FIRST SECURITY CORP /UT/, S-4, 1997-12-08

FIRST SECURITY CORP /UT/
S-4, 1997-12-08
STATE COMMERCIAL BANKS

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<PAGE>

As filed with the Securities and Exchange Commission on December 8, 1997.
Registration No. 333-

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 6711 87-6118148
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of incorporation Classification Code Number) Identification No.)
organization)

79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

SCOTT C. ULBRICH
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST SECURITY CORPORATION
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Name, address, including zip code, and
telephone number, including area code, of agent for service)

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

Copies To:
A. ROBERT THORUP, ESQ. JEFFREY C. GERRISH, ESQ.
RAY, QUINNEY & NEBEKER GERRISH & MCCREARY, P.C.
79 SOUTH MAIN STREET 700 COLONIAL ROAD, SUITE 200
SALT LAKE CITY, UTAH 84111 MEMPHIS, TENNESSEE 38117
(801) 532-1500 (901) 767-0900
(FAX) (801) 532-7543 (FAX) (901) 684-2339

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

Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Effective Time of this Registration
Statement.

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

CALCULATION OF REGISTRATION FEE

- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE FEE
REGISTERED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ($1.25 2,900,000 shares(1) $36.125(2) $104,762,500(2) $30,904.94
PAR VALUE)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK RIGHTS (3) 2,900,000 rights None None None
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) Represents the maximum possible number of shares of the Registrant's
Common Stock to be issued in connection with the Mergers described
herein.
(2) Calculated pursuant to Rule 457(f)(1) solely for the purpose of the
registration fee based on the market value of the securities to be
received by Registrant as determined on December 4, 1997.
(3) One Right to purchase Junior Series B Preferred Stock of FSC is
associated with each share of Common Stock. The Rights are not
transferable separately from the Common Stock except in limited
circumstances.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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.

This Registration Statement consists of consecutively numbered
-----------
pages.
The Exhibit Index is on consecutively numbered page .
--------------

<PAGE>

FIRST SECURITY CORPORATION

CROSS-REFERENCE SHEET

FOR

REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS / PROXY STATEMENT

1. Forepart of Registration Statement Facing Page and pages RS-2 and
and Outside Front Cover Page of RS-3 of Registration Statement;
Prospectus Outside Front Cover Page of
Prospectus / Proxy Statement

2. Inside Front and Outside Back Available Information; Information
Cover Pages of Prospectus About FSC -- Incorporation of Certain
Documents by Reference; Table of
Contents

3. Risk Factors, Ratio of Earnings Summary of Prospectus / Proxy
to Fixed Charges and Other Statement; GLOSSARY; Outside Front
Information Cover Page of Prospectus / Proxy
Statement; Selected Comparative
Financial Data; The Merger;
Information About FSC; Federal
Income Tax Consequences; Information
About Bancorp; Information About FNBDA.

4. Terms of the Transaction The Merger; Appendix A

5. PRO FORMA Financial Information Selected Historical, PRO FORMA and
Equivalent PRO FORMA per Share Data;
Selected Comparative Financial Data

6. Material Contracts with the The Merger -- Background of and Reasons
Company Being Acquired for the Merger; The Merger -- Interests
of Certain Persons in the Merger

7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be Underwriters

8. Interests of Named Experts and Experts; Legal Matters
Counsel

9. Disclosure of Commission Position Comparative Rights of Shareholders
on Indemnification for Securities -- Directors
Act Liabilities

10. Information with Respect to S-3 Selected Comparative Financial Data;
Registrants Information About FSC

RS-4
<PAGE>

11. Incorporation of Certain Incorporation of Certain Information
Information by Reference by Reference

12. Information with Respect to S-2 Not Applicable
or S-3 Registrants

13. Incorporation of Certain Not Applicable
Information by Reference

14. Information with Respect to Not Applicable
Registrants Other than
S-2 or S-3 Registrants

15. Information with Respect to Not Applicable
S-3 Companies

16. Information with Respect to Not Applicable
S-2 or S-3 Companies

17. Information with Respect to Information about Bancorp; Information
Companies Other than S-2 about FNBDA; Selected Historical,
or S-3 Companies PRO FORMA and Equivalent PRO FORMA
per Share Data; Selected Comparative
Financial Data

18. Information if Proxies, Consents Summary of Prospectus / Proxy
or Authorizations are to be Statement; The Shareholders' Meeting;
Solicited The Proposed Merger Agreement; Rights
of Dissenting Shareholders;
Information about FSC; Information
About Bancorp; Information about
FNBDA: Interests of Certain Persons
in the Mergers

19. Information if Proxies, Consents Not Applicable
or Authorizations Are Not To Be
Solicited, or in an Exchange
Offer

RS-5

<PAGE>
PROSPECTUS/PROXY STATEMENT

FIRST SECURITY CORPORATION

RIO GRANDE BANCSHARES, INC. FIRST NATIONAL BANK OF DONA ANA COUNTY

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

This Prospectus/Proxy Statement is furnished by RIO GRANDE
BANCSHARES, INC. ("Bancorp"), FIRST NATIONAL BANK OF DONA ANA COUNTY ("FNBDA"),
and FIRST SECURITY CORPORATION ("FSC"), in connection with the meetings of
Bancorp Shareholders and FNBDA Shareholders, both called for January 30, 1998
(where appropriate, the Bancorp Shareholders Meeting ("the Bancorp Meeting") and
the FNBDA Shareholders Meeting ("the FNBDA Meeting") will be referenced together
as "the Meetings"), where votes will be taken to approve the Agreement and Plan
of Reorganization (the "Agreement") whereby Bancorp will merge with and into FSC
(the "Bancorp Merger"), and whereby a special purpose subsidiary of FSC ("FSB")
will merge with and into FNBDA (the "FNBDA Merger") (collectively both the
Bancorp Merger and the FNBDA Merger may be referred to, where appropriate, as
the "Mergers").

This Prospectus/Proxy Statement is being mailed to Bancorp
Shareholders and to FBNDA Shareholders (referenced together, when appropriate,
as the "Shareholders") on or about December 28, 1997, together with the attached
Appendices. This package constitutes FSC's Prospectus, which was filed with the
Securities and Exchange Commission as part of a Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the "Registration Statement"),
with respect to up to 2,900,000 shares of FSC's Common Stock, $1.25 par value
per share (the "FSC Common Stock"), to be issued to the Shareholders in the
Mergers.

FSC has supplied all the information contained herein with respect to
itself. FSC's principal executive offices are located at 79 South Main Street,
Salt Lake City, Utah 84111. FSC's information telephone number with respect to
this transaction is (801) 246-5706 (Attn: Scott C. Ulbrich, Chief Financial
Officer).

Bancorp and FNBDA have supplied all the information contained in this
Prospectus/Proxy Statement with respect to them and their affiliates. The
principal executive offices of Bancorp and of FNBDA are located at 500 South
Main Street, Las Cruces, New Mexico 88005. Bancorp's and FNBDA's information
telephone number with respect to the Mergers is (505) 526-7000 (Attn: Ben H.
Haines, President).

Neither the delivery of this Prospectus/Proxy Statement nor any sale
or exchange made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs or operations of FSC,
Bancorp or FNBDA since the date hereof.

This Prospectus/Proxy Statement does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby within
any jurisdiction or to any person to whom it is unlawful to make such offer or
solicitation within such jurisdiction. No agent or officer of FSC, Bancorp or
FNBDA, nor any other person has been authorized to give any information or to
make any representations other than as contained herein; and, if given or made,
such information or representations should not be relied upon as having been
authorized by FSC, Bancorp or FNBDA.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS DECEMBER 28, 1997<PAGE>

<PAGE>

[THIS PAGE LEFT BLANK INTENTIONALLY]

<PAGE>

TABLE OF CONTENTS

Page
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . 1
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE SHARERHOLDERS MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Persons Entitled to Vote At the Shareholders' Meetings; Proxy
Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Votes Required. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Security Ownership of Certain Beneficial Owners and Management. . . 16
Proxy Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . 18
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Reasons for the Agreement; Recommendations of the Boards of
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . 24
Interests of Certain Persons in the Mergers . . . . . . . . . . . . 29
Terms of the Merger Agreement . . . . . . . . . . . . . . . . . . . 30
Consideration to Be Received by Bancorp Shareholders and FNBDA
Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . 32
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 33
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 33
Conditions to the Mergers . . . . . . . . . . . . . . . . . . . . . 33
Termination of the Agreement. . . . . . . . . . . . . . . . . . . . 34
Operations of FNBDA and FNBCC After the Mergers . . . . . . . . . . 34
Effect of the Mergers on Employee Benefit Plans . . . . . . . . . . 35
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . 35
RIGHTS OF DISSENTING SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . 38
RESALES OF FSC COMMON STOCK RECEIVED IN THE MERGERS. . . . . . . . . . . . 38
CAPITALIZATION AND PRO FORMA CAPITALIZATION
OF FSC AND BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SELECTED COMPARATIVE FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . 39
SELECTED HISTORICAL, PRO FORMA AND
EQUIVALENT PRO FORMA PER SHARE DATA. . . . . . . . . . . . . . . . . . . 42
INFORMATION ABOUT FSC. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Supervision and Regulation. . . . . . . . . . . . . . . . . . . . . 44
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Description of FSC's Capital Stock. . . . . . . . . . . . . . . . . 55
Historical Prices and Dividends of FSC Common Stock . . . . . . . . 57
INFORMATION ABOUT BANCORP. . . . . . . . . . . . . . . . . . . . . . . . . 59
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Regulation and Supervision. . . . . . . . . . . . . . . . . . . . . 60
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Recent Legislation and Other Changes. . . . . . . . . . . . . . . . 61

(i)
<PAGE>

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 64
Market For Bancorp Common Stock . . . . . . . . . . . . . . . . . . 64
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Executive Officers and Directors. . . . . . . . . . . . . . . . . . 66
Transactions with Management. . . . . . . . . . . . . . . . . . . . 68
SELECTED BANCORP FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . 69
BANCORP'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 1996 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. . . . . . . . . . 83

BANCORP'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL RESULTS FOR NINE MONTHS
ENDED SEPTEMBER 30, 1997
INFORMATION ABOUT FNBDA. . . . . . . . . . . . . . . . . . . . . . . . . . 90
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 64
Market for FNBDA Common Stock . . . . . . . . . . . . . . . . . . . 64
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Executive Officers and Directors. . . . . . . . . . . . . . . . . . 66
Transactions with Management. . . . . . . . . . . . . . . . . . . . 68
FNBDA'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
SELECTED FNBDA FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . 69
FNBDA'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 1996 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. . . . . . . . . . 83
INFORMATION ABOUT FSB. . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPARATIVE RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 91
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . 91
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Repurchase and Redemption of Shares . . . . . . . . . . . . . . . . 94
Payment of Dividends to Shareholders. . . . . . . . . . . . . . . . 94

(ii)
<PAGE>

Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 95
Amendments to Articles or Certificate of Incorporation. . . . . . . 95
Amendments to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 95
Shareholder Approval of Mergers and Other Business Combinations . . 96
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . 97
Annual Meetings of Shareholders . . . . . . . . . . . . . . . . . . 97
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . 97
Shareholder Consent to Action Without a Meeting . . . . . . . . . . 98
Shareholder Inspection of Records . . . . . . . . . . . . . . . . . 98
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
DEADLINE FOR FSC SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . 99

APPENDIX A -- AGREEMENT OF MERGER, AS AMENDED

APPENDIX B -- BANCORP'S AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND BANCORP'S UNAUDITED FINANCIAL
STATEMENTS FOR THE QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 1997

APPENDIX C -- FNBDA'S AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND FNBDA'S UNAUDITED FINANCIAL
STATEMENTS FOR THE QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 1997

APPENDIX D -- FAIRNESS OPINION OF SOUTHARD FINANCIAL

APPENDIX E -- STATUTES GOVERNING RIGHTS OF DISSENTING SHAREHOLDERS

(iii)
<PAGE>

AVAILABLE INFORMATION

FSC is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission").
FSC's recent filings with the Commission can be inspected and copied at the
Public Reference Facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Office at 1801
California Street, Suite 4800, Denver, Colorado 80202-2648. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
information may also be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov.). In addition, FSC Common
Stock is traded by means of the NASDAQ, and such reports, proxy statements
and other information concerning FSC should be available for inspection and
copying at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.

FSC has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended ("Securities Act"), with respect
to the FSC Common Stock offered hereby. This Prospectus/Proxy Statement does
not contain all the information set forth in the Registration Statement and
the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, including the
exhibits thereto.

Statements contained in this Prospectus/Proxy Statement or in any
documents incorporated in this Prospectus/Proxy Statement by reference as to
the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference. The Registration Statement may
be inspected by anyone without charge at the principal office of the
Commission in Washington, D.C., and copies of all or any part of it may be
obtained from the Commission upon payment of the prescribed fees.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

There are incorporated herein by reference the following documents
filed with the Commission by FSC (File No. 1-6906):

(a) FSC's Annual Report on Form 10-K for the year ended December 31,
1996; and

(b) FSC's Proxy Statement dated March 15, 1997; and

(d) FSC's Current Reports on Form 8-K dated April 21, 1997 and
October 22, 1997; and

(e) Description of FSC Common Stock as included in FSC's
Registration Statement on Form S-3, filed with the
Commission on September 13, 1991, Commission File Number
33-42784.

All documents filed by FSC, respectively, with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus/Proxy Statement and prior to the date of the
Meetings are incorporated herein by reference, and such documents shall be
deemed to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.

THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH FSC
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON TO WHOM THIS

-1-

<PAGE>

PROSPECTUS/PROXY STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO FIRST
SECURITY CORPORATION, ATTENTION: SCOTT C. ULBRICH, EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER, SUITE 200, 79 SOUTH MAIN STREET, SALT LAKE CITY,
UTAH 84111; TELEPHONE NUMBER (801) 246-5706. IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS PRIOR TO THE MEETINGS, ANY REQUEST SHOULD BE
RECEIVED ON OR BEFORE JANUARY 10, 1998. COPIES OF SUCH DOCUMENTS WILL ALSO
BE AVAILABLE UPON REQUEST THEREAFTER UNTIL THE EFFECTIVE TIME (AS DEFINED
HEREINAFTER).

No agent or officer of FSC, FSB, FNBDA or Bancorp, nor any other
person has been authorized to give any information or to make any
representations other than as contained herein and in the documents
incorporated herein by reference; and, if given or made, such information or
representations should not be relied upon as having been authorized by FSC,
FSB, FNBDA or Bancorp. Neither the delivery of this Prospectus/Proxy
Statement nor any sale or exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs or operations of FSC, FSB, FNBDA or Bancorp since the date hereof, or
that the information herein is correct as of any time subsequent to such
date.

-2-

<PAGE>

GLOSSARY

As used in this Prospectus/Proxy Statement, the following are the
meanings for the terms set forth below:

"BANCORP" means Rio Grande Bancshares, Inc. and all of its
subsidiaries on a consolidated basis.

"BANCORP COMMON STOCK" means shares of common stock, $10.00 par
value, of Bancorp.

"BANCORP MEETING" means the meeting of Bancorp Shareholders called
for January 30, 1998 and otherwise described in this Prospectus/Proxy
Statement.

"BANCORP MERGER" means the merger of Bancorp with and into FSC.

"BANCORP SHAREHOLDER(S)" means a holder of shares of Bancorp Common
Stock as of the Record Date.

"BHC ACT" means the Bank Holding Company Act of 1956, as amended.

"CLOSING" means the closing of the transactions contemplated by the
Agreement.

"CLOSING DATE" means the date upon which Closing occurs.

"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.

"COMPTROLLER" means the Office of the Comptroller of the Currency.

"CONVERSION RATIO" , when used in connection with the Bancorp Merger,
means the number of shares of FSC Common Stock to be received by
Bancorp Shareholders for each issued and outstanding share of Bancorp
Common Stock at the Effective Time; when used in connection with the
FNBDA-FSB Merger, means the number of shares of FSC Common Stock to
be received by FNBDA Shareholders for each issued and outstanding
share of FNBDA Common Stock at the Effective Time

"DELAWARE STATUTE" means the Delaware General Corporation Law.

"EFFECTIVE TIME" means later of the date on which the Bancorp Merger
has become effective under Delaware and New Mexico law, and the date
on which the FNBDA Merger has become effective under the laws of the
United States.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.

"EXCHANGE AGENT" means the person designated by FSC to perform the
duties of exchange agent provided for in the Agreement. This
person's name and address will be provided to Shareholders at or
about the Effective Time.

"FDIC" means the Federal Deposit Insurance Corporation.

"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System.

"FNBCC" means The First National Bank of Chaves County, a national
bank wholly owned by Bancorp and which will become a wholly owned
subsidiary of FSC at the Effective Time.

"FNBDA" means The First National Bank of Dona Ana County.

"FNBDA COMMON STOCK" means shares of common stock, $10.00 par value,
of FNBDA.

"FNBDA MEETING" means the meeting of FNBDA shareholders called for
January 30, 1998 and otherwise

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<PAGE>

described in this Prospectus / Proxy statement.

"FNBDA MERGER" means the merger of FSB with and into FNBDA.

"FNBDA MINORITY SHAREHOLDER(S)" means, when used, a FNBDA
shareholder other than Bancorp.

"FNBDA SHAREHOLDERS" means the holders of FNBDA Common Stock as of
the Record Date.

"FSB" means First Security Sub, the special purpose bank organized to
merge with and into FNBDA.

"FSC" means First Security Corporation.

"FSC COMMON STOCK" (or sometimes "Common Stock" used alone) means
shares of common stock, $1.25 par value per share, of FSC.

"IRS" means Internal Revenue Service.

"MEETINGS" or "SHAREHOLDERS MEETINGS" when used in the plural refer
to the Bancorp Meeting and to FNBDA Meeting.

"MERGER AGREEMENT" means the Agreement and Plan of Reorganization
dated as of October 18, 1997, as amended, among FSC, Bancorp, FSB,
FNBCC and FNBDA.

"MERGERS" means the Bancorp Merger and the FNBDA Merger, when
referred to together.

"NASDAQ STOCK MARKET" means the National Market System of the
National Association of Securities Dealers Automatic Quotation
System.

"NEW MEXICO STATUTE" means the New Mexico Business Corporations Act,
consisting of Sections 53-11-1 ET SEQ. of the New Mexico Statutes
Annotated, as amended.

"NONPERFORMING ASSETS" means the total of nonaccruing and
renegotiated loans plus Other Real Estate (ORE).

"RECORD DATE" means the close of business on December 19, 1997, the
date set by the Board of Directors of Bancorp to determine the
Bancorp Shareholders who are entitled to notice of and to vote at the
Bancorp Meeting. With respect to the FNBDA-FSB Merger, means the
close of business on December 19, 1997, the date set by the Board of
Directors of FNBDA to determine the FNBDA Shareholders who are
entitled to notice of and to vote at the FNBDA Meeting.

"REGISTRATION STATEMENT" means the registration statement of FSC on
Form S-4 filed with the Securities and Exchange Commission under the
Securities Act with respect to the shares of FSC Common Stock
issuable pursuant to the Merger Agreement.

"RIGHT" means right to acquire a new class of stock of FSC under
certain circumstances involving the acquisition of certain amounts of
FSC shares by a third party. (SEE "INFORMATION ABOUT FSC--
Description of FSC's Capital Stock.")

"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.

"SHAREHOLDERS" when used without other identification to a particular
entity, refers to both the Bancorp Shareholders and to the

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FNBDA Minority Shareholders.

[THIS SPACE LEFT BLANK INTENTIONALLY.]

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PROSPECTUS SUMMARY

The following is a summary of certain significant information
contained in this Prospectus/Proxy Statement or in documents incorporated
herein by reference. This summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus/Proxy Statement,
the Appendices hereto, and the documents incorporated herein by reference.
Shareholders are urged to read carefully this Prospectus/Proxy Statement and
the attached Appendices in their entirety.

FSC FSC is a regional bank holding company headquartered in Salt
Lake City, Utah. FSC owns and operates First Security Bank,
N.A., First Security Bank of New Mexico, N.A., and First
Security Bank of Nevada. Through these three banks, FSC
provides full service banking operations in the six (6)
Western States of Idaho, New Mexico, Nevada, Oregon, Utah
and Wyoming. FSC also owns and operates several other
financial services companies, some having a national
presence. Through its subsidiaries, FSC provides commercial
and agricultural finance, consumer banking, trust, capital
markets, treasury management, investment management, data
processing, leasing and securities brokerage services. At
September 30, 1997, FSC and its consolidated subsidiaries
had consolidated assets of $16.3 billion, consolidated
deposits of $10.2 billion and shareholders' equity of $1.3
billion. FSC has paid a regular dividend on its Common
Stock since its incorporation in 1928. (SEE "INFORMATION
ABOUT FSC.")

FSC's principal executive offices are located at 79 South
Main Street, Salt Lake City, Utah 84111, and its telephone
number is (801) 246-6000.

BUSINESS OF FSB FSB is a special purpose bank to be created solely for the
purpose of merging with and into FNBDA, which transaction will
result in FNBDA becoming a wholly owned subsidiary of FSC.

BUSINESS OF Bancorp is a New Mexico corporation and a Federal Reserve
BANCORP Board-regulated bank holding company, is the holder of all
of the outstanding stock of FNBCC, and is the owner of
substantially all, but not all, of the outstanding common
stock of FNBDA. Bancorp's sole business activity is serving
as a bank holding company for FNBDA and FNBCC. At September
30, 1997, Bancorp had total consolidated assets of
approximately $416 million.

FNBCC, Bancorp's wholly owned subsidiary, is a national
banking association with assets of approximately $38
million as of September 30, 1997, doing business from its
main office located at 1901 North Main Street, Roswell, New
Mexico. FNBCC has no branch offices. The telephone number
of the main office is (505) 624-1901.

BUSINESS OF FNBDA, Bancorp's majority owned subsidiary, is a national
FNBDA bank with assets of approximately $379 million at September
30, 1997, doing business from its head office located at
500 South Main, Las Cruces, New Mexico and its nine branch
offices located throughout Dona Ana County, New Mexico. The
telephone number of the main office is (505) 526-7000.

THE SHAREHOLDERS' The Shareholders' Meetings will be held on January 30, 1998
MEETINGS at Bancorp's headquarters office located at 500 South Main
Street, Las Cruces, New Mexico, for the purposes of asking
the Shareholders to approve the Merger

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Agreement. The Bancorp Shareholders' Meeting will
be held at 1:45 p.m. local time and the FNBDA Shareholders'
Meeting will be held at 2:00 p.m. local time. Bancorp owns
in excess of 96% of the outstanding shares of FNBDA, and
Bancorp has agreed to vote its shares of FNBDA in favor of
the FNBDA-FSB Merger. Under applicable law, the
shareholders of FSC are not

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entitled to vote on the Bancorp Merger. FSC, as the sole
shareholder of FSB, has agreed to vote the shares of FSB
in favor of the FNBDA-FSB Merger. (SEE "THE SHAREHOLDERS'
MEETINGS--General.")

THE MERGER By resolutions of their Boards of Directors, FSC, FSB,
AGREEMENT Bancorp and FNBDA have agreed pursuant the Merger Agreement
that FSB will merge with and into FNBDA (the FNBDA Merger);
and that Bancorp will merge with and into FSC (the Bancorp
Merger), if the Merger Agreement is approved by the
Shareholders. As a result of the Mergers, all shares of
Bancorp Common Stock, and those shares of FNBDA Common Stock
owned by FNBDA Minority Shareholders, will be exchanged for
shares of FSC Common Stock pursuant to Conversion Ratios
provided in the Merger Agreement.

EFFECT OF THE The Merger Agreement provides for conversion of each
MERGERS; THE issued and outstanding share of Bancorp Common Stock into
CONVERSION RATIOS 25.2873 shares of FSC Common Stock; and the conversion of
each issued and outstanding share of FNBDA Common Stock
not owned by Bancorp into 17.8125 shares of FSC Common
Stock (each a "Conversion Ratio"). (SEE "THE MERGER
AGREEMENT".) There were 112,161 issued and outstanding
shares of Bancorp Common Stock as of the Record Date.
There were 100,000 shares of FNBDA Common Stock issued
and outstanding at the same date, of which 96,421 were
owned by Bancorp.

The Conversion Ratios, and hence the number of shares of FSC
Common Stock to be received by Bancorp Shareholders and
FNBDA Minority Shareholders, are fixed. No adjustment to
the Conversion Ratios will be made in response to
intervening fluctuations in the market price for FSC Common
Stock. The Conversion Ratios will be adjusted to reflect
any stock dividends, subdivisions, split ups,
reclassifications or combinations of FSC Common Stock prior
to the Effective

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Time. (SEE "THE MERGER AGREEMENT--Consideration to be
Received by Shareholders.") Each share of FSC Common Stock
issued in connection with the Mergers will have an attached
Right, which Right is part of a shareholder-rights plan
adopted by FSC in 1989. The Rights give holders the
opportunity to purchase additional equity interests in FSC
at a significant discount under certain circumstances. (SEE
"INFORMATION ABOUT FSC--Description of FSC's Capital
Stock.")

No fractional shares of FSC Common Stock will be issued;
instead, a cash payment will be made for fractional shares
determined by the average of the daily closing prices for a
share of FSC Common Stock quoted on the NASDAQ Stock Market
during the period of five (5) consecutive trading days
ending at the end of the third trading day immediately
preceding the Effective Time.

The terms of the Mergers were negotiated at arm's length,
and have been deemed to be fair by the Boards of Directors
of the merging corporations. Bancorp retained Southard
Financial ("Southard") as its independent financial adviser
to render an opinion on the fairness of the Bancorp Merger
to Bancorp Shareholders and to value the FNBDA Common Stock
for purposes of determining the conversion ratio for the
FNBDA Merger. The form of the Southard Opinion, without
attachments, is attached to this Prospectus/Proxy Statement
as Appendix C.

Shareholders will become holders of FSC Common Stock through
the Mergers. The stockholder rights and laws governing the
Shareholders will change once such Shareholders become
holders of FSC Common Stock. (SEE "THE MERGER
AGREEMENT--Consideration to Be Received by Shareholders,"
"INFORMATION ABOUT FSC--Description of FSC's Capital Stock";
and "COMPARATIVE RIGHTS OF SHAREHOLDERS.")

FSC COMMON The shares of FSC Common Stock to be issued in connection
STOCK with the Mergers will be entitled along with all other
outstanding shares of FSC Common Stock to receive dividends
when, as and if declared by the Board of Directors of FSC.
Holders of FSC Common Stock are entitled to one vote for
each share held. The holders of FSC Common Stock do not
have any preemptive rights to subscribe for additional
shares of FSC should FSC decide to issue additional shares
in the future. (SEE "INFORMATION ABOUT FSC--Description of
FSC's Capital Stock.")

RECOMMENDATION THE BOARD OF DIRECTORS OF BANCORP AND THE BOARD OF
OF BANCORP'S AND DIRECTORS OF FNBDA RECOMMEND THAT THE SHAREHOLDERS
FNBDA'S BOARDS VOTE FOR THE MERGER AGREEMENT.
OF DIRECTORS

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<PAGE>

PERSONS ENTITLED Bancorp Shareholders and FNBDA Shareholders as of the close
TO NOTICE of business on December 19, 1997 (the "Record Date") are
AND TO VOTE entitled to notice of and to vote at the Meetings in
connection with the Merger Agreement.

REVOCABILITY OF Shareholders may designate and instruct proxies to vote on
PROXIES their behalf at the Meetings. Delivered together with this
Prospectus/Proxy Statement is a proxy card which may be
used to designate and instruct the proxy holders to vote
at the Meetings, whether or not a Shareholder plans to
attend his/her Meeting in person. Any Shareholder who has
designated and given a proxy instruction may revoke it at
any time prior to its exercise at the particular Meeting
either by revoking it in writing sent to the Secretary of
Bancorp prior to the Bancorp Meeting, for Bancorp
Shareholders, or to the Cashier of FNBDA prior to the FNBDA
Meeting, for FNBDA Minority Shareholders; by duly executing
and delivering to Bancorp or FNBDA, as appropriate, a new
and different proxy card bearing a later date; or by
appearing at such Meeting and, by addressing the chair of
the Meeting, (a) orally revoking such proxy and (b) voting
in person when the call for voting on the Merger Agreement
occurs at the Shareholders' Meeting. The mere presence at
a Meeting of a person who has previously designated and
instructed a proxy will not revoke such designation and
instruction.

QUORUM The presence, either in person or by proxy, of the holders
of more than fifty percent (50%) of the outstanding shares
of Bancorp Common Stock entitled to vote at the Bancorp
Shareholders' Meeting, and the same level of Shareholder
presence at the FNBDA Shareholders' Meeting, is necessary
to constitute a quorum at the Shareholders' Meetings.

VOTE REQUIRED The affirmative vote of a majority of the issued and
outstanding shares of Bancorp Common Stock able to vote
at the Bancorp Meeting is required to approve the Bancorp
Merger. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of FNBDA Common
Stock is required to approve the FNBDA Merger. THE
HOLDERS OF 59% OF THE OUTSTANDING SHARES OF BANCORP
COMMON STOCK HAVE INDICATED THEIR INTENT TO VOTE IN FAVOR
OF THE MERGER AGREEMENT. BANCORP OWNS OVER 96% OF THE
COMMON STOCK OF FNBDA AND HAS INDICATED THAT IT WILL VOTE
THOSE SHARES IN FAVOR OF THE MERGER AGREEMENT.
Therefore, the shareholder approvals of the Merger
Agreement are assured. FSC owns, or will own at the time
of the Mergers, all of the outstanding common stock of
FSB, and has indicated that it will vote those shares in
favor of the Merger Agreement. Under Delaware law, the
shareholders of FSC are not entitled to vote on the
Merger Agreement.

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CLOSING DATE AND It is currently expected that Closing of the Merger
EFFECTIVE TIME; Agreement will be on or before January 31, 1998, once
CONDITIONS TO THE all of the necessary conditions precedent, including
MERGER AGREEMENT but not limited to the following, occur:

(i) the obtaining of the consent of
all government regulatory authorities whose
consent is legally required to consummate the
Mergers, and the expiration of all associated
statutory waiting periods;

(ii) the requisite Shareholder
approvals of the Merger Agreement;

(iii) the delivery of required opinions
of counsel and required comfort letters from
Bancorp's Certified Public Accountants; and

(iv) the performance of certain
covenants agreed among the parties to the Merger
Agreement, including but not limited to
maintenance of agreed net worth levels and
limitations on dividends and other corporate
actions by FNBDA and Bancorp pending the vote on
the Mergers (SEE Form of Merger Agreement,
Appendix A).

The parties may agree on another date to close the Mergers
(in any such case, the "Closing Date").

The Effective Time of the FNBDA Merger will be the close of
business on the date the Comptroller deems the FNBDA Merger
to be effective, or such later time as the parties may
agree; and the Bancorp Merger will be effective upon the
filing of the Articles of Merger with the appropriate
Delaware and New Mexico government authorities. (SEE "THE
MERGER AGREEMENT--Conditions to the Mergers.")

REGULATORY The FNBDA Merger is subject to approval by the Comptroller.
APPROVALS The Comptroller is reviewing the FNBDA Merger as of the
date of this Prospectus/Proxy Statement. Neither FSC nor
Bancorp knows of any reason why the FNBDA Merger will not
be approved by the Comptroller in time to effect the
Closing; however, there can be no assurances as to when,
if or with what conditions such approval will be granted.

The Bancorp Merger is subject to approval by the Federal
Reserve Board and challenge by the U. S. Department of
Justice. There also can be no assurance that Justice will
not challenge the Mergers on antitrust grounds, or if such a
challenge is made, as to the result thereof. Filings
necessary to start the Justice Department review period were
filed on or about December 8, 1997.

AN APPROVAL BY THE FEDERAL RESERVE BOARD REFLECTS ONLY THE
VIEW THAT THE BANCORP MERGER DOES NOT CONTRAVENE APPLICABLE
COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT THE BANCORP
MERGER IS CONSISTENT WITH REGULATORY POLICIES RELATING TO
SAFETY AND SOUNDNESS; AN APPROVAL BY THE FEDERAL RESERVE
BOARD IS NOT AN OPINION BY THE FEDERAL RESERVE BOARD THAT
THE BANCORP MERGER IS FAVORABLE TO THE SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW OR THAT THE FEDERAL RESERVE BOARD
HAS CONSIDERED THE ADEQUACY OF THE TERMS OF THE BANCORP
MERGER; AND AN APPROVAL BY THE FEDERAL RESERVE BOARD IS NOT
AN ENDORSEMENT OR RECOMMENDATION OF THE BANCORP MERGER.

AN APPROVAL BY THE COMPTROLLER REFLECTS ONLY THE VIEW THAT
THE FNBDA MERGER DOES NOT CONTRAVENE APPLICABLE COMPETITIVE
STANDARDS IMPOSED BY LAW, AND THAT THE FNBDA MERGER IS
CONSISTENT WITH REGULATORY

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<PAGE>

POLICIES RELATING TO SAFETY AND SOUNDNESS; AN APPROVAL BY
THE COMPTROLLER IS NOT AN OPINION BY THE COMPTROLLER THAT
THE FNBDA MERGER IS FAVORABLE TO THE FNBDA MINORITY
SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW OR THAT THE
COMPTROLLER HAS CONSIDERED THE ADEQUACY OF THE TERMS OF THE
FNBDA MERGER; AND AN APPROVAL BY THE COMPTROLLER IS NOT AN
ENDORSEMENT OR RECOMMENDATION OF THE FNBDA MERGER.

(SEE "THE MERGER AGREEMENT--Regulatory Approvals,"
"--Conditions to the Mergers," and "--Termination of the
Merger Agreement.")

TERMINATION OR The Merger Agreement may be amended after approvals by the
AMENDMENT OF THE Shareholders only in nonmaterial ways by the Boards of
MERGER AGREEMENT Directors of the parties. "Nonmaterial" amendments would
not include changes to the Conversion Ratios, tax
consequences, or methods of accounting for the Mergers.

The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of the parties, OR
by any of the parties at any time after July 18, 1998, if
Closing has not yet occurred, OR at any time prior to
Closing by any party if any warranty or covenant of the
other party is breached and remains uncured for more than 30
days, OR by FSC if less than a majority of the shares of
Bancorp Common Stock approve the Bancorp Merger or if the
Mergers are not approved by any required governmental
authority.

NO SOLICITATION Bancorp has agreed in the Merger Agreement that neither it
nor any of its agents or employees, directly or indirectly,
will initiate, solicit or encourage any inquiries or the
making of any proposal or offer for, furnish any
confidential information relating to, or engage in any
negotiations or discussions concerning, any acquisition or
purchase of Bancorp or FNBDA.

MANAGEMENT OF Following the Mergers, Bancorp will cease to exist. All
BANCORP AND decisions as to the future operation of FNBDA and FNBCC
FNBDA AFTER following the Mergers, and all personnel action with regard to
THE MERGERS current FNBDA or FNBCC employees will be in the sole
discretion of FSC under current management policies and
employment programs of FSC.

INTERESTS OF All of Bancorp's and FNBDA's Directors and Executive
CERTAIN PERSONS Officers own shares of Bancorp Common Stock, all of which
IN THE MERGERS will be converted into shares of FSC Common Stock under
the Merger Agreement on the same terms and conditions as
apply to all other shares of Bancorp Common Stock and
minority-held FNBDA Common Stock. None of these directors
and executive officers have agreements for additional
compensation or any other rights which become effective
upon a change in control. However, Ben H. Haines, Jr. and
John A. Papen III have interests in the Mergers (in addition
to their interests as Bancorp Shareholders generally) in
the form of employment agreements with post-Merger FNBDA.
(SEE "THE MERGER AGREEMENT--Interests of Certain Persons in
the Mergers.")

Current retirement and health insurance plans available to
employees of FNBDA and of FNBCC will terminate as of the
Effective Time, if not before. Those employees of FNBDA and
FNBCC who are retained following the Mergers will be subject
to existing employee plans and plan requirements of FSC.
FSC has agreed to provide employees of FNBDA and FNBCC who
are employed following the Effective Time with employee
benefits on substantially the same basis and applying the
same eligibility standards as other FSC subsidiary
employees. (SEE "THE MERGER

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AGREEMENT--Interests of Certain Persons in the Mergers";
"--Effect of Mergers on FNBDA and Bancorp Employee
Benefit Plans.")

FEDERAL INCOME The law firm of Ray Quinney & Nebeker has rendered an
TAX CONSEQUENCES opinion with respect to certain federal income tax
consequences of the Mergers. In summary, the opinion
is to the effect that, for federal income tax purposes,
the Mergers will constitute nontaxable reorganizations
and that no gain or loss will be recognized by
Shareholders who exchange all of their Bancorp Common
Stock or FNBDA Common Stock solely for FSC Common Stock.
Gain or loss will be recognized to Shareholders who receive
cash in lieu of fractional share interests pursuant to the
Mergers. The amount of the gain or loss will be the
difference between the cash received and the basis of the
fractional share interests surrendered in exchange for the
cash. The opinion is based on certain assumptions and
representations. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN
TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF THE MERGERS
IN LIGHT OF THEIR OWN TAX SITUATIONS. (SEE "FEDERAL INCOME
TAX CONSEQUENCES.")

DISSENTERS' RIGHTS Under the New Mexico Statute, holders of Bancorp Common
Stock outstanding and entitled to vote at the Bancorp
Meeting who do not vote in favor of the Merger Agreement and
who comply with certain notice requirements and other
procedures will have the right to dissent from the Merger
and to be paid cash for the fair value of their shares of
Bancorp Common Stock.

Similar Dissenters' Rights are provided to FNBDA Minority
Shareholders under the National Bank Act with respect to
their shares of FNBDA Common Stock.

Shareholders wishing to dissent from the Merger Agreement
are urged to read carefully "RIGHTS OF DISSENTING
SHAREHOLDERS" and Appendix E attached to this
Prospectus/Proxy Statement, and then should consult with
their own legal advisors.

MARKET PRICE Shares of FSC Common Stock are traded on the NASDAQ National
COMPARISON Market System. The closing sale price of FSC Common Stock
on the NASDAQ National Market System was $30.00 per share on
October 17, 1997, the last trading day prior to the public
announcement of the execution of the Merger Agreement; and
$ per share on the Record Date.

Shares of Bancorp Common Stock and shares of FNBDA are not
publicly traded, and sales of such shares are infrequent and
privately negotiated. Bancorp is unaware of any sales of
Bancorp Common Stock during the past 24 months.

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THE SHAREHOLDERS' MEETINGS

GENERAL

This Prospectus/Proxy Statement is being furnished to
Shareholders in connection with the solicitation of proxies by the Board of
Directors of Bancorp and by the Board of Directors of FNBDA for the
shareholders' meetings to be held on Friday, January 30, 1998, and at any
adjournments thereof. The Bancorp Meeting (the "Bancorp Meeting") will be
held at 1:45 o'clock p.m. local time at Bancorp's office at 500 South Main
(Fourth Floor), Las Cruces, New Mexico, and the FNBDA Meeting (the "FNBDA
Meeting") will be held at 2:00 o'clock p.m., local time at the same place.

Each Bancorp Shareholder is entitled to one vote for each
share of Bancorp Common Stock held as of the Record Date. The purposes of
the Bancorp Meeting are to consider and act upon the Merger Agreement and the
transactions contemplated therein and such other matters as may properly be
brought before the meeting. Bancorp does not have any knowledge of any other
matters to be presented at the Bancorp Meeting.

Each FNBDA Shareholder is entitled to one vote for each share
of FNBDA Common Stock held as of the Record Date. The purposes of the FNBDA
Special Meeting are to consider and act upon the Merger Agreement and the
transactions contemplated therein and such other matters as may properly be
brought before the meeting. FNBDA does not have any knowledge of any others
to be presented at the FNBDA Meeting.

The date on which this Prospectus/Proxy Statement is first
being sent to Bancorp shareholders and FNBDA shareholders is on or about
December 28, 1997.

PERSONS ENTITLED TO VOTE AT THE SHAREHOLDERS' MEETINGS; PROXY VOTING; BROKER
NON-VOTES

There were 112,161 shares of Bancorp Common Stock issued and
outstanding on the Record Date, net of any Treasury shares. There were
100,000 shares of FNBDA Common Stock issued and outstanding on the Record
Date. On any matters submitted to the vote of the Bancorp Shareholders, each
holder of Bancorp Common Stock will be entitled to one vote, in person or by
proxy, for each share of Bancorp Common Stock held of record as of the Record
Date. On any matter submitted to the vote of the FNBDA Shareholders, each
holder of FNBDA Common Stock will be entitled to one vote, in person or by
proxy, for each share of FNBDA Common Stock held of record as of the Record
Date. The effect of broker non-votes is that such votes are not counted as
being voted; however, such votes are counted for purposes of determining a
quorum. The effect of a vote of abstention on any matter is that such vote
is not counted as a vote for or against the matter, but is counted as an
abstention.

Shares represented at the Meetings by properly executed and
completed proxy designations and instructions ("proxies") will, unless such
proxies have been previously revoked, be voted in accordance with such
instructions. If no instructions are indicated on signed and delivered
proxies, such shares will be voted FOR the Merger Agreement. If any other
matters are properly presented at the Meetings for action, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.

Any Shareholder who has designated and instructed a proxy may
revoke it at any time prior to exercise at the respective Meeting either by
filing an instrument revoking it with the Secretary of Bancorp or Secretary
of FNBDA (as applicable) prior to the respective Meeting, by duly executing a
new and different proxy bearing a later date; or by appearing in person at
the Meeting and, by addressing the Chair of the meeting, (a) orally revoking
an earlier proxy and (b) voting contrary to the earlier proxy in person at
the time that votes on the proposed Merger Agreement are called for at the
respective Meeting. The presence at the Meeting of a person who has
designated and instructed a proxy will not revoke such designation and
instruction.

QUORUM

The presence, either in person or by properly designated and
instructed proxy, of the holders of a majority (more than 50%) of the
outstanding shares of Bancorp Common Stock entitled to vote at the Bancorp
Meeting is necessary to constitute a quorum at the Meeting.

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The presence, either in person or by properly designated and
instructed proxy, of the holders of a majority (more than 50%) of the
outstanding shares of FNBDA Common Stock entitled to vote at the FNBDA
Meeting is necessary to constitute a quorum at the Meeting.

VOTES REQUIRED

The affirmative vote of the holders of at least a majority
(more than 50%) of the outstanding shares of Bancorp Common Stock is required
to approve the Merger Agreement. Each Bancorp Shareholder is entitled to one
vote at the Bancorp Meeting for each share of Bancorp Common Stock held of
record on the Record Date. Directors and officers of Bancorp and certain
persons affiliated with them, and certain other Bancorp Shareholders, in the
aggregate holding approximately 59% of the outstanding shares of Bancorp
Common Stock, have indicated their intention to vote such shares FOR the
Merger Agreement, thus assuring the needed approval of the Bancorp
Shareholders.

The affirmative vote of the holders of at least two-thirds of
the outstanding shares of FNBDA Common Stock is required to approve the
Merger Agreement. Bancorp owns over 96% of the outstanding shares of FNBDA
Common Stock and has indicated that it will vote those shares FOR the Merger
Agreement, thus assuring the needed approval of the FNBDA Shareholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Bancorp knows of no person who owns, beneficially or of record
either individually or together with associates, 5% or more of the
outstanding shares of Bancorp Common Stock except as set forth in the table
below.

AMOUNT & NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT & CLASS
---------------- -------------------- ---------------

Michele Papen-Daniel, Ph.D. 51,238(1) 45.68%
1907 Greenfield Avenue
Los Angeles, California
90025

(1) Includes 37,585 shares over which Dr. Papen-Daniel has
shared voting or investment power.

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FNBDA knows of no person who owns, beneficially or of record
either individually or together with associates, 5% or more of the
outstanding shares of FNBDA Common Stock except for Bancorp, which directly
owns 96,421 shares (96.42%) of the outstanding shares of FNBDA Common Stock.

The following table sets forth, as of November 30, 1997, the
number and percentage of shares of Bancorp and/or FNBDA Common Stock
beneficially owned, directly or indirectly, by each of Bancorp's and FNBDA's
respective Directors and named Executive Officers and by the Directors and
named Executive Officers of Bancorp and FNBDA, respectively, as a group. The
shares "beneficially owned" are determined under applicable Securities and
Exchange Commission rules, and do not necessarily indicate ownership for any
other purpose. In general, beneficial ownership includes shares over which a
Director, principal Shareholder or named Executive Officer has sole or shared
voting or investment power and shares which such person has the right to
acquire within sixty days of the Record Date. Unless otherwise indicated,
the persons listed below have sole voting and investment powers. Bancorp is
not aware of any arrangements which may, at a subsequent date, result in a
change of control of Bancorp other than through the proposed Merger Agreement.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

PERCENT PERCENT
BENEFICIAL OWNER TITLE BANCORP OF CLASS FNBDA OF CLASS
SHARES SHARES
------ ------
<S> <C> <C> <C> <C> <C>

Julie Chase-Daniel(1) Director of Bancorp and FNBDA 3,687(4) 3.29% - -

Mary Garza Director of FNBDA 82 0.07 - -

Ben H. Haines, Jr. Director of Bancorp and FNBDA; President 1,575 1.40 - -
of FNBDA

Charles N. Haner Director of Bancorp 2,785 2.48 - -

Kent F. Jacobs, M.D. Director of Bancorp 206(5) 0.18 - -

Robert O. Johnson Chief Financial Officer of Bancorp 259(6) 0.23 - -

Arlyn A. Kriegel Director of FNBDA 100 0.09 - -

Thomas M. Mobley Senior Vice President of FNBDA 524(5) 0.47 - -

John A. Papen III(3) Director of Bancorp and FNBDA; Executive 7,980(8) 7.11 - -
Vice President of FNBDA

Michele Papen-Daniel, Director of Bancorp and FNBDA; President 51,238(9) 45.68 141 0.14
Ph.D(3) of Bancorp

Earl A. Shepard Director of FNBDA 200 0.18 - -

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<PAGE>

Stan Smith Director of FNBDA 405(10) 0.36 - -

Claud Tharp Director of Bancorp 377 0.34 - -

William Tharp(2) Director of Bancorp and FNBDA 3,754(11) 3.35 - -

Alden Tombaugh Senior Vice President of FNBDA 524(5) 0.47 - -
All Directors and 70,167 62.56 141 0.14
Executive Officers as a
Group (15 persons)

1 Michele Papen-Daniel is the mother of Julie Chase-Daniel.

2 Claud Tharp is the father of William Tharp.

3 John A. Papen III and Michele Papen-Daniel are first cousins.

4 Includes 264 shares held jointly with spouse and 3,258 shares over
which Ms. Chase-Daniel has shared voting power.

5 All shares are held jointly with spouse.

6 Includes 125 shares held jointly with spouse and 134 shares held in
an Individual Retirement Account.

8 Includes 3,150 shares over which Mr. Papen has shared voting power.

9 Includes 37,585 shares over which Dr. Papen-Daniel has shared voting
power.

10 Includes 210 shares held jointly with spouse and 195 shares held in
an Individual Retirement Account.

11 Includes 141 shares held jointly with spouse and 3,613 shares over
which Mr. Tharp has shared voting power.

12 All shares are held jointly with spouse.

</TABLE>

PROXY SOLICITATION

Proxies are being solicited by and on behalf of the Boards of
Directors of Bancorp and FNBDA through the use of this Prospectus/Proxy
Statement. Pursuant to the Merger Agreement, each party will bear its own
costs in connection with preparing this Prospectus/Proxy Statement and
mailing and Shareholders' Meeting expenses.

In addition to solicitation by use of the mails, proxies may
be solicited by directors, officers and employees of Bancorp or FNBDA in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated for
such activities, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. As necessary, arrangements will be made
with banks, custodians, nominees and fiduciaries for the forwarding of proxy
solicitation material to Shareholders, and in connection therewith such firms
will be reimbursed for reasonable expenses in forwarding such materials.

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<PAGE>

SHAREHOLDERS VOTING FOR THE MERGER AGREEMENT SHOULD NOT SEND
THEIR BANCORP OR FNBDA STOCK CERTIFICATES WITH THEIR PROXIES.

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<PAGE>

THE MERGER AGREEMENT

BACKGROUND

Frank O. Papen, the long-time Chairman, President and
principal shareholder of Bancorp and FNBDA died in March, 1996. In the
months following Mr. Papen's death, Mr. Papen's heirs began considering
alternatives to their ownership of shares of Bancorp Common Stock. In early
Summer, 1997, Mr. Papen's heirs earnestly began exploring with various bank
experts viable alternatives to their ownership of Bancorp Common Stock, and
they concluded that it would be in their best interests and that of the other
Shareholders if Bancorp and FNBDA were sold.

In July, 1997, Bancorp and FNBDA retained legal counsel to
assist Bancorp and FNBDA in the sale of the organization. Negotiations
commenced with FSC in August, 1997 because FSC already had a significant
presence in New Mexico and was seen as an attractive potential acquiror.
Bancorp and FSC exchanged information about each other, further negotiations
ensued, and on October 18, 1997, the Merger Agreement was executed.

REASONS FOR THE MERGER AGREEMENT: RECOMMENDATIONS OF BOARDS OF DIRECTORS

Bancorp, FNBDA and FNBCC have grown into strong and viable
financial services organizations in their markets. Their healthy deposit
base and customer loyalty make the Merger Agreement an attractive means for
the expansion of FSC's New Mexico banking operations. Under New Mexico law,
banking organizations such as Bancorp and FNBDA can be acquired by other
banks and bank holding companies located in New Mexico and in certain other
states. In the current changing regulatory environment, several independent
New Mexico banking organizations have been acquired by larger, often
out-of-state banking organizations seeking to achieve an initial or improved
market position in New Mexico. In 1993, FSC acquired what is now First
Security Bank of New Mexico, N.A., the third largest bank in New Mexico and
the second largest bank in the Albuquerque area. It is attractive to FSC to
acquire Bancorp (and FNBCC) and FNBDA as a means of improving its competitive
position in New Mexico, as well as a means to better compete with other
multi-state institutions entering the New Mexico market.

Today's financial marketplace imposes challenges and burdens.
The squeeze on net interest margins, competition in general (including
availability of new products and services from numerous nontraditional
financial-service providers), the need for management succession and demands
for additional capital to provide a fully competitive array of products and
services were all considered by Bancorp's Board of Directors in determining
that the Merger Agreement is in the best interests of Bancorp Shareholders
and FNBDA Shareholders, the depositors and loan customers of FNBCC and FNBDA,
and new customers in the marketplace.

The Bancorp Board of Directors has unanimously concluded that
the Merger Agreement is in the best interest of Bancorp Shareholders and
unanimously recommends that Bancorp Shareholders approve the Merger Agreement
at the Bancorp Meeting. Likewise, the Board of Directors of FNBDA, and
Bancorp as the majority shareholder of FNBDA, recommend that the minority
FNBDA Shareholders also approve the Merger Agreement at the FNBDA Meeting.
In reaching these determinations to approve the Merger Agreement, the Boards
of Directors of Bancorp and FNBDA consulted with counsel, as well as
management, and considered a number of factors, including, without
limitation, the following:

A. Each Board's familiarity with and review of FSC and FSB's
business, operations, earnings and financial condition and
future capital requirements;

B. Each Board's belief that the terms of the Merger Agreement
are attractive in that the Merger Agreement allows the
Shareholders to become shareholders in FSC, an institution
whose stock is traded on the NASDAQ Stock Market, and the
recent earnings performance of FSC;

C. FSC's wide range of banking products and services and its
dividend payment history;

D. Each Board's belief, based upon the analysis of the
anticipated financial effects of the Merger, that upon
consummation of the Merger, FSC and its banking subsidiaries
would be well-capitalized institutions, the financial
positions of which will be well in excess of all applicable
regulatory requirements;

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<PAGE>

E. The current and prospective economic and regulatory
environment and competitive constraints facing the banking
industry and financial institutions in Bancorp's market
areas;

F. Each Board's belief that in light of the reasons discussed
above, FSC was the most attractive choice as a long term
affiliation partner of Bancorp and FNBDA; and

G. The expectation that the Merger would generally be a tax-
free transaction to Bancorp, FNBDA and the Shareholders.

In reaching their determination to approve and recommend the principal terms
of the Merger Agreement, the Boards of Directors of Bancorp and FNBDA did not
assign relative or specific weights to the foregoing factors and individual
directors may have assigned such factors differently.

FOR THE REASONS SET FORTH ABOVE, THE BOARDS OF DIRECTORS OF BANCORP AND FNBDA
HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS IN THE BEST INTEREST OF THE
SHAREHOLDERS AND UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS APPROVE THE
MERGER AGREEMENT AT THE SHAREHOLDERS' MEETINGS.

OPINION OF FINANCIAL ADVISOR

Bancorp retained Southard Financial, a Memphis, Tennessee
financial valuation consulting firm, to render its opinion as to the
fairness, from a financial point of view, to the Bancorp Shareholders of the
consideration to be paid in the Merger. In connection with this engagement,
Southard Financial evaluated the financial terms of the Mergers. Southard
Financial also was engaged to value the common stock of FNBDA for purposes of
determining the appropriate exchange ratio between FSC and Bancorp and
FNBDA's respective Common Stocks. Southard Financial did not otherwise
assist in merger negotiations. Bancorp placed no limitations on the scope of
Southard Financial's investigation or review. Southard Financial provided
the Board of Directors of Bancorp with an opinion of the fair market value of
FNBDA Common Stock to be used in determining appropriate Conversion Ratios
for Bancorp and FNBDA Common Stock. Southard Financial also provided the
Board of Directors of Bancorp with a fairness opinion letter and supporting
documentation. The full text of the fairness opinion letter of Southard
Financial, dated October 17, 1997, which sets forth certain assumptions made,
matters considered, and limitations on the review, is attached as Appendix D
attached to this Prospectus/Proxy Statement, and is incorporated herein by
reference. The summary of the Southard Financial fairness opinion set forth
below is qualified in its entirety by reference to the opinion, found at
Appendix D attached to this Prospectus / Proxy Statement.

In arriving at its opinion, Southard Financial conducted
interviews with officers of FSC, Bancorp and FNBDA and reviewed the documents
indicated in the fairness letter. Southard Financial did not independently
verify the accuracy and/or the completeness of the financial or other
information reviewed in rendering its opinion. Southard Financial did not,
and was not requested to, solicit third party indications of interest in
acquiring any or all the assets of Bancorp.

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<PAGE>

In connection with rendering its opinion, Southard Financial
performed a variety of financial analyses, which are summarized below. Southard
Financial believes that its analyses must be considered as a whole and that
considering only selected factors would create an incomplete view of the
analyses and the processes underlying the opinion. In its analysis, Southard
Financial made numerous assumptions, many of which are beyond the control of
Bancorp and FSC. Any estimates contained in these analyses prepared by Southard
Financial are not necessarily indicative of future results or values, which may
vary significantly from such estimates. Estimates of value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies or
their securities may actually be sold. None of the analysis performed by
Southard Financial was assigned a greater significance than any other. The
summary of Southard Financial's analysis set forth below is based on the
Conversion Ratios of FSC Common Stock for shares of Bancorp Common Stock and
FNBDA Common Stock contained in the Merger Agreement. Under the Merger
Agreement, Bancorp Shareholders are to receive approximately 2,836,250 shares of
FSC Common Stock and FNBDA shareholders are to receive 63,750 shares of FSC
Common Stock. For purposes of Southard Financial's analysis and the summary
below the market price of FSC's common stock is assumed to be $32.00. This
price was comparable to trading prices of FSC Common Stock near the October 17,
1997 opinion date.

DIVIDEND YIELD ANALYSIS. In evaluating the impact of the Bancorp
Merger on the Bancorp Shareholders, Southard Financial reviewed the dividend
paying histories of each of FSC, Bancorp and FNBDA. Based upon this review, it
is reasonable to expect that the Bancorp Shareholders will receive a dividend
yield after the Merger is completed above the level currently provided by
Bancorp or FNBDA.

EARNINGS YIELD ANALYSIS. In evaluating the impact of the
proposed Merger on the Shareholders, Southard Financial determined that based
upon the Conversion Ratio, Bancorp Shareholders would have had an increase of
4.72% in their share of earnings based upon 1996 earnings of FSC. Based upon
consensus earnings forecasts for FSC for 1997 and anticipated earnings for
Bancorp (adjusted for non-recurring items) had the Bancorp Merger been
consummated prior to January 1, 1998, Bancorp Shareholders would be expected to
see an increase of 7.38% in their share of earnings.

BOOK VALUE ANALYSIS. In evaluating the impact of the Mergers on
the Shareholders, Southard Financial determined that the Bancorp Shareholders
would have experienced a decrease in the book value of their investment had the
Merger been consummated prior to January 1, 1998. The book value of Bancorp at
December 31, 1997 is expected to be $423.00 per share. The book value of FSC at
December 31, 1997 is expected to be $11.50 per share. If the Merger is
consummated at year-end 1997, each former share of Bancorp' Common Stock is
expected to receive book value of $290.75, or 31.27% below Bancorp's book value.

ANALYSIS OF MARKET TRANSACTIONS. Based upon the Conversion
Ratio, Bancorp Shareholders will receive 191.3% of estimated December 31, 1997
book value per share and 21.6 times estimated 1997 earnings per share, adjusted
for non-recurring expenses. The price/earnings ratio is comparable to market
transactions. The price/book value multiple is below recent market multiples
due to the significantly higher capital ratios of Bancorp.

-21-

<PAGE>

FUNDAMENTAL ANALYSIS. Southard Financial reviewed the financial
characteristics of Bancorp and FSC with respect to profitability, capital
ratios, liquidity, asset quality, and other factors. Southard Financial
compared Bancorp and FSC to a universe of publicly traded banks and bank holding
companies and to peer groups prepared by the Federal Financial Institution's
Examination Council. Southard Financial found that the post-merger combined
entity will have capital ratios and profitability ratios consistent with or near
those of the public peer group.

LIQUIDITY. Shares of FSC Common Stock to be received in the
Merger will be registered with the SEC and FSC Common Stock is traded on the
NASDAQ Stock Market. Except in the case of Executive Officers, Directors, and
certain large Shareholders of Bancorp and FNBDA, FSC shares received will be
freely tradeable with no restrictions. The restrictions placed on Executive
Officers, Directors and significant Shareholders are not significant and are in
line with the restrictions placed on similarly situated persons in other mergers
of this type. Shares of Bancorp Common Stock and FNBDA Common Stock are not
publicly traded and are relatively illiquid.

Southard Financial is a financial valuation consulting firm,
specializing in the valuation of closely held companies and financial
institutions. Since its founding in 1987, Southard Financial has provided
approximately 2,000 valuation opinions for clients in 43 states. Further,
Southard Financial provides valuation services for approximately 100 financial
institutions annually. For rendering its fairness opinion, Southard Financial
received a fee of $15,000 plus reasonable out of pocket expenses. Southard
Financial also received a fee of $3,000 for its work in valuing FNBDA for
purposes of the FNBDA Conversion Ratio. Southard Financial has never been
engaged previously by Bancorp, FNBDA or FSC. Neither Southard Financial nor its
principals own an interest in the securities of Bancorp, FNBDA or FSC.

INTERESTS OF CERTAIN PERSONS IN THE MERGERS; RELATED PARTY TRANSACTIONS

All of Bancorp's and FNBDA's respective Directors own shares of
Bancorp Common Stock or FNBDA Common Stock which will be converted into shares
of FSC Common Stock through the Merger Agreement on the same terms and
conditions as apply to all other Shareholders. As of the Record Date, the
Directors of Bancorp, certain persons affiliated with them and certain other
Shareholders, as a group, beneficially held approximately 62% of the outstanding
shares of Bancorp Common Stock entitled to vote at the Bancorp Meeting and have
indicated their intentions to vote in favor of the Merger Agreement.

In considering the recommendations of the Boards of Directors of
Bancorp and FNBDA with respect to the Merger Agreement, Shareholders should be
aware that three Executive Officers of Bancorp and/or FNBDA have certain
interests in the Merger Agreement being approved that are in addition to the
interests of Shareholders generally. Prior to the consummation of the Mergers,
Ben H. Haines, Jr., President and Chief Executive Officer of FNBDA, and John A.
Papen III, Executive Vice President of FNBDA, are to enter into employment
agreements with FNBDA that provide for their continued employment by FNBDA (or
its successor) following the Mergers. Both agreements provide for each such
person to receive a base salary no less than his current base salary at FNBDA.
In addition, each such person will be entitled to participate in bonus and
incentive compensation programs and other employee benefits as may be made
available to similarly situated managers in the FSC system from time to time
during such person's employment with FSC. Each agreement also provides for the
payment of a severance payment in the event such person's employment with FNBDA
is terminated for certain reasons at any time within two years (in the case of
Mr. Papen) or three years (in the case of Mr. Haines) from the effective date of
the Merger. Separately, Michelle Papen-Daniel, President of Bancorp, has been
informed that she will be nominated for election to the Board of Directors of
FSC following the Effective Time.

During 1995 through 1997 Bancorp and FNBDA have had transactions
in the ordinary course of business with some of their respective Directors,
Executive Officers and principal Shareholders or their affiliates. Such
transactions, including borrowings and loan commitments, are on substantially
the same terms, including interest rates and collateral as applicable, as those
prevailing at the time for comparable transactions with others, and, in the
opinion of the respective managements of Bancorp and FNBDA, did not involve more
than a normal risk of collectability, nor did they present significant
unfavorable features.

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<PAGE>

TERMS OF THE MERGER AGREEMENT

The detailed terms of and conditions to the Mergers are
contained in the Merger Agreement, the form of which is attached to this
Prospectus/Proxy Statement as Appendix A. The form of Merger Agreement is
incorporated herein by reference. The description in this Prospectus/Proxy
Statement of the terms of and conditions to the Merger Agreement is qualified
by, and made subject to, the more complete information set forth in the text
of the Merger Agreement.

Subject to the terms and conditions of the Merger Agreement, FSB
will merge with and into FNBDA, and Bancorp will be merged with and into FSC.
As a result, the separate existence of FNBDA will be preserved, but that of
Bancorp will cease. Shareholders who do not exercise Dissenters' Rights will
receive FSC Common Stock in exchange for their shares of Bancorp Common Stock or
FNBDA Common Stock.

CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS

The Merger Agreement provides for the conversion of each share of
Bancorp Common Stock into shares of FSC Common Stock; and for the conversion of
each share of FNBDA Common Stock held by FNBDA Minority Shareholders into shares
of FSC Common Stock, both exchanges determined according to conversion ratios
set out in the Merger Agreement (both a "Conversion Ratio").

There were 112,161 shares of issued and outstanding Bancorp
Common Stock, net of Treasury Shares, to be converted in the Bancorp Merger,
as of the Record Date. Each share of Bancorp Common Stock will be converted
into 25.2873 shares of FSC Common Stock. There were 3,579 shares of FNBDA
Common Stock in the hands of FNBDA Minority Shareholders on the Record Date.
Each share of FNBDA Common Stock held by Minority Shareholders will be
converted into 17.8125 shares of FSC Common Stock. With the Conversion
Ratios fixed as to the number of shares of FSC Common Stock to be received by
Shareholders, the number of shares of FSC Common Stock to be received by
Shareholders under the Merger Agreement will not fluctuate with market price
changes in FSC Common Stock. The Conversion Ratios, and ultimately the number
of shares of FSC Common Stock to be received by Bancorp Shareholders and
FNBDA Minority Shareholders, may be adjusted to reflect any stock dividends,
subdivisions, split ups, reclassifications or combinations of FSC Common
Stock prior to the Effective Time.

Each share of FSC Common Stock will have an attached Right, which
Right is part of a shareholder-rights plan adopted by FSC in 1989. The Rights
give holders the opportunity to purchase additional equity interests in FSC at a
significant discount under certain circumstances. (SEE "INFORMATION ABOUT FSC--
Description of FSC's Capital Stock.")

No certificates for fractional shares of FSC Common Stock will
be issued in connection with the Mergers. Any Shareholder who would
otherwise be entitled to receive a certificate for a fraction of a share of
FSC Common Stock will receive, instead, an amount of cash, without interest,
determined by the average of the daily closing sale prices for FSC Common
Stock as reported on the NASDAQ National Market System for the five (5)
consecutive trading days ending at the end of the third trading day
immediately preceding the Effective Time.

The Conversion Ratios were determined by arm's length
negotiations between representatives of Bancorp and representatives of FSC, with
the FNBDA Conversion Ratio determined based upon a valuation by Southard and
agreed to by FSC. In arriving at their opinion that such consideration is fair
to Bancorp Shareholders and to FNBDA Minority Shareholders, Bancorp and FNBDA
Directors reviewed and considered, among other things, the historical and
current financial position and results of operations of Bancorp and FNBDA; the
business prospects for Bancorp and FNBDA; the general economic, market, and
financial conditions relating to Bancorp and FNBDA; the Southard Opinion; and
other recent bank acquisition transactions.

EXCHANGE OF CERTIFICATES

At the Effective Time, the Bancorp Shareholders and the FNBDA
Minority Shareholders will cease to have any rights as Shareholders, and their
sole rights will pertain to their right to receive shares of FSC Common Stock
and any cash payment, if applicable, for fractional shares.

As promptly as practicable after the Effective Time, the Exchange
Agent will mail to all the Bancorp Shareholders and FNBDA Shareholders required
to exchange their shares in the Mergers transmittal materials, including a
Letter of Transmittal for use in exchanging certificates of Bancorp Common Stock
and FNBDA Common Stock for certificates of FSC Common Stock. As soon as
practicable after the Letter of Transmittal is properly completed and returned
along with the

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<PAGE>

certificates of Bancorp Common Stock and FNBDA Common Stock to the Exchange
Agent, FSC will cause to be issued to the person specified in the Letter of
Transmittal certificates for the number of shares of FSC Common Stock and, to
the extent applicable, any cash in lieu of fractional shares of FSC Common
Stock, to which such person is entitled under the Merger Agreement.

The risk of loss of certificates mailed to the Exchange Agent
will be on the tendering Bancorp Shareholder or FNBDA Minority Shareholder.
Shareholders claiming rights based on stock certificates that are lost or stolen
must provide the Exchange Agent with a bond or insurance undertaking sufficient
to indemnify FSC in the event a third party also makes claim under the Merger
Agreement based on the same certificates.

If any certificate for shares of FSC Common Stock is to be issued
in a name other than that in which the Bancorp or FNBDA share certificate
surrendered in exchange therefor is registered, the Bancorp or FNBDA certificate
so surrendered must be properly endorsed and otherwise in proper form for
transfer, and the person requesting such exchange must pay FSC any transfer or
other taxes required by reason of the issuance of a certificate for shares of
FSC Common Stock in any name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of FSC that such tax
has been paid or is not payable.

Each share of FSC Common Stock issued in connection with the
Mergers will be deemed to have been issued at the Effective Time. Accordingly,
Bancorp Shareholders and FNBDA Minority Shareholders who receive FSC Common
Stock in the Mergers will be entitled to receive any dividends or other
distributions which may be payable to all holders of record of FSC Common Stock
as of any date after the Effective Time. However, no Shareholder will be
entitled to receive shares of FSC Common Stock or cash, and no dividends or
other distributions will actually be paid with respect to any shares of FSC
Common Stock, until the certificate or certificates formerly representing the
shares of Bancorp Common Stock or FNBDA Common Stock have been surrendered in
accordance with the procedures described above. At the time such surrender has
been accomplished, a certificate representing the appropriate number of shares
of FSC Common Stock will be issued and accrued dividends and other distributions
on such shares of FSC Common Stock, if any, will be paid without interest and
less taxes, if any, imposed thereon.

ACCOUNTING TREATMENT

FSC expects that the Mergers will be accounted for under
generally accepted accounting principles as a "purchase."

REGULATORY APPROVALS

The Office of the Comptroller of the Currency must approve the
FNBDA Merger, and the Federal Reserve Board must approve the Bancorp Merger.

The Comptroller and the Federal Reserve Board are still reviewing
the Merger Agreement transactions and their effects as of the date of this
Prospectus/Proxy Statement. Neither FSC nor Bancorp knows of any reason why the
Comptroller or the Federal Reserve Board will not approve the transactions
contemplated in the Merger Agreement in a timely fashion, although there can be
no guaranty that such approvals will be forthcoming in time for the Closing or
at all. If approved by the Federal Reserve Board and the Comptroller, the U.S.
Department of Justice will have 30 days within which to challenge the Merger
Agreement on antitrust grounds. THERE IS NO ASSURANCE THAT THESE REGULATORY
APPROVALS WILL BE RECEIVED TIMELY OR AT ALL.

AN APPROVAL BY THE FEDERAL RESERVE BOARD REFLECTS ONLY ITS VIEW
THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT DO NOT CONTRAVENE
APPLICABLE COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT SUCH TRANSACTIONS ARE
CONSISTENT WITH REGULATORY POLICIES RELATING TO SAFETY AND SOUNDNESS; AN
APPROVAL BY THE FEDERAL RESERVE BOARD IS NOT AN OPINION BY THE FEDERAL RESERVE
BOARD THAT THE MERGER TRANSACTIONS ARE FAVORABLE TO THE STOCKHOLDERS FROM A
FINANCIAL POINT OF VIEW OR THAT THE FEDERAL RESERVE BOARD HAS CONSIDERED THE
ADEQUACY OF THE TERMS OF THE TRANSACTIONS; AND AN APPROVAL BY THE FEDERAL
RESERVE BOARD IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER AGREEMENT.

AN APPROVAL BY THE COMPTROLLER REFLECTS ONLY THE VIEW THAT THE
FNBDA MERGER

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<PAGE>

DOES NOT CONTRAVENE APPLICABLE COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT
THE FNBDA MERGER IS CONSISTENT WITH REGULATORY POLICIES RELATING TO SAFETY
AND SOUNDNESS; AN APPROVAL BY THE COMPTROLLER IS NOT AN OPINION BY THE
COMPTROLLER THAT THE FNBDA MERGER IS FAVORABLE TO THE FNBDA MINORITY
SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW OR THAT THE COMPTROLLER HAS
CONSIDERED THE ADEQUACY OF THE TERMS OF THE FNBDA MERGER; AND AN APPROVAL BY
THE COMPTROLLER IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE FNBDA MERGER.

CONDITIONS TO THE MERGERS

The obligations of the parties to effect the Mergers are
conditioned, among other things, on (i) approval by the Directors of FNBDA,
Bancorp, FSC and FSB (all of which has occurred); (ii) approval by holders of
at least a majority of Bancorp Common Stock and approval by at least
two-thirds (2/3) of the outstanding shares of FNBDA Common Stock; (iii)
certain Bancorp Shareholders having delivered letters concerning future sales
of the FSC Common Stock received in the Bancorp-FSC Merger (SEE "RESALES OF
FSC COMMON STOCK," below); (iv) the Registration Statement (covering the FSC
Common Stock to be issued under the Merger Agreement) becoming effective and
no stop order suspending its effectiveness being issued and continuing in
effect; (v) receipt, in form and substance reasonably satisfactory to Bancorp
and FSC, of all necessary orders, consents and approvals of regulatory
authorities and expiration of all applicable statutory waiting periods; (vi)
FSC shall have received required letters from Certified Public Accountants
with respect to Bancorp's and FNBDA's financial condition; (vii) the receipt
of an opinion of special tax counsel concerning the tax free nature of the
Mergers; (viii) the maintenance of a net worth for Bancorp of $47,150,000.00
as of the Closing Date (exclusive of securities gains or losses pursuant to
FASB 115 for the period from September 30, 1997 through the Closing Date and
subject to certain adjustments set forth in the Merger Agreement); (ix) the
assets, books, records and operations of Bancorp and FNBDA shall be in
reasonably satisfactory condition and FSC having approved Bancorp's and
FNBDA's loan portfolios based on its review and its direction of charge offs
to occur prior to the Closing Date; (x) Ben H. Haines, Jr. and John A. Papen,
III having executed and delivered to FSC employment agreements in a form
acceptable to FSC; (xi) each of FNBDA, FNBCC and Bancorp having maintained
normal business operations through the Closing Date; (xii) counsel for the
parties having delivered satisfactory opinions; (xiii) the absence of any
litigation, regulatory proceeding or other matter which challenges the
legality or effectiveness of the transactions contemplated hereby or seeks an
order, decree or injunction enjoining or prohibiting the consummation of the
Mergers; and (xiv) the Southard fairness opinion shall have been updated just
prior to the Closing Date, subject to certain limitations.

The parties may agree to waive or modify certain of these
conditions, although there is no present intention to do so.

TERMINATION OF THE MERGER AGREEMENT

The Merger Agreement may be terminated at any time prior to the
Effective Time by (i) mutual consent of the parties, (ii) any party at any time
after July 18, 1998, if the Closing has not yet occurred, (iii) by any party if
the other party's warranties or covenants are in breach and such breach is not
cured within 30 days of notice, or (iv) by FSC if less than the required shares
of Bancorp Common Stock and FNBDA Common Stock approve the Merger Agreement or
if the Merger Agreement is not approved by any required governmental authority.
Termination of the Merger Agreement will not relieve any party of any liability
for default occuring prior to such termination.

OPERATIONS AFTER THE MERGERS

As proposed, Bancorp will merge with and into FSC and FSB will
merge with and into FNBDA. Bancorp will cease separate operations and
separate existence, and FNBDA and FNBCC will continue their separate
existances. No decision has yet been made as to when FNBDA and FNBCC will be
renamed to identify them as part of the FSC system.

EFFECT OF THE MERGERS ON EMPLOYEE BENEFIT PLANS

Until the Effective Time, all retirement and health insurance
plans maintained by Bancorp, FNBCC or FNBDA for the benefit of employees will
remain in effect without substantive change, except as may be required by
applicable law in connection with the intended termination of these plans as
part of the Mergers.

-25-

<PAGE>

On or before the Effective Time, Bancorp, FNBCC, FNBDA and FSC
will determine whether it is in the best interests of the parties and the
employees of Bancorp, FNBCC and FNBDA to terminate existing plans or to merge
such plans into an FSC benefit plan to the extent of any employees retained
following the Effective Time; provided, however, that no accounts will be
permitted to roll-over to FSC's 401(k) plan without the express written consent
of the trustee and sponsor of FSC's 401(k) plan to such roll-over, which
approval shall not be given in any event without receipt of such documentation
from Bancorp and FNBDA as may be requested by FSC, including, without
limitation, an Internal Revenue Service ruling obtained by Bancorp approving the
roll-over and ensuring the qualification of the FSC 401(k) plan if it accepts
such roll-overs.

As of the Effective Time the current Bancorp, FNBDA and FNBCC
health insurance plans likely will terminate. Subject to applicable law, all
employees retained by FSC after the Mergers will be eligible to participate
in the FSC health insurance plan now in effect, in accordance with its terms.

FEDERAL INCOME TAX CONSEQUENCES

This description of the material federal income tax consequences
of the Merger Agreement is included solely for the information of Shareholders.
No information is provided with respect to the consequences of any applicable
state, local or foreign tax laws. Also, the specific tax consequences to a
Shareholder may depend upon the individual situation of the Shareholder.
Therefore, each Shareholder is urged to consult his or her own tax adviser
concerning the specific tax consequences of the Merger Agreement to such
Shareholder.

Ray, Quinney & Nebeker, special tax counsel to FSC, has rendered
its opinion addressing certain tax consequences of the Merger Agreement, which
opinion is summarized below. The opinion is to the effect that if the
transactions contemplated in the Merger Agreement take place as described
therein, more likely than not:

(i) The FNBDA Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code.

(ii) The Bancorp Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code.

(iii) No gain or loss will be recognized by the holders of
Bancorp Common Stock or FNBDA Common Stock who exchange
such stock for FSC Common Stock pursuant to the Merger
Agreement (with the possible exception of gain recognized
upon the receipt of FSC Rights or cash in lieu of
fractional shares (see below)).

(iv) The basis of the FSC Common Stock received by Shareholders
will be the same as the basis of the Bancorp Common Stock
or FNBDA Common Stock surrendered in exchange therefor,
after appropriate reduction for the basis of fractional
shares for which cash is received.

(v) The holding period of the FSC Common Stock received by
Shareholders under the Merger Agreement will include the
holding period of the Bancorp Common Stock or FNBDA Common
Stock surrendered in exchange therefor, provided that the
Bancorp Common Stock or FNBDA Common Stock surrendered was
held as a capital asset at the time of the exchange.

(vi) Any cash received by Shareholders in lieu of a fractional
share of FSC Common Stock will be treated as having been
received in redemption of the shares so cashed out, and
will result in taxable gain or loss. The amount of such
gain or loss will be the difference between the cash
received and the basis of the shares or the fractional
share interest surrendered in exchange therefor. Provided
the shares or the fractional share interest was held as a
capital asset at the time of redemption, such gain or loss
will constitute capital gain or loss.

(vii) No gain or loss will be recognized by FNBDA as a result of
the FNBDA Merger.

(viii) No gain or loss will be recognized by Bancorp or FSC as a
result of the Bancorp Merger.

(ix) The holding period of Bancorp's assets in the hands of FSC
will include the period during which such

-26-

<PAGE>

assets were held by Bancorp.

An opinion of counsel is not binding upon the IRS or the courts.
The tax opinion is based upon certain factual assumptions, and upon certain
representations and assurances made by FNBDA, Bancorp and FSC. Counsel has
expressed no opinion concerning the consequences of the Merger Agreement on the
Shareholders under applicable state or local income tax laws.

One of the requirements for tax-free reorganization treatment is
that shareholders of the acquired corporation acquire a substantial and
continuing interest in the acquiring corporation. The opinion of counsel is
based on the assumption that Shareholders have no plan or intention to sell or
otherwise dispose of an amount of FSC Common Stock to be received under the
Merger Agreement that would reduce their aggregate ownership of FSC Common Stock
to a number of shares having in the aggregate a value at the Effective Time of
less than fifty percent (50%) of the total value of the Bancorp Common Stock and
the minority FNBDA Common Stock outstanding immediately prior to the Effective
Time. For purposes of such determination, Bancorp Common Stock or FNBDA Common
Stock that is surrendered by dissenters, or exchanged for cash in lieu of the
issuance of fractional shares of FSC Common Stock, will be treated as
outstanding Bancorp Common Stock or FNBDA Common Stock immediately prior to the
Effective Time.

Shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the overall transaction. Thus, loan
transactions between parties, compensation arrangements, non-compete agreements,
consulting arrangements and other transactions could be reviewed by the IRS and
determined to constitute taxable income to specific parties to the Mergers or
could be a basis for assertion that reorganization treatment is not appropriate
to the Mergers. Furthermore, if the IRS were to establish as to some
Shareholders that part of the FSC Common Stock received in the Mergers is
severable from the Mergers, resulting in a proportionally increased equity
interest being received in the Mergers by other Shareholders, the Shareholders
whose equity interests were deemed to be constructively increased by the Mergers
may be treated as having received a taxable stock dividend. Thus,
notwithstanding the opinions of counsel, Shareholders should consult with their
tax advisers as to the tax consequences of the Mergers.

Under Section 3406 of the Code, Shareholders may be subject to
"backup withholding" at the rate of 31% on "reportable payments" to be received
by them if they fail to furnish their correct taxpayer identification numbers or
for certain other reasons. FSC will report to these persons and to the IRS for
each calendar year the amount of any reportable payments during that year and
the amount of tax withheld, if any, with respect to those reportable payments.

The Code also imposes an alternative minimum tax and excise taxes
on certain types of transactions. Applicability of such taxes is usually
controlled, in whole or part, by other matters unrelated to the Mergers or by
the unique characteristics of the particular taxpayer. Accordingly,
Shareholders are encouraged to consult their tax advisers if they are or might
be subject to such taxes.

-27-

<PAGE>

RIGHTS OF DISSENTING SHAREHOLDERS

BANCORP

Bancorp Shareholders who vote against the Merger Agreement are
entitled to dissenters' rights under the New Mexico Statutes. Section 53-15-4
of the New Mexico Statute provides that a Bancorp Shareholder may exercise his
right to dissent by filing with Bancorp, prior to or at the Bancorp Meeting, a
written objection to the Merger Agreement. If the Merger Agreement is approved,
and the Shareholder has not voted in favor of the Merger Agreement, the
Shareholder may, within ten days after the date on which the vote was taken,
make written demand on Bancorp for payment of the fair value of the
Shareholder's shares of Bancorp Common Stock. A Shareholder failing to make
demand within the ten day period is bound by the terms of the Merger Agreement.
Within ten days after the Effective Time, FSC will give written notice to each
dissenting Bancorp Shareholder who has made demand according to the New Mexico
Statute and will make a written offer to each such Shareholder to pay for such
shares of Bancorp Common Stock at a specified price deemed by FSC to be the fair
value thereof. The notice and offer shall be accompanied by specific financial
information. If within the period of thirty (30) days a dissenting Bancorp
Shareholder and FSC do not agree on the price, FSC may file a petition in any
court of competent jurisdiction praying that the fair value of such shares be
found and determined. If FSC fails to institute the proceeding, any dissenting
Bancorp Shareholder may do so. The court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision on the
question of fair value.

The foregoing summary of Section 215 of the National Bank Act
is not intended to be complete. Reference should be made to the language of
Section 215 found in Appendix E.

Any transferee of shares of Bancorp Common Stock previously held
by a Shareholder who has properly made a Payment Demand with respect to such
shares will acquire no rights in Bancorp other than those rights which the
original dissenting Shareholder had after making such Payment Demand.

The New Mexico Statute provides that a Shareholder who has a
right under the New Mexico Statute to obtain payment for his shares will have no
right at law or in equity to attack the validity of the Merger, nor to have the
Merger set aside or rescinded, except when the corporate action is unlawful or
fraudulent with regard to the complaining Shareholder or to Bancorp.

The foregoing summary of the applicable provisions of the New
Mexico Statute is not intended to be a complete statement of such provisions,
and is qualified in its entirety by reference to such sections, which are
attached hereto as Appendix E.

FNBDA

FNBDA shareholders who vote against the Merger are entitled to
dissenters' rights under the National Bank Act. Section 215 of the National
Bank Act provides that a FNBDA Shareholder wishing to perfect his or her
right to dissent from the Merger Agreement must either vote against the
Merger Agreement or give notice in writing at or prior to the FNBDA Meeting
to the presiding officer that he or she dissents from the Merger Agreement.
Additionally, a dissenting FNBDA Shareholder must make written request upon
FNBDA, for the value of his or her FNBDA Common Stock ("Payment Demand") at
any time within thirty (30) days after the Effective Date. The written
request must be accompanied by the surrender of such Shareholder's stock
certificates. The statute provides that the value of the FNBDA shares of any
dissenting FNBDA Shareholder as of the Effective Time will be determined by
an appraisal made by a committee of three persons including (i) one person
selected by the vote of the holders of the majority of FNBDA Common Stock,
the owners of which are entitled to payment in cash (by reason of such
request for appraisal), (ii) one person selected by the Directors of FNBDA,
and (iii) one person 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 is not satisfactory to any dissenting FNBDA Shareholder who has
requested payment, that Shareholder may, within five (5) days after being
notified of the appraised value of such shares as determined by the
committee, appeal to the OCC, who shall then cause a reappraisal to be made,
which will be final and binding as to the value of the FNBDA shares of such
Shareholder. If within ninety (90) days from the Effective Time, for any
reason, one or more of the appraisers is not selected as provided above or
the appraisers fail to determine a value for such shares, the OCC will, upon
written request of any interested party, cause an appraisal to be made which
will be final and binding upon all parties.

-28-

<PAGE>

For a discussion of certain tax consequences in connection with
Disssenters Rights, SEE "Certain Federal Income Tax Consequences", above.

ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF
DISSENTERS' RIGHTS WITH RESPECT TO HIS OR HER
SHARES IS URGED TO REVIEW CAREFULLY THE
PROVISIONS OF APPENDIX E INASMUCH AS DISSENTERS'
RIGHTS MAY BE LOST IF THE REQUIREMENTS OF
APPLICABLE LAW ARE NOT FULLY AND PRECISELY
SATISFIED.

RESALES OF FSC COMMON STOCK

The shares of FSC Common Stock to be issued to Shareholders in
connection with the Merger Agreement will be registered with the Securities
and Exchange Commission under the provisions of the Securities Act of 1933
("the Securities Act"). Based on recently enacted federal legislation
preempting state registration requirements for NASDAQ Stock Market
securities, no registration or qualification of such shares will be pursued
in any state in which any Shareholder currently resides.

Resales of the FSC Common Stock received in connection with the
Merger Agreement will need to be in compliance with applicable state securities
laws and regulations, and this compliance will be the responsibility of the
selling or transferring Shareholder.

FSC shares received by persons who are deemed to be
"affiliates" of Bancorp or FNBDA for purposes of Rule 145 under the
Securities Act, may be resold by them only in transactions permitted by such
Rule, or as otherwise permitted under the Securities Act. Rule 145 applies
certain of the requirements and provisions of Rule 144 (applicable to
unregistered shares) to registered shares received by an affiliate of a party
to a merger transaction. Rule 144, in turn, applies certain restrictions on
method and amount of securities sales. As a condition to the Closing of the
Merger Agreement, each person who is so identified is required to deliver to
FSC at or prior to Closing a written agreement satisfactory to counsel for
FSC that such person and his or her "associates" (as defined for purposes of
Rule 145) shall not offer to sell or otherwise dispose of any shares of FSC
Common Stock issued to such person or his or her associates pursuant to the
Merger Agreement in violation of the Securities Act or the regulations
thereunder.

-29-

<PAGE>

CAPITALIZATION AND PRO FORMA CAPITALIZATION
OF FSC AND BANCORP

What follows is a summary financial description of the current
capitalization of both FSC and Bancorp as of September 30, 1997. The
information presented is drawn from the unaudited financial statements of the
companies. Also shown is the PRO FORMA capitalization of the combined companies
as a result of the Mergers:

(IN THOUSANDS) FSC BANCORP PRO FORMA COMBINED
--- ------- ------------------
<S> <C> <C> <C>
COMMON EQUITY $1,299,534 $47,692 $1,383,634(1)

PREFERRED EQUITY 510 0 510

LONG-TERM DEBT 954,463 11,279 967,742

TOTAL LIABILITIES 15,012,934 368,525 15,374,566(1)

</TABLE>

(1) Includes estimated purchase accounting adjustments to reflect estimated
market value of FSC Shares and Bancorp Assets and Liabilities as of the
Closing Date, and elimination of intercompany deposits.

SELECTED COMPARATIVE FINANCIAL DATA

The following selected historical financial information on
FSC and Bancorp and FNBDA is derived from audited year-end and unaudited
quarter-end consolidated financial statements of FSC, certain of which are
incorporated herein by reference, and from the audited 1996, 1995, 1994, 1993
and 1992 year-end and unaudited September 30, 1997 consolidated financial
statements of Bancorp. Quarterly information is taken from the unaudited
quarter-end financial statements of FSC and of Bancorp. (Bancorp financial
statements at December 31, 1996 and 1995, and September 30, 1997, as to
balance sheet items, and for the years ended December 31, 1996, 1995 and
1994, and for the nine months ended September 30, 1997, are attached as
Appendices B and C.) All FSC results have been previously restated to
reflect FSC's pooling-of-interest acquisition of First National Financial
Corp. in 1993, and to reflect in per share amounts the stock splits
effected by means of 50% stock dividends on May 1, 1992, February 15, 1996
and May 15, 1997. In addition, FSC's results were previously restated to
reflect adoption of SFAS No. 109, "Accounting for Income Taxes," retroactive
to 1988. The average balance sheet data on Bancorp is presented on a yearly
basis. This information should be read in conjunction with such financial
statements and notes thereto, and the information hereinafter set forth under
the captions "INFORMATION ABOUT FSC", and "INFORMATION ABOUT BANCORP" and
"INFORMATION ABOUT FNBDA", below. (SEE "AVAILABLE INFORMATION," and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," above.)

-30-

<PAGE>

FSC

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE PERIOD ENDING: SEPTEMBER 30 DECEMBER 31
------------ -----------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME

Interest Income...... 840,815 724,411 987,808 934,859 773,517 644,732 656,448
Net Interest
Income............. 428,336 378,678 516,576 474,991 458,102 403,938 375,949
Provision for
Possible Loan
Losses............. 41,593 28,751 40,300 21,082 825 11,684 30,277
Income
Before Taxes....... 233,609 197,825 277,595 190,196 221,177 173,267 150,252
Net Income........... 150,610 126,614 177,843 120,005 140,134 114,056 100,343

PER COMMON SHARE
DATA

Net Income, fully 1.28 1.09 1.53 1.05 1.24 1.06 0.96
diluted..............
Cash Dividends 0.49 0.42 0.57 0.50 0.46 0.39 0.30
Declared........... 11.22 9.64 10.04 9.14 7.97 7.66 7.03
Book Value...........

AVERAGE BALANCE
SHEET DATA

Earning Assets....... 13,172,600 11,447,032 11,671,304 11,038,396 10,072,306 8,319,615 7,680,167
Total Assets......... 14,778,267 12,783,717 13,045,607 12,232,262 11,139,838 9,214,260 8,490,487
Total Deposits....... 9,434,261 8,787,804 8,884,443 8,391,856 7,699,627 6,956,114 6,567,776
Long-Term Debt....... 970,613 718,337 746,885 728,788 368,096 204,129 103,659
Total Stockholders'
Equity............. 1,186,980 1,055,054 1,067,847 986,175 868,735 784,658 686,159

END OF PERIOD
BALANCE SHEET
DATA

Earning Assets....... 14,625,505 12,417,202 13,115,096 11,746,677 11,019,059 9,329,273 8,054,059
Total Assets......... 16,312,978 13,739,324 14,708,024 13,034,607 12,148,982 10,211,689 8,895,673
Total Deposits....... 10,223,196 9,088,404 9,439,263 8,773,642 8,053,344 7,503,707 6,868,453
Long-Term Debt....... 954,463 821,932 944,055 720,521 685,426 224,836 127,203
Total Stockholders'
Equity............. 1,300,044 1,093,331 1,140,648 1,030,263 889,474 835,731 722,447
</TABLE>

-31-

<PAGE>

BANCORP

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE PERIOD ENDING: SEPTEMBER 30 DECEMBER 31
------------ -----------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME

Interest Income...... 22,235 21,396 28,678 28,271 26,680 28,101 30,916
Interest Expense..... 8,308 7,464 10,071 10,012 7,608 8,215 11,214
Net Interest 13,927 13,932 18,607 18,259 19,072 19,886 19,702
Income.............
Provision for
Loan Losses........ 202 212 (128) - 54 1,009 1,319
Net Interest Income
After Provision for
Loan Losses........ 13,725 13,720 18,735 18,259 19,018 18,877 18,383
Non-Interest
Income............. 2,700 2,622 3,650 3,193 3,044 3,651 3,129
Non-Interest
Expense............ 12,211 11,740 16,411 14,970 15,133 15,272 15,540
Income Before
Taxes and Minority
Interest........... 4,214 4,602 5,974 6,482 6,929 7,256 5,972
Income Tax Expense... 937 1,287 1,659 1,953 2,071 2,215 1,754
Minority Interest.... 102 111 143 155 176 193 159
Net Income........... 3,175 3,204 4,172 4,374 4,682 4,848 4,059

PER COMMON SHARE
DATA

Net Income........... 28.31 28.37 36.94 38.73 41.45 43.03 35.61
Cash Dividends
Declared............ - - 10.00 8.00 6.00 3.00 2.00
Book Value........... 426.00 390.00 396.00 369.00 309.00 355.00 284.00

AVERAGE BALANCE
SHEET DATA

Earning Assets....... 352,208 338,868 338,823 332,501 333,463 342,960 331,094
Total Assets......... 399,644 379,409 381,230 370,089 370,946 379,250 369,035
Total Deposits....... 335,073 322,622 323,977 317,421 325,204 338,655 331,665
Total Stockholders
Equity............. 45,795 42,855 43,320 38,802 34,771 32,262 28,508

END OF PERIOD
BALANCE SHEET
DATA

Earning Assets....... 360,528 331,360 349,646 333,130 326,909 334,183 349,055
Total Assets......... 416,217 378,077 407,188 376,144 370,680 378,674 397,318
Total Deposits....... 347,671 320,071 345,098 317,271 310,733 334,350 356,537
Total Stockholders'
Equity.............. 47,692 44,527 44,637 41,538 34,939 34,570 30,244
</TABLE>

-32-
<PAGE>

FNBDA
<TABLE>
<CAPTION>

NINE MONTHS ENDED
FOR THE PERIOD ENDING: SEPTEMBER 30 DECEMBER 31
------------ -----------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
INCOME

Interest Income...... 19,930 19,246 25,743 25,659 24,151 25,209 27,502
Interest Expense..... 7,384 6,570 8,879 8,847 6,631 7,071 9,613
Net Interest
Income.............. 12,546 12,676 16,864 16,812 17,520 18,138 17,889
Provision for
Loan Losses........ 187 159 (226) - - 265 601
Interest Income After
Loan Loss
Provision.......... 12,359 12,517 17,090 16,812 17,520 17,873 17,288
Non-Interest Income.. 2,459 2,372 3,337 2,881 2,761 3,176 2,713
Non-Interest Expense. 11,269 10,842 15,167 13,674 13,625 13,542 14,191
Income Before
Income Tax
Expense............ 3,549 4,047 5,260 6,019 6,656 7,507 5,810
Income Tax Expense... 699 1,036 1,375 1,728 1,952 2,304 1,665
Net Income........... 2,850 3,011 3,885 4,291 4,704 5,203 4,145

PER COMMON SHARE
DATA

Net Income........... 28.50 30.11 38.85 42.91 47.04 52.03 41.45
Cash Dividends
Declared............ 6.00 6.00 20.00 20.00 15.00 19.00 13.50
Book Value.......... 424.00 404.00 399.00 380.00 357.00 325.00 292.00

AVERAGE BALANCE
SHEET DATA

Earning Assets....... 326,912 310,944 309,957 305,686 305,307 312,128 298,287
Total Assets......... 362,674 346,506 347,939 338,954 338,491 345,656 333,681
Total Deposits....... 304,517 296,149 296,956 291,963 297,787 308,896 300,414
Total Stockholders'
Equity............ 40,653 38,821 39,141 35,981 32,630 30,840 28,036

END OF PERIOD
BALANCE SHEET
DATA

Earning Assets....... 360,586 331,420 349,223 332,883 326,912 334,186 349,059
Total Assets......... 379,185 343,846 371,314 344,821 338,674 345,319 362,865
Total Deposits....... 316,367 292,853 316,159 292,157 284,903 306,064 324,335
Total
Stockholders' Equity 42,311 40,085 39,828 37,907 32,591 32,549 29,166
</TABLE>

-33-
<PAGE>

SELECTED HISTORICAL, PRO FORMA AND
EQUIVALENT PRO FORMA PER SHARE DATA

The following table, which shows comparative historical per Common Share
data for FSC and Bancorp (separately and PRO FORMA combined), and equivalent
PRO FORMA per share data for Bancorp, should be read in conjunction with the
financial information appearing elsewhere in this Prospectus/Proxy Statement
or as incorporated herein by reference to other documents. The PRO FORMA
data in the table, presented as of September 30, 1997 and December 31, 1996,
1995 and 1994, are presented for comparative and illustrative purposes only
and are not necessarily indicative of the combined financial position of FSC
following the Bancorp Merger or FSC's results of operations in the future or
what the combined financial position or results of operations would have been
had the Merger Agreement been consummated during the periods or as of the
dates for which the information in the table is presented:

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ---------------------
FSC AND
PER COMMON SHARE BANCORP BANCORP
PRO-FORMA EQUIVALENT
FSC BANCORP COMBINED PRO-FORMA(4)
------- --------- -------- -------------
<S> <C> <C> <C> <C>
NET INCOME:(1)

For the nine months ended
September 30, 1997 $ 1.28 $ 28.31 $ 1.28 $ 32.37
September 30, 1996 1.09 28.37

For the year ended
December 31, 1996 1.53 36.94 1.53 38.69
December 31, 1995 1.05 38.73
December 31, 1994 1.24 41.45

CASH DIVIDENDS:(2)

For the nine months ended
September 30, 1997 0.49 0 0.49 12.39
September 30, 1996 0.42 0

For the year ended
December 31, 1996 0.57 10.00 0.57
December 31, 1995 0.50 8.00 0.50
December 31, 1994 0.46 6.00 0.46 14.41

BOOK VALUE:(3)
11.22 426.33 11.35 287.01

As of September 30, 1997(5)
</TABLE>
- -----------------------

Note (1) Fully-diluted Net Income per Common Share is based on weighted
average Common Shares outstanding and assumes conversion of
preferred shares and convertible debt.

Note (2) PRO FORMA cash dividends represent historical cash dividends of
FSC.

Note (3) Book value per Common Share is based on total period-end
Shareholders' equity and, for FSC, less preferred equity of
$510,000 (at September 30, 1997). 1996, 1995 and 1994
period-end data are not shown because the pro forma effect is
immaterial.

Note (4) PRO FORMA equivalent amounts are computed by multiplying the PRO
FORMA combined amounts by the Conversion Ratio as of the dates
shown. (SEE "THE MERGER AGREEMENT -- Consideration to be
Received by Bancorp Shareholders.")

-34-
<PAGE>

INFORMATION ABOUT FSC

GENERAL

FSC is a regional bank holding company, headquartered in Salt Lake City,
Utah. FSC owns and operates First Security Bank, N.A., First Security Bank
of New Mexico, N.A., and First Security Bank of Nevada. Through these three
banks, FSC provides full service banking operations in the six (6) Western
States of Idaho, New Mexico, Nevada, Oregon, Utah and Wyoming. FSC also owns
and operates several other financial services companies, some having a
national presence. Through its subsidiaries, FSC provides commercial and
agricultural finance, consumer banking, trust, capital markets, treasury
management, investment management, data processing, leasing and securities
brokerage services. At September 30, 1997, FSC and its consolidated
subsidiaries had consolidated assets of $16.3 billion, consolidated deposits
of $10.2 billion and shareholders' equity of $1.3 billion. FSC has paid a
regular dividend on its Common Stock since its incorporation in 1928.

FSC maintains its executive offices at 79 South Main Street, Salt Lake
City, Utah 84111, telephone (801) 246-6000.

The principal assets of FSC are the capital stock of First Security
Bank, N.A. ("FSBNA") and First Security Bank of New Mexico, N.A. ("FSBNM"),
both of which provide a broad range of banking, fiduciary, financial and
other services. Based on deposits of approximately $7.3 billion at December
31, 1996, FSBNA was ranked the 74th largest commercial bank in the United
States, and is the largest bank in the State of Utah and the second largest
bank in the State of Idaho. It currently has 234 branch offices in the
states of Utah, Idaho, Oregon and Wyoming. Based on deposits of nearly $1.2
billion at December 31, 1996, FSBNM was ranked 287th largest commercial bank
in the United States, and the 3rd largest bank in the State of New Mexico. It
currently has 29 branches in New Mexico.

FSC also owns First Security Bank of Nevada, a Nevada state bank. Along
with these banking organizations, FSC also directly or indirectly owns the
stock of various nonbank companies engaged in businesses related to banking
and finance, including management and services, securities brokerage,
equipment leasing, insurance and investment management subsidiaries and a
small business investment company.

In addition to its equity investment in subsidiaries, FSC directly or
indirectly raises funds principally to finance the operations of its nonbank
subsidiaries. A substantial portion of FSC's annual income is typically
derived from dividends directly from its bank and nonbank subsidiaries, and
from interest on loans to FSC's nonbank subsidiaries.

COMPETITION

As indicated above, as of December 31, 1996, FSBNA was the largest bank
in Utah and the second largest bank in Idaho, and FSBNM was the third largest
bank in New Mexico (second largest in Albuquerque). In Nevada, Oregon and
Wyoming, FSC's bank operations are smaller, more localized competitors, with
competition coming from a variety of larger banks and credit unions. FSBNA's
operation in Oregon, at the last measurement date, was the 6th largest bank
in Oregon. FSBNA's operation in Wyoming, at the most recent measurement
date, was the 5th largest bank in Wyoming. First Security Bank of Nevada has
a presence in the Clark County, Nevada, market of between 5% and 10% market
share in deposits.

The FSC Banks compete with other banking organizations in the states in
which they operate on the basis of price, service and convenience. Other
types of financial institutions, such as savings banks, savings and loan
associations, and credit unions offer a wide range of deposit and loan
services (including commercial loans) and, in some instances, fiduciary
services. The FSC banks also compete with brokerage firms and mutual funds
which provide the substantial equivalent of checking accounts, credit cards
and similar devices which strongly resemble deposit products. Major
retailers compete for loans by offering credit cards and retail installment
contracts. It is anticipated that competition from nonbank organizations
will continue to grow.

SUPERVISION AND REGULATION

REFERENCES IN THIS SECTION TO APPLICABLE STATUTES AND REGULATIONS ARE
BRIEF SUMMARIES ONLY, AND DO NOT

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<PAGE>

PURPORT TO BE COMPLETE. THE READER SHOULD CONSULT SUCH STATUTES AND
REGULATIONS THEMSELVES FOR A FULL UNDERSTANDING OF THE DETAILS OF THEIR
OPERATION.

FSC is a bank holding company registered under the BHC Act, and is
subject to supervision and regulation by the Federal Reserve Board. Federal
laws subject bank holding companies to particular restrictions on the types
of activities in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement actions for
violation of laws and policies.

- ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHC Act prohibits a bank
holding company, with certain limited exceptions, from acquiring direct or
indirect ownership or control of any voting shares of any company which is
not a bank or from engaging in any activities other than those of banking,
managing or controlling banks and certain other subsidiaries, or furnishing
services to or performing services for its subsidiaries. One principal
exception to these prohibitions allows the acquisition of interests in
companies whose activities are found by the Federal Reserve Board, by order
or regulation, to be so closely related to banking, managing, or controlling
banks as to be a proper incident thereto. Some of the activities that have
been determined by regulation to be closely related to banking are making or
servicing loans, performing certain data processing services, acting as an
investment or financial advisor to certain investment trusts and investment
companies, and providing securities brokerage services. Other activities
approved by the Federal Reserve Board include consumer financial counseling,
tax planning and tax preparation, futures and options advisory services,
check guaranty services, collection agency and credit bureau services, and
personal property appraisals. In approving acquisitions by FSC of companies
engaged in banking-related activities, the Federal Reserve Board considers a
number of factors, including the expected benefits to the public, such as
greater convenience and increased competition or gains in efficiency, which
are weighed against the risks of possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve Board is also
empowered to differentiate between activities commenced DE NOVO and
activities commenced through acquisition of a going concern.

- SECURITIES ACTIVITIES. The Federal Reserve Board has approved
applications by bank holding companies to engage, through nonbank
subsidiaries, in certain securities-related activities (underwriting of
municipal revenue bonds, commercial paper, consumer-receivable-related
securities and one-to-four family mortgage-backed securities), provided that
the affiliates would not be "principally engaged" in such activities for
purposes of Section 20 of the Glass-Steagall Act. In very limited
situations, holding companies have been permitted to underwrite and deal in
corporate debt and equity securities through such subsidiaries. As of the
date hereof, FSC is in the process of organizing a Section 20 subsidiary to
expand its securities business opportunities. This Section 20 subsidiary
will likely provide securities underwriting and dealing functions in and for
all of the states and locations, including New Mexico, in which FSC has
business operations.

- SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not
permitted to engage in unsafe or unsound banking practices. The Federal
Reserve Board may order a bank holding company to terminate an activity or
control of a nonbank subsidiary if such activity or control constitutes a
significant risk to the financial safety, soundness or stability of a
subsidiary bank and is inconsistent with sound banking principles.
Regulation Y also requires a holding company to give the Federal Reserve
Board prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to
10% or more of the company's consolidated net worth.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") expanded the Federal Reserve Board's authority to prohibit
activities of bank holding companies and their nonbanking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations
of laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the Federal Reserve Board can assess for such practices or
violations. The penalties can be as high as $1 million per day. FIRREA also
expanded the scope of individuals and entities against which such penalties
may be assessed.

- ANTI-TYING RESTRICTIONS. Bank holding companies and their bank and
nonbank affiliates are prohibited from tying the provision of certain
services, such as extensions of credit, to other services offered by a
holding company or its affiliates.

- ANNUAL REPORTING; EXAMINATIONS. FSC is required to file an annual
report with the Federal Reserve Board, and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal
Reserve Board may examine a bank holding company or any of its subsidiaries,
and charge the company for the cost of such an examination. FSC also will be
subject to reporting and disclosure requirements under the state and federal
securities laws

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<PAGE>

subsequent to the offering contemplated by these materials.

- BANK HOLDING COMPANY CAPITAL ADEQUACY REQUIREMENTS. The Federal
Reserve Board monitors the capital adequacy of bank holding companies. The
Federal Reserve Board uses a combination of risk-based guidelines and
leverage ratios to evaluate capital adequacy. The Federal Reserve Board has
adopted a system using internationally consistent risk-based capital adequacy
guidelines to evaluate the capital adequacy of bank holding companies. Under
the risk-based capital guidelines, different categories of assets are
assigned different risk weights, based generally on the perceived credit risk
of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. Certain off-balance
sheet items, which previously were not expressly considered in capital
adequacy computations, are added to the risk-weighted asset base by
converting them to a balance sheet equivalent and assigning to them the
appropriate risk weight. Total capital is defined as the sum of "Tier 1" and
"Tier 2" capital elements, with "Tier 2" being limited to 100% of "Tier 1."
For bank holding companies, "Tier 1" capital includes, with certain
restrictions, common stockholders' equity, perpetual preferred stock and
minority interests in consolidated subsidiaries less certain intangibles.
"Tier 2" capital includes, with certain limitations, certain forms of
perpetual preferred stock, as well as maturing capital instruments and the
reserve for possible loan losses and specified levels of certain intangibles.

In addition to the risk-based capital guidelines, the Federal Reserve
Board has adopted the use of a leverage ratio as an additional tool to
evaluate the capital adequacy of banks and bank holding companies. The
leverage ratio is defined to be a company's "Tier 1" capital divided by its
adjusted total assets. The leverage ratio adopted by the federal banking
agencies requires a 3.0% "Tier 1" capital to adjusted total assets ratio for
institutions with a CAMEL rating of 1. Institutions which are not CAMEL 1
rated will be expected to maintain a 100 to 200 basis point cushion; I.E.,
these institutions will be expected to maintain a leverage ratio of 4.0% to
5.0%, and institutions planning acquisitions are expected to maintain higher
ratios.

The following table sets forth the current regulatory requirements for
capital ratios of bank holding companies as compared with FSC's capital
ratios at September 30, 1997:

<TABLE>
<CAPTION>
TIER 1 TOTAL
CAPITAL TO CAPITAL TO
LEVERAGE RISK-WEIGHTED RISK-WEIGHTED
RATIO(1) ASSETS(2) ASSETS (3)
------------ ------------- -------------
<S> <C> <C> <C>
REGULATORY MINIMUM 4.00-5.00% 4.00% 8.00%

FSC AT SEPTEMBER 30, 1997 7.90% 10.70% 13.60%

</TABLE>

(1)THE LEVERAGE RATIO IS DEFINED AS THE RATIO OF TIER 1 CAPITAL (USING
FINAL 1992 RISK-BASED CAPITAL GUIDELINES TO DEFINE TIER 1 CAPITAL) TO AVERAGE
ASSETS, NET OF GOODWILL. FEDERAL RESERVE BOARD GUIDELINES PROVIDE THAT ALL
BANK HOLDING COMPANIES (OTHER THAN THOSE THAT MEET CERTAIN CRITERIA) MAINTAIN
A MINIMUM LEVERAGE RATIO OF 3%, PLUS AN ADDITIONAL CUSHION OF 100 TO 200
BASIS POINTS. THE GUIDELINES ALSO STATE THAT BANKING ORGANIZATIONS
EXPERIENCING INTERNAL GROWTH OR MAKING ACQUISITIONS WILL BE EXPECTED TO
MAINTAIN "STRONG CAPITAL POSITIONS" SUBSTANTIALLY ABOVE THE MINIMUM
SUPERVISORY LEVELS WITHOUT SIGNIFICANT RELIANCE ON INTANGIBLE ASSETS.

(2)SHAREHOLDERS' EQUITY LESS GOODWILL (TIER 1 CAPITAL) DIVIDED BY
RISK-WEIGHTED ASSETS.

(3)TIER 1 CAPITAL PLUS RESERVE FOR POSSIBLE LOAN LOSSES (LIMITED TO
1.25% OF TOTAL RISK-WEIGHTED ASSETS) PLUS QUALIFIED SUBORDINATED AND
CONVERTIBLE DEBT (TIER 2 CAPITAL) DIVIDED BY RISK-WEIGHTED ASSETS.

Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.

- IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital
standards within eighteen months of enactment of FDICIA to ensure that those
standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as reflect
the actual performance and expected risk of loss on multi-family mortgages.
The new law also requires each federal banking agency to specify within nine
months after the date of the enactment of the statute, by regulation, the
levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the regulations
adopted by the banking agencies, all of FSC's subsidiary banks would be
deemed to be "well capitalized."

FDICIA requires bank regulators to take "prompt corrective action" to
resolve problems associated with

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insured depository institutions. In the event an institution becomes
"undercapitalized," it must submit a capital restoration plan. If an
institution becomes "significantly undercapitalized" or "critically
undercapitalized," additional and significant limitations are placed on the
institution. The capital restoration plan of an undercapitalized institution
will not be accepted by the regulators unless each company "having control
of" the undercapitalized institution "guarantees" the subsidiary's compliance
with the capital restoration plan until it becomes "adequately capitalized."
FSC has control of all of its subsidiaries for purposes of this statute.

Under FDICIA, the aggregate liability of all companies controlling a
particular institution is limited to the lesser of 5% of the institution's
assets at the time it became undercapitalized or the amount necessary to
bring the institution into compliance with applicable capital standards.
FDICIA grants greater powers to the bank regulators in situations where an
institution becomes "significantly" or "critically" undercapitalized or fails
to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal
Reserve Board approval of proposed dividends, or might be required to consent
to a merger or to divest the troubled institution or other affiliates.

Additionally, Federal Reserve Board policy discourages the payment of
dividends by a bank holding company from borrowed funds as well as payments
that would adversely affect capital adequacy. Failure to meet the capital
guidelines may result in institution by the Federal Reserve Board of
appropriate supervisory or enforcement actions.

The "PROMPT CORRECTIVE ACTION" provisions of FDICIA reflect the same
concerns which gave rise to a position adopted by the Federal Reserve Board
known as the "source of strength doctrine," which is based on the Federal
Reserve Board's Regulation Y. Regulation Y directs bank holding companies to
"serve as a source of financial and managerial strength" to their subsidiary
banks, and bars them from engaging in unsafe and unsound practices.

- AUDIT REPORTS. Beginning January 1, 1994, FDICIA requires insured
institutions with $500 million or more in total assets to submit annual audit
reports prepared by independent auditors to federal and state regulators. In
most cases, the audit report of the institution's holding company can be used
to satisfy this requirement. The annual audit report shall include financial
statements prepared in accordance with generally accepted accounting
principles, statements concerning management's responsibility for the
financial statements, internal controls and compliance with legal
requirements designated by the FDIC, and an attestation by the auditor
regarding the statements of management. FDICIA requires that independent
audit committees be formed, consisting of outside directors only. The
committees of institutions with assets of $3 billion or more must include
members with experience in banking or financial management, must have access
to outside counsel, and must not include representatives of large customers.

- ACQUISITIONS BY BANK HOLDING COMPANIES. The BHC Act requires every
bank holding company to obtain the prior approval of the Federal Reserve
Board before it may acquire all or substantially all of the assets of any
bank, or ownership or control of any voting shares of any bank, if after such
acquisition it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. In approving bank acquisitions by bank
holding companies, the Federal Reserve Board is required to consider the
financial and managerial resources and future prospects of the bank holding
company and the banks concerned, the convenience and needs of the communities
to be served, and various competitive factors. The Attorney General of the
United States may, within 30 days after approval of an acquisition by the
Federal Reserve Board, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is
stayed pending a final ruling by the courts.

- INTERSTATE ACQUISITIONS. Under the federally enacted Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), individual
states could "opt-out" of the federal law that would allow banks on an
interstate basis to engage in interstate branching by merging out-of-state
banks with host state banks after June 1, 1997. In addition under IBBEA,
individual states could also "opt-in" and allow out-of-state banks to merge
with host state banks prior to June 1, 1997. The host state is allowed under
IBBEA to impose certain nondiscriminatory conditions on the resulting
depository institution until June 1, 1997. New Mexico banking laws permit,
in certain circumstances, out-of-state bank holding companies to acquire
certain existing banks and bank holding companies in New Mexico.

On September 29, 1994, IBBEA was enacted which has eliminated many of
the current restrictions to interstate banking and branching. The IBBEA
permits full nationwide interstate banking to adequately capitalized and
adequately managed bank holding companies beginning September 29, 1995,
without regard to whether such transaction is expressly prohibited under the
laws of any state. The IBBEA's branching provisions permit full nationwide
interstate bank merger transactions to adequately capitalized and adequately
managed banks.

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The laws governing interstate banking and interstate bank mergers
provide that transactions, which result in the bank holding company or bank
controlling or holding in excess of ten percent of the total deposits
nationwide or thirty percent of the total deposits statewide, will not be
permitted except under certain specified conditions. However, any state may
waive the thirty percent provision for such state. In addition, a state may
impose a cap of less than thirty percent of the total amount of deposits held
by a bank holding company or bank provided such cap is not discriminatory to
out-of-state bank holding companies or banks.

- DEPOSIT INSURANCE ASSESSMENTS. FDICIA required the FDIC to make
effective, no later than January 1, 1994, regulations setting up a risk-based
deposit insurance system. In addition, the FDIC can impose special
assessments to cover the cost of borrowings from the U.S. Treasury, the
Federal Financing Bank, and BIF member banks. The semiannual assessment must
be based on: (1) the probability of a loss to the BIF; (2) the potential
magnitude of the loss; and (3) the revenue and reserve needs of the fund.

The Economic Growth and Regulatory Paperwork Reduction Act (the "1996
Act") as part of the Omnibus Appropriations Bill was enacted on September 30,
1996 and includes many banking related provisions. The most important
banking provision is the recapitalization of the Savings Association
Insurance Fund ("SAIF"). The 1996 Act provides for a one time assessment of
approximately 65 basis points per $100 of deposits of SAIF insured deposits
including Oakar deposits payable on November 30, 1996. For the years 1997
through 1999, the banking industry will assist in the payment of interest on
FICO bonds that were issued to help pay for the cleanup of the savings and
loan industry. Banks will pay approximately 1.3 cents per $100 of deposits
for this special assessment, and after the year 2000, banks will pay
approximately 2.4 cents per $100 of deposits until the FICO bonds mature in
2017. There is a three-year moratorium on conversions of SAIF deposits to
Bank Insurance Fund ("BIF") deposits.

- MERGERS OF BANKS AND THRIFTS. FDICIA has eased restrictions on
cross-industry mergers. Members of the BIF and the Savings Association
Insurance Fund are generally allowed to merge, assume each other's deposits,
and transfer assets in exchange for an assumption of deposit liabilities. A
formula applies to treat insurance assessments relating to acquired deposits
as if they were still insured through the acquired institution's insurance
fund. The transaction must be approved by the appropriate federal banking
regulator. In considering such approval, the regulators take into account
applicable capital requirements, certain interstate banking restrictions, and
other factors.

- BANK REGULATION. Two of FSC's bank subsidiaries are national banks,
which are subject to regulation and supervision by the Comptroller. The
other banks are a state-chartered savings bank in Oregon, which is regulated
by the State of Oregon and by the FDIC; and a state-chartered bank in Nevada,
subject to regulation and supervision by the State of Nevada and by the FDIC.
Bank regulations on both the federal and state levels are broad in their
scope and materially affect the business of FSC and its banks.

All of FSC's subsidiary banks are subject to the requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans
that may be granted and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also
affect the operations of the banks. In addition to the impact of regulation,
commercial banks are affected significantly by actions of the Federal Reserve
Board as it attempts to control the money supply and credit availability in
order to influence the economy.

- PERMISSIBLE ACTIVITIES FOR STATE-CHARTERED INSTITUTIONS/EQUIVALENCE TO
NATIONAL BANK POWERS. FDICIA provides that, effective December 19, 1992, no
state bank or subsidiary thereof may engage as principal in any activity not
permitted for national banks, unless the institution complies with applicable
capital requirements and the FDIC determines that the activity poses no
significant risk to the insurance fund. In general, statutory restrictions on
the activities of banks are aimed at protecting the safety and soundness of
depository institutions. Many of the statutory restrictions limit the
participation of such institutions in the securities and insurance product
markets. Each of the state-chartered banking subsidiaries of FSC are in
compliance with the restrictions imposed by FDICIA.

- EQUITY INVESTMENTS. In general, FDICIA prohibits state banks from
directly or indirectly acquiring or retaining any equity investment of a
type, or in an amount, not permitted for national banks. This prohibition
does not apply to (1) investments in majority-owned subsidiaries; (2)
qualified lower-income housing projects; (3) certain investments in shares
listed on a national exchange or shares of a registered investment company;
(4) investments in providers of directors' and officers' liability insurance;
and (5) shares of state-examined institutions engaging only in activities
permissible for a national bank. Other restrictions may apply to such
investments. Each of FSC's state-chartered subsidiary banks is presently

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in compliance with FDICIA's equity divestiture requirements.

- RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. One set of restrictions
is found in Section 23A of the Federal Reserve Act, which affects loans to
and investments in FSC and any of its subsidiaries. Section 23A imposes
quantitative and qualitative limits on transactions between a bank and any
affiliate, and also requires certain levels of collateral for such loans. It
also limits the amount of advances to third parties which are collateralized
by the securities or obligations of FSC or its subsidiaries.

Another set of restrictions is found in Section 23B of the Federal
Reserve Act. Among other things, Section 23B requires that certain
transactions between FSC's subsidiary banks and their affiliates must be on
terms substantially the same, or at least as favorable to FSC or its
subsidiaries, as those prevailing at the time for comparable transactions
with or involving other nonaffiliated companies. In the absence of such
comparable transactions, any transaction between FSC and its affiliates must
be on terms and under circumstances, including credit standards, that in good
faith would be offered to or would apply to nonaffiliated companies. FSC is
also subject to certain prohibitions against advertising which suggests that
FSC is responsible for the obligations of its affiliates.

The restrictions on loans to insiders contained in the Federal Reserve
Act and Regulation O now apply to all insured institutions and their
subsidiaries and holding companies. The aggregate amount of an institution's
loans to insiders is limited to the amount of its unimpaired capital and
surplus, unless the FDIC determines that a lesser amount is appropriate.
Insiders are subject to enforcement actions for knowingly accepting loans in
violation of applicable restrictions. Loans made prior to the enactment of
FDICIA are not subject to the restrictions.

- RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS. The Federal Reserve Board,
the Comptroller and the FDIC have each issued policy statements to the effect
that bank holding companies and member banks, national banks and state banks
should generally only pay dividends out of current operating earnings. The
prior approval of the Comptroller is required if the total of all dividends
declared by the board of directors of a national bank in any calendar year
will exceed the aggregate of the bank's net profits (as defined by regulatory
authorities) for that year and its retained net profits for the preceding two
years. Similar restrictions govern the other banking subsidiaries of FSC.
In addition, national banks can pay dividends only to the extent that
retained net profits exceed "bad debts", which are generally defined to
include the principal amount of loans that are in arrears as to interest by
nine months or more and that are not secured and that are not in the process
of collection. As of December 31, 1996, FSC's subsidiary banks could have
declared additional dividends to FSC totalling approximately $272.25 million
without regulatory approval or restriction. Federal banking regulators also
may prohibit federally insured banks from paying dividends if the payment of
such dividend would leave the bank "undercapitalized" as defined in FDICIA
and the implementing regulations, or the payment of dividends would, in light
of the financial condition of such bank, constitute an unsafe or unsound
practice. Applicable Nevada laws place similar restrictions on the payment
of dividends by banks organized under the laws of that state.

- BRANCH CLOSING REQUIREMENTS. FDICIA requires FSC 's banks to notify
the FDIC and branch customers 90 days prior to a branch closing, including a
detailed statement regarding the reasons for the closing. Notice of the
closing must be posted at the facility 30 days prior to the closing.

- TRUTH IN SAVINGS DISCLOSURES. FDICIA subjects FSC's banks to
information requirements concerning advertisements and solicitations for
deposits. The FDIC requires such advertisements and solicitations to
disclose the following: (1) annual percentage yield and the period for which
it is in effect; (2) minimum balance and initial deposit requirements; (3) a
statement that fees could reduce the yield; and (4) interest penalty for
early withdrawal. Misleading advertisements are prohibited. Schedules of
rates, fees, and other terms must be distributed to customers, and notice of
any changes must be mailed 30 days before they go into effect. Violations of
these restrictions are subject to enforcement actions by regulators, civil
suits by depositors, and could result in the payment of penalties and
attorneys' fees. FDICIA requires depository institutions to disclose fees,
interest rates and other terms concerning deposit accounts to consumers
before they open accounts. FDICIA requires depository institutions that
provide periodic statements to consumers to include information about fees
imposed, interest earned and the annual percentage yield on those statements.
FDICIA imposes substantive limitations on the methods by which institutions
determine the balance on which interest is calculated. Rules dealing with
advertisements for deposit accounts are also included in the law.

- EXAMINATIONS. The FDIC periodically examines and evaluates insured
banks. Based upon such an evaluation, the FDIC may revalue the assets of an
insured institution and require that it establish specific reserves to
compensate for the difference between the FDIC-determined value and the book
value of such assets. FDICIA requires that

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these on-site examinations be conducted every 12 months, except that certain
well capitalized banks may be examined every 18 months. FDICIA authorizes
the FDIC to assess the institution for its costs of conducting the
examinations. The rules and regulations of the Comptroller, which regulates
FSC's national banks, and the various state banking authorities regulating
FSC's state-chartered banks, also provide for periodic examinations by those
agencies.

- STANDARDS FOR SAFETY AND SOUNDNESS. As part of FDICIA's
efforts to promote the safety and soundness of depository institutions and
their holding companies, the appropriate federal banking regulators were
required to promulgate by December 1, 1993 regulations specifying operational
and management standards (addressing internal controls, loan documentation,
credit underwriting and interest rate risk) and asset quality, earnings and
stock valuation standards (including a minimum ratio of market value to book
value of the publicly traded shares of such depository institutions and
holding companies). The Federal Reserve Board issued on April 19, 1993
proposed regulations on standards for safety and soundness, and revised
guidelines were issued in 1995.

- REAL ESTATE LENDING EVALUATIONS. FDICIA requires uniform
standards for evaluations by the regulators of loans secured by real estate or
made to finance improvements to real estate that take into consideration the
risk posed to the insurance funds by real estate loans, the availability of
credit, and the need for safe and sound operation of insured depository
institutions. FDICIA also prohibits the regulators from adversely evaluating a
real estate loan or investment solely on the grounds that the investment
involves commercial, residential or industrial property, unless the safety and
soundness of an institution may be affected.

In order to implement these provisions, on December 31, 1992, the
agencies adopted regulations establishing loan-to-value (LTV) ratio limitations
on real estate lending by insured depository institutions. The Federal Reserve
Board also established loan-to-value ratio limitations on real estate lending by
bank holding companies and their nonbank subsidiaries. Certain transactions are
excluded from the LTV ratio limitations. Specifically, these limits do not
apply to: loans guaranteed or insured by the U.S. Government or an agency
thereof, or backed by the full faith and credit of a state government; loans
facilitating the sale of real estate acquired by the lending institution in the
ordinary course of collecting a debt previously contracted; loans where real
estate is taken as additional collateral solely through an abundance of caution
by the lender; loans renewed, refinanced, or restructured by the original
lender(s) to the same borrower(s), without the advancement of new funds; or
loans originated prior to the effective date of the regulation.

- BROKERED DEPOSIT RESTRICTIONS. FIRREA and FDICIA generally bar
institutions which are not well capitalized from accepting brokered deposits.
The FDIC has issued rules which prohibit undercapitalized institutions from
soliciting or accepting such deposits. Adequately capitalized institutions
would be allowed to solicit such deposits, but could only accept them if a
waiver is obtained from the FDIC.

- REAL ESTATE APPRAISAL REQUIREMENTS. The federal banking
agencies have issued final regulations requiring, after December 31, 1992,
insured institutions to obtain appraisals by certified or licensed appraisers
for transactions having a value over $100,000.

- FIRREA'S IMPACT. FIRREA's primary purpose was to restructure
the statutory and regulatory framework applicable to savings associations, and
establish a mechanism for resolving insolvent thrift institution cases. Certain
provisions of FIRREA, however, affect the bank subsidiaries of holding
companies, including FSC. Among the most significant of these provisions are
those which: (1) clarify the powers and duties of the FDIC as receiver or
conservator of a bank; (2) enhance the enforcement powers of the federal banking
regulators; (3) establish new reporting requirements under the Home Mortgage
Disclosure Act designed to prevent discriminatory lending practices; (4) require
the federal banking agencies to make public a rating of a bank's performance
under the Community Reinvestment Act; and (5) prohibit banks from entering into
contracts with persons providing goods, products or services if the performance
of such contracts would adversely affect the bank's safety and soundness.
FIRREA's primary impact on commercial banks has been to increase the enforcement
authority of federal regulators and to expand the scope of potential targets of
enforcement actions.

FIRREA also contains a "cross-guarantee" provision which makes
commonly controlled insured depository institutions liable to the FDIC for any
losses incurred in connection with the failure of an affiliated insured
depository institution.

- EXPANDING ENFORCEMENT AUTHORITY. One of the major additional
burdens imposed on the banking industry by FDICIA is the increased ability of
banking regulators to monitor the activities of banks and their holding

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<PAGE>

companies. In addition, the Federal Reserve Board, Comptroller and FDIC are
possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties of up to
$1 million per day, issue cease and desist or removal orders, seek injunctions,
and publicly disclose such actions. FDICIA, FIRREA and other laws have expanded
the agencies' authority in recent years, and the agencies have not yet fully
tested the limits of their powers.

- INSTABILITY OF REGULATORY STRUCTURE. The laws and regulations
affecting banks and bank holding companies are in a state of flux. The rules
and the regulatory agencies in this area have changed significantly over recent
years, and there is reason to expect that similar changes will continue in the
future. It is difficult to predict the outcome of these changes.

[THIS SPACE LEFT BLANK INTENTIONALLY]

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<PAGE>

CAPITALIZATION

The following table sets forth the unaudited historical
capitalization of FSC as of September 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
($'s in Thousands)
<S> <C>
LONG-TERM DEBT
Parent Company:
Medium Term Notes due 1998-2003. . . . . . . . . . . . . . $ 28,750
7.875% Senior Notes due 1999 . . . . . . . . . . . . . . . 98,962
6.875% Senior Notes due 2006 . . . . . . . . . . . . . . . 150,000
7.5% Subordinated Notes due 2002 . . . . . . . . . . . . . 75,000
7.0% Subordinated Notes due 2005 . . . . . . . . . . . . . 125,000
8.41% Junior Subordinated Debentures due 2026. . . . . . . 150,000
Subsidiaries:
Bank Notes & FHLB Borrowings (1,2) . . . . . . . . . . . . 326,330
Non-Bank . . . . . . . . . . . . . . . . . . . . . . . . . 421
Total long-term debt. . . . . . . . . . . . . . . . . 954,463
STOCKHOLDERS' EQUITY
Series A, $3.15 Cumulative Convertible Preferred Stock:
(9,724 shares outstanding). . . . . . . . . . . . . . . . 510
Common Stock (par value $1.25, authorized 300,000,000
shares, issued and outstanding 116,679,620 shares)(3)(4). . 145,850
Paid-in surplus(4). . . . . . . . . . . . . . . . . . . 140,970
Retained earnings . . . . . . . . . . . . . . . . . . . 1,017,955
Net unrealized gain on securities available for sale. . ( 11,652)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 1,316,427
Less: common treasury stock at cost (841,397 shares) . . . ( 16,893)
Total common stockholders' equity. . . . . . . . . . . . . 1,299,534
Total stockholders' equity. . . . . . . . . . . . . . . 1,300,044
Total long-term debt and stockholders' equity . . . . . $2,254,507
</TABLE>
__________________

(1) These obligations are direct obligations of subsidiaries of FSC, and as
such, constitute claims against such subsidiaries ranking prior to FSC's equity
therein.

(2) Federal Home Loan Bank borrowings almost all mature in 1996-2000.

(3) FSC is authorized to issue 300,000,000 shares of FSC Common Stock
with a par value of $1.25 per share. As of September 30, 1997, there were
outstanding 115,838,223 (net of Treasury Stock) shares of FSC Common Stock.
At such date, there were 4,343,754 shares reserved for issuance under FSC's
Comprehensive Management Incentive Plan as stock bonuses and other awards;
1,411,932 shares reserved for issuance under FSC's Dividend Reinvestment
Plan; 265,830 shares reserved for issuance upon the conversion of FSC's
Series A Preferred Stock, and 6,058,365 shares reserved for issuance upon
exercise of outstanding stock options. Payment of dividends on the FSC
Common Stock is also subject to the prior rights of FSC's outstanding
Preferred Stock.

(4) Restated for 50% stock dividend paid May 15, 1997 to stockholders of
record May 12, 1997.

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<PAGE>

DESCRIPTION OF FSC'S CAPITAL STOCK

The following statements are brief summaries of the material
provisions relating to FSC's Preferred Stock and FSC Common Stock and are
qualified in their entirety by the provisions of FSC's Certificate of
Incorporation, which has been filed with the Commission.

- PREFERRED STOCK. The Certificate of Incorporation authorizes
the issuance of 400,000 shares of preferred stock with no par value. On
September 30, 1997, there were 9,724 shares of $3.15 Cumulative Convertible
Preferred Stock, Series "A" (the "Series A Preferred Stock") outstanding.
Holders of Series A Preferred Stock have the right to receive semi-annual
dividends at the annual rate of $3.15 per share. Such right is cumulative and
such dividends are payable before dividends may be paid on the FSC Common Stock.
The Series A Preferred Stock is convertible into the FSC Common Stock at a ratio
of 27.3375 shares of FSC Common Stock for each share of Series A Preferred
Stock. This conversion right is subject to adjustment in certain events to
protect against dilution of the conversion rights attached to the Series A
Preferred Stock. In the event of a liquidation, dissolution or winding up of
FSC, the holders of Series A Preferred Stock are entitled to receive cash value
of $52.50 per share plus unpaid accumulated preferred dividends before any
distribution is made to holders of the FSC Common Stock. FSC may, at the option
of the Board of Directors, redeem the whole or any part of the outstanding
Series A Preferred Stock at the redemption price of $52.50 per share plus unpaid
accumulated preferred dividends.

Holders of FSC's Series A Preferred Stock are entitled to one
vote per share on all matters submitted to a vote of stockholders. Voting for
the election of directors is not cumulative. If at any time four or more
semi-annual dividends on the Series A Preferred Stock are in default, in whole
or in part, the holders of the Series A Preferred Stock as a class will be
entitled to elect four directors and the holders of the FSC Common Stock will be
entitled to elect the remaining directors. Holders of any additional Preferred
Stock hereafter issued may have such full or limited voting rights as are
provided by the Board of Directors.

The Board of Directors of FSC is authorized by the Certificate of
Incorporation to provide, without further shareholder action, for the issuance
of one or more series of preferred stock. The Board of Directors has the power
to fix various terms with respect to each series, including voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations, restrictions and redemption, conversion or
exchangeability provisions. Holders of preferred stock have no pre-emptive
rights. The Series A Preferred Stock is not publicly traded.

- FSC COMMON STOCK. FSC is authorized to issue 300,000,000
shares of FSC Common Stock with a par value of $1.25 per share. As of September
30, 1997, there were outstanding 115,838,223 (net of Treasury Stock) shares of
FSC Common Stock. At such date, there were 4,343,754 shares reserved for
issuance under FSC's Comprehensive Management Incentive Plan as stock bonuses
and other awards; 1,411,932 shares reserved for issuance under FSC's Dividend
Reinvestment Plan; 265,830 shares reserved for issuance upon the conversion of
FSC's Series A Preferred Stock, and 6,058,365 shares reserved for issuance upon
exercise of outstanding stock options. Payment of dividends on the FSC Common
Stock is also subject to the prior rights of FSC's outstanding Preferred Stock.

The holders of FSC Common Stock are entitled to voting rights for
the election of directors and for other purposes, subject to the voting rights
of the holders of Preferred Stock conferred by law and to the specific voting
rights granted to each series of Preferred Stock and to voting rights which may
in the future be granted to subsequently created series of Preferred Stock.

Holders of FSC Common Stock are entitled to receive dividends
when and if declared by the Board of Directors of FSC out of any funds legally
available therefor, and are entitled upon liquidation, after claims of creditors
and preferences of FSC's Preferred Stock and any other series of Preferred Stock
hereafter authorized, to receive PRO RATA the net assets of FSC. FSC Common
Stock has no pre-emptive or conversion rights.

As of August 28, 1989, FSC adopted a Shareholder Rights Agreement
(the "Plan") and the Board of Directors of FSC on that date (a) declared a
dividend of one "Right" for each share of FSC Common Stock held of record as of
the close of business on September 8, 1989, and (b) authorized the issuance of
one Right in respect of each share of FSC Common Stock issued after September 8,
1989 and prior to the occurrence of certain events described in the Plan,
primarily involving the acquisition of target levels of FSC shares by persons
not then holding such amounts. Each Right entitles the registered holder to
purchase from FSC a unit consisting of one one-thousandth of a share of Junior
Series B

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<PAGE>

Preferred Stock at a purchase price of $19.75 per unit. The Rights are
attached to all shares of FSC Common Stock that were outstanding on
September 8, 1989 or have been issued since that date, and no separate Rights
Certificates have been or will be distributed until the occurrence of certain
events described in the Rights Agreement. Until the occurrence of such
events, no Right may be exercised or traded separately from the FSC Common
Stock. Following separation, the Rights may, depending upon the occurrence of
certain events described in the Rights Agreement, entitle the holders thereof
to either purchase or receive additional shares of FSC Common Stock. The
Rights will expire at the close of business on August 28, 1999, unless
earlier redeemed by FSC, which may be done at $0.01 per Right, in accordance
with the terms of the Plan.

The Plan is designed to protect FSC's stockholders' interests in
the event of an unsolicited attempt to acquire FSC, including a gradual
accumulation of shares in the open market. FSC believes that the Plan provides
protection against a partial or two-tier tender offer that does not treat all
stockholders equally and against other coercive takeover tactics which could
impair FSC's Board of Directors' ability to represent FSC's stockholders fully.
Management believes that the Rights should also deter any attempt by a
controlling stockholder to take advantage of FSC through self-dealing
transactions. The Plan is not intended to prevent a takeover of FSC. Issuing
the Rights has no dilutive effect, does not affect reported earnings per share,
and does not change the way in which FSC's shares are traded. However, the
exercise of Rights by some but not all of FSC's stockholders would have a
dilutive effect on nonexercising stockholders. Moreover, some may argue that
the Plan has the potential for "entrenching" current management by allowing
current voting stockholders to increase their voting shares, thus making a
tender offer more difficult and costly. Shares of FSC Common Stock do not have
cumulative voting rights.

FSC Common Stock is not subject to redemption by either FSC or a
stockholder, and there is no restriction on the repurchase by FSC of shares of
FSC Common Stock except for certain regulatory limits.

FSC's Certificate of Incorporation provides that, in general, an
affirmative vote of not less than 80% of the outstanding shares of FSC Common
Stock is required to approve or authorize certain major corporate transactions
involving FSC and holders of more than 15% of the FSC Common Stock (including
certain mergers, substantial dispositions of assets, liquidation or dissolution,
or recapitalization). The 80% vote is not required in some such circumstances,
including certain transactions which have been approved in advance by a majority
of the Board of Directors, or where holders of FSC Common Stock receive a price
per share that satisfies the fairness criteria set forth in the Certificate of
Incorporation.

HISTORICAL PRICES AND DIVIDENDS OF FSC COMMON STOCK

FSC Common Stock is quoted on the NASDAQ National Market System
under the symbol "FSCO."

Future dividends will be determined by FSC's Board of Directors
in light of circumstances existing at the time, including the earnings and
financial condition of FSC, and there is no assurance that dividends will
continue to be paid at current levels. No material restrictions have been
imposed on FSC's ability to pay dividends from its earned surplus by bank
regulations or applicable law.

Payment of dividends on the FSC Common Stock is also subject to
the prior rights of FSC's outstanding Preferred Stock.

The following table sets forth by quarter the high and low sales
price of FSC Common Stock as reported on the NASDAQ National Market System, and
the cash dividends declared per share for the calendar periods indicated. The
information presented below was obtained from the National Association of
Securities Dealers, Inc. and reflects interdealer prices, without retail markup,
markdown or commissions, and may not represent actual transactions. All stock
prices and dividends per share reported below have been adjusted for 50% stock
dividends effected by FSC on May 15, 1997 and February 15, 1996 which had the
effect of 3-for-2 stock splits.

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<PAGE>

CASH DIVIDENDS
DECLARED PER
HIGH LOW SHARE
---- --- --------------
1997

Fourth Quarter
(through 12/ /97) $ $ $ 0.17
Third Quarter 32.00 26.38 0.17
Second Quarter 28.50 21.67 0.17
First Quarter 24.83 21.33 0.15

1996

Fourth Quarter 22.75 18.75 0.15
Third Quarter 18.75 15.83 0.14
Second Quarter 18.42 15.25 0.14
First Quarter 18.50 15.44 0.14

1995

Fourth Quarter 16.89 13.55 0.12
Third Quarter 14.78 12.22 0.12
Second Quarter 12.72 10.22 0.12
First Quarter 11.39 9.78 0.12

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<PAGE>

1994

Fourth Quarter 12.67 9.56 0.12
Third Quarter 14.22 12.33 0.12
Second Quarter 13.78 12.11 0.12
First Quarter 12.89 11.44 0.12

1993

Fourth Quarter 13.33 10.67 0.10
Third Quarter 12.67 11.78 0.10
Second Quarter 13.33 11.33 0.10
First Quarter 13.44 11.33 0.09

The closing price of FSC Common Stock as reported on the NASDAQ
National Market System on October 17, 1997, the last trading day prior to the
public announcement of the Merger Agreement was $30.00 per share. On ,
1997, the closing price for FSC Common Stock was $ per share.

FSC has paid cash dividends on its common and preferred stock
without reduction in amount for over 63 consecutive years. Since 1983, these
dividends have been paid quarterly. Dividends on FSC's $3.15 Cumulative
Preferred Stock are paid semi-annually and are current.

Shareholders are advised to obtain current market quotations for
FSC Common Stock. No assurances can be given concerning the market price of the
FSC Common Stock before or after the date on which the Mergers are consummated.
The market price of the FSC Common Stock will fluctuate between the date of this
Prospectus/Proxy Statement and the Closing Date and thereafter. Although the
Conversion Ratios themselves are not subject to change based on the market price
of FSC Common Stock, because the Conversion Ratio is subject to the limited
adjustment mechanisms described earlier in this Prospectus / Proxy Statement,
and because the market price of the FSC Common Stock to be received by
Shareholders in the Mergers is subject to fluctuation, the value of the shares
of FSC Common Stock that Shareholders will receive under the Merger Agreement
may increase or decrease prior to and following the Effective Time.

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<PAGE>

INFORMATION ABOUT BANCORP

GENERAL

Bancorp was organized and incorporated under the laws of the State of New
Mexico on June 3, 1981, for the purpose of becoming a bank holding company.
Bancorp has two subsidiaries: FNBCC, a national banking association,
headquartered in Roswell, New Mexico and FNBDA, a national banking association,
headquartered in Las Cruces, New Mexico. Bancorp has no other subsidiaries.
Bancorp is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. Bancorp's banks are both chartered by the Office of
the Comptroller of the Currency and are insured banks under the Federal Deposit
Insurance Act, with deposits insured up to the applicable limits thereof.

Bancorp's banks provide a wide range of retail banking services,
including checking and savings accounts; certificates of deposit; individual
retirement accounts; commercial, real estate, and consumer loans; safe deposit
boxes; and trust services. There is no individual customer or group of
customers the loss of which will have a material adverse effect on the
operations of its banks. Except for loans to finance mobile home purchases, no
significant portion of Bancorp's bank loans is concentrated within a single
industry or group of related industries.

REGULATION AND SUPERVISION

Bancorp is a bank holding company regulated in the same manner and to the
same extent as is FSC. Bancorp's two banking subsidiaries are national banks
which are regulated in the same manner and to the same extent as FSC's national
bank subsidiaries. Therefore a repitition of the supervisory and regulatory
discussion found in INFORMATION ABOUT FSC, above, will not take place here.
Readers are asked to review the material information set out in INFORMATION
ABOUT FSC -- Regulation and Supervision for an understanding the regulatory and
supervisory regime within which Bancorp and its subsidiaries operate.

- BANK HOLDING COMPANY CAPITAL ADEQUACY REQUIREMENTS. The Federal
Reserve Board monitors the capital adequacy of bank holding companies. The
Federal Reserve Board uses a combination of risk-based guidelines and leverage
ratios to evaluate capital adequacy. The Federal Reserve Board has adopted a
system using internationally consistent risk-based capital adequacy guidelines
to evaluate the capital adequacy of bank holding companies. Under the risk-
based capital guidelines, different categories of assets are assigned different
risk weights, based generally on the perceived credit risk of the asset. These
risk weights are multiplied by corresponding asset balances to determine a
"risk-weighted" asset base. Certain off-balance sheet items, which previously
were not expressly considered in capital adequacy computations, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning to them the appropriate risk weight. Total capital is defined as the
sum of "Tier 1" and "Tier 2" capital elements, with "Tier 2" being limited to
100% of "Tier 1." For bank holding companies, "Tier 1" capital includes, with
certain restrictions, common stockholders' equity, perpetual preferred stock and
minority interests in consolidated subsidiaries less certain intangibles.
"Tier 2" capital includes, with certain limitations, certain forms of perpetual
preferred stock, as well as maturing capital instruments and the reserve for
possible loan losses and specified levels of certain intangibles.

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<PAGE>

In addition to the risk-based capital guidelines, the Federal Reserve
Board has adopted the use of a leverage ratio as an additional tool to evaluate
the capital adequacy of banks and bank holding companies. The leverage ratio is
defined to be a company's "Tier 1" capital divided by its adjusted total assets.
The leverage ratio adopted by the federal banking agencies requires a 3.0%
"Tier 1" capital to adjusted total assets ratio for institutions with a CAMEL
rating of 1. Institutions which are not CAMEL 1 rated will be expected to
maintain a 100 to 200 basis point cushion; i.e., these institutions will be
expected to maintain a leverage ratio of 4.0% to 5.0%, and institutions planning
acquisitions are expected to maintain higher ratios.

The following table sets forth the current regulatory requirements for
capital ratios of bank holding companies as compared with Bancorp's capital
ratios at September 30, 1997:

--------------------------------------------------
TIER 1 TOTAL
CAPITAL TO CAPITAL TO
LEVERAGE RISK-WEIGHTED RISK-WEIGHTED
RATIO(1) ASSETS(2) ASSETS(3)
- --------------------------------------------------------------------------------
REGULATORY MINIMUM 4.00-5.00% 4.00% 8.00%
- --------------------------------------------------------------------------------
BANCORP AT SEPTEMBER 30, 1997 12.05% 20.40% 21.50%
- --------------------------------------------------------------------------------

(2)SHAREHOLDERS' EQUITY LESS GOODWILL (TIER 1 CAPITAL) DIVIDED BY
RISK-WEIGHTED ASSETS.

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<PAGE>

- REGULATORY ACTION INVOLVING FNBDA On January 23, 1997, FNBDA entered
into a settlement agreement with the United States Department of Justice (the
"Department") arising out of the Department's allegations that FNBDA had
violated the Federal Fair Housing and Equal Credit Opportunity Acts by
engaging in practices that discriminated on the basis of national origin in
its mobile home mortgage lending business. FNBDA adamantly denies the
allegations. However, to avoid costs of protracted litigation and to enable
management to refocus its attention on the normal business of banking, FNBDA
agreed to a settlement which commits them, among other things, to continue
the types of lending programs, promotional activities and training that are
designed to increase the level of banking services available to Hispanics.
In addition to compensating identified aggrieved individuals $485,000 (which
was accrued in December 31, 1996 statements as other liabilities), FNBDA has
agreed to (i) develop and implement uniform underwriting guidelines including
utilization of a second review committee (ii) provide a written customer
assistance program and conduct outreach programs to the Hispanic community
including home buyers educational seminars (iii) provide training to
officers, directors and certain employees and (iv) establish a $750,000 fund
for below-market mortgage loans to qualified applicants. FNBDA views the
efforts in (i) through (iii) above as continuations of their existing lending
programs.

PROPERTIES

Bancorp has no properties in use in its business other than those used by
its subsidiary banks. FNBDA currently operates out of its main office located
in Las Cruces, New Mexico. It also operates nine branches in the Las
Cruces/Dona Ana County area. FNBCC currently operates out of its main office
located in Roswell, New Mexico and operates no branches. Each of the properties
on which branches or offices of Bancorp's banks are located are owned by such
banks or operated under market rate and termed leases with unaffiliated third
parties.

COMPETITION

Bancorp's banks accept checking and savings deposits and make commercial,
real estate, and consumer loans. Each institution also offers many customary
services, including but not limited to cashier's checks, bank by mail, automated
check deposit and travelers checks. The banking business in New Mexico and in
the markets served by Bancorp and its subsidiaries is highly competitive.
Bancorp's banks compete for loans and deposits with other commercial banks,
savings banks, finance companies, credit unions and other financial
institutions. In addition, other entities (both governmental and private
industry) seeking to raise capital through the issuance and sale of debt or
equity securities, mutual funds or tax deferred annuities also provide
competition for each of the entities in the acquisition of deposits. Larger
commercial banks have greater lending limits than do Bancorp's banks and may
perform certain other functions which Bancorp's banks do not or cannot currently
offer.

In order to compete with other financial institutions in its primary
service area, Bancorp's banks rely primarily upon local promotional activities,
customer referrals, personal contact by its officers, directors, employees and
shareholders, and specialized services. While there are many other commercial
banks and lending institutions in the primary service areas of Bancorp's banks,
Bancorp believes its emphasis on customer service and personal contact set it
apart from its competitors.

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<PAGE>

RECENT LEGISLATION AND OTHER CHANGES

From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or extending permissible
activities or effecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks and other financial institutions are
frequently made in Congress, in the New Mexico legislature and before various
bank regulatory agencies. The likelihood of any major changes and the impact
such changes might have on Bancorp and its subsidiaries are impossible to
predict.

Effective June 1, 1996, New Mexico allowed interstate banking by merger
or acquisition, but prohibits DE NOVO entry and the acquisition of individual
branches. Additionally, the State of New Mexico places a five year minimum age
requirement on interstate bank acquisitions. It is likely that other bills
affecting the business of banks may be introduced in the future by the United
States Congress or the New Mexico Legislature.

EMPLOYEES

Bancorp, together with its subsidiaries, has 276 full time or equivalent
employees as of September 30, 1997. Of this number, 240 are employed by FNBDA.

LEGAL PROCEEDINGS

No material legal proceedings are pending against Bancorp or its
subsidiaries other than ordinary, routine litigation incidental to the business
of Bancorp and its subsidiaries.

DIVIDENDS

Through November 30, Bancorp has paid no cash dividends in 1997 on the
outstanding shares of Bancorp common stock. In 1996, 1995 and 1994, Bancorp
paid cash dividends (per share) to stockholders of $10.00, $8.00 and $6.00,
respectively.

At this time, Bancorp intends to make an additional cash dividend
payment to Shareholders on or before January 2, 1998 in the amount of $12.00 per
share to be declared during the fourth quarter of 1997.

It is the policy of Bancorp, as well as that of its subsidiary banks, to
pay cash dividends to Shareholders only when it is prudent to do so and when
Bancorp's performance justifies such action. Accordingly, no assurance can be
given of any future cash dividend payments.

The National Bank Act restricts the payment of dividends by Bancorp's
banks. Section 60 of the National Bank Act provides that banks may not pay
dividends on their stock from their capital stock and surplus accounts. All
dividends must be paid out of net profits after making deductions for expenses,
including losses and provisions for loan losses. The payment of dividends

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<PAGE>

out of net profits is further restricted by additional provisions which limit
a national bank from declaring dividends on its stock until the bank's
capital surplus equals the amount of capital stock or, if the surplus fund
does not equal the amount of the capital stock, by requiring a portion of the
bank's net profits to be transferred to the surplus account each time
dividends are declared. The National Bank Act further restricts dividends by
placing a recent earnings limitation on the payment of dividends by requiring
prior approval of the OCC of a dividend if the total of all dividends
declared by the bank in any year exceeds the total of its net profits of that
year combined with the net profits of two preceding years, less any required
transfers to surplus. As of September 30, 1997, Bancorp's banks could
declare and pay up to approximately $7.3 million in dividends to Bancorp if
so declared by the Boards of Directors of these two banks.

Through November 30, 1997, FNBDA has paid a total of cash dividends in
1997 of $6.00 per share on all outstanding shares of FNBDA Common Stock. In
1996, 1995 and 1994, FNBDA paid cash dividends (per share) on its Common Stock
of $20.00, $20.00 and $15.00, respectively. FNBDA does not intend to declare or
pay any additional dividends in 1997 or prior to the Effective Time.

The New Mexico General Corporation Law further restricts the payment of
dividends from Bancorp to its Shareholders. Section 53-11-44 of the New Mexico
Statutes provides that no dividends may be made if, after giving effects of
dividend, Bancorp would be unable to pay its debts as they become due in the
usual course of business or Bancorp's total assets would be less than the sum of
its total liabilities and the maximum amount that would be payable, in any
liquidation, in respect of all outstanding shares having preferential rights.

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning Bancorp's
Directors and Executive Officers as of November 30, 1997:

POSITION AND
PRINCIPAL OCCUPATION
NAME AGE FOR PAST 5 YEARS
---- --- ----------------

Charles N. Haner 73 Chairman of the Board of
Bancorp; Retired Banker

Michele Papen-Daniel, Ph D. 55 President and Director; Clinical
Psychologist

Ben H. Haines, Jr. 57 Vice President and Director;
President and Chief Executive
Officer of FNBDA

John A. Papen, III 55 Secretary and Director; Executive
Vice President of FNBDA

Julie Chase-Daniel 33 Treasurer and Director; Director
of Research and Development,
Karen Kennett and Hyatt

Robert O. Johnson, CPA 42 Chief Financial Officer

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<PAGE>

Claud Tharp 92 Director; Chairman of Rountree
Cotton Company

William Tharp 59 Director; President of Rountree
Cotton Company

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<PAGE>

TRANSACTIONS WITH MANAGEMENT

Directors and Executive Officers of Bancorp and its subsidiaries,
including their associates and members of their immediate families, were
customers of and had transactions including loans and commitments to lend in the
ordinary course of business. All such loans and commitments were made by
Bancorp or its subsidiaries on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than normal risk of
collectibility or present other unfavorable features. Similar transactions may
be expected to take place in the ordinary course of business in the future. On
September 30, 1997, the aggregate of these related party loans was approximately
$7.1 million or approximately 3.0% of total consolidated loans of Bancorp.

SELECTED COMPARATIVE FINANCIAL DATA

The following selected historical financial information on Bancorp is
derived from the audited consolidated 1996, 1995, 1994, 1993 and 1992 year-end
financial statements and September 30, 1997 and 1996 unaudited consolidated
financial statements of Bancorp. Reference should also be made to the
financial information for Bancorp found at "SELECTED COMPARATIVE FINANCIAL
DATA," above. (Bancorp audited consolidated December 31, 1996 and 1995,
and unaudited consolidated September 30, 1997, as to balance sheet items, and
for each of the three years in the period ended December 31, 1996, and for the
nine months ended September 30, 1997 and 1996, as to income statement are found
at Appendix B to this Prospectus/Proxy Statement.)

The average balance sheet data on Bancorp is presented on a yearly basis.
This information should be read in conjunction with the Bancorp financial
statements and notes thereto found at Appendix B, and the information
hereinafter set forth under the caption "INFORMATION ABOUT BANCORP".

-54-

<PAGE>

<TABLE>
<CAPTION>
1996 (IN THOUSANDS)

AVERAGE INTEREST %YIELD/
BALANCE RATE(1)
<S> <C> <C> <C>
ASSETS

Loans(2)(3) $210,893 $ 21,136 10.02
Investment Securities(4):
U.S. Treasury, Government and Agency Securities 96,380 5,819 6.04
State and Municipal Securities 17,641 994 5.63
Other Securities 2,703 148 5.48
Federal Funds Sold 11,206 581 5.18
-------- --------
Total Interest Earning Assets 338,823 28,678 8.46
-------- --------
Cash & Due From Banks 24,034
Land, Building and Equipment, net 8,085
Other Assets 10,288
Total Non-Interest Earning Assets 42,407
--------
Total Assets $381,230
--------
--------
LIABILITIES & STOCKHOLDERS' EQUITY

Deposits $241,406 9,365 3.88
Federal Funds Purchased 1,131 49 4.33
Borrowed Funds 9,894 657 6.64
-------- --------
Total Interest Bearing Liabilities 252,431 10,071 3.99
-------- --------
Total Non-Interest Bearing Liabilities 84,031
--------
Minority Interest 1,448
Stockholders' Equity 43,320
--------
Total Liabilities & Stockholders'Equity $381,230
--------
--------
Net Interest Earned $ 18,607
--------
--------

Net Yield on Interest Earning Assets 5.49
----
----
</TABLE>

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1996 are approximately $1,657,000. The
interest yield excluding fees is 9.24%.
(3) Non-interest bearing loans are included in other assets. The daily
average of non-interest bearing loans for 1996 is approximately
$1,351,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

-55-

<PAGE>

<TABLE>
<CAPTION>
1995 (IN THOUSANDS)
AVERAGE BALANCE INTEREST % YIELD/
RATE(1)
<S> <C> <C> <C>
ASSETS

Loans(2)(3) $197,889 $ 20,472 10.35
Investment Securities(4):
U.S. Treasury, Government and Agency Securities 105,782 6,216 5.88
State and Municipal Securities 18,638 1,068 5.73
Other Investment Securities 2,895 103 3.56
Federal Funds Sold 7,297 412 5.65
-------- -------
Total Interest Earning Assets 332,501 28,271 8.50
-------- -------
Cash & Due From Banks 21,261
Land, Building and Equipment, Net 7,375
Other Assets 8,952
Total Non-Interest Earning Assets 37,588
--------
Total Assets $370,089
--------
--------
LIABILITIES & STOCKHOLDERS' EQUITY

Deposits $239,722 9,283 3.87
Federal Funds Purchased 3,512 194 5.52
Borrowed Funds 7,600 535 7.04
-------- -------
Total Interest Bearing Liabilities 250,834 10,012 3.99
-------- -------
Total Non-Interest Bearing Liabilities 79,107
--------
Minority Interest 1,346
Stockholders' Equity 38,802
--------
Total Liabilities & Stockholders' Equity $370,089
--------
--------
Net Interest Earned $18,259
-------
-------
Net Yield on Interest Earning Assets 5.49
----
----
</TABLE>

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1995 are approximately $1,555,000. The
interest yield excluding fees is 9.56%.
(3) Non-interest bearing loans are included in other assets. The daily average
of non-interest bearing loans for 1995 is approximately $1,239,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

-56-

<PAGE>

<TABLE>
<CAPTION>
1994 (IN THOUSANDS)
AVERAGE BALANCE INTEREST % YIELD/
RATE(1)
<S> <C> <C> <C>
ASSETS

Loans(2)(3) $183,374 $ 18,760 10.23
Investment Securities(4):
U.S. Treasury, Government and Agency Securities 123,997 6,580 5.31
State and Municipal Securities 18,719 1,132 6.05
Other Investment Securities 3,369 77 2.29
Federal Funds Sold 4,004 131 3.27
-------- --------
Total Interest Earning Assets 333,463 26,680 8.00
-------- --------
Cash & Due From Banks 20,147
Land, Building and Equipment, Net 6,880
Other Assets 10,456
Total Non-Interest Earning Assets 37,483
---------
Total Assets $370,946
---------

LIABILITIES & STOCKHOLDERS' EQUITY

Deposits 247,989 7,207 2.91
Federal Funds Purchased 3,904 166 4.25
Borrowed Funds 4,355 235 5.40
--------
Total Interest Bearing Liabilities 256,248 7,608 2.97
--------
Total Non-Interest Bearing Liabilities 78,714
--------
Minority Interest 1,213
Stockholders' Equity 34,771
--------
Total Liabilities & Stockholders' Equity $370,946
--------
--------
Net Interest Earned $ 19,072
--------
--------
Net Yield on Interest Earning Assets 5.72
</TABLE>

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1994 are approximately $1,502,000. The
interest yield excluding fees is 9.41%.
(3) Non-interest bearing loans are included in other assets. The daily average
of non-interest bearing loans for 1994 is approximately $1,996,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

-57-

<PAGE>

<TABLE>
<CAPTION>
INTEREST DIFFERENTIAL (IN 000'S) 1996 COMPARED TO 1995
TOTAL CHANGE VOLUME YIELD/RATE
VARIANCE VARIANCE
<S> <C> <C> <C>
ASSETS

Loans $ 664 $ 1,303 $ (639)
Investment Securities:
U.S. Treasury, Government and Agency Securities (397) (568) 171
State and Muncipal Securities (74) (56) (18)
Other Investment Securities 45 (11) 56
Federal Funds Sold 169 203 (34)
-------------------------------------
Total Interest Earning Assets $ 407 $ 871 $ (464)
-------------------------------------
-------------------------------------
LIABILITIES

Deposits $ 82 $ 65 $ 17
Federal Funds Purchased (145) (103) (42)
Borrowed Funds 122 152 (30)
-------------------------------------
Total Interest Bearing Liabilities $ 59 $ 114 $ (55)
-------------------------------------
-------------------------------------

<CAPTION>
1995 COMPARED TO 1994
TOTAL CHANGE VOLUME YIELD/RATE
VARIANCE VARIANCE
<S> <C> <C> <C>
ASSETS

Loans $ 1,712 $ 1,502 $ 210
Investment Securities:
U.S. Treasury, Government and Agency Securities (364) (1,070) 706
State and Muncipal Securities (64) (5) (59)
Other Investment Securities 26 (17) 43
Federal Funds Sold 281 186 95
--------------------------------------
Total Interest Earning Assets $ 1,591 $ 596 $ 995
--------------------------------------
--------------------------------------
LIABILITIES

Deposits $ 2,076 $ (320) $2,396
Federal Funds Purchased 28 (22) 50
Borrowed Funds 300 228 72
--------------------------------------
Total Interest Bearing Liabilities $ 2,404 $ (114) $2,518
--------------------------------------
--------------------------------------
</TABLE>

-58-
<PAGE>

The following table shows the contractual maturity distribution by carrying
amount and weighted average yield to maturity of Bancorp's investment
portfolio at December 31, 1996.

<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
LESS THAN ONE YEAR ONE THROUGH FIVE YEARS FIVE THROUGH TEN YEARS OVER TEN YEARS TOTAL
AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury and
Other Agencies and
Corporations $24,041 5.37 $18,546 5.95 -- -- -- -- $42,587

State and Municipal
Securities 25 4.53 947 4.34 $ 4,272 4.80 $ 1,524 5.42 6,768

U.S. Gov't Agency
Mortgage Backed
Securities 1,368 5.30 462 5.88 14,090 6.47 33,759 6.30 49,679
------- ------- ------- ------- -------
Total $25,434 $19,955 $18,362 $35,283 $99,034
------- ------- ------- ------- -------
------- ------- ------- ------- -------

<CAPTION>
SECURITIES HELD TO MATURITY

LESS THAN ONE YEAR ONE THROUGH FIVE YEARS FIVE THROUGH TEN YEARS OVER TEN YEARS TOTAL
AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT

US Treasury and
Other Agencies and
Corporations -- -- $ 472 4.14 -- -- -- -- $ 472

State and
Municipal
Securities $ 1,500 5.93 5,991 6.03 $ 4,071 5.79 $ 511 6.70 12,073

U.S. Gov't Agency
Mortgage Backed
Securities 218 8.89 4 8.74 1,427 8.85 1,795 9.42 3,444

Other Investment
Securities 1 -- -- -- -- -- 1
------- ------- ------- ------- -------
Total $ 1,719 $ 6,467 $ 5,498 $ 2,306 $15,990
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>

Maturities may differ from contractual maturities in mortgage backed securities
because the mortgages underlying the securities may be called or repaid without
penalties. Yields on tax exempt securities are not calculated on a tax
equivalent basis.

-59-
<PAGE>

The following table shows the carrying amount of the Bancorp's investment
portfolio at December 31, 1995 and 1994:

DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
AVAILABLE FOR SALE HELD TO MATURITY

<S> <C> <C> <C> <C>
U.S. Government Agency and Mortgage Backed Securities $ 62,842 $ 74,233 $ 5,032 $ 5,905

State and Municipal Securities 3,527 -- 13,996 19,557

U.S. Treasury and Other Agencies and Corporations 25,163 38,880 -- --

Other Investment Securities -- -- 1 --
---------------------------------------------------------
Total $ 91,532 $113,113 $ 19,029 $ 25,462
---------------------------------------------------------
---------------------------------------------------------

</TABLE>

BANCORP'S LOAN PORTFOLIO

The composition of Bancorp's loan portfolio, at year-end for the periods
indicated, is as follows:

DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial Loans and Financing $ 96,103 $ 83,930 $ 76,176 $ 81,523 $ 82,600
Leases 1

Mortgage 38,540 30,043 24,287 25,252 27,900

Installment and Other 94,240 102,400 95,623 86,556 92,306

----------------------------------------------------------------------------------------
Subtotal 228,883 216,373 196,086 193,331 202,806

Less: Unearned net loan fees 3,734 5,268 3,926 2,586 4,587

Allowance for loan losses 2,809 2,950 3,259 3,387 3,668

----------------------------------------------------------------------------------------
Total Loans, net $222,340 $208,155 $188,901 $187,358 $194,551
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------

</TABLE>

MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES

The following table shows the balances of commercial, mortgage and installment
and other loans outstanding as of December 31, 1996 by maturities, based on
remaining scheduled repayments of principal. Also shown are the balance of
loans due after one year, classified according to sensitivity to changes in
interest rates.

MATURITY

ONE YEAR OR ONE THROUGH AFTER FIVE TOTAL
LESS FIVE YEARS YEARS

<S> <C> <C> <C> <C>
Commercial $ 51,517 $ 34,044 $ 10,542 $ 96,103

Mortgage 2,660 4,218 31,662 38,540

Installment and Other 15,848 56,853 21,539 94,240
----------------------------------------------------
Total $ 70,025 $ 95,115 $ 63,743 $228,883
----------------------------------------------------
----------------------------------------------------

</TABLE>

-61-

<PAGE>

The maturity of certain loans may vary due to Bancorp's rollover policy.
Bancorp will consider extending the maturity of a loan upon receipt of current
financial information and evaluation of the loan performance, the financial
performance of the business, and overall economic conditions. Loans with
maturities so affected have been revised as appropriate in the above table.

INTEREST SENSITIVITY

At December 31, 1996, the total amount of gross loans due after one year, which
have predetermined interest rate, are $143,468,387.

RISK ELEMENTS

The table below shows the aggregate amount of loans accounted for on a non-
accrual basis, accruing loans which are contractually past due 90 days or more
as to principal or interest and loans which are "troubled debt restructurings"
as defined in Statement of Financial Accounting Standard No. 15, "Accounting for
Debtors and Creditors for Troubled Debt Restructurings" as of year end for the
past five years.

NON-ACCRUAL PAST DUE 90 TROUBLED DEBT
AMOUNT DAYS OR MORE RESTRUCTURING
<S> <C> <C> <C>
DECEMBER 31,
1996 $ 1,243 $ 1,207 --
1995 1,053 436 --
1994 908 344 --
1993 2,168 304 --
1992 3,269 369 --

</TABLE>

Loans are placed on non-accrual status when they go over 90 days delinquent, or
when circumstances indicate that timely collection of interest is doubtful.
Loans over 90 days delinquent may be left on accrual status if a repayment plan
has been negotiated and it appears likely that all interest will be paid. If
interest on non-accrual loans had been accrued, interest income would have
increased by approximately $162,000 for 1996.

POTENTIAL PROBLEM LOANS

As of December 31, 1996 there are no loans outstanding (excluding those
discussed in the preceding section) which cause management to have serious
doubts as to the ability of the borrower to comply with the loan repayment
terms.

FOREIGN OUTSTANDINGS

Bancorp did not have any foreign loans outstanding for the years ended
December 31, 1996, 1995, or 1994.

OTHER INTEREST BEARING ASSETS

As of December 31,1996, Bancorp had no other interest bearing assets that would
be required to be disclosed if such assets were loans.

-62-

<PAGE>

-63-

<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

The following table details the amount of loans charged to reserve and the
additions to the allowance for loan losses for the past five years.

1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses, January 1 $2,950 $3,259 $3,387 $3,668 $3,681

Deduct:
Loans Charged Off During the Year (648) (655) (702) (2,046) (1,761)

Less Recoveries of Losses Previously Charged Off 635 346 520 757 430
----------------------------------------------------------

Net Loans Charged-Off (13) (309) (182) (1,289) (1,331)

Allowance Prior to Additions 2,937 2,950 3,205 2,379 2,350

Additions to Allowance Charged to Operating Expense (128) -- 54 1,008 1,318
----------------------------------------------------------

Allowance for Loan Losses, December 31 $2,809 $2,950 $3,259 $3,387 $3,668
----------------------------------------------------------
----------------------------------------------------------

Ratio of Net Charge-Offs to Average Loans Outstanding 0.01% 0.16% 0.10% 0.69% 0.65%

</TABLE>

The schedule below shows the major categories of loan charge-offs and
recoveries for the past five years.

NET CHARGE-OFFS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Charge-offs:
Commercial $ 76 $ 120 $ 227 $1,397 $1,075

Mortgage -- -- 7 -- --

Installment and Other 572 535 468 649 686
------------------------------------------------------------------------------------

Total 648 655 702 2,046 1,761
------------------------------------------------------------------------------------

Less Recoveries:
Commercial 384 85 244 463 170

Mortgage 3 2 2 -- --

Installment and Other 248 259 274 294 260
------------------------------------------------------------------------------------

Total 635 346 520 757 430
------------------------------------------------------------------------------------

Net Charge-Offs $ 13 $ 309 $ 182 $1,289 $1,331
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------

</TABLE>

-64-

<PAGE>

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES:

<TABLE>
<CAPTION>
1996 REPORTED PERIOD
BALANCE AT END OF PERIOD APPLICABLE TO: AMOUNT % OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 814 42%
Mortgage -- 17%
Installment and Other 1,995 41%
-------
Total $ 2,809 100%
-------
-------

<CAPTION>
1995 REPORTED PERIOD
BALANCE AT END OF PERIOD APPLICABLE TO: AMOUNT % OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 805 39%
Mortgage 00 14%
Installment and Other 2,145 47%
-------
Total $ 2,950 100%
-------
-------

<CAPTION>
1994 REPORTED PERIOD
BALANCE AT END OF PERIOD APPLICABLE TO: AMOUNT % OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 1,346 39%
Mortgage 00 12%
Installment and Other 1,913 49%
-------
Total $ 3,259 100%
-------
-------

<CAPTION>
1993 REPORTED PERIOD
BALANCE AT END OF PERIOD APPLICABLE TO: AMOUNT % OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 1,905 42%
Mortgage -- 13%
Installment and Other 1,482 45%
-------
Total $ 3,387 100%
-------
-------

<CAPTION>
1992 REPORTED PERIOD
BALANCE AT END OF PERIOD APPLICABLE TO: AMOUNT % OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 2,454 41%
Mortgage -- 14%
Installment and Other 1,214 45%
-------
Total $ 3,668 100%
-------
-------
</TABLE>

-65-

<PAGE>

DEPOSITS

The table below shows the average daily balance of deposits by type for the
years ended December 31, 1996, 1995, and 1994.

<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>
Non-Interest Bearing Demand Deposits $ 82,571 0.00%
Interest Bearing Demand Deposits 112,173 3.10%
Time Deposits 83,163 5.31%
Savings Deposits 46,070 3.27%
-------------

Total $323,977
-------------
-------------
<CAPTION>
1995 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>
Non-Interest Bearing Demand Deposits $ 77,699 0.00%
Interest Bearing Demand Deposits 120,954 3.31%
Time Deposits 73,229 5.06%
Savings Deposits 45,539 3.46%
-------------

Total $317,421
-------------
-------------
<CAPTION>
1994 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>
Non-Interest Bearing Demand Deposits $ 77,215 0.00%
Interest Bearing Demand Deposits 126,528 2.48%
Time Deposits 73,685 3.66%
Savings Deposits 47,776 2.81%
-------------

Total $325,204
-------------
-------------
</TABLE>

Maturities of time certificates of deposit of $100,000 or more at
December 31, 1996 are as follows:

MATURITY 1996

3 Months or Less $ 15,085
3 to 6 Months 8,277
6 to 12 Months 5,037
Over 12 Months 3,013
--------

Total $ 31,412
--------
--------

-66-

<PAGE>

RETURN ON EQUITY AND ASSETS

The table below shows various key ratios including return on equity and
return on assets.

Return on Assets 1.09% 1.18% 1.26%
(Net Income Divided by Average Total
Assets)
Return on Equity 9.63% 11.27% 13.47%
(Net Income Divided by Average
Stockholders' Equity)
Cash Dividend Payout Ratio 27.07% 20.66% 14.48%
(Dividends declared per share divided by
net income per share)
Equity to Assets Ratio 11.36% 10.48% 9.37%
(Average Stockholders' Equity Divided by
Average Total Assets)

</TABLE>

SHORT-TERM BORROWINGS

At December 31, 1996, 1995 and 1994, short-term borrowings were in the form of
federal funds purchased, Treasury tax and loan payable and Federal Home Loan
Bank borrowings. Dollars in thousands.

<TABLE>
<CAPTION>
BALANCE DECEMBER AVERAGE BALANCE FOR WEIGHTED-AVERAGE
31, YEAR INTEREST RATE FOR YEAR
<S> <C> <C> <C>

1996 $12,061 $ 4,914 5.39%
1995 13,085 8,298 5.80%
1994 20,992 7,181 4.04%
</TABLE>

The maximum amount of total outstanding borrowings at any month-end during the
years ended December 31, 1996, 1995 and 1994 is as follows:

MONTH AMOUNT
<S> <C> <C>
1996 January $ 14,909
1995 January 24,474
1994 January 23,617

</TABLE>

-67-

<PAGE>

Bancorp's Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Year Ended December 31, 1996

The following discussion and analysis should be read in conjunction with
the consolidated financial statements of Bancorp. The consolidated financial
statements include Bancorp and the accounts of its subsidiary banks. Bancorp
currently owns 96.421% of FNBDA and 100% of FNBCC. The following discussion is
as of December 31, 1996. To the extent necessary, this discussion is amended
and qualified by the Management's Discussion and Analysis for the nine month
period ended September 30, 1997, which follows.

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Adequate liquidity and maintenance of an appropriate balance between
rate sensitive earning assets and liabilities are the principal functions of
asset/liability management of a banking organization. Liquidity management
involves the ability to meet the cash flow requirements of customers who are
depositors desiring to withdraw funds and borrowers requiring assurance that
sufficient funds will be available to meet their credit needs. The measures
of solid liquidity practices such as total deposits to total assets and loans
to deposit ratios are constantly monitored for any adverse trends. At
December 31, 1996, the net loan to deposit ratio was approximately 64%.
Bancorp's primary sources of liquidity are total cash and due from banks,
other interest bearing accounts, federal funds sold, and its
available-for-sale securities.

Management seeks to avoid fluctuating net interest margins and enhance
consistent growth of net interest income during periods of changing interest
rates. Effective asset/liability management enables Bancorp to maintain
desired levels of liquidity and capital while protecting against the possible
negative impact of interest rate volatility. Bancorp avoids the use of
highly sensitive short-term funds such as brokered deposits and believes its
deposits represent funding sources with safety in respect to both liquidity
and earnings and permits the maintenance of an appropriate relationship
between the cost and maturity of liabilities and the yield and maturity of
assets. Net cash flow from operations continues to remain positive primarily
due to favorable interest rate yields and growth in the loan portfolio. As
loan growth continues, the loan to deposit ratio may rise, but there is
substantial room to increase the loan portfolio without impeding the
liquidity ratio. The increase in deposits provides the major funding from
financing activities. It is anticipated that deposits will continue to
steadily increase as the local economy continues its growth.

CAPITAL RESOURCES

Capital increases will continue to be provided by earnings. Capital
growth, exclusive of net unrealized gains/losses on available-for-sale
securities, for the year ended December 31, 1996 was 7.30% compared to 9.07%
for the same period of 1995. While there are no definite plans to issue
additional common stock, shareholders approved $10 and $6 per share common
stock dividends during 1996 and 1995, respectively.

Stockholders' equity, exclusive of net unrealized gains/losses on
available-for-sale securities, of Bancorp

-68-

<PAGE>

as a percentage of total assets at December 31, 1996, stood at 10.99%. At
December 31, 1995, the ratio was 11.08%. Risk-based capital guidelines
require banks to maintain an underlying capital base of 8.00% of
"risk-weighted" assets. At December 31, 1996, Bancorp was well above the
minimum requirement with a capital base of 20%.

On November 15, 1995, the Financial Accounting Standards Board ("FASB")
released a Special Report entitled "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities" (the
Guide). The Guide permitted a one-time reassessment (allowed during the
period from November to December 1995) of the appropriateness of the
classifications of all investments in debt and equity securities without
causing questions about the Company's intent or ability to hold securities
classified as held-to-maturity, to their maturity. As permitted by the
Guide, during 1995, FNBDA transferred securities from held-to-maturity to
available-for-sale with an amortized cost totaling $3,595,000. As of
December 31, 1996, the capital accounts were decreased by $107,605
representing the after tax effect of the available-for-sale portfolio's
decrease in fair value.

ASSET GROWTH

Bancorp experienced an increase in total assets during 1996 of
$31,043,936 or 8.25% and in 1995 of $5,463,676 or 1.47%. Stronger loan
demand resulted in a $14,184,840 or 6.81% increase in loans in 1996.
Accompanying the increase in loans was an increase of $7,504,526 or 8.20% in
available-for-sale securities.

The increase in total assets was primarily funded by increases in the
deposit base of Bancorp of $27,827,283 or 8.77%.

During 1996, Bancorp adopted a non-qualified defined benefit retirement
plan and an incentive plan for certain key executive officers and members of
the Board of Directors. To establish the plans, Bancorp purchased single
premium life insurance policies having a total face value of $17,962,000 on
the lives of the participants. A death benefit for each executive has also
been provided by a dollar amount as specified in each individual agreement.
Benefits under the retirement benefit plan are accrued as defined in each
individual agreement based on age. Benefits are accrued under the incentive
plan based on Bancorp's return on assets for each fiscal year, as specified
in the plan document. Net cash value of life insurance on the accompanying
consolidated balance sheet is the initial premium, decreased by the policy
load fees and mortality costs and increased by policy earnings. The net cash
value of life insurance outstanding at December 31, 1996 is $6,947,012.

INTEREST INCOME

Total interest income for 1996 totaled $28,678,015 as compared to
$28,271,262 for 1995. This increase of $406,753 or 1.44% followed the 1995
increase over 1994 of $1,591,403 or 5.96%.

-69-

<PAGE>

The increase in interest income reflects the change in the yield and
volume of earning assets when comparing one year to another. Average earning
assets increased by approximately $6,322,000 to $338,823,000 while the
average yield for those assets decreased to 8.46% from 8.50% in 1995.
Average earning assets in 1995 were $962,000 below 1994's level of
$333,463,000. The 1994 yield was 8.00%. Management anticipates continued
growth in earning assets. The individual components comprising total
interest income are interest and fees on loans, interest on investment
securities and interest on federal funds sold. The yields and related volumes
of these components changed individually as follows:

Interest and Fees on Loans: Income generated by Bancorp's loan portfolio
increased $663,903 or 3.24% for the year ended December 31, 1996. This
increase is the result of an increase in net loans, including finance leases,
of $14,184,840 or 6.81% slightly offset by a decrease in yield from 10.35% to
10.02%. During the year ended December 31, 1995, interest and fees on loans
increased $1,712,602 or 9.13%. This increase is attributable to an increase
in net loans of $19,253,897 or 10.19%, coupled with an increase in the yield
of 0.12%.

Interest on Securities: Total income from the securities portfolio
decreased $426,427 or 5.77% for the year ended December 31, 1996 following a
decrease of $401,313 or 5.15% during 1995. The nominal decrease in
investment income for the current year is the result of a decrease in the
average volume of $10,591,000 or 8.32% offset by an increase in the yield to
5.89% in 1996 from 5.70% in 1995. The decline in the 1996 yield is
attributable to an overall decrease in interest rates. The average volume of
investment securities decreased by 12.85% for the year ended December 31,
1995. Management attempts to maximize the benefit from tax-free municipal
bonds and will continue to do so. It is anticipated that any purchases of
investment securities in 1997 will have short-term maturities with yields
comparable to those currently maturing.

<PAGE>

Interest on Federal Funds Sold: Total interest on federal funds sold
increased $169,277 or 41.15% in 1996 following a $280,114 or 213.43% increase
in 1995. The average volume increased $3,909,000 or 53.56% during the year
ended December 31, 1996 which was offset by a decrease in the yield to 5.18%
from 5.65% in 1995. The increase for the year ended December 31, 1995 was a
result of an increase in the average volume of $3,293,000 or 82.24% coupled
with an increase in the yield of 2.38%.

INTEREST EXPENSE

The major components of interest expense are interest on deposits,
federal funds purchased, and borrowed funds. The average cost of funds
stayed flat at 3.99% in 1996 from 1995. The average cost of funds was 2.97%
in 1994. The cost of funds and related volumes of these individual
components were as follows:

Interest on Deposits: Total interest on deposits increased $81,415 or
0.88% in 1996. In 1995 interest on deposits increased $2,076,163 or 28.81%.
The average volume for interest bearing deposits increased $1,684,000 or .70%
during 1996 following a decrease of $8,267,000 in 1995. The average rate
increased to 3.88% in 1996. The average rate was 3.87% in 1995 and 2.91% in
1994.

Interest on Federal Funds Purchased: Interest on federal funds purchased
decreased $144,777 or 74.72% during 1996 following an increase of $27,475 or
16.52% in 1995.

Interest on Borrowed Funds: Interest on borrowed funds increased
$206,607 or 46.66% during 1996, following an increase of $300,603 or 127.96%
in 1995.

INTEREST RATE RISK

Management attempts to protect earnings from wide shifts in interest rates
by employing the following strategies:

Loans: Approximately 15% of Bancorp's loan portfolio is written on an
adjustable basis that floats with Bancorp's base rate. Thus, approximately
$32,539,000 reprices immediately upon a change in the base rate.

Securities: Total

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<PAGE>

securities represent approximately 29% of total assets at December 31, 1996.
In administering the securities portfolio, management adheres to Bancorp's
Investment and Asset/Liability Policies. The actual average life of the
portfolio at December 31, 1996 was approximately 2.19 years. This strategy of
maintaining short maturities provides maximum flexibility in managing
fluctuating interest rates. Additionally, the majority of the securities
portfolio consists of fixed rates. This enables management to provide an
underlying level of income, irrespective of changes in interest rates.
Diversification for all areas of investments is a key element in interest
rate risk. Management monitors the securities portfolio to ensure that an
appropriate balance is maintained in terms of both maturity and type of
security instrument. Monitoring is aided by the use of a computer program,
specializing in Asset/Liability Management and Interest Rate Risk.

Deposits: The deposit structure of Bancorp is allocated between demand
and time deposits. All noninterest bearing demand deposits represent
approximately 30% of total deposits and 45% of demand deposits. Interest
bearing demand deposits represent about 20% of total deposits and 35% of
demand deposits with the balance of demand deposits belonging to public
entities.

Time deposits represent about 40% of all deposits while savings deposits
account for almost 40% of all time deposits with the balance being
certificates of deposits. The majority of all time deposits belong to
individuals in the form of savings accounts or certificates of deposits.

The above factors provide management the opportunity to maintain favorable
net interest margins under most normal interest rate scenarios.

ALLOWANCE FOR LOAN LOSSES

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<PAGE>

economic conditions.

The allowance for loan losses was 4.77% lower at December 31, 1996, than
at December 31, 1995. Expenses for the provision of loan losses reflect a
reduction in the provision account of $128,378 in 1996 and no addition to the
provision was made in 1995. At December 31, 1995, the allowance for loan
losses was 9.50% lower than at December 31, 1994.

Net charged off loans in 1996 were $12,221 compared to $309,800 in 1995 and
$182,264 in 1994. Net loan losses decreased $297,579 or 96.06% in 1996 and
increased $127,536 or 69.97% in 1995. Net loans, including financing leases,
at year end were $222,340,448 in 1996 and $208,155,608 in 1995. The allowance
for loan losses at year end 1996 was 1.26% and in 1995 was 1.41% of loans
outstanding. The allocated portion of the allowance consists of three
categories: substandard, doubtful and loss. Ongoing evaluation of the loan
portfolio and new loan products are determining factors in maintaining the
allocated allowance for loan losses. The allocated allowance at December 31,
1996 was $2,809,252 as compared to $2,949,851 at December 31, 1995.

Bancorp adopted FAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and FAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," as of January 1, 1995. These statements
require that certain impaired loans be measured based on the present value of
future cash flows discounted at the loan's original effective interest rate.
As a practical expedient, impairment may be measured based on the loan's
observable market price or fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded balance of the loan, the impairment is recorded through a valuation
allowance. Bancorp had previously measured the allowance for loan losses
using methods similar to those

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<PAGE>

prescribed in FAS No. 114. As a result of adopting these statements, no
additional allowance for loan losses was required even though certain loans
were identified as impaired.

Loans are placed on non-accrual status when they go over 90 days
delinquent, or when circumstances indicate that timely collection of interest
is doubtful. Loans over 90 days delinquent may be left on accrual status if a
repayment plan has been negotiated and it appears likely that all interest
will be paid. At December 31, 1996, there are no other loans outstanding
which cause management serious doubts as to the ability of the borrower to
comply with the loan repayment terms.

Bancorp had $386,042 of net other real estate owned ("OREO") at December
31, 1996. This property consists of a 3.67 acre commercial tract acquired in
1990 and a 180.86 acre tract located in Lincoln County also acquired in 1990.
Both tracts are currently for sale. Additionally, a small property is carried
in OREO until sufficient payments are received to classify it as a loan.

The loan portfolio is concentrated in the Roswell and Las Cruces, New
Mexico market areas. Of total loan commitments, 42% are commercial,
including financing leases, 17% are mortgage loans, and 41% are classified as
installment and other.

Management reviews concentrations in the loan portfolio quarterly.
Management also performs an analysis of the allowance for loan losses
quarterly and appraisal reviews are performed to support the values at which
loans are carried in the portfolio. Risk percentages are assigned to all
classified loans to ensure that the reserve is adequate. The OCC, as an
integral part of their examination process, periodically reviews Bancorp's
allowance for loan losses, and may require Bancorp to make additions to the
allowance based on their judgment about information available to them at the
time of their examination. Management feels that the allowance for loan
losses

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<PAGE>

of $2,809,252 at December 31, 1996 is adequate for Bancorp to meet all
anticipated loan losses.

NONINTEREST INCOME

Total noninterest income increased $456,613 or 14.30% for the year ended
December 31, 1996 and increased $149,147 or 4.90% during 1995. The main
component of the 1996 increase is net realized gains recorded on the sale of
loans of $377,277 compared with a realized gain of $20,803 during 1995.

NONINTEREST EXPENSE

Noninterest expenses are comprised of five major categories: salaries,
pension and other employee benefits, equipment, occupancy and all other
expenses. Total non-interest expense increased by $1,441,380 or 9.63% in
1996 and decreased by $162,139 or 1.07% in 1995.

The 1996 increase is primarily driven by increased salaries and pension
and other employee benefits expense of $489,106 or 5.09% and an increase in
other expenses of $721,752. The increase in salaries and pension and other
employee benefits is primarily the result of normal salary and benefit
increases. The increase in other expenses is primarily the result of a
litigation settlement with the Department of Justice.

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<PAGE>

DIVIDEND DECLARATION

The Board of Directors declared $10.00 and $8.00 per share common stock
dividends in 1996 and 1995, respectively.

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<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 1996, Bancorp adopted FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. Statement No. 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to these assets to be held and used for long-lived assets
and certain identifiable intangibles to be disposed of. There was no
material effect on the consolidated financial statements relating to this
adoption.

Emerging Issues Task Force (EITF) Issue No. 96-12 RECOGNITION OF
INTEREST INCOME AND BALANCE SHEET CLASIFICATION OF STRUCTURED NOTES, requires
the use of the retrospective interest method of recognizing income on certain
structured note securities. The application of this consensus applies
prospectively to new securities acquired after November 14, 1996. Management
does not believe the application of this consensus will materially affect
Bancorp's financial position or results of operations.

The FASB issued Statement No. 128 EARNINGS PER SHARE which establishes
standards for computing and presenting earnings per share (EPS). The
Statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation.

[THIS SPACE LEFT BLANK INTENTIONALLY]

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<PAGE>

BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

The following is Management's discussion and analysis of certain
significant factors which have affected Bancorp's financial position and
operating results during the period in the accompanying condensed
consolidated financial statements.

ASSET GROWTH

Total assets increased $9,029,170 or 2.22% during the first nine months
of 1997. Net loans, including finance leases, increased $11,415,243 or 5.13%
primarily driven by an increase in mortgage and installment loans slightly
offset by a decrease in commercial loans. Federal funds sold increased
$8,150,000 or 58%. This is normal volatility as federal funds sold fluctuate
as necessary for liquidity requirements. These increases were offset by a
decrease in available-for-sale securities of $9,870,606 or 9.97%. Additionally,
Bancorp recorded an unrealized loss adjustment of approximately $126,035 (net of
tax) due to current market conditions.

INTEREST INCOME

Total interest income increased $839,074 or 3.92% during the nine-month
period ended September 30, 1997 as compared to the same period in 1996. It is
anticipated that interest income will continue to grow through the remainder
of the year based upon the continued growth of Bancorp's loan portfolio.
Total interest income is composed of the following categories:

Interest and fees on loans and leases: Interest and fee income increased
$927,493 or 5.92% during the third quarter of 1997 compared to the same period
of the prior year. This increase is comprised of an increase in interest income
of $874,000 and an increase in lease income of $114,000 coupled with a decrease
in fee income of approximately $61,000.

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<PAGE>

The increase in interest income is due primarily to an increase in the
average loan volume of approximately $14,374,000 or 6.48% offset by a
decrease in the average yield from 9.67% in 1996 to 9.25% in 1997. The
interest differential resulting from the fluctuations in volume and yield is
approximately $1,390,000 and ($872,000), respectively. The decrease in fee
income is attributable to the decrease in mortgage loan servicing fees.

Interest and dividends on securities: Interest and Dividends on
Securities increased $1,620 or 0.03% during the nine month period ended
September 30, 1997 compared with the nine month period ended September 30,
1996. At September 30, 1997, the portfolio had an average maturity of
approximately 2.18 years. Management continually monitors current market
conditions and liquidity needs when evaluating investment strategies.

Interest on Federal Funds sold: Interest earned on federal funds sold
decreased $90,039 or 17.80% during the first nine months of 1997 compared to
the same period of 1996. This decrease is the result of a decrease in the
average volume of approximately $2,173,000 coupled with a decrease in the
average yield to 3.98% in 1997 from 4.01% in 1996.

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<PAGE>

Total interest expense increased $843,719 or 11.30% during the first nine
months of 1997 as compared to the first nine months of 1996. Total interest
expense is comprised of the following major categories:

Interest on Deposits: Interest on deposits increased $624,741 or 8.95%
during the first three quarters of 1997 compared to the first three quarters
of 1996. This increase is the result of an increase in the average volume of
interest bearing deposits of approximately $10,441,000 or 4.28%. The
increase in average volume was offset by a decrease in the average rate to
4.07% in 1997 from 3.88% in 1996.

Interest on Borrowed Funds: Interest on borrowed funds increased
$206,607 or 46.66% during the first three quarters of 1997 compared to the
first three quarters of 1996. This increase is the result of matched funding
of mortgage loans with Federal Home Loan Bank borrowings.

INTEREST RATE RISK

Management attempts to protect earnings from wide shifts in interest rates
by employing the following strategies:

Loans: Approximately 13% of Bancorp's loan portfolio is written on an
adjustable basis that floats with Bancorp's base rate. Thus, approximately
$29,421,000 reprices immediately upon a change in the base rate.

Investments: The majority of the investment portfolio of Bancorp consists
of fixed rate instruments. This enables management to provide an underlying
level of income irrespective of changes in rates. Additionally, the average
maturity of the portfolio is approximately 2.18 years. This strategy of
maintaining short maturities provides maximum flexibility in dealing with
fluctuating interest rates.

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<PAGE>

Deposits: The deposit structure of Bancorp is allocated between demand
and time deposits. All non-interest bearing demand deposit represents
approximately 30% of total deposits and 45% of demand deposits. Interest
bearing demand deposits represent about 20% of total deposits and 35% of
demand deposits with the balance of demand deposits belonging to public
entities.

Time deposits represent about 40% of all deposits while savings deposits
account for almost 40% of all time deposits with the balance being certificates
of deposits. The majority of all time deposits belong to individuals in the
form of savings accounts or certificates of deposits.

The above factors, taken into consideration together with the fact that
Bancorp's non-interest bearing customer deposits are approximately 26% of
total deposits, provide management the opportunity to maintain favorable net
interest margins under most normal interest rate scenarios.

LOANS

The composition of Bancorp's loan portfolio is as follows:

SEPTEMBER 30, 1997 DECEMBER 31, 1996

Commercial Loans and Financing
Leases $ 92,019,189 $ 96,103,602
Mortgage 46,537,821 38,540,026
Installment and Other 100,806,284 94,240,076
------------- ------------
239,363,294 228,883,704
Less: Unearned net loan fees 3,051,400 3,734,004
Allowance for loan losses 2,556,203 2,809,252
------------- ------------
Net Loans $233,755,691 $222,340,448
------------- ------------
------------- ------------

MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES

The following table shows balances for commercial (including financing
leases), mortgage and installment and other loans as of September 30, 1997, by
maturities, based on remaining scheduled repayments of principal.

INSTALLMENT AND
MATURING OR REPRICING WITHIN: COMMERCIAL MORTGAGE OTHER

One year or less $44,545,000 $2,592,000 $17,543,000
One through 5 years 36,286,000 5,232,000 59,741,000
Greater than 5 years 11,188,000 38,714,000 23,522,000
------------------------------------------

Total $92,019,000 $46,538,000 $100,806,000
------------------------------------------
------------------------------------------

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<PAGE>

The maturity of certain loans may vary due to Bancorp's rollover policy.
Bancorp will consider extending the maturity of a loan upon receipt
of current financial information and evaluation of the loan performance, the
financial performance of the business, and overall economic conditions.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $202,497 for the nine-month period ended
September 30, 1997, compared to $211,621 for the nine month period ended
September 30, 1996. The allowance for loan losses stands at 1.07% of gross
loans at September 30, 1997 compared to 1.23% at December 31, 1996.
Management believes the current allowance is adequate to satisfy any
unanticipated loan losses based upon the historical performance of the loan
portfolio.

Net charged off loans were $452,765 and ($80,608) for the nine months
ended September 30, 1997 and 1996 respectively. At September 30, 1997, loans
totaling $860,770 were accounted for on a non-accrual basis. Additionally,
loans totaling $646,301 were contractually past due 90 days or more as to
principal or interest. No loans were accounted for as "troubled debt
restructurings" as defined in SFAS No. 15. Loans are placed on non-accrual
status when they go over 90 days delinquent or when circumstances indicate
that timely collection of interest is doubtful. Loans over 90 days may be
left on accrual status if a repayment plan has been negotiated and it appears
likely that all interest will be paid. All significant impaired loans have
been evaluated in accordance with FASB Statement No. 114 as amended by FASB
Statement No. 118.

As of September 30, 1997, there are no loans outstanding, excluding those
identified above, which cause management to have serious doubts as to the
ability of the borrower to comply with the loan repayment terms.

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<PAGE>

Management reviews portfolio concentration levels on a regular basis and
appraisal reviews are performed to support the values at which loans are carried
in the portfolio.

Management reviews the loan loss analysis on a quarterly basis. A
percentage of the allowance is allocated to substandard, doubtful and loss
loans. Management believes the current allowance of $2,556,203 is adequate
and there is sufficient unallocated allowance to handle unexpected problems
within the portfolio.

The table below details changes in the allowance for loan losses

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<PAGE>

for the nine-month period ended September 30, 1997 and 1996 (in thousands):

1997 1996
BALANCE, JANUARY 1 $2,809 $2,950
Provision charged to operating expense 202 211
Recoveries of amounts charged off 230 565
Less amounts charged off 685 484
-------------------------------
Balance, September 30 $2,556 $3,242
-------------------------------
-------------------------------

The schedule below shows the major categories of loan charge-offs and
recoveries for the nine-month period ended September 30, 1997 and 1996 (in
thousands):

1997 1996
CHARGE-OFFS:
Commercial $292 $67
Mortgage -- --
Installment & Other 393 417
-------------------------------
Total Charge-Offs 685 484
-------------------------------
Less Recoveries:
Commercial 76 375
Mortgage -- 2
Installment & Other 154 188
-------------------------------
Total Recoveries 230 565
-------------------------------
Net Charge-Offs (Recoveries) $455 $(81)
-------------------------------
-------------------------------

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<PAGE>

The table below details the allocation by loan type of the allowance for
loan losses at September 30, 1997:

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<PAGE>

DOLLARS (IN 000'S) %
ALLOWANCE FOR LOAN LOSSES:
Commercial $ 693 27%
Mortgage -- 0%
Installment & Other 1,863 73%
----------------
Total $ 2,556 100%
----------------
----------------

NONINTEREST INCOME

Total noninterest income for the first nine months of 1997 increased
$77,350 or 2.96%, over the same period of 1996. This increase is due
primarily to an increase in dividends of life insurance. This increase was
slightly offset by a decrease in service charges, fees & commissions.

NONINTEREST EXPENSE

Total noninterest expense, including income tax expense, increased
$119,358 or 0.92%, during the first nine months of 1997 as compared to the
first nine months of 1996. This increase is mainly attributable to increased
salaries, wages and employee benefits offset by decreases in occupancy,
equipment and income tax expense.

LIQUIDITY

Management of Bancorp strives to obtain the highest possible earnings
while maintaining a sound liquidity position. Bancorp's primary sources of
liquidity are its cash and due from banks, other interest bearing accounts,
federal funds sold, and its investment portfolio. Bancorp's investment
portfolio had a balance of $105,558,159 at September 30, 1997. The average
maturity of the portfolio is 2.18 years at September 30, 1997. Federal funds
sold had a balance of $22,200,000 at the nine-month period ended September
30, 1997. Bancorp avoids the use of highly sensitive short-term funds such
as brokered deposits and believes its deposits represent funding sources with
safety in respect to both liquidity and earnings. Bancorp continues to meet
the cash flow requirements of customers who are depositors desiring to
withdraw funds and of borrowers requiring assurance that sufficient funds
will be available to meet their credit needs. The measures of solid
liquidity practices such as Total Deposits to Total Assets and Loans to
Deposits are monitored constantly for any adverse trends.

At September 30, 1997, the net loan to deposit ratio was approximately
67%. Management continuously monitors outstanding loan commitments and
letters of credit for funding needs. At September 30, 1997, outstanding loan
commitments and letters of credit were approximately $26,639,000 and
$2,585,000, respectively.

Cash flows from operations remain positive primarily due to favorable
interest rate yields and continued growth in the loan portfolio. Management
expects this trend to continue. Cash flows used in investing activities for
the nine-month period ended September 30, 1997 primarily due to an increase
in loans to customers, coupled with purchases of securities. Cash flows from
financing activities for the nine month period ended September 30, 1997 from
a decrease in deposits of approximately $2,572,000 and borrowed funds of
$4,057,000.

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<PAGE>

CAPITAL RESOURCES

Stockholders' equity (exclusive of the net unrealized gain/loss of
securities available for sale) as a percentage of total assets was
approximately 11.49% at September 30, 1997 as compared to 10.99% at December
31, 1996.

At September 30, 1997, Bancorp's Tier 1 Core Capital to risk weighted
assets was 20.40%. Total Capital to risk weighted assets was 21.50% and the
leverage ratio was 12.05%. All ratios are above the current minimum guidelines
of 4%, 8% and 4%, respectively, as established and defined by regulatory
authorities.

In addition, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) defined five levels of capital for financial institutions:
Well capitalized, Adequately capitalized, Undercapitalized, Significantly
undercapitalized and Critically undercapitalized. A bank falls into one of
these levels based on its risk-based ratio and leverage ratio. At September
30, 1997, Bancorp falls in the Well capitalized category.

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<PAGE>

INFORMATION ABOUT FNBDA

BUSINESS OF FNBDA

FNBDA is a national banking association with assets of approximately $379
million as of September 30, 1997, doing business from its main office located at
500 South Main, Las Cruces, New Mexico and its nine branch offices. The
telephone number of the main office is (505) 526-7000.

Information with respect to national bank regulation and FNBDA's
competitive position and customer base is incorporated here from the discussion
of these topics in INFORMATION ABOUT BANCORP, above.

MANAGEMENT OF FNBDA

The following table sets forth certain information concerning FNBDA's
executive officers as of November 30, 1997:

POSITION AND
NAME AGE PRINCIPAL OCCUPATION
---- --- FOR PAST 5 YEARS
--------------------

William Tharp 59 Chairman of the Board; President,
Rountree Cotton Company

Michele Papen-Daniel, Ph.D. 55 Vice Chairman of the Board;
Clinical Psychologist

Ben H. Haines, Jr. 57 President and Chief Executive
Officer

John A. Papen, III 55 Executive Vice President, Lending

Alden C. Tombaugh 52 Senior Vice President, Lending

Thomas M. Mobley, Jr. 60 Senior Vice President and Trust
Officer

SELECTED COMPARATIVE FNBDA FINANCIAL DATA

The following selected historical financial information of First National
Bank of Dona Ana County (FNBDA) is derived from audited 1996, 1995, 1994, 1993
and 1992 year-end and unaudited September 30, 1997 and 1996 financial statements
of the FNBDA. Reference should also be made to the financial information about
FNBDA found at "SELECTED COMPARATIVE FINANCIAL DATA", above. FNDBA financial
statements at December 31, 1996 and 1995, and for the three years in the period
ending December 31, 1996, and as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996, are attached as Appendix C to this
Prospectus/Proxy Statement.)

The average balance sheet data on the FNBDA is presented on a yearly basis.
This information should be read in conjunction with such financial statements
and notes thereto, and the information hereinafter

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<PAGE>

set forth under the captions "INFORMATION ABOUT THE FNBDA," below.

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1996 (IN THOUSANDS)
AVERAGE INTEREST % YIELD/
BALANCE RATE (1)

ASSETS

Loans(2)(3) $185,994 $ 18,441 9.91
Investment Securities:(4)
U.S. Treasury, Government and Agency Securities 91,345 5,510 6.03
State and Municipal Securities 17,405 981 5.64
Other Investment Securities 4,135 228 5.51
Federal Funds Sold 11,078 583 5.26
---------
Total Interest Earning Assets 309,957 25,743 8.31
---------
Cash & Due From FNBDAs 22,743
Land, Building and Equipment, Net 6,679
Other Assets 8,560
Total Non-Interest Earning Assets 37,982
----------
Total Assets $347,939
----------
----------

LIABILITIES & STOCKHOLDERS' EQUITY

Deposits $217,614 8,229 3.78
Federal Funds Purchased 1,664 86 5.17
Borrowed Funds 9,121 564 6.18
----------
Total Interest Bearing Liabilitie 228,399 8,879 3.89
----------
Total Non-Interest Bearing Liabilities 80,399
Stockholders' Equity 39,141
----------
Total Liabilities & Stockholders' Equity $347,939
----------
----------
Net Interest Earned $16,864
----------
----------
Net Yield on Interest Earning Assets 5.44
----
----

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1996 are $1,444,000. The interest yield
excluding fees is 9.14%.
(3) Non-interest bearing loans are included in other assets. The daily
average of non-interest bearing loans for 1996 is $1,248,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

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1995 (IN THOUSANDS)
AVERAGE INTEREST % YIELD/
BALANCE RATE (1)

ASSETS

Loans(2)(3) $177,499 $ 18,192 10.25
--------
Investment Securities:(4) --------
U.S. Treasury, Government and Agency Securities 98,755 5,816 5.89
State and Municipal Securities 18,398 1,055 5.73
Other Investment Securities 3,327 160 4.81
Federal Funds Sold 7,757 436 5.62
----------
Total Interest Earning Assets 305,686 25,659 8.39
----------
Cash & Due From FNBDAs 20,085
Land, Building and Equipment, Net 5,992
Other Assets 7,191
Total Non-Interest Earning Assets 33,268
----------
Total Assets $338,954
----------
----------
LIABILITIES & STOCKHOLDERS' EQUITY

Deposits $216,971 8,250 3.80
Federal Funds Purchased 3,909 239 6.11
Borrowed Funds 6,070 358 5.90
----------
Total Interest Bearing Liabilities 226,950 8,847 3.90
----------
Total Non-Interest Bearing Liabilities 76,023
Stockholders' Equity 35,981
----------
Total Liabilities & Stockholders' Equity $338,954
----------
----------
Net Interest Earned $ 16,812
----------
----------
Net Yield on Interest Earning Assets 5.50

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1995 are $1,323,000. The interest yield
excluding fees is 9.51%.
(3) Non-interest bearing loans are included in other assets. The daily
average of non-interest bearing loans for 1995 is $1,067,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

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1994 (IN THOUSANDS)
AVERAGE INTEREST % YIELD/
BALANCE RATE (1)

ASSETS

Loans(2)(3) $164,511 $16,718 10.16
----------
----------
Investment Securities:(4)
U.S. Treasury, Government and Agency Securities 114,754 6,126 5.34
State and Municipal Securities 18,563 1,088 5.86
Other Investment Securities 3,301 73 2.21
Federal Funds Sold 4,178 146 3.49
----------
Total Interest Earning Assets 305,307 24,151 7.91
----------
Cash & Due From Banks 19,441
Land, Building and Equipment, Net 5,503
Other Assets 8,240
Total Non-Interest Earning Assets 33,184
----------
Total Assets $338,491
----------
----------

LIABILITIES & STOCKHOLDERS' EQUITY

Deposits $223,127 6,351 2.85
Federal Funds Purchased 4,324 199 4.60
Borrowed Funds 2,579 81 3.10
----------
Total Interest Bearing Liabilities 230,030 6,631 2.88
----------
Total Non-Interest Bearing Liabilities 75,831
Stockholders' Equity 32,630
----------
Total Liabilities & Stockholders' Equity $338,491
----------
----------
Net Interest Earned $ 17,520
----------
----------
Net Yield on Interest Earning Assets 5.74

(1) The yield/rate is calculated by dividing interest earned/paid by the
average balance. The presentation is not on a tax equivalent basis.
(2) Loan fees are included in the interest yield calculation. Loan fees for
the year ended December 31, 1994 are $1,358,000. The interest yield
excluding fees is 9.33%.
(3) Non-interest bearing loans are included in other assets. The daily
average of non-interest bearing loans for 1994 is $1,469,000.
(4) Yield is calculated by dividing the interest earned by the average
historical cost (not market value) of the securities.

-93-

<PAGE>

INTEREST DIFFERENTIAL (IN 000'S) 1996 COMPARED TO 1995
TOTAL VOLUME YIELD/RATE
CHANGE VARIANCE VARIANCE
ASSETS
Loans $ 249 $ 847 $ (598)
Investment Securities:
U.S. Treasury, Government and Agency Securities (306) (447) 141
State and Muncipal Securities (74) (56) (18)
Other Investment Securities 68 45 23
Federal Funds Sold 147 175 (28)
----------------------------
Total Interest Earning Assets $ 84 $ 564 $ (480)
----------------------------
----------------------------
LIABILITIES
Deposits (21) 24 (45)
Federal Funds Purchased (153) (116) (37)
Borrowed Funds 206 189 17
----------------------------
Total Interest Bearing Liabilities $ 32 $ 97 $ (65)
----------------------------
----------------------------

1995 COMPARED TO 1994
TOTAL VOLUME YIELD/RATE
CHANGE VARIANCE VARIANCE

ASSETS
Loans $ 1,474 $ 1,326 $ 148
Investment Securities:
U.S. Treasury, Government and Agency Securities (310) (942) 632
State and Muncipal Securities (33) (9) (24)
Other Investment Securities 87 1 86
Federal Funds Sold 290 201 89
----------------------------
Total Interest Earning Assets $ 1,508 $ 577 $ 931
----------------------------
----------------------------

LIABILITIES
Deposits $ 1,899 $ (234) $ 2,133
Federal Funds Purchased 40 (25) 65
Borrowed Funds 277 205 72
----------------------------
Total Interest Bearing Liabilities $ 2,216 $ (54) $ 2,270
----------------------------
----------------------------

-94-

<PAGE>

INVESTMENT PORTFOLIO

The following table shows the contractual maturity distribution by carrying
amount and weighted average yield to maturity of the FNBDA's investment
portfolio at December 31, 1996. Dollars in 000's.

AVAILABLE FOR SALE
LESS THAN ONE YEAR ONE THROUGH FIVE YEARS FIVE THROUGH TEN YEARS OVER TEN YEARS TOTAL
AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury
and Other
Agencies
and
Corporations $ 22,842 5.36 $ 17,097 5.98 - - - - $ 39,939
State and
Municipal
Securities 25 4.53 948 4.34 $ 4,272 4.80 $ 1,524 5.42 6,769
U.S. Gov't
Agency
Mortgage
Backed
Securities 1,331 5.15 - - 13,591 6.46 31,598 6.22 46,520
-------- -------- -------- -------- --------
Total $ 24,198 $ 18,045 $ 17,863 $ 33,122 $ 93,228
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

HELD TO MATURITY
LESS THAN ONE YEAR ONE THROUGH FIVE YEARS FIVE THROUGH TEN YEARS OVER TEN YEARS TOTAL
AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT % YIELD AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State and
Municipal
Securities $ 1,500 5.93 $ 5,992 6.03 $ 3,838 5.80 $ 511 6.70 $ 11,841
U.S. Gov't Agency
Mortgage Backed
Securities 218 8.89 4 8.74 1,427 8.85 1,796 9.42 3,445
Other Investment

Securities 1 - - - - - - - 1
-------- ------- -------- -------- --------
Total $ 1,719 $ 5,996 $ 5,265 $ 2,307 $ 15,287
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
</TABLE>

Maturities may differ from contractual maturities in mortgage backed
securities because the mortgages underlying the securities may be called or
repaid without penalties. Yields on tax exempt securities are not calculated
on a tax equivalent basis.

The following table shows the carrying amount of the FNBDA's investment
portfolio at December 31, 1995 and 1994: Dollars in thousands.

AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
------------------ ----------------
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994

U.S. Government Agency and Mortgage $ 59,274 $ 70,333 $ 4,095 $ 5,006
Backed Securities
State and Municipal Securities 3,527 - 13,759 19,316
U.S. Treasury and Other Agencies and 24,164 35,369 - -
Corporations
Other Investment Securities - - 1 -
--------------------------------------

Total $ 86,965 $105,702 $ 17,855 $ 24,322
--------------------------------------
--------------------------------------

-95-
<PAGE>

LOAN PORTFOLIO

The composition of the FNBDA's loan portfolio, at year-end for the periods
indicated, is as follows (dollars in thousands):

DECEMBER 31,
1996 1995 1994 1993 1992

Commercial loans and $ 89,530 $ 78,517 $ 72,188 $ 76,213 $ 75,098
financing leases
Mortgage 38,540 30,043 24,288 25,252 27,900
Installment and
Other 73,990 83,207 79,034 69,538 73,462
---------------------------------------------------------

SUBTOTAL 202,060 191,767 175,510 171,003 176,460
Less: Unearned net
loan fees 2,466 3,918 3,004 1,623 3,290
Allowance for loan
losses 2,299 2,416 2,580 2,569 3,080
---------------------------------------------------------

Total Loans, net $197,295 $185,433 $169,926 $166,811 $170,090
---------------------------------------------------------
---------------------------------------------------------

MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES

The following table shows the balances of commercial, mortgage and
installment and other loans outstanding as of December 31, 1996 by maturities,
based on remaining scheduled repayments of principal. Also shown are the
balance of loans due after one year, classified according to sensitivity to
changes in interest rates.

MATURITY (DOLLARS IN THOUSANDS)

ONE YEAR OR ONE THROUGH AFTER FIVE TOTAL
LESS FIVE YEARS YEARS

Commercial loans and $ 48,312 $ 31,691 $ 9,527 $ 89,530
financing leases -------- -------- -------- --------
-------- -------- -------- --------
Mortgage 2,660 4,218 31,662 38,540
Installment and Other 14,648 39,991 19,351 73,990
--------------------------------------------------

Total $ 65,620 $ 75,900 $ 60,540 $202,060
--------------------------------------------------
--------------------------------------------------

The maturity of certain loans may vary due to the Bank's rollover policy.
FNBDA will consider extending the maturity of a loan upon receipt of current
financial information and evaluation of the loan performance, the financial
performance of the business, and overall economic conditions. Loans with
maturities so affected have been revised as appropriate in the above table.

INTEREST SENSITIVITY

At December 31, 1996, the total amount of gross loans due after one year,
which have predetermined interest rate, are $121,149,422.

-96-

<PAGE>

RISK ELEMENTS

The table below shows the aggregate amount of loans accounted for on a
non-accrual basis, accruing loans which are contractually past due 90 days or
more as to principal or interest and loans which are "troubled debt
restructurings" as defined in Statement of Financial Accounting Standard No.
15, "Accounting for Debtors and Creditors for Troubled Debt Restructurings"
as of year end for the past five years. Dollars in thousands.

NONACCRUAL PAST DUE 90 DAYS TROUBLED DEBT
AMOUNT OR MORE RESTRUCTURING
DECEMBER 31,
1996 $ 1,163 $ 1,015 -

1995 891 352 -

1994 740 228 -

1993 1,478 236 -

1992 2,910 252 -

Loans are placed on non-accrual status when they go over 90 days
delinquent, or when circumstances indicate that timely collection of interest
is doubtful. Loans over 90 days delinquent may be left on accrual status if a
repayment plan has been negotiated and it appears likely that all interest
will be paid. If interest on non-accrual loans had been accrued, interest
income would have increased by approximately $162,000 for 1996.

POTENTIAL PROBLEM LOANS

FOREIGN OUTSTANDINGS

FNBDA did not have any foreign loans outstanding for the years ended
December 31, 1996, 1995, or 1994.

OTHER INTEREST BEARING ASSETS

As of December 31, 1996, FNBDA had no other interest bearing assets
that would be required to be disclosed if such assets were loans.

SUMMARY OF FNBDA LOAN LOSS EXPERIENCE

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

The following table details the amount of loans charged to reserve and the
additions to the allowance for loan losses for the past five years. Dollars
in thousands.

-97-

<PAGE>

Allowance for Loan Losses, January 1 $ 2,416 $ 2,580 $ 2,569 $ 3,080 $ 3,305
Deduct:
Loans Charged Off During the Year (440) (457) (344) (1,489) (1,234)
Less Recoveries of Losses Previously Charged Off 549 293 355 713 409
---------------------------------------------------------------
Net Loans Charged-Off 109 (164) 11 (776) (825)
Allowance Prior to Additions 2,525 2,416 2,580 2,304 2,480
Additions to Allowance Charged to Operating Expense (226) - - 265 600
---------------------------------------------------------------
Allowance for Loan Losses, December 31 $ 2,299 $ 2,416 $ 2,580 $ 2,569 $ 3,080
---------------------------------------------------------------
---------------------------------------------------------------

Ratio of Net Charge-Offs to Average Loans Outstanding 0.06% 0.09% (0.01)% 0.47% 0.46%

</TABLE>

The schedule below shows the major categories of loan charge-offs and recoveries
for the past five years. Dollars in thousands.

<S> <C> <C> <C> <C> <C>
Net Charge-Offs 1996 1995 1994 1993 1992

Charge-offs:
Commercial $ 56 $ 62 $ 86 $ 1,048 $ 655
Mortgage - - 7 - -
Installment and Other 384 395 251 441 579
---------------------------------------------------------------------------------------

Total 440 457 344 1,489 1,234
---------------------------------------------------------------------------------------

Less Recoveries:
Commercial 342 68 156 453 168
Mortgage 2 2 2 - -
Installment and Other 205 223 197 260 241
Total 549 293 355 713 409

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

Net Charge-Offs (Recoveries) $ (109) $ 164 $ (11) $ 776 $ 825
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>

-98-

<PAGE>

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

1996 REPORTED PERIOD
Balance at End of Period Applicable to: % OF LOANS IN EACH
AMOUNT CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 980 44%
Mortgage -- 19%
Installment and Other 1,319 37%
---------
Total $ 2,299 100%
---------
---------
</TABLE>

<TABLE>
<CAPTION>
1995 REPORTED PERIOD
Balance at End of Period Applicable to: % OF LOANS IN EACH
AMOUNT CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 769 41%
Mortgage -- 16%
Installment and Other 1,647 43%
------
Total 2,416 100%
------
------
</TABLE>

<TABLE>
<CAPTION>
1994 REPORTED PERIOD
Balance at End of Period Applicable to: % OF LOANS IN EACH
AMOUNT CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 1,432 41%
Mortgage -- 14%
Installment and Other 1,148 45%
------
Total $ 2,580 100%
------
------
</TABLE>

<TABLE>
<CAPTION>
1993 REPORTED PERIOD
Balance at End of Period Applicable to: % OF LOANS IN EACH
AMOUNT CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 1,508 45%
Mortgage -- 15%
Installment and Other 1,061 40%
------
Total $ 2,569 100%
------
------
</TABLE>

1992 REPORTED PERIOD
Balance at End of Period Applicable to: % OF LOANS IN EACH
AMOUNT CATEGORY TO TOTAL LOANS
<S> <C> <C>
Commercial $ 2,059 42%
Mortgage -- 16%
Installment and Other 1,021 42%
-------
Total $ 3,080 100%
-------
-------
</TABLE>

-99-
<PAGE>

DEPOSITS

The table below shows the average daily balance of deposits by type for
the years ended December 31, 1996, 1995, and 1994.

(IN THOUSANDS) 1996 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>
Noninterest Bearing Demand Deposits $ 79,342 0.00%
Interest Bearing Demand Deposits 106,301 3.07%
Time Deposits 67,303 5.26%
Savings Deposits 44,010 3.26%
--------

Total $296,956
--------
--------
<CAPTION>
1995 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>

Noninterest Bearing Demand Deposits $ 74,992 0.00%
Interest Bearing Demand Deposits 113,901 3.31%
Time Deposits 59,625 4.99%
Savings Deposits 43,445 3.46%
--------

Total $291,963
--------
--------

<CAPTION>
1994 AVERAGE AVERAGE RATE
BALANCE PAID
<S> <C> <C>

Noninterest Bearing Demand Deposits $ 74,660 0.00%
Interest Bearing Demand Deposits 118,288 2.50%
Time Deposits 59,553 3.57%
Savings Deposits 45,286 2.81%
--------

Total $297,787
--------
--------
</TABLE>

Maturities of time certificates of deposit of $100,000 or more at
December 31, 1996 are as follows. Dollars in thousands:

MATURITY 1996
<S> <C>
3 MONTHS OR LESS $ 12,393
3 TO 6 MONTHS 5,764
6 TO 12 MONTHS 5,026
OVER 12 MONTHS 1,807
--------
Total $ 24,990
--------
--------
</TABLE>

-100-

<PAGE>

RETURN ON EQUITY AND ASSETS

The table below shows various key ratios including return on equity and
return on assets.

1996 1995 1994
<S> <C> <C> <C>
Return on Assets 1.12% 1.27% 1.39%
(Net Income Divided by Average Total
Assets)
Return on Equity 9.93% 11.93% 14.92%
(Net Income Divided by Average
Stockholders' Equity)
Cash Dividend Payout Ratio 51.48% 46.61% 31.89%
(Dividends per share divided by Net Income
per share)
Equity to Assets Ratio 11.25% 10.62% 9.64%
(Average Stockholders' Equity Divided by
Average Total Assets)

</TABLE>

SHORT-TERM BORROWINGS

At December 31, 1996, 1995 and 1994, short-term borrowings were in the form
of federal funds purchased, Treasury, tax and loan payable and Federal Home
Loan Bank borrowings. Dollars in thousands:

BALANCE DECEMBER 31, AVERAGE BALANCE WEIGHTED-AVERAGE
FOR YEAR INTEREST RATE FOR
YEAR
<S> <C> <C> <C>
1996 $ 13,162 $ 4,874 5.39%
1995 13,033 7,883 5.80%
1994 19,763 6,903 4.04%

</TABLE>

The maximum amount of total outstanding borrowings at any month-end during
the years ended December 31, 1996, 1995 and 1994, in thousands, is as follows:

YEAR MONTH AMOUNT
<S> <C> <C>
1996 December $13,160
1995 April 21,238
1994 August 20,590

</TABLE>

-101-

<PAGE>

FNBDA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

The following is Management's discussion and analysis of certain
significant factors which have affected FNBDA's financial position and operating
results during the period in the accompanying condensed consolidated financial
statements.

ASSET GROWTH

Total assets increased $7,831,014 or 2.11% during the first nine
months of 1997. Net loans, including finance leasing, increased $10,275,791 or
5.21% primarily driven by an increase in mortgage and installment loans offset
by a decrease in commercial loans. Federal funds sold increased $8,150,000 or
58%. This is normal volatility as federal funds sold fluctuate as necessary for
liquidity requirements. These increases were offset by a decrease in available-
for-sale securities of $10,702,380 or 11.48. Additionally, FNBDA recorded an
unrealized loss adjustment of $131,242 (net of tax) due to current market
conditions.

INTEREST INCOME

Total interest income increased $684,721 or 3.56% during the nine-
month period ended September 30, 1997 as compared to the same period in 1996.
This increase is due to the increase in FNBDA's loan portfolio. Total interest
income is composed of the following categories:

Interest and Fees on Loans and Leases: Interest and fee income
increased $889,115 or 6.49% during the period ended September 30, 1997 as
compared to the same period in 1996. This increase is comprised of an increase
in interest income of approximately $835,000 and an increase in lease income of
$115,000 coupled with a decrease in fee income of approximately $61,000. The
increase in interest income is due primarily to an increase in the average loan
volume of approximately $16,947,000 or 9.03% offset by a decrease in the average
yield from 9.62% in 1996 to 9.16% in 1997. The interest differential resulting
from the fluctuations in volume and yield is approximately $1,663,000 and
($828,000), respectively. The decrease in fee income is attributable to the
decrease in mortgage loan service fees.

Interest and Dividends on Securities: Interest and dividends on
securities decreased $113,633 or 2.25% during the nine-month period ended
September 30, 1997 compared with the nine month period ended September 30,
1996. At September 30, 1997, the portfolio had an average maturity of
approximately 2.14 years. Management continually monitors current market
conditions and liquidity needs when evaluating investment strategies.

Interest on Federal Funds Sold: Interest earned on federal funds sold
decreased $90,761 or 17.86% during the first nine months of 1997 compared to the
same period of 1996. This decrease is the result of a decrease in the average
volume of approximately $2,187,000 coupled with a decrease in the average yield
to 5.32% in 1997 from 5.36% in 1996.

INTEREST EXPENSE

Total interest expense increased $814,671 or 12.40% during the first
nine months of 1997 as compared to the first nine months of 1996. Total
interest expense is comprised of the following categories:

-102-

<PAGE>

Interest on Deposits: Interest on deposits increased $510,468 or 8.31%
during the first three quarters of 1997 compared to the first three quarters
of 1996. This increase is the result of an increase in the average volume of
interest bearing deposits of approximately $7,252,000 or 3.33%. The average
rate increased 3.97% in 1997 from 3.77% in 1996.

Interest on Federal Funds Purchased: Interest on federal funds purchased
increased $37,000 or 66.00% during the first three quarters of 1997 compared to
the first three quarters of 1996. This increase is the result of increased loan
demand.

Interest on Borrowed Funds: Interest on borrowed funds increased $267,226
or 71.95% during the first nine months of 1997 compared to the first nine months
of 1996.

INTEREST RATE RISK

Management attempts to protect earnings from wide shifts in interest rates
by employing the following strategies:

Loans: Approximately 13% of FNBDA's loan portfolio is written on an
adjustable basis that floats with FNBDA's base rate. Thus, approximately
$26,892,000 reprices immediately upon a change in base.

Investments: The majority of the investment portfolio of FNBDA is of a
fixed rate nature. This enables management to provide an underlying level of
income irrespective of changes in rates. Additionally, the average maturity
of the portfolio is approximately 2.14 years. This strategy of maintaining
short maturities provides maximum flexibility in dealing with fluctuating
interest rates.

Deposits: The deposit structure of FNBDA is allocated between demand and
time deposits. All non-interest bearing demand deposits represent
approximately 30% of total deposits and 45% of demand deposits. Interest
bearing demand deposits represent about 20% of total deposits and 35% of
demand deposits with the balance of demand deposits belonging to public
entities.

The above factors, taken into consideration together with the fact that
FNBDA's non-interest bearing customer deposits are approximately 27% of total
deposits, provide management the opportunity to maintain favorable net interest
margins under most normal interest rate scenarios.

-103-

<PAGE>

LOANS

The composition of FNBDA's loan portfolio is as follows:

SEPTEMBER 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
Commercial $ 84,842,266 $ 89,530,313
Mortgage 46,537,821 38,540,026
Installment and other 80,349,782 73,989,507
------------------------------------
Sub total 211,729,869 202,059,846
Less: Unearned net loan fees 2,035,961 2,466,245
Allowance for loan losses 2,123,471 2,298,955
------------------------------------
Total Loans, net $207,570,437 $197,294,646
------------------------------------
------------------------------------
</TABLE>

MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES

The following table shows balances for commercial (including leases), mortgage
and installment and other loans as of September 30, 1997, by maturities, based
on remaining scheduled repayments of principal.

<TABLE>
<CAPTION>
INSTALLMENT AND
MATURING OR REPRICING COMMERCIAL MORTGAGE OTHER
WITHIN:
<S> <C> <C> <C>
One year or less $40,882,000 $ 2,592,000 $17,099,000
One through 5 years 33,820,000 5,232,000 42,046,000
After 5 years 10,140,000 38,714,000 21,205,000
---------------------------------------------

Total $84,842,000 $46,538,000 $80,350,000
---------------------------------------------
---------------------------------------------
</TABLE>

The maturity of certain loans may vary due to FNBDA's rollover policy.
FNBDA will consider extending the maturity of a loan upon receipt of current
financial information and evaluation of the loan performance, the financial
performance of the business and overall economic conditions.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $187,497 for the nine-month period ended
September 30, 1997, compared to $158,621 for the nine-month period ended
September 30, 1996. The allowance for loan losses stands at 1.0% of gross loans
at September 30, 1997 as compared to 1.14% at December 31, 1996. Management
believes the current allowance is adequate to satisfy any unanticipated loan
losses based upon the historical performance of the loan portfolio.

Net charged off loans were $360,201 and ($156,514) for the nine months
ended September 30, 1997 and 1996 respectively. At September 30, 1997, loans
totaling $806,168 were accounted for on a non-accrual basis. Additionally,
loans totaling $509,495 were contractually past due 90 days or more as to
principal or interest. No loans were accounted for as "troubled debt
restructurings" as defined in SFAS No. 15. Loans are placed on non-accrual
status when they go over 90 days delinquent or when circumstances indicate
that timely collection of interest is doubtful. Loans over 90 days may be
left on accrual status if a repayment plan has been negotiated and it appears
likely that all interest will be paid. All significant impaired loans have
been evaluated in accordance with SFAS No. 114 as amended by SFAS No. 118.

-104-
<PAGE>

Management reviews portfolio concentration levels on a regular basis and
appraisal reviews are performed to support the values at which loans are carried
in the portfolio. Lending for larger, speculative homes is tightly limited to
financially sound borrowers.

Management reviews the loan loss analysis on a quarterly basis. A
percentage of the allowance is allocated to substandard, doubtful and loss.
Management believes the current allowance of $2,123,471 is adequate and there
is sufficient unallocated allowance to handle unexpected problems within the
portfolio.

The table below details changes in the allowance for loan losses for the
nine-month period ended September 30, 1997 and 1996.

1997 1996
<S> <C> <C>
Balance, January 1 $2,299 $2,416
Provision charged to expense 187 159
Recoveries of amounts charged-off 180 497
Less amounts charged-off (540) (341)
----------------------------

Balance, September 30 $2,126 $2,731
----------------------------
----------------------------
</TABLE>

The schedule below shows the major categories of loan charge-offs and
recoveries for the nine-month period ended September 30, 1997 and 1996:

1997 1996
<S> <C> <C>
Charge-Offs:
Commercial $273 $ 53
Mortgage -- --
Installment & Other 267 288
----------------------------
Total Charge-Offs 540 341
----------------------------
Less Recoveries:
Commercial 58 335
Mortgage -- 2
Installment & Other 122 160
----------------------------
Total Recoveries 180 497
----------------------------

Net Charge-Offs (Recoveries) $360 $(156)
----------------------------
----------------------------

</TABLE>

-105-

<PAGE>

The table below details the allocation by loan type of the allowance for
loan losses at September 30, 1997:

DOLLARS %
<S> <C> <C>
Allowance for Loan
Losses:
Commercial $ 659 31%
Mortgage -- 0%
Installment & Other 1,467 69%
------

Total $2,126 100%
------
------

</TABLE>

NONINTEREST INCOME

Total noninterest income for the first nine months of 1997 increased
$362,578 or 17.77%, over the same period of 1996. This increase is due
primarily to an increase in dividends on life insurance. This increase was
offset by a decrease in service charges, fees & commissions.

NONINTEREST EXPENSE

Total noninterest expense, including income tax expense, increased
$426,789 or 3.94%, during the first nine months of 1997 as compared to the
first nine months of 1996. This increase is mainly attributable to increased
salaries, wages and employee benefits as well as increases in professional
fees, litigation settlement charges and legal fees offset by decreases in
occupancy, equipment and income tax expense.

LIQUIDITY

Management of FNBDA strives to obtain the highest possible earnings while
maintaining a sound liquidity position. The Company's primary sources of
liquidity are its cash and due from banks, other interest bearing accounts,
federal funds sold, and its investment portfolio. FNBDA's investment portfolio
had a balance of $99,845,913 at September 30, 1997. The average maturity of the
portfolio is 2.14 years at September 30, 1997. Federal funds sold had a balance
of $22,200,000 at the nine-month period ended September 30, 1997. FNBDA avoids
the use of highly sensitive short-term funds such as brokered deposits and
believes its deposits represent funding sources with safety in respect to both
liquidity and earnings. The Company continues to meet the cash flow
requirements of customers who are depositors desiring to withdraw funds and of
borrowers requiring assurance that sufficient funds will be available to meet
their credit needs. The measures of solid liquidity practices such as total
deposits to total assets and loans to deposits are monitored constantly for any
adverse trends.

At September 30, 1997, the net loan to deposit ratio was approximately 66%
The liquidity ratio, which is comprised of cash and cash equivalents, federal
funds sold and unpledged securities as a percent of total demand deposits
stood at approximately 13.70% at September 30, 1997. Management continuously
monitors outstanding loan commitments and letters of credit for funding
needs. At September 30, 1997, outstanding loan commitments and letters of
credit were approximately $25,447,000 and $2,569,000, respectively.

Cash flows from operations remains positive primarily due to favorable
interest rate yields and continued growth in the loan portfolio. Management
expects this trend to continue. Cash flows from investing activities were
positive for the nine month period ended September 30, 1997 primarily due to
an increase in loans to customers, coupled with purchases of securities.
Cash flows from financing activities were positive for the nine month period
ended September 30, 1997.

-106-

<PAGE>

CAPITAL RESOURCES

Stockholders' equity (exclusive of the net unrealized gain/loss of
securities available for sale) as a percentage of total assets was
approximately 11.15% at September 30, 1997 as compared to 10.70% at December
31, 1996.

At September 30, 1997, FNBDA's Tier 1 Core Capital to risk weighted assets
was 20.41%. Total Capital to risk weighted assets was 21.45% and the
leverage ratio was 11.35%, all above the current minimum guidelines of 4%, 8%
and 4%, respectively, as established and defined by regulatory authorities.

In addition, the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) defined five levels of capital for financial institutions:
Well Capitalized, Adequately Capitalized, Undercapitalized, Significantly
Undercapitalized and Critically Undercapitalized. A bank falls into one of
these levels based on its risk-based ratio and leverage ratio. At September
30, 1997, FNBDA falls in the Well Capitalized category.

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FNBDA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

The following discussion and analysis should be read in conjunction
with the financial statements of FNBDA. The following discussion is as of
December 31, 1996. To the extent necessary, this discussion is amended and
qualified by the Management's Discussion and Analysis section of FNBDA for the
nine month period ended September 30, 1997.

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Adequate liquidity and maintenance of an appropriate balance between
rate sensitive earning assets and liabilities are the principal functions of
asset/liability management of a banking organization. Liquidity management
involves the ability to meet the cash flow requirements of customers who are
depositors desiring to withdraw funds and borrowers requiring assurance that
sufficient funds will be available to meet their credit needs. The measures of
solid liquidity practices such as total deposits to total assets and loans to
deposit ratios are constantly monitored for any adverse trends. At December 31,
1996, the net loan to deposit ratio was approximately 62%. FNBDA's primary
sources of liquidity are total cash and due from banks, other interest bearing
accounts, federal funds sold, and its available-for-sale securities. The
liquidity ratio, which is comprised of total cash and cash equivalents and
unpledged securities as a percent of total demand deposits, stood at
approximately 13.85% at December 31, 1996 and 12.35% at December 31, 1995.

Management seeks to avoid fluctuating net interest margins and enhance
consistent growth of net interest income during periods of changing interest
rates. Effective asset/liability management enabled FNBDA to maintain desired
levels of liquidity and capital while protecting against the possible negative
impact of interest rate volatility. FNBDA avoids the use of highly sensitive
short-term funds such as brokered deposits and believes its deposits represent
funding sources with safety in respect to both liquidity and earnings, and
permits the maintenance of an appropriate relationship between the cost and
maturity of liabilities and the yield and maturity of assets. Net cash flow
from operations continues to remain positive primarily due to favorable interest
rate yields and growth in the loan portfolio. As loan growth continues, the
loan to deposit ratio may rise but there is substantial room to increase the
loan portfolio without impeding the liquidity ratio. The increase in deposits
provide the major funding from financing activities. It is anticipated that
deposits will continue to steadily increase as the local economy continues its
growth.

CAPITAL RESOURCES

Capital increases will continue to be provided by earnings. Capital
growth, exclusive of net unrealized gains/losses on available-for-sale
securities, for the year ended December 31, 1996 was 4.96% compared to 6.41% for
the same period of 1995. While there are no definite plans to issue additional
common stock, shareholders approved $20 common stock dividends in both 1996 and
1995.

Stockholders' equity, exclusive of net unrealized gains/losses on
available-for-sale securities, of FNBDA as a percentage of total assets at
December 31, 1996 stood at 10.75%. At December 31, 1995 the ratio was 11.03%.
Risk-based capital guidelines require banks to maintain an underlying capital
base of 8.00% of "risk-weighted" assets. At December 31, 1996, FNBDA was well
above the minimum requirement with a capital base of 20% (Tier 1).

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to December, 1995) of the appropriateness of the classifications of all
investments in debt and equity securities without causing questions about the
FNBDA's intent or ability to hold securities classified as held-to-maturity,
to their maturity. As permitted by the Guide, during 1995, FNBDA transferred
securities from held-to-maturity to available-for-sale at amortized cost
totaling $3,595,000. As of December 31, 1996, the capital accounts were
decreased by $101,224 representing the after tax effect of the
available-for-sale portfolio's decrease in fair value.

ASSET GROWTH

FNBDA experienced an increase in total assets during 1996 of
$26,492,569 or 7.68% and in 1995 of $6,147,274 or 1.82%. Stronger loan demand
resulted in a $11,861,636 or 6.40% increase in loans in 1996. Accompanying the
increase in loans was an increase of $6,262,643 or 7.20% in available-for-sale
securities.

During 1996, FNBDA adopted a non-qualified defined benefit retirement
plan and an incentive plan for certain key executive officers and members of the
Board of Directors. To establish the plans, FNBDA purchased single premium life
insurance policies having a total face value of $17,962,000 on the lives of the
participants. A death benefit for each executive has also been provided by a
dollar amount as specified in each individual agreement. Benefits under the
retirement benefit plan are accrued as defined in each individual agreement
based on age. Benefits are accrued under the incentive plan based on FNBDA's
return on assets for each fiscal year, as specified in the plan document. Net
cash value of life insurance on the accompanying consolidated balance sheet is
the initial premium, decreased by the policy load fees and mortality costs and
increased by policy earnings. The net cash value of life insurance outstanding
at December 31, 1996 is $6,353,152.

The increase in total assets was primarily funded by increases in the
deposit base of FNBDA of $24,002,007 or 8.22%.

INTEREST INCOME

Total interest income for 1996 totaled $25,742,983 as compared to
$25,658,968 for 1995. This increase of $84,016 or 0.33% followed the 1995
increase over 1994 of $1,508,442 or 6.25%.

The increase in interest income reflects the change in the yield and
volume of earning assets when comparing one year to another. Average earning
assets increased by approximately $4,271,000 to $309,957,000 while the average
yield for those assets decreased to 8.31% from 8.39% in 1995. Average earning
assets in 1995 were $379,000 above 1994's level of $305,307,000. The 1994 yield
was 7.91%. Management anticipates continued growth in earning assets. The
individual components comprising total interest income are interest and fees on
loans, interest on investment securities and interest on federal funds sold.
The yields and related volumes of these components changed individually as
follows:

Interest and Fees on Loans: Income generated by FNBDA's loan portfolio
increased $249,051 or 1.37% for the year ended December 31, 1996. This increase
is the result of an increase in net loans, including finance leases, of
$11,861,636 or 6.40% slightly offset by a decrease in yield from 10.25% to
9.91%. During the year ended December 31, 1995, interest and fees on loans
increased $1,473,629 or 8.81%. This increase is attributable to an increase in
net loans of $15,506,756 or 9.13% coupled with an increase in the yield of
0.09%.

Interest on Securities: Total income from the securities portfolio
decreased $311,306 or 4.43% for the year ended December 31, 1996 following a
decrease of $256,296 or 3.52% during 1995. The nominal decrease in investment
income for the current year is the result of a decrease in the average volume of
$7,595,000 or 6.30% offset by an increase in the yield to 5.88% in 1996 from
5.71% in 1995. The decline in the 1996 yield is attributable to an overall
decrease in interest rates. The average volume of investment securities
decreased by

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11.81% for the year ended December 31, 1995. Management attempts
to maximize the benefit from tax-free municipal bonds and will continue to do
so. It is anticipated that any purchases of investment securities in 1997 will
have short-term maturities with yields comparable to those currently maturing.

Interest on Federal Funds Sold: Total interest on federal funds sold
increased $146,270 or 33.51% in 1996 following a $291,109 or 200.21% increase in
1995. The average volume increased $3,321,000 or 42.81% during the year ended
December 31, 1996, which was offset by a decrease in the yield to 5.26% from
5.62% in 1995. The increase for the year ended December 31, 1995 was a result
of an increase in the average volume of $3,579,000 or 85.66% coupled with an
increase in the yield of 2.13%.

INTEREST EXPENSE

The major components of interest expense are interest on deposits,
federal funds purchased, and borrowed funds. The average cost of funds
decreased to 3.89% in 1996 from 3.90% in 1995. The average cost of funds was
2.88% in 1994. The cost of funds and related volumes of these individual
components were as follows:

Interest on Deposits: Total interest on deposits decreased $21,916 or
0.27% in 1996. In 1995 interest on deposits increased $1,899,749 or 29.91%.
The average volume for interest bearing deposits increased $643,000 or 0.30%
during 1996 following a decrease of $6,156,000 in 1995. The average rate
decreased to 3.78% in 1996. The average rate was 3.80% in 1995 and 2.85% in
1994.

Interest on Federal Funds Purchased: Interest on federal funds
purchased decreased $153,295 or 64.07% during 1996 following an increase of
$39,926 or 20.03% in 1995.

Interest on Borrowed Funds: Interest on borrowed funds purchased
increased $206,877 or 57.87% during 1996 following an increase of 277,060 or
344.61%.

INTEREST RATE RISK

Management attempts to protect earnings from wide shifts in interest
rates by employing the following strategies:

Loans: Approximately 15% of FNBDA's loan portfolio is written on an
adjustable basis that floats with FNBDA's base rate. Thus, approximately
$30,160,000 reprices immediately upon a change in the base rate.

Securities: Total securities represent approximately 30% of total
assets at December 31, 1996. In administering the securities portfolio,
management adheres to FNBDA's Investment Portfolio and Asset/Liability Policies.
The actual average life of the portfolio at December 31, 1996 was approximately
2.10 years. This strategy of maintaining short maturities provides maximum
flexibility in managing fluctuating interest rates. Additionally, the majority
of the securities portfolio consists of fixed rates. This enables management to
provide an underlying level of income, irrespective of changes in interest
rates. Diversification for all areas of investments is a key element in
interest rate risk. Management monitors the securities portfolio to ensure that
an appropriate balance is maintained in terms of both maturity and type of
security instrument. Monitoring is aided by the use of a computer program,
specializing in Asset/Liability Management and Interest Rate Risk.

Deposits: The deposit structure of FNBDA is allocated between demand
and time deposits. All non-interest bearing demand deposits represent
approximately 30% of total deposits and 45% of demand deposits. Interest
bearing demand deposits represent about 20% of total deposits and 35% of demand
deposits with the balance of demand deposits belonging to public entities.

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Time deposits represent about 40% of all deposits while savings
deposits account for almost 40% of all time deposits with the balance being
certificates of deposits. The majority of all time deposits belong to
individuals in the form of savings accounts or certificates of deposits.

The above factors provide management the opportunity to maintain
favorable net interest margins under most normal interest rate scenarios.

ALLOWANCE FOR LOAN LOSSES

The purpose of the allowance for loan losses is to maintain reserves
at a level sufficient to cover estimated future loan losses. Management
exercises its judgment in establishing loan loss reserves for existing loans
which may become uncollectible in the future. FNBDA's current allowance for
loan losses reflects an ongoing evaluation of the known risks in the loan
portfolio and current economic conditions. The allowance for loan losses was
4.86% lower at December 31, 1996, than at December 31, 1995. Expenses for the
provision of loan losses reflects a reduction in the provision account of
$226,378 in 1996, and no addition to the provision was made in 1995. At
December 31, 1995, the allowance for loan losses was 6.33% lower than at
December 31, 1994.

Net charged off loans in 1996 were $(108,921) compared to $163,388 in
1995 and $(10,800) in 1994. Net loan losses decreased $272,309 in 1996 and
increased $174,188 in 1995. Net loans at year end were $197,294,646 in 1996 and
$185,433,010 in 1995. The allowance for loan losses at year end 1996 was 1.14%
and in 1995 was 1.26% of loans outstanding. The allocated portion of the
allowance consists of three categories: substandard, doubtful and loss. Ongoing
evaluation of the loan portfolio and new loan products are determining factors
in maintaining the allocated allowance for loan losses. The allocated allowance
at December 31, 1996 was $2,298,955 as compared to $2,416,412 at December 31,
1995.

FNBDA adopted FAS No. 114, "Accounting by Creditors for Impairment of
a Loan," and FAS No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures," as of January 1, 1995. These statements
require that certain impaired loans be measured based on the present value of
future cash flows discounted at the loan's original effective interest rate. As
a practical expedient, impairment may be measured based on the loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
balance of the loan, the impairment is recorded through a valuation allowance.
FNBDA had previously measured the allowance for loan losses using methods
similar to those prescribed in FAS No. 114. As a result of adopting these
statements, no additional allowance for loan losses was required even though
certain loans were identified as impaired.

Loans are placed on non-accrual status when they go over 90 days
delinquent, or when circumstances indicate that timely collection of interest is
doubtful. Loans over 90 days delinquent may be left on accrual status if a
repayment plan has been negotiated and it appears likely that all interest will
be paid. At December 31, 1996, there are no other loans outstanding which cause
management serious doubts as to the ability of the borrower to comply with the
loan repayment terms.

FNBDA had $386,042 of net other real estate owned ("OREO") at December
31, 1996. This property consists of a 3.67 acre commercial tract acquired in
1990 and a 180.86 acre tract located in Lincoln County also acquired in 1990.
Both tracts are currently for sale. Additionally, a small property is carried
in OREO until sufficient payments are received to classify it as a loan.

The loan portfolio is concentrated in the Las Cruces, New Mexico
market area. Of total loan commitments, 44% are commercial, including financing
leases, 15% are mortgage loans, and 41% are classified as installment and other.

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Management reviews concentrations in the loan portfolio quarterly.
Management also performs an analysis of the allowance for loan losses quarterly
and appraisal reviews are performed to support the values at which loans are
carried in the portfolio. Risk percentages are assigned to all classified loans
to ensure that the reserve is adequate. The OCC, as an integral part of their
examination process, periodically reviews FNBDA's allowance for loan losses, and
may require FNBDA to make additions to the allowance based on their judgment
about information available to them at the time of their examination.
Management feels that the allowance for loan losses of $2,298,955 at December
31, 1996 is adequate for FNBDA to meet all anticipated loan losses.

NONINTEREST INCOME

Total noninterest income increased $455,823 or 15.82% for the year
ended December 31, 1996 and increased $119,965 or 4.34% during 1995. The main
component of the 1996 increase is net realized gains recorded on the sale of
loans of $377,277 compared with a realized gain of $20,803 during 1995

NONINTEREST EXPENSE

Noninterest expenses are comprised of five major categories:
salaries, pension and other employee benefits, equipment, occupancy and all
other expenses. Total non-interest expense increased by $1,492,573 or 10.91% in
1996 and increased by $49,219 or 0.36% in 1995.

The 1996 increase is primarily driven by increased salaries and
pension and other employee benefits expense of $532,920 or 6.62% and by
increased other expenses of $630,175. The increase in salaries and pension and
other employee benefits is primarily the result of normal salary and benefit
increases. The increase in other expenses is primarily the result of a
litigation settlement with the Department of Justice.

On January 23, 1997, FNBDA entered into a settlement agreement with
the United States Department of Justice (the "Department") arising out of the
Department's allegations that FNBDA had violated the Federal Fair Housing and
Equal Credit Opportunity Acts by engaging in practices that discriminated on the
basis of national origin in its mobile home mortgage lending business. FNBDA
adamantly denies the allegations. However, to avoid costs of protracted
litigation and to enable management to refocus its attention on the normal
business of banking, FNBDA agreed to a settlement which commits them, among
other things, to continue the types of lending programs, promotional activities
and training that are designed to increase the level of banking services
available to Hispanics. In addition to compensating identified aggrieved
individuals $485,000 (which has been accrued in the accompanying December 31,
1996 financial statements as other liabilities), FNBDA has agreed to (i) develop
and implement uniform underwriting guidelines including utilization of a second
review committee (ii) provide a written customer assistance program and conduct
outreach programs to the Hispanic community including home buyers educational
seminars (iii) provide training to officers, directors and certain employees and
(iv) establish a $750,000 fund for below-market mortgage loans to qualified
applicants. FNBDA views the efforts in (i) through (iii) above as continuations
of their existing lending programs.

DIVIDEND DECLARATION

The Board of Directors declared $20.00 per share common stock
dividends in 1996 and 1995.

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 1996, FNBDA adopted FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. Statement No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to these assets to be held and used for long-lived assets and certain
identifiable

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intangibles to be disposed of. There was no material effect on the
consolidated financial statements relating to this adoption.

Emerging Issues Task Force (EITF) Issue No. 96-12 RECOGNITION OF
INTEREST INCOME AND BALANCE SHEET CLASSIFICATION OF STRUCTURED NOTES, requires
the use of the retrospective interest method of recognizing income on certain
structured note securities. The application of this consensus applies
prospectively to new securities acquired after November 14, 1996. Management
does not believe the application of this consensus will materially affect
FNBDA's financial position or results of operations.

The FASB issued Statement No. 128 EARNINGS PER SHARE which establishes
standards for computing and presenting earnings per share (EPS). The Statement
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, EARNINGS PER SHARE, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.

COMPARATIVE RIGHTS OF SHAREHOLDERS

The current rights of Bancorp shareholders are governed by the New
Mexico Statutes and the Articles of Incorporation and Bylaws of Bancorp. The
current rights of FNBDA shareholders are governed by the National Bank Act and
the Articles of Association and Bylaws of FNBDA. Upon consummation of the
Merger, all stockholders of Bancorp and FNBDA will become stockholders of FSC, a
Delaware corporation. As stockholders of FSC, their rights will be governed by
the Delaware General Corporation Law (the "Delaware Statute") and by FSC's
Certificate of Incorporation and Bylaws. The New Mexico Statutes, National Bank
Act and the Articles of Incorporation or Association and Bylaws of Bancorp and
FNBDA differ from the Delaware Statute and the Certificate of Incorporation and
Bylaws of FSC in certain respects. Although it is not practical to compare all
such differences, the following is a summary of certain of the more significant
differences.

AUTHORIZED CAPITAL STOCK

BANCORP. Under Bancorp's Articles of Incorporation, the aggregate number of
common shares which is authorized is 200,000 shares of common stock, $10.00 par
value and 40,000 shares of preferred stock, $55.10 par value. As of September
30, 1997, there were 112,161 shares of Bancorp Common stock outstanding and no
shares of preferred stock outstanding. All shares of Bancorp common stock are
identical in rights and each share has one vote.

FNBDA. Under FNBDA's Articles of Association, the aggregate number of shares
which is authorized is 100,000 shares of FNBDA Common Stock, $10.00 par value.
On September 30, 1997, 100,000 shares of FNBDA Common Stock were outstanding.
All shares of FNBDA Common Stock are identical in rights and each share has one
vote.

FSC. Under FSC's Certificate of Incorporation, FSC is authorized to issue
300,000,000 shares of common stock and 400,000 shares of preferred stock. All
shares of FSC Common Stock are identical in rights and have one vote. All
shares of preferred stock also have one vote.

The FSC Common Stock to be issued in the Merger will be shares
newly issued from authorized and unissued FSC Common Stock and/or shares of
FSC Common Stock repurchased in the market and held as Treasury Shares. The
FSC Common Stock, when delivered pursuant to the Merger Agreement, will be
duly authorized and validly issued, fully paid and non-assessable, which
status will be supported by an opinion of FSC's counsel.

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FSC's Certificate of Incorporation provides that its Board of
Directors can issue preferred stock in one or more series and with such terms
and at such times and for such consideration as the FSC Board of Directors
may determine. The authority of the FSC Board of Directors includes the
determination or fixing of the following with respect to shares of any series
thereof: (a) the number of shares and designation or title thereof; (b)
rights as to dividends; (c) whether and upon what terms the shares are to be
redeemable; (d) rights and preferences of the holders upon the liquidation,
dissolution or winding up of FSC; (e) whether the shares are to be subject to
a retirement or sinking fund; (f) whether and upon what terms the shares are
convertible; (g) the voting rights, if any; (h) whether the issuance of any
additional shares of a series shall be subject to restrictions as to issuance
or as to the powers, preferences or rights of any other series; and (i) any
other preferences, privileges, powers or relative rights specified by the
Board of Directors. FSC has designated 18,052 shares of its preferred stock
as Series A Cumulative Convertible Preferred Stock, of which 9,724 were
issued and outstanding as of September 30, 1997, and all of the currently
outstanding shares of which have voting rights, and are convertible at the
option of the holders into 27.3375 shares of FSC Common Stock, for each share
of Cumulative Convertible Preferred Stock.

On August 28, 1989, FSC's Board of Directors adopted a Shareholder
Rights Plan whereby each FSC shareholder is issued rights to acquire a new class
of junior preferred stock, which rights could also be expanded by the FSC Board
of Directors to allow the purchase of additional shares of FSC under certain
circumstances involving the acquisition of certain amounts of FSC stock by a
third party. (See "INFORMATION ABOUT FSC--Description of FSC's Capital Stock--
Common Stock.").

DIRECTORS

NUMBER. Bancorp's Bylaws provide that the number of directors shall be one or
more, as determined from time to time by the Board. Currently, Bancorp has
seven (7) directors. FNBDA's Bylaws provide that the number of directors shall
not be less than five (5), nor more than twenty-five (25) with the exact number
of directors to be fixed from time to time by the Board of Directors.
Currently, FNBDA has ten (10) directors. FSC's Bylaws provide that the number
of its directors shall not be less than 6, nor more than 30 with the exact
number to be established from time to time by Resolution of the Board of
Directors. Currently, FSC has 18 directors.

ELECTION. The Delaware Statute provides that members of the Board of Directors
are elected by a plurality vote of the shareholders with each share being
entitled to one vote, unless the Articles or Certificate of Incorporation
provide otherwise. The Bylaws of Bancorp and FNBDA each provide that directors
shall be elected by a majority vote. Neither Bancorp nor FSC allows cumulative
voting with respect to the election of directors. FNBDA does permit cumulative
voting in the election of directors.

REMOVAL. The Bylaws of Bancorp provide that any director or the entire Board of
Directors may be removed, with or without cause, at any meeting of the
shareholders called expressly for that purpose by a vote of the holders of the
majority of the shares then entitled to vote at an election of directors. The
Bylaws of FNBDA are silent as to the procedure to remove directors.

Under the Delaware Statute, any director or the entire Board of Directors may be
removed with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors. The Delaware Statute also
provides additional requirements for the removal of a member of a Board which is
classified as to term or elected by a single class or elected by classes
possessing cumulative voting rights. However, these additional requirements do
not apply to FSC, as the Board of Directors of FSC is not classified and none of
FSC's shares of capital stock possess cumulative voting rights.

INDEMNIFICATION. The Delaware Statutes provide that a director, employee,
officer or agent of a corporation may be indemnified against liability (other
than in an action by or in the right of the corporation) and other costs

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incurred by such person in connection with such proceeding, provided such person
acted in good faith and in a manner such person reasonably believed to be in and
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reason to believe the conduct was unlawful for
actions or suits brought by or in the name of the corporation, the Delaware
Statutes provide that a director, employee, officer or agent of a corporation
may be indemnified against expenses incurred by such person in connection with
such proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or at least not opposed to the best interests of
the corporation, except that if such person is adjudged to be liable to the
corporation, such person can be indemnified if and only to the extent that a
court determines that despite the adjudication of liability, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper. On the other hand,
if he or she prevails, indemnification is mandatory.

The Delaware Statutes provide that the determination of whether an
officer or director is entitled to indemnification (that is whether or not the
person has met the statutory standard of conduct required for indemnification)
is to be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to the action, suit or proceeding in
question, or (2) if such a quorum is not obtainable or if a quorum of
disinterested directors so directs, by independent legal counsel and a written
opinion, or (3) by the stockholders. FSC's Articles of Incorporation, as
amended, provide for indemnification of such persons to the full extent
allowable by applicable law.

The Articles of Incorporation of Bancorp provide that the corporation
shall indemnify any and all persons who may serve or who have served at any time
as directors, officers or agents of the corporation, or who may serve or who
have served at any time at the request of the corporation as a director,
officer, agent, employee, partner or trustee of any corporation or of a
partnership, joint venture, trust or other enterprise, and the respective heirs,
personal or legal representatives and other successor in interest of any such
persons, against any and all expenses, including but not limited to amounts paid
in settlement approved by counsel for the corporation (before or after the suit
is commenced) actually and necessarily incurred by such persons in connection
with the defense of any claim, action, suit or proceeding in which they, or any
of them are made parties or a party or which may be asserted against them or any
of them, by reason of having served in any of the above described capacities,
except in relation to matters as to which any such person shall be adjudged in
any action, suit or proceeding to be liable for his own negligence or
intentional misconduct in the performance of duty. Such indemnification shall
be in addition to any other rights to which those indemnified may be entitled
under any law, bylaw, agreement, vote of stockholders or otherwise.

The corporation may pay in advance any expenses (including attorneys
fees) which may become subject to indemnification under the provisions of this
Article, if the Board of Directors authorizes the specific payment and if the
person receiving the payment undertakes in writing to repay if it is ultimately
determined that he is not entitled to indemnification by the corporation under
the provisions of this Article or any other applicable laws or agreements.

The corporation may purchase and maintain insurance on behalf of any
person serving in any of the capacities described in this Article against any
liability incurred by him in any such capacity or arising out of his status as
such whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article, and if the
corporation purchases and maintains insurance on behalf of any director of this
corporation, it shall purchase and maintain like insurance on behalf of all
directors of the corporation.

The Articles and Bylaws of FNBDA provide for no specific
indemnification for directors and officers of FNBDA.

DIRECTORS' AND OFFICERS' LIABILITY. The Delaware Statutes each allow a
corporation to include, in its Certificate of Incorporation, a provision that
limits or eliminates the personal liability of a director to the corporation and

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its stockholders for monetary damages for such person's breach of fiduciary
duty, provided that such provision does not limit a director's liability (1) for
a breach of his or her duty of loyalty to the corporation, (2) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (3) for unlawful payments of dividends, certain stock
repurchases or redemptions, or (4) for any transaction from which the director
derived an improper personal benefit. These provisions have the effect of
protecting a corporation's directors against personal liability from breaches of
their duty of care.

The New Mexico Statutes provide that in addition to other
liabilities, a director who votes for or assents to any distribution contrary
to other provisions of the New Mexico Statutes or provisions of the company's
Articles of Incorporation shall, unless the director complies with the
standards for the performance of duties of directors, be liable to the
corporation for the amount of the dividend which is paid or the value of the
distribution in excess of the amount of the distribution which would have
been made without a violation of the provision.

INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE 1933 ACT MAY BE
PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF FSC, FSC HAS BEEN
ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE 1933 ACT AND IS,
THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST
SUCH LIABILITIES (OTHER THAN THE PAYMENT BY FSC OF EXPENSES INCURRED OR PAID BY
A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE REGISTRANT IN A SUCCESSFUL
DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR, OFFICER
OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING REGISTERED, FSC
WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER HAS BEEN SETTLED BY A
CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION THE
QUESTION OF WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE 1933 ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH
ISSUE.

TRANSACTIONS INVOLVING INTERESTED DIRECTORS. The Delaware Statute states that a
transaction involving an interested director of a Delaware corporation is not
void or voidable if (a) the director's interest in the transaction is disclosed
to the Board and a majority of the disinterested directors approve it; (b) the
interest is disclosed to the stockholders and the transaction is approved by a
majority of the stockholders; or (c) the transaction is fair to the corporation.
The Articles of Incorporation of Bancorp provide that no contract or other
transaction between the corporation and any of its directors, officers or
security holders, or in a corporation or firm in which they or any of them are
directly or indirectly interested shall be invalid solely because of the
relationship or because of the presence of the director, officer or security
holder at the meeting authorizing the contract or transaction or his
participation or vote in the meeting or authorization. However, those
provisions of the Articles of Incorporation only apply if the material facts of
the relationship or interest of each such director, officer or security holder
are known or disclosed to the Board of Directors and it nevertheless authorizes
or ratifies the contract or transaction by majority of the directors present,
(each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote) or to
the shareholders and they nevertheless authorize or ratify the contract or
transaction by a majority of the shares present (each such interested person to
be counted for quorum and voting purposes) and the contract or transaction is
fair to the corporation as of the time it is authorized or ratified by the
directors or the shareholders.

REPURCHASE OF SHARES

The Delaware Statute permits a corporation to redeem or repurchase any
of its shares for cash, or other property for a promissory note except when the
capital of the corporation is impaired, or when such repurchase or redemption
would impair any capital of the corporation. The New Mexico Statute is
essentially the same as the Delaware Statute but the National Bank Act generally
prohibits FNBDA from repurchasing or redeeming its

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own shares.

PAYMENT OF DIVIDENDS TO SHAREHOLDERS

Holders of Bancorp Common Stock are entitled to share ratably in
such cash dividends as may be declared from time to time by Bancorp's Board
of Directors out of funds legally available therefore, subject to standard
solvency tests. The National Bank Act provides that FNBDA may make dividend
payments to its shareholders provided that except until the surplus fund of
such association shall equal its common capital, no dividends shall be
declared unless there has been carried to the surplus fund not less than
one-tenth part of the association's net income of the preceding half year in
the case of quarterly or semi-annual dividends, or one-tenth part of the net
income of the preceding two consecutive years in the case of annual
dividends. The National Bank Act further provides that the approval of the
Comptroller of the Currency is required if the total of all dividends
declared in any calendar year exceeds the total of the entities' net income
for that year combined with its retained net income for the preceding two
years, less any required transfers to surplus.

The Delaware Statute allows a corporation, subject to any restrictions
in its Certificate of Incorporation, to declare and pay dividends upon its
shares of capital stock either out of its surplus (as determined under the
Statute) or, in the event there is no such surplus out of its net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year. Further restrictions on dividends apply in the event a corporation is
issued shares possessing a preference upon the distribution of assets. The
ability of a Delaware corporation to pay dividends on or to make repurchases or
redemptions of its shares is dependent upon the financial status of the
corporation standing alone and not on a consolidated basis. FSC's Restated
Certificate of Incorporation grants to the Board of Directors the power to
declare dividends on its common stock, subject to any dividend or sinking fund
requirements pertaining to its preferred stock. FSC is also subject to
restrictions on its dividend paying ability under banking laws.

ASSESSMENTS

All outstanding shares of Bancorp, FNBDA and FSC are fully paid and
non-assessable except for assessability as may be permitted under 12 U.S.C.
Section 55 with regard to shares of FNBDA common stock.

PREEMPTIVE RIGHTS

The shareholders of Bancorp and FSC are not subject to preemptive
rights to acquire unissued shares, treasury shares or securities convertible
into shares. The shareholders of FNBDA have preemptive rights to acquire
unissued shares.

AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION OR ASSOCIATION

The Delaware Statute permits the Board of Directors of a Delaware
corporation to adopt a resolution of its own volition setting for the proposed
amendment to the corporation's Certificate of Incorporation and directing that
such proposed amendments be submitted to a vote at a meeting of shareholders.
Upon the written request of the holders of not less than 10% of the shares
entitled to vote upon a proposed amendment, the Board of Directors is required
to adopt a resolution setting forth the requested amendment and directing that
the amendment be submitted to a vote at a meeting of stockholders. The New
Mexico Statutes permit the Board of Directors of a New Mexico corporation to
adopt a resolution proposing changes to the corporation's Articles of
Incorporation and directing that such proposed amendment be submitted to a vote
of stockholders. The National Bank Act provides that the Articles of
Association may only be amended by the stockholders.

The voting requirements for shareholder approval of proposed
amendments under the New Mexico

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<PAGE>

Statute, the National Bank Act and the Delaware Statute all generally require
a majority vote of the shares entitled to vote on such amendments.

AMENDMENTS TO BYLAWS

The Delaware Statute provides that stockholders may amend the Bylaws
of a corporation provided that the corporation may in its Articles of
Incorporation also confer such power upon the Board of Directors. FSC's
Certificate of Incorporation expressly authorizes the Board of Directors to
amend its Bylaws.

The New Mexico Statutes provide that, unless the power to amend a
corporation's Bylaws is reserved to the shareholders by its Articles of
Incorporation, the Bylaws may be amended by the Board of Directors. The
Articles of Incorporation of Bancorp do not reserve the power to the
shareholders. The Bylaws of FNBDA provide that such Bylaws may be amended by
the directors.

SHAREHOLDER APPROVAL OF MERGERS AND OTHER BUSINESS COMBINATIONS

The Delaware Statute provides that a merger, consolidation, sale,
lease or exchange of all or substantially all of the assets of a corporation may
be effected upon a vote of the holders of a majority of a corporation's
outstanding shares. Delaware law does not require a stockholder vote of the
surviving corporation in a merger if (a) the merger does not amend the existing
Certificate of Incorporation; (b) each outstanding share of the surviving
corporation before the merger is unchanged or becomes treasury shares of the
surviving corporation; and (c) the number of shares to be issued by the
surviving corporation in a merger does not exceed 20% of the shares outstanding
immediately prior to such issuance.

In February 1988, the Delaware Statute was amended to prohibit certain
business combinations (generally, mergers, consolidations and sales of 10% or
more of a corporation's assets) between Delaware corporations and "interested
stockholders". As defined under the Delaware statute, interested stockholders
are persons who alone, or together with their affiliates, beneficially own 15%
or more of the outstanding stock of a corporation. The Delaware statute bars
business combinations between an interested stockholder and a corporation for a
period of three years after any such person or group has become an interested
stockholder. The Delaware statute contains exceptions to the prohibition which
allows such combinations if, as a result of the transaction which causes a
person to be an interested stockholder, such person owns 85% or more of the
outstanding voting stock (with certain exceptions). Another provision exempts
from the coverage of the Delaware statute any transaction approved by the
corporation's Board of Directors and two-thirds of the outstanding voting stock
not held by the interested stockholder. FSC's Certificate of Incorporation
provides for supermajority voting requirements in certain cases of non-
consensual merger votes.

The New Mexico Statutes provide that merger transactions be approved
by a majority of the outstanding shares of Bancorp. The National Bank Act
provides that merger transactions be approved by at least two-thirds of the
outstanding shares of FNBDA.

RIGHTS OF DISSENTING SHAREHOLDERS

The Delaware Statute provides appraisal rights only in the case of a
statutory merger, consolidation or sale of substantially all the assets of a
corporation, except that such rights are not available in cases in which the
corporation is to be the surviving corporation and no vote of its stockholders
is required for such transaction or, unless otherwise provided in the
Certificate of Incorporation, in cases in which the consideration for such
transaction is shares of stock listed on a National Securities Exchange or held
of record by more than 2,000 stockholders, unless such stockholders are required
by the terms of the merger, consolidation or sale to accept anything other than
shares of stock of the surviving corporation, shares of stock of another
corporation which are all listed are held by such number of record holders, cash
in lieu of fractional shares of such stock or any

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combination thereof. The Certificate of Incorporation of FSC does not
provide for greater appraisal rights than those set forth in the Delaware
Statute. FSC shareholders are not entitled to dissent from or vote on the
mergers.

Bancorp shareholders who vote against the Merger Agreement are
entitled to dissenters rights under the New Mexico Statutes. Pursuant to
Section 53-15-4 of the New Mexico Statutes, a shareholder of Bancorp may
exercise his right to dissent by filing with the corporation, prior to or at the
meeting of shareholders to approve the Merger, a written objection to the
proposed corporate action. If the Merger is approved, and the shareholder has
not voted in favor of the Merger, the shareholder may, within ten days after the
date on which the vote was taken, make written demand on the corporation for
payment of the fair value of the shares. A shareholder failing to make demand
within the ten day period is bound by the terms of the Merger. Within ten days
after the Merger is effected, the surviving corporation shall given written
notice to each dissenting shareholder who has made demand according to the
statutes and shall make a written offer to each such shareholder to pay for such
shares at a specified price deemed by the corporation to be the fair value
thereof. The notice and offer shall be accompanied by specific financial
information. If within the period of thirty (30) days a dissenting shareholder
and Bancorp do not agree on the price, the corporation may file a petition in
any court of competent jurisdiction praying that the fair value of such shares
be found and determined. If Bancorp fails to institute the proceeding, any
dissenting shareholder may do so in the name of the corporation. The court may,
if it so elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value.

FNBDA shareholders who vote against the Merger Agreement shall be
entitled to dissenters' rights as provided under the National Bank Act.
Pursuant to Section 215 of the National Bank Act, a shareholder of the Bank
wishing to perfect his or her right to dissent from the Merger must either vote
against the Merger or give notice in writing at or prior to the Shareholders'
Meeting to the presiding officer that he or she dissents from the Merger.
Additionally, a dissenting shareholder of the Bank must make written request
upon FNBDA, for the value of his or her common stock at any time within thirty
(30) days after the Effective Date of the Merger. The written request must be
accompanied by the surrender of such shareholder's stock certificates. The
statute provides that the value of the shares of any dissenting shareholder of
FNBDA as of the Effective Date of the Merger, will be determined by an appraisal
made by a committee of three persons including (i) one person selected by the
vote of the holders of the majority of FNBDA common stock, the owners of which
are entitled to payment in cash (by reason of such request for appraisal), (ii)
one person selected by the directors of FNBDA, and (iii) one person 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 is not satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five (5) days after being notified of the appraised value of such shares as
determined by the committee, appeal to the OCC, who shall then cause a
reappraisal to be made, which will be final and binding as to the value of the
shares of such shareholder. If within ninety (90) days from the Effective Date
of the Merger, for any reason, one or more of the appraisers is not selected as
provided above or the appraisers fail to determine a value for such shares, the
OCC will, upon written request of any interested party, cause an appraisal to be
made which will be final and binding upon all parties.

ANNUAL MEETING OF SHAREHOLDERS

The Delaware Statute authorizes the Delaware Chancery Court to order a
Delaware corporation to hold an election of directors upon an application by any
stockholder or director if an annual meeting of the stockholders has not been
held for 13 months. The New Mexico Statute authorizes the district court to
make such order.

SPECIAL MEETINGS OF SHAREHOLDERS

Under the Delaware Statute, special meetings of shareholders may be
called by the Board of Directors or by such persons as are authorized by the
corporation's Certificate of Incorporation or Bylaws. FSC's Bylaws

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provide that such meetings may be called by the president and shall be called
by the president or the secretary at the written request of stockholders
holding not less than a majority of all shares issued and outstanding and
entitled to vote on any proposal to be submitted to the meeting.

The Bylaws of Bancorp provide that special meetings of shareholders,
for any purpose of purposes, unless otherwise prescribed by statute, may be
called by the president or by the Board of Directors, and shall be called by the
president at the request of the holders of not less than 10% of all the
outstanding shares of the corporation entitled to vote at the meeting.

SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING

The Delaware Statute provides that, unless otherwise provided in the
Certificate of Incorporation, any action which may be taken at any meeting of
stockholders may be taken without a meeting, prior notice or a vote if written
consent setting forth the action taken are signed by the holders of outstanding
stock not less than the minimum number of votes that would be necessary to take
such action if the action were taken at a meeting. FSC's Certificate of
Incorporation does not prohibit such actions by written consent.

The New Mexico Statutes provide that any action which may be taken at
a meeting of shareholders may be taken without a meeting and a vote if a written
consent stating the action is signed by all of the shareholders entitled to vote
with respect to the subject matter thereof. Bancorp's Articles of
Incorporation do not restrict this right.

SHAREHOLDER INSPECTION OF RECORDS

The Delaware Statute grants every stockholder the right to inspect a
Delaware corporation's stockholder register and other books and records. The
New Mexico Statutes and the National Bank Act similarly provide for this right
of inspection by stockholders.

LEGAL MATTERS

The legality of the FSC Common Stock offered hereby and certain other
matters with respect to the Mergers will be passed upon for FSC and FSB by Ray,
Quinney & Nebeker, P.C., Salt Lake City, Utah. As of the Record Date, attorneys
at Ray, Quinney & Nebeker, as a group, were beneficial owners of no more than 4%
of the total outstanding FSC common stock and held no shares of Bancorp Common
Stock. A shareholder of Ray, Quinney & Nebeker is the daughter of the Chairman
and Chief Executive Officer of FSC. Another shareholder acts as Assistant
Secretary of FSC.

The law firm of Gerrish & McCreary, P.C., Memphis, Tennessee will pass
upon certain matters in connection with the Mergers for Bancorp and for FNBDA.
As of the Record Date, attorneys at Gerrish & McCreary beneficially held no
shares of Bancorp Common Stock or FNBDA Common Stock. In addition to legal fees
and expenses to be paid to Gerrish & McCreary, P.C. by Bancorp in connection
with the Mergers, the firm will also be paid a fee based on the total value of
the Mergers at Closing, which fee is capped at $425,000.

EXPERTS

The consolidated financial statements as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996
incorporated in this Prospectus/Proxy Statement by reference from FSC's Annual
Report on Form 10-K have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report

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of such firm given upon their authority as experts in accounting and auditing.

The audited consolidated financial statements of Bancorp and the
financial statements of FNBDA as of December 31, 1996 and 1995 and for the three
years in the period ended December 31, 1996 included in Appendices B and C to
this Prospectus/Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

DEADLINE FOR FSC SHAREHOLDER PROPOSALS

Any FSC shareholder who wishes to present a proposal for action at the
APRIL 1998 ANNUAL MEETING of the FSC shareholders, must submit his proposal in
writing by Certified Mail -- Return Receipt Requested, to First Security
Corporation, Attention: Secretary of the Corporation, 79 South Main Street,
Salt Lake City, Utah 84111, on or before December 31, 1997.

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APPENDIX A

AGREEMENT OF MERGER

<PAGE>

AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION

This AMENDMENT (this "AMENDMENT") to the October 18, 1997 Agreement and
Plan of Reorganization (the "AGREEMENT") is made and entered into this ____ day
of November, 1997 by and among FIRST SECURITY CORPORATION, a Delaware
corporation ("FSC"), RIO GRANDE BANCHARES, INC., a New Mexico corporation
("BANCORP"), FIRST NATIONAL BANK OF DONA ANA COUNTY, a national bank ("FNBDA"),
and FIRST NATIONAL BANK OF CHAVES COUNTY, a national bank ("FNBC"; FSC,
Bancorp, FNBDA and FNBC sometimes collectively referred to as the "PARTIES").

R E C I T A L S:

A. FSC is a corporation duly organized and existing under the laws of
the State of Delaware, with its principal place of business located at 79
South Main Street, Salt Lake City, Utah 84111.

B. Bancorp is a corporation duly organized and existing under the
laws of the State of New Mexico, with its principal office located at 500
South Main Street, Las Cruces, New Mexico 88005.

C. FNBDA is a bank duly organized under the laws of the United States
of America, with its principal place of business located at 500 South Main
Street, Las Cruces, New Mexico 88005.

D. FNBC is a bank incorporated under the laws of the United States of
America, having its principal place of business located at 1901 North Main
Street, Roswell, New Mexico 88201.

E. Bancorp owns all of the issued and outstanding capital stock of
FNBC and 96.42% of the outstanding capital stock of FNBDA.

F. On October 18, 1997, the Parties executed the Agreement which
provides for (i) the merger of Bancorp with and into FSC, with FSC being the
surviving corporation (the "MERGER"), resulting in the indirect acquisition
by FSC of 100% of FNBC and 96.42% of FNBDA, and (ii) the (essentially
simultaneous) merger of an interim national bank, wholly-owned by FSC, into
FNBDA (the "BANK MERGER"), pursuant to which the holders of FNBDA common
stock, other than Bancorp, will have their shares in FNBDA converted to
shares of FSC common stock to effect 100% control of FNBDA by FSC.

<PAGE>

G. The Agreement provides that the Bank Merger will occur immediately
prior to the Merger, with Bancorp to retain its shares in FNBDA and the
remaining shareholders to be converted to FSC common stock.

H. The Parties desire to amend the Agreement solely to provide that
the Bank Merger will occur immediately after the Merger.

A G R E E M E N T:

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions set forth herein, the parties hereto covenant and
agree as follows:

1. RECITAL F. The parties hereby amend Recital F of the Agreement to
provide that the Bank Merger will occur immediately after (rather than
immediately prior to) the Merger by deleting the words "prior to" in line three
of Recital F and replacing them with the word "after". Recital F shall
thereafter read as follows:

Recital F. The parties intend that the shareholders of FNBDA other
than Bancorp who collectively own 3.58% of the capital Stock of FNBDA (the
"MINORITY INTERESTS") shall have their FNBDA shares converted to FSC
Common Stock immediately after, but essentially simultaneously with, the
Merger by means of the merger of an interim national bank subsidiary to be
organized by FSC ("FSC SUB") with and into FNBDA (the "BANK MERGER")
pursuant to this Agreement and that certain Plan and Agreement of Bank
Merger attached hereto as Exhibit B (the "BANK MERGER AGREEMENT").

2. SECTION 1.1 ("THE BANK MERGER"). The parties hereby amend Section 1.1
of the Agreement to provide that the Bank Merger will occur immediately after
(rather than immediately prior to) the Merger by deleting the words "prior to"
in line four of Section 1.1 and replacing them with the word "after". Section
1.1 shall thereafter read as follows:

Section 1.1 THE BANK MERGER. Pursuant to the laws of the United
States of America and the State of New Mexico, as applicable, and subject
to the terms and conditions of this Agreement and the Bank Merger
Agreement, FSC Sub shall be merged with and into FNBDA, which shall be the
surviving bank, immediately after but essentially concurrently with the
Merger.

3. SECTION 1.3.2 ("FNBDA COMMON STOCK"). The parties hereby amend
Section 1.3.2 of the Agreement by inserting the words "FSC as successor to"
before the word "Bancorp" in line two of Section 1.3.2.

2
<PAGE>

4. SECTION 1.4 ("EXCHANGE OF CERTIFICATES"). The parties hereby amend
Section 1.4 of the Agreement by inserting the words "FSC as successor to"
before the word "Bancorp" in line three of Section 1.4.

5. SECTION 2.1 ("THE MERGER"). The parties hereby amend Section 2.1 of
the Agreement to provide that the Bank Merger will occur immediately after
(rather than immediately prior to) the Merger by deleting the word "after" in
line one of Section 2.1 and replacing it with the words "prior to". Section
2.1 shall thereafter read as follows:

Section 2.1 THE MERGER. Immediately prior to, but essentially
concurrently with, the Bank Merger, and pursuant to the laws of the States
of Delaware and New Mexico and subject to the terms and conditions of this
Agreement and the Plan of Merger, Bancorp shall be merged with and into
FSC, which shall be the surviving corporation.

6. SECTION 8.1 ("CLOSING"). The parties hereby amend Section 8.1 of the
Agreement to conform Section 8.1 with the above amendments by deleting Section
8.1 in its entirety and replacing it with the following:

Section 8.1 CLOSING. Unless this Agreement is earlier terminated in
accordance with Article IX, Bancorp shall be merged with and into FSC,
with FSC being the surviving corporation, and immediately thereafter FSC
Sub shall be merged with and into FNBDA, with FNBDA being the surviving
entity, all as contemplated by this Agreement, the Plan of Merger and the
Bank Merger Agreement, at a closing (the "CLOSING") to be held at the
offices of First Security Bank of New Mexico, N.A., Third & Tijeras NW,
Albuquerque, New Mexico, at 9:00 A.M., local time, on a date (the "CLOSING
DATE") mutually agreed upon by the parties as soon as practicable after
satisfaction of the conditions precedent set forth in Article VII and the
expiration of the required waiting period following approval of FSC's
application to the OCC relating to the Bank Merger, and FSC's application
to the Federal Reserve Board relating to the Merger, but in no event later
than thirty (30) days after the expiration of such periods. The parties
hereto shall use their best efforts to consummate the Merger and Bank
Merger on or before January 31, 1998.

7. SECTION 8.2.1 ("BANK MERGER"). The parties hereby amend Section 8.2.1
of the Agreement to conform Section 8.2.1. with the above amendments by
deleting Section 8.2.1 in its entirety and replacing it with the following:

Section 8.2.1 BANK MERGER. FNBDA and FSC Sub shall execute and file
such merger documents with the OCC (and the New Mexico Secretary of
State's office, if applicable) on or before the Closing Date as are
required to cause the Bank Merger to be certified by the OCC, under rules
and regulations governing such office, effective as of immediately
following the Merger.

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<PAGE>

8. SECTION 8.2.2. The parties hereby amend Section 8.2.2 of the
Agreement to conform Section 8.2.2. with the above amendments by deleting
Section 8.2.2 in its entirety and replacing it with the following:

Section 8.2.2 MERGER. Following receipt of approval of the Plan of
Merger from the shareholders of Bancorp, the respective secretaries or
assistant secretaries of FSC and Bancorp shall provide such certifications
to Certificate of Merger or Articles of Merger (or Plan of Merger) as are
required by the Delaware General Corporation Law and Bancorp and FSC shall
cause the Certificate of Merger or Articles of Merger (or Plan of Merger)
as so certified to be filed with the Delaware Secretary of State and with
the county clerk of the appropriate Delaware county. FSC and Bancorp
shall also execute articles of merger in substantially the form attached
to the Plan of Merger and shall cause such articles of merger, together
with a copy of the Certificate of Merger or Articles of Merger (Plan of
Merger) certified by the Secretary of State of the State of Delaware, to
be filed with the New Mexico Secretary of State's office. The time when
the Merger shall become effective is herein called the "EFFECTIVE TIME."
FSC and Bancorp shall request that the OCC certify consummation of the
Bank Merger as soon as practicable following the consummation and
effectiveness of the Merger. In no event shall FSC and Bancorp consummate
the Bank Merger unless and until the Merger shall have first been
consummated. Further, once the Merger has been consummated, FSC and
Bancorp shall in all events consummate the Bank Merger, and any failure to
consummate the Bank Merger shall constitute a condition subsequent to the
Merger entitling the parties to rescind and unbind the Merger.

9. ENTIRE AGREEMENT. Except as specifically modified by this Amendment,
the Agreement shall remain unchanged and in full force and effect, and the
Parties hereby reaffirm all of the terms and conditions of the Agreement as
amended by this Amendment and agree to be bound by the same. The Agreement as
amended by this Amendment sets forth the entire agreement between the Parties
with respect to the subject matter contained herein and therein, and there are
no covenants, terms, conditions, express or implied, other than as set forth or
referred to herein or therein. The Parties may not amend, modify or cancel the
Agreement or this Amendment except by a written agreement signed by all parties
to the Agreement.

10. COUNTERPARTS. Any number of counterparts of this Amendment may be
signed and delivered and each shall be considered an original and together they
shall constitute one Amendment.

[THIS SPACE INTENTIONALLY LEFT BLANK]

4
<PAGE>

IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of
the day and year first set forth above.

FIRST SECURITY CORPORATION

By
-----------------------------------------------
L. Scott Nelson, Executive Vice President

RIO GRANDE BANCSHARES, INC.

By
-----------------------------------------------
Michele Papen-Daniel, President

FIRST NATIONAL BANK OF DONA ANA
COUNTY

By
-----------------------------------------------
Ben H. Haines, Jr., President and Chief
Executive Officer

FIRST NATIONAL BANK OF CHAVES COUNTY

By
-----------------------------------------------
Larry Stoerner, President and Chief
Executive Officer

5
<PAGE>

SHAREHOLDERS OF
RIO GRANDE BANCSHARES, INC.

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