<PAGE>
 
As filed with the Securities and Exchange       Registration No. 333-__________
Commission on January 8, 1997
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

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

                                    FORM S-4
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

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

                           PONTOTOC BANCSHARES CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
        MISSISSIPPI                          6712                   64-0885622
     (State or other              (Primary Standard Industrial  (I.R.S. Employer
jurisdiction of incorporation     Classification Code Number)    Identification 
     or organization)                                                 Number)

                              19 South Main Street
                          Pontotoc, Mississippi 38863
                                 (601) 489-1631
               (Address, including zip code and telephone number,
                            including area code, of
                   registrant's principal executive offices)

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

      Buddy R. Montgomery                                    Copy to:
          President                                   Virginia Boulet, Esq.
     Pontotoc BancShares Corp.                        Phelps Dunbar, L.L.P.
      19 South Main Street                       400 Poydras Street, 30th Floor
    Pontotoc, Mississippi 38863                New Orleans, Louisiana 70130-3245
          (601) 489-1631                                  (504) 584-9286
  (Name, address, including zip code, 
and telephone number, including area code, 
    of agent for service)

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

Approximate date of commencement of proposed sale of the securities to the
public:  Upon the Effective Date of the reorganization and merger described in
this Registration Statement.

If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box:  [ ]

<TABLE> 
<CAPTION> 
                        CALCULATION OF REGISTRATION FEE
============================================================================================= 
                                                     PROPOSED    PROPOSED
                                                      MAXIMUM     MAXIMUM
                                         AMOUNT      OFFERING    AGGREGATE
 TITLE OF EACH CLASS OF SECURITIES       TO BE       PRICE PER   OFFERING       AMOUNT OF
         TO BE REGISTERED              REGISTERED    UNIT/(1)/     PRICE     REGISTRATION FEE
<S>                                  <C>             <C>        <C>          <C>
---------------------------------------------------------------------------------------------
Common Stock, no par value.........  330,000 shares     $82.34  $27,172,200         $5,435.00
=============================================================================================
</TABLE>

/(1)/ Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) based on the book value per share of common stock of
First National Bank of Pontotoc as of September 30, 1996.

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

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
 
                        FIRST NATIONAL BANK OF PONTOTOC
                              19 SOUTH MAIN STREET
                          PONTOTOC, MISSISSIPPI 38863

                               January ___, 1997

Dear Shareholder:

     On November 27, 1996, I wrote all shareholders a letter stating that the
Board of Directors was implementing a plan to maximize the value of your
investment in First National Bank of Pontotoc.  The attached proxy statement
describes the first step in the implementation of the Board's plan, the
formation of a holding company (the "Reorganization").  I urge you to read the
proxy statement carefully.

     The Reorganization will be considered at a special meeting of the
shareholders (the "Special Meeting") of First National Bank of Pontotoc to be
held on ______, February __, 1997 at 10:00 a.m., local time, at the offices of
the Bank, located at 19 South Main Street, Pontotoc, Mississippi.  At the
Special Meeting you will be asked to consider and vote upon the Reorganization,
pursuant to which the Bank will become a wholly-owned subsidiary of Pontotoc
BancShares Corp., a newly-formed Mississippi corporation (the "Company"), and
each outstanding share of common stock of the Bank will be converted into and
exchanged for ten shares of common stock of the Company.

     In addition to a description of the holding company structure, the
accompanying Proxy Statement includes a description of the business and
condition of the Bank and the Company, and certain other significant
information, including the rights of any shareholders wishing to dissent from
the Reorganization.  The Proxy Statement also describes the rights you will have
as a shareholder of the Company upon consummation of the Reorganization, which
will be different in certain respects from the rights you currently have as a
shareholder of the Bank.

     THE BOARD OF DIRECTORS BELIEVES THAT THE FORMATION OF A HOLDING COMPANY IS
IN THE BEST INTERESTS OF ALL THE SHAREHOLDERS AND IS NECESSARY TO MAXIMIZE THE
VALUE OF THE BANK TO ALL OF ITS SHAREHOLDERS.  ACCORDINGLY, AS MORE FULLY
DESCRIBED IN THE PROXY STATEMENT, THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE REORGANIZATION.

     The affirmative vote of holders of at least two-thirds of the outstanding
shares of common stock of the Bank is required in order to approve the
Reorganization.  It is, therefore, extremely important that your shares be
represented at the Special Meeting.  You are urged to complete, sign and return
the accompanying form of proxy in the enclosed envelope as soon as possible,
whether or not you are personally able to attend the Special Meeting.

                                    Sincerely,

                                    
                                    _____________________________ 
                                    Buddy R. Montgomery
<PAGE>
 
                        FIRST NATIONAL BANK OF PONTOTOC
                              19 SOUTH MAIN STREET
                          PONTOTOC, MISSISSIPPI 38863

                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                        TO BE HELD ON FEBRUARY __, 1997

                               January ___, 1997

     A special meeting of shareholders (the "Special Meeting") of First National
Bank of Pontotoc (the "Bank") will be held on ______, February __, 1997 at 10:00
a.m., local time, at the offices of the Bank, 19 South Main Street, Pontotoc,
Mississippi 38863, for the following purposes:

     (1) To consider and vote upon a proposed plan to reorganize the Bank as a
wholly-owned subsidiary of Pontotoc BancShares Corp., a newly-formed Mississippi
corporation (the "Company"), as more fully described in the proxy statement that
accompanies this notice (the "Reorganization").  Upon consummation of the
Reorganization, each outstanding share of common stock of the Bank will be
converted into and exchanged for ten shares of common stock of the Company and
the shareholders of the Bank will become the shareholders of the Company; and

     (2) To consider such other business as may properly come before the Special
Meeting or any adjournments thereof.

     The affirmative vote of holders of at least two-thirds of the outstanding
shares of common stock of the Bank is required to approve the Reorganization.
IF THE REORGANIZATION IS APPROVED, DISSENTING SHAREHOLDERS WHO COMPLY WITH THE
PROCEDURAL REQUIREMENTS OF THE FEDERAL BANKING LAWS WILL BE ENTITLED TO RECEIVE
PAYMENT IN CASH FOR THEIR SHARES.

     The Board of Directors has set January 6, 1997 as the record date for the
Special Meeting.  Only shareholders of record at the close of business on the
record date will be entitled to receive notice of, and to vote at, the Special
Meeting.

     REGARDLESS OF WHETHER A SHAREHOLDER EXPECTS TO BE PRESENT AT THE SPECIAL
MEETING IN PERSON, PLEASE VOTE, SIGN AND MAIL THE ACCOMPANYING FORM OF PROXY IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE.  A PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO ITS EXERCISE AT THE SPECIAL MEETING.

                                    BY ORDER OF THE BOARD OF DIRECTORS



                                    _____________________________________  
                                    Larry Russell, Secretary to the Board
<PAGE>
 
                           PONTOTOC BANCSHARES CORP.
                                   Prospectus

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

                        FIRST NATIONAL BANK OF PONTOTOC
                                Proxy Statement
                     For A Special Meeting of Shareholders
                      To Be Held ______, February __, 1997


     This Proxy Statement and Prospectus (the "Proxy Statement") constitutes the
Proxy Statement of First National Bank of Pontotoc, a national banking
association (the "Bank"), in connection with the solicitation by the Board of
Directors of the Bank of proxies for use at a special meeting of shareholders of
the Bank (the "Special Meeting") to be held on ______, February __, 1997, and
any adjournments thereof.  This Proxy Statement is being mailed to the Bank's
shareholders of record on the close of business on January 6, 1997 who are
entitled to receive notice of, and to vote at, the Special Meeting.  The Special
Meeting has been called by the Board of Directors of the Bank in order for the
Bank's shareholders to consider and vote upon a plan of reorganization, pursuant
to which the Bank will become a wholly-owned subsidiary of Pontotoc BancShares
Corp., a newly-formed Mississippi corporation (the "Company"), and each
outstanding share of common stock of the Bank will be converted into and
exchanged for ten shares of common stock of the Company (the "Reorganization").
This Proxy Statement also constitutes the Prospectus of the Company relating to
330,000 shares of its common stock, no par value per share (the "Company Common
Stock"), to be issued in connection with the Reorganization.  A Reorganization
plan (the "Reorganization Plan") setting forth the terms and the mechanism by
which the Company will become the holding company of the Bank has been filed as
Exhibit 2.1 to the Registration Statement on Form S-4 filed by the Company with
the United States Securities and Exchange Commission (the "Commission") on
January 8, 1997, and is incorporated by reference herein.  For a description of
the Reorganization see "The Proposed Reorganization" herein.  SEE "COMPARATIVE
RIGHTS OF SHAREHOLDERS OF THE BANK AND THE COMPANY" AND "TRADING MARKET;
DIVIDENDS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
SHAREHOLDERS OF THE BANK BEFORE VOTING ON THE REORGANIZATION.

     The principal executive offices of the Bank and the Company are located at
19 South Main Street, Pontotoc, Mississippi 38863.

     This Proxy Statement and the accompanying proxy cards are first being
mailed to shareholders of the Bank on or about January __, 1997.

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

        THE COMMON STOCK OF THE COMPANY ISSUABLE IN CONNECTION WITH THE
          PROPOSED REORGANIZATION HAS NOT BEEN APPROVED OR DISAPPROVED
             BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
              SECURITIES COMMISSION NOR HAS THE COMMISSION PASSED
               UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATE-
                  MENT AND PROSPECTUS.  ANY REPRESENTATION TO
                      THE CONTRARY IS A CRIMINAL OFFENSE.

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

No person has been authorized to give any information or make any
representations other than those contained in this Proxy Statement, and, if
given or made, such information or representations must not be relied upon as
having been authorized.  This Proxy Statement does not constitute an offer to
sell or a solicitation of an offer to purchase, the securities offered hereby,
nor does it constitute the solicitation of a proxy, by any one in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation.

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

     The date of this Proxy Statement and Prospectus is January    1997.
<PAGE>
 
               AVAILABLE INFORMATION; REPORTS TO SECURITY HOLDERS

     The Company is not currently subject to the informational requirements of
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and as such, does not file reports, proxy statements or other information
with the Commission. As of the date on which the Commission declares the
Company's Registration Statement effective, however, the Company will become
subject to such informational requirements.  The Company intends, however, to
file a certification on Form 15 with the Commission as soon as practicable after
the issuance of the Company Common Stock so as to suspend its duty to file the
reports required by Section 13(a) of the Exchange Act.  Thereafter, the Company
intends to deliver an annual report at the end of each fiscal year to holders of
Company Common Stock.


                             ADDITIONAL INFORMATION

     This Proxy Statement does not contain all the information set forth in the
Registration Statement on Form S-4 and the exhibits relating thereto which the
Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 5th Street, N.W., Washington, D.C. 20549 pursuant to the
Securities Act of 1933.  For further information pertaining to the Company or
the securities offered hereby, reference is made to the Registration Statement,
including exhibits.

     The Registration Statement and other information filed by the Company may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the regional offices of the Commission at Citicorp Center,
500 West Madison Street, 14th Floor, Chicago, Illinois  60661 and Seven World
Trade Center, 13th Floor, New York, New York  10048.  Copies of the Registration
Statement can be obtained from the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at
prescribed rates.
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<S>                                                                         <C>
 
 
SUMMARY...................................................................    i
 
THE SPECIAL MEETING.......................................................    1
     Purpose of the Special Meeting.......................................    1
     Shares Outstanding and Entitled to Vote; Record Date.................    1
     Quorum; Shareholder Vote Required and Other Matters..................    1
     Solicitation, Voting and Revocation of Proxies.......................    2
 
THE PROPOSED REORGANIZATION...............................................    2
     General..............................................................    2
     Effect of the Proposed Reorganization................................    3
     Reasons for the Proposed Reorganization..............................    3
     Conditions to Consummation of the Reorganization.....................    3
     Termination and Abandonment of the Reorganization....................    4
     Stock Certificates...................................................    4
     Accounting Treatment.................................................    5
 
DESCRIPTION OF CAPITAL STOCK..............................................    5
     Stock of the Bank....................................................    5
     Stock of the Company.................................................    5
 
COMPARATIVE RIGHTS OF
SHAREHOLDERS OF THE BANK AND THE COMPANY..................................    7
     General..............................................................    7
     Shareholder Meetings.................................................    7
     Shareholder Proposals................................................    7
     Approval of Certain Business Combinations............................    8
     Directors............................................................    8
     Amendment of Articles of Incorporation and Bylaws....................    9
     Assessability of Stock...............................................   10
     Certain Corporate Protective Devices.................................   10
     Effects of Shareholder Rights Provisions.............................   11
 
RIGHTS OF DISSENTING SHAREHOLDERS.........................................   12
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................   13
 
TRADING MARKET; DIVIDENDS.................................................   14
     No Trading Market....................................................   14
     Dividends............................................................   14
 
BUSINESS OF THE BANK......................................................   16
     General..............................................................   16
</TABLE>
<PAGE>
 
<TABLE>
<S>                                                                         <C>
     Competition..........................................................   16
     Employees............................................................   16
     Legal Proceedings....................................................   16
 
BUSINESS OF THE COMPANY...................................................   17
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED
DECEMBER 31, 1995.........................................................   18
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995...............................................   30
 
SUPERVISION AND REGULATION................................................   33
     Supervision and Regulation of the Company............................   33
     Supervision and Regulation of the Bank...............................   34
     Interstate Banking and Branching Legislation.........................   35
 
MANAGEMENT................................................................   36
     Directors and Executive Officers.....................................   36
 
SUMMARY COMPENSATION TABLE................................................   38
     Employment Agreements................................................   38
     Compensation of Directors............................................   38
     Limitation on Directors' Liability...................................   39
     Indemnification......................................................   39
 
BENEFICIAL OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL SHAREHOLDERS OF THE BANK....................................   41
 
RECENT DEVELOPMENTS.......................................................   42
 
LEGAL MATTERS.............................................................   43
 
SHAREHOLDER PROPOSALS.....................................................   43
 
OTHER MATTERS.............................................................   43
 
FINANCIAL STATEMENTS OF THE BANK..........................................  F-1
 
     Appendix A - Articles of Incorporation of Pontotoc BancShares Corp...  A-1
 
     Appendix B - Bylaws of Pontotoc BancShares Corp......................  B-1
 
     Appendix C - Excerpts from the Federal Banking Law
     Relating to Dissenters' Rights.......................................  C-1
</TABLE>
<PAGE>
 
                                    SUMMARY

     The following is a summary of certain information contained elsewhere in
this Proxy Statement.  This summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Proxy Statement, including the appendices hereto, to which reference is
made for a complete statement of the matters discussed below.  Shareholders are
urged to read carefully all such materials.

THE SPECIAL MEETING

     The Special Meeting will be held on ______, February __, 1997 at 10:00
a.m., local time, at the offices of the Bank, 19 South Main Street, Pontotoc,
Mississippi.   Shareholders of record at the close of business on January 6,
1997 are entitled to receive notice of, and to vote at, the Special Meeting.
See "The Special Meeting."

PURPOSE OF THE SPECIAL MEETING

     The purpose of the Special Meeting is to consider and vote upon the
Reorganization.  See "The Special Meeting - Purpose of the Special Meeting."

FIRST NATIONAL BANK OF PONTOTOC

     The Bank is a national banking association headquartered in Pontotoc,
Mississippi.  As of September 30, 1996, the Bank had total assets of
approximately $151 million, total deposits of approximately $123 million, and
shareholders' equity of approximately $27 million.  The Bank's principal
executive and main banking office is located at 19 South Main Street, Pontotoc,
Mississippi 38863, and its telephone number is (601) 489-1631.  See "Business of
the Bank."

PONTOTOC BANCSHARES CORP.

     The Company is a Mississippi corporation that was organized in December
1996 for the purpose of becoming the parent company of the Bank.  The Company
has not engaged in any active business operations and has no business or
financial history.  The principal executive office of the Company is located at
19 South Main Street, Pontotoc, Mississippi  38863, and its telephone number is
(601) 489-1631.  See "Business of the Company."

EFFECT OF THE PROPOSED REORGANIZATION

     Upon consummation of the Reorganization, each outstanding share of the
Bank's common stock, $10.00 par value per share (the "Bank Common Stock"), will
be converted into ten shares of Company Common Stock and the shareholders of the
Bank will become the shareholders of the Company.  The ten-to-one exchange rate
will not affect any shareholder's percentage ownership.

     As a result of the Reorganization, the Bank will become a wholly-owned
subsidiary of the Company and will continue to engage in the same business and
activities in which it is presently engaged.  The consolidated assets,
liabilities, stockholders' equity and income of the

                                      -i-
<PAGE>
 
Company immediately following consummation of the Reorganization will be the
same as those of the Bank immediately prior to the consummation of the
Reorganization.  The Reorganization will not change the management of the Bank
or its officers.  Each current director of the Bank has been invited to serve on
the board of directors of the Company.  The first annual meeting of the
Company's shareholders at which directors are to be elected will be held in
1998.  See "The Proposed Reorganization - Effect of the Proposed
Reorganization."

REASONS FOR THE PROPOSED REORGANIZATION

     The Board believes that the proposed Reorganization is in the best
interests of the Bank and its shareholders because the holding company structure
will better facilitate the Bank's ability to serve its customers' needs for
financial services and is a first step in the implementation of the Board's plan
to maximize the value of the Bank to all of its shareholders.  The Company will
be operated as a bank holding company under the federal Bank Holding Company Act
of 1956.   Accordingly, the Bank, through the Company, will be able to expand
and diversify its business into other permitted banking and non-banking
activities, either through newly-formed subsidiaries or through acquisitions.
The holding company structure also will enable the Company to provide banking
related services in addition to the traditional services a commercial bank may
provide under current law.  The Company, as a bank holding company, will also be
permitted to acquire other bank holding companies or, subject to certain
restrictions, other financial institutions.  See "The Proposed Reorganization -
Reasons for the Proposed Reorganization."

CONDITIONS TO CONSUMMATION OF THE REORGANIZATION

     Consummation of the Reorganization is subject to a number of conditions
including the following: (i) the Reorganization has been approved by holders of
at least two-thirds of the outstanding shares of Bank Common Stock; (ii) the
Reorganization has been approved by the Office of the Comptroller of the
Currency (the "Comptroller"); (iii) the formation of the Company has been
approved by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"); (iv) the Bank has received an opinion from legal counsel
passing upon the federal income tax consequences of the Reorganization to the
Bank's shareholders; and (v) it has been determined to the satisfaction of the
Company and the Bank that the Reorganization will be treated for accounting
purposes similar to a "pooling of interests."  See "The Proposed Reorganization
- Conditions to Consummation of the Reorganization."

TERMINATION AND ABANDONMENT OF THE REORGANIZATION PLAN

     The Reorganization Plan may be terminated and the Reorganization abandoned
at any time, either before or after a vote of the Bank's shareholders, if (i)
any of the conditions to its consummation have not been met, or (ii) the Board
of Directors of the Bank determines that the Reorganization is inadvisable.  See
"The Proposed Reorganization - Termination and Abandonment of the Reorganization
Plan."

                                      -ii-
<PAGE>
 
COMPARATIVE RIGHTS OF SHAREHOLDERS OF THE BANK AND THE COMPANY

     As a result of the Reorganization, the Bank's shareholders will become
shareholders of the Company.  There are substantial differences between the
Bank's Articles of Association and Bylaws and the Company's Articles of
Incorporation and Bylaws, which have an effect on shareholder rights.  In
addition, there are certain differences in shareholder rights arising from
distinctions between laws governing national banking associations and the
Mississippi Business Corporation Act ("MBCA").  See "Comparative Rights of
Shareholders of the Bank and the Company."

RIGHTS OF DISSENTING SHAREHOLDERS

     Under certain conditions, shareholders dissenting from the Reorganization
will be entitled to receive cash for their shares of Bank Common Stock.  See
"Rights of Dissenting Shareholders."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

     Consummation of the Reorganization is subject to, among other things,
receipt of an opinion from Phelps Dunbar, L.L.P., counsel to the Company and the
Bank, to the effect that (i) neither the Bank nor the Company will recognize any
gain or loss as a result of the Reorganization; (ii) no gain or loss will be
recognized to the shareholders of the Bank upon conversion of their shares; the
tax basis of shares of Company Common Stock received in the Reorganization will
be the same as the tax basis of the shares of Bank Common Stock previously
owned; and if the shares of Bank Common Stock were held as capital assets, the
holding period of the shares of Company Common Stock received will include the
holding period of the shares of such Bank Common Stock exchanged therefor; and
(iii) a shareholder of the Bank who exercises his or her rights as a dissenter
and thereby receives cash for his or her shares will recognize income, gain or
loss measured by the difference between the amount of cash received and the tax
basis of his or her shares of Bank Common Stock, subject to the provisions of
Section 302 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that such distributions generally will be treated as capital gain or loss if the
shares were held as capital assets.  See "Certain Federal Income Tax
Consequences."

NO TRADING MARKET

     Prior to the Reorganization, there was no public trading market for Bank
Common Stock and it is not anticipated that an active trading market will
develop in Company Common Stock following consummation of the Reorganization.
Because neither Bank Common Stock nor Company Common Stock is traded on an
established public market, no information is presented concerning the price of
Bank Common Stock or Company Common Stock.  See "Trading Market; Dividends - No
Trading Market."

                                     -iii-
<PAGE>
 
SHAREHOLDER VOTE REQUIRED TO APPROVE THE REORGANIZATION

     The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Bank Common Stock is required in order to approve the
Reorganization.  As of January 6, 1997, the directors and executive officers of
the Bank and their affiliates, as a group (9 persons), beneficially owned 13,199
shares of Bank Common Stock, which represented 39.99% of the aggregate number of
votes entitled to be cast at the Special Meeting.  ALL SUCH PERSONS, OTHER THAN
MR. RICHARD DOTY WHO BENEFICIALLY OWNED 4,936 SHARES ON JANUARY __, 1997, HAVE
INDICATED THAT THEY INTEND TO VOTE ALL SHARES BENEFICIALLY OWNED BY THEM FOR THE
REORGANIZATION.  See "The Special Meeting -- Quorum; Shareholder Vote Required
and Other Matters" and "Recent Developments."

RECENT DEVELOPMENTS

     On or about October 17, 1996, Mr. Doty and certain of the Bank's other
shareholders collectively owning 6,557 shares (or 19.87%) of the Bank Common
Stock (the "Selling Shareholders") entered into an agreement with Union Planters
Corporation, a bank holding company ("Union Planters"), to sell their Bank
Common Stock to Union Planters and not to vote in favor of any actions that
would adversely affect Union Planters' efforts to acquire control of the Bank.
This agreement is expected to terminate on March 31, 1997 if Federal Reserve
Board approval is not received by such date.

     On or about December 12, 1996, Union Planters submitted to the Board of
Directors a conditional offer to purchase all of the outstanding Bank Common
Stock for $875 per share.

     On or about December 31, 1996, 140 shareholders beneficially owning
approximately 68.47% of the Bank Common Stock entered into an agreement pursuant
to which each shareholder agreed not to sell his or her Bank Common Stock and
not to vote to approve a merger of the Bank with another bank, without giving
the Bank a right of first refusal to acquire such shareholder's Bank Common
Stock for the same consideration as is offered by the third party.  See "Recent
Developments."

RECOMMENDATION OF BOARD OF DIRECTORS

     The Board of Directors believes that the proposed Reorganization is in the
best interests of the Bank and its shareholders.  Accordingly, the Board of
Directors recommends that the shareholders vote FOR the Reorganization.

                                      -iv-
<PAGE>
 
                              THE SPECIAL MEETING

          This Proxy Statement is being furnished to the shareholders of the
Bank in connection with the solicitation of proxies by the Board of Directors of
the Bank for use at the Special Meeting, to be held on ______, February __, 1997
at 10:00 a.m., local time, at the offices of the Bank, 19 South Main Street,
Pontotoc, Mississippi, and at any adjournments thereof.

PURPOSE OF THE SPECIAL MEETING

          The purpose of the Special Meeting is to consider and vote upon (i)
the Reorganization and (ii) such other business as may properly come before the
Special Meeting or any adjournments thereof.

SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE

          Only the holders of record of the outstanding shares of Bank Common
Stock at the close of business on January 6, 1997 (the "Record Date") will be
entitled to notice of, and to vote at, the Special Meeting.  At January __,
1997, there were 33,000 shares of Bank Common Stock issued and outstanding.
Holders of record of Bank Common Stock at the close of business on the Record
Date will be entitled to one vote per share on any matter that may properly come
before the Special Meeting.

QUORUM; SHAREHOLDER VOTE REQUIRED AND OTHER MATTERS

          A quorum, consisting of a majority of the aggregate voting power of
the outstanding Bank Common Stock, must be present in person or by proxy before
any action may be taken at the Special Meeting.  The affirmative vote of the
holders of two-thirds of the outstanding shares of Bank Common Stock is required
to approve the Reorganization.

          The Reorganization is considered a "non-discretionary item" whereby
brokerage firms may not vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions.  Broker non-votes will not
be treated as present for purposes of determining a quorum or for any other
purposes.  Abstentions will be considered in determining the presence of a
quorum at the Special Meeting but will not be counted as a vote cast for the
Reorganization.  Because the Reorganization must be approved by the affirmative
vote of the holders of at least two-thirds of the shares eligible to vote,
abstentions and broker non-votes will have the same effect as a vote against the
Reorganization.

          As of January __, 1997, the directors and executive officers of the
Bank and their affiliates, as a group (9 persons), beneficially owned 13,199
shares of Bank Common Stock, which represented 39.99% of the aggregate number of
votes entitled to be cast at the Special Meeting.  ALL SUCH PERSONS, OTHER THAN
MR. RICHARD DOTY WHO BENEFICIALLY OWNED 4,936 SHARES AS OF JANUARY __, 1997,
HAVE INDICATED THAT THEY INTEND TO VOTE ALL SHARES BENEFICIALLY OWNED BY THEM
FOR THE REORGANIZATION.  See "Recent Developments."

                                      -1-
<PAGE>
 
SOLICITATION, VOTING AND REVOCATION OF PROXIES

          A proxy for use at the Special Meeting accompanies this Proxy
Statement and is solicited by, or on behalf of, the Board of Directors of the
Bank.  Any shareholder who has submitted a proxy may revoke it at any time prior
to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of the Board, (ii) properly submitting to the
Secretary of the Board, at any time prior to the exercise of the earlier proxy,
a duly-executed proxy bearing a later date, or (iii) attending the Special
Meeting and voting in person.  All written notices of revocation and other
communications with respect to the revocation of proxies should be addressed to:
Secretary to the Board, First National Bank of Pontotoc, 19 South Main Street,
Pontotoc, Mississippi 38863.  Attendance at the Special Meeting will not, in and
of itself, constitute revocation of a proxy.

          Shares of Bank Common Stock represented by properly executed proxies,
if such proxies are received before the Special Meeting and not revoked, will be
voted in accordance with the instructions indicated on the proxies.  If no
instructions are indicated, the proxies will be voted FOR approval of the
Reorganization and in the discretion of the proxy holder as to any other matter
that may properly come before the Special Meeting.  If necessary, the proxy
holder may vote in favor of a proposal to adjourn the Special Meeting in order
to permit further solicitation of proxies if there are not sufficient votes to
approve the Reorganization at the Special Meeting.

          The Bank will bear the cost of printing and mailing this Proxy
Statement and all other costs incurred in connection with the solicitation of
proxies from Bank shareholders on behalf of the Board of Directors.  Proxies may
be solicited by mail, personal interview, or telephone by directors, officers or
employees of the Bank without additional compensation therefor.  Arrangements
also will be made with brokerage houses, voting trustees, banks, associations
and other custodians, nominees and fiduciaries, who are record holders of Bank
Common Stock not beneficially owned by them, for forwarding such solicitation
materials to and obtaining proxies from the beneficial owners of such stock
entitled to vote at the Special Meeting and the Bank will reimburse such persons
for their reasonable expenses incurred in doing so.


                          THE PROPOSED REORGANIZATION

GENERAL

          The Board of Directors of the Bank has approved and authorized the
Reorganization, with Mr. Doty being the only director to vote against the
Reorganization.  See "Recent Developments".  The Reorganization Plan sets forth
the terms and the mechanism by which the Company will become the holding company
of the Bank, if all conditions precedent to the Reorganization are satisfied.
See "The Proposed Reorganization - Conditions to Consummation of the Proposed
Reorganization."  The discussion below is qualified in its entirety by reference
to the full text of the Reorganization Plan, which has been filed as Exhibit 2.1
to the Company's Registration Statement on Form S-4 filed with the Commission on
January 8, 1997, and is

                                      -2-
<PAGE>
 
incorporated by reference herein.  Copies of the Reorganization Plan will be
mailed to shareholders of the Bank upon request.

EFFECT OF THE PROPOSED REORGANIZATION

          Upon consummation of the Reorganization, each outstanding share of
Bank Common Stock will be converted into and exchanged for ten shares of Company
Common Stock, and the shareholders of the Bank will become the shareholders of
the Company.  The ten-to-one exchange rate will not affect any shareholders'
percentage ownership.

          As a result of the Reorganization, the Bank will be a wholly-owned
subsidiary of the Company and will continue to engage in the same business and
activities in which it is presently engaged.  The consolidated assets,
liabilities, stockholders' equity and income of the Company immediately
following consummation of the Reorganization will be the same as those of the
Bank immediately prior to the consummation of the Reorganization.  The
Reorganization will not change the management of the Bank or its officers.  Each
current director of the Bank has been invited to serve on the board of directors
of the Company. The first annual meeting of the Company's shareholders at which
directors are to be elected will be held in 1998.

REASONS FOR THE PROPOSED REORGANIZATION

          The Board believes that the proposed Reorganization is in the best
interests of the Bank and its shareholders because the holding company structure
will better facilitate the Bank's ability to serve its customers' needs for
financial services and is a necessary first step in the implementation of the
Board's plan to maximize the value of the Bank to all of its shareholders.  The
holding company structure will also provide greater flexibility than the Bank
without a holding company would otherwise possess.  The Company will be operated
as a bank holding company within the meaning of the federal Bank Holding Company
Act of 1956 (the "Act").  Accordingly, the Bank, through the Company, will be
able to expand and to diversify its business into other permitted banking and
non-banking activities, either through newly-formed subsidiaries or through
acquisitions.  The holding company structure also will enable the Company to
provide banking related services in addition to the traditional services that a
commercial bank may provide under current law.  While management has no present
plans to engage actively in any other business activities, management will study
the feasibility of establishing and acquiring subsidiaries to engage in other
banking and non-banking business activities to the extent permitted by law.  The
Company, as a bank holding company, will also be permitted to acquire other bank
holding companies or, subject to certain restrictions, other financial
institutions, although management, at present, has no such intentions.

CONDITIONS TO CONSUMMATION OF THE REORGANIZATION

          Consummation of the Reorganization is subject to a number of
conditions, including the following: (i) the Reorganization has been approved by
holders of at least two-thirds of the outstanding shares of Bank Common Stock;
(ii) the Reorganization has been approved by the

                                      -3-
<PAGE>
 
Comptroller; (iii) the formation of the Company has been approved by the Federal
Reserve Board; (iv) the Bank has received an opinion from legal counsel passing
upon the federal income tax consequences of the Reorganization to the Bank's
shareholders; and (v) it has been determined to the satisfaction of the Company
and the Bank that the Reorganization will be treated for accounting purposes
similar to a "pooling of interests."

          Additionally, it is a condition to consummation of the Reorganization
that no action, suit or proceeding shall have been instituted or shall have been
threatened before any court or other governmental body or by any public
authority to restrain, enjoin or prohibit the Reorganization, or which might
restrict the operation of the business of the Bank or the ownership of Bank
Common Stock or the exercise of any rights with respect thereto by the Company.

          Applications have been filed with the Comptroller and the Federal
Reserve Board seeking the requisite approvals, and the Bank expects to receive
such approvals by February __, 1997.  There can be no assurances, however, that
the required approval of the Comptroller or the Federal Reserve Board will be
obtained or will be obtained without the imposition by the Comptroller or the
Federal Reserve Board of material conditions, which must be satisfied prior to
consummation of the Reorganization.  The Reorganization, if approved by the
Bank's shareholders, will be consummated as soon as practical after all
conditions have been satisfied.

TERMINATION AND ABANDONMENT OF THE REORGANIZATION PLAN

          The Reorganization Plan may be terminated and the Reorganization
abandoned at any time, either before or after a vote of the Bank's shareholders,
if (i) any of the conditions to its consummation have not been met, or (ii) the
Board of Directors of the Bank determines for any reason that the Reorganization
is inadvisable.

STOCK CERTIFICATES

          At the effective date of the Reorganization, each shareholder of the
Bank will cease to have any rights as a shareholder of the Bank, and his or her
sole rights will pertain to the shares of Company Common Stock into which his or
her shares of Bank Common Stock have been converted pursuant to the
Reorganization, except for any such shareholder who exercises statutory
dissenters' rights.  See "Comparative Rights of Shareholders of the Bank and the
Company" and "Rights of Dissenting Shareholders".

          Upon consummation of the Reorganization, instructions on how to
exchange certificates representing shares of Bank Common Stock for certificates
representing shares of Company Common Stock will be sent to each person who was
a shareholder of record of the Bank on the effective date of the Reorganization.

          On the effective date of the Reorganization and until surrendered,
certificates representing Bank Common Stock will be deemed for all purposes to
evidence ownership of and to represent the number of shares of Company Common
Stock into which such shares of Bank Common

                                      -4-
<PAGE>
 
Stock have been converted.  However, no dividends or other distribution declared
on or after the effective date of the Reorganization with respect to the Company
Common Stock or the Bank Common Stock will be distributed to the holder of any
unsurrendered stock certificate until such certificate is surrendered.

          Shareholders of the Bank who cannot locate their certificates are
urged to promptly contact Mr. Buddy R. Montgomery at (601) 489-1631.  A new
certificate will be issued to replace the lost certificate(s) only upon
execution by the shareholder of an affidavit certifying that his or her
certificate(s) cannot be located and an agreement to indemnify the Bank against
any claim that may be made against it by the holder of the certificate(s)
alleged to have been lost or destroyed.  The Bank may also require the
shareholder to post a bond in such sum as is sufficient to support the
shareholder's agreement to indemnify the Bank.

ACCOUNTING TREATMENT

          The Company and the Bank intend that the Reorganization will be
treated similar to a pooling of interests for financial accounting purposes.


                          DESCRIPTION OF CAPITAL STOCK

STOCK OF THE BANK

          GENERAL.  Shareholders of the Bank have certain rights under the
Bank's Articles of Association and Bylaws and under federal law.  See
"Comparative Rights of Shareholders of the Bank and the Company."  The Bank has
33,000 shares of Bank Common Stock issued and outstanding, and no more share are
authorized.

          CUMULATIVE VOTING RIGHTS.  Shareholders of the Bank have the right to
cumulate their votes in any election of directors.  Cumulative voting allows
shareholders to multiply the number of votes they are entitled to cast by the
number of directors for whom they are entitled to vote and cast the entire
product for a single candidate, or to distribute the product, in any manner,
among two or more candidates.

          PREEMPTIVE RIGHTS.  Shareholders of the Bank have preemptive rights to
purchase newly issued shares of Bank Common Stock so as to maintain their
proportionate voting power.

STOCK OF THE COMPANY

          GENERAL.  Shareholders of the Company will have certain rights under
the Company's Articles of Incorporation and Bylaws, and under the MBCA.  The
Company's Articles authorize the issuance of 3,000,000 shares of Company Common
Stock and 1,000,000 shares of preferred stock, no par value (the "Company
Preferred Stock").  Currently, one share of Company Common Stock is issued and
outstanding to Mr. Buddy R. Montgomery, in his capacity as

                                      -5-
<PAGE>
 
President of the Bank, for the purpose of organizing the Company and taking
certain actions on behalf of the Company relating to the Reorganization.
Immediately prior to the effective date of the Reorganization, if it is
approved, the Company will repurchase, at the original selling price, and cancel
such share.

          Assuming that no shareholder of the Bank exercises his or her
dissenter's rights, there will be 330,000 shares of Company Common Stock issued
and outstanding upon consummation of the Reorganization.  See "Rights of
Dissenting Shareholders."

          COMPANY COMMON STOCK.  Each share of Company Common Stock has the same
relative rights, and is identical in all respects with, each other share of
Company Common Stock.  Until such time as Company Preferred Stock is issued, if
ever, the holders of shares of Company Common Stock will possess all rights,
including exclusive voting rights, pertaining to the capital stock of the
Company.  Each share of Company Common Stock will entitle the holder thereof to
one vote on all matters upon which shareholders have the right to vote.
Shareholders of the Company will not be entitled to cumulate their votes for the
election of directors.  See "Comparative Rights of Shareholders of the Bank and
the Company."  Subject to all of the rights of holders of Company Preferred
Stock, the holders of Company Common Stock will be entitled to dividends when,
as, and if declared by the Company's Board of Directors out of funds legally
available therefor.  Upon consummation of the Reorganization, the only source of
funds from which the Company could pay dividends would be from amounts received
as dividends from the Bank. See "Trading Market; Dividends."

          Holders of Company Common Stock will not be entitled to preemptive
rights.  Upon receipt by the Company of the full purchase price therefor, each
share of Company Common Stock will be fully paid and non-assessable.

          In the event of any liquidation or dissolution of the Company, the
holders of Company Common Stock will be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Company, all assets of
the Company available for distribution, in cash or in kind.  If Company
Preferred Stock should ever be issued, the holders thereof may have a priority
over the holders of Company Common Stock in the event of liquidation or
dissolution.

          COMPANY PREFERRED STOCK.  The Board of Directors of the Company is
authorized to issue Company Preferred Stock in one or more series, and to
determine, in whole or in part, the preferences, limitations and relative rights
of any such shares.  Company Preferred Stock may rank prior to Company Common
Stock as to dividend rights, liquidation preferences, or both, may have full or
limited voting rights, and may be convertible into Company Common Stock.  The
holders of any class or series of Company Preferred Stock also may have the
right to vote separately as a class or series under the terms of such class or
series or as may be otherwise provided by Mississippi law.  No shares of Company
Preferred Stock will be issued in connection with the Reorganization and the
Company does not have any current plans to issue any such shares.

                                      -6-
<PAGE>
 
                             COMPARATIVE RIGHTS OF
                   SHAREHOLDERS OF THE BANK AND THE COMPANY

GENERAL
 
          As a result of the Reorganization, the Bank's shareholders will become
shareholders of the Company.  As discussed below, there are substantial
differenes between the Bank's Articles of Association and Bylaws and the
Company's Articles of Incorporation and Bylaws, which have an effect on
shareholder rights.  In addition, there are certain differences in shareholder
rights arising from distinctions between laws governing national banking
associations and the MBCA.

          Before voting on the Reorganization, Bank shareholders are urged to
read carefully the following sections of this Proxy Statement describing more
fully the specific differences between their rights as a Bank and a Company
shareholder.  The discussion herein is not intended to be a complete statement
of the differences affecting the rights of shareholders, but rather summarizes
the more significant differences and certain important similarities.  The
discussion herein is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Company, which are attached hereto as Appendices
A and B respectively, and to the applicable provisions of the MBCA.

SHAREHOLDER MEETINGS

          The Company's Bylaws provide that upon the written request of holders
of not less than a majority of all issued and outstanding shares of stock
entitled to vote on any issue proposed to be considered at a special meeting,
submitted to the Company's secretary no less than forty-five days prior to the
date requested for such special meeting, the secretary shall call a special
meeting of shareholders.

          The Bank's Articles provide that any three shareholders of the Bank
may call a shareholder meeting for any purpose by publishing notice of such
meeting for ten days in the Pontotoc Progress or by mailing notice of such
meeting to each shareholder ten days before the date fixed for such meeting.

SHAREHOLDER PROPOSALS

          The Company's Articles provide that any shareholder may submit a
proposal for action at any meeting of shareholders, including the nomination of
directors, if such shareholder (the "Proponent") satisfies certain conditions,
including the following:

     (a)  The Proponent must be the record or beneficial owner of shares having
          voting power on the proposal and have held such shares for at least
          one year; and

     (b)  The proposal must be received by the Company not less than 120 days in
          advance of the date that corresponds with the date of the Company's
          proxy statement sent

                                      -7-
<PAGE>
 
          to shareholders in connection with the previous year's annual meeting
          of shareholders, or not less than forty-five days in advance of the
          date on which the meeting is scheduled to be held or within ten days
          after notice of the meeting is first given to shareholders, whichever
          is later.

     The Board of Directors of the Company may exclude from consideration at a
shareholders meeting any proposal permitted or required to be so excluded by
applicable law, rule or regulation.

     Neither the Bank's Articles nor its Bylaws contain provisions regarding
shareholder proposals.

APPROVAL OF CERTAIN BUSINESS COMBINATIONS

     The Company's Articles provide that any merger or consolidation with a
Tender Offeror (as described in the Company's Articles) or the sale, lease or
exchange of substantially all of the assets of the Company or the Tender Offeror
to the other, must be approved by an affirmative vote of the holders of Company
Common Stock representing not less than 80% of the shares entitled to vote
thereon.

     Neither the Bank's Articles nor its Bylaws provide for a supermajority vote
of shareholders to approve a merger.  Pursuant to the National Bank Act,
however, a merger involving the Bank must be approved by at least two-thirds of
the outstanding shares of Bank Common Stock.

DIRECTORS

     GENERAL.  The Company's Bylaws provide for a Board of Directors of between
six and twelve directors, with the exact number of directors to be determined
from time to time by resolution of the Company's Board of Directors.  It is
expected that, upon consummation of the Reorganization, the Board of Directors
of the Company will consist of seven members, with each current director of the
Bank serving until the first annual meeting of the shareholders, or until his or
her successor is elected and qualified.  The first annual meeting of
shareholders of the Company at which directors are to be elected will be held in
1998.  Unless and until the Board of Directors consists of nine or more members
as described below, directors who are elected at the 1998 meeting shall serve a
one-year term or until his or her successor is elected and qualified.

     If the number of directors fixed by the Board of Directors should ever be
nine or more, the Company's Articles provide that the Company will have a
classified board of directors consisting of three classes of directors, each
class to be as nearly equal in number as possible, the term of office of
directors of the first class to expire at the first annual meeting of the
shareholders after their election, that of the second class to expire at the
second annual meeting after their election, and that of the third class to
expire at the third annual meeting after their

                                      -8-
<PAGE>
 
election.  At each annual meeting after such classification, the number of
directors equal to the number of the class whose term expires at the time of
such meeting shall be elected to hold office and the directors so elected shall
serve a term of three years to succeed those whose terms expire.

     The Bank's Articles provide for a Board of Directors of between five and
fifteen members, who shall serve a term of one year, until the next annual
meeting at which directors are elected or until their successors are chosen and
qualified.  Currently, the Bank's Board of Directors consists of seven members.
Neither the Bank's Articles nor its Bylaws provide for a classified Board of
Directors.

     REMOVAL OF DIRECTORS.  The Company's Articles provide that no member of the
Board of Directors may be removed during his or her term without cause.  The
Company's Articles also provide that shareholders may remove a director with
cause, but only at a meeting called for that purpose and upon the affirmative
vote of the holders of at least 80% of the voting power of all shares of stock
entitled to vote generally in the election of directors; and in the event that
less than the entire Board is to be removed, no one director may be removed if
the votes cast against his or her removal would be sufficient to elect him or
her if such votes were cumulatively voted at an election of the class of
directors of which he or she is a member.

     Neither the Articles nor the Bylaws of the Bank contain provisions
regarding the removal of directors.

     VACANCIES IN THE BOARD OF DIRECTORS.  The Company's Articles provide that
any vacancy in the Board of Directors, however it is created, shall be filled
only at the next annual meeting of the shareholders.

     The Articles and the Bylaws of the Bank do not contain provisions on the
filling of vacancies in the Board of Directors.  The National Bank Act provides,
however, that any vacancy in a national bank's Board of Directors shall be
filled by appointment by the remaining directors, and any director so appointed
shall hold his or her place until the next election.

AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS

     The Company's Articles provide that an amendment to the Articles relating
to the composition of the Board of Directors and removal of directors therefrom
must be approved by the affirmative vote of at least 80% of the shareholders
entitled to vote in the election of directors (the same percentage required for
the removal of a director).  The affirmative vote of at least 80% of the
shareholders is also required to amend the provisions of the Company's Articles
regarding the following: (i) the requirement that a supermajority of the
shareholders approve of certain business combinations; (ii) indemnification of
officers and directors; (iii) shareholder proposals; (iv) Board considerations
when evaluating an attempted takeover; and (v) the election to be governed by
the Mississippi Control Share Act.  Otherwise, the Company's Articles may be
amended if the number of shares cast for the amendment at a meeting when a

                                      -9-
<PAGE>
 
quorum is present exceeds the number of votes cast against said proposed
amendment; unless the proposed amendment would result in dissenters' rights, in
which case the amendment must be approved by the affirmative vote of the
majority of the outstanding shares entitled to vote on the amendment.

     The Bank's Articles may be amended by the holders of a majority of the
stock of the Bank, unless a greater percentage is required by law, in which case
the amendment must be adopted by such greater percentage.

     The Company's Bylaws may be amended or repealed by majority vote of the
Company's Board at a meeting of the Board at which a quorum is present.  The
Board may not, however, amend or repeal a particular bylaw if the shareholders,
in amending or repealing such bylaw, expressly provide that the Board may not
amend or repeal that bylaw.

     The Bank's Bylaws may be amended by the vote of two-thirds of the entire
Board of Directors.

ASSESSABILITY OF STOCK

     Under the National Bank Act, a national bank may assess the holders of its
common stock in limited circumstances in which the bank has been found by
regulatory authorities to have a capital deficiency.  The bank may seize the
stock of shareholders who do not contribute to an assessment, and the stock can
be sold to raise capital.  Common stock of corporations organized under the
MBCA, such as the Company, is not assessable.

CERTAIN CORPORATE PROTECTIVE DEVICES

     BOARD CONSIDERATIONS IN EVALUATING AN ATTEMPTED TAKEOVER.  The Articles of
Incorporation of the Company allow the Board of Directors of the Company, in
connection with the exercise of its judgment in determining what is in the best
interests of the Company and its shareholders, when evaluating any proposed
Major Business Transaction (as defined in the Articles of Incorporation), in
addition to considering the adequacy of the amount of consideration to be paid
in connection with such transaction, to consider, among other things, the
following:

     (i)  the social and economic effects of the proposed transaction on the
          Company, its subsidiaries, depositors, loan and other customers,
          creditors and employees of the Company and its subsidiaries and other
          elements of the community in which the Company and its subsidiaries
          operate or are located;

     (ii) the business, financial condition and earnings prospects of the
          acquiring person and the possible effect of such conditions upon the
          Company, its subsidiaries and the other elements of the community in
          which the Company and its subsidiaries operate or are located; and

                                      -10-
<PAGE>
 
   (iii)  the competence, experience and integrity of the acquiring person and
          its management.

     Neither the Bank's Articles nor its Bylaws contain provisions similar to
those described above.

     MISSISSIPPI CONTROL SHARE ACT.  The Company's Articles of Incorporation
state that the Company shall be governed by the Mississippi Control Share Act,
which does not apply to banks or bank holding companies unless they elect to be
governed by such statute.  The effect of the statute is to deprive a person
acquiring "control shares" (as defined in the Mississippi Control Share Act) in
an issuing public corporation from voting such shares unless approved by the
holders of a majority of the shares that are not "interested shares" (as defined
in the Mississippi Control Share Act).

     The Bank has not elected to be governed by the Mississippi Control Share
Act.

EFFECTS OF SHAREHOLDER RIGHTS PROVISIONS

     When the Bank's Board determined to propose the holding company structure
to the shareholders, it determined that the newly-formed holding corporation's
articles of incorporation should contain certain measures that would protect the
interests of all shareholders and discourage abusive takeover practices as
described herein (the "Shareholder Rights Provisions").

     The Shareholder Rights Provisions found in the Company's Articles have both
advantages and disadvantages to the shareholders.  The Shareholder Rights
Provisions cannot, and are not intended to, prevent a purchase of all or a
majority of the equity securities of the Company, nor are they intended to deter
bids or other efforts to acquire such securities.  Rather, the Board believes
that the Shareholder Rights Provisions are intended to discourage disruptive
tactics and takeovers at unfair prices or on terms that do not provide all
                                                                       ---
shareholders with the opportunity to sell their stock at a fair price.  The
Shareholder Rights Provisions are intended to encourage third-parties who may
seek to acquire control of the Company, to initiate such an acquisition through
negotiations directly with the Board of Directors.  The Board of Directors
believes that it will be in the best position to protect the interests of all of
the shareholders and negotiate a fair price.

     Although these Shareholder Rights Provisions are intended to encourage
persons seeking to acquire control of the Company to initiate such an
acquisition through arm's length negotiations with the Board of Directors, the
effect of these provisions may be to discourage a third-party from making a
tender offer, or otherwise attempting to obtain a substantial position in the
equity securities of the Company, even though some or a majority of the
Company's shareholders might believe such actions to be beneficial.

     Moreover, to the extent that any potential third-party acquirors are
deterred by the Shareholder Rights Provisions, such provisions may have the
effect of preserving the incumbent

                                      -11-
<PAGE>
 
management in office.  The proposed Shareholder Rights Provisions may also serve
to benefit incumbent management by making it more difficult to remove
management, even when the only reason for the proposed change may be the
unsatisfactory performance of the present directors.

     Takeovers or changes in the board of directors of a company that are
proposed and effected without prior consultation and negotiations with the
company are not necessarily detrimental to such company and its shareholders.
However, the Board of Directors believes that the benefits of seeking to protect
the ability of the Company to negotiate effectively through directors who have
previously been elected by the shareholders and who are familiar with the
Company outweigh any disadvantage of discouraging such unsolicited attempts to
acquire the Company.

     The Board of Directors does not currently contemplate any other action
designed to affect the ability of third parties to take over or change control
of the Company.


                       RIGHTS OF DISSENTING SHAREHOLDERS

     THE FOLLOWING IS A SUMMARY OF THE PROVISIONS OF THE FEDERAL BANKING LAW
RELATING TO DISSENTERS' RIGHTS AND IS NECESSARILY INCOMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE EXCERPTS FROM THE FEDERAL BANKING LAW ATTACHED
HERETO AS APPENDIX C.

     The federal banking laws allow a shareholder of the Bank who objects to the
Reorganization to dissent from the Reorganization and to receive cash for his or
her shares of Bank Common Stock as of the effective date of the Reorganization.

     To exercise the right of dissent, a shareholder must either vote against
the Reorganization at the Special Meeting or give notice to the Bank in writing
of his or her dissent at or before the Special Meeting.  In addition, within
thirty days after the consummation of the Reorganization, the shareholder must
file with the Bank a written demand for the payment for his or her shares at
their value as of the date the Reorganization is approved by the Comptroller,
along with the certificate(s) representing his or her shares of Bank Common
Stock.  Notices of dissent and written demands for payment should be addressed
to Mr. Buddy R. Montgomery, 19 South Main Street, Pontotoc, Mississippi 38863.

     The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the Reorganization, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of Bank Common Stock who perfect dissenters' rights; (2)
one selected by the directors of the Bank; and (3) one selected by the two
persons so selected.  The valuation agreed upon by any two of the three
appraisers shall govern.  If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his or her shares,
appeal to the Comptroller, who shall cause a reappraisal to be made which shall
be final and binding.

                                      -12-
<PAGE>
 
     If, within ninety days from the date of the consummation of the
Reorganization, for any reason one or more of the appraisers is not selected as
provided above, or the appraisers fail to determine the value of the shares of
Bank Common Stock, the Comptroller shall upon written request of any interested
party cause an appraisal to be made which shall be final and binding on all
parties.  The expenses of the Comptroller in making the reappraisal or the
appraisal, as the case may be, must be paid by the Bank.  The Bank will be
required promptly to pay the ascertained value of the shares to the dissenting
shareholders.


                    CERTAIN FEDERAL INCOME TAX CONSEQUENCES

     In view of the complexity of the laws and interpretations thereof,
shareholders of the Bank should consult with and rely on the advice of their tax
advisors on matters relating to the conversion of Bank Common Stock for Company
Common Stock and should not consider this summary as a substitute for careful
individual tax planning.

     The income tax treatment of the conversion of common stock pursuant to a
reorganization involves technical and not completely settled principles of
taxation.  Consequently, it is impractical to present herein a detailed
explanation of the income tax treatment of shareholders as a result of the
Reorganization.

     The following discussion is intended to be a summary of certain relevant
principles of federal income taxation and a statement of the material tax issues
associated with the Reorganization which should be carefully considered by
shareholders prior to voting on the Reorganization.  The following discussion is
based upon counsel's analysis and interpretation of the Code, and Treasury
Regulations promulgated thereunder, Internal Revenue Service (the "Service")
procedures and rulings and court decisions published as of the date of this
Proxy Statement.  No assurance can be given that such authorities will not be
modified by legislative action, administrative action or judicial review.  Any
such changes may be retroactive so as to apply to transactions prior to the date
of such changes and could modify such discussion and adversely affect the tax
aspects described herein.

     The Reorganization has been structured to qualify as a tax-free
reorganization under Section 368(a) of the Code.  The consummation of the
Reorganization is subject to, among other matters, receipt of an opinion from
Phelps Dunbar, L.L.P., special counsel to the Company and the Bank, to the
effect that the Reorganization will be treated as a tax-free transaction, with
the following federal income tax consequences:

     (i)  Neither the Bank nor the Company will recognize any gain or loss as a
     result of the Reorganization;

     (ii)  No gain or loss will be recognized to the shareholders of the Bank
     upon conversion of their shares; the tax basis of shares of Company Common
     Stock received in the Reorganization will be the same as the tax basis of
     the shares of Bank Common stock

                                      -13-
<PAGE>
 
     previously owned; and if the shares of Bank Common Stock were held as
     capital assets, the holding period of the shares of Company Common Stock
     received will include the holding period of the shares of such Bank Common
     Stock exchanged therefor; and

     (iii)  A shareholder of the Bank who exercises his or her rights as a
     dissenter and thereby receives cash for his or her shares will recognize
     income, gain or loss measured by the difference between the amount of cash
     received and the tax basis of his or her shares of Bank Common Stock,
     subject to the provisions of Code Section 302 and that such distributions
     will generally be treated as capital gain or loss if the shares were held
     as capital assets.  The opinion notes, however, that a dissenting
     shareholder must take into account the effect that Sections 302 and 318 of
     the Code may have in determining consequences of the Reorganization which
     could cause the distributions to be treated as ordinary income or,
     possibly, as a dividend to the dissenter.

     The shareholders of the Bank should also be aware that state and local
income taxes may affect their tax situation.  While many state and local income
tax statutes correspond with the federal income tax laws, no attempt is made
herein to describe any state or local income tax consequences resulting from the
Reorganization.  Shareholders are urged to consult their personal tax advisors
with respect to any effects of state and local tax laws.

     In the case of a corporate shareholder of the Bank, the tax consequences
described herein are generally applicable, although no attempt is made herein to
discuss the tax ramifications with respect to a corporate shareholder.  The
foregoing discussion assumes that each shareholder of the Bank is a natural
person, except as otherwise noted.  All corporations, trusts, or other entities,
are urged to consult their own tax advisors.

                           TRADING MARKET; DIVIDENDS

NO TRADING MARKET

     Prior to the Reorganization, there was no public trading market for Bank
Common Stock and it is not anticipated that an active trading market will
develop in Company Common Stock following consummation of the Reorganization.
Because neither Bank Common Stock nor Company Common Stock is traded on an
established public market, no information is presented concerning the price of
either Bank Common Stock or Company Common Stock.  At December 31, 1996, there
were approximately 200 holders of Bank Common Stock.

DIVIDENDS

     Pursuant to Mississippi law, the Company's Board of Directors may authorize
the Company to pay cash dividends to its shareholders.  The only limitation on
such a dividend is that no distribution may be made if, after giving effect to
the distribution (a) the Company would not be able to pay its debts as they come
due in the usual course of business, or (b) the Company's total assets would be
less than the sum of its total liabilities plus the amount that

                                      -14-
<PAGE>
 
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of any
shareholders whose preferential rights are superior to those receiving the
distribution.

     The principal source of the Company's cash revenues will be dividends from
the Bank.  There are certain limitations under federal law on the payment of
dividends by national banks.  Under federal law, the directors of a national
bank, after making proper deduction for all expenses and other deductions
required by the Comptroller, may credit net profits to the Bank's undivided
profits account, and may declare a dividend from that account of so much of the
net profits as they judge expedient.

     The prior approval of the Comptroller is required, however, if the total of
all dividends declared by a national bank in any calendar year will exceed the
sum of such bank's net profits for that year and its retained net profits for
the preceding two calendar years, less any required transfers to surplus.
Federal banking law also prohibits national banks from paying dividends which
would be greater than the bank's undivided profits after deducting statutory bad
debts in excess of the bank's allowance for loan losses.  Finally, FDICIA (as
hereinafter defined) generally prohibits a depository institution from making
any capital distribution to its holding company if the depository institution
would thereafter be "undercapitalized."

     In addition, both the Company and the Bank are subject to various
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a national bank or
bank holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof.  The Comptroller has indicated that
paying dividends that deplete a national bank's capital base to an inadequate
level would be an unsound and unsafe banking practice.  The Comptroller and the
Federal Reserve Board have each indicated that banking organizations should
generally pay dividends only out of current operating earnings.  The Bank's
ability to pay dividends is also limited by prudence, statutory and regulatory
guidelines, and a variety of other factors.

     The Bank has traditionally declared dividends in December and paid
dividends on such declarations in January of the following year.  Dividends paid
in January of 1995 and 1996 were $15.00 and $16.00 per share, respectively.  On
January 2, 1997, the Board of Directors paid an $18.00 per share, regular, and
$12.00 per share, special, dividend.

     The Company was formed in December 1996 and has never paid any dividends.
If the Reorganization is approved, the declaration of future dividends will be
at the discretion of the Board of Directors of the Company and generally will be
dependent upon the earnings of the Bank, the assessment of capital requirements,
considerations of safety and soundness, applicable laws and regulations and
other factors.

                                      -15-
<PAGE>
 
                             BUSINESS OF THE BANK

GENERAL

          The Bank is a national banking association headquartered in Pontotoc,
Mississippi.  The primary business of the Bank is attracting deposits from the
public and using such deposits and other sources of funds to make real estate,
business, consumer and other loans.  The services provided by the Bank include
the offering of saving and checking accounts, certificates of deposit and other
time deposits and safe deposit facilities.  As of September 30, 1996, the Bank
had total assets of approximately $151 million, total deposits of approximately
$123 million, and shareholders' equity of approximately $27 million.  The Bank's
business is conducted at its principal executive and main banking office, which
is located at 19 South Main Street, Pontotoc, Mississippi 38863 and its
telephone number is (601) 489-1631.  The Bank also operates one branch office
located at 158 Highway 15 North, Pontotoc, Mississippi 38863.  The Bank has also
obtained approval for an additional branch office also located on Highway 15
North in Pontotoc.  The Bank is currently constructing and intends for this
branch to be operational by the summer of 1997.

COMPETITION

          The Bank experiences competition in attracting deposits and in making
loans in its primary service area.  Bank management believes that the primary
factors in competing for deposits are interest rates, the range of financial
services offered and convenience of office locations and hours of operation.
Direct competition for such deposits comes from other commercial banks, savings
institutions, credit unions, brokerage firms and money market funds.  Bank
management believes that the primary factors in competing for loans are interest
rates, loan origination fees and the range of lending services offered.
Competition for loans comes from other commercial banks, savings institutions,
credit unions and mortgage banking firms.  Such entities may have competitive
advantages as a result of greater resources and higher lending limits (by virtue
of their greater capitalization).  The Bank, however, seeks to pay interest on
its accounts and certificates competitive with other financial institutions in
its primary service area.

EMPLOYEES

          At December 15, 1996, the Bank had 53 full-time and 4 part-time
employees.  The Bank considers its relationship with its employees to be good.

LEGAL PROCEEDINGS

          The Bank is not a party to any pending legal proceedings other than
routine litigation that is incidental to its business.

                                      -16-
<PAGE>
 
                            BUSINESS OF THE COMPANY

          The Company is a Mississippi corporation that was organized in
December 1996 for the purpose of becoming the parent company of the Bank.  Upon
consummation of the Reorganization, the Company's primary asset will be 100% of
the Bank Common Stock.  The Company was organized at the direction of the Bank's
Board of Directors solely for the purpose of effecting the proposed
Reorganization.  Accordingly, the Company has not engaged in any active business
operations to this date and has no business or financial history.  The Company
is not presently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. See "Available Information; Reports to
Security Holders."

          The Company's principal executive office is located at the Bank's main
banking office at 19 South Main Street, Pontotoc, Mississippi 38863 and its
telephone number is (601) 489-1631.

                                      -17-
<PAGE>
 
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED DECEMBER 31, 1995

     The following discussion provides certain information concerning the 
financial condition and results of operations of the Bank for the two years 
ended December 31, 1995 and 1994. This discussion should be read in conjunction 
with the compiled financial statements and accompanying notes presented 
elsewhere in this Proxy Statement.

OVERVIEW

     The Bank reported net income for 1995 of $2,440,000, or $73.94 per share, 
compared to $2,191,000, or $66.39 per share, in 1994. This represented an 11.4% 
increase in 1995 compared to 1994. The increase in earnings from 1994 to 1995
was due to a 24% increase in deposit service fees, particularly NSF charges, and
a 4% increase in net increase income, which itself was caused by growth in
assets, particularly loans. Both of these factors indicate an improved local
economy and increased demand for financial services. Return on average assets
was 1.7% and return on average equity was 10.01% for 1995, compared to the prior
year's returns of 1.66% and 9.58% respectively.

     Average assets increased 10.81% in 1995 from the 1994 level. At year end 
1995, total assets were $147,106,000. Total stockholders' equity of the Bank was
$25,123,000 at December 31, 1995, compared to $21,366,000 at December 31, 1994.

RESULTS OF OPERATIONS

     Net Interest Income. The Bank's primary source of revenue is net interest 
income. Net interest income is the excess of interest income and fees on earning
assets over interest expense on interest-bearing liabilities. The level of net 
interest income is determined primarily by the volume of interest earning 
assets, and the spread between the yields on earning assets and the costs of 
their funding sources. Net interest income increased from $5,885,000 in 1994 to 
$6,101,000 in 1995.

     Average earning assets increased from $123,954,000 in 1994 to $132,714,000 
in 1995. Interest income increased from $9,213,000 in 1994 to $10,650,000 in 
1995, due primarily to an increase in loans. This growth in higher yielding 
assets was funded almost entirely by an increase in time deposits. The average 
cost of the Bank's time deposits increased in 1995 to 5.32% from 3.95% in 1994, 
because of both volume and rate increases. The end result was a decrease in the 
Bank's net interest margin, defined as the ratio of net income to average 
earning assets, from 4.65% in 1994 to 4.60% in 1995. The yield on tax exempt 
securities is not on a tax equivalent basis for these figures.

     The Bank's net interest spread, the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities, was 3.54% for 1995, a 
 .37 basis point decrease from the 

                                     -18-
<PAGE>
 
1994 level of 3.91%. The spread decreased as a result of an increase in the 
rates paid on interest-bearing liabilities, as well as an increase in the volume
of time deposits relative to total interest-bearing deposits.

        Interest Rate/Volume Analysis. The following table sets forth for the 
periods indicated a summary of the changes in interest earned and interest paid
resulting from changes in volume and changes in rates:


<TABLE> 
<CAPTION> 
                                                       1995/1994
                                          -----------------------------------
                                                     CHANGE DUE TO
                                          -----------------------------------
                                             RATE       VOLUME      CHANGE
                                          ---------  -----------  -----------
                                                (DOLLARS IN THOUSANDS)
<S>                                       <C>          <C>          <C> 
Interest income:
  Loans                                   $    464     $    754     $  1,218
  Investment securities - taxable             (220)         373          153
  Investment securities - nontaxable             4          (27)         (23)
  Federal funds sold and
   resale agreements                            39           51           90
                                          --------     --------     --------
    Total interest income                      287        1,151        1,438
                                          --------     --------     --------

Interest expense:
Deposits other than time                       (32)         (65)         (97)
Time deposits                                  771          550        1,321
Other interest-bearing liabilities              (2)          (1)          (3)
                                          --------     --------     --------
Total interest expense                         737          484        1,221
                                          --------     --------     --------
Net interest income                       $   (450)    $    667     $    217
                                          ========     ========     ========
</TABLE> 

NOTE: The changes in interest due to both volume and rate have been allocated 
proportionally between rate and volume.



                                     -19-
<PAGE>
 
AVERAGE BALANCES, YIELDS AND RATES PAID
The table below summarizes average assets, liabilities and stockholders' equity,
interest earned and paid and average yields and rates for the two years ended 
December 31, 1995:

<TABLE> 
<CAPTION> 
                                                                            1995                                  1994
                                                             ----------------------------------      -------------------------------
                                                              AVERAGE       INCOME/      YIELDS/     AVERAGE       INCOME/   YIELDS/
                                                              BALANCES      EXPENSE      RATES       BALANCES      EXPENSE   RATES
                                                              --------      -------      ------      --------      -------   ------
                                                                                       (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>          <C>         <C>           <C>       <C> 
ASSETS
Loans(1)                                                      $ 76,610      $ 7,289      9.51%       $ 68,177      $6,071    8.90%
Investment securities-taxable                                   34,316        2,187      6.37%         34,126       2,034    5.96%
Investment securities-nontaxable(2)                             18,472          995      5.39%         18,996       1,018    6.31%
Federal funds sold                                               3,316          179      5.40%          2,655          90    3.28%
Total earning assets                                           132,714       10,650      8.02%        123,954       9,213    7.43%
Other assets                                                     8,509                                  7,925
Total assets                                                  $141,223                               $131,879

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Deposits other than time                                      $ 34,307          975      2.84%       $ 37,321       1,072    2.87%
Time deposits                                                   66,977        3,563      5.32%         56,797       2,242    3.95%
Total interest-bearing deposits                                101,284        4,538      4.48%         94,118       3,314    3.52%
Other interest-bearing liabilities                                 192           11      5.73%            248          14    5.65%
Total interest bearing liabilities                             101,476        4,549      4.48%         94,366       3,328    3.53%
Other interest bearing liabilities                              15,205                                 15,011
Other liabilities                                                  840                                    479
Minority interest                                                    0                                      0
Stockholders' equity                                            23,702                                 22,022
Total liabilities and stockholders' equity                     141,223                                131,878

Net interest spread                                                                      3.54%                               3.91%
Net interest income/margin                                                  $ 6,101      4.60%                     $5,885    4.75%
</TABLE> 

----------------------
(1) The yield on tax exempt securities is not on a tax equivalent basis for this
schedule.

(2) Nonaccrual loans are included in average balances and interest on such loans
is recognized on a cash basis.

                                     -20-
<PAGE>
 
     Interest Rate Sensitivity. The interest rate sensitivity gap is the 
difference between the amount of interest-bearing assets and interest-bearing 
liabilities maturing in any given time period. A primary objective of 
asset/liability management is to minimize the effect of changing interest rates 
on net interest income. Management reviews interest rate exposure on a monthly 
basis to analyze the impact of changes in market interest rates on net income. 
At December 31, 1995, the Bank's one year repricing gap, defined as repricing 
assets minus repricing liabilities as a percentage of total assets, was -2.98%, 
i.e. more of the Bank's liabilities than assets reprice within a one-year time 
frame. In periods of increasing rates, the Bank should experience a negative 
effect on net interest income because its interest income on earnings-assets 
will increase less quickly than its cost of funds. Conversely, in periods of 
decreasing interest rates, based on its current interest sensitivity gap, the 
Bank should experience increased net interest income, since the interest on its 
earning-assets will decline less quickly than its cost of funds. However, the 
degree of interest rate sensitivity is not equal for all types of assets and 
liabilities. The Bank's experience has indicated that the repricing of 
interest-bearing demand, savings and money market accounts does not move with 
the same magnitude as general market rates. These deposit categories, along 
with non-interest bearing deposits, have historically been stable sources of 
funds for the Bank, which indicates a much longer implicit maturity than their 
contractual maturities. Therefore, in the opinion of management, it is unlikely 
that an increase or decrease in market interest rates would result in an 
immediate repricing of all assets and liabilities, thereby reducing the effect 
on interest income of an increase or a decrease in interest rates.

     Provision for Possible Loan Losses. The provision for possible loan losses 
charged to operating expense is a result of a continuing review of the loan 
portfolio, taking into consideration the impact of economic conditions on the 
borrower's ability to repay, past collection experience, the risk 
characteristics of the loan portfolio and other factors deemed appropriate by 
management. Management calculates the appropriate level of reserve for loan loss
according to OCC guidelines on a quarterly basis and makes monthly allocations 
to keep the provision for loan loss at the appropriate level. The total amount 
allocated for loan loss provision for 1994 was $600,000. The provision made in 
1995 was $714,000.

     The Bank identified net charge-offs of $937,000 in 1995 and $374,000 in 
1994, to be written off as uncollectable against the reserve for possible loan 
losses. The increase in net charge-offs from 1994 to 1995 was due to the 
resolution of certain loans previously provided for in the allowance for 
possible loan losses.

     The allowance for possible loan losses is maintained at a level believed by
management to be adequate to absorb potential losses in the loan portfolio. The
allowance for possible loan losses as a percentage of average loans outstanding
was 1.24% for 1995 and 1.69% for 1994.

     Non-interest Income. Other income for 1995 totaled $1,080,000, compared to 
$1,011,000 in 1994. This increase was due to a 24% increase in deposit service 
charges, including fees for checks written on non-sufficient funds and for the 
maintenance and administration of checking and deposit accounts, offset against 
a decrease in other revenue. This decrease reflects one-time

                                     -21-
<PAGE>
 
income in 1994 relating to the reversal of a loss reserve associated with 
certain municipal bonds. The net increase in non-interest income was 6.8%.

     Non-interest Expenses. In 1995, other expenses totaled $3,042,000, 
compared to $2,989,000 in 1994. This was an increase of $54,000, or 1.77% from 
the 1994 level. Higher salaries and employee benefits caused the increase, and 
were partially offset by decreases in occupancy and other expenses.

ANALYSIS OF FINANCIAL CONDITION

     Investment Securities. In 1995, average investment securities decreased 
minimally by $335,000 to $52,788,000, compared to $53,123,000 for 1994, as 
investment securities were redeployed to loans. Investment securities totaled 
$51,864,000 at the end of 1995. Investment securities comprised 39.78% of 
average earning assets at December 31, 1995 compared to 42.86% at December 31, 
1994.

     Securities classified as available for sale constituted approximately 36% 
of the total investment portfolio at year-end 1995, compared to approximately 
57% at year-end 1994. These securities, which are largely mortgage-backed 
securities, are reported at their estimated fair values in the balance sheets. 
The unrealized net losses on these securities of $477,000 in 1995 and $3,421,000
in 1994 are reported, net of tax, as a separate component of shareholders' 
equity for each period.

     The remaining portfolio securities are classified as held to maturity and 
are reported in the balance sheets at amortized cost. The unrealized net gain on
these securities in 1995 was $83,000, and the unrealized net loss in 1994 was 
$695,000.

     The Bank maintains no trading portfolio.

     Proceeds from sales and maturities of securities were $28,034,000 during 
1995. Gross realized gains were $171,000 and gross realized losses were 
$283,000. The investment securities portfolio serves as a source of income and 
liquidity and as collateral to secure public deposits.

     Securities Portfolio. The carrying amount of securities at the dates 
indicated is set forth in the table below:


                                     -22-
<PAGE>
 


<TABLE> 
<CAPTION> 
                                                DECEMBER 31
                                            -------------------
                                              1995       1994
                                            --------   --------
                                           (DOLLARS IN THOUSANDS)
        <S>                                <C>         <C> 
        U.S. Treasury                       $ 3,003     $   473
        Obligations of U.S. Gov't:
        U.S. Agencies                         2,698       6,525
          Mortgage-backed                    32,392      25,360

        State and political subdivisions     12,812      19,441

          Other securities                      959         550

          Total                             $51,864     $52,349
                                            =======     =======
</TABLE> 

        Maturity Distribution and Investment Securities Portfolio Yields.  The 
maturities, based on contractual maturities, of investment securities at
December 31, 1995 and the weighted yields of such securities are shown in the
table below. Expected maturities may differ from contractual maturities because
borrowers may have the right to repay obligations with or without penalties.



<TABLE> 
<CAPTION> 
                                                     AFTER ONE            AFTER FIVE
                                 WITHIN              BUT WITHIN           BUT WITHIN             AFTER
                                ONE YEAR             FIVE YEARS            TEN YEARS            TEN YEARS             TOTAL
                             ----------------     -----------------    -----------------    -----------------    -----------------
                             AMOUNT     YIELD     AMOUNT      YIELD    AMOUNT      YIELD    AMOUNT      YIELD    AMOUNT      YIELD
                             ------     -----     ------      -----    ------      -----    ------      -----    ------      -----
                                                                     (DOLLARS IN THOUSANDS)
<S>                          <C>        <C>       <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C> 
U.S. Treasury                $1,745     5.106     $ 1,257     5.253    $     -         -    $     -         -%   $ 3,002     5.180 
                                                                                                      
Mortgage-backed                   -         -       7,863     8.910     10,424     6.923     14,075     6.120     32,362     7.318
                                                                                                      
State and political                                                                                   
subdivisions                    200     6.674       5,187     6.863      6,622     4.051        841     5.319     12,849     5.925
                                                                                                      
Other securities                                                                                959                  959
                                                  -------     -----     -------    -----    -------     -----    -------     -----
Total                        $1,945     5.890     $15,753     6.382     $17,291    5.986    $16,875     6.319    $51,864     6.121
                             ======     =====     =======     =====     =======    =====    =======     =====    =======     =====
</TABLE> 

        The yields on tax exempt securities are not on tax equivalent bases for 
this schedule.

        Loans. The loan portfolio is one of the largest components of the Bank's
earning assets. Average loans outstanding in 1995 increased $8,433,000 or 
12.37%, from the 1994 level of $68,177,000. Average loans in 1995 were 
$76,610,000. The increase in 1995 can be attributed to a strong local economy 
and the Bank's large share of the market.

        The largest segments of the Bank's loan portfolio are residential real 
estate and commercial real estate loans, which represent approximately 57% and 
18%, respectively, of the

                                     -23-
<PAGE>
 
total portfolio as of December 31, 1995. Consumer loans represented 
approximately 17.29% of total loans at the end of 1995. No single loan 
relationship exceeds 5% of total loans.

     Nonperforming Assets. Total nonperforming assets at December 31, 1995 were 
$1,714,000, compared to $1,725,000 at December 31, 1994. Nonperforming assets 
include nonaccrual loans, restructured loans not on nonaccrual status and other 
real estate owned. The slight decrease in nonperforming assets resulted from a 
$201,000 decrease in nonperforming loans offset by an increase in other real
estate owned. Other real estate owned increased to $302,000 at December 31,
1995, compared to $112,000 as of the end of 1994, as loans were foreclosed.

     Nonaccrual loans are loans on which the accrual of interest income has been
discontinued and previously accrued interest has been reversed, because the 
borrower's financial condition has deteriorated to the extent that the 
collection of principal and interest is doubtful. Until the loan is returned to 
performing status, generally as the result of the full payment of all past due 
principal and interest, interest income is recorded on a cash basis. Interest 
income that would have been recognized on nonaccrual loans had those loans been 
on accrual status at contractual terms throughout 1995 was approximately 
$162,000. No interest income was recognized on nonaccrual loans for 1995.

     Nonaccrual, restructured and 90 days past due loans and other real estate 
are summarized in the table below. Also, several ratios that measure the Bank's 
level of nonperforming assets are included in this table.



                                     -24-
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                        DECEMBER 31
                                                ---------------------------
                                                    1995           1994
                                                ---------------------------
                                                   (DOLLARS IN THOUSANDS)
<S>                                              <C>             <C> 
Nonperforming loans                                                     
  Nonaccrual loans                               $  967          $1,179 
  Restructured loans                                445             434
                                                 ------          ------ 
  Total nonperforming loans                       1,412           1,613

Other real estate                                   302             112
                                                 ------          ------
  Total nonperforming assets                      1,714           1,725
                                                 ======          ====== 
  Loans 90 days or more past due and still
   accruing interest                                798             168
                                                 ======          ====== 
Nonperforming loans as a % of total loans          1.78%           2.29%

Nonperforming assets as a % of total loans and
 other real estate                                 2.15%           2.44%

Allowance for possible loan losses as a % of
 nonperforming loans                              70.40%          75.45%

Allowance for possible loan losses as a % of
 nonperforming assets                             57.99%          70.55%
</TABLE> 

        In addition to the nonaccrual loans included in nonperforming assets, 
the Bank had approximately $3,883,000 of performing loans that were classified
as of December 31, 1995. Classified loans are credits, identified internally by
management or through the regulatory examination process, where, although they
are performing, doubt exists as to the ability of the borrower to comply with
present interest and principal repayment terms. These credits receive closer
management review.

        Loan Portfolio Distribution and Allocation of Allowance for Possible
Loan Losses. The following table shows the amounts of loans outstanding and the
allowance for possible loan losses according to type of loan for each of the
periods indicated:



                                     -25-
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                  DECEMBER 31
                                    --------------------------------------
                                          1995                 1994
                                    ------------------   -----------------
                                    AMOUNT     PERCENT   AMOUNT    PERCENT
                                    ------     -------   ------    -------
                                            (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>       <C>       <C> 
Loans:
  Commercial                        $14,806    18.40%    $14,336    20.01%
  Agricultural                        5,516     6.86%      1,410     7.24%
  Real estate-residential            24,603    30.58%     20,637    28.79%
  Real estate-commercial             21,615    26.87%     19,476    27.17%
  Consumer                           13,907    17.29%     15,822    16.79%

    Total                           $80,447   100.00%    $71,681   100.00%
                                    =======   ======     =======   ======
Allowance for possible loan losses: 
  Commercial                        $   288    29.00%    $   280    23.00%
  Agricultural                           70     7.00%        134    11.00%
  Real estate-residential               109    11.00%        207    17.00%
  Real estate-commercial                308    31.00%        365    30.00%
  Consumer                              139    14.00%        146    12.00%
  General Reserve                        80     8.00%         85     7.00%

    Total                           $   994   100.00%    $ 1,217   100.00%
                                    =======   ======     =======   ======
</TABLE> 

The allowance for possible loan losses as a percent of loans outstanding was 
1.24% at December 31, 1995 and 1.70% at December 31, 1994.

     Loan Maturity Data. The table below shows the amounts due on loans, 
classified according to the sensitivity to the changes in fixed and floating 
interest rates.

<TABLE> 
<CAPTION> 

                                                 DECEMBER 31, 1995
                                     -----------------------------------------
                                      DUE      DUE AFTER 1
                                     WITHIN    BUT WITHIN    DUE AFTER
                                     1 YEAR      5 YEARS      5 YEARS    TOTAL
                                     ------    -----------   ---------   -----
                                               (DOLLARS IN THOUSANDS)
<S>                                  <C>       <C>           <C>         <C> 
Sensitivity of loans to changes 
 in interest rates:             

  Fixed Interest rate                $61,054   $15,733        $1,150    $77,937
  Floating or adjustable interest
   rate                                1,542                              1,542
                                     -------   -------        ------    -------
    Total                            $62,596   $15,733        $1,150    $79,479
                                     =======   =======        ======    =======
</TABLE> 

                                     -26-
 
<PAGE>
 
     Summary of Loan Loss Experience.  The loan loss experience for the two 
years ended December 31, 1995 is summarized in the following table:

                                                        1995        1994
                                                        ----        ----
                                                     (DOLLARS IN THOUSANDS)

Balance at beginning of year                       $   1,217    $    991


Loans charged off
    Commercial                                          (895)       (142)
    Agricultural                                          -           -
    Real estate-residential                              (55)         -
    Real estate-commercial                               (68)       (189)
    Consumer                                            (106)       (191)

      Total charge-offs                                (1,124)      (526)

Recoveries on loans previously charged off
    Commercial                                             86         44
    Agricultural                                            0          7
    Real estate-residential                                19          4
    Real estate-commercial                                 39         26
    Consumer                                               43         71
      Total recoveries                                    187        152

Net loans charged-off                                    (937)      (374)
Additions charged to operations                           714        600

Balance at end of year                             $      994   $  1,217

Ration of net charge-offs (recoveries) during
      period to outstanding average loans                1.22%      0.55%

     Deposits.  Total deposits at December 31, 1995 were $120,984,000, up 8.8% 
from the level of $111,191,000 posted at December 31, 1994.  While 
non-interest-bearing deposits, savings and NOW accounts decreased by 10.1% year 
end to year end, time deposits increased by 26.0%.  This change in mix was part 
of the reason for the decrease in the Bank's net interest margin, as previously 
discussed.

     Time certificates of deposits of $100,000 or more were $25,866,000 at 
December 31, 1995.  The source of these deposits is public funds that are fully 
secured, and local customers with which the Bank has other significant banking 
relationships.  Although time deposits of $100,000 or more sometimes can exhibit
greater sensitivity to changes in interest rates and other factors than do core 
deposits, management considers these funding sources to present a low risk of 
volatility.  Any liquidity concerns which might occur could, in the opinion of 
management,

                                     -27-
<PAGE>
 
be adequately met with alternate funding sources.  The Bank had no brokered 
deposits at December 31, 1995.

     Deposit Average Balances and Rates.  The following table indicates the 
average daily amount of deposits and rates paid on categories of deposits for 
the periods indicated:

<TABLE> 
<CAPTION> 
                                              1993                   1992
                                    ---------------------   --------------------
                                      AMOUNT        RATE     AMOUNT        RATE
                                    ----------    -------   ---------    -------
<S>                                 <C>           <C>       <C>          <C> 
Noninterest-bearing demand          $   15,205              $  15,011 
Savings deposits                         5,245     2.92%        5,641     2.87%
Interest-bearing demand deposits        29,062     2.72%       31,679     2.87%
Time deposits                           66,977     5.32%       56,797    3.935%
                                    ----------              ---------
Total deposits                      $  116,489              $ 109,128
                                    ==========              =========
</TABLE> 

     Maturities of Time Deposits of $100,000 or More.  The maturities of time 
deposits of $100,000 or more are summarized for December 31, 1995 in the table 
below:

<TABLE> 
<CAPTION> 
                                                      DECEMBER 31, 1995
                                                   ----------------------
                                                   (DOLLARS IN THOUSANDS)
       <S>                                         <C>  
       3 months or less                                  $  12,049
       Over 3 months to 12 months                            6,609
       12 months to 5 years                                  3,001
       Over 5 years                                          4,207
                                                         ---------
       Total                                             $  25,866
                                                         =========
</TABLE> 

     Capital of the Bank and Dividends.  The Bank is required to comply with the
risk-based capital guidelines adopted by the Board of Governors of the Federal 
Reserve System.  Those guidelines apply weighting factors that vary according to
the level of risk associated with each asset category.  The information below 
summarizes the Bank's risk-based capital and leverage ratios for December 31, 
1995 and 1994, as well as the minimum for an institution to qualify as 
well-capitalized under federal regulatory guidelines.  The Bank exceeds all 
capital requirements to be considered well-capitalized, as defined by 
regulators.

                                     -28-
<PAGE>
 
                                                       
                                                       
                                                              RATIO     
                                DECEMBER 31               REQUIREMENTS   
                          ----------------------        TO BE CONSIDERED 
                             1995         1994          WELL CAPITALIZED 
                          ---------    ---------        ----------------
                          (DOLLARS IN THOUSANDS)
Tier 1 Capital              28.55%       28.93%                6.00%
Total Capital               29.69%       30.18%               10.00%
Leverage Ratio              16.98%       17.56%                5.00%

The Bank paid a dividend of $16.00 per share in 1995, compared to $15.00 per 
share in 1994.  This was an increase of 6.67%.

     Liquidity.  Liquidity is a measure of a bank's ability to fund loan 
commitments and meet deposit maturities and withdrawals in a timely and cost 
effective manner.  The Bank's liquidity needs can be met by generating profits, 
converting assets to cash and attracting new deposits. Management considers the
Bank's liquidity sources to be adequate to meet liquidity needs for normal
operations.

     As shown in the accompanying 1995 statement of cashflow, cash and cash 
equivalents decreased by $167,000 during 1995 to $3,978,000 at December 31, 
1995.  Cash and cash equivalents were generated primarily by proceeds from sales
and maturities of investments securities totaling $28,034,000 and net increase 
in deposits of $9,793,000.  In addition, operating activities provided net cash 
of $2,781,000.  Offsetting these increases were purchases of investment 
securities in the amount of $24,685,000, and net increases in loans and federal 
funds of $9,547,000 and $5,750,000, respectively.

     Other Matters.  In May, 1993, the Financial Accounting Standards Board 
issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan" 
("Standard 114"), which requires that impaired loans that are within the scope 
of this statement be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's market 
price or the fair value of the collateral if the loan is collateral dependent.  
Adoption of Standard 114 is required for fiscal years beginning after 
December 15, 1994.  Management feels that this statement will not have a 
significant economic impact since the current allowance for possible loan losses
should be adequate to accommodate the change in method for calculating loss 
accruals.


                                     -29-
<PAGE>
 
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

     The following discussion provides certain information concerning the 
financial condition and results of operations of the Bank for the nine months 
ended September 30, 1996 and 1995. This discussion should be read in conjunction
with the compiled financial statements and notes thereto presented elsewhere in 
this Prospectus, Management's Discussion and Analysis of the Financial Condition
and Results of Operations for the Two Years Ended December 31, 1995 and 1994, 
and the compiled financial statements for the two years ended December 31, 1995 
and 1994, both presented elsewhere in the Proxy Statement.

OVERVIEW

     Net income for the nine-month period ended September 30, 1996 was 
$2,121,000, or $64.28 per share, compared to $1,936,000, or $58.67 per share, 
for the same nine months in 1995. Annualized return on average assets was 1.86% 
for both nine-month periods. Annualized return on equity was 11.28% and 10.01% 
in 1996 and 1995, respectively. Total assets at September 30, 1996 were 
$151,215,000, up 2.79% from total assets of $147,105,000 at December 31, 1995. 
The Bank's total shareholder's equity improved to $27,172,000 at September 30, 
1996, compared to $25,123,000 at December 31, 1995.

RESULTS OF OPERATIONS

     Net Interest Income. Net interest income increased from $4,558,000 for the 
first nine months of 1995 to $5,019,000 for the nine months ended September 30, 
1996. The Bank's net interest margin was 4.65% for the nine-month period ended 
September 30, 1996, compared to 4.52% for the same period of 1995. The yield on 
tax exempt securities is not on a tax equivalent basis for these figures. The 
increase in net interest margin is primarily due to an increase in the volume of
loans. A summary of the Bank's earning asset mix is depicted in the chart below:

<TABLE> 
<CAPTION> 

                                                                                   PERCENT OF
                           SEPTEMBER 30,       PERCENT OF       SEPTEMBER 30,       EARNING
                               1996          EARNING ASSETS         1995             ASSETS
                           -------------     --------------     -------------     -----------
<S>                        <C>               <C>                <C>               <C> 
Loans                          84,214             60.03%            80,208            58.74%

Investment Securities          53,184             37.91%            53,034            38.83%

Federal Funds Sold              2,900              2.07%             3,300             2.42%
                              -------            ------            -------           ------

Total                         140,298            100.00%           136,542           100.00%
</TABLE> 


                                     -30-
<PAGE>
 
     Interest Rate Sensitivity. At September 30, 1996, the Bank's one-year 
repricing gap, as previously defined, was -8.7%, i.e. more of the Bank's 
liabilities than assets reprice over a one year time frame.

     Provision for Possible Loan Losses. A provision for possible loan losses of
$330,000 was charged to operating expenses during the nine-month period ended 
September 30, 1996, compared to $465,000 allocated for the same nine-month 
period in 1995. The allowance for possible loan losses as a percent of loans 
outstanding was 1.33% at September 30, 1996 and 1.35% at September 30, 1995. Net
charge-offs were $186,000 for the nine months ended September 30, 1996, and 
$587,000 for the nine months ended September 30, 1995. The chart below 
summarizes the Bank's asset quality ratios:

<TABLE> 
<CAPTION> 
                                                          SEPTEMBER 30, 1996
                                                          ------------------
<S>                                                       <C> 
Allowance for Possible Loan Losses to Nonaccrual Loans          178.65%
Annualized Net Charge-Offs to Total Average Loans                 0.30%
Allowance for Possible Loan Losses to Total Loans                 1.35%
Nonperforming Loans to Total Loans                                0.75%
</TABLE> 

     Non-interest Income. For the nine months ended September 30, 1996, other 
income totaled $820,000, compared to $807,000 for the same period of 1995. The 
increase was primarily a result of increased deposit levels.

     Non-interest Expenses. For the nine months ended September 30, 1996, other 
expenses increased by $253,000 or 11.59% from the level of other expenses 
reported for the same nine months of 1995. The change in other expenses 
primarily resulted from losses taken on the sale of repossessed assets and other
real estate owned, and small increases in salaries and occupancy expense in 
1996.

ANALYSIS OF FINANCIAL CONDITION

     Loans. Loans outstanding at September 30, 1996 were $84,214,000, compared 
to $79,462,000 as of December 31, 1995. The increase in the loan portfolio 
occurred primarily in real estate loans.

     Nonperforming Assets. Nonperforming assets increased from $1,704,000 at 
September 30, 1995 to $2,870,000 at September 30, 1996. The increase was 
attributable to an additional $800,000 in other real estate owned, which 
increased from $127,000 as of September 30, 1995 to $927,000 at September 30, 
1996, and an $859,000 addition to restructured loans during the twelve month 
period.

     Investment Securities. Investment securities increased to $53,184,000 at 
September 30, 1996 compared to $51,864,000 at December 31, 1995. Investment 
securities comprised 37.91% of earning assets at September 30, 1996 compared to 
37.47% at December 31, 1995. Investment securities designated held-to-maturity 
had an unrealized loss of $196,000 at September 30, 1996.

                                     -31-
<PAGE>
 
Investment securities designated available-for-sale had an unrealized loss of 
$593,000 at that date, which is reported, net of tax, as a separate component of
shareholders' equity.

     Deposits. Total deposits increased to $123,176,000 at September 30, 1996 
from $120,984,000 at December 31, 1995. The change was attributable to an 
increase of interest-bearing deposits of $2,200,000, offset by a decrease in 
non-interest bearing deposits of $800,000.

     Capital Resources of the Bank. At September 30, 1996, the Bank's Tier I 
capital ratio was 29.39%, its total risk based capital ratio was 30.62% and its 
leverage ratio was 17.94%.

     Liquidity. The Bank's liquidity sources are considered adequate by 
management to meet liquidity needs for normal operations.



                                     -32-
<PAGE>
 
                           SUPERVISION AND REGULATION

          The Company will be subject to substantial regulation as a bank
holding company, and the Bank is currently subject to substantial regulation.
The following summaries of statutes and regulations affecting bank holding
companies and banks do not purport to be complete.  Such summaries are qualified
in their entirety by reference to such statutes and regulations.

SUPERVISION AND REGULATION OF THE COMPANY

          The Company will be a bank holding company within the meaning of the
Bank Holding Company Act of 1956 (the "Act").  As a bank holding company, the
Company will be subject to supervision and regulation by the Federal Reserve
Board under the Act.  The Federal Reserve Board may make examinations of the
Company and each of its subsidiaries.  Bank holding companies are required by
the Act to obtain approval from the Federal Reserve Board prior to acquiring,
directly or indirectly, ownership or control of more than 5% of the voting
shares of a bank.

          The Act also prohibits bank holding companies, with certain
exceptions, from acquiring more than 5% of the voting securities of any company
that is not a bank, or, without approval from the Federal Reserve Board, from
engaging in any activity other than an activity closely related to banking (as
determined by the Federal Reserve Board) or managing or controlling banks and
other subsidiaries.  The Federal Reserve Board may differentiate between
activities that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern.  The Company has no
present intention to engage in non-banking activities.

          As a bank holding company, the Company will be subject to capital
adequacy guidelines as established by the Federal Reserve Board to assist it in
the assessment of a bank holding company's capital adequacy.  The Federal
Reserve Board established risk based capital guidelines for bank holding
companies effective March 15, 1989.  Beginning on December 31, 1992, the minimum
required ratio for qualifying total capital to risk weighted assets became 8
percent (of which at least 4 percent must consist of Tier 1 capital).  Tier 1
capital (as defined in regulations of the Board) consists of common
shareholders' equity and qualifying preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other intangible
assets required to be deducted under the Federal Reserve Board's guidelines.
The Federal Reserve Board's guidelines apply on a consolidated basis to bank
holding companies with total consolidated assets of $150 million or more.  These
guidelines will apply to the Company if the Reorganization is consummated.  The
Federal Reserve Board has stated that these risk based capital guidelines merely
establish minimum supervisory standards and that bank holding companies
generally are expected to operate with capital positions well above the minimum
standards commensurate with the level and nature of all the risks to which they
are exposed.

                                      -33-
<PAGE>
 
          Bank holding companies may be compelled by bank regulatory authorities
to invest additional capital into a subsidiary bank if the subsidiary bank
experiences either significant loan losses or rapid growth of loans or deposits.
In addition, the Company may be required to provide additional capital to any
additional banks it acquires as a condition to obtaining the approvals and
consents of regulatory authorities in connection with such acquisitions.

          Upon consummation of the Reorganization, the Company will be an
"affiliate" of the Bank within the meaning of the Federal Reserve Act, which
imposes certain restrictions on transactions between the Company and the Bank,
including restrictions on loans to the Company by the Bank, investments by the
Bank in securities of the Company and on the use of such securities as
collateral security for loans by the Bank to any borrower.  The Federal Reserve
Act will limit the transfer of funds by the Bank to the Company and its non-
banking subsidiaries, whether in the form of loans, extensions of credit,
investments or asset purchases.  Such transfers by the Bank to the Company or
any non-banking subsidiary of the Company are limited in amount to 10% of the
Bank's capital and surplus and, with respect to the Company and all such non-
banking subsidiaries, to an aggregate of 20% of the Bank's capital and surplus.

          The Company is a legal entity separate and distinct from the Bank.  In
contrast to Bank Common Stock, the offer and sale of Company Common Stock may be
subject to the registration requirements of the Securities Act of 1933.

SUPERVISION AND REGULATION OF THE BANK

          As a national bank, the Bank is subject to supervision and regular
examination by the Comptroller.  Such examinations, however, are for the
protection of the Bank Insurance Fund ("BIF") and, indirectly to a degree, for
depositors, and not for the protection of investors and shareholders.  Pursuant
to the terms of the Federal Deposit Insurance Act (the "FDIA"), the deposits of
the Bank are insured through the BIF of the FDIC.  Accordingly, the Bank is
subject to regulation by the FDIC and is also subject to the Federal Reserve
Board's requirements to maintain reserves against deposits, restrictions on the
types and amounts of loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered.

          In 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"), which, among other things, substantially revised the
depository institution regulatory and funding provisions of the FDIA.  FDICIA
also expanded the regulatory and enforcement powers of bank regulatory agencies.
Most significantly, FDICIA mandates annual examinations of banks by their
primary regulators and requires the federal banking agencies to take prompt
"corrective action" whenever financial institutions do not meet minimum capital
requirements.  FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized."  A depository institution's capitalization
status will depend on how well its capital levels compare to various relevant
capital measures and certain other factors, as established by regulation.  As

                                      -34-
<PAGE>
 
of September 30, 1996, the Bank maintained a capital level which qualified it as
being "well capitalized" under such regulations.

          FDICIA also prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
"undercapitalized."

INTERSTATE BANKING AND BRANCHING LEGISLATION

          FEDERAL LAW.  In 1994, Congress passed the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Riegle-Neal"), which affected the
interstate banking and branching abilities of bank holding companies and banks.

          Beginning June 1, 1997, Riegle-Neal authorizes a national bank
domiciled in one state to establish branches in any other state as long as
neither state has opted out of interstate branching between the date of
enactment of Riegle-Neal and May 31, 1997.  Riegle-Neal, however, does allow
states to preserve certain restrictions on the entry of out-of-state banks.
Under Riegle-Neal, once a bank has established a branch in another state, it may
exercise the same rights in that state as national and state banks enjoy in that
state, including the ability to branch intra-state.  Riegle-Neal provides that
states may opt in early to interstate branching prior to June 1, 1997.

          Riegle-Neal also permits states to allow banks to enter the state by
establishing a de novo branch in that state.  In order to allow de novo entry
into a state, that state must expressly provide for de novo branching.  Once a
bank has established a branch in a host state through de novo branching, it may
exercise the same rights in that state as national and state banks enjoy,
including the ability to branch intra-state.  If a state opts out of interstate
branching, no bank domiciled in that state may establish branches in other
states, and no bank domiciled in another state may establish branches in that
state.

          MISSISSIPPI LAW.  On March 29, 1996, the Governor of Mississippi
signed into law a bill in which Mississippi elected to opt in early to
interstate branching, effective May 1, 1997.  As enacted, the bill (1) allows
all Mississippi banks to establish branches in other states pursuant to the
entry rules in the potential host states, and (2) allows out-of-state banks to
establish branches in Mississippi pursuant to Mississippi's entry rules.  The
bill as enacted, however, does not authorize de novo branching into Mississippi.
An out-of-state bank can establish branches in Mississippi only by (1) merging
with a Mississippi domiciled bank, (2) buying all of the assets of a Mississippi
domiciled bank, or (3) buying all of the assets in Mississippi of an out-of-
state bank which has branches in Mississippi.  All interstate branching
transactions require appropriate regulatory approval.

          MISSISSIPPI BANK HOLDING COMPANIES.  Prior to September 29, 1995 (the
date on which this portion of Riegle-Neal was effective), and pursuant to
Mississippi law, a Mississippi bank or bank holding company could be acquired
only by a bank holding company from one of

                                      -35-
<PAGE>
 
fourteen contiguous states.  Effective September 30, 1995, however, Mississippi
law was amended in conformance with Riegle-Neal to provide that a bank holding
company from any state may acquire a bank or bank holding company in
Mississippi, and that a Mississippi bank holding company may acquire a bank or
bank holding company in any other state, with appropriate regulatory approval.

          FURTHER CHANGES IN REGULATORY REQUIREMENTS.  The United States
Congress and the Mississippi legislature have periodically considered and
adopted legislation that has resulted in deregulation of, among other matters,
banks and other financial institutions, or adversely affected the profitability
of the banking industry.  Future legislation could further modify or eliminate
geographic restrictions on banks and bank holding companies and current
prohibitions with other financial institutions, including mutual funds,
securities brokerage firms, insurance companies, banks from other states and
investment banking firms.  The effect of any such legislation on the business of
the Company or the Bank cannot be accurately predicted.  The Company also cannot
predict what legislation might be enacted or what other implementing regulations
might be adopted, and if enacted or adopted, the effect thereof.


                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

          The following table sets forth certain information with respect to (i)
the directors and executive officers of the Bank as of December 31, 1996 and
(ii) the proposed directors and executive officers of the Company upon
consummation of the Reorganization:
<TABLE>
<CAPTION>
 
Name                             Age            Position(s) with the Company  Position(s) with the Bank
----                             ---            ----------------------------  -------------------------
<S>                              <C>            <C>                           <C>
 
William Anderson                 50             Vice President                Vice President
Anna M. Berryhill                67             Director                      Director
J. Richard Doty                  40             Director                      Director
Richard Frazier                  47             Vice President                Vice President
Buddy R. Montgomery              55             Director and President        Director and President
Larry Russell                    54             Director, Executive Vice      Director, Executive
                                                President and Secretary       Vice President and Secretary
                                                                              to the Board
Michael Simon                    49             Director                      Director
Charles D. Thomas                60             Director                      Director
J. Lowell Whitworth              82             Director                      Director
</TABLE>

   It is expected that the individuals listed above as directors of the Company
will be the directors of the Company upon consummation of the Reorganization.
The Board of Directors of the Company upon consummation of the Reorganization
shall serve until the first annual meeting of the shareholders of the Company in
1998, or until their successors are elected and qualified.

                                      -36-
<PAGE>
 
   If the Reorganization is completed, the members of the Board of Directors of
the Bank will be elected annually by the Company as the sole shareholder of the
Bank.

   The business experience of each of the proposed directors and executive
officers of the Bank is set forth below.

   William Anderson is a Vice President of the Bank, specializing in consumer
lending.  Mr. Anderson has worked at the Bank since 1989, initially serving as a
loan collector and then as a loan officer, before being promoted to his current
position.

   Anna M. Berryhill is retired.  Previously she was a schoolteacher in Pontotoc
County for more than twelve years.  Ms. Berryhill is a director and the
treasurer of the Tombigbee River Valley Water Management District.  She has
served as a director of the Bank since 1994.

   J. Richard Doty is a real estate developer.  He owns Oxford Investments,
L.L.C., Doty and Tatum Ent., Oil & Gas Properties L.L.C. and Doty Properties,
L.L.C. and is a partner in Doty Investments, L.P.  Previously, Mr. Doty worked
in both the banking and mortgage businesses.  Mr. Doty has served as a director
of the Bank since 1983.

   Richard Frazier has been Vice President and Assistant Loan Administrator of
the Bank since 1992.  Mr. Frazier has worked in the banking industry since 1973.
Mr. Frazier was a Senior Vice President and Executive Officer at Peoples Bank &
Trust Company in Pontotoc, Mississippi from 1979 until 1992, when he came to
work at the Bank in his present capacities.

   Buddy R. Montgomery has been the President of the Bank since 1993.  Mr.
Montgomery has worked in various capacities for the Bank since 1963, including
as its Senior Vice President and Cashier from 1977 to 1993.  Mr. Montgomery has
served on the Board of the Directors of the Bank since 1969 and was its
Secretary from 1977 to 1995.  Mr. Montgomery also serves as a Member of the
Economic and Community Development Committee of the Pontotoc County Chamber of
Commerce.

   Larry Russell currently serves as the Bank's Executive Vice President and
Loan Administrator, positions he has held since 1993.  He has also served as
Secretary to the Bank's Board of Directors since 1995.  Mr. Russell has been
employed by the Bank since 1964 and has served it in many capacities including
loan teller, loan officer and Senior Vice President.  Mr. Russell has served on
the Board of Directors of the Bank since 1972.

   Michael Simon is the President and majority shareholder of Simon, Inc., which
is Pontotoc, Mississippi's largest department store.  Mr. Simon has served on
the Board of Directors of the Bank since 1975.

   Charles D. Thomas is a judge for the First Chancery Court District in
Pontotoc, Mississippi.  Prior to his judicial appointment, Chancellor Thomas was
in the private practice

                                      -37-
<PAGE>
 
of law for over twenty years.  Chancellor Thomas has served on the Board of
Directors of the Bank since 1983.

   J. Lowell Whitworth is retired.  Previously, Mr. Whitworth was the owner and
operator of a local pharmacy in Pontotoc, Mississippi.  Mr. Whitworth has served
as a director of the Bank since 1972.


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 
                                  ANNUAL COMPENSATION                                   LONG TERM COMPENSATION
                      --------------------------------------------                -----------------------------------
                                                                                    AWARDS                 PAYOUTS
                                                                                  ----------            -------------
                                                                     RESTRICTED   SECURITIES    LTIP      ALL OTHER
NAME AND PRINCIPAL                                    OTHER ANNUAL     STOCK      UNDERLYING   PAYOUT   COMPENSATION
POSITION              YEAR   SALARY ($)   BONUS ($)   COMPENSATION  AWARD(S) ($)   OPTIONS      ($)       ($)/(1)/
--------------------  ----  ------------  ----------  ------------  ------------  ----------  --------  -------------
                                                                                 
<S>                   <C>   <C>           <C>         <C>           <C>           <C>         <C>       <C>
Buddy Montgomery,     1996  $113,640.00   $9,016.00         0               N/A         0          0       $10,614.00
 President & CEO      1995   105,800.00      600.00         0               N/A         0          0        11,792.00
                      1994    99,456.00      600.00         0               N/A         0          0         8,426.00
                                                                                                      
Larry Russell,        1996  $106,176.00   $8,462.40         0               N/A         0          0       $ 9,919.00
 Executive Vice       1995    98,880.00      600.00         0               N/A         0          0        11,062.00
 President            1994    93,084.00      600.00         0               N/A         0          0         8,004.00
</TABLE> 
---------------------------

(1)  These amounts represent the Bank's estimated annual contribution to the
named executives pursuant to the First National Bank of Pontotoc Employees'
Profit Sharing Plan.

EMPLOYMENT AGREEMENTS

   Effective November 20, 1996, the Bank entered into an agreement with each of
Buddy R. Montgomery and Larry Russell.  Pursuant to the terms of their
individual agreements, Messrs. Montgomery and Russell are entitled to, among
other things, 300% of their "annual salaries" (as defined in the agreements) if,
during the "covered period" (as defined in the agreements to be the one-year
period preceding through the five-year period following a change-in-control),
either is terminated without cause or resigns following a change in his duties
in connection with a change in control of the Bank.

COMPENSATION OF DIRECTORS

   All directors, other than Messrs. Montgomery and Russell, receive a monthly
fee of $400.  Mr. Whitworth receives an additional $300 per month for serving on
the Executive Committee.  During 1996, each director attended at least 75% of
the meetings of the Board and of the committees on which he or she served.

                                      -38-
<PAGE>
 
LIMITATION ON DIRECTORS' LIABILITY

   The Company's Articles of Incorporation and Bylaws provide that, pursuant to
section 2.02(b)(4) of the MBCA, the directors of the Company shall not be liable
to the Company or to the shareholders of the Company for money damages for any
action taken, or any failure to take action, as a director, except liability
for: (a) the amount of a financial benefit received by a director to which he is
not entitled; (b) an intentional infliction of harm on the Company or its
shareholders; (c) a violation of section 8.33 of the MBCA (dealing with
liability of a director who votes for or assents to an excessive distribution
made in violation of the Company's Articles or provisions of Section 6.40 of the
MBCA); or (d) an intentional violation of criminal law by the director.

INDEMNIFICATION

   The Company's Articles of Incorporation and Bylaws authorize the Company to
purchase insurance to cover any liability asserted against a person serving as a
director, officer, employee or agent of the Company when such liability is
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Company would have the power to indemnify
such person against such liability under the provisions of the Company's
Articles of Incorporation, Bylaws or Mississippi law.  If the insurance
purchased by the Company does not fully cover the liabilities and reasonable
expenses of such person, then the Articles of Incorporation and Bylaws provide
that such person shall be indemnified against such liabilities and reasonable
expenses, including attorney's fees, incurred, by such person; provided, no such
indemnification is allowed if such person is found: (a) to have received a
financial benefit to which he or she is not entitled; (b) to have intentionally
inflicted harm on the Company or its shareholders; (c) to have violated Section
8.33 of the MBCA by voting for or assenting to the making of an excessive
distribution to shareholders in violation of the MBCA; or (d) to have
intentionally violated criminal law.

   Unless otherwise ordered by a court, no indemnification shall be made to any
such person in respect to any claim, judgments, amounts paid in settlement,
issue, fine, matter, or attorneys' fees in connection with: (a) a proceeding by
or in the right of the Company, except for reasonable expenses incurred in
connection with the proceeding if it is determined that such person has met the
standard of conduct described in the Bylaws allowing indemnification to be made;
or (b) any proceeding with respect to conduct for which such person was adjudged
liable on the basis that such person received a financial benefit to which he
was not entitled, whether or not involving action in such person's official
capacity. Notwithstanding anything to the contrary in the Articles of
Incorporation or Bylaws, the Company is required to indemnify any such person
seeking indemnification who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which such person was a party because such
person was a director, officer, employee or agent of the Company, against
reasonable expenses incurred by such person in connection with the proceeding.

                                      -39-
<PAGE>
 
   The Company is also required to advance funds to pay for or reimburse the
reasonable expenses incurred by a director, officer, employee or agent who is a
party to a proceeding if (a) such person furnishes the Company a written
affirmation of his good faith belief that he has met the standard of conduct
described in the Bylaws, or that the proceeding involves conduct for which
liability of directors to the Company or its shareholders has been eliminated by
a provision of the Articles of Incorporation or Bylaws of the Company pursuant
to section 2.02(b)(4) of the MBCA; and (b) such person furnishes the Company a
written undertaking to repay any funds advanced if he or she is not entitled to
mandatory indemnification or if there is a subsequent determination in the
proceeding that his or her conduct was not the type of conduct eliminated from
liability in the Articles of Incorporation under section 2.02(b)(4) of the MBCA.

   The discussion herein with respect to indemnification of directors, officers,
employees or agents of the Company is qualified in its entirety by reference to
the Articles of Incorporation and Bylaws of the Company, which are attached
hereto as appendices A and B respectively, and to applicable provisions of the
MBCA.

                                      -40-
<PAGE>
 
             BENEFICIAL OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
                    AND PRINCIPAL SHAREHOLDERS OF THE BANK

   The following table sets forth certain information regarding the shares of
the Bank Common Stock owned as of January ___, 1997 (i) by each person who
beneficially owns more than 5% of the shares of Bank Common Stock, (ii) by each
of the Bank's directors, and (iii) by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
                                    Number of Shares
                                      Beneficially    Percentage
         Name and Address                Owned         Ownership
----------------------------------  ----------------  -----------
<S>                                 <C>               <C>
 
William W. Anderson                              100           *
1737 Clark Street
Pontotoc, Mississippi  38863

Anna M. Berryhill                              5,145       15.59%
175 Cedar Creek Drive
Pontotoc, Mississippi  38863

J. Richard Doty(1)                             4,936       14.96%
912 University Avenue
Oxford, Mississippi  38655

Richard Frazier                                    0           *
302 South Main Street
Pontotoc, Mississippi  38863

Buddy R. Montgomery                              195           *
380 Northridge Drive
Pontotoc, Mississippi  38863

Larry Russell                                    210           *
9672 Highway 9 South
Pontotoc, Mississippi  38863

Michael Simon/2/                               1,511        4.58%
P. O. Box 239
Pontotoc, Mississippi  38863

Charles D. Thomas                                368           *
2507 Highway 6 East
Pontotoc, Mississippi  38863
</TABLE> 

(1)The shares shown are owned of record by Doty Investments, L.P., of which Mr.
Doty is a general partner. Doty Investments has entered into an agreement to
sell all of its shares to Union Planters Corporation. Consummation of this
agreement is subject to certain conditions.  See "Recent Developments."

(2)Of the shares shown, 291 shares are held of record by Simon, Inc., of which
Mr. Simon is the President and majority shareholder.

                                      -41-
<PAGE>
 
<TABLE>
<CAPTION>
                                    Number of Shares
                                      Beneficially    Percentage
         Name and Address                Owned         Ownership
----------------------------------  ----------------  -----------
<S>                                 <C>               <C>

J. Lowell Whitworth                              734           *
108 West Oxford Street
Pontotoc, Mississippi  38863

Louise M. Wilson                               2,145        6.50%
P. O. Box 1200, Suite 261
Humble, Texas  77347

Directors and executive officers             _______      ______
as a group (9 persons)                        13,199       39.99%
 
</TABLE>


                              RECENT DEVELOPMENTS


   The Bank has substantial capital reserves that have been built up over the
years for the benefit of shareholders.  In mid-1996, the Board of Directors
engaged the services of a prominent regional investment banking firm (the
"Financial Advisor") to assist it in devising a strategy to employ these
reserves for the maximum advantage of all of the Bank's shareholders.  The
Financial Advisor has recommended the Reorganization as the first step in the
implementation of this strategy.

   One of the members of the Bank's Board of Directors, Mr. J. Richard Doty,
previously discussed with representatives of the Board various possibilities for
liquidating his investment in the Bank.  On or about October 17, 1996, Mr. Doty
and certain of the Bank's other shareholders collectively owning 6,557 shares
(or 19.87%) of the Bank Common Stock (the "Selling Shareholders") entered into
an agreement with Union Planters Corporation, a bank holding company ("Union
Planters"), to sell their Bank Common Stock to Union Planters and not to vote in
favor of any actions that would adversely affect Union Planters' efforts to
acquire control of the Bank.  This agreement is expected to terminate on March
31, 1997 if Federal Reserve Board approval is not received by such date.  In his
capacity as a director of the Bank, Mr. Doty voted against the Reorganization
and Mr. Doty has advised the Board of Directors that all 4,936 shares (14.96%)
of Bank Common Stock beneficially owned by him will be voted against the
Reorganization at the Special Meeting.

   On November 25, 1996, Union Planters filed an application with the Federal
Reserve Board for approval of the acquisition of the Bank Common Stock owned by
the Selling Shareholders and, possibly, of all of the outstanding Bank Common
Stock and/or the Company Common Stock (if the Reorganization is consummated).

                                      -42-
<PAGE>
 
   On or about December 12, 1996, Union Planters submitted to the Board of
Directors a conditional offer to purchase all of the outstanding Bank Common
Stock for $875 per share.  The Board of Directors of the Bank immediately
submitted the Union Planters' offer to the Financial Advisor for review.

   On or about December 31, 1996, 140 shareholders beneficially owning
approximately 68.47% of the Bank Common Stock entered into an agreement pursuant
to which each shareholder agreed not to sell his or her Bank Common Stock and
not to vote to approve a merger of the Bank with another bank, without giving
the Bank a right of first refusal to acquire such shareholder's Bank Common
Stock for the same consideration as is offered by the third party.

   It is anticipated that Union Planters will continue to pursue its efforts to
acquire control of the Bank.  The Board of Directors intends to continue
implementation of its plan to maximize the value of the Bank for all of the
Bank's stockholders, and believes that approval of the Reorganization is a
necessary first step in the implementation of its Plan.  See "The Proposed
Reorganization."


                                 LEGAL MATTERS

   The legality of the shares of common stock of the Company to be issued in the
Reorganization and certain other legal matters in connection with the
Reorganization will be passed upon by Phelps Dunbar, L.L.P., One Mississippi
Plaza, Tupelo, Mississippi 38801-1220.


                             SHAREHOLDER PROPOSALS

   Shareholders of the Company may submit a proposal for action at any meeting
of Company shareholders, including the nomination of directors, if certain
conditions are met.  See "Comparative Rights of Shareholders of the Bank and the
Company - Shareholder Proposals." The first annual meeting of the Company's
shareholders will be held in 1998.  At this time, the date by which shareholder
proposals must be submitted for consideration at such meeting cannot be
determined.


                                 OTHER MATTERS

   Management knows of no other matters that may be brought before the meeting.
However, if any matter other than the proposed Reorganization or matters
incident thereto should come before the meeting, the persons named in the
enclosed proxy will vote such proxy in accordance with their judgment on such
matters.

                                      -43-
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS


Accountants' Compilation Report as of September 30, 1996                    F-2

Balance Sheets of First National Bank as of September 30, 1996 and 1995     F-3

Statement of Income of First National Bank as of nine months ended
September 30, 1996 and 1995                                                 F-4

Statement of Stockholders' Equity of First National Bank, nine months
ended September 30, 1996 and 1995                                           F-5

Statement of Cash Flows of First National Bank, nine months ended
September 30, 1996 and 1995                                                 F-6

Notes to Financial Statements of First National Bank as of 
September 30, 1996                                                          F-7

Accountants' Compilation Report as of December 31, 1995                     F-16

Balance Sheets of First National Bank as of December 31, 1995 and 1994      F-17

Statement of Income of First National Bank as of December 31, 1995
and 1994                                                                    F-18

Statement of Stockholders' Equity of First National Bank as of 
December 31, 1995 and 1994                                                  F-19

Statement of Cash Flows of First National Bank as of December 31, 1995
and 1994                                                                    F-20

Notes to Financial Statements of First National Bank as of
December 31, 1995                                                           F-21




                                      F-1
<PAGE>
 
                     [LOGO OF NAIL MCKINNEY APPEARS HERE]


                        ACCOUNTANTS' COMPILATION REPORT



To the Shareholders and Directors
First National Bank
Pontotoc, Mississippi

          We have compiled the accompanying balance sheets of the First National
Bank as of September 30, 1996 and 1995 and the related statements of income,
stockholders' equity and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.

          A compilation is limited to presenting in the form of financial
statements information that is the representation of management.  We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.

 
Nail McKinney PA


New Albany, Mississippi
December 11, 1996

                                      F-2
<PAGE>
 
                                BALANCE SHEETS
                              FIRST NATIONAL BANK
                          September 30, 1996 and 1995
 
                     (SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
 
                                                                         1996       1995
                                                                       --------   --------
ASSETS                                                                   (in thousands)
<S>                                                                    <C>        <C>
  Cash and due from banks                                              $  5,141   $  4,901
  Investment securities - available for sale (at market value)           17,857     23,524
  Investment securities - held to maturity (at cost)                     35,327     29,510
  Federal funds sold                                                      2,900      3,300
  Loans                                                                  86,970     82,835
  Less:  Unearned income                                                 (1,618)    (1,532)
            Allowance for loan losses                                    (1,138)    (1,095)
                                                                       --------   --------
               Net loans                                                 84,214     80,208
  Premises and equipment, net                                             1,559      1,198
  Intangibles                                                               440        475
  Deferred tax asset                                                        575        801
  Other assets                                                            3,202      2,503
                                                                       --------   --------
      Total assets                                                     $151,215   $146,420
                                                                       ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
    Noninterest bearing                                                $ 15,581   $ 14,786
    Interest bearing                                                    107,595    105,835
                                                                       --------   --------
      Total deposits                                                    123,176    120,621
Accrued interest and other liabilities                                      867        834
                                                                       --------   --------
      Total liabilities                                                 124,043    121,455
                                                                       --------   --------
  Stockholders' equity
    Common stock $10 par value,
      33,000 shares authorized and issued                                   330        330
    Surplus                                                              21,000     19,500
    Undivided profits                                                     6,214      5,617
    Unrealized loss on securities available-for-sale                       (372)      (482)
                                                                       --------   --------
      Total stockholders' equity                                         27,172     24,965
                                                                       --------   --------
        Total liabilities and stockholders' equity                     $151,215   $146,420
                                                                       ========   ========
 
</TABLE>
 
 ________________________________________
The Notes to Financial Statements are an
 integral part of these statements.
 

                                      F-3
<PAGE>
 
                             STATEMENTS OF INCOME
                              FIRST NATIONAL BANK
                 Nine months ended September 30, 1996 and 1995

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
 
                                              1996           1995
                                             -------       --------
INTEREST REVENUE                                 (in thousands)
<S>                                          <C>            <C>
  Interest and fees on loans                 $6,098         $5,320
  Interest on investment securities           2,302          2,426
  Interest on federal funds sold                371             87
                                             ------         ------
      Total interest revenue                  8,771          7,833
                                             ------         ------
INTEREST EXPENSE
  Interest on deposits                        3,752          3,264
  Other interest                                 --             11
                                             ------         ------
    Total interest expense                    3,752          3,275
                                             ------         ------
 
  Net interest revenue                        5,019          4,558
  Provision for loan losses                    (330)          (465)
                                             ------         ------
      Net interest revenue after
        provision for loan losses             4,689          4,093
                                             ------         ------
OTHER REVENUE
  Service fees                                  813            791
  Other                                           7             16
  Loss from sale of investment securities        (2)          (115)
                                             ------         ------
                                                818            692
                                             ------         ------
OTHER EXPENSE
  Salaries and employee benefits              1,293          1,228
  Occupancy expense, net of rental
    income                                      251            229
  Other expenses                                892            726
                                             ------         ------
      Total other expense                     2,436          2,183
                                             ------         ------
        Income before income taxes            3,071          2,602
Provision for income taxes                      950            666
                                             ------         ------
          Net income                         $2,121         $1,936
                                             ======         ======
 
</TABLE>
 
-------------------------------------------
The Notes to Financial Statements are an
 integral part of these statements.
 

                                      F-4
<PAGE>
 
                      STATEMENTS OF STOCKHOLDERS' EQUITY
                              FIRST NATIONAL BANK
                 Nine months ended September 30, 1996 and 1995

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
 
                                                                 UNREALIZED
                                                                 GAIN (LOSS)
                            COMMON STOCK                         SECURITIES
                          -----------------           UNDIVIDED  AVAILABLE-
                          SHARES  PAR VALUE  SURPLUS   PROFITS    FOR-SALE    TOTALS
                          ------  ---------  -------  ---------  ----------  -------
                                                (in thousands)
<S>                       <C>     <C>        <C>      <C>        <C>          <C>
Balance, January 1,
  1995                        33       $330  $19,500     $3,681     $(2,145)  $21,366
 
  Net income                                              1,936                 1,936
 
  Unrealized loss
    on marketable
    equity securities                                                 1,663     1,663 
                         -------    -------  -------     ------     -------   ------- 
Balance, September 30,
  1995                        33       $330  $19,500     $5,617     $  (482)  $24,965
                         =======    =======  =======     ======     =======   ======= 
Balance January 1,
  1996                        33       $330  $21,000     $4,093     $  (300)  $25,123
 
  Net income                                              2,121                 2,121
 
  Unrealized gain
    on marketable
    equity securities                                                   (72)      (72) 
                         -------    -------  -------     ------     -------   ------- 
Balance, September 30,
 1996                         33       $330  $21,000     $6,214     $  (372)  $27,172
                         =======    =======  =======     ======     =======   ======= 
</TABLE>
 
---------------------------------------------
The Notes to Financial Statements are an
 integral part of these statements.

                                      F-5
<PAGE>
 
                           STATEMENTS OF CASH FLOWS
                              FIRST NATIONAL BANK
                 Nine months ended September 30, 1996 and 1995

                     (SEE ACCOUNTANTS' COMPILATION REPORT)


<TABLE>
<CAPTION>
 
OPERATING ACTIVITIES                                         1996      1995
                                                            -------  --------
                                                             (in thousands)
<S>                                                         <C>      <C>
  Net income                                                $ 2,121  $  1,936
  Adjustments to reconcile net income to net cash
  provided by operating activities:
      Depreciation and amortization                             137       162
      Provision for loan losses                                 330       465
      Provision for deferred income taxes                       (42)       21
      Loss on sale of securities                                  2       114
      Increase in interest receivable and other assets           99       304
      Increase in interest payable and other liabilities       (131)     (104)
                                                            -------    ------
        Net cash provided by operating
          activities                                          2,516     2,898
                                                            -------    ------
 
INVESTING ACTIVITIES
  Purchases of held-to-maturity securities                   (8,209)   (5,381)
  Purchases of available-for-sale securities                 (3,903)       --
  Proceeds from dispositions of
    held-to-maturity securities                               5,298     1,316
  Proceeds from dispositions of
    available-for-sale securities                             5,420     4,929
  Net increase in loans                                      (5,091)  (10,209)
  Net (increase) decrease in federal funds sold               4,200    (1,950)
  Purchases of premises and equipment                          (468)      (95)
  Net (increase) decrease in other real estate                 (625)      (15)
                                                            -------    ------
        Net cash used in investing activities                (3,378)  (11,405)
                                                            -------    ------
 
FINANCING ACTIVITIES
  Net increase in deposits                                    2,192     9,430
  Cash dividends paid                                            --        --
                                                            -------    ------
 
        Net cash provided by financing
          activities                                          2,192     9,430
                                                            -------    ------
 
Decrease in cash and due from banks                           1,330       923
Cash and due from banks at beginning of year                  3,811     3,978
                                                            -------    ------
Cash and due from banks at end of year                      $ 5,141  $  4,901
                                                            -------    ------
 
SUPPLEMENTAL CASH FLOWS INFORMATION
  Interest paid                                             $ 4,137  $  3,051
                                                            -------    ------
 
  Income taxes paid                                         $   802  $    551
                                                            -------    ------
</TABLE>

-----------------------------------------
The Notes to Financial Statements are an
 integral part of these statements. 

                                      F-6
<PAGE>
 
                         NOTES TO FINANCIAL STATEMENTS
                              FIRST NATIONAL BANK
                              SEPTEMBER 30, 1996

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

       Operating Environment
       ---------------------

         The Bank grants commercial, residential and consumer installment loans
       to its customers.  Although the Bank has a diversified loan portfolio,
       the majority of its loan customers are located in Pontotoc County,
       Mississippi.

       Basis of Presentation
       ---------------------

         The Bank recognizes substantially all income and expense on the accrual
       method of accounting except certain minor sources of income which are
       recorded as received.  These exceptions do not have a material affect on
       financial statement presentations.

       Use of Estimates
       ----------------

                 The preparation of financial statements in conformity with
       generally accepted accounting principles requires management to make
       estimates and assumptions that affect the reported amounts of assets and
       liabilities and disclosure of contingent assets and liabilities at the
       date of the financial statements.  Actual results could significantly
       differ from those estimates.

                 Material estimates that are particularly susceptible to
       significant change relate to the determination of the allowance for
       losses on loans and the valuation of real estate acquired in connection
       with foreclosures or in satisfaction of loans.  While management uses
       available information to recognize losses on loans and foreclosed real
       estate, future additions to the allowances may be necessary based on
       changes in local economic conditions.  In addition, regulatory agencies,
       as an integral part of their examination process, periodically review the
       Bank's allowances for losses on loans and foreclosed real estate.  Such
       agencies may require the Bank to recognize additional losses based on
       their judgments about information available to them at the time of their
       examination.  Because of these factors, it is reasonably possible that
       the estimated losses on loans and foreclosed real estate may change
       materially in the near term.  However, the amount of the change that is
       reasonably possible cannot be estimated.

       Cash Equivalents
       ----------------

         For purpose of the Statements of Cash Flows, the Bank considers all
       highly liquid debt instruments purchased with a maturity of three months
       or less to be cash equivalents, which are included in the balance sheet
       caption "Cash and due from banks."

                                      F-7
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)

       Investment Securities
       ---------------------

          Securities Held to Maturity:  Debt securities that management has the
       positive intent and ability to hold to maturity are reported at cost,
       adjusted for premiums and discounts that are recognized in interest
       income using methods approximating the interest method over the period to
       maturity.

          Securities Available for Sale:  Other marketable securities are
       carried at fair value.  Unrealized gains and losses on  securities
       available-for-sale are excluded from earnings and reported net of tax in
       a separate component of stockholders' equity.  Gains and losses on
       securities sold are determined using the specific identification method.

                 Declines in the fair value of individual held-to-maturity and
       available-for-sale securities below their cost that are other than
       temporary have resulted in write-downs of the individual securities to
       their fair value.

       Loans and Allowances for Loan Losses
       ------------------------------------

         Loans are stated at the amount of unpaid principal, reduced by unearned
       discount and an allowance for loan losses.  Unearned discount on
       installment loans is recognized as income over the terms of the loans by
       the interest method.  Interest on other loans is calculated by using
       the simple interest method on daily balances of the principal amount
       outstanding.  The allowance for loan losses is established through a
       provision for loan losses charged to expenses.  Loans are charged against
       the allowance for loan losses when management believes that the
       collectibility of the principal is unlikely.  The allowance is an amount
       that management believes will be adequate to absorb possible losses on
       existing loans that may become uncollectible, based on evaluations of the
       collectibility of loans and prior loan loss experience.  The evaluations
       take into consideration such factors as changes in the nature and volume
       of the loan portfolio, overall portfolio quality, review of specific
       problem loans, and current economic conditions that may affect the
       borrowers' ability to pay.  Accrual of interest is discontinued on a loan
       when management believes, after considering economic and business
       conditions and collection efforts, that the borrowers' financial
       condition is such that collection of interest is doubtful.

       Foreclosed Real Estate
       ----------------------

                 Real estate properties acquired through, or in lieu of, loan
       foreclosure are to be sold and are initially recorded at fair value at
       the date of foreclosure establishing a new cost basis.  After
       foreclosure, valuations are periodically performed by management and the
       real estate is carried at the lower of carrying amount or fair value less
       cost to sell.

       Bank Premises and Equipment
       ---------------------------

         Premises and equipment are stated at cost less accumulated
       depreciation.  Provisions for depreciation are computed principally on
       the straight-line method and charged to operating expense over the
       estimated useful life of the assets.  Costs of major additions and
       improvements are capitalized.  Expenditures for maintenance and repairs
       are charged against income as incurred.

                                      F-8
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)

       Other Assets
       ------------

          In May 1994, the bank acquired certain deposits of a savings and loan
       institution in the bank's market area. To assume the deposits, the bank
       paid a premium of $525,000 which is being amortized over 15 years and is
       carried net of accumulated amortization on the balance sheet.

          Included in investments on the balance sheets for September 30, 1996
       and 1995 is $475,900 and $402,100, respectively, in Federal Home Loan
       Bank stock carried at cost. The stock is required to be held by the bank
       to secure any advances that become necessary for liquidity management.

       Income Taxes
       ------------

          The objective of accounting for income taxes is to recognize the
       amount of current and deferred taxes payable or refundable at the date of
       the financial statements as a result of all events that have been
       recognized in the financial statements and as measured by the provisions
       of enacted laws. Income taxes currently payable are based on the taxable
       income for the year. A deferred tax asset or liability is calculated for
       tax consequences attributable to temporary differences between taxable
       income and financial accounting income. Temporary differences relate
       primarily to depreciation methods, accretion of discounts on investment
       securities and provision for loan losses.

       Fair Values of Financial Instruments
       ------------------------------------

          The following methods and assumptions were used to estimate the fair
       value of each class of financial instruments for which it is practicable
       to estimate that value:

       Cash and short-term investments:

          For those short-term instruments, the carrying amount is a reasonable
       estimate of fair value.

       Investment securities:

          For securities held as investments, fair values are based on quoted
       market prices, if available.  If  quoted market prices are not available,
       fair values are estimated using quoted market prices for similar
       securities.

       Loans receivable::

          For variable rate loans and loans that reprice within a year that have
       no significant change in credit risk, fair values are based on carrying
       values.  For the remaining loans in the portfolio that reprice or mature
       after one year, it is not currently practicable to estimate the fair
       value due to limitations of available information and cost benefit
       analysis.  Management believes the difference between the carrying value
       and fair value of all other loans is not significant in comparison to the
       loan portfolio.

       Deposit liabilities:

          The fair values of demand deposits, savings accounts, and certain
       money market deposits are the amounts payable on demand at the reporting
       date (that is, their carrying amounts).  The fair values of fixed-
       maturity certificates of deposit are estimated using a discounted cash
       flow calculation that applies interest rates currently being offered on
       certificates to a schedule of aggregated expected maturities .

                                      F-9
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)



NOTE 2.  INVESTMENT SECURITIES

       Securities available-for-sale consist of the following at September 30:

                                                 1996
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
U.S. Treasury Securities       $ 2,241                   $  8       $ 2,233
Obligations of other U.S.
 Government Agencies             1,499                     16         1,483
Mortgage-backed securities      13,587                    569        13,018
Other securities                 1,123                                1,123
                               -------      -----        ----       -------
                               $18,450      $  --        $593       $17,857
                               =======      =====        ====       =======

                                                 1995
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
U.S. Treasury Securities       $   499                   $  5       $   494
Obligations of other U.S.
 Government Agencies             5,097                    115         4,982
Obligations of states and
 political subdivisions             --                                   --
Mortgage-backed securities      17,849                    753        17,096
Other securities                   952                                  952
                               -------      -----        ----       -------
                               $24,397      $  --        $873       $23,524
                               =======      =====        ====       =======


          During 1995 the Financial Accounting Standards Board offered entities
a one-time opportunity, which ended December 31, 1995, to reclassify their
securities among the classes as required by FAS 115 "Accounting for Certain
Investments in Debt and Equity Securities".  During this time, entities could
move securities out of the held-to-maturity portfolio without tainting their
other held-to-maturity securities.  During December 1995, the Bank transferred
securities with amortized cost of $5,371,299 from held-to-maturity to available-
for-sale.  The market value of the securities on that date was $5,478,512.

                                      F-10
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)


NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)


       Securities held-to-maturity consist of the following at September 30:

                                                 1996
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
Obligations of states and
 political subdivisions        $14,512      $  86                   $14,598
Mortgage-backed securities      20,815                    282        20,533
                               -------      -----        ----       -------
                               $35,327      $  86        $282       $35,131
                               =======      =====        ====       =======

                                                 1995
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
Obligations of other U.S.
 Government Agencies           $ 4,151                  $  956      $ 3,195
Obligations of states and
 political subdivisions         18,415        527                    18,942
Mortgage-backed securities       6,944                      62        6,882
                               -------      -----       ------      -------
                               $29,510      $ 527       $1,018      $29,019
                               =======      =====       ======      =======

                                        
          Gross losses of approximately $2,000 were realized on securities sold
       or called for the nine months ended September 30, 1996.  Gross realized
       gains and gross realized losses on sales of securities were approximately
       $126,000 and $12,000, respectively, in 1996.  All dispositions of held-
       to-maturity securities were the result of calls or maturities of the
       respective security.

                                      F-11
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)


                 The amortized cost and estimated market value of investment
       securities at September 30, 1996 by contractual maturities, are shown
       below.  Expected maturities will differ from contractual maturities
       because borrowers may have the right to call or prepay obligations.


                                 HELD-TO-MATURITY       AVAILABLE-FOR-SALE
                              ----------------------  ----------------------
                              AMORTIZED       FAIR     AMORTIZED      FAIR
                                COST          VALUE      COST         VALUE
                              ---------      -------   ---------     -------
Amounts maturing in:

One year or less               $ 5,343       $ 5,350    $ 8,211       $ 7,779
After one year through
 five years                     24,717        24,532      9,744         9,600
After five years through
 ten years                       5,082         5,065        465           478
After ten years                    185           184         --              
                               -------       -------    -------       -------
                               $35,327       $35,131    $18,450       $17,857
                               =======       =======    =======       =======


                 For purposes of the maturity table, mortgage-backed securities,
       which are not due at a single maturity date, have been allocated over
       maturity groupings based on the weighted-average contractural maturities
       of underlying collateral.  The mortgage-backed securities may mature
       earlier than their weighted-average contractural maturities because of
       principal prepayments.

                 Assets, principally securities, carried at approximately
       $21,105,000 at September 30,1996 and $21,643,000 at September 30, 1995
       were pledged to secure public deposits and for other purposes required or
       permitted by law.

NOTE 3.  LOANS

                 A breakdown of loans included in the balance sheet is as
       follows as of September 30:


                                              1996             1995
                                             ------           ------
                                                 (in thousands)

Commercial                                   $17,417          $15,603
Agricultural                                   5,940            5,947
Real estate:
  Residential                                 25,809           24,632
  Commercial                                  22,133           21,174
Consumer Installment                          14,053           13,947
                                             -------          -------
                                             $85,352          $81,303
Allowance for loan losses                     (1,138)          (1,095)
                                             -------          -------
  Loans, net                                 $84,214          $80,208
                                             =======          =======

                                      F-12
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 3.  LOANS - (CONTINUED)

          Changes in the allowance for loan losses were as follows for the nine
       months ended September 30:

                                              1996             1995
                                             ------           ------
                                                 (in thousands)

Balance, beginning of year                    $  994           $1,217
Provision charged to operations                  330              465
Loans charged off                               (257)            (766)
Recoveries                                        71              179
                                              ------           ------
Balance, end of year                          $1,138           $1,095 
                                              ======           ======

                                    
NOTE 4.  BANK PREMISES AND EQUIPMENT

          The following is a summary of bank premises and equipment stated at
       cost as of September 30:

                                              1996             1995
                                             ------           ------
                                                 (in thousands)

Bank premises                                $ 1,304          $ 1,210
Furniture, fixtures, and equipment             1,985            1,589
                                             -------          -------
                                               3,289            2,799
Less: Accumulated depreciation            
  and amortization                            (1,730)          (1,601)
                                             -------          -------
  Loans, net                                 $ 1,559          $ 1,198
                                             =======          =======
 
          The Bank leases certain office equipment under terms of operating
       leases.  Total rental expenses and minimum future payments required under
       the noncancellable leases are insignificant to the financial statements
       for the nine months ended September 30, 1996 and 1995.

NOTE 5.  DEPOSITS

          Total deposits consisted of the following at September 30:

                                               1996             1995
                                             ------           ------
                                                 (in thousands)

Demand                                      $ 15,581         $ 14,786
Savings                                       18,713           18,543 
NOW                                           14,776           14,626
Certificates of deposit less than $100,000    49,222           46,093
Certificates of deposit more than $100,000    24,884           26,573
                                            --------         --------
   Total                                    $123,176         $120,621
                                            ========         ========

                                      F-13
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 6.   INCOME TAXES

          The provision for income taxes consisted of the following at 
       September 30:


                                              1996             1995
                                             ------           ------
                                                 (in thousands)

Current                                       $992             $645  
Deferred                                       (42)              21  
                                              ----             ----  
Total tax provision                           $950             $666
                                              ====             ====  
                                        

          The provision for income taxes differs from that computed by applying
       statutory rates to income before income taxes, as indicated in the
       following analysis for the nine months :

                                              1996             1995
                                             ------           ------
                                                 (in thousands)

Expected tax provision at a 37.3% rate       $1,145           $ 970  
Effect of tax-exempt income                    (215)           (216)
Other, net                                       20             (88)
                                             ------           -----  
                                             $  950           $ 666
                                             ======           =====  
 
          The temporary differences which give rise to significant portions of
       deferred tax assets and liabilities are as follows as of September 30:

                                              1996             1995
                                             ------           ------

Deferred tax assets:
  Allowance for loan losses                   $353             $409  
  Unrealized losses on securities              221              392
  Other                                         12                3
                                              ----             ----  
    Total deferred tax assets                  586              804
                                              ----             ----  
Deferred tax liabilities:
  Premises and equipment                        11                3
                                              ----             ----  
                                                11                3
                                              ----             ----  
    Net deferred tax assets                   $575             $801
                                              ====             ====  
                                        
          The ultimate realization of deferred tax assets is dependent upon the
       generation of sufficient taxable income in the future periods in which
       the temporary differences become deductible for federal tax purposes.
       Management believes that based on prior years performance and likelihood
       of future taxable income, these assets are more likely than not to be
       realized.

                                      F-14
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 7.  RELATED PARTY TRANSACTIONS

          The Bank makes loans to its officers and directors as well as other
       related parties.  Loans to related parties amounted to approximately
       $200,000 and $256,000 at September 30, 1996 and 1995, respectively.

NOTE 8.  PROFIT SHARING  PLAN

          The Bank has a contributory profit sharing plan.  Employees with one
       year of service are eligible to participate.  Participating employees are
       required to contribute 2% of their salaries each year.  The Bank also
       makes discretionary contributions each year.  A provision for the
       discretionary contribution of approximately $94,000 is included in the
       statements of income for the nine months ended September 30, 1996 and
       1995.  The Bank contributed a total of $125,000 to the  plan in 1995 and
       has approved a contribution of $160,000 for 1996.

NOTE 9. COMMITMENTS AND CONTINGENCIES

          In the normal course of business, the Bank has various outstanding
       commitments to extend credit and standby letters of credit which are not
       disclosed in the accompanying financial statements.  In the opinion of
       management, no significant credit losses will result from these
       commitments.  On  September 30, 1996 the Bank had outstanding standby
       letters of credit of  approximately $638,000 and commitments to extend
       credit under outstanding lines of credit of  approximately $6,627,000.

NOTE 10.  DUE FROM BANKS

          The Company had funds on deposit with other Banks at September 30,
       1996 totaling $2,463,052 which were in excess of federal deposit
       insurance coverage.

NOTE 11. FAIR VALUE OF FINANCIAL INVESTMENTS

          The estimated fair values of the Bank's financial instruments were as
       follows:

                                    1996                      1995
                            --------------------        --------------------
                            CARRYING       FAIR         CARRYING       FAIR 
                             AMOUNT        VALUE         AMOUNT        VALUE 
                            --------       -----        --------       -----
                                             (in thousands)
Financial assets:
 Cash, due from banks,
  and federal funds sold    $ 8,041       $ 8,041        $ 8,201       $ 8,201
 Securities available-
  for-sale                   17,857        17,857         23,524        23,524
 Securities held-to-
  maturity                   35,327        35,131         29,510        29,019
 Loans repricing in one
  year or less               65,193        65,193         62,533        62,533
 Loans repricing after
  one year                   19,021        19,021         17,675        17,675
Financial liabilities:
 Deposits                   123,176       123,176        121,455       121,455

                                      F-15
<PAGE>
 
                     [LOGO OF NAIL MCKINNEY APPEARS HERE]

                        ACCOUNTANTS' COMPILATION REPORT



To the Shareholders and Directors
First National Bank
Pontotoc, Mississippi

          We have compiled the accompanying balance sheets of the First National
Bank as of December 31, 1995 and 1994 and the related statements of income,
stockholders' equity and cash flows for the years then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.

          A compilation is limited to presenting in the form of financial
statements information that is the representation of management.  We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.

 
Nail McKinney PA


New Albany, Mississippi
December 11, 1996

                                      F-16
<PAGE>
 
                                BALANCE SHEETS
                              FIRST NATIONAL BANK
                          December 31, 1995 and 1994
 
                     (SEE ACCOUNTANTS' COMPILATION REPORT)


<TABLE>
<CAPTION>
 
                                                                       1995         1994
                                                                      -----        ------
ASSETS                                                                  (in thousands)
<S>                                                                   <C>         <C>
  Cash and due from banks                                              $  3,811   $  3,978
  Investment securities - available for sale (at market value)           18,812     29,781
  Investment securities - held to maturity (at cost)                     33,052     22,568
  Federal funds sold                                                      7,100      1,350
  Loans                                                                  81,596     72,643
  Less:  Unearned income                                                 (1,149)      (962)
            Allowance for loan losses                                      (994)    (1,217)
                                                                       --------   --------
               Net loans                                                 79,453     70,464
  Premises and equipment, net                                             1,202      1,238
  Intangibles                                                               467        502
  Deferred tax asset                                                        489      1,706
  Other assets                                                            2,720      1,908
                                                                       --------   --------
      Total assets                                                     $147,106   $133,495
                                                                       ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
    Noninterest bearing                                                $ 15,589   $ 16,151
    Interest bearing                                                    105,395     95,040
                                                                       --------   --------
      Total deposits                                                    120,984    111,191
  Accrued interest and other liabilities                                    999        938
                                                                       --------   --------
      Total liabilities                                                 121,983    112,129
                                                                       --------   --------
  Stockholders' equity:
    Common stock $10 par value,
      33,000 shares authorized and issued                                   330        330
    Surplus                                                              21,000     19,500
    Undivided profits                                                     4,093      3,681
    Unrealized loss on securities available-for-sale                       (300)    (2,145)
                                                                       --------   --------
      Total stockholders' equity                                         25,123     21,366
                                                                       --------   --------
        Total liabilities and stockholders' equity                     $147,106   $133,495
                                                                       ========   ========
</TABLE>
________________________________________
The Notes to Financial Statements are an
 integral part of these statements.

                                      F-17
<PAGE>
 
                             STATEMENTS OF INCOME
                              FIRST NATIONAL BANK
                    Years ended December 31, 1995 and 1994

                     (SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
 
                                              1995            1994
                                             -------         ------
INTEREST REVENUE                                 (in thousands)
<S>                                          <C>             <C>
  Interest and fees on loans                 $ 7,289         $6,071
  Interest on investment securities            3,182          3,052
  Interest on federal funds sold                 179             90
                                             -------         ------
      Total interest revenue                  10,650          9,213
                                             -------         ------
INTEREST EXPENSE
  Interest on deposits                         4,538          3,314
  Other interest                                  11             14
                                             -------         ------
      Total interest expense                   4,549          3,328
                                             -------         ------
 
  Net interest revenue                         6,101          5,885
  Provision for loan losses                     (714)          (600)
                                             -------         ------
      Net interest revenue after
        provision for loan losses              5,387          5,285
                                             -------         ------
OTHER REVENUE
  Service fees                                 1,060            853
  Other                                           20            158
  Loss from sale of investment securities       (112)          (101)
                                             -------         ------
                                                 968            910
                                             -------         ------
OTHER EXPENSE
  Salaries and employee benefits             $ 1,667         $1,575
  Occupancy expense, net of rental
    income                                       308            324
  Other expenses                               1,067          1,090
                                             -------         ------
      Total other expense                      3,042          2,989
                                             -------         ------
        Income before income taxes             3,313          3,206
  Provision for income taxes                     873          1,015
                                             -------         ------
          Net income                         $ 2,440         $2,191
                                             =======         ======
</TABLE>

-------------------------------------------
The Notes to Financial Statements are an
 integral part of these statements.

                                      F-18
<PAGE>
 
                      STATEMENTS OF STOCKHOLDERS' EQUITY
                              FIRST NATIONAL BANK
                    Years ended December 31, 1995 and 1994

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
 
                                                                UNREALIZED
                                                                GAIN (LOSS)
                           COMMON STOCK                         SECURITIES
                         -----------------           UNDIVIDED  AVAILABLE-
                         SHARES  PAR VALUE  SURPLUS   PROFITS    FOR-SALE    TOTALS
                         ------  ---------  -------  ---------  ----------- -------
                                               (in thousands)
<S>                      <C>     <C>        <C>      <C>        <C>          <C>
Balance, January 1,
  1994                       33       $330  $18,000    $ 3,485     $    --   $21,815
 
  Net income                                             2,191                 2,191
 
  Cash dividend
    $15 per share                                         (495)                 (495)
 
  Unrealized loss
    on marketable
    equity securities                                               (2,145)   (2,145)
 
  Transfer to
    surplus                                   1,500     (1,500)
                           -----      -----  ------    -------     -------    ------ 
Balance, December 31,
  1994                       33        330   19,500      3,681      (2,145)   21,366
 
  Net income                                             2,440                 2,440
 
  Cash dividend
    $16 per share                                         (528)                 (528)
 
  Unrealized gain
    on marketable
    equity securities                                                1,845     1,845
 
  Transfer to
    surplus                                   1,500     (1,500)
                           -----      -----  ------    -------     -------   ------- 
 
Balance, December 31,
   1995                      33       $330  $21,000    $ 4,093      $ (300)  $25,123
                           =====      ====  =======    =======      ======   ======= 
</TABLE>
 
--------------------------------------------
The Notes to Financial Statements are an
 integral part of these statements.

                                      F-19
<PAGE>
 
                           STATEMENTS OF CASH FLOWS
                              FIRST NATIONAL BANK
                    Years ended December 31, 1995 and 1994

                     (SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
 
OPERATING ACTIVITIES                                          1995      1994
                                                            --------  --------
                                                              (in thousands)
<S>                                                         <C>       <C>
  Net income                                                $  2,440  $  2,191
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                              225       163
      Provision for loan losses                                  714       628
      Provision for deferred income taxes                        119        53
      Loss on sale of securities                                 112       101
      Increase in interest receivable and other assets          (889)     (198)
      Increase in interest payable and other liabilities          60       268
                                                             -------    ------
        Net cash provided by operating
          activities                                           2,781     3,206
                                                             -------    ------
INVESTING ACTIVITIES
  Purchases of held-to-maturity securities                   (22,179)   (4,273)
  Purchases of available-for-sale securities                  (2,506)  (15,237)
  Proceeds from dispositions of
    held-to-maturity securities                               11,798     1,886
  Proceeds from dispositions of
    available-for-sale securities                             16,236    10,779
  Net increase in loans                                       (9,547)   (7,231)
  Net (increase) decrease in federal funds sold               (5,750)    2,450
  Purchases of premises and equipment                            (75)     (940)
  Net (increase) decrease in other real estate                  (190)      (34)
                                                             -------    ------
        Net cash used in investing activities                (12,213)  (12,600)
                                                             -------    ------
 
FINANCING ACTIVITIES
  Net increase in deposits                                     9,793     9,454
  Cash dividends paid                                           (528)     (495)
                                                             -------    ------
 
        Net cash provided by financing
          activities                                           9,265     8,959
                                                             -------    ------
 
Decrease in cash and due from banks                             (167)     (435)
Cash and due from banks at beginning of year                   3,978     4,413
                                                             -------    ------
Cash and due from banks at end of year                      $  3,811  $  3,978
                                                             -------    ------
 
SUPPLEMENTAL CASH FLOWS INFORMATION
  Interest paid                                             $  3,734  $  3,421
                                                             -------    ------
 
  Income taxes paid                                         $    765  $    813
                                                             -------    ------
</TABLE>

--------------------------------------------
The Notes to Financial Statements are an
 integral part of these statements.

                                      F-20
<PAGE>
 
                         NOTES TO FINANCIAL STATEMENTS
                              FIRST NATIONAL BANK
                               DECEMBER 31, 1995

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

       Operating Environment
       ---------------------

          The Bank grants commercial, residential and consumer installment loans
       to its customers.  Although the Bank has a diversified loan portfolio,
       the majority of its loan customers are located in Pontotoc County,
       Mississippi.

       Basis of Presentation
       ---------------------

          The Bank recognizes substantially all income and expense on the
       accrual method of accounting except certain minor sources of income which
       are recorded as received.  These exceptions do not have a material affect
       on financial statement presentations.

       Use of Estimates
       ----------------

          The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and disclosure of contingent assets and liabilities at the date of the
       financial statements. Actual results could significantly differ from
       those estimates.

          Material estimates that are particularly susceptible to significant
       change relate to the determination of the allowance for losses on loans
       and the valuation of real estate acquired in connection with foreclosures
       or in satisfaction of loans.  While management uses available information
       to recognize losses on loans and foreclosed real estate, future additions
       to the allowances may be necessary based on changes in local economic
       conditions.  In addition, regulatory agencies, as an integral part of
       their examination process, periodically review the Bank's allowances for
       losses on loans and foreclosed real estate.  Such agencies may require
       the Bank to recognize additional losses based on their judgments about
       information available to them at the time of their examination.  Because
       of these factors, it is reasonably possible that the estimated losses on
       loans and foreclosed real estate may change materially in the near term.
       However, the amount of the change that is reasonably possible cannot be
       estimated.

       Cash Equivalents
       ----------------

          For purpose of the Statements of Cash Flows, the Bank considers all
       highly liquid debt instruments purchased with a maturity of three months
       or less to be cash equivalents, which are included in the balance sheet
       caption "Cash and due from banks."

                                      F-21
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)

       Investment Securities
       ---------------------

          Securities Held to Maturity:  Debt securities that management has the
       positive intent and ability to hold to maturity are reported at cost,
       adjusted for premiums and discounts that are recognized in interest
       income using methods approximating the interest method over the period to
       maturity.

          Securities Available for Sale:  Other marketable securities are
       carried at fair value.  Unrealized gains and losses on  securities
       available-for-sale are excluded from earnings and reported net of tax in
       a separate component of stockholders' equity.  Gains and losses on
       securities sold are determined using the specific identification method.

          Declines in the fair value of individual held-to-maturity and
       available-for-sale securities below their cost that are other than
       temporary have resulted in write-downs of the individual securities to
       their fair value.

       Loans and Allowances for Loan Losses
       ------------------------------------

          Loans are stated at the amount of unpaid principal, reduced by
       unearned discount and an allowance for loan losses.  Unearned discount on
       installment loans is recognized as income over the terms of the loans by
       the interest method.  Interest on other loans is calculated by using
       the simple interest method on daily balances of the principal amount
       outstanding.  The allowance for loan losses is established through a
       provision for loan losses charged to expenses.  Loans are charged against
       the allowance for loan losses when management believes that the
       collectibility of the principal is unlikely.  The allowance is an amount
       that management believes will be adequate to absorb possible losses on
       existing loans that may become uncollectible, based on evaluations of the
       collectibility of loans and prior loan loss experience.  The evaluations
       take into consideration such factors as changes in the nature and volume
       of the loan portfolio, overall portfolio quality, review of specific
       problem loans, and current economic conditions that may affect the
       borrowers' ability to pay.  Accrual of interest is discontinued on a loan
       when management believes, after considering economic and business
       conditions and collection efforts, that the borrowers' financial
       condition is such that collection of interest is doubtful.

       Foreclosed Real Estate
       ----------------------

          Real estate properties acquired through, or in lieu of, loan
       foreclosure are to be sold and are initially recorded at fair value at
       the date of foreclosure establishing a new cost basis.  After
       foreclosure, valuations are periodically performed by management and the
       real estate is carried at the lower of carrying amount or fair value less
       cost to sell.

       Bank Premises and Equipment
       ---------------------------

          Premises and equipment are stated at cost less accumulated
       depreciation. Provisions for depreciation are computed principally on the
       straight-line method and charged to operating expense over the estimated
       useful life of the assets. Costs of major additions and improvements are
       capitalized. Expenditures for maintenance and repairs are charged against
       income as incurred.

                                      F-22
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)

       Other Assets
       ------------

          In May 1994, the bank acquired certain deposits of a savings and loan
       institution in the bank's market area.  To assume the deposits, the bank
       paid a premium of $525,000 which is being amortized over 15 years and is
       carried net of accumulated amortization on the balance sheet.

          Included in the investment securities for 1995 is $408,000 in Federal
       Home Loan Bank stock carried at cost, which is required to be held by the
       bank to secure any advances that become necessary for liquidity
       management.

       Income Taxes
       ------------

          The objective of accounting for income taxes is to recognize the
       amount of current and deferred taxes payable or refundable at the date of
       the financial statements as a result of all events that have been
       recognized in the financial statements and as measured by the provisions
       of enacted laws.  Income taxes currently payable are based on the taxable
       income for the year.  A deferred tax asset or liability is calculated for
       tax consequences attributable to temporary differences between taxable
       income and financial accounting income.  Temporary differences relate
       primarily to depreciation methods, accretion of discounts on investment
       securities and provision for loan losses.

       Fair Values of Financial Instruments
       ------------------------------------

          The following methods and assumptions were used to estimate the fair
       value of each class of financial instruments for which it is practicable
       to estimate that value:

       Cash and short-term investments:
          For those short-term instruments, the carrying amount is a reasonable
       estimate of fair value.

       Investment securities:

          For securities held as investments, fair values are based on quoted
       market prices, if available.  If  quoted market prices are not available,
       fair values are estimated using quoted market prices for similar
       securities.

       Loans receivable:

          For variable rate loans and loans that reprice within a year that have
       no significant change in credit risk, fair values are based on carrying
       values.  For the remaining loans in the portfolio that reprice or mature
       after one year, it is not currently practicable to estimate the fair
       value due to limitations of available information and cost benefit
       analysis.  At December 31, 1995 and 1994 $1,150 and $1,304 of total loans
       had maturities over five years.  Management believes the difference
       between the carrying value and fair value of all other loans is not
       significant in comparison to the loan portfolio.

       Deposit liabilities:

          The fair values of demand deposits, savings accounts, and certain
       money market deposits are the amounts payable on demand at the reporting
       date (that is, their carrying amounts).  The fair values of fixed-
       maturity certificates of deposit are estimated using a discounted cash
       flow calculation that applies interest rates currently being offered on
       certificates to a schedule of aggregated expected maturities .

                                      F-23
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)


NOTE 2.  INVESTMENT SECURITIES

       Securities available-for-sale consist of the following:


                                                 1995
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
U.S. Treasury Securities       $ 3,006      $  --        $  3       $ 3,003
Obligations of other U.S.
 Government Agencies             1,699                      7         1,692
Obligations of states and
 political subdivisions             --                                   --
Mortgage-backed securities      13,624                    467        13,157
Other securities                   960                                  960
                               -------      -----        ----       -------
                               $19,289      $  --        $477       $18,812
                               =======      =====        ====       =======

                                                 1994
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
U.S. Treasury Securities       $   497      $  --       $   24      $   473
Obligations of other U.S.
 Government Agencies             3,654                     256        3,398
Obligations of states and
 political subdivisions             --                                   --
Mortgage-backed securities      28,501                   3,141       25,360
Other securities                   550                                  550
                               -------      -----       ------      -------
                               $33,202      $  --       $3,421      $29,781
                               =======      =====       ======      =======

          During 1995 the Financial Accounting Standards Board offered entities
a one-time opportunity, which ended December 31, 1995, to reclassify their
securities among the classes as required by FAS 115 "Accounting for Certain
Investments in Debt and Equity Securities".  During this time, entities could
move securities out of the held-to-maturity portfolio without tainting their
other held-to-maturity securities.  During December 1995, the Bank transferred
securities with amortized cost of $5,371,299 from held-to-maturity to available-
for-sale.  The market value of the securities on that date was $5,478,512.

                                      F-24
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)


NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)


       Securities held-to-maturity consist of the following:

                                                 1995
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
U.S. Treasury Securities       $ 1,006      $  12        $ --       $ 1,018
Obligations of states and
 political subdivisions         12,812        122                    12,934
Mortgage-backed securities      19,234                     51        19,183
                               -------      -----        ----       -------
                               $33,052      $ 134        $ 51       $33,135
                               =======      =====        ====       =======

                                                 1994
                              ---------------------------------------------
                                           GROSS UNREALIZED
                              ---------------------------------------------
                              AMORTIZED                              FAIR
                                COST        GAINS       LOSSES       VALUE
                              ---------     -----       ------      -------
Obligations of other U.S.
 Government Agencies           $ 3,127      $  --       $  136      $ 2,991
Obligations of states and
 political subdivisions         19,441                     559       18,882
                               -------      -----       ------      -------
                               $22,568      $  --       $  695      $21,873
                               =======      =====       ======      =======

                 Gross realized gains and gross realized losses on sales of
       available-for-sale securities were approximately $171,000 and $283,000,
       respectively, in 1995 an $25,000 and $127,000, respectively, in 1994. All
       dispositions of held-to-maturity securities were the result of calls or
       maturities of the respective securities.

                                      F-25
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)


NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)


               The amortized cost and estimated market value of investment
       securities at December 31, 1995 by contractual maturities, are shown
       below. Expected maturities will differ from contractual maturities
       because borrowers may have the right to call or prepay obligations.

                                 HELD-TO-MATURITY       AVAILABLE-FOR-SALE
                              ----------------------  ----------------------
                              AMORTIZED       FAIR     AMORTIZED      FAIR
                                COST          VALUE      COST         VALUE
                              ---------      -------   ---------     -------
Amounts maturing in:

One year or less               $ 6,850       $ 6,835    $ 3,839       $ 4,309
After one year through
 five years                     20,955        21,006      3,531         2,943
After five years through
 ten years                       5,173         5,218      9,346         8,987
After ten years                     74            76      2,573         2,573
                               -------       -------    -------       -------
                               $33,052       $33,135    $19,289       $18,812
                               =======       =======    =======       =======

                 For purposes of the maturity table, mortgage-backed securities,
       which are not due at a single maturity date, have been allocated over
       maturity groupings based on the weighted-average contractural maturities
       of underlying collateral.  The mortgage-backed securities may mature
       earlier than their weighted-average contractural maturities because of
       principle prepayments.

                 Assets, principally securities, carried at approximately
       $14,388,000 at December 31, 1995, and $15,052,000 at December 31, 1994,
       were pledged to secure public deposits and for other purposes required or
       permitted by law.

NOTE 3.  LOANS

                 A breakdown of loans included in the balance sheet is as
       follows:

                                              1995             1994
                                             ------           ------
                                                 (in thousands)

Commercial                                   $14,806          $14,336
Agricultural                                   5,516            1,410
Real estate:
  Residential                                 24,603           20,637
  Commerical                                  21,615           19,476
Consumer Installment                          13,907           15,822
                                             -------          -------
                                              80,447           71,681
Allowance for loan losses                       (994)          (1,217)
                                             -------          -------
  Loans, net                                 $79,453          $70,464
                                             =======          =======

                                      F-26
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 3.  LOANS - (CONTINUED)

          Changes in the allowance for loan losses were as follows:

                                              1995             1994
                                             ------           ------
                                                 (in thousands)

Balance, beginning of year                   $ 1,217           $  991
Provision charged to operations                  714              600
Loans charged off                             (1,124)            (526)
Recoveries                                       187              152
                                             -------           ------
Balance, end of year                         $   994           $1,217 
                                             =======           ======

                                    .
NOTE 4.  BANK PREMISES AND EQUIPMENT

          The following is a summary of bank premises and equipment stated at
       cost:

                                              1995             1994
                                             ------           ------
                                                 (in thousands)

Bank premises                                $ 1,203          $ 1,212
Furniture, fixtures, and equipment             1,620            1,543
                                             -------          -------
                                               2,823            2,755
Less: Accumulated depreciation            
  and amortization                            (1,621)          (1,517)
                                             -------          -------
                                             $ 1,202          $ 1,238
                                             =======          =======
 
          The Bank leases certain office equipment under terms of operating
       leases.  Total rental expenses and minimum future payments required under
       the noncancellable leases are insignificant to the financial statements
       for 1995 and 1994.

NOTE 5.  DEPOSITS

          Total deposits consisted of the following at December 31:

                                               1995             1994
                                             ------           ------
                                                 (in thousands)

Demand                                      $ 15,590         $ 16,151
Savings                                       19,335           22,303 
NOW                                           12,774           14,574
Certificates of deposit less than $100,000    47,419           41,051
Certificates of deposit more than $100,000    25,866           17,112
                                            --------         --------
   Total tax provision                      $120,984         $111,191
                                            ========         ======== 

                                      F-27
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 6.   INCOME TAXES

           The provision for income taxes consisted of the following:

                                              1995             1994
                                             ------           ------
                                                 (in thousands)

Current                                       $754             $  962  
Deferred                                       119                 53  
                                              ----             ------  
Total tax provision                           $873             $1,015
                                              ====             ======  
                                        
          The provision for income taxes differs from that computed by applying
       statutory rates to income before income taxes, as indicated in the
       following analysis:

                                              1995             1994
                                             ------           ------
                                                 (in thousands)

Expected tax provision at a 37.3% rate       $1,235          $1,195
Effect of tax-exempt income                    (406)           (384)
Other, net                                       44             204 
                                             ------          ------  
                                             $  873          $1,015
                                             ======          ======  
  
                 The temporary differences which give rise to significant
       portions of deferred tax assets and liabilities are as follows:

                                              1995             1994
                                             ------           ------

Deferred tax assets:
  Allowance for loan losses                   $370            $  453 
  Unrealized losses on securities              179             1,276
  Other                                          3                16
                                              ----            ------ 
    Total deferred tax assets                  552             1,745
                                              ----            ------ 
Deferred tax liabilities:
  Premises and equipment                        63                39
                                              ----            ------ 
                                                63                39
                                              ----            ------ 
    Net deferred tax assets                   $489            $1,706
                                              ====            ====== 
                                       
                                        
          The ultimate realization of deferred tax assets is dependent upon the
       generation of sufficient taxable income in the future periods in which
       the temporary differences become deductible for federal tax purposes.
       Management believes that based on prior years performance and likelihood
       of future taxable income, these assets are more likely than not to be
       realized.

                                      F-28
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                     (SEE ACCOUNTANTS' COMPILATION REPORT)

NOTE 7.  RELATED PARTY TRANSACTIONS

          The Bank makes loans to its officers and directors as well as other
       related parties.  Loans to related parties amounted to approximately
       $244,000 and $258,000 at December 31, 1995 and 1994 respectively.

NOTE 8.  PROFIT SHARING  PLAN

          The Bank has a contributory profit sharing plan.  Employees with one
       year of service are eligible to participate.  Participating employees are
       required to contribute 2% of their salaries each year.  The Bank also
       makes discretionary contributions each year.  The Bank contributed
       $125,000 in 1995 and 1994.

NOTE 9. COMMITMENTS AND CONTINGENCIES

          In the normal course of business, the Bank has various outstanding
       commitments to extend credit and standby letters of credit which are not
       disclosed in the accompanying financial statements. In the opinion of
       management, no significant credit losses will result from these
       commitments. On December 31, 1995 the Bank had outstanding standby
       letters of credit of approximately $608,000 and commitments to extend
       credit under outstanding lines of credit of approximately $5,330,000.

NOTE 10.  DUE FROM BANKS

          The Company had funds on deposit with other Banks at December 31, 1995
       totaling approximately $1,717,000  which were in excess of federal
       deposit insurance coverage.

NOTE 11. FAIR VALUE OF FINANCIAL INVESTMENTS

          The estimated fair values of the Bank's financial instruments were as
       follows:

                                    1995                      1994
                            --------------------        --------------------
                            CARRYING       FAIR         CARRYING       FAIR 
                             AMOUNT        VALUE         AMOUNT        VALUE 
                            --------       -----        --------       -----
                                             (in thousands)
Financial assets:
 Cash, due from banks,
  and federal funds sold   $  3,811      $  3,811       $  3,978      $  3,978
 Securities available-
  for-sale                   18,812        18,812         29,781        29,781
 Securities held-to-
  maturity                   33,052        33,135         22,568        21,873
 Loans repricing in one
  year or less               62,570        62,570         55,221        55,221
 Loans repricing after
  one year                   16,883        16,883         15,243        15,243
Financial liabilities:
 Deposits                   120,984       120,984        111,191       111,191

                                      F-29
<PAGE>
 
                           ARTICLES OF INCORPORATION
                                       OF
                           PONTOTOC BANCSHARES CORP.
                           -------------------------


                                ARTICLE I.  NAME

     The name of the Corporation is Pontotoc BancShares Corp.

                           ARTICLE II.  CAPITAL STOCK

     (a) The Corporation has authority to issue 3,000,000 shares of capital
stock which shall be designated as common stock, no par value, and 1,000,000
shares of capital stock which shall be designated as preferred stock, no par
value.

     (b) The Board of Directors shall have the power, acting alone, to
determine, in whole or in part, the preferences, limitations and relative rights
of any shares of preferred stock before issuance of such shares, or any series
of preferred stock before the issuance of shares of such series.

                          ARTICLE III.  INCORPORATORS

     The name and address of the incorporator is:

                                F. M. Bush, III
                                 Seventh Floor
                             One Mississippi Plaza
                                 P. O. Box 1220
                        Tupelo, Mississippi  38802-1220

              ARTICLE IV.  REGISTERED AGENT AND REGISTERED OFFICE

     The Corporation's original registered agent shall be F. M. Bush, III, and
its registered office shall be located at One Mississippi Plaza, Seventh Floor,
P. O. Box 1220, Tupelo, Mississippi, 38802-1220.

                           ARTICLE V.  TENDER OFFERS

     If any person, firm, or corporation, (herein referred to as the Tender
Offeror) or any person, firm, or corporation controlling the Tender Offeror,
controlled by the Tender Offeror, or under common control with the Tender
Offeror, or any group of which the Tender Offeror or any of the foregoing
persons, firms, or corporations are members, or any other group controlling the
Tender Offeror, controlled by the Tender Offeror, or under
<PAGE>
 
common control with the Tender Offeror owns of record, or owns beneficially,
directly or indirectly, more than 10% of any class of equity voting security of
this Corporation with the Tender Offeror, then any merger or consolidation of
this corporation with the Tender Offeror, or any sale, lease, or exchange of
substantially all of the assets of this Corporation or of the Tender Offeror to
the other may not be effected under the laws of Mississippi unless a meeting of
the shareholders of this Corporation is held to vote thereon and the votes of
the holders of voting securities of this Company representing not less than 80%
of the votes entitled to vote thereon, vote in favor thereof.  As used herein,
the term group includes persons, firms, and corporations acting in concert,
whether or not as a formal group, and the term equity security means any share
or similar security; or any security convertible, with or without consideration,
into such a security, or carrying any warrant to subscribe to or purchase such a
security; or any such warrant or right.  The foregoing provision is to require a
greater vote of shareholders than is required by Section 11.03 of the
Mississippi Business Corporation Act (dealing with mergers and share exchanges)
and Section 12.02 of the Mississippi Business Corporation Act (dealing with
sales, leases, exchanges and other dispositions of assets outside the usual and
regular course of business) and the provisions of this Article V shall not be
amended, changed or repealed without a similar 80% vote of the voting securities
in this Corporation, which is a greater vote than required by Section 10.03 of
the Mississippi Business Corporation Act (dealing with amendments to these
Articles of Incorporation).

                      ARTICLE VI.  LIMITATION OF LIABILITY

     Pursuant to the provisions of Section 2.02(b)(4) of the Mississippi
Business Corporation Act, the directors of the Corporation shall not be liable
to the Corporation or its shareholders for money damages for any action taken,
or any failure to take action, as a director, except liability for:  (a) the
amount of a financial benefit received by a director to which he is not
entitled; (b) an intentional infliction of harm on the Corporation or the
shareholders; (c) a violation of Section 8.33 of the Mississippi Business
Corporation Act; or (d) an intentional violation of criminal law.

                        ARTICLE VII.  BOARD OF DIRECTORS

     If the number of directors, fixed by the Board of Directors in accordance
with the provisions of the Bylaws of the Corporation, is less than nine (9),
each of the directors shall be elected by the shareholders at each annual
meeting to serve a one-year term, continuing to serve, however, until his
successor is elected and qualifies or until there is a decrease in the number of
directors.  If the number of directors fixed by the Board of Directors is nine
(9) or more, the Corporation shall have three classes of directors, each class
to be as nearly equal in number as possible, the term of office of directors of
the first class to expire at the first annual meeting of the shareholders after
their election, that of the second class to expire at the second annual meeting
after their election, and that of the third class to expire at the third annual
meeting after their election.  At each annual meeting after such classification,
the number of directors equal to the number of the class whose term expires at
the time of

                                      A-2
<PAGE>
 
such meeting shall be elected to hold office and the directors so elected shall
serve a term of three (3) years to succeed those whose terms expire.

     Directors shall be elected only at annual meetings of shareholders, and any
vacancy in the Board of Directors, however created, shall be filled at the
annual meeting succeeding the creation of such vacancy.  Shareholders shall not
be entitled to cumulative voting in electing directors of the Corporation.  If
the number of directors is changed by the Board of Directors, and if there are
nine (9) or more directors, any increase or decrease shall be apportioned among
the classes so as to maintain the number of directors in each class as nearly
equal as possible, and any additional director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.

     No member of the Board of Directors may be removed during his term without
cause.  No member of the Board of Directors may be removed with cause except at
a meeting called in accordance with the Bylaws expressly for that purpose and
except upon a vote in favor of such removal of the holders of eighty percent
(80%) of the shares then entitled to vote at an election of directors; and in
the event that less than the entire Board is to be removed, no one of the
directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the class
of directors of which he is a part.

     The vote of shareholders required to alter, amend or repeal this Article
VII, or to alter, amend or repeal any other Article of the Articles of
Incorporation in any respect which would or might have the effect, direct or
indirect, of modifying, permitting any action inconsistent with, or permitting
circumvention of this Article VII, shall be by the affirmative vote of at least
eighty percent (80%) of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article as one class.

                         ARTICLE VIII.  INDEMNIFICATION

     Whenever any present or former director, officer, employee or agent of the
Corporation who, by reason of the fact that such party is or was serving at the
request of the Corporation in such capacity, is made a party to any suit, action
or proceeding, whether civil, criminal, administrative, or investigative,
including any action by or in the right of the Corporation ("Indemnitee"), the
Indemnitee shall be indemnified against liability and reasonable expenses,
including attorney's fees, incurred by the Indemnitee in connection with such
action, suit, or proceeding, if the Indemnitee meets the requisite Standard of
Conduct, as defined in the Bylaws of the Corporation and in Section 8.51(a)(2) &
(b) of the Mississippi Business Corporation Act; provided however, that no such
mandatory indemnification shall apply with respect to any Indemnitee found (a)
to have received a financial benefit to which such Indemnitee is not entitled;
(b) to have intentionally inflicted

                                      A-3
<PAGE>
 
harm on the Corporation or its shareholders; (c) to have violated Section 8.33
of the Mississippi Business Corporation Act by voting for or assenting to the
making of an excessive distribution to shareholders in violation of Section 6.40
of the Mississippi Business Corporation Act or the Articles of Incorporation; or
(d) to have intentionally violated criminal law.

     The vote of shareholders required to alter, amend or repeal this Article
VIII, or to alter, amend or repeal any other Article of the Articles of
Incorporation in any respect which would or might have the effect, direct or
indirect, of modifying, permitting any action inconsistent with, or permitting
circumvention of this Article VIII, shall be by the affirmative vote of at least
eighty percent (80%) of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article as one class.

                 ARTICLE IX.  SPECIAL MEETINGS OF SHAREHOLDERS

     The Corporation shall hold a special meeting of the shareholders:

     (a)  On call of the Board of Directors or the president of the Corporation;
          or

     (b)  If the holders of not less than a majority of all issued and
          outstanding shares of stock entitled to vote on any issue proposed to
          be considered at the special meeting so called shall deliver to the
          secretary of the Corporation one or more written demands for the
          special meeting.  Such written demands shall be signed, dated and
          delivered to the secretary of the Corporation no less than forty-five
          (45) days prior to the special meeting date requested and shall
          describe the purpose or purposes for which such special meeting is to
          be held.  Only business within the stated purpose or purposes
          described in the demand may be conducted at the special meeting unless
          the notice of the special meeting sent out to all shareholders by the
          Corporation specifies other purposes for such special meeting.

                       ARTICLE X.  SHAREHOLDER PROPOSALS

     If any shareholder desires to submit a proposal for action at any meeting
of shareholders, including the nomination of one or more individuals for
election as a director, such shareholder (herein referred to as the "Proponent")
and proposal must satisfy and comply with all of the following conditions and
requirements:

     (a)  At the time of submitting the proposal, the Proponent must be the
          record or beneficial owner of shares having voting power on the
          proposal at the meeting and have held such shares for at least one
          year, and the Proponent shall continue to own such shares through the
          date on which the meeting is held;

                                      A-4
<PAGE>
 
     (b)  The proposal must be submitted in writing and be accompanied by
          written disclosure of the Proponent's name, address, number of shares
          owned, the dates upon which such shares were acquired, and documentary
          support of the Proponent's ownership of such shares;

     (c)  The proposal and other required material must be received by the
          Corporation not less than 120 days in advance of the date that
          corresponds with the date of the Corporation's proxy statement sent to
          shareholders in connection with the previous year's annual meeting of
          shareholders (in the case of a proposal submitted in connection with
          an annual meeting) or not less than 45 days in advance of the date on
          which the meeting is scheduled to be held or within 10 days after
          notice of the meeting is first given to shareholders, whichever is
          later (in the case of a proposal submitted in connection with a
          special meeting of shareholders);

     (d)  If the proposal nominates one or more individuals for election as a
          director, the proposal must include or be accompanied by a written
          statement of each nominee's qualifications for election as a director
          and the nominee's signed consent to being named as such a nominee and
          to serve if elected; and

     (e)  The proposal must be presented at the meeting for which it is
          submitted by the Proponent or a duly authorized and qualified
          representative.

     If the Proponent or proposal fails, in any respect, to satisfy and comply
with all of the foregoing conditions and requirements, the proposal shall be
deemed as not properly coming before the meeting and no votes cast in support of
the proposal shall be given effect, except for the purpose of determining the
presence of a quorum at the meeting.

     Notwithstanding anything herein to the contrary, the Corporation may
exclude from consideration by shareholders at any meeting of shareholders any
proposal permitted or required to be excluded from consideration by applicable
law, rule or regulation, and this Article X shall not be applicable to proposals
placed before any meeting of shareholders by action of the Board of Directors.

     The vote of shareholders required to alter, amend or repeal this Article X,
or to alter, amend or repeal any other Article of the Articles of Incorporation
in any respect which would or might have the effect, direct or indirect, of
modifying, permitting any action inconsistent with, or permitting circumvention
of this Article X, shall be by the affirmative vote of at least eighty percent
(80%) of the total voting power of all shares of stock of the Corporation
entitled to vote in the election of directors, considered for purposes of this
Article as one class.

                                      A-5
<PAGE>
 
                                 ARTICLE XI.  OTHER CONSTITUENCIES

          The Board of Directors of the Corporation, in connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its shareholders when evaluating any proposed Major Business
Transaction (as defined below), in addition to considering the adequacy of the
amount of consideration to be paid in connection with such transaction, shall
consider all of the following factors and any other factors which it deems
relevant:

     (a)  the social and economic effects of the transaction on the Corporation,
          any subsidiary, depositors, loan and other customers, creditors and
          employees of the Corporation and its subsidiaries, and other elements
          of the community in which the Corporation and its subsidiaries operate
          or are located;

     (b)  the business, financial condition and earnings prospects of the
          acquiring person, including, but not limited to, debt service and
          other existing or likely financial obligations of the acquiring
          person, and the possible effect of such conditions upon the
          Corporation, its subsidiaries and the other elements of the community
          in which the Corporation and its subsidiaries operate or are located;
          and

     (c)  the competence, experience and integrity of the acquiring person and
          its management.

     For purposes of this Article, the term "Major Business Transaction" shall
mean (i) any merger or consolidation of the Corporation or any subsidiary, (ii)
any sale, exchange, transfer or other disposition of all or substantially all of
the Corporation's or any subsidiary's assets, (iii) any offer to purchase any or
all of the Corporation's securities, or (iv) any similar transaction or event.

     The vote of shareholders required to alter, amend or repeal this Article
XI, or to alter, amend or repeal any other Article of the Articles of
Incorporation in any respect which would or might have the effect, direct or
indirect, of modifying, permitting any action inconsistent with, or permitting
circumvention of this Article XI, shall be by the affirmative vote of at least
eighty percent (80%) of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article XI as one class.

                    ARTICLE XII.  CONTROL SHARE ACQUISITIONS

     The Corporation hereby elects to be governed by the provisions of the
Mississippi Control Share Act, (S)79-27-1 et. seq., and to be an "issuing public
corporation" for all purposes thereof.

                                      A-6
<PAGE>
 
     The vote of shareholders required to alter, amend or repeal this Article
XII, or to alter, amend or repeal any other Article of the Articles of
Incorporation in any respect which would or might have the effect, direct or
indirect, of modifying, permitting any action inconsistent with, or permitting
circumvention of this Article XII, shall be by the affirmative vote of at least
eighty percent (80%) of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article as one class.

     Dated this the 16th day of December, 1996.


 
                                        /s/ F. M. BUSH, III
                                        ----------------------------------
                                        F. M. Bush, III, Incorporator

                                      A-7
<PAGE>
 
                                     BYLAWS
                                       OF
                           PONTOTOC BANCSHARES CORP.
                           -------------------------


Preamble:  These Bylaws are subordinate to and governed by the provisions of (1)
the Articles of Incorporation of this Corporation; and (2) the Mississippi
Business Corporation Act, except  to the extent that these Bylaws or the
Articles of Incorporation specifically provide to the contrary, to the extent
allowed by the Mississippi Business Corporation Act and Mississippi state law.

                              ARTICLE I.  OFFICES

     The principal office of the Corporation in the State of Mississippi shall
be located in the City of Pontotoc, County of Pontotoc.  The Corporation may
have such other offices, either within or without the State of Mississippi, as
the Board of Directors may designate or as the business of the Corporation may
require from time to time.

                           ARTICLE II.  SHAREHOLDERS

     SECTION 1.  Annual Meeting.  The annual meeting of the shareholders shall
be held on the third Tuesday in the month of March at 2:00 p.m. each year, or if
that falls on a legal holiday, on the next following business day, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting.  If the election of directors shall not be held on
the day designated, under Section 4 of this Article II for any annual meeting of
the shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the shareholders as soon
thereafter as may be convenient.

     SECTION 2.  Special Meetings.  Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the president of the Corporation or by the Board of Directors, and shall be
called by the secretary when the holders of not less than a majority of all
issued and outstanding shares of stock entitled to vote on any issue proposed to
be considered at the special meeting sign and date a request for a special
meeting describing the purpose or purposes for which it is to be held, and
deliver the request to the secretary no less than forty-five (45) days prior to
the date requested for such special meeting.  Only business within the purpose
or purposes described in the special meeting notice may be conducted at a
special meeting of the shareholders.

     SECTION 3.  Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Mississippi, as the place of the
meeting for any annual meeting or for any special meeting. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or without the State of Mississippi, as the place

                                      B-1
<PAGE>
 
for a special meeting.  Unless otherwise noticed, the place of the meeting shall
be the principal business office of the Corporation in the State of Mississippi.

     SECTION 4.  Notice of Meeting.  Written notice stating the date, time and
place of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting by or at the direction
of the person or entity calling the meeting.  A shareholder may waive notice
before or after the date and time stated in the notice.  The waiver must be in
writing, signed by the shareholder entitled to the notice, and delivered to the
corporation for inclusion in the minutes or filing with the corporate records.

     SECTION 5.  Closing of Transfer Books and Fixing of Record Date.  For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, seventy (70) days.  If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting.  In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be no more than seventy (70) days, and in the case of a
meeting of the shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.  Only persons in whose names shares appear on the stock records of the
Corporation as of the record date shall be entitled to vote at such meeting.  If
the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at an annual or
special shareholders' meeting, the last business day immediately preceding the
date on which the first notice of the meeting is delivered to shareholders shall
be the record date for such determination of shareholders.  If the Board of
Directors does not fix the record date for determining shareholders entitled to
a distribution (other than one involving a repurchase or reacquisition of
shares), the record date is the date the Board of Directors authorizes the
distribution.  When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date.  A new record date must be fixed if the
meeting is adjourned for more than one hundred twenty (120) days after the date
fixed for the original meeting.

     SECTION 6.  Voting Lists.  The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged by voting group, if applicable, and in alphabetical order,
with the address of the Shareholders and the number of shares held by each.
Beginning two (2) business days after notice of the meeting, the voting list
shall be kept on file at the principal office of the Corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours.  Such list shall be produced and

                                      B-2
<PAGE>
 
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder, and such shareholder's agent or attorney, during
the whole time of the meeting or any adjournment thereof.

     SECTION 7.  Quorum.  Unless otherwise specifically required in the Articles
of Incorporation, a majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders.  If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice.  At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed.  Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.

     SECTION 8.  Proxies.  Every proxy must be dated and signed by the
shareholder or by his duly authorized attorney-in-fact.  Such proxy shall be
filed with the secretary of the Corporation before or at the time of the
meeting.  No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.  A proxy is revocable by the
shareholder unless the proxy conspicuously states that it is irrevocable and is
coupled with an interest (as provided in Mississippi Business Corporation Act
Section 7.22).

     SECTION 9.  Voting of Shares.  At each meeting of the shareholders, every
holder of shares then entitled to vote shall vote in person or by proxy and
shall have one vote for each share registered in his name upon each matter
submitted to a vote in the meeting of the shareholders.  Unless otherwise
specifically required in the Articles of Incorporation, the vote of a majority
of the shares present at any meeting at which there is a quorum shall be the act
of the shareholders.

     SECTION 10.  Voting of Shares by Certain Holders.  Shares of this
Corporation registered in the name of another corporation may be voted by such
officer, agent, or proxy as the bylaws of such other corporation may prescribe,
or, in the absence of such provision, as the board of directors of such other
corporation may determine.  Provided, however, that shares are not entitled to
vote if they are owned, directly or indirectly, by another corporation in which
this Corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the other corporation.

     Prior to any applicable reacquisition of shares under these Bylaws, shares
held by an administrator, executor, guardian, conservator, attorney-in-fact,
trustee, receiver, or trustee in bankruptcy, may be voted by an existing
shareholder of the Corporation by proxy issued by the administrator, executor,
guardian, conservator, attorney-in-fact, trustee, receiver, or trustee in
bankruptcy, without a transfer of such shares into such existing shareholder's
name.  The Corporation may request evidence of the representative capacity of
the signatory to sign any vote, consent, waiver or proxy appointment.  When two
or more persons are shareholders as

                                      B-3
<PAGE>
 
cotenants or fiduciaries, one cotenant or fiduciary may vote the shares where it
appears the person is acting on behalf of all co-owners.  The Corporation may
request evidence of the representative capacity of the signatory to sign any
vote, consent, waiver or proxy appointment.

     A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter shares held by the pledgee may be voted by an existing shareholder of
the Corporation by proxy issued by the pledgee, without a transfer of such
shares into such existing shareholder's name.

     Shares of its own stock belonging to the Corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in determining
the total number of outstanding shares at any given time.

     SECTION 11.  Voting for Directors.  Directors are elected by a plurality of
the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present.  Shareholders shall not be entitled to cumulative
voting in electing directors of the Corporation.

     SECTION 12.  Shareholder Proposals.  If any shareholder desires to submit a
proposal for action at any meeting of shareholders, including the nomination of
one or more individuals for election as a director, such shareholder
(hereinafter the "Proponent") and proposal must satisfy and comply with all of
the following conditions and requirements:

          (i)  At the time of submitting the proposal, the Proponent must be the
               record or beneficial owner of shares having voting power on the
               proposal at the meeting and have held such shares for at least
               one year, and the Proponent shall continue to own such shares
               through the date on which the meeting is held.

          (ii) The proposal must be submitted in writing and be accompanied by
               written disclosure of the Proponent's name, address, number of
               shares owned, the dates upon which such shares were acquired, and
               documentary support of the Proponent's ownership of such shares.

        (iii)  The proposal and other required material must be received by
               the Corporation not less than 120 days in advance of the date
               that corresponds with the date of the Corporation's proxy
               statement sent to shareholders in connection with the previous
               year's annual meeting of shareholders (in the case of a proposal
               submitted in connection with an annual meeting) or not less than
               45 days in advance of the date on which the meeting is scheduled
               to be held or within 10 days after notice of the meeting is first
               given to shareholders, whichever is later (in the case of a
               proposal submitted in connection with a special meeting of
               shareholders).

                                      B-4
<PAGE>
 
          (iv) If the proposal nominates one or more individuals for election as
               a director, the proposal must include or be accompanied by a
               written statement of each nominee's qualifications for election
               as a director and the nominee's signed consent to being named as
               such a nominee and to serve if elected.

          (v)  The proposal must be presented at the meeting for which it is
               submitted by the Proponent or a duly authorized and qualified
               representative.

     If the Proponent or proposal fails, in any respect, to satisfy and comply
with all of the foregoing conditions and requirements, the proposal shall be
deemed as not properly coming before the meeting and no votes cast in support of
the proposal shall be given effect, except for the purpose of determining the
presence of a quorum in accordance with Section 7 of this Article II.
Notwithstanding any provision of these Bylaws to the contrary, the Corporation
may exclude from consideration by shareholders at any meeting of shareholders
any proposal permitted or required to be excluded from consideration by
applicable law, rule or regulation.  This Section 12 shall not be applicable to
proposals placed before any meeting of shareholders by action of the Board of
Directors.

                        ARTICLE III.  BOARD OF DIRECTORS

     SECTION 1.  General Powers.  The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors.  All corporate
powers may be exercised by or under the authority of the Board of Directors.

     SECTION 2.  Number, Tenure and Qualification.  The initial number of
directors for purposes of organizing the Corporation shall be one (1);
thereafter, the number of directors of the Corporation shall be not less than
six (6) nor more than twelve (12) and shall be determined, from time to time, by
resolution of the Board of Directors.  Each director shall hold office until the
next annual meeting of shareholders or until such director's successor shall
have been elected and qualified.  A director need not be a Mississippi resident.
A director, other than the initial director, must be a shareholder of the
Corporation and must own a number of shares of stock having a value at least
equal to a total book value of twenty-five thousand dollars ($25,000).

     SECTION 3.  Removal or Resignation of Directors.  A director may not be
removed during his term without cause.  The shareholders may remove one or more
directors with cause only at a meeting called in accordance with these Bylaws
expressly for that purpose and only upon a vote in favor of such removal of the
holders of eighty percent (80%) of the shares then entitled to vote at an
election of directors.  In the event that less than the entire Board is to be
removed, no one of the directors may be removed if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the class of directors of which he is a part.  A director may be
removed by the shareholders only at a meeting called for the purpose of removing
such director and the notice for such meeting must state that the purpose, or
one of the purposes, of the meeting is removal of the director.  Any director
may

                                      B-5
<PAGE>
 
resign by giving written notice to the president of the Corporation or to the
Board of Directors or to the Corporation.  Unless a later effective date is
specified in such notice, the resignation shall take effect upon delivery.  A
resignation need not be accepted in order to become effective.

     SECTION 4.  Annual and Regular Meetings.  An annual meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders.  The Board of
Directors may provide, by resolution, the time and place for the holding of
regular meetings without other notice than such resolution.

     SECTION 5.  Special Meetings.  Special meetings of the Board of Directors
may be called by or at the request of the president or a majority of the number
of directors fixed by Section 2 of this Article III.  Special meetings shall be
held at the place fixed by the Board of Directors for the holding of meetings,
or if no such place has been fixed, at the principal business office of the
Corporation.  Notice of any special meeting shall be given at least two (2) days
prior thereto.  Such notice shall state the date, time and place of the special
meeting of the Board of Directors, but need not describe the purpose or purposes
for the special meeting of the Board of Directors.  Before or after the date
stated in the notice, any director may waive notice of any meeting in writing
signed by the director, and filed with the minutes or corporate records.  The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened, and the objecting director does not vote for or
assent to action taken at a meeting.

     SECTION 6.  Quorum and Voting. A majority of the number of directors fixed
by Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice. If a quorum is
present at the meeting, then the vote of a majority of the directors present at
the meeting shall be the act of the Board of Directors. At all meetings of the
Board of Directors, each director shall have one vote.

     SECTION 7.  Action Without a Meeting.  Any action that may be taken by the
Board of Directors at a meeting may be taken without a meeting if one or more
written consents, setting forth the actions to be taken, shall be signed by all
of the directors, and filed in the corporate minutes.  Action taken under this
section is effective when the last director signs the consent, unless the
consent specifies a different effective date.  A consent signed under this
Section has the effect of a meeting vote and may be described as such in any
document.

     SECTION 8.  Vacancies.  Any vacancy occurring on the Board of Directors,
including a vacancy resulting from an increase of the number of directors, shall
be filled at the annual meeting of the shareholders succeeding the creation of
such vacancy.

                                      B-6
<PAGE>
 
     SECTION 9.  Compensation.  By resolution of the Board of Directors, each
director may be paid such director's expenses, if any, of attendance at each
meeting of the Board of Directors, and may be paid a stated salary as a director
or a fixed sum for attendance at each meeting of the Board of Directors or both.
No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.

     SECTION 10.  Presumption of Assent.  A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
(i) such director objects at the beginning of the meeting, or promptly upon such
director's arrival; (ii) such director's dissent or abstention from action taken
is entered in the minutes of the meeting; or (iii) such director delivers
written notice of dissent or abstention to such action to the presiding officer
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting.  Such right to dissent shall not apply to a director
who voted in favor of such action.

     SECTION 11.  Committee.  The Board of Directors, by resolution adopted by
majority of the full Board of Directors, may designate from among its members an
executive committee and one or more other committees.  Each such committee, to
the extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors, but no such committee shall have the
authority of the Board of Directors in reference to:  (i) amending the Articles
of Incorporation; (ii) authorizing distributions; (iii) adopting a plan of
merger or consolidation; (iv) recommending to the shareholders the sale, lease,
exchange, mortgage, pledge, or other disposition of all or substantially all of
the property and assets of the Corporation otherwise than in the usual and
regular course of its business; (v) recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof; or (vi) amending the
Bylaws of the Corporation.  The designation of any such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.

     SECTION 12.  Participation in Meetings by Communications Equipment.  Any or
all directors may participate in any regular or special meeting of the Board of
Directors by means of conference telephone or similar communications equipment
that enables all directors to simultaneously hear each other during the meeting.
Such participation shall constitute presence in person at such meeting.

                                      B-7
<PAGE>
 
     SECTION 13.  Limitation of Liability.  Pursuant to the provisions of
Section 2.02(b)(4) of the Mississippi Business Corporation Act, the directors of
the Corporation shall not be liable to the Corporation or its shareholders for
money damages for any action taken, or any failure to take action, as a
director, except liability for:  (i) the amount of a financial benefit received
by a director to which he is not entitled; (ii) an intentional infliction of
harm on the Corporation or the shareholders; (iii) a violation of Section 8.33
of the Mississippi Business Corporation Act; or (iv) an intentional violation of
criminal law.

                             ARTICLE IV.  OFFICERS

     SECTION 1.  Number.  The officers of the Corporation shall be a president
and a secretary, each of whom shall be elected by the Board of Directors.  One
or more vice presidents, a treasurer and such other officers and assistant
officers as may be deemed necessary may be elected or appointed by the Board of
Directors.  An individual may simultaneously hold more than one office in the
Corporation.

     SECTION 2.  Election and Term of Officers.  The officers of the Corporation
shall be elected by the Board of Directors at each annual meeting of the Board
of Directors.  If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient.  Each
officer shall hold office until such officer's successor shall have been duly
elected and shall have qualified or until such officer's death or until such
officer shall resign or shall have been removed in the manner hereinafter
provided.

     SECTION 3.  Resignation and Removal.  Any officer may resign at any time by
delivering notice to the Corporation.  Such resignation is effective when the
notice is delivered unless the notice specifies a later date.  Any officer or
agent may be removed by the Board of Directors at any time with or without
cause, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.  Election or appointment of an officer or agent
shall not of itself create contract rights between the officer or agent and the
Corporation.  The removal or resignation of an officer shall not affect any
contract rights between the officer and the Corporation.

     SECTION 4.  Vacancies.  A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.

     SECTION 5.  President.  The president shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall have general supervision and control of the business and
affairs of the Corporation.  The president shall, when present, preside at all
meetings of the shareholders and of the Board of Directors.  The president may
sign, with the secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the

                                      B-8
<PAGE>
 
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Board of Directors from time to time.
Unless otherwise directed by the Board of Directors, the president shall also
have the power to vote or otherwise act on behalf of the Corporation, in person
or by proxy, at any meeting of shareholders of or with respect to any action of
shareholders of any other Corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
Corporation.

     SECTION 6.  Vice President.  In the absence of the president or in the
event of his death, inability or refusal to act, the vice president, if any,
shall perform the duties of the president, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the president.  The
vice president shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors.

     SECTION 7.  Secretary.  The secretary shall (i) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; (iv) keep
a register of the post office address of each shareholder which shall be
furnished to the secretary by each such shareholder; (v) sign with the president
certificates for shares of the Corporation the issuance of which shall have been
authorized by resolutions of the Board of Directors; (vi) have general charge of
the stock transfer books of the Corporation; (vii) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to the secretary by the president or by the Board of Directors.

     SECTION 8.  Treasurer.  The treasurer, if any, shall:  (i) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(ii) receive and give receipts for monies due and payable to the Corporation
from any source whatsoever, and deposit all such monies in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article V of these Bylaws; and
(iii) in general perform all of the duties incident to the office of treasurer
and such other duties as from time to time may be assigned to the treasurer by
the president or by the Board of Directors.  If required by the Board of
Directors, the treasurer shall give a bond for the faithful discharge of the
treasurer's duties in such sum and with such surety or sureties as the Board of
Directors shall determine.

     SECTION 9.  Salaries.  The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.

                                      B-9
<PAGE>
 
               ARTICLE V.  CONTRACTS, LOANS, CHECKS AND DEPOSITS

     SECTION 1.  Contracts.  The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.

     SECTION 2.  Loans.  No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors.  Such authority may be
general or confined to specific instances.

     SECTION 3.  Checks, Drafts, Etc.  All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.

     SECTION 4.  Deposits.  All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, companies or other depositories as the Board of Directors may select.

            ARTICLE VI.  CERTIFICATES FOR SHARES AND THEIR TRANSFER

     SECTION 1.  Capital Stock.  The capital stock of this Corporation shall be
divided into three million (3,000,000) shares of common stock with no par value
and one million (1,000,000) shares of preferred stock with no par value.  The
Board of Directors shall have the power, acting alone, to determine, in whole or
in part, the preferences, limitations and relative rights of any preferred stock
issued by the Corporation and such preferred stock shall have such rights,
preferences and limitations as designated by the Board of Directors in the
Articles of Incorporation prior to the issuance of such preferred shares.  The
Board of Directors shall have the right to establish and, when necessary, to
change the sale price of said stock from time to time by proper action, subject
to the provisions of the Articles of Incorporation.  This stock shall be issued
from time to time and in such amounts as the Board of Directors may determine.

     SECTION 2.  Certificates for Shares.  Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors.  Such certificates shall be signed by the president and by the
secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal.  All certificates for
shares shall be consecutively numbered or otherwise identified.  The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the Corporation.  All certificates surrendered to the Corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be

                                      B-10
<PAGE>
 
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.

     SECTION 3.  Transfer of Shares.  Transfer of shares of the Corporation
shall be valid only upon the transfer of such shares on the stock transfer books
of the Corporation, after (i) a request by the holder of record thereof, or by
such holder's legal representative who shall furnish proper evidence of
authority to transfer, or by such holder's attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the Corporation,
and (ii) the surrender for cancellation of the certificate for such shares.  The
person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes.

     SECTION 4.  Restriction on Transfer of Shares.  The Corporation shall
recognize and give full force and effect to any lawful agreement by and among
the shareholders that restrict transfer of their shares of stock or prescribes
the manner of such a transfer.  Any such restriction on the transfer of shares
must be noted conspicuously on the certificate.

                           ARTICLE VII.  FISCAL YEAR

     The fiscal year of the Corporation shall begin on the 1st day of January
and end on the 31st day of December in each year.

                            ARTICLE VIII.  DIVIDENDS

     The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.

                          ARTICLE IX.  INDEMNIFICATION

     SECTION 1.  Right of Corporation to Insure.  The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, against any liability asserted
against such person and incurred by such person in any such capacity, or arising
out of such person's status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of this Article IX or under the provisions of Mississippi law.

     SECTION 2.  Right of Indemnity from Corporation.  In the event that the
insurance purchased by the Corporation described in Section 1 of this Article IX
does not fully cover liabilities and reasonable expenses that any present or
former director, officer, employee or agent of the Corporation who, by reason of
the fact that such party is or was serving at the request of the Corporation in
such capacity, is made a party to any suit, action or proceeding, whether civil,
criminal, administrative, or investigative, including any action by or in the
right of the Corporation ("Indemnitee"), the Indemnitee shall be indemnified
against such liabilities

                                      B-11
<PAGE>
 
and reasonable expenses, including attorney's fees, incurred by the Indemnitee
in connection with such action, suit, or proceeding, if the Indemnitee meets the
requisite Standard of Conduct as defined below and described in Section
8.51(a)(2) and (b) of the Mississippi Business Corporation Act.  The right of
indemnity provided in this Article shall inure to the estate, executor,
administrator, heirs, legatees, or devisees of any person entitled to such
indemnification.

     SECTION 3.  Standard of Conduct.  An Indemnitee meets the Standard of
Conduct for any action taken, or the failure to take any action, by the
Indemnitee; provided, however, that no such mandatory indemnification shall
apply with respect to any Indemnitee found (i) to have received a financial
benefit to which such Indemnitee is not entitled; (ii) to have intentionally
inflicted harm on the Corporation or its shareholders; (iii) to have violated
Section 8.33 of the Mississippi Business Corporation Act by voting for or
assenting to the making of an excessive distribution to shareholders in
violation of Section 6.40 of the Mississippi Business Corporation Act; or (iv)
to have intentionally violated criminal law.  An Indemnitee's conduct with
respect to an employee benefit plan for a purpose the Indemnitee reasonably
believes to be in the best interest of the participants in and beneficiaries of
the plan is conduct that satisfies the Standard of Conduct.

     The determination as to whether an Indemnitee has met the Standard of
Conduct set forth herein shall be made:

     A.   if there are two or more disinterested directors, by the Board of
          Directors by a majority vote of all the disinterested directors (a
          majority of whom shall for such purpose constitute a quorum), or by a
          majority of the members of a committee of two (2) or more
          disinterested directors appointed by such a vote,

     B.   by special legal counsel selected in the manner prescribed in
          Subsection A of this Section 3, or, if there are fewer than two (2)
          disinterested directors, selected by the Board of Directors (in which
          selection directors who do not qualify as disinterested directors may
          participate), or

     C.   by the shareholders, but shares owned by or voted under the control of
          a director who at the time does not qualify as a disinterested
          director may not be voted on the determination.

     SECTION 4.  Prohibited Indemnification.  Unless ordered by a court pursuant
to Section 8.54(a)(3) of the Mississippi Business Corporation Act and Section 5
of this Article IX, no indemnification shall be made in respect to any claim,
judgments, amounts paid in settlement, issue, fine, matter, or attorney's fees
in connection with: (i) a proceeding by or in the right of the Corporation,
except for reasonable expenses incurred in connection with the proceeding if it
is determined that the Indemnitee has met the relevant Standard of Conduct set
out above and in Section 8.51(a)(2) and (b) of the Mississippi Business
Corporation Act; or (ii) any proceeding with respect to conduct for which the
Indemnitee was adjudged liable on the basis that the

                                      B-12
<PAGE>
 
Indemnitee received a financial benefit to which the Indemnitee was not
entitled, whether or not involving action in the Indemnitee's official capacity.

     SECTION 5.  Court Ordered Indemnification.  An Indemnitee may apply to the
court conducting a proceeding, or to another court of competent jurisdiction,
for indemnification or an advance for expenses.  After receipt of such an
application, and after giving any notice it considers necessary, the court
shall:

          (i)    order indemnification if the court determines that the
                 Indemnitee is entitled to mandatory indemnification under
                 Section 79-4-8.52 of the Mississippi Code of 1972, as amended,
                 and Section 6 of this Article IX;

          (ii)   order indemnification or advance for expenses if the court
                 determines that the Indemnitee is entitled to indemnification
                 or advance for expenses pursuant to a provision in the Articles
                 of Incorporation or Section 2 of this Article IX;

          (iii)  order indemnification or advance for expenses, if the court
                 determines that, in view of all the relevant circumstances,
                 such Indemnitee is fairly and reasonably entitled to indemnity
                 for such expenses which the court shall deem proper, or to
                 advance for expenses despite the fact that such Indemnitee did
                 not meet the requirements of the laws of the State of
                 Mississippi and these Bylaws for an advance for expenses.

If the court determines that the Indemnitee is entitled to indemnification under
Subsection (i) of this Section 5, or to indemnification or advance for expenses
under Subsection (ii) of this Section 5, the court shall also order the
Corporation to pay the Indemnitee's reasonable expenses incurred in connection
with obtaining court-ordered indemnification or advance for expenses. If the
court determines that the Indemnitee is entitled to indemnification under
Subsection (iii) of this Section 5, the court may also order the Corporation to
pay the Indemnitee's reasonable expenses to obtain court-ordered indemnification
or advance for expenses.

     SECTION 6.  Mandatory Indemnification.  Notwithstanding anything to the
contrary in this Article IX, the Corporation shall indemnify an Indemnitee who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the Indemnitee was a party because the Indemnitee is or was
a director, officer or agent of the Corporation, against reasonable expenses
incurred by the Indemnitee in connection with the proceeding.

     SECTION 7.  Advance for Expenses.  The Corporation shall advance funds to
pay for or reimburse the reasonable expenses incurred by an Indemnitee who is a
party to a proceeding if (i) the Indemnitee furnishes the Corporation a written
affirmation of the Indemnitee's good faith belief that the Indemnitee has met
the relevant Standard of Conduct set out and in Section 8.51(a)(2) and (b) of
the Mississippi Business Corporation Act, or that the proceeding involves
conduct for which liability of directors to the Corporation or its shareholders
has been

                                      B-13
<PAGE>
 
eliminated by a provision of the Articles of Incorporation under Section 13 of
Article III of these Bylaws and Section 2.02(b)(4) of the Mississippi Business
Corporation Act, and (ii) the Indemnitee furnishes the Corporation a written
undertaking to repay any funds advanced if the Indemnitee is not entitled to
mandatory indemnification or there is a subsequent determination in the
proceeding that the conduct of the Indemnitee was not the type of conduct
eliminated from liability in the Articles of Incorporation under Section
2.02(b)(4) of the Mississippi Business Corporation Act.  The written undertaking
must be an unlimited general obligation of the Indemnitee.

     Authorization of an advance for expenses under this Section 7 shall be made
within two (2) weeks of the Indemnitee's submission to the Corporation of the
written request and affirmation and undertaking described above and shall be
made:

     A.   if there are two or more disinterested directors, by the Board of
          Directors by a majority vote of all the disinterested directors (a
          majority of whom shall for such purpose constitute a quorum), or by a
          majority of the members of a committee of two (2) or more
          disinterested directors appointed by such a vote,

     B.   if there are fewer than two (2) disinterested directors, by the vote
          necessary for action under Section 6 of Article III of these Bylaws,
          in which case directors who do not qualify as disinterested directors
          may participate, or

     C.   by the shareholders, but shares owned by or voted under the control of
          a director who at the time does not qualify as a disinterested
          director may not be voted on the determination.

                           ARTICLE X.  CORPORATE SEAL

     The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the word, "Seal."

                              ARTICLE XI.  NOTICE

     SECTION 1.  Notices.  Whenever notice is required to be given by the
Articles of Incorporation, these Bylaws or the Mississippi Business Corporation
Act, such requirement shall not be construed to mean personal notice.  Such
notice shall be in writing unless oral notice is reasonable under the
circumstances and may be communicated in person, by telephone, telegraph,
teletype or other form of wire or wireless communication, or by mail or private
carrier, addressed to any such person entitled to receive notice at such
person's address as appears on the books of the Corporation or by any other
method allowed under the Mississippi Business Corporation Act.  The time when
such notice is mailed to a Shareholder shall be the time of the giving of the
Notice; otherwise, it is effective at the earliest of the following:

                                      B-14
<PAGE>
 
(i) when received; (ii) five days after it is mailed; (iii) the date shown on
the return receipt if registered or certified mail.

     SECTION 2.  Waiver.  Unless otherwise provided by law, whenever any notice
is required to be given by the Corporation under the provisions of these Bylaws,
the Articles of Incorporation, or the Mississippi Business Corporation Act, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, and delivered to the
Corporation, shall be deemed equivalent to the giving of such notice.  Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance at a meeting by the person entitled to notice waives objection to
lack of notice or defective notice of the meeting unless the person at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting.  Also, attendance at a meeting waives objection to consideration
of a particular matter at the meeting that is not within the purposes described
in the notice unless the person objects to considering the matter when it is
presented.

                            ARTICLE XII.  AMENDMENTS

     These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.  However, the Board of Directors may not amend or repeal a
particular bylaw if the shareholders, in amending or repealing such bylaw,
expressly provide that the Board of Directors may not amend or repeal that
bylaw.

     Adopted by the Sole Director on December ____, 1996.



 
                                        -----------------------------------
                                        Larry Russell, Secretary

                                      B-15
<PAGE>
 
                                                                      APPENDIX C

                       SELECTED PROVISIONS OF FEDERAL LAW
               RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS



12 U.S.C. (S)215a-- MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS


     Sec. 215a (b)  If a merger shall be voted for at the called meetings by the
necessary majorities of the shareholders of each association or State bank
participating in the plan of merger, and thereafter the merger shall be approved
by the Comptroller, any shareholder of any association or State bank to be
merged into the receiving association who has voted against such merger at the
meeting of the association or bank of which he is a stockholder, or has given
notice in writing at or prior to such meeting to the presiding officer that he
dissents from the plan of merger, shall be entitled to receive the value of the
shares so held by him when such merger shall be approved by the Comptroller upon
written request made to the receiving association at any time before thirty days
after the date of consummation of the merger, accompanied by the surrender of
his stock certificates.

     Sec. 215a (c)  The value of the shares of any dissenting shareholder shall
be ascertained, as of the effective date of the merger, by an appraisal made by
a committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected.  The valuation agreed upon by any
two of the three appraisers shall govern.  If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the shares of the appellant.

     Sec. 215a (d)  If, within ninety days from the date of consummation of the
merger, for any reason one or more of the appraisers is not selected as herein
provided, or the appraisers fail to determine the value of such shares, the
Comptroller shall upon written request of any interested party cause an
appraisal to be made which shall be final and binding on all parties.  The
expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the receiving association.  The value of the
shares ascertained shall be promptly paid to the dissenting shareholders by the
receiving association . . . .

                                      C-1
<PAGE>
 
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.  Indemnification of Directors and Officers.

   Certain statutes, articles of incorporation, provisions and bylaws authorize
the purchase of insurance and/or the provision of indemnification for directors
and/or officers of the Company.  See "Limitation of Liability" and
"Indemnification" in the Proxy Statement.

Item 21.  Exhibits and Financial Statement Schedules.

   The following exhibits are filed as part of this Registration Statement.

Exhibit Number            Description
--------------            -----------

 2.1           Plan of Reorganization and Agreement
               of Merger

 3.1           The Company's Articles of Incorporation
               (included as Appendix A to the Proxy Statement)

 3.2           The Company's Bylaws
               (included as Appendix B to the Proxy Statement)
 
 5.1           Form of Opinion of Phelps Dunbar, L.L.P., as to the
               legality of the securities being registered

 8.1           Form of Opinion of Phelps Dunbar, L.L.P., as to tax
               aspects of the Reorganization

 10.1          Executive Agreement effective November 20, 1996,
               by and between Buddy R. Montgomery and the Bank
 
 10.2          Executive Agreement effective November 20, 1996,
               by and between Larry Russell and the Bank
 
 15.1          Letter from Nail McKinney Professional Association regarding
               unaudited interim financial information

 23.1*         Consent of Phelps Dunbar, L.L.P. 

 24.1          Power of Attorney (included on signature page of Registration
               Statement)

------------------------
* to be filed by Amendment

                                      II-1
<PAGE>
 
 99.1          Form of proxy

Item 22.  Undertakings.

    (1)   The undersigned Registrant hereby undertakes to respond to requests
          for information that is incorporated by reference into the prospectus
          pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business
          day of receipt of such request, and to send the incorporated documents
          by first class mail or other equally prompt means.  This includes
          information contained in documents filed subsequent to the effective
          date of the Registration Statement through the date of responding to
          the request.

    (2)   The undersigned Registrant hereby undertakes to supply by means of a
          post-effective amendment all information concerning a transaction, and
          the company being acquired involved therein, that was not the subject
          of and included in the Registration Statement when it became
          effective.

    (3)   Insofar as indemnification for liabilities arising under the
          Securities Act of 1933 may be permitted to directors, officers and
          controlling persons of the Company pursuant to the foregoing
          provisions, or otherwise, the Company has been advised that in the
          opinion of the Securities and Exchange Commission such indemnification
          is against public policy as expressed in the Securities Act of 1933
          and is, therefore, unenforceable.

          In the event that a claim for indemnification against such liabilities
          (other than the payment by the expenses incurred or paid by a
          director, officer or controlling person of the Company in the
          successful defense of any action, suit or proceeding) is asserted by
          such director, officer or controlling person in connection with the
          securities being registered, the Company will, unless in the opinion
          of its counsel the matter has been settled by controlling precedent,
          submit to a court of appropriate jurisdiction the question whether
          such indemnification by it is against public policy as expressed in
          the Securities Act of 1933 and will be governed by the final
          adjudication of such issue.

                                      II-2
<PAGE>
 
                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pontotoc, State of
Mississippi, on this 19th day of December, 1996.


                                   Pontotoc BancShares Corp.



                                   By: /s/ Buddy R. Montgomery
                                      -------------------------------
                                      Buddy R. Montgomery, President


                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints Buddy R. Montgomery and Larry
Russell, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause  to be done by virtue hereof.

   Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.


          Signature            Title                     Date
          ---------            -----                     ----
                                                       
                                                       
/s/ Anna M. Berryhill          Director                  December 19, 1996
---------------------------                            
Anna M. Berryhill                                      
                                                       
                                                       
                                                       
/s/ Buddy R. Montgomery        Director and President    December 19, 1996
---------------------------    (Principal Executive     
Buddy R. Montgomery            Officer and Principal    
                               Financial Officer)       

                                      S-1
<PAGE>
 
__________________________        Director                          , 1996
J. Richard Doty


/s/ Larry Russell
__________________________        Director and           December 19, 1996
Larry Russell                     Executive Vice 
                                  President


/s/ Michael Simon
__________________________        Director               December 19, 1996
Michael Simon



/s/ Charles D. Thomas
__________________________        Director               December 19, 1996
Charles D. Thomas



/s/ James L. Whitworth            Director               December 19, 1996 
__________________________                                                 
James L. Whitworth


/s/ Julie Henry                   Principal Accounting   December 19, 1996 
__________________________        Officer                                  
Julie Henry

                                      S-2
<PAGE>
 
                                 EXHIBIT INDEX


Exhibit Number Exhibit Description                              Sequential Page
-------------- -------------------                              ---------------

 2.1           Plan of Reorganization and Agreement
               of Merger

 5.1           Form of Opinion of Phelps Dunbar, L.L.P., as to the
               legality of the securities being registered

 8.1           Form of Opinion of Phelps Dunbar, L.L.P., as to tax
               aspects of the Reorganization

 10.1          Executive Agreement effective November 20, 1996,
               by and between Buddy R. Montgomery and the Bank

 10.2          Executive Agreement effective November 20, 1996,
               by and between Larry Russell and the Bank
 
 15.1          Letter from Nail McKinney Professional Associates
               as to the unaudited interim financial information

 99.1          Form of proxy