<PAGE>
     
    As filed with the Securities and Exchange Commission on July 23, 1997.     

                                                      Registration No. 333-19409



                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

    
                                AMENDMENT NO. 3       
                                      TO
                                   FORM S-4

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


                           PONTOTOC BANCSHARES CORP.



            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE> 
<CAPTION> 
<S>                                                <C>                                    <C> 
                  MISSISSIPPI                               6712                             64-0885622
                (State or other                 (Primary Standard Industrial             (I.R.S. Employer
          jurisdiction of incorporation          Classification Code Number)           Identification Number)
                or organization)
</TABLE>
                             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
                                   President
                           Pontotoc BancShares Corp.
                             19 South Main Street
                          Pontotoc, Mississippi 38863
                                (601) 489-1631
              (Address, including zip code, and telephone number,
                  including area code, of agent for service)

    
                                   Copy to:
                                 GARY MERINGER
                             Phelps Dunbar, L.L.P.
                        30th Floor, 400 Poydras Street
                      New Orleans, Louisiana  70130-3245
                                (504) 566-1311
                                                             

       APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  Upon the Effective Date of the reorganization and merger described in this
                            Registration Statement



  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>
 
                           PONTOTOC BANCSHARES CORP.

                             Cross Reference Sheet

                                           
                                                     Location in Proxy
                 Form S-4 Item                           Statement


A.  INFORMATION ABOUT THE TRANSACTION.
 
Item 1.      Forepart of Registration           Cover of Registration Statement;
             Statement and Outside Front        Cross Reference Sheet; Outside
             Cover Page of Prospectus.          Front Cover Page of Proxy
                                                Statement
 
Item 2.      Inside Front and Outside Back      Table of Contents; Available
             Cover Pages of Prospectus.         Information; Reports to Security
                                                Holders; Additional Information
 
Item 3.      Risk Factors, Ratio of Earnings    Summary of the Proxy
             to Fixed Charges, and Other        Statement; Comparative Rights of
             Information.                       Shareholders of the Bank and the
                                                Company; Trading Market; 
                                                Dividends
     
Item 4.      Terms of the Transaction.          Outside Front Cover Page of
                                                Proxy Statement; Summary of
                                                the Proxy Statement; Recent
                                                Developments; The Proposed
                                                Reorganization; Description of
                                                Capital Stock; Comparative
                                                Rights of Shareholders of the
                                                Bank and the Company; Certain
                                                Federal Income Tax Consequences
          
Item 5.      Pro Forma Financial                Summary of the Proxy Statement -
             Information.                       Comparative Per Share 
                                                Information; Pro Forma Financial
                                                Statements
                                                     
 
Item 6.      Material Contacts with the         Not Applicable
             Company Being Acquired.
 
<PAGE>
 
Item 7.      Additional Information Required    Not Applicable
             For Reoffering by Persons and
             Parties Deemed to be
             Underwriters.
 
Item 8.      Interests of Named Experts and     Not Applicable
             Counsel.
 
Item 9.      Disclosure of Commission           Limitation of Directors'
             Position on Indemnification For    Liabilities; Indemnification;
             Securities Act Liabilities.        Undertakings
 
B.  INFORMATION ABOUT THE REGISTRANT.
 
Item 10.     Information With Respect to S-3    Not Applicable
             Registrants.
 
Item 11.     Incorporation of Certain           Not Applicable
             Information by Reference.
 
Item 12.     Information With Respect to S-2    Not Applicable
             or S-3 Registrants. 
 
Item 13.     Incorporation of Certain           Not Applicable
             Information by Reference.
     
Item 14.     Information With Respect to        Summary of the Proxy
             Registrants Other Than S-2 or      Statement; Recent Developments;
             S-3 Registrants.                   Description of Capital Stock;
                                                Trading Market; Dividends;
                                                Business of the Company;
                                                Management's Discussion and
                                                Analysis of Financial Condition
                                                and Results of Operations;
                                                Supervision and Regulation
      
C.  INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
 
Item 15.     Information With Respect to S-3    Not Applicable
             Companies.
 
Item 16.     Information With Respect to S-2    Not Applicable
             or S-3 Companies.
 
<PAGE>
 
Item 17.     Information With Respect to        Summary of the Proxy
             Companies Other Than S-2 or        Statement; Recent Developments;
             S-3 Companies.                     Description of Capital Stock;
                                                Trading Market; Business of the
                                                Bank; Supervision and Regulation
      
D.  VOTING AND MANAGEMENT INFORMATION.
 
 
Item 18.     Information if Proxies, Consents   Summary of the Proxy
             or Authorizations Are to be        Statement; The Proposed
             Solicited.                         Reorganization;  Recommenda-
                                                tion of Board of Directors;
                                                Rights of Dissenting
                                                Shareholders; Management;
                                                Certain Transactions; Beneficial
                                                Ownership of Directors,
                                                Executive Officers and Principal
                                                Shareholders of the Bank
 
Item 19.     Information if Proxies,            Not Applicable
             Consents or Authorizations 
             Are Not to be Solicited, 
             or in an Exchange Offer.
<PAGE>
 
                        FIRST NATIONAL BANK OF PONTOTOC
                             19 SOUTH MAIN STREET
                          PONTOTOC, MISSISSIPPI 38863
    
                                 July __, 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 ____________, ____________, 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 (other than
shares of common stock of the Bank already owned by the Company) 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 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 ____________, 1997      
    
                                   July __, 1997               
    
     A special meeting of shareholders (the "Special Meeting") of First National
Bank of Pontotoc (the "Bank") will be held on ____________, ____________, 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 (other than
shares of common stock of the Bank already owned by the Company) will be
converted into and exchanged for ten shares of common stock of the Company, and
the shareholders of the Bank (other than the Company) 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 ____________, 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 ____________, ____________, 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 ____________, ____________, 1997,
and any adjournments thereof.  This Proxy Statement is being mailed to the
Bank's shareholders of record on the close of business on ____________, 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 (other than shares of common
stock of the Bank already owned by the Company) will be converted into and
exchanged for ten shares of common stock of the Company (the "Reorganization").
See "Recent Developments."  This Proxy Statement also constitutes the Prospectus
of the Company relating to 264,430 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"), Registration No. 333-19409, and is incorporated
by reference herein.  For a description of the Reorganization, see "The Proposed
Reorganization" herein.  SEE "RECENT DEVELOPMENTS," "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.

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

        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.

                           ---------------------
    
     This Proxy Statement and the accompanying proxy cards are first being
mailed to shareholders of the Bank on or about ____________, 1997.  The date of
this Prospectus is ____________, 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 the Company will become subject to
such informational requirements.             


                            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 such information
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.  The Commission maintains a Web site that can be accessed at
http://www.sec.gov, containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.      
<PAGE>
 
     
                               TABLE OF CONTENTS
 
 
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
 
RECENT DEVELOPMENTS.......................................................    2

THE PROPOSED REORGANIZATION...............................................    5
     General..............................................................    5
     Effect of the Proposed Reorganization................................    5
     Reasons for the Proposed Reorganization..............................    6
     Conditions to Consummation of the Reorganization.....................    6
     Termination and Abandonment of the Reorganization....................    6
     Stock Certificates...................................................    7
     Accounting Treatment.................................................    7
 
DESCRIPTION OF CAPITAL STOCK..............................................    8
     Stock of the Bank....................................................    8
     Stock of the Company.................................................    8
 
COMPARATIVE RIGHTS OF
SHAREHOLDERS OF THE BANK AND THE COMPANY..................................    9
     General..............................................................    9
     Shareholder Meetings.................................................   10
     Shareholder Proposals................................................   10
     Approval of Certain Business Combinations............................   10
     Directors............................................................   11
     Amendment of Articles of Incorporation and Bylaws....................   12
     Assessability of Stock...............................................   13
     Certain Corporate Protective Devices.................................   13
 
RIGHTS OF DISSENTING SHAREHOLDERS.........................................   15
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................   16
 
TRADING MARKET; DIVIDENDS.................................................   17
     No Trading Market....................................................   17
     Dividends............................................................   17
 
BUSINESS OF THE BANK......................................................   18
 
     

<PAGE>
 
     
     General..............................................................   18
     Competition..........................................................   19
     Employees............................................................   19
     Legal Proceedings....................................................   19
 
BUSINESS OF THE COMPANY...................................................   19
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED
DECEMBER 31, 1996.........................................................   20
 
SUPERVISION AND REGULATION................................................   30
     Supervision and Regulation of the Company............................   30
     Supervision and Regulation of the Bank...............................   31
     Interstate Banking and Branching Legislation.........................   32
 
MANAGEMENT................................................................   33
     Directors and Executive Officers.....................................   33
 
SUMMARY COMPENSATION TABLE................................................   35
     Employment Agreements................................................   35
     Compensation of Directors............................................   36
     Limitation on Directors' Liability...................................   36
     Indemnification......................................................   36
 
BENEFICIAL OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL SHAREHOLDERS OF THE BANK....................................   37
 
LEGAL MATTERS.............................................................   38
 
SHAREHOLDER PROPOSALS.....................................................   38
 
OTHER MATTERS.............................................................   39
 
FINANCIAL STATEMENTS......................................................  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
     

<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 ____________, ____________, 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
____________, 1997 (the "Record Date") 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 March 31, 1997, the Bank had total assets of approximately
$158 million, total deposits of approximately $130 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,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements."    
     
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 was approved by the Federal Reserve Board as a bank holding company in
March 1997 and subsequently incurred $6,360,000 in debt for the purpose of
purchasing 6,557 shares of Bank Common Stock. Except for this transaction, the
Company has not engaged in any business operations. 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 "Recent Developments,"
"Business of the Company" and "Financial Statements."
     
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"),
(other than shares of Bank Common Stock already owned by the Company) will be
converted into ten shares of Company Common Stock and the shareholders of the
Bank (other than the Company) will become the shareholders of the Company.  The
Reorganization will increase each shareholder's percentage
     

                                      -i-
<PAGE>
 
ownership in the Company as compared to that shareholder's percentage ownership
in the Bank because the Bank Common Stock already owned by the Company will not
be exchanged for Company Common Stock.  For example, a shareholder of the Bank
who owns 1,320 shares of Bank Common Stock, owns 4.0% of the outstanding stock
of the Bank.  After the Reorganization, such shareholder will own 13,200 shares
of Company Common Stock, which will represent approximately 5% of the
outstanding Company Common Stock.      
    
     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 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" and "Financial Statements."      
    
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)

     The following table sets forth for First National Bank and Pontotoc 
BancShares Corp. certain historical, unaudited pro forma combined and unaudited 
pro forma equivalent per share financial information for and as of the year 
ended December 31, 1996 and the three-month periods ended March 31, 1997 and 
1996. The information is derived from the financial statements contained under 
the caption "Financial Statements."

     Information under the column entitled "Pro Forma First National Bank (with 
Pontotoc BancShares)" reflects the results of the proposed exchange/purchase of 
stock of First National Bank as if the transaction had occurred January 1, 1996.
The pro forma information is presented for informational purposes only and
should not be construed as indicative of the actual operations that would have
occurred had the transaction been consummated at the beginning of the period
indicated above or which may occur after the transaction is consummated.

     Information under the column entitled "Pontotoc BancShares Corp. Pro Forma 
Equivalent" is derived by multiplying the numbers contained in the column 
entitled "Pro Forma First National Bank (With Pontotoc BancShares)" by the 
proposed exchange rate of 10 shares of Pontotoc BancShares Corp. Common Stock 
for each share of First National Bank Common Stock.
     

    
              FIRST NATIONAL BANK AND PONTOTOC BANCSHARES CORP.

                      COMPARATIVE PER SHARE INFORMATION
                                 (Unaudited)

<TABLE> 
<CAPTION> 
                                                
                                                                                    FIRST NATIONAL
                                                                                      BANK (WITH  
                                                                   PRO FORMA           PONTOTOC
                                                                 FIRST NATIONAL       BANCSHARES
                                                 HISTORICAL        BANK (WITH         CORP.) PRO
                                               FIRST NATIONAL       PONTOTOC             FORMA
                                                    BANK           BANCSHARES)         EQUIVALENT
                                               --------------    ---------------      ------------
<S>                                            <C>               <C>                  <C> 
Per Common Share:                             
                                              
Income from continuing operations:            
   For the three months ended March 31,       
                                              
                1997                               $ 16.36              $  1.73          $   17.30
                1996                                 20.33                 2.22              22.20
                                              
   For the year ended December 31,            
                                              
                1996                               $ 81.19              $  8.72          $   87.20
                                              
Cash Dividends:                               
                                              
   For the three months ended March 31,       
                                              
                1997                               $   -                $   -            $   -
                1996                                   -                    -                -
                                              
  For the year ended December 31,             
                                              
                1996                               $ 29.97              $  3.74          $   37.40
                                              
Book Value:                                   
                                              
  At March 31, 1997                                $826.82              $ 82.68          $  826.80
  At December 31, 1996                             $812.45              $ 81.25          $  812.50
</TABLE>      


                                     -ii-

<PAGE>

    
                     PRO FORMA COMPARATIVE CAPITAL RATIOS

    The regulatory capital of the pro forma entity at December 31, 1996 would be
as follows:

<TABLE> 
<CAPTION> 
                                                                               TO BE WELL   
                                                                           CAPITALIZED UNDER
                                                            FOR CAPITAL    PROMPT CORRECTIVE
                                           ACTUAL       ADEQUACY PURPOSES  ACTION PROVISIONS
                                       --------------   -----------------  -----------------
                                       AMOUNT   RATIO    AMOUNT    RATIO    AMOUNT   RATIO 
                                       ------   -----    ------    -----    ------   ----- 
                                                     ($ Amounts in Thousands)
<S>                                    <C>      <C>      <C>       <C>      <C>      <C>   
As of December 31, 1996                                                                    
  Total Capital                                                                            
  (to Risk-Weighted Assets)            $21,391  23.2%    $7,379    8.0%     $9,211   *10.0%
                                                                                           
Tier I Capital                                                                             
  (to Risk-Weighted Assets)            $20,325  22.1%    $3,684    4.0%     $5,527   * 6.0%
                                                                                           
Tier I Capital                                                                             
  (to Average Assets)                  $20,325  13.4%    $6,073    4.0%     $7,592   * 5.0% 
</TABLE> 

---------
* Greater Than


The regulatory capital of the pro forma entity at March 31, 1997 would be as
follows:

<TABLE> 
<CAPTION> 
                                                                               TO BE WELL   
                                                                           CAPITALIZED UNDER
                                                            FOR CAPITAL    PROMPT CORRECTIVE
                                           ACTUAL       ADEQUACY PURPOSES  ACTION PROVISIONS
                                       --------------   -----------------  -----------------
                                       AMOUNT   RATIO    AMOUNT    RATIO    AMOUNT   RATIO 
                                       ------   -----    ------    -----    ------   ----- 
                                                     ($ Amounts in Thousands)
<S>                                    <C>      <C>      <C>       <C>      <C>      <C>   
As of March 31, 1997                                                                    
  Total Capital                                                                            
  (to Risk-Weighted Assets)            $21,935  23.6%    $7,437    8.0%     $9,297   >10.0%
                                                                                           
Tier I Capital                                                                             
  (to Risk-Weighted Assets)            $20,798  22.4%    $3,719    4.0%     $5,578   > 6.0%
                                                                                           
Tier I Capital                                                                             
  (to Average Assets)                  $20,798  13.3%    $6,236    4.0%     $7,795   > 5.0% 
</TABLE> 
     


                                     -iii-
<PAGE>
 
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 enable the Company to offer to its shareholders the opportunity to have the
Company repurchase their stock, thus providing shareholders of the Company with
additional liquidity in their investments, without the necessity of securing
regulatory and shareholder approval, as is currently required for redemptions of
Bank Common Stock.  Thus, it will be much easier for the Company to redeem
shareholders' investments out of available capital surplus than is currently the
case with the Bank.  The Company will be operated as a bank holding company
under the federal Bank Holding Company Act of 1956.  See "Recent Developments,"
"The Proposed Reorganization - Reasons for the Proposed Reorganization" and
"Supervision and Regulation."      

CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
    
     Consummation of the Reorganization is subject to a number of conditions
including the following: (i) the Reorganization must be approved by holders of
at least two-thirds of the outstanding shares of Bank Common Stock; (ii) the
Reorganization must be approved by the Office of the Comptroller of the Currency
(the "Comptroller"); and (iii) the formation of the Company must be approved by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board").  Approval of the Reorganization from the Comptroller and the Federal
Reserve Board has already been obtained conditioned upon filing certain
organizational documents and compliance with commitments made in connection with
the applications for approval.  See "The Proposed Reorganization - Conditions to
Consummation of the Reorganization."      

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.  A number
of these differences may be viewed as "anti-takeover" provisions
     

                                     -iv-
<PAGE>
 
which, taken together, may have the effect of discouraging third parties from
attempting to obtain an equity ownership position in the Company despite the
fact that some or even a majority of the Company's shareholders believe that
such an acquisition would be in their best interests.  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 "Recent Developments" and "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

        
     The Company and the Bank have received 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 by 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 trading
price of Bank Common Stock or Company Common Stock.  See "Recent Developments"
and "Trading Market; Dividends - No Trading Market."      

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 the Record Date, the directors and executive officers of
the Bank and their affiliates, as a group (8 persons), beneficially owned 14,880
shares of Bank Common Stock, which represented 45.09% of the      



    
                                      -v-
     
<PAGE>
 
aggregate number of votes entitled to be cast at the Special Meeting.  ALL SUCH
PERSONS 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."      

RECENT DEVELOPMENTS

         

     Union Planters Corporation recently made an unsuccessful, unsolicited bid
to acquire control of the Bank.  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.      


    
                                     -vi-
     
<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 ____________,
____________, 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 ____________, 1997 (the "Record Date") will be
entitled to notice of, and to vote at, the Special Meeting.  On the Record Date,
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 the Record Date, the directors and executive officers of the
Bank and their affiliates, as a group (8 persons), beneficially owned 14,880
shares of Bank Common Stock, which represented 45.09% of the aggregate number of
votes entitled to be cast at the Special Meeting.  ALL SUCH PERSONS HAVE
INDICATED THAT THEY INTEND TO VOTE ALL SHARES BENEFICIALLY OWNED BY THEM FOR THE
REORGANIZATION.      

                                      -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, proxies voted
FOR approval of the Reorganization may be voted 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.

    
                              RECENT DEVELOPMENTS

GENERAL

          In September 1995, the Board of Directors of the Bank (the "Board of
Directors") was advised by Richard Doty, Ann Doty, Martha Doty, Gerry G. Jones
and All Saints Episcopal Church of Memphis, Tennessee (collectively, the
"Sellers"), as a group one of the largest shareholders of the Bank (owning
approximately 19.8% of the outstanding Bank Common Stock), of their desire to
sell their stock in the Bank.  At that time, Richard Doty was a member of the
Board of Directors.  Over a period of time, the Board of Directors had
discussions with Richard Doty in an effort to arrive at what the Bank considered
to be a fair purchase price.  In      

                                      -2-
<PAGE>
 
that connection, the Bank contacted its regular accounting firm, Nail McKinney,
P.A., and asked them to advise the Bank with respect to the value of the Bank
Common Stock.      
    
          The Bank also contacted the law firm of Phelps Dunbar, L.L.P. for
legal advice concerning the formation of a bank holding company because
formation of a bank holding company would facilitate the repurchase of
shareholders' investments.  On March 26, 1996, the Board of Directors authorized
an offer to repurchase all of the Seller's stock at $800 a share.  That offer
was rejected.  The Board of Directors approved the formation of a bank holding
company on May 21, 1996.  On October 17, 1996, the Sellers entered into an
agreement with Union Planters Corporation, a Memphis, Tennessee bank holding
company ("Union Planters"), that, subject to certain conditions, obligated Union
Planters to purchase and the Sellers to sell their stock in the Bank for $848
per share.  The Union Planters agreement also provided the Sellers with "best
price protection" if Union Planters acquired their stock and subsequently sold
it at a higher price.      
    
          In November 1996, Union Planters requested a meeting with the Board of
Directors of the Bank concerning possible acquisition of the entire Bank.  Later
in November 1996, the Board of Directors voted to approve (i) employment
agreements for the two most senior officers of the Bank (see "Management-
Employment Agreements"), (ii) documentation and the associated filings with
regulatory agencies for the formation of a bank holding company, and (iii) the
solicitation of a right of first refusal by Bank management from all of the
Bank's shareholders, which was intended to give the Board of Directors the
necessary authority to allow it to decide whether a sale of the Bank was in the
best interests of shareholders, and, if a sale was considered appropriate, to
negotiate the terms and conditions of any proposed sale of the Bank on behalf of
all of the Bank's shareholders.  The Bank obtained rights of first refusal from
shareholders owning approximately 70% of the Bank's outstanding common stock.
The rights of first refusal will expire upon consummation of the Reorganization.
The Board of Directors' decision to form a holding company as proposed herein
was the result of deliberate analysis and consideration by Bank management over
a period of time beginning with requests for legal advice on these matters in
1995 and was not the result of Union Planters attempt to acquire control of the
Bank.      
    
          On December 12, 1996, Union Planters submitted a written offer to the
Board of Directors to purchase the Bank for $875 per share.  The Board of
Directors requested Chaffe & Associates, Inc., an investment banking firm
located in New Orleans, Louisiana ("Chaffe & Associates"), to determine the
fairness of Union Planters' offer.  On January 2, 1997, Union Planters purchased
264 shares (less than 1%) of the Bank Common Stock from one of the Sellers,
which level of ownership was below the level of stock ownership requiring Union
Planters to obtain prior approval from the Federal Reserve Board.  Management of
the Bank believes that this purchase was concluded in an effort by Union
Planters to gain access to the Bank's shareholder list.  On January 21, 1997,
Chaffe & Associates advised the Board of Directors that the Union Planters offer
was "not fair, from a financial point of view, to the holders of the Bank Common
Stock."  See "Opinion of Chaffe & Associates," below.      

                                      -3-
<PAGE>
 
    
          On March 3, 1997, the Bank received notification of the Federal
Reserve Board's approval of formation of Pontotoc BancShares Corp. (the
"Company") as a bank holding company for the purpose of acquiring all of the
outstanding stock of the Bank.     

    
          On the basis of its financial advisor's opinion, Union Planters was 
notified of the Bank's rejection of its offer as inadequate. Immediately 
thereafter, and for the next two months, negotiations were conducted between the
Bank, Union Planters and the Sellers to terminate Union Planters' and Sellers' 
investments in and/or their contractual rights to acquire common stock of the 
Bank. In March of 1997, Union Planters sold to the Company on behalf of the Bank
an assignment of its right to purchase the shares of the Bank Common Stock with 
respect to which it had an option to purchase and the Sellers and Union Planters
sold their stock in the Bank (6,557 shares) to the Company for approximately 
$880 per share. The Company purchased the 6,557 shares of Bank Common Stock from
Union Planters and the Sellers and Union Planters' right to acquire the Sellers'
stock for a total purchase price of $6,360,000, or an average of $969 per share.
Included in this amount was a $575,000 payment from the Company to Union 
Planters in exchange for the termination of Union Planters' stock purchase 
agreement with the Sellers. The Company financed the total purchase price with a
loan from National Bank of Commerce, Memphis, Tennessee ("NBC"), which is 
secured by the Bank Common Stock that was purchased and is payable in five equal
annual principal payments, with interest at NBC's prime rate. The loan from NBC 
provides that dividends may be paid by the Company only if payments of principal
and interest on the loan are current and then only in an amount equal to 40% of 
the Bank's net earnings less the amount of the Bank's net earnings used to
redeem shares of the Company's Common Stock. See "Trading Market, Dividends" and
"Financial Statements."
     
    
OPINION OF CHAFFE & ASSOCIATES      
    
          Pursuant to an engagement letter dated December 17, 1996 (the
"Engagement Letter"), the Bank engaged Chaffe & Associates to determine whether
the consideration offered to the shareholders of the Bank by Union Planters was
fair to the Bank's shareholders from a financial point of view.  Chaffe &
Associates has extensive experience in investment analysis and the valuation of
bank and bank holding company securities in connection with acquisitions and
mergers, and valuations for various other purposes.  The Bank selected Chaffe &
Associates as its financial advisor on the basis of its experience and expertise
in merger and acquisition transactions, and its reputation in the commercial
banking and investment banking communities.      
    
          No limitations were imposed by the Bank on Chaffe & Associates with
respect to the investigations made or the procedures followed in rendering its
opinion.      
    
          In connection with rendering its opinion, Chaffe & Associates, among
other things: (i) reviewed this Proxy Statement, in the form that it was filed
with the Securities and Exchange Commission on January 8, 1997; (ii) reviewed
and analyzed certain publicly-available financial statements and other
information of the Bank; (iii) reviewed and analyzed certain internal financial
statements and other financial and operating data concerning the Bank, prepared
by the management of the Bank, including financial projections; (iv) discussed
the past and current operations and financial condition, and the prospects of
the Bank with senior executives of the Bank; (v) reviewed the historical prices
and trading volumes of the shares of the Bank Common Stock; (vi) compared the
financial performance of the Bank, and the prices and trading activity of the
Bank Common Stock, with that of certain other comparable publicly-traded
companies and their securities; (vii) reviewed the financial terms of business
combinations in the commercial      

                                      -4-
<PAGE>
 
banking industry specifically and other industries generally, which Chaffe &
Associates deemed generally comparable to the transaction proposed by Union
Planters; (viii) considered a number of valuation methodologies, including among
others, those that incorporate book value, deposit base premium and
capitalization of earnings; and (ix) performed such other studies and analyses
as it deemed appropriate to its opinion.  On the basis of its review, Chaffe &
Associates concluded that the Union Planters offer was "not fair, from a
financial point of view, to the holders of the Bank Common Stock."      
    
          For rendering its opinion, Chaffe & Associates was paid approximately
$15,000, plus reasonable out-of-pocket expenses. Neither Chaffe & Associates nor
its principals owns an interest in the securities of the Bank or the Company.
    

                          THE PROPOSED REORGANIZATION

GENERAL
    
          The Board of Directors of the Bank has approved and authorized the
Reorganization.  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 , Registration No. 333-19409, and is
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 (other than shares of Bank Common Stock already owned by the
Company) will be converted into and exchanged for ten shares of Company Common
Stock, and the shareholders of the Bank (other than the Company) will become the
shareholders of the Company.  As a result, each shareholder's percentage
ownership interest in the Company will increase relative to his or her
percentage ownership interest in the Bank.  For example, a shareholder of the
Bank who owns 1,320 shares of Bank Common Stock, owns 4.0% of the outstanding
stock of the Bank.  After the Reorganization, such shareholder will own 13,200
shares of Company Common Stock, which will represent approximately 5% of the
outstanding Company Common Stock.  See "Recent Developments."      
    
          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 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.
     
                                      -5-
<PAGE>
 
The first annual meeting of the Company's shareholders at which directors are to
be elected will be held in 1998.  See "Financial Statements."      

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 enable the Company to offer to its shareholders the opportunity to have the
Company repurchase their stock, thus providing shareholders of the Company with
additional liquidity in their investments, without the necessity of securing
regulatory and shareholder approval, as is currently required for redemptions of
Bank Common Stock.  Thus, it will be much easier for the Company to redeem
shareholders' investments out of available capital surplus than is currently the
case with the Bank.  The Company will be operated as a bank holding company
within the meaning of the federal Bank Holding Company Act of 1956 (the "Act").
The recent efforts by Union Planters to acquire control of the Bank had no
effect on the Board of Directors' decision to recommend formation of a holding
company to the shareholders.  See "Recent Developments," "Comparative Rights of
Shareholders of the Bank and the Company - Effects of Shareholder Rights
Provisions" and "Supervision and Regulation."      

CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
    
          Consummation of the Reorganization is subject to a number of
conditions, including the following: (i) the Reorganization must be approved by
holders of at least two-thirds of the outstanding shares of Bank Common Stock;
(ii) the Reorganization must be approved by the Comptroller; and (iii) the
formation of the Company must be approved by the Federal Reserve Board.
Approval for the Reorganization from the Comptroller and the Federal Reserve
Board has been obtained conditioned upon filing certain organizational documents
and compliance with commitments made in connection with the applications for
approval.      

          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.
The Reorganization, if approved by the Bank's shareholders, will be consummated
as soon as practicable 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.  Examples of situations in which the Board of Directors might
conclude that consummation of the Reorganization is inadvisable include a large
     
                                      -6-
<PAGE>
 
number of shareholders dissenting or otherwise disapproving of the
Reorganization, an unexpected change in federal or state tax law, or the
happening of any other unexpected event the effect of which is to make
consummation of the Reorganization inadvisable in the judgment of the Board of
Directors.     

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 Stock have been converted.  However,
no dividends or other distributions 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 be treated in 
a manner similar to a pooling of interests for financial accounting purposes.
The cash purchase of Bank common stock by the Company in March, 1997 has been
treated as a purchase for financial accounting purposes. It is not anticipated
that either transaction will have a material adverse effect on the Company's
reported income for tax or financial accounting purposes. See "Financial
Statements."
    
                                      -7-
<PAGE>
 
                         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 additional
shares are authorized for issuance.     

          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 Mississippi
Business Corporation Act ("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 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 264,430 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

                                      -8-
<PAGE>
 
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 have 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.


                             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
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 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.

                                      -9-
<PAGE>
 
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, including the nomination of directors, at any meeting of
shareholders, 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 must 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 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 not meeting the foregoing requirements
and any other 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 defined 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.      

                                      -10-
<PAGE>
 
          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 six 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 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 six 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.

                                      -11-
<PAGE>
 
          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 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.

                                      -12-
<PAGE>
 
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

          (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.

                                      -13-
<PAGE>
 
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 are not being proposed as a result of Union
Planters' recent efforts to acquire control of the Bank, but because of the
Board of Directors' belief that they serve to protect and promote the interests
of all of the Company's shareholders. See "Recent Developments."      
    
    
          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 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.

                                      -14-
<PAGE>
 
          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 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.

          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.

                                      -15-
<PAGE>
 
                    CERTAIN FEDERAL INCOME TAX CONSEQUENCES
    
          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.  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 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 the following 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.  Phelps Dunbar, L.L.P., special
counsel to the Company and the Bank, has provided its written opinion 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 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

                                      -16-
<PAGE>
 
          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 trading
price of either Bank Common Stock or Company Common Stock. For information
concerning recent repurchase activity in the Bank Common Stock, see "Recent
Developments." At March 31, 1997, there were approximately 197 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 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

                                      -17-
<PAGE>
 
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. In connection with its purchase of 6,557
shares of Bank Common Stock, the Company incurred a loan in the principal amount
of $6,360,000 from National Bank of Commerce, Memphis, Tennessee. The loan
provides that dividends may be paid by the Company only if payments of principal
and interest on the loan are current and then only in an amount equal to 40% of
the Bank's net earnings less the amount of the Bank's net earnings used to
redeem shares of the Company's Common Stock. See "Recent Developments" and
"Financial Statements."      
    

                             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      

                                      -18-
<PAGE>
 
deposit and other time deposits and safe deposit facilities.  As of 
March 31, 1997, the Bank had total assets of approximately $158 million, total
deposits of approximately $130 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 to be 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. All of the Bank's facilities are owned rather than leased.      

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 March 31, 1997, the Bank had 52 full-time and 3 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.

                            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. 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."      

                                      -19-
<PAGE>
 
          On March 18, 1997, the Company acquired 6,557 shares of Bank Common
Stock and certain rights to acquire Bank Common Stock for an aggregate purchase
price of $6,360,000. The purchase price was financed with the proceeds of a loan
from an unaffiliated third party. See "Recent Developments" and "Financial
Statements."      
    
          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.      

    
    
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion provides certain information concerning the
financial condition and results of operations of the Bank compiled for the two
years ended December 31, 1996 and 1995 and for the two quarters ended March 31,
1997 and 1996.  Management's discussion should be read in conjunction with the
financial statements and accompanying notes presented elsewhere in this Proxy
Statement.

THE YEARS ENDED DECEMBER 31, 1996 AND 1995

OVERVIEW

     The Bank reported net income for 1996 of $2,679,000, or $81.18 per share,
compared to $2,440,000, or $73.94 per share, in 1995.  This represented a 9.8%
increase in 1996 compared to 1995.  The increase in earnings from 1995 to 1996
was due to a 10.1% increase in net interest income, which itself was caused by
growth in assets, particularly loans.  This growth in loans indicates a
continued improvement in the Bank's local economy.  Return on average assets was
1.76% and return on average equity was 10.67% for 1996, compared to the prior
year's returns of 1.73% and 10.3%, respectively.

     Average assets increased 7.94% in 1996 from the 1995 level.  At year end
1996, total assets were $153,289,000.  Total stockholders' equity was
$26,811,000 at December 31, 1996, compared to $25,123,000 at December 31, 1995.

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 rates paid
on their funding sources, as well as the relative effect of noninterest bearing
sources of funds.  Net interest income increased from $6,101,000 in 1995 to
$6,719,000 in 1996.

     Average earning assets increased from $132,714,000 in 1995 to $145,125,000
in 1996.  Interest income increased from $10,650,00 in 1995 to $11,681,000 in
1996, 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 which increased slightly in 1996 to 5.37% from 5.32% in 1995.  The end
result of growth in earning assets and relatively stable interest rates on time
deposits was a slight increase in the Bank's net interest margin (defined as the
ratio of net income to average earning assets) from 4.60% in 1995 to 4.63% in
1996.

     The Bank's net interest spread, the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities, was 3.50% for 1996, a
4 basis point decrease from the 1995 level of 3.54%.  This slight decrease in
the Bank's net interest spread resulted from an increase in the percentage of
earning assets that was funded by relatively higher yielding time 

     

                                      -20-
<PAGE>
 
    

deposits, as the Bank's demand deposits decreased as a percentage of total
deposits from 13.03% in 1995 to 12.37% in 1996.

  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:


 
                                              Year Ended December 31,
                                                    1996/1995
                                             ------------------------
                                                  Change due to
                                             ------------------------
                                              (Dollars in thousands)
 
                                              Rate     Volume   Change
                                             ------    ------   ------
 
Interest income:
 Loans                                      $    334   $  544   $  878
 Investment securities - taxable                (299)     454      155
 Investment securities - nontaxable              (53)    (226)    (279)
 Federal funds sold and
   resale agreements                              (5)     282      277
 
     Total interest income                       (23)   1,054    1,031
                                            --------   ------   ------
 
 
Interest expense:
Deposits other than time                         (36)      26      (10)
Time deposits                                    960     (526)     434
Other interest-bearing liabilities                (9)      (2)     (11)
 
Total interest expense                           915     (502)     413
 
Net interest income                         $   (938)  $1,556   $  618
                                            ========   ======   ======


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

     

                                      -21-
<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 years ended
December 31, 1996 and December 31, 1995:


<TABLE>
<CAPTION>
 
                                                          1996                          1995
                                              ----------------------------   --------------------------
                                              Average   Income/    Yields/   Average   Income/  Yields/
(Dollars in thousands)                        Balances  Expense     Rates    Balances  Expense   Rates
                                              --------  --------  ---------  --------  --------  ------
<S>                                           <C>       <C>       <C>        <C>       <C>       <C>
 
ASSETS
Loans/1/                                      $ 83,031  $ 8,167       9.84%  $ 76,610  $ 7,289    9.51%
Investment securities-taxable                   39,822    2,342       5.88%    34,316    2,187    6.37%
Investment securities-nontaxable/2/             13,660      716       5.24%    18,472      995    5.39%
Federal funds sold                               8,612      456       5.29%     3,316      179    5.40%
Total earning assets                           145,125   11,681       8.05%   132,714   10,650    8.02%
Other assets                                     7,314                          8,509
Total assets                                  $152,439                       $141,223
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Deposits other than time                      $ 34,779  $   965       2.77%  $ 34,307  $   975    2.84%
Time deposits                                   74,379    3,997       5.37%    66,977    3,563    5.32%
Total interest-bearing deposits                109,158    4,962       4.55%   101,284    4,538    4.48%
Other interest-bearing liabilities                   0        0                   192       11    5.73%
Total interest bearing liabilities             109,158    4,962       4.55%   101,476    4,549    4.48%
Non-interest bearing liabilities                15,409                         15,205
Other liabilities                                2,759                            840
Minority interest                                    0                              0
Stockholders' equity                            25,113                         23,702
Total liabilities and stockholders' equity     152,439                        141,223
 
Net interest spread                                                   3.50%                       3.54%
Net interest income/margin                              $ 6,719       4.63%            $ 6,101    4.60%

</TABLE>

_____________________
/1/Nonaccrual loans are included in average balances and interest on such loans
   is recognized on a cash basis.
/2/The yield on tax exempt securities is not on a tax equivalent basis for this
   schedule.

     

                                      -22-
<PAGE>
 
 
    

     INTEREST RATE SENSITIVITY.  The interest rate sensitivity gap is the
difference between the amount of interest-bearing assets and the amount of
interest-bearing liabilities maturing in any given time period.

                       GAP ANALYSIS AT DECEMBER 31, 1996
                       ---------------------------------
<TABLE>
<CAPTION>
 
(Dollars in thousands)                 0-3 Months   4-12 Months   1-5 Years   Over 5 Years
                                       -----------  ------------  ----------  -------------
<S>                                    <C>          <C>           <C>         <C>
 
Loans                                     $20,868       $43,291     $17,607        $ 2,586
Investment Securities Taxable               7,312         2,446      15,583         10,538
Investment Securities Nontaxable              320           757       5,221          7,758
Fed Funds                                   8,000
 Total Rate Sensitive Assets              $36,500       $46,494     $38,411        $20,882
                                          =======       =======     =======        =======
 
Savings Deposits/(*)/                       1,036         1,036       1,036          2,072
NOW Accounts/(*)/                           2,812         2,812       2,812          5,625
Money Markets/(*)/                                        3,584       3,584          7,168
Time Deposits Less Than $100,000           18,366        24,642       6,113              -
Time Deposits Greater Than $100,000        11,159        10,986       2,928              -
 Total Rate Sensitive Liabilities         $33,373       $43,060     $16,473        $14,864
                                          =======       =======     =======        =======
 
$ GAP                                       3,127         3,434      21,938          6,018
GAP % of Total Assets                           2%            2%         14%             4%
$ Cumulative GAP                            3,127         6,560      29,498         34,516
Cumulative GAP % of Total Assets                2%            4%         19%            23%

</TABLE>

/(*)/  The assumed rate of deposit withdrawal allocates 20% of savings deposits
       and NOW account balances in each of the following maturity categories: 0-
       3 months, 4-12 months, and 1-5 years. The remaining 40% of balances are
       allocated to the over 5 year category. The gap calculation also allocates
       25% of Money Market account balances in both the 4-12 month and 1-5 year
       categories, with the remaining 50% being allocated to the over 5 year
       category. This method of allocating withdrawals is consistent with the
       Bank's historical experience.

     A primary objective of asset/liability management is to achieve stability
in net interest income throughout interest rate cycles.  Management of the Bank
reviews its interest rate exposure on a monthly basis to analyze the impact of
possible changes in market interest rates on the Bank's net income.  At December
31, 1996, the Bank's one-year repricing gap, defined as repricing assets minus
repricing liabilities as a percentage of total assets, was 4.0%.  In other
words, more of the Bank's assets than liabilities were scheduled to reprice
within a one-year time frame.  In periods of increasing rates, the Bank should
experience a positive effect on net income because its interest income on
earnings-assets will increase more quickly than its cost of funds.  Conversely,
in periods of declining rates, based on its current interest sensitivity gap,
the Bank should experience decreased net income, since the interest on its
earning-assets will decrease more 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 magnitude of
repricing of interest-bearing demand, savings and money market accounts is not
as great as changes in general market rates.  These deposit categories, along
with noninterest 

     

                                      -23-
<PAGE>
 
 
    

bearing deposits, have historically been stable sources of funds for the Bank,
which indicates a much longer implicit maturity than their contractual
maturities. The Bank has a targeted gap range of +10% to -10% of total assets
with respect to an immediate and intermediate gap out to one year. Should the
Bank's gap not fall within the targeted range the Bank would take immediate
action to attempt to correct the problem.

     The gap is primarily managed through the mix of fed funds and longer term
investments.  If the Bank has a positive gap position outside of the specified
range the Bank would reduce investment in fed funds and redeploy to longer term
investments.  If the Bank has a negative gap position outside the range the Bank
would sell longer term investment securities and invest in fed funds.

     A significant portion of the loan portfolio consists of fixed rate loans.
The vast majority of these loans mature in a six-month to one-year time
frame.  Consequently, fixed rate loans do not significantly impact the Company
in periods of either rising or declining 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 1995 was $714,000.  The
provision made in 1996 was $420,000.

     The Bank identified net charge-offs of $348,000 in 1996 and $937,000 in
1995, to be written off as uncollectible against the reserve for possible loan
losses.  The decrease in net charge-offs from 1995 to 1996 was the effect of a
continued good local economy and the efforts of management in past years to
improve the quality of the Bank's loan portfolio.

     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 1.28% for 1996 and 1.30% for 1995.

     NONINTEREST INCOME.  Other income for 1996 totaled $1,100,000, compared to
$1,080,000 in 1995, as service charges and other sources of income remained
relatively flat.

     NONINTEREST EXPENSES.  In 1996, other expenses totalled $3,394,000,
compared to $3,042,000 in 1995.  This was an increase of $352,000, or 11.6% from
the 1995 level.  Higher salaries and employee benefits caused the increase,
along with legal and consulting fees related to the formation of the Company.

ANALYSIS OF FINANCIAL CONDITION

     INVESTMENT SECURITIES.  In 1996, average investment securities increased
minimally by $694,000 from $52,788,000 in 1995, to $53,482,000 in 1996.
Investment securities totaled $51,066,000 at the end of 1996.  Investment
securities comprised 36.85% of average earning 

     

                                      -24-

<PAGE>
 
    

assets at December 31, 1996 compared to 39.78% at December 31, 1995, as a
relatively higher percentage of the Bank's earning assets was deployed to loans.

     Securities classified as available for sale constituted approximately 33%
of the total investment portfolio at year-end 1996, compared to approximately
36% at year-end 1995.  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 $481,000 in 1996 and $477,000
in 1995 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 1996 was $111,000, compared to an unrealized net gain in
1995 of $83,000.

     The Bank maintains no trading portfolio.

     Proceeds from sales and maturities of securities were $13,993,000 during
1996.  Gross realized losses were $2,000, and there were no gross realized
gains.  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:
 
                                           December 31
                                         ----------------
(Dollars in thousands)                    1996     1995
                                         -------  -------
 
     U. S. Treasury                      $ 2,259  $ 3,003
 
     Obligations of U.S. Government:
     U. S. Agencies                          740    2,698
     Mortgage-backed                      32,881   32,391
 
     State and political subdivisions     14,056   12,812
 
     Other securities                      1,130      960
                                         -------  -------
 
       Total                             $51,066  $51,864
                                         =======  =======

     

                                      -25-
<PAGE>
 
    
 
     MATURITY DISTRIBUTION AND INVESTMENT SECURITIES PORTFOLIO YIELDS.  The
maturities, based on contractual maturities, of debt securities at December 31,
1996 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
                             ----------------------  ------------------  ----------------  ----------------  ---------------------
(Dollars in thousands)         Amount     % Yield     Amount    % Yield  Amount   % Yield  Amount   % Yield   Amount     % Yield
                             ----------  ----------  ---------  -------  -------  -------  -------  -------  ---------  ----------
<S>                              <C>         <C>       <C>        <C>     <C>        <C>   <C>       <C>      <C>            <C>
 
U.S. Treasury                    $  753        6.08    $ 1,506     5.95                                        $ 2,259        5.99
 
Obligation of U.S. Gov't:
U.S. Agencies                                              500     6.00  $   240     6.16                          740        6.05
Mortgaged-Backed                  1,943        9.50     13,816     6.95    6,588     7.28  $10,534     5.82     32,881        6.80
 
State and political
subdivisions                      1,077        7.32      4,974     5.54    6,725     5.05    1,280     5.03     14,056        5.42
 
Other Securities                  1,130        5.39                                                              1,130        5.39
                                 ------------------    ----------------  ----------------  ----------------    -------------------
 
Total                            $4,903        7.55    $20,796     6.52  $13,553     6.17  $11,814     5.73    $51,066        6.34
                                 ==================    ================  ================  ================    ===================
</TABLE>

     The yield on tax exempt securities are not on a tax equivalent basis for
this schedule.

     LOANS AND NONPERFORMING ASSETS.  The loan portfolio is one of the largest
components of the Bank's earning assets.  Average loans outstanding in 1996
increased $6,421,000 or 8.38%, from the 1995 level of $76,610,000.  Average
loans in 1996 were $83,031,000.  The increase in 1996 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 and
commercial real estate, which represent approximately 30.4% and 26.3%,
respectively, of the total portfolio as of December 31, 1996.  Commercial loans
represented approximately 21.5% of total loans at the end of 1996.  No single
loan relationship exceeds 5% of total loans.

     Total nonperforming assets at December 31, 1996 were $2,587,000, compared
to $1,714,000 at December 31, 1995.  Other real estate owned increased to
$854,000 at December 31, 1996, compared to $302,000 as of the end of 1995, as
loans were foreclosed and moved to other real estate owned.

     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 1996 was approximately
$56,653.  No interest income was recognized on nonaccrual loans for 1996.

     

                                      -26-
<PAGE>
 
 
    

   SUMMARY OF NONPERFORMING ASSETS.  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.


<TABLE>
<CAPTION>
 
 
                                                    December 31
                                                  ----------------
(Dollars in thousands)                             1996     1995
                                                  -------  -------
<S>                                               <C>      <C>
 
Nonperforming loans
   Nonaccrual loans                               $  381   $  967
   Restructured loans                              1,352      445
                                                  ------   ------
 
   Total nonperforming loans                       1,733    1,412
 
Other real estate                                    854      302
                                                  ------   ------
 
   Total nonperforming assets                      2,587    1,714
                                                  ======   ======
 
   Loans 90 days or more past due and still
     accruing interest                               339      798
                                                  ======   ======
 
Nonperforming loans as a % of total loans           2.05%    1.78%
 
Nonperforming assets as a % of total loans and
     other real estate                              3.02%    2.15%
 
Allowance for possible loan losses as a % of
     nonperforming loans                           61.51%   70.40%
 
Allowance for possible loan losses as a % of
     nonperforming assets                          41.21%   57.99%

</TABLE>

     In addition to the nonaccrual loans included in nonperforming assets, the
Bank had approximately $5,712,000 of performing loans that were classified as of
December 31, 1996.  Classified loans are credits, identified internally by
management or through the regulatory examination process, which have a higher
degree of risk than other performing loans in the portfolio.

     

                                      -27-
<PAGE>
 
    

  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:

<TABLE>
<CAPTION>
 
                                                   December 31
                                       ------------------------------------
                                             1996               1995
                                       -----------------  -----------------
(Dollars in thousands)                 Amount   Percent   Amount   Percent
                                       -------  --------  -------  --------
<S>                                    <C>      <C>       <C>      <C>
 
Loans:
 Commercial                            $18,184    21.46%  $14,806    18.40%
 Agricultural                            4,134     4.88%    5,516     6.86%
 Real estate-residential                25,786    30.43%   24,602    30.58%
 Real estate-commercial                 22,275    26.29%   21,615    26.87%
 Consumer                               14,355    16.94%   13,907    17.29%
 Loans net of unearned income           84,734   100.00%   80,446   100.00%
 
 Total                                 $84,734   100.00%  $80,446   100.00%
                                       =======   ======   =======   ======
 
Allowance for possible loan losses:
 Commercial                            $   309    28.99%  $   288    28.97%
 Agricultural                               75     7.03%       70     7.04%
 Real estate-residential                   117    10.97%      109    10.97%
 Real estate-commercial                    330    30.96%      308    30.99%
 Consumer                                  149    13.98%      139    13.98%
 General Reserve                            86     8.07%       80     8.05%
 
 Total                                 $ 1,066   100.00%  $   994   100.00%
                                       =======   ======   =======   ======
 
</TABLE>

     LOAN MATURITY DATA.  The tables below show the amounts due on loans,
classified according to the sensitivity to the changes in fixed and floating
interest rates.

<TABLE>
<CAPTION>
 
                                                      December 31, 1996
                                        -----------------------------------------
                                          Due     Due After 1             
                                         Within   But Within   Due After 
(Dollars in thousands)                  1 Year     5 Years      5 Years    Total
                                        -------   ----------    -------   -------
<S>                                     <C>       <C>           <C>       <C>
                                                                        
Sensitivity of loans to changes in                                      
interest rates:                                                         
                                                                        
Fixed Interest rate                     $64,230      $17,431    $1,269   $82,930
Floating or adjustable interest rate        310          176     1,318     1,804
                                        -------   ----------   -------   -------
                                                                        
 Total                                  $64,540      $17,607    $2,587   $84,734
                                        =======   ==========   =======   =======
 
</TABLE>

     


                                      -28-
<PAGE>
 
 
    

<TABLE>
<CAPTION>
                                                   December 31, 1996
                                         -------------------------------------
                                           Due    Due After 1
                                         Within   But Within  Due After
(Dollars in thousands)                   1 Year    5 Years    5 Years   Total
                                         -------  ----------  -------  -------
<S>                                      <C>      <C>         <C>      <C>
 
Sensitivity of loans to changes in
interest rates:
 Fixed Interest Rate:                 
  Commercial                             $13,784     $ 3,740   $  272  $17,796
  Agricultural                             3,134         851       62    4,047 
  Real Estate Residential                 19,545       5,304      386   25,235
  Real Estate Commercial                  16,886       4,583      334   21,803
  Installment Loans                       10,881       2,953      215   14,049
                                         -------     -------   ------  -------
 
  Total                                  $64,230     $17,431   $1,269  $82,930
 
 Floating or Adjustable Interest Rate:
  Commercial, Financial & Agricultural   $   310     $   176   $1,318  $ 1,804
  Real Estate Construction            
  Real Estate Mortgage                
  Installment Loans                    
                                         -------     -------   ------  -------
  Total                                  $   310     $   176   $1,318  $ 1,804
 
TOTAL LOANS                              $64,540     $17,607   $2,587  $84,734
                                         =======     =======   ======  =======
</TABLE>


    The loan maturity data is based upon contractual maturities, not interest 
rate repricing dates.  All these loans have fixed maturities.  The bank makes 
residential real estate loans with maturities of one year.     

                                      -29-
<PAGE>
 
    

  SUMMARY OF LOAN LOSS EXPERIENCE.  The loan loss experience for the two years
ended December 31, 1996 is summarized in the following table:


<TABLE>
<CAPTION>
 
(Dollars in thousands)                                  1996      1995
                                                       -------  --------
<S>                                                    <C>      <C>
 
Balance at beginning of year                           $  994   $ 1,217
 
Loans charged off
   Commercial                                            (143)     (950)
   Agricultural                                           (18)        -
   Real estate-residential                                (54)        -
   Real estate-commercial                                 (78)      (68)
   Consumer                                              (159)     (106)
 
     Total charge-offs                                   (452)   (1,124)
 
Recoveries on loans previously charged off
   Commercial                                              30        95
   Agricultural                                             0         0
   Real estate-residential                                  1        19
   Real estate-commercial                                  38        30
   Consumer                                                35        43
     Total recoveries                                     104       187
 
Net loans charged-off                                    (348)     (937)
Additions charged to operations                           420       714
 
Balance at end of year                                 $1,066   $   994
 
Ratio of net charge-offs (recoveries) during period
   to outstanding average loans                          0.42%     1.22%
</TABLE>


     DEPOSITS.  Total deposits at December 31, 1996 were $124,485,000, up 2.9%
from the level of $120,984,000 posted at December 31, 1995.

     Time certificates of deposits of $100,000 or more were $24,764,000 at
December 31, 1996.  These deposits consist primarily of public fund time
deposits that are fully secured and deposits from local customers with which the
Bank has other banking relationships.  Although time deposits of $100,000 or
more can exhibit greater volatility to changes in interest rates and other
factors than do core deposits, management believes that due to the nature of the
deposits of this type, any volatility experienced could be adequately met with
alternate funding sources.  The Bank had no brokered deposits at December 31,
1996.

     

                                      -30-
<PAGE>
 
    

   DEPOSIT AVERAGE BALANCES AND RATES.  The following table indicates the
average daily amount of deposits and rates paid on such deposits for the periods
indicated:

<TABLE>
<CAPTION>
 
                                   Year Ending December 31,
                           --------------------------------------
                                  1996                 1995
                           ------------------  ------------------
(Dollars in thousands)      Amount     Rate     Amount     Rate
                           --------  --------  --------  --------
<S>                        <C>       <C>       <C>       <C>
 
Noninterest-bearing demand $ 15,409            $ 15,205
Savings deposits              5,137     2.98%     5,246     2.92%
Interest-bearing demand      29,642     2.74%    29,061     2.72%
Time deposits                74,379     5.37%    66,977     5.29%
                           --------            --------
 
Total deposits             $124,567            $116,489
                           ========            ========
</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, 1996 in the table
below:


<TABLE>
<CAPTION>
 
(Dollars in thousands)        December 31, 1996
                              -----------------
<S>                           <C>
 
     3 months or less                   $11,159
     3 months to 6 months                 4,769
     6 months to 12 months                5,908
     Over 12 months                       2,928
                                        -------
     Total                              $24,764
                                        =======
 
</TABLE>

   CAPITAL RESOURCES OF THE BANK.  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,
1996 and 1995.  The Bank exceeds all minimum capital ratios.


<TABLE>
<CAPTION>
                                                       Bank's 
                                                      Specific
                                 December 31          Minimum 
                          -----------------------      Ratio   
(Dollars in thousands)        1996        1995     Requirements
                          ------------  ---------  -------------
<S>                          <C>          <C>         <C>
                                         
 Tier 1 Capital              29.0%        28.6%        4%
 Total Capital               30.1%        29.7%        8%
 Leverage Ratio              17.6%        17.0%        4%

</TABLE>

     LIQUIDITY. Liquidity is the ability of the Bank to fund the needs of its
borrowers, depositors and creditors. The Bank's liquidity sources, including
cash flows from sales, maturities, and paydowns of loans and investment
securities, federal funds purchased, and a base of core deposits, are considered
by management to be adequate to meet liquidity needs for normal operations.

     

                                      -31-
<PAGE>
 
    

     As shown in the accompanying 1996 statement of cash flow, cash and cash
equivalents increased by $872,000 during 1996 to $4,683,000 at December 31,
1996.  Cash and cash equivalents were generated primarily by proceeds from sales
and maturities of investments securities totaling $13,993,000, and a net
increase in deposits of $3,501,000.  In addition, operating activities provided
net cash of $3,378,000.  Offsetting these increases were purchases of investment
securities in the amount of $13,190,000 and a net increase in loans of
$4,635,000.

     OTHER.  In management's opinion, the anticipated impact of recently issued,
but, as yet, not adopted, accounting pronouncements are expected to be
immaterial.

     Dividend payout and equity to asset ratios for the years ended December 31,
1996 and 1995 are as follows:

                                               Equity to
                       Dividend Payout        Asset Ratio
                       ---------------        -----------

          1996            37.0%                  17.3%
          1995            21.6%                  16.6%


THE QUARTERS ENDED MARCH 31, 1997 AND 1996

OVERVIEW

     The Bank reported net income for the first quarter of 1997 of $540,000, or
$16.36 per share, compared to $671,000, or $20.33 per share, for the first
quarter of 1996, representing a 20.087% decrease in 1997 compared to 1996.  This
decrease was due primarily to an increase in non-interest expenses.  The
increase in these expenses was due to the legal and other professional fees
related to the formation of the holding company.  Return on average assets was
1.38% and return on average equity was 8.56% for the 1997 period compared to the
prior period's returns of 1.76% and 10.01% respectively.

     Average assets increased 2.75% for the first quarter of 1997 from the level
during the first quarter of 1996.  At March 31, 1997 total assets were
$157,964,000.  Total stockholder's equity of the Bank was $27,284,000 at March
31, 1997, compared to $25,868,000 at March 31, 1996.

RESULTS OF OPERATIONS

     NET INTEREST INCOME.  The Bank's primary source of revenue is net interest
income.  Net interest income is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing sources of funds.
The level of net interest income is determined primarily by the volume of
interest-earning assets and various rate spreads between the interest-earning
assets and their funding sources.  Net interest income increased from $1,611,000
for the quarter ended March 31, 1996 to $1,669,000 for the quarter ended March
31, 1997.


     Average earning assets increased from $145,109,000 for the first quarter of
1996 to $147,475,000 for the first quarter of 1997.  The Bank's average earning
assets at year end 1996 was $145,125,000.  Interest income increased from
$2,886,000 for the first quarter of 1996 to

     

                                      -32-
<PAGE>
 
    

$2,911,000 for the first quarter of 1997 due primarily to a shift in the mix
of earning assets from lower yielding fed funds to higher yielding loans, along
with a slight increase in average earning assets. The Bank's net interest
margin, the ratio of net income to average earning assets, increased from 4.44%
in the first quarter of 1996 to 4.53% in the first quarter of 1997, due to a
general increase in the volume and the yields on average earning assets and the
decrease in yields paid on interest-bearing deposits.

     The Bank's net interest spread, the difference between the yields on
earning assets and the rates paid on interest-bearing liabilities was 3.44% for
the first quarter of 1997, a 14 basis point increase from the first quarter of
1996 level of 3.30%.  The spread increased primarily as a result of a relatively
stable volume and yields on earning assets and decrease in the cost of interest-
bearing liabilities.

     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>
 
                                                      Quarter Ended
                                                   March 31, 1997/1996
                                            -------------------------------
                                                      Change due to
                                            -------------------------------
                                                 (Dollars in thousands)
<S>                                             <C>      <C>      <C>
 
                                                                  Total
                                                Rate     Volume   Change
                                                -----    ------   ------
 
Interest income:
 Loans                                          $(284)     319       35
 Investment securities - taxable                  114      (90)      24
 Investment securities - nontaxable               (22)      30        8
 Federal funds and resale agreements              (17)     (25)     (42)
 
  Total interest income                          (209)     234       25
                                                -----     ----     ----
 
 
Interest expense:
Deposits other than time                          (15)      14       (1)
Time deposits                                    (206)     174      (32)
Other interest-bearing liabilities                  0        0        0
 
  Total interest expense                         (221)     188      (33)
 
Net interest income                             $  12     $ 46     $ 58
                                                =====     ====     ====
</TABLE>

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

                                      -33-
<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 quarters ended
March 31, 1997 and March 31, 1996:


<TABLE>
<CAPTION>
 
                                                             1997                              1996
                                              ---------------------------------   ------------------------------
                                                 Average     Income/     Yields/     Average     Income/ Yields/
(Dollars in thousands)                        Balances/(2)/  Expense     Rates    Balances/(2)/  Expense  Rates
                                              -------------  --------  ---------  -------------  -------  ------
<S>                                           <C>            <C>       <C>        <C>            <C>      <C>
 
ASSETS
Loans/1/                                           $ 84,655   $2,015       9.52%       $ 80,132   $1,981   9.89%
Investment securities-taxable                        39,423      592       6.01%         39,645      567   5.72%
Investment securities-nontaxable/2/                  13,781      180       5.22%         12,811      172   5.37%
Federal funds sold                                    9,616      124       5.16%         12,521      166   5.30%
Total earning assets                                147,475    2,911       7.90%        145,109    2,886   7.96%
Other assets                                          8,849                               7,036
Total assets                                       $156,324                            $152,145
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Deposits other than time                           $ 35,697   $  241       2.70%       $ 35,244   $  242   2.75%
Time deposits                                        75,691    1,001       5.29%         74,316    1,033   5.56%
Total interest-bearing deposits                     111,388    1,242       4.46%        109,560    1,275   4.65%
Other interest-bearing liabilities                        0        0          -               0        0      -
Total interest bearing liabilities                  111,388    1,242       4.46%        109,560    1,275   4.65%
Non-interest bearing liabilities                     16,800                              16,077
Other liabilities                                     1,325                               1,330
Minority interest                                         0                                   0
Stockholders' equity                                 26,811                              25,178
Total liabilities and stockholders' equity          156,324                             152,145
 
Net interest spread                                                        3.44%                           3.30%
Net interest income/margin                                    $1,669       4.53%                  $1,611   4.44%
</TABLE>

_____________________
/1/Nonaccrual loans are included in average balances,and interest on such loans
   is recognized on a cash basis.
/2/The yield on tax exempt securities is not on a tax equivalent basis for this
   schedule.

     

                                      -34-
<PAGE>

 
    
     INTEREST RATE SENSITIVITY.  The interest rate sensitivity gap is the
difference between the amount of interest-bearing assets and the amount of
interest-bearing liabilities maturing in any given time period.

                         GAP ANALYSIS AT MARCH 31, 1997
                         ------------------------------

<TABLE>
<CAPTION>
 
(Dollars in thousands)                 0-3 Months   4-12 Months   1-5 Years   Over 5 Years
                                       -----------  ------------  ----------  -------------
<S>                                    <C>          <C>           <C>         <C>
 
Loans                                     $25,181       $38,412     $18,651        $ 2,484
Investment Securities Taxable               8,454         3,586      16,934          8,527
Investment Securities Nontaxable              115           766       5,015          7,654
Fed Funds                                   6,450
 Total Rate Sensitive Assets              $40,200       $42,764     $40,600        $18,665
                                          =======       =======     =======        =======
 
Savings Deposits/(*)/                       1,102         1,102       1,102          2,204
NOW Accounts/(*)/                           3,337         3,337       3,337          6,674
Money Markets/(*)/                              -         3,474       3,474          6,948
Time Deposits Less Than $100,000           14,407        27,493       6,786              -
Time Deposits Greater Than $100,000         9,147        14,679       2,577              -
 Total Rate Sensitive Liabilities         $28,293       $50,085     $17,276        $15,826
                                          =======       =======     =======        =======
 
$ GAP                                      11,907        (7,321)     23,324          2,840
GAP % of Total Assets                           8%           -5%         15%             2%
$ Cumulative GAP                           11,907         4,586      27,911         30,750
Cumulative GAP % of Total Assets                8%            3%         18%            19%

</TABLE>

/(*)/  The assumed rate of deposit withdrawal allocates 20% of savings deposits
       and NOW account balances in each of the following maturity categories: 0-
       3 months, 4-12 months, and 1-5 years. The remaining 40% of balances are
       allocated to the over 5 year category. The gap calculation also allocates
       25% of Money Market account balances in both the 4-12 month and 1-5 year
       categories, with the remaining 50% being allocated to the over 5 year
       category. This method of allocating withdrawals is consistent with the
       Bank's historical experience.


     A primary objective of asset/liability management is to achieve stability
in net interest income throughout interest rate cycles.  Management of the Bank
reviews its interest rate exposure on a monthly basis to analyze the impact of
possible changes in market interest rates on the Bank's net income.  At March
31, 1997, the Bank's one-year repricing gap, defined as repricing assets minus
repricing liabilities as a percentage of total assets, was 3.0%.  In other
words, more of the Bank's assets than liabilities were scheduled to reprice
within a one-year time frame.  In periods of increasing rates, the Bank should
experience a positive effect on net income because its interest income on
earning-assets will increase more quickly than its cost of funds.  Conversely,
in periods of declining rates, based on its current interest sensitivity gap,
the Bank should experience decreased net income, since the interest on its
earning-assets will decrease more 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 magnitude of
repricing of interest-bearing demand, savings and money market accounts is not
as great as changes in general market rates.  These deposit categories, along
with noninterest 

     

                                      -35-
<PAGE>
 

    
bearing deposits, have historically been stable sources of funds for the Bank,
which indicates a much longer implicit maturity than their contractual
maturities. The Bank has a targeted gap range of +10% to -10% of total assets
with respect to an immediate and intermediate gap out to one year. Should the
Bank's gap not fall within the targeted range the Bank would take immediate
action to attempt to correct the problem.

     The gap is primarily managed through the mix of fed funds and longer term
investments.  If the Bank has a positive gap position outside of the specified
range the Bank would reduce investment in fed funds and redeploy to longer term
investments.  If the Bank has a negative gap position outside the range the Bank
would sell longer term investment securities and invest in fed funds.

     A significant portion of the loan portfolio consists of fixed rate loans.
The vast majority of these loans mature in a six-month to one-year time
frame.  Consequently, fixed rate loans do not significantly impact the Company
in periods of either rising or declining 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 the quarter ended March 31,
1996 was $150,000.  The provision made for the quarter ended March 31, 1997 was
$90,000.

     The Bank identified net charge-offs of $19,000 in March 1997 and $36,000 in
March 1996, to be written off as uncollectible against the reserve for possible
loan losses.  The decrease in net charge-offs from 1997 to 1996 was the effect
of a continued good local economy and the efforts of management in past years to
improve the quality of the Bank's loan portfolio.

     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 1.34% at March 31, 1997 and 1.38% at March 31, 1996.

     NONINTEREST INCOME.  Other income for the quarter ended March 31, 1997
totaled $183,000, compared to $256,000 for the quarter ended March 31, 1996 due
primarily to losses taken on repossessed property.

     NONINTEREST EXPENSES.  For the quarter ended March 31, 1997, other expenses
totalled $978,000 compared to $756,000 for the quarter ended March 31, 1996.
This was an increase of $222,000, or 29.36% from the March 31, 1996 level and
was due primarily to legal and consulting fees related to the formation of the
Company.

     

                                      -36-
<PAGE>
 
    

ANALYSIS OF FINANCIAL CONDITION

     INVESTMENT SECURITIES.  For the first quarter of 1997, average investment
securities increased minimally by $748,000 from $52,456,000 for the comparable
period in 1996, to $53,204,000. Investment securities totaled $52,202,000 for
the first quarter of 1997. Investment securities comprised 36.08% of average
earning assets at March 31, 1997, compared to 36.15% at March 31, 1996, as a
relatively higher percentage of the Bank's earning assets was deployed to loans.

     Securities classified as available for sale constituted approximately
37.15% of the total investment portfolio at March 31, 1997, compared to
approximately 34.49% at March 31, 1996.  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 $586,000 for
the first quarter of 1997 and $361,000 for the first quarter of 1996 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 loss
on these securities for the first quarter of 1997 was $83,000, compared to an
unrealized net gain for the first quarter of 1996 of $4,000.

     The Bank maintains no trading portfolio.

     Proceeds from sales and maturities of securities were $1,772,000 for the
first quarter of 1997.  There were no realized gains or losses for the first
quarter of 1996.  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:

<TABLE>
<CAPTION>
 
                                             March 31
                                         ----------------
(Dollars in thousands)                    1997     1996
                                         -------  -------
<S>                                      <C>      <C>
 
     U. S. Treasury                      $ 3,992  $ 2,500
 
     Obligations of U.S. Government:
     U. S. Agencies                          735    2,446
     Mortgage-backed                      32,595   35,315
 
     State and political subdivisions     13,730   12,914
 
     Other securities                      1,150      965
                                         -------  -------
 
       Total                             $52,202  $54,140
                                         =======  =======
</TABLE>

     

                                      -37-
<PAGE>

 
    
   MATURITY DISTRIBUTION AND INVESTMENT SECURITIES PORTFOLIO YIELDS.  The
maturities, based on contractual maturities, of debt securities at March 31,
1997 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
                             ----------------------  ------------------  ----------------  ----------------  ---------------------
(Dollars in thousands)         Amount     % Yield     Amount    % Yield  Amount   % Yield  Amount   % Yield   Amount     % Yield
                             ----------  ----------  ---------  -------  -------  -------  -------  -------  ---------  ----------
<S>                          <C>         <C>         <C>        <C>      <C>      <C>      <C>      <C>      <C>        <C>
 
U.S. Treasury                    $2,503        5.31    $ 1,489     5.96                                        $ 3,992        5.56
 
Obligation of U.S. Gov't:
U.S. Agencies                       500        5.99                      $   235     6.18                          735        6.06
Mortgaged-Backed                  1,841        7.36     15,532     6.42    4,745     6.55  $10,477     5.77     32,595        6.28
 
State and political
subdivisions                      1,031        7.10      4,922     5.29    6,777     4.87    1,000     4.99     13,730        5.20
 
Other Securities                  1,150        9.33                                                              1,150        9.33
                                 ------------------    ----------------  ----------------  ----------------    -------------------
 
Total                            $7,025        6.82    $21,943     6.13  $11,757     5.57  $11,477     5.70    $52,202        6.00
                                 ==================    ================  ================  ================    ===================
</TABLE>

     The yield on tax exempt securities are not on a tax equivalent basis for
this schedule.

     LOANS AND NONPERFORMING ASSETS.  The loan portfolio is one of the largest
components of the Bank's earning assets.  Average loans outstanding during the
first quarter of 1997 increased $4,523,000 or 5.64%, from the first quarter of
1996 level of $80,132,000.  Average loans during the first quarter of 1997 were
$84,655,000.  The increase 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 and
commercial real estate, which represent approximately 30.3% and 21.2%,
respectively, of the total portfolio as of March 31, 1997.  Commercial loans
represented approximately 18.84% of total loans at March 31, 1997.  No single
loan relationship exceeds 5% of total loans.

     Total nonperforming assets at March 31, 1997 were $2,535,000, compared to
$1,741,000 at March 31, 1996.  Other real estate owned increased to $821,000 at
March 31, 1997, compared to $323,000 as of March 31, 1996, as loans were
foreclosed and moved to other real estate owned.

     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 for the quarter ended March 31, 1996 was
approximately $16,402.  No interest income was recognized on nonaccrual loans
for the quarter ended March 31, 1997.

     

                                      -38-
<PAGE>
 
    

   SUMMARY OF NONPERFORMING ASSETS.  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.

<TABLE>
<CAPTION>
 
  
                                                       March 31
                                                  ------------------
(Dollars in thousands)                              1997      1996
                                                  ---------  -------
<S>                                               <C>        <C>
 
Nonperforming loans
   Nonaccrual loans                                 $  363   $  946
   Restructured loans                                1,351      472
                                                    ------   ------
   Total nonperforming loans                         1,714    1,418
 
Other real estate                                      821      323
                                                    ------   ------
   Total nonperforming assets                        2,535    1,741
                                                    ======   ======
 
   Loans 90 days or more past due and still
     accruing interest                                 517      925
                                                    ======   ======
 
Nonperforming loans as a % of total loans             2.01%    1.73%
 
Nonperforming assets as a % of total loans and
     other real estate                                2.95%    2.12%
 
Allowance for possible loan losses as a % of
     nonperforming loans                             66.34%   78.13%
 
Allowance for possible loan losses as a % of
     nonperforming assets                            44.25%   63.64%

</TABLE>

     In addition to the nonaccrual loans included in nonperforming assets, the
Bank had approximately $5,358,000 of performing loans that were classified as of
March 31, 1997. Classified loans are credits, identified internally by
management or through the regulatory examination process, which have a higher
degree of risk than other performing loans in the portfolio.

     

                                      -39-
<PAGE>
 
    

  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:


<TABLE>
<CAPTION>
 
                                                     March 31
                                       ------------------------------------
                                             1997               1996
                                       -----------------  -----------------
(Dollars in thousands)                 Amount   Percent   Amount   Percent
                                       -------  --------  -------  --------
<S>                                    <C>      <C>       <C>      <C>
 
Loans:
 Commercial                            $16,027    18.84%  $15,359    18.79%
 Agricultural                            8,858    10.41%    9,478    11.59%
 Real estate-residential                25,785    30.30%   25,109    30.71%
 Real estate-commercial                 18,036    21.20%   16,714    20.44%
 Consumer                               16,385    19.26%   15,093    18.46%
 Loans net of unearned income           85,091   100.00%   81,753   100.00%
 
  Total                                $85,091   100.00%  $81,753   100.00%
                                       =======   ======   =======   ======
 
Allowance for possible loan losses:
 Commercial                            $   227    20.00%  $   222    20.00%
 Agricultural                              148    13.00%      155    14.00%
 Real estate-residential                   330    29.00%      332    30.00%
 Real estate-commercial                    296    26.00%      288    26.00%
 Consumer                                  114    10.00%      100     9.00%
 General Reserve                            22     1.93%       11     1.00%
                        
  Total                                $ 1,137   100.00%  $ 1,108   100.00%
                                       =======   ======   =======   ======
</TABLE>


     

                                      -40-
<PAGE>
 
    
     LOAN MATURITY DATA.  The tables below show the amounts due on loans,
classified according to the sensitivity to the changes in fixed and floating
interest rates.
<TABLE>
<CAPTION>
 
                                                  March 31, 1997
                                         --------------------------------
                                          Due     Due After 1
                                         Within   But Within   Due After
(Dollars in thousands)                   1 Year    5 Years      5 Years      Total
                                         -------  ----------  -----------  ---------
<S>                                      <C>      <C>         <C>          <C>
 
Sensitivity of loans to changes in
interest rates:
Fixed Interest Rate:
 Commercial                              $12,029     $ 3,371       $  321    $15,721
 Agricultural                              6,646       1,863          177      8,686
 Real Estate Residential                  19,346       5,422          515     25,283
 Real Estate Commercial                   13,536       3,793          360     17,689
 Installment Loans                        12,290       3,444          327     16,061
                                         -------     -------       ------    -------
 
 Total                                   $63,847     $17,893       $1,700    $83,440
 
Floating or Adjustable Interest Rate:
 Commercial, Financial & Agricultural    $   109     $   758       $  784    $ 1,651
 Real Estate Construction
 Real Estate Mortgage
 Installment Loans
                                         -------     -------       ------    -------  
 Total                                   $   109     $   758       $  784    $ 1,651

TOTAL LOANS                              $63,956     $18,651       $2,484    $85,091
                                         =======     =======       ======    =======
 
</TABLE> 

    The loan maturity data is based upon contractual maturities, not interest 
rate repricing dates.  All these loans have fixed maturities.  The bank makes 
residential real estate loans with maturities of one year.


<TABLE> 
<CAPTION> 
 
                                                  March 31, 1997
                                         -------------------------------- 
                                         Due      Due After 1
                                         Within   But Within   Due After
(Dollars in thousands)                   1 Year    5 Years      5 Years      Total
                                         -------  ----------  -----------  ---------
<S>                                      <C>       <C>          <C>         <C>  
Sensitivity of loans to changes in
interest rates:
 
Fixed Interest rate                      $63,847     $17,893       $1,700    $83,440
Floating or adjustable interest rate         109         758          784      1,651
                                         -------     -------       ------    -------
 
 Total                                   $63,956     $18,651       $2,484    $85,091
                                         =======     =======       ======    =======
</TABLE>

     

                                      -41-
<PAGE>
 
    
  SUMMARY OF LOAN LOSS EXPERIENCE.  The loan loss experience for the periods
indicated is summarized in the following table:


<TABLE>
<CAPTION>
                                                           March 31,
(Dollars in thousands)                                  1997       1996
                                                       -------  ----------
<S>                                                    <C>      <C>
 
Balance at beginning of year                           $1,066      $  944
 
Loans charged off
   Commercial                                              (1)        (33)
   Agricultural                                            (0)         (0)
   Real estate-residential                                (10)         (0)
   Real estate-commercial                                  (0)         (0)
   Consumer                                               (21)         (8)
 
     Total charge-offs                                    (32)        (41)
 
Recoveries on loans previously charged off
   Commercial                                               2           0
   Agricultural                                             0           0
   Real estate-residential                                  1           0
   Real estate-commercial                                   0           0
   Consumer                                                10           5
     Total recoveries                                      13           5
 
Net loans charged-off                                     (19)        (36)
Additions charged to operations                            90         150
 
Balance at end of year                                 $1,137      $1,108
 
Ratio of net charge-offs (recoveries) during period
   to outstanding average loans                          0.02%       0.04%


</TABLE>


     DEPOSITS.  Total deposits at March 31, 1997 were $129,714,000, up .54% from
the level of $129,017,000 posted at March 31, 1996.

     Time certificates of deposits of $100,000 or more were $26,403,000 at March
31, 1997.  These deposits consist primarily of public fund time deposits that
are fully secured and deposits from local customers with which the Bank has
other banking relationships.  Although time deposits of $100,000 or more can
exhibit greater volatility to changes in interest rates and other factors than
do core deposits, management believes that due to the nature of the deposits of
this type, any volatility experienced could be adequately met with alternate
funding sources.  The Bank had no brokered deposits at March 31, 1997.

     

                                      -42-
<PAGE>
 
    
   DEPOSIT AVERAGE BALANCES AND RATES.  The following table indicates the
average daily amount of deposits and rates paid on such deposits for the periods
indicated:


<TABLE>
<CAPTION>
 
                                      Quarter Ending March 31,          
                                      1997                1996          
                               ------------------  ------------------   
(Dollars in thousands)          Amount     Rate     Amount     Rate     
                               --------  --------  --------  --------   
<S>                            <C>       <C>       <C>       <C>        
                                                                        
Noninterest-bearing demand     $ 16,800            $ 16,077             
Savings deposits                  5,313     2.93%     4,987     2.97%   
Interest-bearing demand          31,910     2.53%    33,637     2.44%   
Time deposits                    75,691     5.29%    74,316     5.56%   
                               --------            --------             
                                                                        
Total deposits                 $129,714            $129,017             
                               ========            ========              
</TABLE>


     MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE.  The maturities of time
deposits of $100,000 or more are summarized for March 31, 1997 in the table
below:


<TABLE>
<CAPTION>
 
(Dollars in thousands)           March 31, 1997
                                 --------------
     <S>                            <C>
 
     3 months or less                $ 9,147
     3 months to 6 months              8,997
     6 months to 12 months             5,682
     Over 12 months                    2,577
                                     -------
     Total                           $26,403
                                     =======
</TABLE>

   CAPITAL RESOURCES OF THE BANK.  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 March 31, 1997
and 1996.  The Bank exceeds all minimum capital ratios.
<TABLE>
<CAPTION>
 
                                                
                                                    Bank's  
                                                   Specific 
                                March 31           Minimum  
                          --------------------      Ratio    
(Dollars in thousands)      1997       1996     Requirements
                          ---------  ---------  -------------
<S>                       <C>        <C>        <C>
 
 Tier 1 Capital              29.29%     28.95%      4%
 Total Capital               30.51%     30.20%      8%
 Leverage Ratio              17.47%     17.30%      4%

</TABLE>

     LIQUIDITY.  Liquidity is the ability of the Bank to fund the needs of its
borrowers, depositors and creditors.  The Bank's liquidity sources, including
cash flows from sales, maturities, and paydowns of loans and investment
securities, federal funds purchased, and a base of core deposits, are considered
by management to be adequate to meet liquidity needs for normal operations.

     

                                      -43-
<PAGE>
 
    
     As shown in the accompanying March 31, 1997 statement of cash flow, cash
and cash equivalents increased by $4,748,000 during the first quarter of 1997.
Cash and cash equivalents were generated primarily by an increase in deposits of
$5,229,000. In addition, operating activities used net cash of $438,000.
Offsetting these increases were net purchases of investment securities in the
amount of $1,290,000 and a net increase in loans of $192,000.     

                                      -44-

<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.
    
                                      -45-
     
<PAGE>
 
  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.  See
"Financial Statements."      

  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
    
                                      -46-
     
<PAGE>
 
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 of
March 31, 1997, 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."
    
  The banking industry is affected by the policies of the FRB.  An important
function of the FRB is to regulate the national supply of bank credit to
moderate recessions and to curb inflation.  Among the instruments of monetary
policy used by the FRB to implement its objectives are:  open-market operations
in U.S. Government securities, changes in the discount rate on bank borrowings
and changes in reserve requirements on bank deposits.      

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 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
    
                                      -47-
     
<PAGE>
 
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 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.
    
  CONSEQUENCE OF INCREASED INTERSTATE ACTIVITY.  Because of the increasing
liberalization of the laws and regulations affecting the conduct of interstate
banking activities, it is anticipated that competition in the Bank's
geographical market area will increase.  If large, regional bank holding
companies acquire branches in the Bank's market area, they may offer a wider
range of services than are currently offered by the Bank.  In addition, some of
these competitors may be more highly capitalized than the Bank and the Company.
     
  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 March 31, 1997 and (ii) the
proposed directors and executive officers of the Company upon consummation of
the Reorganization:      
    
                                      -48-
     
<PAGE>
 
<TABLE>
<CAPTION>
 
                                          Position(s) with the Company   
             Name               Age               and the Bank           
------------------------------  ---       ----------------------------   
<S>                             <C>       <C>                            
                                                                         
William W. Anderson              50              Vice President                 
Anna M. Berryhill                67                 Director             
Richard Frazier                  47              Vice President                 
Buddy R. Montgomery              55           Director and President         
Larry Russell                    54          Director, Executive Vice 
                                              President and Secretary 
Michael Simon                    49                 Director             
Charles D. Thomas                60                 Director             
J. Lowell Whitworth              82                 Director             
</TABLE>
     
    
          It is expected that the individuals listed above as directors of the
Bank 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.      

          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 Company is set forth below.      
    
          William W. 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.

         
    
          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 for 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.
    
                                      -49-
     
<PAGE>
 
          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 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
currently serves on three Board Committees, the Executive Committee, the Loan
Review Committee and the Audit Committee.  He is Chairman of the Audit
Committee.  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  $112,400.00   $9,016.00        0                N/A        0         0         $10,672.00
 President & CEO      1995   105,200.00      600.00        0                N/A        0         0          10,614.00
                      1994    98,856.00      600.00        0                N/A        0         0          11,426.00
                                                                                                     
Larry Russell,        1996  $105,016.00   $8,462.00        0                N/A        0         0         $ 9,974.00
 Executive Vice       1995    98,280.00      600.00        0                N/A        0         0           9,919.00
 President            1994    92,484.00      600.00        0                N/A        0         0          11,062.00
</TABLE>     
     
-------------------------
    
/(1)/  These amounts represent the Bank's estimated annual contribution on
behalf of 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 agreements with
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      
    
                                      -50-
     
<PAGE>
 
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.  See
"Recent Developments."      

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.

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, judgment, amount paid in settlement,
issue, fine, matter, or attorneys' fee 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      
    
                                      -51-
    

<PAGE>
 
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.

          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.


             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 March 31, 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 executive officers and 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>
 
Pontotoc Bancshares Corp./(1)/             6,557           19.87%

William W. Anderson                                  
1737 Clark Street                            100               *
Pontotoc, Mississippi  38863                         

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

Richard Frazier                                0               *
302 South Main Street                                
Pontotoc, Mississippi  38863                         
</TABLE> 
         
                                      -52-
     
<PAGE>
 
<TABLE> 
<CAPTION> 

                                    Number of Shares
                                      Beneficially    Percentage
Name and Address                         Owned         Ownership
----------------                         -----         --------- 
<S>                                      <C>             <C>
Buddy R. Montgomery/(2)/                     195               *
380 Northridge Drive                                 
Pontotoc, Mississippi  38863                         

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

Michael Simon/(3)/                         1,553            4.71%
P. O. Box 239                                        
Pontotoc, Mississippi  38863                         

Charles D. Thomas                            386            1.17%
2507 Highway 6 East                                  
Pontotoc, Mississippi  38863                         

J. Lowell Whitworth                          734            2.22%
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 (8 persons)                    14,880           45.09%

</TABLE>
     

         

_________________________

/*/ Less than one (1%) percent.

/(1)/ See "Recent Developments."
    
/(2)/ Does not include 6,557 shares owned by the Company which are
beneficially owned by Mr. Montgomery as the sole shareholder of the Company.
     

         
    
/(3)/ Of the shares shown, 291 shares are held of record by Simon, Inc., of
which Mr. Simon is the President and majority shareholder, and 112 shares are
held of record by members of Mr. Simon's immediate family.      


                                 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
    
                                      -53-
     
<PAGE>
 
"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.
    
                                      -54-
     
<PAGE>
 
    
                              FIRST NATIONAL BANK
                                        
                             Pontotoc, Mississippi

                               December 31, 1996
     
<PAGE>
 
                                    -ooOoo-

                                    CONTENTS
 
                                                                  PAGE
INDEPENDENT AUDITOR'S REPORT....................................  F-3

 
FINANCIAL STATEMENTS OF FIRST NATIONAL BANK:
 
  BALANCE SHEETS................................................  F-4
  STATEMENTS OF INCOME..........................................  F-5
  STATEMENTS OF STOCKHOLDERS' EQUITY............................  F-6
  STATEMENTS OF CASH FLOWS......................................  F-7
  NOTES TO FINANCIAL STATEMENTS.................................  F-8
 
 
REPORT ON ADDITIONAL INFORMATION................................ F-20
 
PRO FORMA FINANCIAL STATEMENTS OF PONTOTOC BANCSHARES
  CORP:
 
  PRO FORMA CONSOLIDATING BALANCE SHEET......................... F-21
  PRO FORMA CONSOLIDATING INCOME STATEMENT...................... F-22
  NOTES TO PRO FORMA FINANCIAL STATEMENTS....................... F-23

                                    -ooOoo-

     
<PAGE>
 
    
                          INDEPENDENT AUDITOR'S REPORT
                                        


To the Shareholders and Directors
First National Bank
Pontotoc, Mississippi

          We have audited the accompanying balance sheets of the First National
Bank as of December 31, 1996 and 1995 and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

          We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits of the financial statements provide a
reasonable basis for our opinion.

          In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of the First National
Bank as of December 31, 1996 and 1995, and the results of operations and cash
flows for the years  then ended, in conformity with generally accepted
accounting principles.


/s/ NAIL MCKINNY PA


New Albany, Mississippi
April 9, 1997

     

                                      F-3
<PAGE>
 
    
                                BALANCE SHEETS
                              FIRST NATIONAL BANK
                          December 31, 1996 and 1995
<TABLE>
<CAPTION>
 
 
                                                                                 1996      1995
                                                                               --------  --------
ASSETS                                                                           (in thousands)
<S>                                                                            <C>       <C>
  Cash and due from banks                                                      $  4,683  $  3,811
  Investment securities - available-for-sale (at market value)                   17,053    18,812
  Investment securities - held-to-maturity (at cost)                             34,013    33,052
  Federal funds sold                                                              8,000     7,100
  Loans receivable, net of allowance for loan losses
    of $1,066 in 1996 and $994 in 1995                                           83,668    79,453
  Premises and equipment, net                                                     1,675     1,202
  Intangibles                                                                       432       467
  Deferred tax asset                                                                552       489
  Other assets                                                                    3,213     2,720
                                                                               --------  --------
      Total assets                                                             $153,289  $147,106
                                                                               ========  ========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
    Non-interest bearing                                                       $ 16,691  $ 15,589
    Interest bearing                                                            107,794   105,395
                                                                               --------  --------
      Total deposits                                                            124,485   120,984
  Accrued interest and other liabilities                                          1,993       999
                                                                               --------  --------
      Total liabilities                                                         126,478   121,983
                                                                               --------  --------

  Stockholders' equity:
    Common stock $10 par value,
      33,000 shares authorized and issued                                           330       330
    Surplus                                                                      21,000    21,000
    Undivided profits                                                             5,783     4,093
    Unrealized loss on securities available-for-sale                               (302)     (300)
                                                                               --------  --------
      Total stockholders' equity                                                 26,811    25,123
                                                                               --------  --------
        Total liabilities and stockholders' equity                             $153,289  $147,106
                                                                               ========  ========
 
</TABLE>



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

     

                                      F-4
<PAGE>
 
    
                             STATEMENTS OF INCOME
                              FIRST NATIONAL BANK
                    YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
 
                                                                      1996               1995
                                                                    --------           --------
INTEREST REVENUE                                             (in thousands except per share amounts)
<S>                                                                <C>                  <C>
  Interest and fees on loans                                         $ 8,167             $ 7,289
  Interest on investment securities                                    3,058               3,182
  Interest on federal funds sold                                         456                 179
                                                                     -------             -------
      Total interest revenue                                          11,681              10,650
                                                                     -------             -------
INTEREST EXPENSE
  Interest on deposits                                                 4,962               4,538
  Other interest                                                           -                  11
                                                                     -------             -------
      Total interest expense                                           4,962               4,549
                                                                     -------             -------
 
  Net interest revenue                                                 6,719               6,101
  Provision for loan losses                                             (420)               (714)
                                                                     -------             -------
      Net interest revenue after
        provision for loan losses                                      6,299               5,387
                                                                     -------             -------
OTHER REVENUE
  Service fees                                                         1,005               1,060
  Other                                                                   95                  20
  Loss from sale of investment securities, other real
      estate, and other foreclosed assets                               (180)               (112)
                                                                     -------             -------
                                                                         920                 968
                                                                     -------             -------
OTHER EXPENSE
  Salaries and employee benefits                                       1,782               1,667
  Occupancy expense, net of rental
    income                                                               316                 308
  Other expenses                                                       1,296               1,067
                                                                     -------             -------
      Total other expense                                              3,394               3,042
                                                                     -------             -------
        Income before income taxes                                     3,825               3,313
  Provision for income taxes                                           1,146                 873
                                                                     -------             -------
          Net income                                                 $ 2,679             $ 2,440
                                                                     =======             =======
  Earnings per share                                                 $ 81.19             $ 73.95
                                                                     =======             =======
 
</TABLE>


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

     
                                      F-5
<PAGE>
 
    
                      STATEMENTS OF STOCKHOLDERS' EQUITY
                              FIRST NATIONAL BANK
                    YEARS ENDED DECEMBER 31, 1996 AND 1995


                                
<TABLE>
<CAPTION>
                                                                  
                                                                   UNREALIZED
                                  COMMON                           GAIN (LOSS)
                                  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                                                2,440                  2,440
 
  Cash dividend
    $16 per share                                            (528)                  (528)
 
  Unrealized gain (loss)
    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
 
  Net income                                                2,679                  2,679
 
  Cash dividend
    $30 per share                                            (989)                  (989)
 
  Unrealized gain (loss)
    on marketable
    equity securities                                                      (2)        (2)
                            ------   --------  -------   --------    --------   --------

Balance, December 31,
   1996                         33   $    330  $21,000   $  5,783    $   (302)  $ 26,811
                            ======   ========  =======   ========    ========   ========
</TABLE> 
    


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

     

                                      F-6
<PAGE>
 
        

                           STATEMENTS OF CASH FLOWS
                              FIRST NATIONAL BANK
                    YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
 
                                                                                                 1996          1995
                                                                                               ---------     --------
OPERATING ACTIVITIES                                                                               (in thousands)
<S>                                                                                            <C>       <C>           <C>
 Net income                                                                                    $  2,679      $  2,440
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                                                                    188           225
   Provision for loan losses                                                                        420           714
   Provision for deferred income taxes                                                              (27)          119
   Loss on sale of securities, other real
    estate, and other foreclosed assets                                                             180           112
   Increase in interest receivable and other assets                                                 (26)         (889)
   Increase (decrease) in interest payable and other liabilities                                    (36)           60
                                                                                               --------      --------
    Net cash provided by operating
     activities                                                                                   3,378         2,781
                                                                                               --------      --------
 
INVESTING ACTIVITIES
 Purchases of held-to-maturity securities                                                        (8,208)      (22,179)
 Purchases of available-for-sale securities                                                      (4,982)       (2,506)
 Proceeds from maturities and calls of
  held-to-maturity securities                                                                     7,247        11,798
 Proceeds from dispositions of
  available-for-sale securities                                                                   6,746        16,236
 Net increase in loans                                                                           (4,635)       (9,547)
 Net (increase) decrease in federal funds sold                                                     (900)       (5,750)
 Purchases of premises and equipment                                                               (626)          (75)
 Net (increase) decrease in other real estate                                                      (649)         (190)
                                                                                               --------      --------
    Net cash used in investing activities                                                        (6,007)      (12,213)
                                                                                               --------      --------
FINANCING ACTIVITIES
 Net increase in deposits                                                                         3,501         9,793
 Cash dividends paid                                                                                  -          (528)
                                                                                               --------      --------
    Net cash provided by financing
     activities                                                                                   3,501         9,265
                                                                                               --------      -------- 
Increase (decrease) in cash and due from banks                                                      872          (167)
Cash and due from banks at beginning of year                                                      3,811         3,978
                                                                                               --------      --------
Cash and due from banks at end of year                                                         $  4,683      $  3,811
                                                                                               ========      ========
SUPPLEMENTAL CASH FLOWS INFORMATION
 Interest paid                                                                                 $  5,013      $  3,734
                                                                                               ========      ======== 
 Income taxes paid                                                                             $  1,203      $    765
                                                                                               ========      ======== 

</TABLE> 
     



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

     
                                      F-7
<PAGE>
 
    
                         NOTES TO FINANCIAL STATEMENTS
                              FIRST NATIONAL BANK
                           DECEMBER 31, 1996 AND 1995

                                        
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-8
<PAGE>
 
    
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        

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

       Investment Securities
       ---------------------
    
          Securities Held-to-Maturity:  Bonds, notes, and debentures for which
          ---------------------------
          the Bank 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:  Available-for-sale securities consist
          -----------------------------
          of bonds, notes,  debentures, and certain equity securities not
          classified as trading securities nor as held-to-maturity securities.
          Unrealized holding gains and losses, net of tax, on available-for-sale
          securities are reported as a net amount in a separate component of
          shareholders' equity until realized.  Gains and losses on the sale of
          available-for-sale securities 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.  The related write-downs
          have been included in earnings as realized losses.  Premiums and
          discounts are recognized in interest income using methods
          approximating the interest method over the period to maturity.     

       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.  Management's periodic
       evaluation of the adequacy of the allowance is based on the Bank's past
       loan experience, known and inherent risks in the portfolio, adverse
       situations that may effect the borrower's ability to repay, the estimated
       value of any underlying collateral, and current economic conditions.
       Accrual of interest is discontinued on a loan when management believes,
       after considering economic and business conditions and collection
       efforts, that the borrower's financial condition is such that collection
       of interest is doubtful.

          In connection with management's evaluation of impairment of loans in
       conformity with SFAS No. 114 and SFAS No. 118, management aggregates
       smaller-balance homogeneous loans into large groups in order to
       collectively evaluate those groups for impairment.  Aggregated loans
       include residential mortgage, consumer loans, and commercial loans with
       balances less than $50,000.

          The major risk classifications used to aggregate loans for application
       of SFAS No. 114 are as follows:

          a.   Unsecured commercial loans                       
          b.   Secured commercial loans                         
          c.   Unsecured consumer loans                         
          d.   Consumer loans secured by other than real estate 
          e.   Consumer loans secured by residential real estate 
 
     
 
                                      F-9
<PAGE>
 
    
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)
 
          Non-accrual loans are loans that are 90 days or more past due, but it
       is probable that the Company will collect amounts due according to the
       contractual terms of the loan agreement. A loan is impaired when, based
       on current information and events, it is probable that the Company will
       be unable to collect all amounts due according to the contractual terms
       of the loan agreement. The Company applies its normal loan review
       procedures in making that judgment. An insignificant delay is considered
       to be 60 days or less.

          Impaired loans, as defined above, are charged off to the extent that
       management believes that it is probable that the Company will not collect
       amounts due under the terms of the contract, either upon restructure of
       the debt, or upon liquidation of the collateral. Any amount due the
       Company after action has been taken to liquidate collateral, where
       applicable, is charged off after such liquidation. Loan impairments are
       based upon the present value of the expected future cash flows,
       discounted at the loan's effective interest rate, and the impact of SFAS
       No. 114 does not have a significant effect on the comparability of credit
       risk tables.

       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
       estimated 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.

       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 sheet for 1996 is $490,000 and
       $640,000 of Federal Home Loan Bank and Federal Reserve stock,
       respectively, carried at cost.  The aggregate cost of these investments
       at December 31, 1995 amounted to $959,000.  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.

     

                                      F-10
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (CONTINUED)

       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 these 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:

          Fair values of loans in the portfolio are estimated by discounting the
       future cash flows, using current rates at which similar loans would be
       made to borrowers with similar credit ratings and for the same remaining
       maturities.  Fair values for impaired loans are estimated using
       underlying collateral values, where applicable.

       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 .

       Accrued interest:

          The carrying amounts of accrued interest approximates their fair
       values.

                                        
     


                                      F-11
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 2.  INVESTMENT SECURITIES

          Amortized cost and approximate market values of investment securities
       are summarized as follows:

          Securities available-for-sale consist of the following:

<TABLE> 
<CAPTION> 

                                                        1996
                                       --------------------------------------
                                                  GROSS UNREALIZED
                                       --------------------------------------
                                       AMORTIZED   (IN THOUSANDS)     FAIR
                                          COST     GAINS   LOSSES     VALUE
                                       ---------   ------  ------    --------
<S>                                     <C>        <C>      <C>      <C> 
          U.S. Treasury Securities      $  2,240   $   20   $   3    $  2,257
          Obligations of other U.S.
           Government Agencies               750        1      10         741
          Obligations of state and
           political subdivisions              -        -       -           -
          Mortgage-backed securities      13,414        -     489      12,925
          Other securities                 1,130        -       -       1,130
                                        --------   ------   -----    --------
                                        $ 17,534   $   21   $ 502    $ 17,053
                                        ========   ======   =====    ========



                                                        1995
                                       --------------------------------------
                                                  GROSS UNREALIZED
                                       --------------------------------------
                                       AMORTIZED   (IN THOUSANDS)     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 state and
           political subdivisions              -        -       -           -
          Mortgage-backed securities      13,624              467      13,157
          Other securities                   960        -       -         960
                                        --------   ------   -----    --------
                                        $ 19,289   $    -   $ 477    $ 18,812
                                        ========   ======   =====    ========
</TABLE> 

          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 SFAS No. 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-12
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)

          Securities held-to-maturity consist of the following:

    
<TABLE> 
<CAPTION> 
                                                        1996
                                       --------------------------------------
                                                  GROSS UNREALIZED
                                       --------------------------------------
                                                   (IN THOUSANDS)
                                       AMORTIZED                      FAIR
                                          COST     GAINS   LOSSES     VALUE
                                       ---------   ------  ------    --------
<S>                                     <C>        <C>      <C>      <C> 
          Obligations of state and
           political subdivisions       $ 14,056   $  216   $  69    $ 14,203
          Mortgage-backed securities      19,957       24      60      19,921
                                        --------   ------   -----    --------
                                        $ 34,013   $  240   $ 129    $ 34,124
                                        ========   ======   =====    ========



                                                        1995
                                       --------------------------------------
                                                  GROSS UNREALIZED
                                       --------------------------------------
                                       AMORTIZED   (IN THOUSANDS)     FAIR
                                          COST     GAINS   LOSSES     VALUE
                                       ---------   ------  ------    --------

          Obligations of other U.S.
           Government Agencies          $  1,006   $   12   $   -    $  1,018
          Obligations of state and
           political subdivisions         12,812      122       -      12,934
          Mortgage-backed securities      19,234        -      51      19,183
                                        --------   ------   -----    --------
                                        $ 33,052   $  134   $  51    $ 33,135
                                        ========   ======   =====    ========
</TABLE> 
     

          Gross realized gains and gross realized losses on sales of available-
       for-sale securities were approximately $0 and $2,000, respectively, in
       1996 and $171,000 and $283,000, respectively, in 1995.  All dispositions
       of held-to-maturity securities were the result of calls or maturities of
       the respective securities.

          The amortized cost and estimated market value of investment securities
       at December 31, 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.

     

                                      F-13
<PAGE>
 
    
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)
    
<TABLE> 
<CAPTION> 

                                                 (in thousands)
                                       --------------------------------------
                                        HELD-TO-MATURITY   AVAILABLE-FOR-SALE
                                       ------------------- -------------------
                                       AMORTIZED    FAIR   AMORTIZED   FAIR
          Amounts maturing in:            COST      VALUE    COST      VALUE
                                       ---------   ------- ---------  --------
<S>                                     <C>        <C>      <C>      <C> 
          One year or less              $  3,020   $ 3,027   $ 1,883  $  1,883
          After one year through   
           five years                     25,386    25,454     4,408     4,405
          After five years through
           ten years                       4,607     4,653       250       240
          After ten years                  1,000       990    10,993    10,525
                                        --------   -------   -------  --------
                                        $ 34,013   $34,124   $17,534  $ 17,053
                                        ========   =======   =======  ========
</TABLE> 
     

          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 contractual maturities of
       underlying collateral.  The mortgage-backed securities may mature earlier
       than their weighted-average contractual maturities because of principal
       prepayments.

          Assets, principally securities, carried at approximately $19,627,000
       at December 31, 1996 and $14,388,000 at December 31, 1995, were pledged
       to secure public deposits and for other purposes required or permitted by
       law.

NOTE 3.  LOANS

       The components of loans included in the balance sheets are as follows:

    
<TABLE> 
<CAPTION> 

                                          1996       1995
                                        --------   ---------
                                           (in thousands)
<S>                                     <C>        <C> 
       Commercial                       $ 18,184   $  14,806
       Agricultural                        4,134       5,516
       Real estate:
         Residential                      36,561      24,603
         Commercial                       11,500      21,615
       Consumer Installment               15,241      15,056
       Unearned interest                    (886)     (1,149)
                                        --------    --------
                                          84,734      80,447
       Allowance for loan losses          (1,066)       (994)
                                        --------    --------
         Loans, net                     $ 83,668    $ 79,453
                                        ========    ========
</TABLE>      

     
                                      F-14
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 3.  LOANS-(CONTINUED)

       Changes in the allowance for loan losses were as follows:

<TABLE> 
<CAPTION> 

                                          1996       1995
                                        --------   ---------
                                           (in thousands)
<S>                                     <C>        <C> 
       Balance, beginning of year       $    994   $   1,217

       Provision charged to operations       420         714
       Loans charged off                    (452)     (1,124)
       Recoveries                            104         187
                                        --------    --------
       Balance, end of year             $  1,066    $    994
                                        ========    ========
</TABLE> 

    
          Impairment of loans having recorded investments of $700,000 at 
       December 31, 1996 and $916,000 at December 31, 1995 has been recognized
       in conformity with FASB statement 114 as amended by FASB statement 118.
     

          The average investment in impaired loans for the years ending December
       31, 1996 and 1995 amounted to $808,000 and $945,000, respectively.
       Interest income recognized on these loans amounted to $42,000 and $39,000
       for December 31, 1996 and 1995, respectively.  The total allowance for
       loan losses related to these loans was $203,000 on December 31, 1996, and
       $198,000 on December 31, 1995.

          Loans having carrying values of $800,000 and $336,000 were transferred
       to foreclosed real estate in 1996 and 1995, respectively.

NOTE 4.  BANK PREMISES AND EQUIPMENT

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

<TABLE> 
<CAPTION> 

                                          1996       1995
                                        --------   ---------
                                           (in thousands)
<S>                                     <C>        <C> 
       Bank premises                    $  1,203   $   1,203
       Furniture, fixtures, and            
        equipment                          2,021       1,620
                                        --------   ---------
                                           3,224       2,823

       Less: Accumulated depreciation     
        and amortization                   1,774       1,621
                                        --------    --------
                                           1,450       1,202
       Add: Construction in progress         225           - 
                                        --------    --------
                                        $  1,675    $  1,202
                                        ========    ========
</TABLE> 


          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 1996 and 1995.


     

                                      F-15
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 5.  DEPOSITS

          Total deposits consisted of the following at December 31:

<TABLE> 
<CAPTION> 

                                          1996       1995
                                        --------   ---------
                                           (in thousands)
<S>                                     <C>        <C> 
       Demand                           $ 16,982   $  15,590
       Savings                            19,515      19,335
       NOW                                13,772      12,774
       Certificates of deposit less       
        than $100,000                     49,452      47,419
       Certificates of deposit more
        than $100,000                     24,764      25,866
                                        --------    --------
       Total deposits                   $124,485    $120,984
                                        ========    ========


          At December 31, 1996, the scheduled maturities of CDs are as follows:

                Year ending December 31,

                                          1997    $ 66,732
                                          1998       5,953
                                          1999         933
                                          2000         360
                                          2001         238
                                                  --------
                                                  $ 74,216
                                                  ========



NOTE 6.   INCOME TAXES

         The provision for income taxes consisted of the following:


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

       Current                          $  1,172   $     754
       Deferred                              (26)        119
                                        --------    --------

       Total tax provision              $  1,146    $    873
                                        ========    ========
</TABLE> 

     
                                      F-16
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 6.   INCOME TAXES-(CONTINUED)

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

<TABLE> 
<CAPTION> 

                                                          1996       1995      
                                                        --------   ---------  
                                                           (in thousands)     
<S>                                                     <C>        <C>        
       Expected tax provision at a 37.3% rate           $  1,427   $   1,235  
       Effect of tax-exempt income                          (300)       (406) 
       Other, net                                             19          44  
                                                        --------    --------  
                                                        $  1,146    $    873  
                                                        ========    ========   
</TABLE> 

          The temporary differences which give rise to significant portions of
       deferred tax assets and liabilities are as follows:

<TABLE> 
<CAPTION> 

                                                          1996       1995      
                                                        --------   ---------  
                                                           (in thousands)     
<S>                                                     <C>        <C>        
       Deferred tax assets:
        Allowance for loan losses                       $    398   $     370  
        Unrealized losses on securities                      180         179  
        Other                                                 47           3  
                                                        --------    --------
            Total deferred tax assets                        625         552
                                                        --------    --------

       Deferred tax liabilities:
        Premises and equipment                                73          63
                                                        --------    --------
                                                              73          63
                                                        --------    --------

            Net deferred tax assets                     $    552    $    489  
                                                        ========    ========   
</TABLE> 


          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 performance in prior years and the
       likelihood of future taxable income, these assets are more likely than
       not to be realized.

NOTE 7.  RELATED PARTY TRANSACTIONS

          The Bank makes loans to its officers and directors as well as other
       related parties.  Loans to directors require the approval of the Board of
       Directors with the interested party abstaining from voting.  Loans to
       related parties amounted to approximately $185,000 and $244,000 at
       December 31, 1996 and 1995, respectively.  During 1996, new loans to such
       related parties amounted to $31,000 and repayments amounted to $90,000.

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
       $160,000 and $125,000 in 1996 and 1995, respectively.

     
                                      F-17
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
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, 1996, the Bank had outstanding standby
       letters of credit of  approximately $1,258,000 and commitments to extend
       credit under outstanding lines of credit of  approximately $6,742,000.
       These commitments are collateralized in accordance with the Bank's
       lending policy.

NOTE 10.  DUE FROM BANKS

          The Company had funds on deposit with other banks at December 31, 1996
       totaling $2,385,000 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:

<TABLE> 
<CAPTION> 
                                             
                                                1996               1995
                                       ------------------- -------------------
                                        CARRYING    FAIR    CARRYING   FAIR
                                         AMOUNT     VALUE    AMOUNT    VALUE
                                       ---------   ------- ---------  --------
                                                     (in thousands)
<S>                                     <C>        <C>      <C>      <C> 
          Financial assets:
           Cash, due from banks         $  4,684   $  4,684  $  3,811 $  3,811
           Securities available-   
            for-sale                      17,053     17,053    18,812   18,812
           Securities held-to-    
            maturity                      34,013     34,124    33,052   33,135
           Federal funds sold              8,000      8,000     7,100    7,100
           Net loans                      83,668     84,098    79,453   79,453

          Financial liabilities:
           Deposits                      124,485    125,220   120,984  120,984
           Accrued interest and
            other liabilities              1,993      1,993       999      999

</TABLE> 


NOTE 12.  REGULATORY MATTERS

          The Bank is subject to various regulatory capital requirements imposed
       by the federal banking agencies. Failure to meet minimum capital
       requirements can initiate certain mandatory - and possibly additional
       discretionary - actions by regulators that, if undertaken, could have a
       direct material effect on the Bank's financial statements.  Under capital
       adequacy guidelines and the regulatory framework for prompt corrective
       action, the Bank must meet specific capital guidelines that involve
       quantitative measures of the Bank's assets, liabilities, and certain off-
       balance-sheet items as calculated under regulatory accounting practices.
       The Bank's capital amounts and classification are also subject to
       qualitative judgments by the regulators about components, risk
       weightings, and other factors.

     
                                      F-18
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
NOTE 12. REGULATORY MATTERS - (CONTINUED)

          Quantitative measures established by regulation to ensure capital
       adequacy require the Bank to maintain minimum amounts and ratios (set
       forth in the table below) of total and Tier I capital (as defined in the
       regulations) to risk-weighted assets (as defined), and of Tier I capital
       (as defined) to average assets (as defined).  Management believes, as of
       December 31, 1996, that the Bank meets all capital adequacy requirements
       to which it is subject.

          As of December 31, 1996, the most recent notification from the Bank's
       primary regulator categorized the Bank as well capitalized under the
       framework for prompt corrective action.  To be categorized as well
       capitalized the Bank must maintain minimum total risk-based, Tier I risk-
       based, and Tier I leverage ratios set forth in the table.  There are no
       conditions or events since the notification that management believes have
       changed the Bank's category.

<TABLE> 
<CAPTION> 


                                                                                  TO BE WELL
                                                                              CAPITALIZED UNDER
                                                              FOR CAPITAL     PROMPT CORRECTIVE
                                              ACTUAL       ADEQUACY PURPOSES  ACTION PROVISIONS
                                        -----------------  -----------------  ------------------
                                         AMOUNT    RATIO    AMOUNT    RATIO    AMOUNT     RATIO
                                        --------  -------  --------  -------  --------   -------
<S>                                     <C>       <C>      <C>       <C>      <C>        <C> 
          As of December 31, 1996
           Total Capital                $ 27,747    30.1%  $  7,379     8.0%   $ 9,211      * 10%
           (to Risk-Weighted Assets)

          Tier I Capital
           (to Risk-Weighted Assets)    $ 26,681    29.0%  $  3,684     4.0%   $ 5,527      *6.0%

          Tier I Capital
           (to Average Assets)          $ 26,681    17.6%  $  6,073     4.0%   $ 7,592      *5.0%
</TABLE> 
------------------
* Greater than

NOTE 13. SUBSEQUENT EVENTS

          Subsequent to December 31, 1996, a bank holding company, Pontotoc
       BancShares Corp., was formed for the purpose of purchasing approximately
       twenty percent of the outstanding shares of First National Bank stock and
       exchanging its common shares for the remaining outstanding common shares
       of the Bank.  The purchase was financed through issuance of long-term
       debt from an unrelated financial institution amounting to $6,400,000.
       Incorporated in the loan agreement is a provision that restricts future
       dividend payouts to forty percent of net income.

          Expected additional capital outlays related to the construction of a
       branch bank amount to approximately $1,000,000 at December 31, 1996.

     

                                      F-19
<PAGE>
 
    

                          INDEPENDENT AUDITOR'S REPORT
                           ON ADDITIONAL INFORMATION
                                        
To the Shareholders and Directors
 of Pontotoc BancShares Corp.
Pontotoc, Mississippi

     Our report on our audit of the basic financial statements of First National
Bank for 1996 and 1995 appears on page F-3.  Those audits were conducted for the
purpose of forming an opinion on the basic financial statements taken as a
whole.  The pro forma balance sheet and pro forma income statement of Pontotoc
BancShares Corp. and accompanying notes on pages F-21 through F-24 are presented
for purposes of additional analysis and are not a required part of the basic
financial statements.  Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on it.


/s/ NAIL MCKINNY PA

New Albany, Mississippi
April 9, 1997

     

                                      F-20
<PAGE>
 
    

                     PRO FORMA CONSOLIDATING BALANCE SHEET
                           PONTOTOC BANCSHARES CORP.
                               December 31, 1996
    
<TABLE> 
<CAPTION> 

                                                                                                                   UNAUDITED
                                                                                                          --------------------------

                                                                                                                          PRO FORMA
                                                                                                 FIRST          *       CONSOLIDATED
                                                                                               NATIONAL     PRO FORMA      BALANCE
                                                                                                 BANK      ADJUSTMENTS      SHEET
                                                                                              ----------   -----------  ------------

ASSETS                                                                                                     (in thousands)
<S>                                                                                           <C>          <C>          <C> 
 Cash and due from banks                                                                       $  4,683             -      $  4,683
 Investment securities - available-for-sale (at market value)                                    17,053             -        17,053
 Investment securities - held-to-maturity (at cost)                                              34,013             -        34,013
 Federal funds sold                                                                               8,000             -         8,000
 Loans receivable, net of allowance for loan losses
  of $1,066 in 1996                                                                              83,668             -        83,668
 Premises and equipment, net                                                                      1,675             -         1,675
 Intangibles (Note A)                                                                               432         1,029         1,461
 Deferred tax asset                                                                                 552             -           552
 Other assets                                                                                     3,213             -         3,213
                                                                                               --------      --------      --------
   Total assets                                                                                $153,289      $  1,029      $154,318
                                                                                               ========      ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY
 Deposits:
  Non-interest bearing                                                                         $ 16,691             -      $ 16,691
  Interest bearing                                                                              107,794             -       107,794
                                                                                               --------      --------      --------
   Total deposits                                                                               124,485             -       124,485
 Accrued interest and other liabilities                                                           1,993             -         1,993
 Long term debt (Note B)                                                                              -         6,356         6,356
                                                                                               --------      --------      --------
   Total liabilities                                                                            126,478         6,356       132,834
                                                                                               --------      --------      --------
 Stockholders' equity:
  Common stock $10 par value,
   33,000 shares authorized and issued (Note C)                                                     330          (330)            -
  Common stock no par value ($1 stated value), 3,000,000
   shares authorized, 264,430 shares issued (Note C)                                                              264           264
  Paid in capital (Note C)                                                                                     21,522        21,522
  Surplus (Note C)                                                                               21,000       (21,000)            -
  Undivided profits (Note C)                                                                      5,783        (5,783)            -
  Unrealized loss on securities available-for-sale (Note C)                                        (302)            -          (302)

                                                                                               --------      --------      --------
   Total stockholders' equity                                                                    26,811        (5,327)       21,484
                                                                                               --------      --------      --------
    Total liabilities and stockholders' equity                                                 $153,289      $  1,029      $154,318
                                                                                               ========      ========      ========
</TABLE> 
     

________________________________________________
The Notes to Pro Forma Financial Statements are
an integral part of these statements.
    
* The only significant activity of Pontotoc BancShares Corporation has been the
  purchase of Bank shares, the result of which is reflected in the Pro Forma
  adjustments; therefore, separate holding company financial statements have not
  been presented.     

     
                                     F-21
<PAGE>
 
     
    
                   PRO FORMA CONSOLIDATING INCOME STATEMENT
                           PONTOTOC BANCSHARES CORP.
                               December 31, 1996

<TABLE> 
<CAPTION> 

                                                                                                                   UNAUDITED
                                                                                                          --------------------------

                                                                                                                          PRO FORMA
                                                                                                 FIRST          *       CONSOLIDATED
                                                                                               NATIONAL     PRO FORMA      INCOME   
                                                                                                 BANK      ADJUSTMENTS    STATEMENT
                                                                                              ----------   -----------  ------------
<S>                                                                                           <C>          <C>          <C> 
INTEREST INCOME                                                                                (in thousands except per share data)
 Interest and fees on loans                                                                    $  8,167             -      $  8,167
 Interest on investment securities                                                                3,058             -         3,058
 Interest on federal funds sold                                                                     456             -           456
                                                                                               --------      --------      --------
   Total interest income                                                                         11,681             -        11,681
                                                                                               --------      --------      --------
INTEREST EXPENSE
 Interest on deposits                                                                             4,962             -         4,962
 Other interest (Note B)                                                                              -           525           525
                                                                                               --------      --------      --------
   Total interest expense                                                                         4,962           525         5,487
                                                                                               --------      --------      --------
 Net interest income                                                                              6,719          (525)        6,194
 Provision for loan losses                                                                         (420)            -          (420)
                                                                                               --------      --------      --------
   Net interest income after
    provision for loan losses                                                                     6,299          (525)        5,774
                                                                                               --------      --------      --------
OTHER INCOME
 Service fees                                                                                     1,005             -         1,005
 Other                                                                                               95             -            95
 Loss from sale of investment securities, other real
   estate, and other foreclosed assets                                                             (180)            -          (180)
                                                                                               --------      --------      --------
                                                                                                    920             -           920
                                                                                               --------      --------      --------
OTHER EXPENSE
 Salaries and employee benefits                                                                   1,782             -         1,782
 Occupancy expense, net of rental
  income                                                                                            316             -           316
 Other expenses (Note D)                                                                          1,296            69         1,365
                                                                                               --------      --------      --------
   Total other expense                                                                            3,394            69         3,463
                                                                                               --------      --------      --------
    Income before income taxes                                                                    3,825          (594)        3,231
 Provision for income taxes (Note E)                                                              1,146          (222)          924
                                                                                               --------      --------      --------
     Net income                                                                                $  2,679      $   (372)     $  2,307
                                                                                               ========      ========      ========
 
 Earnings per share                                                                               81.19                        8.72
                                                                                               ========                    ========

</TABLE>

_________________________________________________________________________
The Notes to Pro Forma Financial Statements are an integral part of these
statements.
*  The only significant activity of Pontotoc BancShares Corporation has been the
   purchase of Bank shares, the result of which is reflected in the Pro Forma
   adjustments; therefore, separate holding company financial statements have
   not been presented.

          

                                     F-22
<PAGE>
 
    

                    NOTES TO PRO FORMA FINANCIAL STATEMENTS
                           PONTOTOC BANCSHARES CORP.
                                    12/31/96
                                        
                                        
     The pro forma financial statements are presented to give effect to the
formation of Pontotoc BancShares Corp., a Mississippi bank holding company (the
"Company"), the resulting purchase of 6,557 shares of First National Bank stock
for approximately $6,356,000, and the exchange of its common shares for the
remaining outstanding common shares of the Bank.  The pro forma balance sheet is
prepared as if the transactions occurred on December 31, 1996.  The pro forma
income statement is prepared as if the transactions occurred on January 1, 1996
to reflect the impact these transactions would have on earnings of the Bank.

     Explanations to the pro forma adjustments are as follows:

NOTE A.  GOODWILL

     The price of the shares purchased in excess of the book value of the shares
represents goodwill which is recorded in the intangibles caption on the pro
forma balance sheet.
 
<TABLE> 
<CAPTION> 

<S>                                                     <C> 
     First National Bank Equity at 12/31/96             $26,811,000
     Total number of bank shares                             33,000
                                                        -----------
     Book value per share at 12/31/96                        812.45
     Total number of bank shares purchased                    6,557
                                                        -----------
     Book value of shares purchased                       5,327,235
     Less amount paid for purchased shares                6,356,580
                                                        -----------
     Goodwill                                           $ 1,029,345
                                                        ===========
</TABLE> 

NOTE B.  LONG TERM DEBT AND RELATED INTEREST EXPENSE

     In connection with the stock purchase described in Note A above, the
Company incurred approximately $6,356,000 of long-term debt which provides for
interest at the prime rate.  This debt is collateralized by the shares purchased
and is payable in annual installments beginning in March 1998 through March
2002.  Accrued interest expense of $525,000 on this debt is included in expense
for 1996 on the pro forma income statement.

NOTE C.  STOCKHOLDERS' EQUITY

     The pro forma adjustments in the stockholders' equity section of the pro
forma balance sheet are essentially the entries required in the consolidation of
the Company and the Bank to eliminate the equity of the Bank and allow common
stock, paid in capital, and retained earnings of the Company to be reflected.
The calculation of the resulting common stock, paid in capital, and retained
earnings of the Company are reflected below:
    
     Common Stock:
      Bank shares prior to acquisition              33,000
      Less shares purchased                          6,557
                                                  --------
                                                    26,443
     
      Company shares exchanged for
       Bank shares (10 to 1, $1 stated value)           10
                                                  --------
                                                   264,430
                                                  ========
     
                                      F-23
<PAGE>
 
    

                    NOTES TO PRO FORMA FINANCIAL STATEMENTS
                    PONTOTOC BANCSHARES CORP. - (CONTINUED)
                                    12/31/96
                                        
NOTE C.  STOCKHOLDERS' EQUITY - (CONTINUED)
    
     Paid in capital:
      Bank equity at 12/31/96                   26,811,000
      Less book value of shares purchased       (5,327,235)
                                               -----------
      Remaining book value of Bank              21,483,765
      Add unrealized loss on available-for-
       sale securities, which is presented
       as a separate component of equity           302,000
      Less common stock issued                    (264,430)
                                               -----------
                                                21,521,335
                                               ===========
     
NOTE D.  AMORTIZATION OF GOODWILL

     For purposes of the pro forma income statement, the goodwill described in
Note A is assumed to have a useful life of 15 years and has been amortized since
January 1, 1996.

NOTE E.  INCOME TAX EFFECTS

     The additional expenses relating to interest on debt service and
amortization of goodwill reflected on the pro forma income statement would
reduce income tax expense for the Company by approximately $222,000 calculated
at the Bank's total federal and state rate of 37.3%.

NOTE F.  PRO-FORMA REGULATORY CAPITAL

     The regulatory capital of the pro forma entity at December 31, 1996 would
be as follows:

<TABLE> 
<CAPTION> 

                                                                                  TO BE WELL
                                                                              CAPITALIZED UNDER
                                                              FOR CAPITAL     PROMPT CORRECTIVE
                                              ACTUAL       ADEQUACY PURPOSES  ACTION PROVISIONS
                                        -----------------  -----------------  ------------------
                                         AMOUNT    RATIO    AMOUNT    RATIO    AMOUNT     RATIO
                                        --------  -------  --------  -------  --------   -------
<S>                                     <C>       <C>      <C>       <C>      <C>        <C> 
          As of December 31, 1996
           Total Capital                $ 21,391    23.2%  $  7,379     8.0%   $ 9,211       *10%
           (to Risk-Weighted Assets)

          Tier I Capital
           (to Risk-Weighted Assets)    $ 20,325    22.1%  $  3,684     4.0%   $ 5,527      *6.0%

          Tier I Capital
           (to Average Assets)          $ 20,325    13.4%  $  6,073     4.0%   $ 7,592      *5.0%
</TABLE> 
---------------
* Greater than

     
                                      F-24
<PAGE>
 
    

                              FIRST NATIONAL BANK
                                        
                             Pontotoc, Mississippi

                                 March 31,1997



                                    -ooOoo-

     
<PAGE>
 
    
                                    CONTENTS
    

                                                       PAGE

       FINANCIAL STATEMENTS OF FIRST NATIONAL BANK:
 
           BALANCE SHEETS (unaudited)................     3
           STATEMENTS OF INCOME (unaudited)..........     4
           STATEMENTS OF STOCKHOLDERS' EQUITY 
            (unaudited)..............................     5
           STATEMENTS OF CASH FLOWS (unaudited)......     6
           NOTES TO FINANCIAL STATEMENTS (unaudited).     7
      

                                    -ooOoo-

     
<PAGE>
 
                                BALANCE SHEETS
                              FIRST NATIONAL BANK
                            MARCH 31, 1997 AND 1996
 
     
<TABLE> 
<CAPTION> 
                                                                                    (unaudited)
                                                                         ---------------------------------
                                                                            March 31,        March 31,
                                                                              1997              1996
                                                                         ---------------  ----------------
ASSETS                                                                             (in thousands)
<S>                                                                         <C>              <C>
  Cash and due from banks                                                   $  9,431          $  4,065
  Investment securities - available-for-sale (at market value)                19,394            18,674
  Investment securities - held-to-maturity (at cost)                          32,808            35,466
  Federal funds sold                                                           6,450            12,250
  Loans receivable, net of allowance for loan losses                      
    of $1,137 in 1997 and $1,108 in 1996                                      83,954            80,645
  Premises and equipment, net                                                  1,781             1,215
  Intangibles                                                                    423               458
  Deferred tax asset                                                             591               488
  Other assets                                                                 3,132             2,703
                                                                            --------          --------
                                                                          
      Total assets                                                          $157,964          $155,964
                                                                            ========          ========
LIABILITIES AND STOCKHOLDERS' EQUITY                                      
 Deposits:                                                                
    Non-interest bearing                                                    $ 18,111          $ 17,895
    Interest bearing                                                         111,603           111,122
                                                                            --------          --------
      Total deposits                                                         129,714           129,017
  Accrued interest and other liabilities                                         965             1,079
                                                                            --------          --------
      Total liabilities                                                      130,679           130,096
                                                                            --------          --------
  Stockholders' equity:                                                   
    Common stock $10 par value,                                           
      33,000 shares authorized and issued                                        330               330
    Surplus                                                                   21,000            21,000
    Undivided profits                                                          6,323             4,764
    Unrealized loss on securities available-for-sale                            (368)             (226)
                                                                            --------          --------
      Total stockholders' equity                                              27,285            25,868
                                                                            --------          --------
        Total liabilities and stockholders' equity                          $157,964          $155,964
                                                                            ========          ========
 
________________________________________
The Notes to Financial Statements are an
  integral part of these statements.

</TABLE>
     
                                       3

     
<PAGE>
 
                             STATEMENTS OF INCOME
                              FIRST NATIONAL BANK
                  Three months ended March 31, 1997 and 1996
          

    
<TABLE> 
<CAPTION>
                                                                                   (unaudited)
                                                                       ------------------------------------ 
                                                                           March 31,          March 31,
                                                                             1997               1996
                                                                       -----------------  -----------------
<S>                                                                        <C>               <C>
INTEREST REVENUE                                                      (in thousands except per share amount)
  Interest and fees on loans                                               $2,015             $1,981
  Interest on investment securities                                           772                739
  Interest on federal funds sold                                              124                166
                                                                           ------             ------
      Total interest revenue                                                2,911              2,886
                                                                           ------             ------
INTEREST EXPENSE                                                      
  Interest on deposits                                                      1,242              1,275
  Other interest                                                                -                  -
                                                                           ------             ------
      Total interest expense                                                1,242              1,275
                                                                           ------             ------
                                                                      
  Net interest revenue                                                      1,669              1,611
  Provision for loan losses                                                   (90)              (150)
                                                                           ------             ------
      Net interest revenue after                                      
        provision for loan losses                                           1,579              1,461
                                                                           ------             ------
OTHER REVENUE                                                         
  Service fees                                                                248                238
  Other                                                                        17                 18
  Loss from sale of investment securities, other real                 
      estate, and other foreclosed assets                                     (82)                 -
                                                                           ------             ------
                                                                              183                256
                                                                           ------             ------
OTHER EXPENSE                                                         
  Salaries and employee benefits                                              454                420
  Occupancy expense, net of rental                                    
    income                                                                     75                 73
  Other expenses                                                              449                263
                                                                           ------             ------
      Total other expense                                                     978                756
                                                                           ------             ------
        Income before income taxes                                            784                961
  Provision for income taxes                                                  244                290
                                                                           ------             ------
          Net income                                                       $  540             $  671
                                                                           ======             ====== 
  Earnings per share                                                       $16.36             $20.33
                                                                           ======             ======
</TABLE> 
     


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


                                       4
     
<PAGE>
 
    


                      STATEMENTS OF STOCKHOLDERS' EQUITY
                              FIRST NATIONAL BANK
                  THREE MONTHS ENDED MARCH 31, 1997 AND 1996
 
         

    
<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,
  1996 (unaudited)                   33        $330   $21,000     $4,093      $(300)    $25,123
 
  Net income (unaudited)                                             671                    671
 
  Unrealized gain (loss)
    on marketable
    equity securities
    (unaudited)                                                                   74         74
                           ------------   ---------  --------  ---------  ----------    -------
 
 
Balance, March 31,
  1996 (unaudited)                    33        $330   $21,000     $4,764      $(226)    $25,868
                           ============   =========  ========  =========  ==========    =======
 
 
Balance, January 1,
   1997 (unaudited)                  33        $330   $21,000     $5,783      $(302)    $26,811
 
  Net income (unaudited)                                             540                    540
 
  Unrealized gain (loss)
    on marketable
    equity securities
    (unaudited)                                                                  (66)       (66)
                           ------------   ---------  --------  ---------  ----------    -------
 
Balance, March 31,
   1997 (unaudited)                  33        $330   $21,000     $6,323      $(368)    $27,285
                           ============   =========  ========  =========  ==========    =======
</TABLE>
     

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

                                       5

     
<PAGE>
 
                           STATEMENTS OF CASH FLOWS
                              FIRST NATIONAL BANK
                  Three months ended March 31, 1997 and 1996
         
 
    
<TABLE> 
<CAPTION> 
                                                                                        (unaudited)
                                                                           ------------------------------------ 
                                                                                March 31,          March 31,
                                                                                  1997               1996
                                                                           -----------------  -----------------
OPERATING ACTIVITIES                                                                  (in thousands)
<S>                                                                            <C>                <C>    
  Net income                                                                    $   540            $   671
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                                                  95                 36
      Provision for loan losses                                                      91                151
      Increase in interest receivable and other assets                             (136)              (135)
      Increase (decrease) in interest payable and other liabilities              (1,028)                80 
                                                                                -------            -------
        Net cash provided by (used in) operating
          activities                                                               (438)               803
                                                                                -------            -------
 
INVESTING ACTIVITIES
  Purchases of held-to-maturity securities                                            -             (4,503)
  Purchases of available-for-sale securities                                     (3,062)              (164)
  Proceeds from maturities and calls of
    held-to-maturity securities                                                   1,158              1,439
  Proceeds from dispositions of
    available-for-sale securities                                                   614                993
  Net increase in loans                                                            (192)            (1,134)
  Net (increase) decrease in federal funds sold                                   1,550             (5,150)
  Purchases of premises and equipment                                              (144)               (40)
  Net (increase) decrease in other real estate                                       33                (23)
                                                                                -------            -------
        Net cash provided by (used in) investing activities                         (43)            (8,582)
                                                                                -------            -------
 
FINANCING ACTIVITIES
  Net increase in deposits                                                        5,229              8,033
  Cash dividends paid                                                                 -                  -
                                                                                -------            -------
 
        Net cash provided by financing
          activities                                                              5,229              8,033
                                                                                -------            -------
 
Increase in cash and due from banks                                               4,748                254
Cash and due from banks at beginning of three months                              4,683              3,811
                                                                                -------            -------
Cash and due from banks at end of three months                                  $ 9,431            $ 4,065
                                                                                =======            =======
 
SUPPLEMENTAL CASH FLOWS INFORMATION
  Interest paid                                                                 $ 1,318            $ 1,369
                                                                                =======            =======
 
  Income taxes paid                                                             $   306            $   475
                                                                                =======            =======
</TABLE> 
     

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

                                        6

     
<PAGE>
 
    
                         NOTES TO FINANCIAL STATEMENTS
                              FIRST NATIONAL BANK
                            MARCH 31, 1997 AND 1996

   
                                  (UNAUDITED)     
                                        
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."

                                       7

     
<PAGE>
 
    

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
     
                                  (UNAUDITED)    
 
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES - (Continued)

       Investment Securities
       ---------------------
    
          Securities Held-to-Maturity:  Bonds, notes, and debentures for which
          ---------------------------
          the Bank 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:  Available-for-sale securities consist
          ----------------------------- 
          of bonds, notes,  debentures, and certain equity securities not
          classified as trading securities nor as held-to-maturity securities.
          Unrealized holding gains and losses, net of tax, on available-for-sale
          securities are reported as a net amount in a separate component of
          shareholders' equity until realized.  Gains and losses on the sale of
          available-for-sale securities 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.  The related write-downs
          have been included in earnings as realized losses.  Premiums and
          discounts are recognized in interest income using methods
          approximating the interest method over the period to maturity.     

       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.  Management's periodic
       evaluation of the adequacy of the allowance is based on the Bank's past
       loan experience, known and inherent risks in the portfolio, adverse
       situations that may effect the borrower's ability to repay, the estimated
       value of any underlying collateral, and current economic conditions.
       Accrual of interest is discontinued on a loan when management believes,
       after considering economic and business conditions and collection
       efforts, that the borrower's financial condition is such that collection
       of interest is doubtful.

       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
       estimated 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.


                                       8

     
<PAGE>
 
    


                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
    
                                  (UNAUDITED)     
                                        
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 sheet for March 31, 1997 is
       $510,200 and $639,900 of Federal Home Loan Bank and Federal Reserve
       stock, respectively, carried at cost.  Aggregate cost of these
       investments at March 31, 1996 amounted to $965,000.  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 these 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:
          Fair values of loans in the portfolio are estimated by discounting the
       future cash flows, using current rates at which similar loans would be
       made to borrowers with similar credit ratings and for the same remaining
       maturities.  Fair values for impaired loans are estimated using
       underlying collateral values, where applicable.

       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 .


                                       9
     
<PAGE>
 

                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

    
                                (UNAUDITED)         

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

       Accrued interest:
          The carrying amounts of accrued interest approximates their fair
values.

NOTE 2.  INVESTMENT SECURITIES

          Amortized cost and approximate market values of investment securities
       are summarized as follows:

          Securities available-for-sale consist of the following:

<TABLE>
<CAPTION>
                                                                    (UNAUDITED)
                             -----------------------------------------------------------------------------------------
                                                                   MARCH 31, 1997
                             -----------------------------------------------------------------------------------------
 
                                                                  GROSS UNREALIZED
                             -----------------------------------------------------------------------------------------
                                 AMORTIZED                         (IN THOUSANDS)                         FAIR
                                    COST                   GAINS                   LOSSES                 VALUE
                             ------------------    ---------------------    --------------------    ------------------
<S>                              <C>                        <C>                      <C>                  <C>
U. S. Treasury Securities        $ 3,992                    $5                       $  5                 $ 3,992
Obligations of other U. S.                                                                           
  Government Agencies                749                     -                         14                     735
Obligations of state and                                                                             
  political subdivisions               -                     -                          -                       -
Mortgage-backed securities        14,089                     -                        572                  13,517
Other securities                   1,150                     -                          -                   1,150
                             ------------------    ---------------------    --------------------    ------------------
                                 $19,980                    $5                       $591                 $19,394
                             ==================    =====================    ====================    ==================


                                                                    (UNAUDITED)
                             -----------------------------------------------------------------------------------------
                                                                   MARCH 31, 1996
                             -----------------------------------------------------------------------------------------
 
                                                                  GROSS UNREALIZED
                             -----------------------------------------------------------------------------------------
                                 AMORTIZED                         (IN THOUSANDS)                         FAIR
                                    COST                   GAINS                   LOSSES                 VALUE
                             ------------------    ---------------------    --------------------    ------------------

U. S. Treasury Securities        $ 2,508                    $-                       $  8                 $ 2,500
Obligations of other U. S.                                                                             
  Government Agencies              1,500                     -                         12                   1,488
Obligations of state and                                                                               
  political subdivisions               -                     -                          -                       -
Mortgage-backed securities        14,062                                              341                  13,721
Other securities                     965                     -                          -                     965
                             ------------------    ---------------------    --------------------    ------------------
                                 $19,035                    $-                       $361                 $18,674
                             ==================    =====================    ====================    ==================
</TABLE>


                                       10

     
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

    
                                  (UNAUDITED)     

NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)

     Securities held-to-maturity consist of the following:

    
<TABLE>
<CAPTION>
                                                                (UNAUDITED)   
                         -------------------------------------------------------------------------------------
                                                              MARCH 31, 1997
                         -------------------------------------------------------------------------------------
                                                             GROSS UNREALIZED
                         -------------------------------------------------------------------------------------
                                                             (IN THOUSANDS)
                               AMORTIZED                                                           FAIR
                                 COST                 GAINS                 LOSSES                 VALUE
                         -------------------    ------------------    -------------------    -----------------
<S>                            <C>                  <C>                     <C>                   <C>
Obligations of state and                                                                    
  political subdivisions        $13,730              $148                    $ 91                 $13,787
Mortgage-backed                                                                          
  securities                     19,078                 5                     145                  18,938
                         -------------------    ------------------    -------------------    -----------------
                                $32,808              $153                    $236                 $32,725
                         ====================   ===================   ====================   =================


                                                                (UNAUDITED)   
                         -------------------------------------------------------------------------------------
                                                              MARCH 31, 1997
                         -------------------------------------------------------------------------------------
                                                             GROSS UNREALIZED
                         -------------------------------------------------------------------------------------
                                                              (IN THOUSANDS)
                               AMORTIZED                                                           FAIR
                                 COST                 GAINS                 LOSSES                 VALUE
                         -------------------    ------------------    -------------------    -----------------

Obligations of other U.S.
  Government Agencies           $   958              $  9                    $  -                 $   967
Obligations of state and                                                                        
  political subdivisions         12,914               220                      85                  13,049
Mortgage-backed                                                                                 
  securities                     21,594                 1                     141                  21,454
                         -------------------    ------------------    -------------------    -----------------
                                $35,466              $230                    $226                 $35,470
                         ===================    ==================    ===================    ================= 
 
</TABLE>
     

     Gross realized gains and gross realized losses on sales of available-for-
sale securities were approximately $0 and $1,000 respectively, for the three
months ended March 31, 1997 and $0 and $0 respectively, for the three months
ended March 31, 1996. All dispositions of held-to-maturity securities were the
result of calls or maturities of the respective securities.

     The amortized cost and estimated market value of investment securities at
March 31, 1997 by estimated contractual maturities, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.

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

    
                                  (UNAUDITED)     

NOTE 2.  INVESTMENT SECURITIES - (CONTINUED)

    
<TABLE>
<CAPTION>
                                                               (UNAUDITED)
                         ------------------------------------------------------------------------------------------
                                                              (in thousands)
                         ------------------------------------------------------------------------------------------
                                      HELD-TO-MATURITY                              AVAILABLE-FOR-SALE
                         --------------------------------------------   -------------------------------------------
                                AMORTIZED                 FAIR                AMORTIZED                 FAIR
Amounts maturing in:              COST                   VALUE                   COST                  VALUE
                         --------------------    --------------------   --------------------   --------------------
<S>                            <C>                     <C>                    <C>                    <C>
One year or less               $ 4,592                 $ 4,605                $ 2,504                $ 2,503
After one year through       
  five years                    16,780                  16,771                  5,206                  5,170
After five years through     
  ten years                     11,304                  11,221                    250                    236
After ten years                  1,280                   1,277                 10,873                 10,338
                               -------                 -------                -------                -------
                               $33,956                 $33,874                $18,833                $18,247
                               =======                 =======                =======                =======
</TABLE>     


     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 contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.

     Assets, principally securities, carried at approximately $19,280,043 at
March 31, 1997 and $21,392,302 at March 31, 1996, were pledged to secure public
deposits and for other purposes required or permitted by law.

NOTE 3.  LOANS

     The components of loans included in the balance sheets are as follows at
March 31:

    
<TABLE>
<CAPTION>
                                             (UNAUDITED)
                                      -----------------------
                                       1997             1996
                                      ------           ------           
                                          (in thousands)
<S>                                 <C>               <C>
Commercial                           $16,027          $15,359
Agricultural                           8,858            9,478
Real estate:                                      
   Residential                        25,785           25,109
   Commercial                         18,036           16,714
Consumer Installment                  16,385           15,093
                                     -------          -------
                                      85,091           81,753
Allowance for loan losses              1,137            1,108
                                     -------          -------
                                                  
    Loans, net                       $83,954          $80,645
                                     =======          =======
 
</TABLE>     

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

    
                                  (UNAUDITED)     

NOTE 3.  LOANS - (Continued)

     Changes in the allowance for loan losses were as follows for the three
months ended:

    
<TABLE>
<CAPTION>
                                                     (unaudited)
                                            --------------------------------
                                                 1997              1996
                                            --------------    --------------
                                                     (in thousands)
<S>                                         <C>               <C> 
Balance, beginning of three months          $        1,066    $          994
                                                              
Provision charged to operations                         90               150
Loans charged off                                      (32)              (41)
Recoveries                                              13                 5
                                            --------------    --------------
                                                              
Balance, end of three months                $        1,137    $        1,108
                                            ==============    ==============
</TABLE>     


     Impairment of loans having recorded investments of $800,000 at March 31,
1997, has been recognized in conformity with FASB Statement 114, as amended by
FASB Statement 118. The total allowance for loan losses related to these loans
was $200,000 on March 31, 1997.

     Loans having carrying values of $519,000 were transferred to foreclosed
real estate during the three months ended March 31, 1997.

NOTE 4.  BANK PREMISES AND EQUIPMENT

          The following is a summary of bank premises and equipment stated at
cost at March 31:

    
<TABLE>
<CAPTION>
                                                     (unaudited)
                                            --------------------------------
                                                 1997              1996
                                            --------------    --------------
                                                     (in thousands)
<S>                                                 <C>               <C> 
Bank premises                               $        1,203    $        1,203
Furniture, fixtures, and equipment                   2,037             1,660
         
                                                     3,240             2,863
Less:  Accumulated depreciation                                     
            and amortization                        (1,812)           (1,648)
                                            --------------    --------------
                                                     1,428             1,215
Add:  Construction in progress                         353                 -
                                            --------------    --------------
                                            $        1,781    $        1,215
                                            ==============    ==============
</TABLE>     

                                                                               
     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
three months ended March 31, 1997 and 1996.



                                       13
     
<PAGE>
 
    


                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                                  (UNAUDITED)
                                        
NOTE 5.  DEPOSITS

     Total deposits consisted of the following at March 31:

<TABLE>
<CAPTION>
                                                               (unaudited)
                                                        1997                  1996
                                                      --------              --------
                                                              (in thousands)
<S>                                                  <C>                   <C>
Demand                                                $ 18,330              $ 18,126
Savings                                                 19,459                20,576
NOW                                                     16,465                15,512
Certificates of deposit less than $100,000              49,694                49,210
Certificates of deposit more than $100,000              25,766                25,593
                                                      --------              --------
Total  deposits                                       $129,714              $129,017
                                                      ========              ========
 
</TABLE>


     At March 31, 1997, the scheduled maturities of CDs are as follows:


Year ending March 31,

                                  1998              $64,964
                                  1999                7,663
                                  2000                2,034
                                  2001                  331
                                  2002                  468
                                                    -------
                                                    $75,460
                                                    =======

NOTE 6.  INCOME TAXES

     The provision for income taxes consisted of the following at March 31:

<TABLE>
<CAPTION>
                                                  (unaudited)
                                               1997          1996
                                            ----------    ----------
                                                 (in thousands)
<S>                                         <C>           <C>
Current                                     $      243    $      332
Deferred                                             1           (42)
                                            ----------    ----------
                                                          
Total tax provision                         $      244    $      290
                                            ==========    ==========
 
</TABLE>

                                       14
     
<PAGE>
 
    


                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                                            
                                  (UNAUDITED)     
                                        
NOTE 6.  INCOME TAXES - (Continued)

     The provisions for income taxes at March 31, 1997 and 1996, differ from
that computed by applying statutory rates to income before income taxes, as
indicated in the following analysis:

    
                                                 (unaudited)
                                            ----------------------    
                                              1997         1996
                                            ---------    ---------
                                                (in thousands)

Expected tax provision at a 37.3% rate      $     292    $     358
Effect of tax-exempt income                       (76)         (71)
Other, net                                         28            3
                                            ---------    ---------
                                            $     244    $     290
                                            =========    =========
     

     The temporary differences which give rise to significant portions of
deferred tax assets and liabilities are as follows at March 31:

    
                                                 (unaudited)
                                            ----------------------    
                                              1997          1996
                                            ---------    ---------
Deferred tax assets:                            (in thousands)

  Allowance for loan losses                 $     424    $     413
  Unrealized losses on securities                 219          135
  Other                                            21            3
                                            ---------    ---------
          Total deferred tax assets               664          551
                                            ---------    ---------
                                                         
                                                         
Deferred tax liabilities:                                
  Premises and equipment                           73           63
                                            ---------    ---------
          Total deferred tax liabilities           73           63
                                            ---------    ---------
                                                         
        Net deferred tax assets             $     591    $     488
                                            =========    =========
      


     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 performance in prior years and the likelihood of future
taxable income, these assets are more likely than not to be realized.


NOTE 7.  RELATED PARTY TRANSACTIONS

     The Bank makes loans to its officers and directors as well as other related
parties. Loans to directors require the approval of the Board of Directors with
the interested party abstaining from voting. Loans to related parties amounted
to approximately $185,000 and $236,000 at March 31, 1997 and 1996, respectively.
During the three months ended March 31, 1997, new loans to such related parties
amounted to $0 and repayments amounted to $11,000.



                                       15
     
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
    
                                  (UNAUDITED)     
                                        
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 accrued $40,000 during the three months ended
March 31, 1997 and $31,000 during the three months ended March 31, 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
March 31, 1997, the Bank had outstanding standby letters of credit of
approximately $1,402,000 and commitments to extend credit under outstanding
lines of credit of approximately $7,712,000. These commitments are collaterized
in accordance with the Bank's lending policy.

NOTE 10.  DUE FROM BANKS

     The Company had funds on deposit with other banks at March 31, 1997
totaling $7,396,000 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 at March 31, 1997 and 1996:

    
<TABLE>
<CAPTION>
                                                               (UNAUDITED)
                               ------------------------------------------------------------------------------
                                               1997                                     1996
                               ------------------------------------------------------------------------------
                                   CARRYING               FAIR              CARRYING               FAIR
                                    AMOUNT               VALUE               AMOUNT               VALUE
                               ----------------     ----------------     ---------------     ----------------
<S>                            <C>                  <C>                  <C>                 <C>
                                                               (in thousands)
Financial assets:
  Cash, due from banks           $  9,431              $  9,431            $  4,065             $  4,065
  Securities                       19,394                19,394              18,674               18,674
   available-for-sale            
  Securities held-to-maturity      32,808                32,725              35,465               35,469
  Federal funds sold                6,450                 6,450              12,250               12,250
  Net loans                        83,954                84,384              80,645               81,075
                                 
Financial liabilities:           
  Deposits                        129,714               130,449             129,017              129,017
  Accrued interest and           
    other liabilities                 966                   966               1,079                1,079

</TABLE>     


                                       16
     
<PAGE>
 
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

                                            
                                  (UNAUDITED)     
                                        
NOTE 12.  REGULATORY MATTERS

     The Bank is subject to various regulatory capital requirements imposed by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.

     Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.

     As of March 31, 1997, the most recent notification from the Bank's primary
regulator categorized the Bank as well capitalized under the framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
set forth in the table. There are no conditions or events since the notification
that management believes have changed the Bank's category.

    
<TABLE>
<CAPTION>

                                                                (UNAUDITED)
                                  --------------------------------------------------------------------------------
                                                                                               TO BE WELL
                                                                                            CAPITALIZED UNDER
                                                                   FOR CAPITAL              PROMPT CORRECTIVE
                                          ACTUAL                 ADEQUACY PURPOSES          ACTION PROVISIONS
                                  -----------------------     ------------------------    ------------------------
                                    AMOUNT       Ratio          AMOUNT       Ratio          AMOUNT        Ratio
                                  ----------  -----------     ----------  ------------    -----------  ----------- 
<S>                               <C>         <C>             <C>         <C>             <C>          <C>
As of March 31, 1997
  Total Capital                      $28,366        30.5%         $7,437          8.0%         $9,297          >10%
    (to Risk-Weighted Assets)
 
Tier I Capital
    (to Risk-Weighted Assets)        $27,229        29.3%         $3,719          4.0%         $5,578         >6.0%
 
Tier I Capital
    (to Average Assets)              $27,229        17.5%         $6,236          4.0%         $7,795         >5.0%

</TABLE>     

NOTE 13. SUBSEQUENT EVENTS

     During the three month period ended March 31, 1997, Pontotoc BancShares
Corp., a bank holding company purchased twenty percent of the outstanding shares
of First National Bank through the issuance of long-term debt with an unrelated
financial institution. Subsequent to March 31, 1997, the bank holding company
will exchange its common shares for the outstanding common shares of the Bank on
a ten to one ratio.

                                       17
     
<PAGE>
 
    


                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                        
                                  (UNAUDITED)
                                        
NOTE 13. SUBSEQUENT EVENTS - (Continued)

     Expected additional capital outlays related to the construction of a branch
bank amount to approximately $730,578 at March 31, 1997.



                                       18


     
<PAGE>
 
    
                     PRO FORMA CONSOLIDATED BALANCE SHEET
                           PONTOTOC BANCSHARES CORP.
                                MARCH 31, 1997


                                                               (UNAUDITED)
                                                             -------------
                                                             (in thousands)
ASSETS
  Cash and due from banks                                    $       9,431
  Investment securities - available-for-sale
   (at market value)                                                19,394
  Investment securities - held-to-maturity (at cost)                32,808
  Federal funds sold                                                 6,450
  Loans receivable, net of allowance for loan losses
   of $1,137                                                        83,954
  Premises and equipment, net                                        1,781
  Intangibles                                                        1,435
  Deferred tax asset                                                   591
  Other assets                                                       3,132
                                                             -------------
      Total assets                                           $     158,976
                                                             =============
LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
   Non-interest bearing                                      $      18,111
   Interest bearing                                                111,603
                                                             -------------
      Total deposits                                               129,714
  Accrued interest and other liabilities                             1,041
  Long term debt                                                     6,356
                                                             -------------
      Total liabilities                                            137,111
                                                             -------------
  Stockholder' equity:
   Common stock no par value ($1 stated value),
    3,000,000 shares authorized, 264,430 shares
    issued and outstanding                                             264
   Paid in capital                                                  21,522
   Retained earnings                                                   447
   Unrealized loss on securities available-for-sale                   (368)
                                                             -------------
      Total stockholder's equity                                    21,865
                                                             -------------
      Total liabilities and stockholders' equity             $     158,976
                                                             =============
     

                                      19

<PAGE>
 
    
                    PRO FORMA CONSOLIDATED INCOME STATEMENT
                           PONTOTOC BANCSHARES CORP.
                       THREE MONTHS ENDED MARCH 31, 1997


                                                               (UNAUDITED)  
                                                              --------------
                                                              (in thousands)
INTEREST INCOME 
  Interest and fees on loans                                  $       2,015
  Interest on investment securities                                     772
  Interest on federal funds sold                                        124
                                                              -------------
      Total interest income                                           2,911
                                                              -------------
INTEREST EXPENSE
  Interest on deposits                                                1,242
  Other interest                                                        131
                                                              -------------
      Total interest expense                                          1,373
                                                              -------------
  Net interest income                                                 1,538
  Provision for loan losses                                             (90)
                                                              -------------
    Net interest income after provision
     for loan losses                                                  1,448
                                                              ------------- 
OTHER INCOME
  Service fees                                                          248
  Other                                                                  17
  Loss from sale of investment securities,
   other real estate, and other foreclosed assets                       (82)
                                                              -------------
                                                                        183
OTHER EXPENSE
  Salaries and employee benefits                                        454
  Occupancy expense, net of rental income                                75
  Other expenses                                                        466
                                                              -------------
      Total other expense                                               995
                                                              -------------
       Income before income taxes                                       636
  Provision for income taxes                                            189
                                                              -------------
      Net income                                              $         447
                                                              =============
  Earnings per share                                          $        1.69
                                                              =============
     

                                      20
<PAGE>
 
                                                                      APPENDIX A

                           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

                                       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

                                       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;

                                       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.

                                       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.

                                       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.


                                        ------------------------------------
                                        F. M. Bush, III, Incorporator

                                       7
<PAGE>
 
                                                                      APPENDIX B

                                     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  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,

                                      -1-
<PAGE>
 
as the place 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

                                      -2-
<PAGE>
 
to inspection by any shareholder at any time during usual business hours. Such
list shall be produced and 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

                                      -3-
<PAGE>
 
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 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

                                      -4-
<PAGE>
 
           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).

      (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 .
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

                                      -5-
<PAGE>
 
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 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 .  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  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.

                                      -6-
<PAGE>
 
     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.

     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.

     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

                                      -7-
<PAGE>
 
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 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

                                      -8-
<PAGE>
 
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  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.

                                      -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 (either manually or by facsimile)
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
(or a facsimilie thereof).  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,

                                      -10-
<PAGE>
 
except that in case of a lost, destroyed, or mutilated certificate a new one may
be 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  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
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

                                      -11-
<PAGE>
 
or in the right of the Corporation ("Indemnitee"), the Indemnitee shall be
indemnified against such liabilities 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 , 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

                                      -12-
<PAGE>
 
Corporation Act; or (ii) any proceeding with respect to conduct for which the
Indemnitee was adjudged liable on the basis that the 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;

      (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 ;

      (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 , 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.

                                      -13-
<PAGE>
 
     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 eliminated by a provision of the Articles of Incorporation under
Section 13 of Article 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 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

                                      -14-
<PAGE>
 
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: (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 17, 1996.



                                              ----------------------------------
                                              Buddy R. Montgomery, Sole Director

                                      -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 Directors'
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            Opinion of Phelps Dunbar, L.L.P., as to the legality of the
                      securities being registered*
                    
     8.1            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*
                    
    10.3            Stock Purchase Agreement dated March 18, 1997 among Pontotoc
                      Bancshares Corp., First National Bank of Pontotoc, Union
                      Planters Corporation, Doty Investments, L.P., Martha W.
                      Doty, Gerry G. Jones and All Saints Episcopal Church of
                      Memphis, Tennessee*

    10.4            Note, Security Agreement and Loan Agreement dated March 18,
                      1997 between Pontotoc Bancshares Corp. and National Bank
                      of Commerce*     
                    
    23.1            Consent of Phelps Dunbar, L.L.P. (included in Exhibit 5.1)
____________________

*    Previously filed.      

                                      II-1

<PAGE>
 
    23.2            Consent of Nail McKinney Professional Association
                    
    23.3            Consent of Chaffe & Associates, Inc.
                    

    24.1            Power of Attorney (included on signature page of
                      Registration Statement)
                        
    99.1            Form of proxy*
                    
    99.2            Opinion of Chaffe & Associates, Inc.*
          

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 Amendment No. 3 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pontotoc, State of Mississippi, on this 23rd day of
July, 1997.


                                   Pontotoc BancShares Corp.


    
                                   By: /S/ BUDDY R. MONTGOMERY
                                       ------------------------------
                                       Buddy R. Montgomery, President      


   Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed by the following
persons in the capacities and on the dates indicated.      


          Signature                    Title                     Date
          ---------                    -----                     ----

    
/s/ ANNA M. BERRYHILL*                 Director               July 23, 1997
----------------------------
     Anna M. Berryhill


/s/ BUDDY R. MONTGOMERY             Director, President       July 23, 1997
---------------------------- (Principal Executive Officer and 
     Buddy R. Montgomery       Principal Financial Officer)   
                                                                        

                                      S-1

<PAGE>

     
/s/ Larry Russell*                         Director            July 23, 1997
----------------------------     and Executive Vice President 
        Larry Russell                                         


/s/ Michael Simon*                         Director            July 23, 1997
----------------------------
        Michael Simon


/s/ Charles D. Thomas*                     Director            July 23, 1997
----------------------------
        Charles D. Thomas


/s/ James L. Whitworth*                    Director            July 23, 1997
----------------------------
        James L. Whitworth

/s/ Julie Henry*                     Principal Accounting      July 23, 1997
----------------------------                Officer 
        Julie Henry                                 
     
* Signed Pursuant to a Power of Attorney

By: /s/ BUDDY R. MONTGOMERY
    -----------------------
    Buddy R. Montgomery
    Attorney-in-Fact
     

                                      S-2

<PAGE>
 
                                 EXHIBIT INDEX
    
<TABLE> 
<CAPTION> 
EXHIBIT NUMBER   EXHIBIT DESCRIPTION                             SEQUENTIAL PAGE
--------------   -------------------                             ---------------
<S>              <C>                                             <C> 
    
   23.2          Consent of Nail McKinney Professional Association

   23.3          Consent of Chaffe & Associates, Inc.
     

</TABLE>