holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that NCBE Trust may
have or assert other than the defense of payment. The following payments with
respect to the Preferred Securities, to the extent not paid by or on behalf of
NCBE Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that NCBE Trust has funds legally and immediately
available therefor at such time, (ii) the Redemption Price with respect to any
Preferred Securities called for redemption to the extent that NCBE Trust has
funds legally and immediately available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of NCBE Trust
(unless the Subordinated Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution to the extent NCBE
Trust has funds legally and immediately available therefor at such time and (b)
the amount of assets of NCBE Trust remaining available for distribution to
holders of Preferred Securities. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Preferred Securities or by causing NCBE Trust to
pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent NCBE Trust has funds legally and immediately available therefor. If the
Company does not make principal or interest payments on the Subordinated
Debentures held by NCBE Trust, NCBE Trust will not pay Distributions on the
Preferred Securities and will not have funds legally available therefor.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt and
Additional Senior Obligations of the Company in the same manner as the
Subordinated Debentures. The Guarantee does not place a limitation on the amount
of additional Senior Debt or Additional Senior Obligations that may be incurred
by the Company. The Company expects from time to time to incur additional
indebtedness constituting Senior Debt and Additional Senior Obligations.
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The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other person or entity). The Guarantee will be
held for the benefit of the holders of the Preferred Securities. The Guarantee
will not be discharged except by payment of the Guarantee Payments in full to
the extent not paid by NCBE Trust or upon distribution of the Subordinated
Debentures to the holders of the Preferred Securities. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of its subsidiaries upon liquidation or reorganization or otherwise is
subject to the prior claims of creditors of a subsidiary, except to the extent
the Company may itself be recognized as a creditor of such subsidiary. The
Company's obligations under the Guarantee, therefore, will be effectively
subordinated to all existing and future liabilities of its subsidiaries, and
claimants should look only to the assets of the Company for payments thereunder.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against NCBE Trust, the Guarantee Trustee or any
other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee at the request of
any holder of any Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the amounts payable upon liquidation of NCBE Trust or upon distribution of
the Subordinated Debentures to the holders of the Preferred
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Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under such Preferred Securities or the
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Indiana.
EXPENSE AGREEMENT
Pursuant to the Agreement as to Expenses and Liabilities entered into by the
Company under the Trust Agreement (the "Expense Agreement"), the Company will
irrevocably and unconditionally guarantee to each person or entity to whom NCBE
Trust becomes indebted or liable, the full payment of any costs, expenses or
liabilities of NCBE Trust, other than obligations of NCBE Trust to pay to the
holders of the Preferred Securities or other similar interests in NCBE Trust the
amounts due such holders pursuant to the terms of the Preferred Securities or
such other similar interests, as the case may be. Third party creditors of NCBE
Trust may proceed directly against the Company under the Expense Agreement,
regardless of whether such creditors had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES
AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent NCBE Trust has funds available for the payment of such
Distributions and other amounts) are irrevocably guaranteed by the Company as
and to the extent set forth under "Description of the Guarantee." The Company
and NCBE Trust believe that, taken together, the Company's obligations under the
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of NCBE Trust's obligations under the Preferred Securities. If and to the extent
that the Company does not make payments on the Subordinated Debentures, NCBE
Trust will not pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of Distributions when NCBE
Trust does not have sufficient funds to pay such Distributions. In such event,
the remedy of a holder of Preferred Securities (other than in connection with
the distribution of Subordinated Debentures to the holders of Preferred
Securities or a redemption of all Preferred Securities) is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt and Additional
Senior Obligations.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Preferred Securities and
Common Securities; (ii) the interest rate and interest and other payment dates
on the Subordinated Debentures will match the Distribution rate and Distribution
and other payment dates for the Preferred Securities; (iii) the Company will pay
for any and all costs, expenses and liabilities of NCBE Trust except
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NCBE Trust's obligations to holders of the Preferred Securities; and (iv) the
Trust Agreement further provides that NCBE Trust will not engage in any activity
that is not consistent with the limited purposes of NCBE Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder if
and to the extent the Company has theretofore made, or is concurrently on the
date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, NCBE Trust or any
other person or entity.
A default or event of default under any Senior Debt or Additional Senior
Obligations of the Company would not constitute a Debenture Event of Default.
However, in the event of payment defaults under, or acceleration of, Senior Debt
or Additional Senior Obligations of the Company, the subordination provisions of
the Indenture provide that no payments may be made in respect of the
Subordinated Debentures until such Senior Debt or Additional Senior Obligations
have been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Subordinated Debentures would
constitute a Debenture Event of Default and, correspondingly an Event of
Default.
LIMITED PURPOSE OF NCBE TRUST
The Preferred Securities evidence a beneficial interest in the assets of
NCBE Trust, and NCBE Trust exists for the exclusive purposes of (i) issuing the
Preferred Securities and Common Securities, (ii) investing the proceeds thereof
in the Subordinated Debentures, and (iii) engaging in activities necessary,
advisable or incidental thereto. A principal difference between the rights of a
holder of a Preferred Security and a holder of a Subordinated Debenture is that
a holder of a Subordinated Debenture is entitled to receive from the Company the
principal amount of and interest accrued on the Subordinated Debentures held,
while a holder of Preferred Securities is entitled to receive Distributions from
NCBE Trust (or from the Company under the Guarantee) if and to the extent NCBE
Trust has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
NCBE Trust involving the liquidation of the Subordinated Debentures, the holders
of the Preferred Securities will be entitled to receive, out of assets held by
NCBE Trust, the Liquidation Distribution in cash. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated in right of payment to all Senior Debt and Additional
Senior Obligations as set forth in the Indenture, but entitled to receive
payment in full of principal and interest before any shareholders of the Company
receive payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed to pay for all costs, expenses and liabilities of NCBE
Trust (other than NCBE Trust's obligations to the holders of the Preferred
Securities), the positions of a holder of the Preferred Securities and a holder
of the Subordinated Debentures relative to other creditors and to shareholders
of the Company in the event of liquidation or bankruptcy of the Company are
expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section is a summary of the material United States federal income tax
considerations that may be relevant to the purchasers of Preferred Securities
and represents the opinion of Baker & Daniels, counsel to the Company, insofar
as it relates to matters of law and legal conclusions. The conclusions expressed
herein are based upon current provisions of the Internal Revenue Code of 1986,
as amended ("Code"), the regulations promulgated thereunder and current
administrative rulings and court decisions, all of which are subject to change
at any time, with possible retroactive effects. Subsequent changes may cause tax
consequences to vary substantially from the consequences described below. See
"--Possible Changes in Tax Laws." Furthermore, the authorities on which this
summary is based are subject to various interpretations, and it is therefore
possible that the federal income tax treatment of the purchase, ownership and
disposition of Preferred Securities may differ from the treatment described
below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and who
acquire Preferred Securities on their original issue at their offering price and
hold Preferred Securities as capital assets. The discussion has only limited
application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities.
Each prospective investor should consult, and should rely exclusively on,
the investor's own tax advisors in analyzing the federal, state, local and
foreign tax consequences of the purchase, ownership or disposition of Preferred
Securities.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company intends to take the position that the Subordinated Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law and, by acceptance of a Preferred Security,
each holder covenants to treat the Subordinated Debentures as indebtedness and
the Preferred Securities as evidence of an indirect beneficial interest in the
Subordinated Debentures. No assurance can be given, however, that such position
of the Company will not be challenged by the Internal Revenue Service or, if
challenged, that such a challenge will not be successful. The remainder of this
discussion assumes that the Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Company.
CLASSIFICATION OF NCBE TRUST
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture, NCBE Trust will be classified for United States federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of Preferred Securities generally will be treated as owning an undivided
beneficial interest in the Subordinated Debentures, and each holder will be
required to include in its return any income, gain, loss or expense with respect
to its allocable share of the Subordinated Debentures.
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Because income on the Preferred Securities will constitute interest income
for United States Federal income tax purposes, corporate holders of Preferred
Securities will not be entitled to claim a dividends received deduction in
respect of such income.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
The Company's option to extend the interest payment period on the
Subordinated Debentures may cause the indebtedness to be issued with original
issue discount ("OID"). Under current Treasury regulations (the "Regulations"),
a contingency that stated interest will not be timely paid that is "remote" will
be ignored in determining whether such debt instrument is issued with OID.
Because the exercise by the Company of its option to defer the payment of stated
interest on the Subordinated Debentures would prevent the Company from declaring
dividends on any class of equity, the Company believes that the likelihood of
its exercising the option is "remote" within the meaning of the Regulations. As
a result, the Company intends to take the position that the Subordinated
Debentures will not be deemed to be issued with OID at the time of their initial
issuance. If this position is sustained, a holder of the Preferred Securities
should include in gross income such holder's allocable share of interest on the
Subordinated Debentures in accordance with such holder's method of tax
accounting.
There can be no assurance, however, that the Internal Revenue Service will
not successfully contest the Company's position. If the Internal Revenue Service
were successful in such a contention, then all of the stated interest payments
on the Subordinated Debentures would be treated as OID. In such case, the
holders of the Preferred Securities would be required to include OID in income
on an economic accrual basis regardless of whether any interest is actually paid
or their method of tax accounting, but will not be required to report actual
payments of interest as taxable income.
If the Company's position that there is no OID initially is upheld, but the
Company exercises its option to defer any payment of interest, the Subordinated
Debentures would at the time of such exercise be treated as issued with OID, and
all stated interest thereafter payable on the Subordinated Debentures would be
treated as OID. In such event, the holders of the Preferred Securities would be
required to account for the OID as stated in the immediately preceding
paragraph. Consequently, a holder of Preferred Securities would be required to
include in gross income OID even though the Company would not make any actual
interest payments during an Extension Period.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market discount"
or "acquisition premium" as such phrases are defined for United States federal
income tax purposes. Such holders are advised to consult their tax advisors as
to the income tax consequences of the acquisition, ownership and disposition of
the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF NCBE TRUST
Under certain circumstances, as described under "Description of the
Preferred Securities--Redemption," the Subordinated Debentures may be
distributed to holders of Preferred Securities upon a liquidation of NCBE Trust.
Under current United States federal income tax law, such a distribution would be
treated as a nontaxable exchange to each such holder and would result in such
holder having an aggregate tax basis in the Subordinated Debentures received in
the liquidation equal to such holder's aggregate tax basis in the Preferred
Securities immediately before the distribution. A holder's holding period in the
Subordinated Debentures so received in liquidation of NCBE Trust would include
the period for which such holder held the Preferred Securities.
If, however, a Tax Event occurs which results in NCBE Trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to NCBE Trust and to holders of the
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Preferred Securities. Each holder of Preferred Securities would recognize gain
or loss as if such holder exchanged the Preferred Securities for the
Subordinated Debentures it received upon liquidation of NCBE Trust. Under
certain circumstances described herein, the Subordinated Debentures may be
redeemed for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such a redemption
would, for United States federal income tax purposes, constitute a taxable
disposition, and a holder would recognize gain or loss as if the holder sold
such Preferred Securities for cash. See "Description of the Preferred
Securities--Redemption."
DISPOSITION OF THE PREFERRED SECURITIES
A holder of Preferred Securities that sells Preferred Securities will
recognize gain or loss equal to the difference between its adjusted tax basis
for the Preferred Securities and the amount realized on the sale of such
Preferred Securities. Assuming that the Company's position that there is no OID
initially is upheld, and that the Company does not exercise its option to defer
payment of interest on the Subordinated Debentures, a Preferred Security
holder's adjusted tax basis for the Preferred Securities generally will be its
initial purchase price. If the Subordinated Debentures are deemed to have been
issued initially with OID, or OID results due to the Company's deferral of any
interest payment, a Preferred Security holder's adjusted tax basis for the
Preferred Securities generally will be its initial purchase price, increased by
OID previously included in such holder's gross income to the date of disposition
and decreased by distributions and other payments received on the Preferred
Securities since the date the Subordinated Debentures are deemed to have OID.
Such gain or loss generally will be a capital gain or loss (except to the extent
any amount realized is treated as a payment of accrued interest with respect to
such holder's pro rata share of the Subordinated Debentures) and will be a
long-term capital gain or loss if the Preferred Securities have been held for
more than eighteen months.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder that disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include as ordinary income either OID (if applicable) or accrued but unpaid
interest on the Subordinated Debentures through the date of disposition. To the
extent the amount realized is less than the holder's adjusted tax basis, a
holder will generally recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
POSSIBLE CHANGES IN TAX LAWS
Certain legislative proposals were made in 1996 and 1997 which were designed
to eliminate the ability of issuers of certain instruments to deduct interest
paid on those instruments. These proposals were not, however, incorporated into
the legislation recently enacted as the Taxpayer Relief Act of 1997.
Nevertheless, there can be no assurance that other legislation enacted after the
date hereof will not otherwise adversely affect the ability of the Company to
deduct interest payable on the Subordinated Debentures, and such legislation
could be retroactive in effect. Consequently, there can be no assurance that a
Tax Event will not occur. A Tax Event would permit the Company, upon approval of
the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve, to cause a redemption of the Preferred
Securities before, as well as after, March 31, 2003. See "Description of the
Subordinated Debentures--Redemption" and "Description of the Preferred
Securities--Redemption--Tax Event Redemption, Investment Company Event
Redemption or Capital Event Redemption."
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments with respect to, and the amount of OID accrued on, the Preferred
Securities held of record by individual citizens or residents of the United
States, or certain trusts, estates, and partnerships, will be reported to the
Internal Revenue Service on Forms 1099, which forms should be mailed to such
holders of Preferred Securities by January 31 following each calendar year.
Payments made on, and proceeds from
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<PAGE>
the sale of, the Preferred Securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under the backup withholding rules
will be allowed as a credit against the holder's United States federal income
tax liability provided the required information is provided to the Internal
Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons with respect to which the Company or an affiliate is a fiduciary or
Plans for which the Company or an affiliate provides services). The acquisition
and ownership of Preferred Securities by a Plan (or by an individual retirement
arrangement or other Plans described in Section 4975(e)(1) of the Code) with
respect to which the Company or any of its affiliates is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any other Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult with their own
counsel.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
J.J.B. Hilliard, W.L. Lyons, Inc. and NatCity Investments, Inc. (the
"Underwriters") and the Company and NCBE Trust, the Underwriters have, severally
and not jointly, agreed to purchase from NCBE Trust, and NCBE Trust has agreed
to sell to the Underwriters, the respective numbers of the Preferred Securities
set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
NAME OF UNDERWRITER SECURITIES
- ------------------------------------------------------ ------------------
<S> <C>
J.J.B. Hilliard, W.L. Lyons, Inc......................
NatCity Investments, Inc..............................
----------
Total............................................... 1,200,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions, including, among other things, the continuing accuracy
of the representations and warranties of the Company and NCBE Trust contained in
the Underwriting Agreement, the performance by the Company and NCBE Trust of
their obligations under the Underwriting Agreement and the receipt of certain
opinions of counsel in form and substance reasonably satisfactory to counsel for
the Underwriters. The nature of the Underwriters' obligations is such that they
are committed to purchase and pay for all of the Preferred Securities, if any
are purchased.
The Underwriters propose to offer the Preferred Securities directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus. The Underwriters have advised the Company and NCBE Trust that sales
of the Preferred Securities to certain dealers may be made at a concession not
in excess of $ per Preferred Security, and that the Underwriters may allow,
and such dealers may reallow, discounts not in excess of $ per Preferred
Security on sales to certain other dealers. After the public offering, the
offering price and other selling terms may be changed by the Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures issued by the
Company, the Underwriting Agreement provides that the Company will pay as
Underwriters' Compensation for the Underwriters' arranging the investment
therein of such proceeds an amount equal to $ per Preferred Security for
the accounts of the several Underwriters.
NCBE Trust has granted to the Underwriters an option, exercisable during a
thirty-day period after the date of this Prospectus, to purchase up to 180,000
Preferred Securities at the public offering price, all as described on the cover
page hereof, solely to cover over-allotments, if any. The Company has also
agreed to pay the Underwriters the same commission described in the immediately
preceding paragraph in the event the Underwriters exercise this option.
Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities have been approved for listing on the
Nasdaq National Market, subject to notice of issuance. Trading of the Preferred
Securities on the Nasdaq National Market is expected to commence within 30 days
after the initial delivery of the Preferred Securities. The Underwriters have
advised the Company that they intend to make a market in the Preferred
Securities prior to commencement of trading on the Nasdaq National Market, but
are not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of or the existence of the
trading market for the Preferred Securities.
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<PAGE>
The Company and NCBE Trust have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Commission's
Regulation M promulgated by the Securities and Exchange Commission
("Commission") that are intended to stabilize, maintain or otherwise affect the
market price of the Preferred Securities. Such transactions may include
over-allotment transactions in which the Underwriters create a short position
for their own account by selling more Preferred Securities than they are
committed to purchase from NCBE Trust. In such case, to cover all or part of the
short position, the Underwriters may exercise the over-allotment option
described above or may purchase Preferred Securities in the open market
following completion of the initial offering of the Preferred Securities. The
Underwriters also may engage in stabilizing transactions in which they bid for,
and purchase, Preferred Securities at a level above that which might otherwise
prevail in the open market for the purpose of preventing or retarding a decline
in the market price of the Preferred Securities. The Underwriters also may
reclaim any selling concessions allowed to a dealer if the Underwriters
repurchase Preferred Securities distributed by that dealer. Any of the foregoing
transactions may result in the maintenance of a price for the Preferred
Securities at a level above that which might otherwise prevail in the open
market. Neither the Company nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Preferred Securities. The
Underwriters are not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.
The Underwriters or their affiliates may provide in the future investment
banking services to the Company and its affiliates, for which such Underwriters
or their affiliates would expect to receive customary fees and commissions.
National City Bancshares, Inc. and NCBE Capital Trust I are not affiliates
of National City Corporation and its subsidiaries, including NatCity
Investments, Inc., one of the Underwriters.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of NCBE
Trust will be passed upon, upon behalf of NCBE Trust and the Company, by
Richards, Layton & Finger, P.A., special Delaware counsel to NCBE Trust and the
Company. The validity of the Subordinated Debentures and the Guarantee and
certain matters relating thereto, as well as certain matters relating to United
States federal income tax considerations, will be passed upon for the Company by
Baker & Daniels, Indianapolis, Indiana. Counsel for the Underwriters, Stites &
Harbison, Louisville, Kentucky will pass upon certain legal matters for the
Underwriters.
EXPERTS
The consolidated financial statements of National City Bancshares, Inc. and
subsidiaries as of December 31, 1997 and 1996 and each of the three years ended
December 31, 1997, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, as set forth
in their report thereon included therein and incorporated herein by reference.
The consolidated financial statements referenced above are incorporated herein
by reference in reliance upon such reports and upon the authority of such firm
as experts in accounting and auditing.
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<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a joint Registration Statement on Form
S-3 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") filed by the Company and NCBE Trust with the
Commission under the Securities Act and the rules and regulations promulgated
thereunder, with respect to this offering. This Prospectus does not contain all
of the information set forth in such Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, although it does include a summary of the material terms of the
Indenture, the Subordinated Debentures and the Trust Agreement (each as defined
herein). Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, NCBE Trust
and the Preferred Securities. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
regional offices at Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661, and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's Common Stock is listed on the Nasdaq Stock Market's National
Market under the symbol "NCBE" and reports, proxy statements and other
information concerning the Company can be inspected at the offices of the NASD
at 1735 K Street, N.W., Washington, D.C. 20006. If available, such reports and
other information may also be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov).
No separate financial statements of NCBE Trust have been included or
incorporated by reference herein. The Company and NCBE Trust do not consider
that such financial statements would be material to holders of the Preferred
Securities because NCBE Trust is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than holding as trust assets the
Subordinated Debentures and issuing the Trust Securities. See "Description of
the Preferred Securities," "Description of the Subordinated Debentures" and
"Description of the Guarantee." In addition, the Company does not expect that
NCBE Trust will file periodic reports in the future under the Exchange Act with
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-13585) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(b) Current Report on Form 8-K dated March 11, 1998; and
(c) Proxy Statement dated March 17, 1997, relating to the annual meeting of
shareholders held April 15, 1997.
All documents filed by the Company or NCBE Trust pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this Registration
Statement and prior to the filing of a post-effective amendment to this
Registration Statement which indicates that all securities offered hereby have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference
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<PAGE>
in this Prospectus and to be a part hereof from the filing date of such
documents. Any statement contained in this Prospectus or in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in the original Section 10(a) prospectus (as regards any statement in any
previously filed document incorporated by reference herein), or a statement in
any subsequently filed document that is also incorporated by reference herein or
a statement in any subsequent Section 10(a) prospectus, 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.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to National City
Bancshares, Inc., 227 Main Street, P.O. Box 868, Evansville, Indiana 47705-0868;
Attention: Secretary.
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<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY NCBE TRUST, THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF NCBE TRUST OR THE COMPANY SINCE THE DATE
HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 18
Market for the Preferred Securities....................................... 19
Accounting Treatment...................................................... 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
The Company............................................................... 36
Management................................................................ 39
Description of the Preferred Securities................................... 40
Description of the Subordinated Debentures................................ 51
Book-Entry Issuance....................................................... 60
Description of the Guarantee.............................................. 62
Expense Agreement......................................................... 64
Relationship Among the Preferred Securities, the Subordinated Debentures
and the Guarantee....................................................... 64
Certain Federal Income Tax Consequences................................... 66
ERISA Considerations...................................................... 69
Underwriting.............................................................. 70
Legal Matters............................................................. 71
Experts................................................................... 71
Available Information..................................................... 72
Incorporation of Certain Documents by Reference........................... 72
</TABLE>
1,200,000 PREFERRED SECURITIES
NCBE CAPITAL TRUST I
% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER
PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
NATIONAL CITY BANCSHARES, INC.
[LOGO]
-------------
P R O S P E C T U S
-------------
J.J.B. HILLIARD, W.L. LYONS, INC.
NATCITY INVESTMENTS, INC.
, 1998
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