FIRST NATIONAL CORP /SC/, 424B3, 1999-06-11

FIRST NATIONAL CORP /SC/
424B3, 1999-06-11
STATE COMMERCIAL BANKS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-80047

PROXY STATEMENT AND PROSPECTUS OF PROXY STATEMENT OF
FIRST NATIONAL CORPORATION FIRSTBANCORPORATION, INC.

MERGER PROPOSED -- YOUR VOTE IS
VERY IMPORTANT

The boards of directors of First National Corporation and
FirstBancorporation, Inc. have approved the merger of FirstBancorporation into
First National. IF THE MERGER IS COMPLETED, SHAREHOLDERS OF FIRSTBANCORPORATION
WILL RECEIVE 1.222 SHARES OF FIRST NATIONAL COMMON STOCK IN EXCHANGE FOR EACH
SHARE OF FIRSTBANCORPORATION COMMON STOCK THAT THEY OWN. First National will pay
cash instead of fractional shares. First National shareholders will continue to
own one share of First National stock for each First National share they own
just before the merger.

First National stock is traded on the American Stock Exchange under the
symbol "FNC." On June 8, 1999, the closing price of First National common stock
was $27.00, as reported in The Wall Street Journal, making 1.222 shares of First
National common stock worth $32.99. The price of First National common stock
will fluctuate before and after the merger. First National expects to issue up
to 1,212,518 shares of First National common stock to FirstBancorporation
shareholders in the merger, representing 17.2% of the outstanding First National
common stock after the merger.

Before we can complete the merger, it must be approved by the holders of
two-thirds of the outstanding shares of common stock of both First National and
FirstBancorporation. We are sending you this joint proxy statement/prospectus to
ask you to vote in favor of the merger.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
shareholders meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, we will vote your proxy in favor of the merger.
If you do not return your card, the effect will be a vote against the merger.

This joint proxy statement/prospectus provides you with detailed information
about the proposed merger. You can also get information about First National and
FirstBancorporation from documents we have filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.

We are very enthusiastic about this merger, and we join our boards of
directors in recommending that you vote in favor of the merger.

<TABLE>
<S> <C>
/s/C. John Hipp, III /s/J.A. Shuford
C. John Hipp, III James A. Shuford, III
President and Chief Executive Officer President and Chief Executive Officer
First National Corporation FirstBancorporation, Inc.
</TABLE>

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SECURITIES THAT FIRST NATIONAL CORPORATION IS
OFFERING THROUGH THIS DOCUMENT ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF FIRST NATIONAL CORPORATION,
AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.

This joint proxy statement/prospectus is dated June 9, 1999 and was first
mailed to shareholders on or about June 10, 1999.
<PAGE> 2

FIRST NATIONAL CORPORATION

950 John C. Calhoun Drive, S.E.
Orangeburg, South Carolina 29115
(803) 534-2175

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 1999
-------------------------

First National Corporation will hold its 1999 annual meeting of
shareholders at the main banking center of First National Bank, 950 John C.
Calhoun Drive, S.E., Orangeburg, South Carolina, at 2:00 p.m., local time, on
July 20, 1999, for the following purposes:

1. To consider and vote upon a merger agreement dated as of March 4, 1999
between First National Corporation and FirstBancorporation, Inc. and the
related plan of merger, pursuant to which FirstBancorporation will merge
with and into First National. In the merger, each share of
FirstBancorporation common stock outstanding on the effective date of
the merger will be converted into 1.222 shares of First National common
stock. A copy of the merger agreement and plan of merger are attached to
the accompanying joint proxy statement/prospectus.

2. To elect six directors of First National to serve for three-year terms
and one director to serve for a one-year term.

3. To consider and vote on a proposal to approve the First National
Corporation 1999 Stock Option Plan.

4. To ratify the appointment of J.W. Hunt and Company, LLP as independent
accountants for First National for the year ending December 31, 1999.

5. To transact such other business as may properly come before the annual
meeting or any adjournment thereof.

Record holders of First National common stock at the close of business on
June 7, 1999 will receive notice of and may vote at the meeting, including any
adjournments or postponements. The merger agreement and plan of merger require
approval by the holders of two-thirds of the votes entitled to be cast by
shareholders of First National. Whether or not you plan to attend the annual
meeting, we urge you to complete, date and sign the accompanying proxy card and
to return it promptly to First National in the enclosed envelope.

By Order of the Board of Directors
/s/James C. Hunter, Jr.
JAMES C. HUNTER, JR.
Secretary

June 9, 1999

YOUR VOTE IS IMPORTANT.

PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING. FAILURE TO RETURN A PROPERLY EXECUTED PROXY OR TO
VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AGREEMENT AND PLAN OF MERGER.
<PAGE> 3

FIRSTBANCORPORATION, INC.

1121 Boundary Street
P.O. Box 2147
Beaufort, South Carolina 29902
(843) 521-5600

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 1999

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

FirstBancorporation, Inc. will hold its 1999 annual meeting of shareholders
at the Oyster Cove Community Center, Oyster Cove Drive, Beaufort, South
Carolina, at 2:00 p.m., local time, on July 20, 1999, for the following
purposes:

1. To consider and vote upon a merger agreement dated as of March 4, 1999
between First National Corporation and FirstBancorporation, Inc. and the
related plan of merger, pursuant to which FirstBancorporation will merge
with and into First National. In the merger, each share of
FirstBancorporation common stock outstanding on the effective date of the
merger will be converted into 1.222 shares of First National common
stock. A copy of the merger agreement and plan of merger are attached to
the accompanying joint proxy statement/ prospectus.

2. To elect four directors of FirstBancorporation to serve three-year terms
(or until the merger is consummated).

3. To transact such other business as may properly come before the annual
meeting or any adjournment thereof. Management is not aware of any other
business to come before the meeting.

Record holders of FirstBancorporation common stock at the close of business
on June 7, 1999 will receive notice of and may vote at the meeting, including
any adjournments or postponements. The merger agreement and plan of merger
require approval by the holders of two-thirds of the votes entitled to be cast
by shareholders of FirstBancorporation. Whether or not you plan to attend the
annual meeting, we urge you to complete, date and sign the accompanying proxy
card and to return it promptly to FirstBancorporation in the enclosed envelope.

By Order of the Board of Directors
/s/Laurance h. Davis, Jr.
LAURANCE H. DAVIS, JR.
Secretary

June 9, 1999

Any shareholder of FirstBancorporation has the right to dissent from
consummation of the plan of merger and to obtain payment of the fair value of
his or her shares upon compliance with the procedures prescribed by Chapter 13
of the South Carolina Business Corporation Act of 1988. See "The
Merger -- Rights of Dissenting Shareholders" in the joint proxy
statement/prospectus that accompanies this notice and the full text of Chapter
13 attached thereto as Appendix E for a description of these procedures.

YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING. FAILURE TO RETURN A PROPERLY EXECUTED PROXY
OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AGREEMENT AND PLAN OF MERGER. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT
THIS TIME.
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
The Companies............................................. 1
The Shareholders' Meetings................................ 1
Merger Consideration will be 1.222 Shares of First
National Common Stock for Each Share of
FirstBancorporation Common Stock....................... 2
Share Price Information................................... 2
Our Reasons for the Merger................................ 3
Our Boards Recommend Shareholder Approval................. 3
Our Financial Advisors Say Merger Fair, from a Financial
Point of View.......................................... 3
Two-Thirds Vote Required to Approve Merger................ 3
Exchange of Certificates.................................. 4
Conditions that Must be Satisfied for the Merger to
Occur.................................................. 4
Termination of the Merger Agreement....................... 5
No Federal Income Tax on Shares Received in Merger........ 5
First National to Use "Pooling of Interests" Accounting... 6
Management of First National Following the Merger......... 6
Monetary and Other Benefits to FirstBancorporation
Management in the Merger............................... 6
FirstBancorporation Shareholders Can Dissent, but First
National Shareholders Cannot........................... 6
We Must Obtain Regulatory Approvals for this Merger....... 7
Unaudited Comparative Per Share Data...................... 7
Selected Financial Data of First National and
FirstBancorporation Combined........................... 8
Selected Historical Financial Data of First National...... 10
Selected Historical Financial Data of
FirstBancorporation.................................... 11
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................. 12
FIRST NATIONAL ANNUAL MEETING............................... 13
General................................................... 13
Matters to be Considered.................................. 13
Proxies................................................... 13
Solicitation of Proxies................................... 14
Record Date and Voting Rights............................. 14
FIRSTBANCORPORATION MEETING................................. 15
General................................................... 15
Matters to be Considered.................................. 15
Proxies................................................... 15
Solicitation of Proxies................................... 16
Record Date and Voting Rights............................. 16
THE MERGER.................................................. 18
Description of the Merger................................. 18
Background of, and Reasons for, the Merger................ 19
Opinion of First National Financial Advisor............... 24
Opinion of FirstBancorporation Financial Advisor.......... 28
The Merger Agreement...................................... 32
Expenses, Amendment and Waiver............................ 37
Material Federal Income Tax Consequences.................. 38
Interests of Certain Persons in the Merger................ 39
Accounting Treatment...................................... 40
</TABLE>

i
<PAGE> 5

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Regulatory Matters........................................ 40
Restrictions on Resales by Affiliates..................... 41
Rights of Dissenting Shareholders......................... 42
Management After the Merger............................... 44
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 45
INFORMATION ABOUT FIRST NATIONAL............................ 46
INFORMATION ABOUT FIRSTBANCORPORATION....................... 47
SUPERVISION AND REGULATION OF FIRST NATIONAL AND
FIRSTBANCORPORATION....................................... 47
General................................................... 47
Capital and Operational Requirements...................... 48
Distributions............................................. 50
"Source of Strength" Policy............................... 50
OTHER MATTERS RELATING TO THE FIRST NATIONAL MEETING........ 50
Election of Directors..................................... 50
Compensation of Directors................................. 53
Meetings of the Board of Directors and Committees......... 53
Principal Shareholders.................................... 55
Executive Compensation.................................... 57
Shareholder Performance Graph............................. 63
1999 Stock Option Plan.................................... 64
Certain Relationships and Related Transactions............ 67
Section 16(a) Beneficial Ownership Reporting Compliance... 67
Independent Accountants................................... 67
OTHER MATTERS RELATING TO THE FIRSTBANCORPORATION MEETING... 68
Election of Directors..................................... 68
Meetings of the Board of Directors........................ 69
Principal Shareholders.................................... 70
Directors' Compensation................................... 71
Executive Compensation.................................... 72
Section 16(a) Beneficial Ownership Reporting Compliance... 73
Certain Transactions...................................... 73
COMPARATIVE RIGHTS OF SHAREHOLDERS OF FIRST NATIONAL AND
SHAREHOLDERS OF FIRSTBANCORPORATION....................... 74
Authorized Capital........................................ 74
Number of Directors....................................... 75
Limitations on Acquisition of Capital Stock............... 75
Business Combinations..................................... 76
Shareholders' Meetings.................................... 77
Nomination of Directors................................... 78
Retirement of Directors................................... 78
Amendment of Articles of Incorporation.................... 78
Amendment of Bylaws....................................... 79
EXPERTS..................................................... 79
LEGAL MATTERS............................................... 79
SHAREHOLDER PROPOSALS....................................... 79
</TABLE>

ii
<PAGE> 6

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OTHER MATTERS............................................... 80
WHERE YOU CAN FIND MORE INFORMATION......................... 80
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 82
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION..................................... 89
</TABLE>

APPENDICES

APPENDIX A MERGER AGREEMENT
APPENDIX B PLAN OF MERGER

APPENDIX C OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC

APPENDIX D OPINION OF RP FINANCIAL, LC.
APPENDIX E CHAPTER 13 OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT
APPENDIX F FIRST NATIONAL CORPORATION 1999 STOCK OPTION PLAN
APPENDIX G ANNUAL REPORT ON FORM 10-KSB OF FIRSTBANCORPORATION, INC.
APPENDIX H UNAUDITED QUARTERLY FINANCIAL STATEMENTS OF
FIRSTBANCORPORATION, INC. AS OF MARCH 31, 1999

iii
<PAGE> 7

SUMMARY

This summary highlights selected information from this joint proxy
statement/prospectus. It does not contain all the information that is important
to you. You should carefully read this entire document and the other documents
to which we refer. These will give you a more complete description of the
transactions we are proposing. For more information about the two companies, see
"Where You Can Find More Information" (page 80). Where applicable, the items in
this summary refer to the pages where that subject is discussed more fully.

THE COMPANIES (PAGES 46 AND 47)

FIRST NATIONAL CORPORATION
950 John C. Calhoun Drive, S.E.
Orangeburg, South Carolina 29115
(803) 534-2175

First National is a bank holding company that owns all the outstanding
capital stock of First National Bank, a national bank headquartered in
Orangeburg, South Carolina, Florence County National Bank, a national bank
headquartered in Florence, South Carolina, and National Bank of York County, a
national bank headquartered in Rock Hill, South Carolina. First National also
owns 80% of NewSouth Financial Services Corporation, a finance company based in
Orangeburg, South Carolina. As of March 31, 1999, First National's total assets
were about $693.3 million, deposits were about $539.5 million and shareholders'
equity was about $62.8 million.

FIRSTBANCORPORATION, INC.
1121 Boundary Street
P.O. Box 2147
Beaufort, South Carolina 29902
(843) 521-5600

FirstBancorporation is a bank holding company that owns all the outstanding
capital stock of FirstBank, N.A., a national bank headquartered in Beaufort,
South Carolina, and FirstBank of the Midlands, National Association, a national
bank headquartered in Columbia, South Carolina. As of March 31, 1999,
FirstBancorporation's total assets were about $109.6 million, deposits were
about $89.2 million and shareholders' equity was about $12.7 million.

THE SHAREHOLDERS' MEETINGS

FIRST NATIONAL SHAREHOLDERS (PAGE 13). We will hold the First National
1999 annual meeting of shareholders at the main banking center of First National
Bank, 950 John C. Calhoun Drive, S.E., Orangeburg, South Carolina, at 2:00 p.m.,
local time, on July 20, 1999. You may vote at the First National annual meeting
if you owned First National shares as of the close of business on June 7, 1999.
You will have one vote for each share of First National common stock you owned
on June 7, 1999. At the meeting, we will ask First National shareholders:

1. to approve the merger agreement and related plan of merger;

2. to elect six directors of First National to serve for three-year
terms and one director to serve for a one-year term;
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<PAGE> 8

3. to consider and vote upon a proposal to approve the First National
Corporation 1999 Stock Option Plan;

4. to ratify the appointment of J.W. Hunt and Company, LLP as
independent accountants of First National for the year ending December 31,
1999; and

5. to act on any other matters that may be put to a vote at the First
National annual meeting.

FIRSTBANCORPORATION SHAREHOLDERS (PAGE 15). We will hold the
FirstBancorporation 1999 annual meeting of shareholders at the Oyster Cove
Community Center, Oyster Cove Drive, Beaufort, South Carolina, at 2:00 p.m.,
local time, on July 20, 1999. You may vote at the FirstBancorporation annual
meeting if you owned FirstBancorporation shares as of the close of business on
June 7, 1999. You will have one vote for each share of FirstBancorporation
common stock you owned on June 7, 1999. At the meeting, we will ask
FirstBancorporation shareholders:

1. to approve the merger agreement and related plan of merger;

2. to elect four directors of FirstBancorporation to serve for
three-year terms; and

3. to act on any other matters that may be put to a vote at the
FirstBancorporation annual meeting.

MERGER CONSIDERATION WILL BE 1.222 SHARES OF FIRST NATIONAL COMMON STOCK FOR
EACH SHARE OF FIRSTBANCORPORATION COMMON STOCK (PAGE 18)

FirstBancorporation shareholders will receive 1.222 shares of First
National common stock for each share of FirstBancorporation common stock. First
National will pay cash instead of fractional shares of First National stock that
would otherwise be issued in the merger. First National shareholders will
continue to own one share of First National stock for each First National share
they own just before the merger. The merger agreement and plan of merger are
attached to this joint proxy statement/prospectus as Appendix A and Appendix B,
respectively.

SHARE PRICE INFORMATION (PAGE 45)

Shares of First National common stock trade on the American Stock Exchange
under the symbol "FNC." On March 4, 1999, the last trading day before we
announced the merger, First National common stock closed at $28.00 per share. On
June 8, 1999, First National common stock closed at $27.00 per share.
FirstBancorporation common stock is not traded on an established market, and
there are no regularly quoted bid or asked prices for FirstBancorporation stock.

The market value of 1.222 shares of First National stock would be about
$34.22 based on First National's March 4, 1999 closing price and approximately
$32.99 based on First National's June 8, 1999 closing price. Of course, the
market price of First National common stock will fluctuate prior to and after
completion of the merger, but the exchange ratio is fixed. Because the market
price of First National stock fluctuates, you will not know when you vote what
the shares to be issued to FirstBancorporation shareholders in the merger will
be worth. You should obtain current stock price quotations for First National
common stock. You can get these quotes from a newspaper, on the Internet or by
calling your broker.
2
<PAGE> 9

OUR REASONS FOR THE MERGER (PAGE 19)

We believe the merger is in the financial interests of our respective
shareholders and will allow us to combine our relationship-oriented,
community-banking approaches to operate more effectively in more markets in
South Carolina. After the merger, First National will have over $800 million in
assets with over 20 offices located throughout South Carolina. We believe that
following the merger, First National will be better able to provide products and
services to customers in the markets in which we will operate, and will
therefore create more value for our shareholders.

OUR BOARDS RECOMMEND SHAREHOLDER APPROVAL

FIRST NATIONAL SHAREHOLDERS. The board of directors of First National
believes that the merger is fair to First National shareholders and in their
best interests, and recommends that First National shareholders vote "FOR" the
proposal to approve the merger. The board also recommends that First National
shareholders vote "FOR" the election of the nominees for director named in this
joint proxy statement/prospectus, "FOR" the proposal to approve the First
National Corporation 1999 Stock Option Plan, and "FOR" the ratification of the
appointment of J.W. Hunt and Company, LLP as independent accountants of First
National.

FIRSTBANCORPORATION SHAREHOLDERS. The board of directors of
FirstBancorporation believes that the merger is fair to FirstBancorporation
shareholders and in their best interests, and unanimously recommends that
FirstBancorporation shareholders vote "FOR" the proposal to approve the merger.
The board also recommends that FirstBancorporation shareholders vote "FOR" the
election of the nominees for director named in this joint proxy
statement/prospectus.

OUR FINANCIAL ADVISORS SAY MERGER FAIR, FROM A FINANCIAL POINT OF VIEW

FIRST NATIONAL SHAREHOLDERS (PAGE 24). In deciding to approve the merger,
the board of directors of First National considered the opinion of its financial
advisor, The Robinson-Humphrey Company, LLC, that the proposed merger is fair
from a financial point of view to First National. We have attached as Appendix C
an updated written opinion of Robinson-Humphrey dated the date we mailed this
proxy statement. You should read it carefully to understand the assumptions
made, matters considered and limitations of the review undertaken by
Robinson-Humphrey in providing its opinion.

FIRSTBANCORPORATION SHAREHOLDERS (PAGE 28). In deciding to approve the
merger, the board of directors of FirstBancorporation considered the opinion of
its financial advisor, RP Financial LC, to the effect that the proposed merger
is fair from a financial point of view to the shareholders of
FirstBancorporation. We have attached as Appendix D an updated written opinion
of RP Financial dated the date we mailed this joint proxy statement/ prospectus.
You should read it carefully to understand the assumptions made, matters
considered and limitations of the review undertaken by RP Financial in providing
its opinion.

TWO-THIRDS VOTE REQUIRED TO APPROVE MERGER

FIRST NATIONAL SHAREHOLDERS. In order to approve the merger, First
National shareholders holding two-thirds of the votes entitled to be cast must
vote for the merger. Directors will be elected by a plurality of votes cast at
the meeting. The proposals to approve the First National Corporation 1999 Stock
Option Plan and to ratify accountants
3
<PAGE> 10

will be approved if the votes cast in favor of such proposal exceed the votes
cast against it. All together, the directors and executive officers of First
National can cast about 11.2% of the votes entitled to be cast at the First
National meeting. We expect that they will vote all their shares for the merger,
to elect the directors named in this joint proxy statement/prospectus, to
approve the First National Corporation 1999 Stock Option Plan and to ratify the
appointment of accountants.

FIRSTBANCORPORATION SHAREHOLDERS. In order to approve the merger,
FirstBancorporation shareholders holding two-thirds of the votes entitled to be
cast must vote for the merger. Directors will be elected by a plurality of votes
cast at the meeting. All together, the directors and executive officers of
FirstBancorporation can cast about 33.9% of the votes entitled to be cast at the
FirstBancorporation meeting. We expect that they will vote all their shares for
the merger and to elect the directors named in this joint proxy
statement/prospectus.

EXCHANGE OF CERTIFICATES (PAGE 19)

If you are a First National shareholder, you will not exchange your stock
certificates in connection with the merger. Your existing certificates will
continue to represent the same number of shares of First National as you held
before the merger. If you are a holder of FirstBancorporation stock
certificates, you will need to exchange them for new certificates of First
National common stock. Shortly after we complete the merger, we will send
FirstBancorporation shareholders detailed instructions on how to exchange their
shares. Please do not send us any stock certificates until you receive these
instructions.

CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGE 35)

The completion of the merger depends on meeting a number of conditions,
including the following:

- First National shareholders and FirstBancorporation shareholders must
approve the merger, and the holders of more than five percent of the
outstanding FirstBancorporation shares must not dissent;

- we must receive all required regulatory approvals and any waiting periods
required by law must have passed;

- First National must receive assurances from J.W. Hunt and Company, LLP,
independent auditors for both First National and FirstBancorporation,
that the merger will qualify for "pooling of interests" accounting
treatment;

- both companies must have complied in all material respects with their
respective representations, covenants and agreements in the merger
agreement;

- there must not be any pending or threatened litigation or unsatisfied
governmental orders that would have a material adverse effect on
FirstBancorporation; and

- James A. Shuford, III, President and Chief Executive Officer of
FirstBancorporation, must enter into a three-year employment agreement
with First National, and Robert A. Kerr, a director of
FirstBancorporation, must enter into a three-year consulting agreement
with First National.
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<PAGE> 11

Unless prohibited by law, either First National or FirstBancorporation may
waive an unsatisfied condition and complete the merger anyway. We cannot be
certain whether or when any of these conditions will be satisfied, or waived
where permissible, or that we will complete the merger.

TERMINATION OF THE MERGER AGREEMENT (PAGE 36)

We can agree at any time to terminate the merger agreement before
completing the merger, even if the shareholders of both our companies have
already voted to approve it. Also, we can terminate the merger agreement if:

- there is any law or regulation that makes consummation of the merger
illegal or prohibited;

- any of the conditions are not met or waived by October 31, 1999, and the
company seeking to terminate is in material compliance with the
agreement; or

- the shareholders of First National or FirstBancorporation do not approve
the merger agreement.

First National may terminate the merger agreement if FirstBancorporation's
board of directors withdraws its recommendation of the merger, if someone makes
a tender offer for 20% or more of the outstanding shares of FirstBancorporation
stock, or if someone acquires 20% or more of the outstanding shares of
FirstBancorporation stock and the merger is not approved by
FirstBancorporation's shareholders. If the agreement is terminated by First
National for any of these reasons, FirstBancorporation must pay First National a
termination fee of $960,000.

FirstBancorporation may terminate the merger agreement if
FirstBancorporation's board of directors recommends another transaction that is
more favorable to FirstBancorporation's shareholders and if FirstBancorporation
pays First National a termination fee of $960,000.

First National or FirstBancorporation may terminate the merger agreement if
First National's board of directors withdraws its recommendation of the merger.
In this event, First National must pay FirstBancorporation a termination fee of
$960,000.

NO FEDERAL INCOME TAX ON SHARES RECEIVED IN MERGER (PAGE 38)

We expect that FirstBancorporation shareholders will not recognize any gain
or loss for U.S. federal income tax purposes in the merger, except in connection
with any cash that FirstBancorporation shareholders receive instead of
fractional shares. First National's attorneys have issued an opinion to this
effect, which we have included as an exhibit to the registration statement we
have filed with the Securities and Exchange Commission relating to the merger.
First National and its shareholders will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the merger.

This tax treatment may not apply to some FirstBancorporation shareholders,
and will not apply to any FirstBancorporation shareholder who exercises
dissenters' rights under South Carolina law. Determining the actual tax
consequences of the merger to you as an individual taxpayer can be complicated.
The tax treatment will depend on your specific situation and many variables not
within our control. You should consult your own tax advisor for a full
understanding of the merger's tax consequences.
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<PAGE> 12

FIRST NATIONAL TO USE "POOLING OF INTERESTS" ACCOUNTING (PAGE 40)

We expect the merger to qualify as a "pooling of interests," which means
that, for accounting and financial reporting purposes, we will treat our
companies as if they had always been one company. Either company has the right
not to complete the merger if First National does not receive assurances from
J.W. Hunt and Company, LLP that the merger will qualify as a "pooling of
interests."

MANAGEMENT OF FIRST NATIONAL FOLLOWING THE MERGER (PAGE 44)

The board of directors of First National after the merger will consist of
20 directors, of which 18 will be current directors of First National and two
will be designated by FirstBancorporation. Also FirstBancorporation's President
and Chief Executive Officer, James A. Shuford, III, will become the Executive
Vice President and Division Executive of First National Bank after the merger.

MONETARY AND OTHER BENEFITS TO FIRSTBANCORPORATION MANAGEMENT IN THE MERGER
(PAGE 39)

Certain officers and directors of FirstBancorporation have interests in the
merger that are different from your interests. After the merger, the board of
directors of First National will include two directors designated by
FirstBancorporation. Also, James A. Shuford, III, President and Chief Executive
Officer of FirstBancorporation, will have a three-year employment agreement with
First National, and Robert A. Kerr, a director of FirstBancorporation, will have
a three-year consulting agreement with First National. The merger will be
treated as a "change in control" under FirstBancorporation's stock option plans
and employment agreements with its officers. This means that options that are
not exercisable now will become exercisable because of the merger, and that
FirstBancorporation's officers may receive payments under their existing
employment agreements if they leave their positions after the merger. The total
number of stock options that become exercisable as a result of the merger is
21,476. Under the employment agreements, FirstBancorporation officers who leave
their positions after the merger would receive an aggregate cash payment of
about $482,000. Also, First National has agreed to continue coverage under
FirstBancorporation's directors' and officers' insurance policy and to indemnify
directors, officers and employees of FirstBancorporation after the merger.

FIRSTBANCORPORATION SHAREHOLDERS CAN DISSENT, BUT FIRST NATIONAL SHAREHOLDERS
CANNOT (PAGE 42)

FIRSTBANCORPORATION SHAREHOLDERS. South Carolina law permits holders of
FirstBancorporation common stock to dissent from the merger and to have the fair
value of their stock appraised and paid to them in cash. To do this, the holders
of these common shares must follow certain procedures, including filing notices
with us and either ABSTAINING or VOTING AGAINST the merger. If you hold shares
of FirstBancorporation common stock and you dissent from the merger and follow
the required formalities, your shares will not be exchanged into the right to
receive 1.222 shares of First National common stock in the merger. Instead, your
only right will be to receive the value of your shares in cash.

FIRST NATIONAL SHAREHOLDERS. First National shareholders will not have any
dissenters' rights.
6
<PAGE> 13

WE MUST OBTAIN REGULATORY APPROVALS FOR THIS MERGER (PAGE 40)

We cannot complete the merger unless we obtain the approval of the Board of
Governors of the Federal Reserve System. The U.S. Department of Justice could
challenge the merger after approval by the Federal Reserve Board. Federal law
requires us to wait for no less than 15 days and up to 30 days before completing
the merger once the Federal Reserve Board approves it. On May 25, 1999, we filed
an application to seek approval of the merger.

In addition, the merger is subject to the approval of the South Carolina
banking commissioner. We have filed all the required notices with the South
Carolina banking commissioner.

While we do not know of any reason why we should not obtain the regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them.

UNAUDITED COMPARATIVE PER SHARE DATA

The following tables show information about our net income per share, cash
dividends per share and book value per share, and similar information reflecting
the merger of our two companies (which we refer to as "pro forma" information).
In presenting the pro forma information for certain time periods, we assumed
that our companies had been merged throughout the periods. We also assumed that
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes (a method known as "pooling of interests"
accounting).

We computed the information listed as "equivalent pro forma combined" for
FirstBancorporation by multiplying the pro forma amounts by the exchange ratio
of 1.222. We present this information to reflect the fact that
FirstBancorporation shareholders will receive more than one share of First
National common stock for each share of FirstBancorporation common stock they
own before the merger. We expect that we will incur merger, reorganization and
restructuring expenses as a result of combining our companies. The unaudited pro
forma earnings and dividends per share data, while helpful in illustrating the
financial characteristics of the combined companies under one set of
assumptions, do not reflect these expenses and, accordingly, do not attempt to
predict or suggest future results. The pro forma information also does not
attempt to show how we would actually have performed had our companies been
combined throughout these periods. The pro forma combined dividends per share
represent historical dividends paid by First National. FirstBancorporation has
never paid cash dividends.

We base the information in the following tables on the historical financial
information of our companies that we have presented in our prior filings with
the Securities and Exchange Commission. When you read the summary financial
information we provide in the following tables, you should also read the
historical financial information and the more detailed financial information we
provide in this document, which you can find beginning at page 82, as well as
the historical financial information in the other documents to which we refer.
See "Where You Can Find More Information" on page 80. First National's and
7
<PAGE> 14

FirstBancorporation's audited historical financial statements were audited by J.
W. Hunt and Company, LLP, independent certified public accountants.

<TABLE>
<CAPTION>
YEARS ENDED
THREE MONTHS DECEMBER 31,
ENDED ---------------------
MARCH 31, 1999 1998 1997 1996
-------------- ----- ----- -----
<S> <C> <C> <C> <C>
FIRST NATIONAL COMMON STOCK
Income before cumulative effect of a change
in accounting principle, per basic common
share
Historical................................. $ 0.36 $1.30 $1.26 $1.14
Pro forma combined......................... 0.32 1.25 1.24 1.06
Income before cumulative effect of a change
in accounting principle, per diluted common
share
Historical................................. 0.36 1.29 1.25 1.13
Pro forma combined......................... 0.32 1.22 1.22 1.04
Dividends per common share
Historical................................. 0.13 0.48 0.40 0.37
Pro forma combined......................... 0.13 0.48 0.40 0.37
Book value per common share
Historical................................. 10.76 10.70 -- --
Pro forma combined......................... 10.66 10.67 -- --
FIRSTBANCORPORATION COMMON STOCK
Income before cumulative effect of a change
in accounting principle, per basic common
share
Historical................................. 0.11 1.13 1.37 0.73
Equivalent pro forma combined.............. 0.39 1.53 1.52 1.30
Income before cumulative effect of a change
in accounting principle, per diluted common
share
Historical................................. 0.11 1.05 1.29 0.69
Equivalent pro forma combined.............. 0.39 1.49 1.49 1.27
Dividends per common share
Historical................................. -- -- -- --
Equivalent pro forma combined.............. 0.16 0.59 0.49 0.45
Book value per common share
Historical................................. 13.21 13.66 -- --
Equivalent pro forma combined.............. 13.03 13.04 -- --
</TABLE>

SELECTED FINANCIAL DATA OF FIRST NATIONAL AND FIRSTBANCORPORATION COMBINED

We expect that the merger will be accounted for as a "pooling of
interests," which means that for accounting and financial reporting purposes we
will treat our companies as if they had always been combined. We have presented
below selected pro forma consolidated financial information that reflects the
pooling of interests method of accounting, and this is intended to give you a
better picture of what our businesses might have looked like had they always
been combined. We prepared the pro forma income statement and balance sheet data
by adding or combining the historical amounts of each company. We then
reclassified certain of the combined amounts to achieve a consistent
presentation. The companies may have performed differently if they were
combined. You should not rely on the pro forma information as being indicative
of the historical results that we would have had or the future results that we
will experience after the merger. In the table below, combined dividends
represent historical dividends paid by First National.
8
<PAGE> 15

FirstBancorporation has never paid cash dividends. See "Unaudited Pro Forma
Combined Condensed Financial Information" on page 82.

<TABLE>
<CAPTION>
YEARS ENDED
THREE MONTHS DECEMBER 31,
ENDED ---------------------------
MARCH 31, 1999 1998 1997 1996
-------------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total interest income.................. $14,333 $53,968 $48,686 $41,183
Total interest expense................. 5,717 23,122 20,788 17,267
Provision for loan losses.............. 347 1,213 1,416 1,481
Total noninterest income............... 2,459 9,376 7,211 6,081
Total noninterest expense.............. 7,440 26,728 22,832 19,743
Income before income taxes............. 3,288 12,281 10,861 8,773
Income before cumulative effect of a
change in accounting principle....... 2,222 8,361 7,413 6,029
Income before cumulative effect of a
change in accounting principle, per
common share -- basic................ 0.32 1.25 1.24 1.06
Income before cumulative effect of a
change in accounting principle, per
common share -- diluted.............. 0.32 1.22 1.22 1.04
Cash dividends per common share........ 0.13 0.48 0.40 0.37
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------
1999 1998 1997 1996
------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total investment securities........... $231,696 $206,137 $168,243 $163,366
Loans................................. 516,266 494,478 439,959 375,645
Less: Unearned income............... (2,913) (3,074) (3,654) (3,246)
Allowance for loan losses........... (7,138) (6,934) (6,246) (5,336)
Loans, net....................... 506,215 484,470 430,059 367,063
Allowance for loan losses as a
percentage of nonperforming loans... 250.8% 213.7% 323.1% 333.0%
Total assets.......................... 802,807 750,077 657,257 589,365
Total deposits........................ 628,623 611,891 531,837 492,453
Total liabilities..................... 728,017 676,351 595,376 533,974
Shareholders' equity.................. 74,790 73,726 61,881 55,391
</TABLE>

9
<PAGE> 16

SELECTED HISTORICAL FINANCIAL DATA OF FIRST NATIONAL

The following table sets forth selected historical financial information of
First National and has been derived from its financial statements. The
information in the following table is based on, and should be read together
with, the historical financial information that First National has presented in
its Securities and Exchange Commission filings. We have incorporated recent
filings into this document by reference. See "Where You Can Find More
Information" on page 80.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total interest income........... $12,241 $10,824 $46,120 $41,144 $34,263 $30,183 $25,146
Total interest expense.......... 4,854 4,620 19,557 17,365 13,986 12,525 9,093
Provision for loan losses....... 293 222 1,013 1,251 1,319 844 575
Total noninterest income........ 2,246 1,792 7,893 6,259 5,344 4,049 3,533
Total noninterest expense....... 6,222 4,994 22,549 19,454 16,352 14,321 13,342
Income before income taxes...... 3,118 2,790 10,894 9,333 7,950 6,542 5,669
Net income...................... 2,123 1,913 7,505 6,466 5,528 4,640 4,061
Net income per common share --
basic....................... 0.36 0.37 1.30 1.26 1.14 0.98 0.86
Net income per common share --
diluted..................... 0.36 0.37 1.29 1.25 1.13 0.97 0.85
Cash dividends per common
share......................... 0.13 0.11 0.48 0.40 0.37 0.34 0.32
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total investment securities...... $219,663 $197,171 $166,061 $160,881 $151,496 $133,356
Loans............................ 433,473 411,035 359,167 296,865 250,423 211,054
Less: Unearned income.......... (2,913) (3,074) (3,654) (3,246) (2,540) (2,502)
Allowance for loan losses...... (6,237) (6,075) (5,518) (4,705) (3,703) (3,194)
Loans, net................... 424,323 401,886 349,995 288,914 244,180 205,358
Allowance for loan losses as a
percentage of nonperforming
loans.......................... 366.5% 360.9% 424.7% 427.6% 308.8% 243.6%
Total assets..................... 693,270 642,683 565,558 497,632 436,322 374,043
Total deposits................... 539,452 524,138 454,375 414,153 368,315 320,707
Total liabilities................ 630,505 580,382 511,658 449,286 396,545 337,862
Shareholders' equity............. 62,765 62,301 53,900 48,346 39,777 36,181
</TABLE>

10
<PAGE> 17

SELECTED HISTORICAL FINANCIAL DATA OF FIRSTBANCORPORATION

The following table sets forth selected historical financial information of
FirstBancorporation and has been derived from its financial statements. The
information in the following table is based on, and should be read together
with, the historical financial information that FirstBancorporation has
presented in its Securities and Exchange Commission filings. We have
incorporated recent filings into this document by reference. See "Where You Can
Find More Information" on page 80.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income........................ $2,021 $1,883 $7,848 $7,542 $6,920 $6,296 $5,184
Interest expense....................... 863 831 3,565 3,423 3,281 3,106 2,220
Provision for loan losses.............. 54 45 200 165 162 192 179
Noninterest income..................... 284 250 1,483 952 737 587 512
Noninterest expense.................... 1,218 861 4,178 3,378 3,391 2,707 2,474
Income before income taxes............. 170 396 1,387 1,528 823 878 823
Cumulative effect of a change in
accounting principle................. -- -- 90 -- -- -- --
Net income............................. 99 240 766 947 501 527 521
Net income per common
share -- basic..................... 0.11 0.35 1.01 1.37 0.73 0.78 0.78
Net income per common
share -- diluted................... 0.11 0.35 0.94 1.29 0.69 0.71 0.71
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ -------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................... $109,637 $107,494 $91,699 $91,733 $83,047 $77,311
Loans receivable, net................ 81,891 82,583 80,064 78,150 72,026 68,900
Loans held-for-sale.................. 1,464 1,740 676 663 251 --
Investment securities
held-to-maturity................... -- -- -- -- -- 2,755
Investment securities
available-for-sale................. 12,133 9,066 2,182 2,485 2,630 --
Cash and amounts due from banks...... 5,154 4,089 4,127 4,721 4,197 3,359
Deposits............................. 89,171 87,753 77,462 78,300 74,905 69,273
FHLB borrowings and other
borrowings......................... 6,350 6,350 5,050 5,600 1,000 1,000
Amounts due to depository
institutions....................... 133 490 305 200 238 870
Shareholders' equity................. 12,724 12,125 7,981 7,045 6,517 5,895
</TABLE>

11
<PAGE> 18

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this document, and in our public
documents to which we refer, that are subject to risks and uncertainties. These
forward-looking statements include information about possible or assumed future
results of our operations or the performance of First National after the merger.
Also, when we use any of the words "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the future financial results and performance of
each of our companies and First National after the merger. This could cause
results or performance to differ materially from those expressed in our forward-
looking statements. You should consider these risks when you vote on the merger.
These possible events or factors include the following:

1. our revenues after the merger are lower than we expect; our
transaction costs are higher than we expect; we lose more deposits,
customers or business than we expect; or our operating costs after the
merger are greater than we expect;

2. competition among depository and other financial institutions
increases significantly, or competitors who have greater financial
resources are able to compete more successfully than we are;

3. we have more trouble obtaining regulatory approvals for the merger
than we expect;

4. we have more trouble integrating our businesses or retaining key
personnel than we expect;

5. our costs savings from the merger are less than we expect, or we
are unable to obtain such cost savings as soon as we expect;

6. changes in the interest rate environment reduce our margins;

7. general economic or business conditions, either nationally or in
the region in which we do business, are worse than we expect;

8. legislative or regulatory changes adversely affect our business,
resulting in, among other things, a deterioration in credit quality or a
reduced demand for credit;

9. technological changes, including "Year 2000" data systems
compliance issues, and systems integration are harder to make or more
expensive than we expect; and

10. adverse changes occur in the securities markets.

The information contained in this joint proxy statement/prospectus speaks
only as of its date, unless the information specifically indicates that another
date applies.

Information in this joint proxy statement/prospectus about First National
has been supplied by First National, and information about FirstBancorporation
has been supplied by FirstBancorporation.

12
<PAGE> 19

FIRST NATIONAL ANNUAL MEETING

GENERAL

First National Corporation, a South Carolina corporation, is mailing this
joint proxy statement/prospectus to holders of record of its common stock, par
value $2.50 per share, at the close of business on June 7, 1999. This joint
proxy statement/prospectus is accompanied by the notice of annual meeting and a
form of proxy that is solicited by the board of directors of First National for
use at the 1999 annual meeting of shareholders of First National and at any
adjournments or postponements thereof. The meeting will be held on July 20, 1999
at 2:00 p.m., local time, at the main banking center of First National Bank, 950
John C. Calhoun Drive, S.E., Orangeburg, South Carolina.

MATTERS TO BE CONSIDERED

At the First National annual meeting, shareholders will vote upon a
proposal to approve the merger agreement dated as of March 4, 1999 between First
National and FirstBancorporation and the related plan of merger. The merger
agreement is attached as Appendix A to this joint proxy statement/prospectus,
and the plan of merger is attached as Appendix B to this joint proxy
statement/prospectus. The merger agreement provides for, among other things, the
merger of FirstBancorporation with and into First National, which will be the
surviving corporation. Shareholders of First National will also elect six
directors of First National to serve three-year terms and one director to serve
a one-year term, vote on a proposal to approve the First National Corporation
1999 Stock Option Plan and vote to ratify the appointment of J.W. Hunt and
Company, LLP as independent accountants for First National for the year ending
December 31, 1999. Shareholders of First National may also be asked to vote upon
a proposal to adjourn or postpone the First National meeting, which adjournment
or postponement could be used for the purpose, among others, of allowing
additional time for soliciting additional votes to approve the merger agreement
and related plan of merger.

PROXIES

If you are a shareholder of First National, you may indicate how you wish
your shares to be voted at the First National annual meeting on the accompanying
form of proxy. You may revoke any proxy given by you at any time before it is
exercised by (i) giving written notice to First National of such revocation,
(ii) voting in person at the meeting or (iii) executing and delivering to First
National a later dated proxy. You should address written notices of revocation
and other communications with respect to the revocation of First National
proxies to First National Corporation, 950 John C. Calhoun Drive, S.E.,
Orangeburg, South Carolina, 29115, Attention: Corporate Secretary.

All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If you do not specify how your proxy is to be voted,
it will be voted in favor of approving the merger agreement and plan of merger,
electing the persons named herein as directors of First National, approving the
1999 Stock Option Plan and ratifying the appointment of J.W. Hunt and Company,
LLC, as independent accountants for First National for the year ending December
31, 1999. The board of directors of First National is unaware of any other
matters that may be presented for action at the First National meeting. If other
matters do properly come before the First National meeting, shares represented
by proxies

13
<PAGE> 20

will be voted or not voted by the persons named in the proxies, in their
discretion. However, no proxy that is voted against the merger agreement and
plan of merger will be voted in favor of any adjournment or postponement of the
First National annual meeting for the purpose of soliciting additional proxies.

SOLICITATION OF PROXIES

First National will pay the entire cost of soliciting proxies from the
shareholders of First National, except that FirstBancorporation has agreed to
pay its share of the cost of preparing and printing this joint proxy
statement/prospectus. In addition to the solicitation of the proxies by mail,
First National will request banks, brokers and other record holders to send
proxies and proxy material to the beneficial owners of First National stock and
secure their voting instructions, if necessary. First National will reimburse
the record holders for their reasonable expenses in so doing. Directors,
officers and employees of First National may also solicit proxies in person or
by mail, telephone, telegraph or other electronic means.

RECORD DATE AND VOTING RIGHTS

RECORD DATE

First National has fixed June 7, 1999 as the record date for determining
shareholders of First National entitled to notice of and to vote at the First
National annual meeting. Accordingly, only shareholders of First National of
record at the close of business on June 7, 1999 will be entitled to notice of
and to vote at the First National meeting. The number of outstanding shares of
First National stock entitled to vote at the First National meeting is
approximately 5,835,750.

QUORUM REQUIREMENT, VOTING RIGHTS AND VOTES REQUIRED

The presence, in person or by proxy, of holders of First National common
stock representing a majority of the votes entitled to be cast is necessary to
constitute a quorum at the First National meeting. Each share of First National
stock entitles its holder to one vote. Under the South Carolina Business
Corporation Act of 1988, approval of the merger agreement and plan of merger
requires approval by holders of two-thirds of the votes entitled to be cast.
Under the articles of incorporation of First National, shareholders of First
National do not have cumulative voting rights in connection with the election of
directors. Accordingly, directors will be elected by a plurality of votes cast
at the First National meeting. The proposals to approve the 1999 Stock Option
Plan and to ratify the appointment of accountants will be approved if the votes
cast in favor of each such proposal exceed the votes cast against it.

ABSTENTIONS AND BROKER NON-VOTES

First National intends to count shares of First National stock held by
persons who are present in person at the First National meeting but who do not
vote, and shares held by persons who have sent their proxies but who have
abstained, as present at the First National meeting for purposes of determining
the presence or absence of a quorum for the transaction of business. In certain
cases, brokers who hold shares of First National stock as nominee or in "street"
name for customers who are the beneficial owners of such shares are prohibited
from giving a proxy to vote such shares without specific instructions from

14
<PAGE> 21

such customers. Shares of First National stock represented by proxies returned
by a broker holding such shares in a nominee or "street" name will be counted
for purposes of determining whether a quorum exists even if such shares are not
voted, which are known as "broker non-votes."

Abstentions and broker non-votes will have the same effect as votes against
the proposal to approve the merger agreement and plan of merger. Votes with
respect to the election of directors may be cast in favor or withheld. Votes
that are withheld will be excluded entirely from the vote and will have no
effect on the outcome of the election. Abstentions and broker non-votes will not
be counted as a vote "for" or "against" the proposals to approve the 1999 Stock
Option Plan and to ratify the appointment of independent accountants and,
therefore, will have no effect on the outcome of such proposals.

FIRSTBANCORPORATION MEETING

GENERAL

FirstBancorporation, Inc., a South Carolina corporation, is mailing this
joint proxy statement/prospectus on or about June 10, 1999 to the holders of
record of its common stock, par value $.01 per share, at the close of business
on June 7, 1999. This joint proxy statement/prospectus is accompanied by the
notice of annual meeting and a form of proxy that is solicited by the board of
directors of FirstBancorporation for use at the 1999 annual meeting of
shareholders of FirstBancorporation and at any adjournments or postponements
thereof. The meeting will be held on July 20, 1999, at 2:00 p.m., local time, at
the Oyster Cove Community Center, Oyster Cove Drive, Beaufort, South Carolina.

MATTERS TO BE CONSIDERED

At the FirstBancorporation annual meeting, shareholders of
FirstBancorporation will vote upon a proposal to approve the merger agreement
and plan of merger. Shareholders of FirstBancorporation will also elect four
directors to the board of directors of FirstBancorporation to serve three-year
terms, or until the merger is consummated. Shareholders of FirstBancorporation
may also be asked to vote upon a proposal to adjourn or postpone the
FirstBancorporation meeting, which adjournment or postponement could be used for
the purpose, among others, of allowing additional time for soliciting additional
votes to approve the merger agreement and plan of merger.

PROXIES

If you are a shareholder of FirstBancorporation, you may use the
accompanying proxy if you are unable to attend the FirstBancorporation annual
meeting in person or wish to have your shares voted by proxy even if you do
attend the FirstBancorporation meeting. You may revoke any proxy given by you by
delivering written notice in person or by mail to the Secretary of
FirstBancorporation at its principal offices in Beaufort, South Carolina, or by
filing a later-dated proxy before a vote is taken on a particular proposal at
the FirstBancorporation meeting. Attendance at the FirstBancorporation meeting
will not automatically revoke a proxy, but a shareholder in attendance may
request a ballot and vote in person, thereby revoking a proxy. You should
address written notices of revocation and other communications with respect to
the revocation of FirstBancorporation proxies to

15
<PAGE> 22

FirstBancorporation, Inc., 1121 Boundary Street, P.O. Box 2147, Beaufort, South
Carolina 29902, Attention: Corporate Secretary.

All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If you do not specify how your proxy is to be voted,
it will be voted in favor of approving the merger agreement and plan of merger
and electing the persons named herein as directors of FirstBancorporation. The
board of directors of FirstBancorporation is unaware of any other matter that
may be presented for action at the FirstBancorporation meeting. If other matters
do properly come before the FirstBancorporation meeting, shares represented by
proxies will be voted or not voted by the persons named in the proxies, in their
discretion. However, no proxy that is voted against the merger agreement and
plan of merger will be voted in favor of any adjournment or postponement of the
FirstBancorporation annual meeting for the purpose of soliciting additional
proxies for such proposal.

SOLICITATION OF PROXIES

FirstBancorporation will pay the entire cost of soliciting proxies from the
shareholders of FirstBancorporation, except that First National has agreed to
pay its share of the cost of preparing and printing this joint proxy
statement/prospectus. In addition to the solicitation of proxies by mail,
FirstBancorporation will request banks, brokers and other record holders to send
proxies and proxy material to the beneficial owners of FirstBancorporation
common stock and secure their voting instructions, if necessary.
FirstBancorporation will reimburse such record holders for their reasonable
expenses in so doing. Directors, officers and employees of FirstBancorporation
may also solicit proxies in person or by mail, telephone, telegraph or other
electronic means.

RECORD DATE AND VOTING RIGHTS

RECORD DATE

The board of directors of FirstBancorporation has fixed June 7, 1999 as the
record date for determining shareholders of FirstBancorporation entitled to
receive notice of and to vote at the FirstBancorporation meeting. Accordingly,
only shareholders of FirstBancorporation of record at the close of business on
June 7, 1999 will be entitled to notice of and to vote at the
FirstBancorporation meeting. At the close of business on the FirstBancorporation
record date, there were approximately 963,325 shares of FirstBancorporation
stock entitled to vote at the FirstBancorporation meeting.

QUORUM REQUIREMENT, VOTING RIGHTS AND VOTES REQUIRED

The presence, in person or by proxy, of holders of FirstBancorporation
common stock representing a majority of the votes entitled to be cast is
necessary to constitute a quorum at the FirstBancorporation meeting. Each share
of FirstBancorporation stock outstanding entitles its holder to one vote for
each share held. Under the South Carolina Business Corporation Act, approval of
the merger agreement and plan of merger requires approval by the holders of
two-thirds of the votes entitled to be cast. Under the articles of incorporation
of FirstBancorporation, shareholders of FirstBancorporation do not have
cumulative voting rights in connection with the election of directors.
Accordingly, directors will be elected by a plurality of votes cast at the
FirstBancorporation meeting.

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ABSTENTIONS AND BROKER NON-VOTES

FirstBancorporation intends to count shares of FirstBancorporation stock
held by persons who are present in person at the FirstBancorporation meeting but
who do not vote, and shares held by persons who have sent in their proxies but
who have abstained, as present at the FirstBancorporation meeting for purposes
of determining the presence or absence of a quorum for the transaction of
business. Shares of FirstBancorporation stock represented by proxies returned by
a broker holding such shares in nominee or "street" name will be counted for
purposes of determining whether a quorum exists, even if such shares represent
broker non-votes.

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THE MERGER

The following summary of the material terms and provisions of the merger
agreement and plan of merger is qualified in its entirety by reference to the
merger agreement and the plan of merger, which are incorporated herein by
reference and, with the exception of certain exhibits to the merger agreement,
are attached to this joint proxy statement/ prospectus as appendices A and B,
respectively. You are urged to review the merger agreement in its entirety.

DESCRIPTION OF THE MERGER

THE MERGER

In the merger, FirstBancorporation will merge with and into First National.
As a result of the merger, the separate corporate existence of
FirstBancorporation will cease and First National will continue as the surviving
corporation. Subject to the satisfaction or waiver of the conditions set forth
in the merger agreement, the merger will become effective on the date and at the
time of the filing of articles of merger or at such other time specified in the
articles of merger. The articles of incorporation and bylaws of First National
currently in effect will be the articles of incorporation and bylaws of First
National after the merger.

THE EXCHANGE RATIO, FRACTIONAL SHARES AND STOCK OPTIONS

The merger agreement and plan of merger provide for the conversion of each
share of FirstBancorporation common stock into 1.222 shares of First National
common stock. This is sometimes referred to as the "exchange ratio." The
conversion excludes (i) shares of FirstBancorporation stock held by dissenting
shareholders, (ii) shares of FirstBancorporation stock held in treasury by
FirstBancorporation or otherwise owned by FirstBancorporation or any of its
subsidiaries and (iii) shares of FirstBancorporation stock owned by First
National or any of its subsidiaries. Shares of FirstBancorporation held by it in
treasury and shares of FirstBancorporation owned by FirstBancorporation, First
National or any of their subsidiaries will be canceled and retired, and no
consideration will be issued in exchange therefor. If First National changes or
establishes a record date for changing the number of shares of First National
stock issued and outstanding prior to the effective time as a result of a stock
split, stock dividend, recapitalization or similar transaction, the exchange
ratio will be proportionately adjusted. Each share of First National stock
issued and outstanding immediately prior to the effective time will remain
issued and outstanding from and after the effective time.

First National will not issue any fractional shares of First National
stock. Instead, First National will pay to each holder of FirstBancorporation
stock who would otherwise be entitled to a fractional share of First National
stock, after taking into account all certificates evidencing FirstBancorporation
stock delivered by such holder, an amount in cash, without interest, determined
by multiplying such fraction by the last sale price of First National stock
published by the American Stock Exchange for the trading day immediately
preceding the effective date of the merger.

First National will convert each assumable option to purchase shares of
FirstBancorporation stock that is outstanding as of the effective time into a
replacement option to acquire, on the same terms and conditions, shares of First
National stock, adjusted as necessary to give effect to the exchange ratio. In
connection with the

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conversion of options in the merger, First National will reserve a sufficient
number of shares of its stock, will register such shares under the Securities
Act of 1933, and will list such shares on the American Stock Exchange.

EXCHANGE OF CERTIFICATES

After the merger has been consummated, First National will send to former
FirstBancorporation shareholders transmittal materials for use in exchanging all
old certificates representing shares of FirstBancorporation stock for new
certificates representing shares of First National stock. First National will
deliver the new certificates, together with any check for any fractional share
interest or dividends or distributions which a shareholder is entitled to
receive, to such shareholder upon delivery to First National of old certificates
(or indemnity reasonably satisfactory to First National that such certificates
are lost, stolen or destroyed) and properly completed transmittal materials.
First National will not pay interest on cash to be paid instead of fractional
share interests or for dividends or distributions which a person is entitled to
receive under the merger agreement. Neither First National nor
FirstBancorporation will be liable to any former holder of FirstBancorporation
stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws. First National may elect
not to pay dividends or other distributions on First National stock issuable to
former FirstBancorporation shareholders until it has received old certificates
in accordance with the procedures described above. FIRSTBANCORPORATION
SHAREHOLDERS SHOULD NOT SEND IN THEIR FIRSTBANCORPORATION CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM FIRST NATIONAL.

BACKGROUND OF, AND REASONS FOR, THE MERGER

FirstBancorporation, formerly The Savings Bank of Beaufort County, FSB, has
operated since its organization in 1986 as a community banking franchise in the
Beaufort and Bluffton communities of Beaufort County, South Carolina.
FirstBancorporation believes that its community-oriented philosophy has allowed
it to operate profitably and compete effectively with other financial
institutions in its market. In September 1998, FirstBancorporation opened its
second, separately chartered national bank in Columbia, South Carolina,
FirstBank of the Midlands, National Association, to diversify its customer base
beyond the resort and retirement base of Beaufort County. Chartering the
Midlands Bank as a separate entity with its own board of directors and
management has promoted FirstBancorporation's philosophy that management
decisions be made locally.

Since C. John Hipp, III joined First National as its President and Chief
Executive Officer in 1994, First National has more aggressively pursued a
strategy to grow by expanding into markets outside of Orangeburg, South
Carolina. Since that time, First National has entered several additional markets
in South Carolina, including Colleton County, South Carolina, where First
National Bank acquired two branches in June 1995; Rock Hill, South Carolina,
where First National organized the National Bank of York County in July 1996;
and Florence, South Carolina, where First National organized Florence County
National Bank in April 1998. In addition, on March 24, 1999 First National Bank
announced the acquisition of three additional branches in Abbeville, Hardeeville
and Ridgeland, South Carolina.

First National's growth strategy has also targeted markets in which
FirstBancorporation has operations. In August 1996 First National Bank opened a
branch office in

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Bluffton, South Carolina, which is located in Beaufort County, and in January
1999 First National Bank opened a branch office in Hilton Head, South Carolina,
which also is located in Beaufort County. Management of First National generally
considers Beaufort County to be one of the fastest growing areas in South
Carolina and for several years has believed that FirstBancorporation's
operations in Beaufort County would complement First National's strategic growth
plans. In addition, in January 1999 First National Bank entered the Columbia
market by forming a mortgage office and announcing plans to develop a full-
service banking center in Columbia by mid-2000.

Mr. Hipp and James A. Shuford, III, President and Chief Executive Officer
of FirstBancorporation, have known each other since 1992, when Mr. Hipp was
President and Chief Executive Officer of Rock Hill National Bank and Mr. Shuford
was a city executive for First Union National Bank in Rock Hill, South Carolina.
From time to time since Mr. Hipp joined First National in 1994, Mr. Hipp and Mr.
Shuford have discussed their respective banks' operating and growth plans.
During certain of these conversations, Mr. Hipp expressed his interest in
pursuing a business combination with FirstBancorporation.

In early 1998, Mr. Hipp called Mr. Shuford to again express his interest in
pursuing a business combination with FirstBancorporation. At that time, Mr.
Shuford advised Mr. Hipp that FirstBancorporation was in the process of
organizing FirstBank of the Midlands and was not interested in discussing a
business combination with First National. In early fall of 1998, Mr. Hipp and
Robert R. Horger, Chairman of the Board of First National, visited Mr. Shuford
and Colden R. Battey, Jr., Chairman of the Board of FirstBancorporation, in
Beaufort, South Carolina to discuss First National's interest in pursuing a
transaction with FirstBancorporation. Shortly after that meeting, Mr. Shuford
and Mr. Battey asked Mr. Hipp to estimate the value that would be assigned to
FirstBancorporation in such a transaction, and Mr. Hipp said that he would
consider a range of 18-to-25 times earnings to be appropriate based on his
personal knowledge of prices generally being paid in similar banking
transactions.

In November 1998, another financial institution contacted Mr. Battey and
Mr. Shuford about whether FirstBancorporation had an interest in being acquired.
Mr. Shuford and Mr. Battey discussed this inquiry with the executive committee
of FirstBancorporation's board of directors. At the recommendation of the
executive committee, Mr. Shuford contacted two additional financial institutions
that were considered to have compatible management styles and business
philosophies and which had previously expressed an interest in combining with
FirstBancorporation.

First National and FirstBancorporation soon thereafter arranged another
meeting with Mr. Hipp, Mr. Shuford and Mr. Battey in Beaufort, South Carolina.
At such meeting, Mr. Hipp reiterated First National's interest in pursuing a
business combination, and the parties agreed to share financial and other
information with each other. During the latter part of 1998 and the early part
of 1999, Mr. Hipp and W. Louis Griffith, Chief Financial Officer of First
National, had a series of meetings with Mr. Shuford, Mr. Battey and James L.
Pate, III, FirstBancorporation's Chief Financial Officer, to discuss several
financial issues, including FirstBancorporation's overall financial performance
and the impact of FirstBank of the Midlands on FirstBancorporation's overall
operations, as well as certain proposed terms of a combination of
FirstBancorporation and First National.

In December 1998, at the request of FirstBancorporation's executive
committee, FirstBancorporation engaged RP Financial LC in a financial advisory
capacity to first

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assess the preliminary range of value as an independent company relative to a
sale of control. Following a review of RP Financial's preliminary valuation
analysis, the executive committee authorized RP Financial to evaluate, on the
basis of publicly-available information, the financial and market data for the
four financial institutions expressing an interest in acquiring
FirstBancorporation, including their respective abilities to pay, in share
exchange transactions, the previously determined preliminary value pursuant to a
sale of control, incorporating certain assumptions pertaining to transaction
adjustments, merger synergies and pooling of interest accounting. Having
determined, on a preliminary basis, that each of the four financial institutions
expressing an interest in acquiring FirstBancorporation had the ability to pay
the preliminary range of value in a sale of control share exchange, the
executive committee requested each of the four institutions to provide more
specific information pertaining to a potential merger transaction.

FirstBancorporation's executive committee prepared a list of questions
which was sent to each of the four potential acquirors. This questionnaire
requested information on the price to be paid in the transaction and whether or
not the acquiree's banks would continue to be run separately or consolidated
into the acquiror's banks. In addition, the questionnaire requested information
on the amount of FirstBancorporation job elimination after the merger, the level
of FirstBancorporation management in the combined company, FirstBancorporation
director representation on the acquiror's board, accounting treatment for the
proposed transaction, severance benefits for terminated employees and other
items relevant to the proposed merger. Members of the executive committee met
with each of these potential acquirors and reviewed these items in detail. These
discussions provided the executive committee with sufficient information to
evaluate, on a preliminary basis, the benefits of each proposed transaction.

In January 1999, Mr. Shuford advised Mr. Hipp that a price of 25 times
earnings would not be acceptable to FirstBancorporation. Thereafter, First
National formally engaged The Robinson-Humphrey Company, LLC to assist First
National in its negotiations with FirstBancorporation. Mr. Hipp and Mr. Shuford
then proceeded to have a series of discussions regarding the amount of First
National stock that would be issued to FirstBancorporation shareholders in
exchange for their shares of FirstBancorporation stock. During such discussions,
at Mr. Hipp's request, FirstBancorporation provided First National with certain
additional nonpublic financial and other information regarding
FirstBancorporation's operations and the opportunity to speak with
FirstBancorporation's independent auditors (who also serve as First National's
independent auditors). After reviewing such information, speaking with
FirstBancorporation's independent auditors, considering the market value of
First National stock, considering the operating cost savings that could be
realized after the transaction and discussing the proposed transaction with
Robinson-Humphrey and the executive committee of First National, Mr. Hipp
ultimately advised Mr. Shuford that First National would consider a transaction
in which FirstBancorporation shareholders would receive, for each share of
FirstBancorporation stock, shares of First National stock having a value of $33
per share, based on the closing sales price of First National stock on January
29, 1999 ($27.00 per share). The parties proceeded to discuss other transaction
terms.

Subsequent discussions focused on, among other things, the circumstances in
which First National and FirstBancorporation could terminate the agreement, the
related termination fee payable by each party if it terminated the transaction,
representation by FirstBancorporation on the board of directors of First
National and First National Bank, the employment of James A. Shuford, III and
certain other FirstBancorporation officers by

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First National following the transaction, compensation and severance issues,
indemnification and insurance for FirstBancorporation's directors and officers,
pricing adjustments and certain other matters.

On February 5, 1999, the board of directors of First National met to
consider the proposed transaction and, after reviewing the proposed terms of the
transaction, authorized the officers of First National to negotiate a definitive
merger agreement with FirstBancorporation. The First National board of directors
met again on February 18, 1999 to discuss the status of the transaction and to
receive the oral opinion of Robinson-Humphrey that the transaction was fair to
First National from a financial point of view.

On February 5, 1999, the executive committee of FirstBancorporation
informed the board of directors of FirstBancorporation of the merger discussions
with First National and reviewed RP Financial's preliminary analyses. The board
of directors of FirstBancorporation reviewed how each of the four potential
acquirors intended to operate FirstBancorporation, including individual
operating philosophies, commitment to community banking, each potential
acquirer's financial strength and each potential acquirer's preliminary
indication of value. Based on these discussions, FirstBancorporation's executive
committee voted unanimously to pursue discussions with First National.

On February 17, 1999, RP Financial presented updated valuation and pro
forma merger analyses to the FirstBancorporation board of directors. This
presentation incorporated the pricing proposals that had been made by each of
the four institutions. All four proposals were share exchanges that ranged from
$27.06 per share to $34.00 per share based on the price of the potential
acquirer's stock at the time. The board of directors of FirstBancorporation
considered the First National proposal to be the best of the four in terms of
prospects for future value to existing stockholders. In addition,
FirstBancorporation felt that First National's business philosophy most closely
resembled that of FirstBancorporation. Based on discussions at this meeting, the
board of directors of FirstBancorporation voted unanimously to proceed with the
negotiations necessary to complete a definitive merger agreement with First
National.

The parties proceeded to negotiate a definitive merger agreement during the
remainder of February and first part of March. Such negotiations focused on the
scope of the representations and warranties to be given by FirstBancorporation,
the conditions upon which the agreement could be terminated and certain other
matters. On March 4, 1999, negotiations for a merger agreement were completed.
On that date, after receiving the written opinion of Robinson-Humphrey that the
transaction was fair to First National from a financial point of view, the board
of directors of First National approved the merger agreement. The board of
directors of FirstBancorporation also met on March 4, 1999 to review RP
Financial's pro forma merger analysis and its opinion that the proposed merger
was fair to FirstBancorporation shareholders from a financial point of view. The
board of directors of FirstBancorporation then voted unanimously to approve the
merger agreement. The agreement was signed at the conclusion of the meeting of
the board of directors of FirstBancorporation at the end of the day on March 4,
1999.

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REASONS OF FIRST NATIONAL FOR THE MERGER

In forming its opinion to approve the merger agreement, the board of
directors of First National considered a number of factors, including the
following:

- Financial projections that indicated that the transaction could be
accretive to shareholders of First National as early as 2000.

- FirstBancorporation's operations, including the compatibility of
FirstBancorporation's operations with First National's existing
operations and strategic growth plans, the similarities of
FirstBancorporation's and First National's community-banking approaches,
and the familiarity with the markets in which FirstBancorporation
operates.

- First National's long-standing desire to increase its market share in
Beaufort County by expanding into the northern portion of Beaufort
County, in which FirstBancorporation's principal banking branches and
operations are located, as well as management's belief that Beaufort
County is within the top three fastest growing counties in South
Carolina.

- The quality of FirstBancorporation's management and the ability of First
National to retain the services of certain officers, including
FirstBancorporation's President and Chief Executive Officer, after the
transaction.

- The opportunity for First National to accelerate its growth plans in
Columbia, South Carolina, by combining with FirstBancorporation.

- The opinion of Robinson-Humphrey that the transaction is fair to First
National from a financial point of view.

In making its determination, the board of directors of First National did
not assign any relative or specific weights to the factors that it considered.

RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRST NATIONAL

The First National board of directors has approved the merger agreement and
plan of merger. Based on the foregoing, and the opinion of Robinson-Humphrey
referred to above, the board of directors of First National recommends that
First National shareholders vote "FOR" the approval of the merger agreement and
the plan of merger.

REASONS OF FIRSTBANCORPORATION FOR THE MERGER

In reaching its determination that the merger is fair and in the best
interests of FirstBancorporation and its shareholders, the board of directors of
FirstBancorporation considered a number of factors, including the following:

- FirstBancorporation recognized that a merger with a larger institution
with a more actively traded stock would offer FirstBancorporation
shareholders greater liquidity in their stock and also potential cash
dividends.

- The merger would result in FirstBancorporation shareholders receiving
stock in a substantially more diversified bank holding company, which on
a combined basis would be able to offer more products and services to
customers in its Beaufort, Bluffton and Midlands markets.

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- The board felt that the addition of its shareholder base to that of First
National would have a positive impact on the combined institution's stock
liquidity and value.

- The stock for stock exchange offer made by First National was a
competitive offer relative to the prices discussed with the other three
institutions and reflected a premium over the price of recent trades in
FirstBancorporation's stock.

- The opinion of RP Financial that the merger consideration is fair, from a
financial point of view, to FirstBancorporation shareholders.

- First National's offer of two seats on its corporate board and three
seats on its First National Bank board to existing directors, which will
allow FirstBancorporation interests to continue to be fairly represented
in the combined company.

In making its determination, the board of directors of FirstBancorporation
did not assign any relative or specific weights to the factors that it
considered.

RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRSTBANCORPORATION

The board of directors of FirstBancorporation has approved the merger
agreement and plan of merger. The board of directors of FirstBancorporation
recommends that the shareholders of FirstBancorporation vote "FOR" the approval
of the merger agreement and plan of merger.

OPINION OF FIRST NATIONAL FINANCIAL ADVISOR

GENERAL

First National retained Robinson-Humphrey to act as its financial advisor
in connection with the merger. On February 18, 1999, Robinson-Humphrey rendered
its oral opinion to First National's board of directors and subsequently on
March 4, 1999, delivered its written opinion that, based on the matters set
forth therein, the exchange ratio to be paid by First National to the
FirstBancorporation shareholders in the merger was fair to First National, from
a financial point of view. The text of such opinion is set forth in Appendix C
to this joint proxy statement/prospectus and should be read in its entirety by
shareholders of First National.

The consideration to be paid by First National in the merger was determined
by First National and FirstBancorporation in their negotiations. No limitations
were imposed by the board of directors or management of First National upon
Robinson-Humphrey with respect to the investigations made or the procedures
followed by Robinson-Humphrey in rendering its opinion. In arriving at its
opinion, Robinson-Humphrey did not ascribe a specific range of values to First
National or FirstBancorporation, but rather made its determination as to
fairness, from a financial point of view, of the exchange ratio to be paid by
First National to the FirstBancorporation shareholders in the merger on the
basis of the financing and comparative analysis described below.
Robinson-Humphrey's opinion is not intended to be and does not constitute a
recommendation to any First National shareholder as to how such shareholders
should vote with respect to the merger agreement. Robinson-Humphrey was not
requested to opine as to, and its opinion does not address, First National's
underlying business decision to proceed with or effect the merger.

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Robinson-Humphrey, in conducting its analysis and in arriving at its
opinion, has not conducted a physical inspection of any of the properties or
assets of FirstBancorporation, and has not made or obtained any independent
valuation or appraisals of any properties, assets or liabilities of
FirstBancorporation. Robinson-Humphrey has assumed and relied upon the accuracy
and completeness of the financial and other information that was provided to it
by FirstBancorporation and First National or that was publicly available. Its
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of the date of, its
analyses.

In arriving at its opinion, Robinson-Humphrey reviewed and analyzed:

- publicly available information concerning First National and
FirstBancorporation which it believed relevant to its analysis;

- financial and operating information with respect to the business,
operations and prospects of First National and FirstBancorporation
furnished to Robinson-Humphrey;

- a comparison of the historical financial results and present financial
condition of First National and FirstBancorporation with other companies
that it deemed relevant; and

- a comparison of the financial terms of the merger with terms of certain
other recent transactions which it deemed relevant.

In addition, Robinson-Humphrey had discussions with the management of First
National concerning its business, operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as it deemed appropriate.

In connection with the preparation of its fairness opinion,
Robinson-Humphrey performed certain financial and comparative analyses, the
material portions of which are summarized below. The summary set forth below
includes the financial analyses used by Robinson-Humphrey and deemed to be
material, but is not a complete description of the analyses performed by
Robinson-Humphrey in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to partial analysis or summary description. In addition, Robinson-Humphrey
believes that its analyses must be considered as an integrated whole, and
selecting portions of such analyses and the factors considered by it, without
considering all of such analyses and factors, could create a misleading or an
incomplete view of the process underlying its analyses set forth in the opinion.
In performing its analyses, Robinson-Humphrey made numerous assumptions about
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of First National or
FirstBancorporation. Any estimates contained in such analyses are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than as set forth in the analyses.
Estimates of values of companies or parts of companies are not appraisals or
necessarily reflect the price at which such companies or parts may actually be
sold, and such estimates are inherently subject to uncertainty. No public
company used as a comparison is identical to First National or
FirstBancorporation. An analysis of the results of such a comparison is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the

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comparable companies and other factors that could affect the public trading
values of companies to which First National or FirstBancorporation are being
compared.

The following is a summary of certain analyses performed by
Robinson-Humphrey in connection with rendering its opinion.

COMPARABLE TRANSACTION ANALYSIS

Robinson-Humphrey performed three analyses of premiums paid for selected
banks with comparable characteristics to FirstBancorporation. Comparable
transactions were considered to be: (i) transactions since January 1, 1997,
where the seller was a bank with total assets between $75 million and $250
million; (ii) transactions since January 1, 1997, where the seller was a bank
located in the Southeast with total assets between $75 million and $250 million,
and (iii) transactions since January 1, 1997, where the seller was a bank
headquartered in South Carolina.

(i) Based on the first of the foregoing transactions since January 1,
1997, where the seller was a bank with total assets between $75 million and
$250 million, the analysis yielded a range of transaction values to book
value of 116.04% to 558.76% with a mean of 263.17% and a median of 254.36%.
These compare to a transaction value for the merger of 242.00% of
FirstBancorporation's book value as of December 31, 1998.

The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 116.04% to
603.38%, with a mean of 270.37% and a median of 262.46%. These compare to a
transaction value to tangible book value at December 31, 1998 of 242.00%
for the merger.

The analysis yielded a range of transaction values as a multiple of
trailing twelve-month earnings per share. These values ranged from 6.81x to
59.71x with a mean of 21.43x and a median of 20.25x. These compare to a
transaction value to the December 31, 1998 trailing twelve-month earnings
per share of 31.82x for the merger.

Lastly, the analysis yielded a range of transaction values as a
percentage of total assets for the comparable transactions ranging from
9.06% to 60.56%, with a mean of 24.12% and a median of 23.77%. These
compare to a transaction value to total assets at December 31, 1998 of
approximately 30.72% for the merger.

(ii) Based on transactions since January 1, 1997, where the seller was
a bank located in the Southeast with total assets between $75 million and
$250 million, the analysis yielded a range of transaction values to book
value of 138.10% to 558.76%, with a mean of 282.73% and a median of
281.23%. These compare to a transaction value for the merger of 242.00% of
FirstBancorporation's book value as of December 31, 1998.

The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 138.10% to
558.76%, with a mean of 289.72% and a median of 281.94%. These compare to a
transaction value to tangible book value at December 31, 1998 of 242.00%
for the merger.

The analysis yielded a range of transaction values as a multiple of
trailing twelve-month earnings per share. These values ranged from 12.74x
to 59.71x, with a mean of

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23.68x and a median of 21.56x. These compare to a transaction value to the
December 31, 1998 trailing twelve-month earnings per share of 31.82x for
the merger.

Lastly, the analysis yielded a range of transaction values as a
percentage of total assets for the comparable transactions ranging from
12.02% to 60.56%, with a mean of 26.72% and a median of 25.73%. These
compare to a transaction value to total assets at December 31, 1998 of
approximately 30.72% for the merger.

(iii) Based on transactions since January 1, 1997, where the seller
was a bank headquartered in South Carolina, the analysis yielded a range of
transaction values to book value of 266.29% to 494.12%, with a mean of
367.18% and a median of 375.17%. These compare to a transaction value for
the merger of 242.00% of FirstBancorporation's book value as of December
31, 1998.

The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 278.52% to
494.12%, with a mean of 365.13% and a median of 372.29%. These compare to a
transaction value to tangible book value at December 31, 1998 of 242.00%
for the merger.

The analysis yielded a range of transaction values as a multiple of
trailing twelve-month earnings per share. These values ranged from 20.67x
to 37.09x, with a mean of 30.57x and a median of 32.73x. These compare to a
transaction value to the December 31, 1998 trailing twelve months earnings
per share of 31.82x for the merger.

Lastly, the analysis yielded a range of transaction values as a
percentage of total assets for the comparable transactions ranging from
22.86% to 51.05%, with a mean of 32.38% and a median of 29.43%. These
compare to a transaction value to total assets at December 31, 1998 of
30.72% for the merger.

No company or transaction used in the comparable transaction analyses is
identical to FirstBancorporation. Accordingly, an analysis of the foregoing
necessarily involves complex consideration and judgments, as well as other
factors that affect the public trading value or the acquisition value of the
company to which it is being compared.

DISCOUNTED CASH FLOW ANALYSIS

Using a discounted cash flow analysis, Robinson-Humphrey estimated the
present value of the future stream of after-tax cash flows that
FirstBancorporation could produce through 2003, under various circumstances,
assuming that FirstBancorporation performed in accordance with the
earnings/return projections of management at the time that FirstBancorporation
entered into acquisition discussions. Robinson-Humphrey estimated the terminal
value for FirstBancorporation at the end of the period by applying multiples of
earnings ranging from 15.0x to 17.0x and then discounting the cash flow streams,
dividends paid to shareholders and terminal value using differing discount rates
(ranging from 10.0% to 12.0%) chosen to reflect different assumptions regarding
the required rates of return of FirstBancorporation and the inherent risk
surrounding the underlying projections. This discounted cash flow analysis
indicated a reference range of $32.7 million to $37.7 million, or $32.88 to
$37.84 per share, for FirstBancorporation.

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<PAGE> 34

PRO FORMA MERGER ANALYSIS

Robinson-Humphrey analyzed the impact of the merger on First National's
estimated earnings per share based on management's earnings expectations for
1999 through 2002. In connection with this analysis, management of First
National provided Robinson-Humphrey with estimates for cost savings, which
estimates were incorporated in Robinson-Humphrey's analyses. First National's
management projections of cost savings on an after-tax basis were approximately
$461 thousand during 1999, and $1.1 million during each of 2000, 2001 and 2002.
Based on management's earnings projections and estimated cost savings,
Robinson-Humphrey calculated that the merger would result in accretion
(dilution) of (3.03)%, 2.04%, 1.17% and 0.40% to First National's earnings per
share in 1999 through 2002, respectively.

COMPENSATION OF ROBINSON-HUMPHREY

Pursuant to an engagement letter dated February 9, 1999 between First
National and Robinson-Humphrey, First National agreed to pay Robinson-Humphrey a
retainer fee of $50,000 and a $100,000 fee at the time of rendering the fairness
opinion. The engagement letter with Robinson-Humphrey also provides that First
National will reimburse Robinson-Humphrey for its out-of-pocket expenses and
indemnify Robinson-Humphrey and certain related persons and entities against
certain liabilities, including liabilities under securities laws, incurred in
connection with its services thereunder.

As part of its investment banking business, Robinson-Humphrey is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. First National's board of directors decided to retain
Robinson-Humphrey based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, particularly transactions in the
Southeastern region of the United States, and its knowledge of financial
institutions and First National in particular.

OPINION OF FIRSTBANCORPORATION FINANCIAL ADVISOR

The board of directors of FirstBancorporation retained RP Financial in
December 1998 to evaluate the financial merits of various strategic options,
including potential strategic mergers with other regional financial
institutions, and to render its opinion with respect to any such transaction
from a financial point of view to FirstBancorporation shareholders if
FirstBancorporation entered into an agreement to be acquired. In requesting RP
Financial's advice and opinion, the board of directors of FirstBancorporation
did not give any special instructions to RP Financial, nor did it impose any
limitations upon the scope of the investigation that RP Financial might wish to
conduct to enable it to give its opinion. RP Financial has delivered to
FirstBancorporation its written opinion, dated March 4, 1999, and its updated
opinion as of June 10, 1999, to the effect that, based upon and subject to the
matters set forth therein, as of the date thereof, the consideration to be
received by shareholders of FirstBancorporation in the merger is fair to the
holders of FirstBancorporation stock from a financial point of view. The opinion
of RP Financial is directed toward the consideration to be received by
FirstBancorporation shareholders and does not constitute a recommendation to any
FirstBancorporation shareholder to vote in favor of the merger agreement. A copy
of the RP Financial opinion is set forth as Appendix D to this joint proxy
statement/prospectus and should be read in its entirety by

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<PAGE> 35

shareholders of FirstBancorporation. RP Financial has consented to the inclusion
and description of its written opinion in this joint proxy statement/prospectus.

RP Financial was selected by FirstBancorporation to act as its financial
advisor because of RP Financial's expertise in the valuation of businesses and
their securities for a variety of purposes, particularly its expertise in
connection with mergers and acquisitions of financial institutions, including
commercial banks and their respective holding companies, if applicable. RP
Financial was engaged by FirstBancorporation on December 21, 1998, pursuant to
terms set forth in an engagement letter. RP Financial estimates that it will
receive from FirstBancorporation total professional fees of approximately
$42,500, of which approximately $30,200 has been paid to date, plus
reimbursement of certain out-of-pocket expenses, for its services in connection
with the merger. In addition, FirstBancorporation has agreed to indemnify RP
Financial for all liabilities that RP Financial may become subject in connection
with any of the services rendered pursuant to the engagement letter, subject to
certain exceptions.

In rendering its fairness opinion, RP Financial reviewed the following
material:

- the merger agreement, including exhibits;

- financial and other information for FirstBancorporation, all with
regard to balance and off-balance sheet composition, profitability,
interest rates, volumes, maturities, trends, credit risk, interest
rate risk, liquidity risk and operations and shareholder information
from FirstBancorporation's (a) audited and unaudited financial
statements for the last three fiscal years and most recent quarter,
incorporated in the joint proxy statement/prospectus, regulatory and
internal financial and other reports, (b) the most recent three
proxy statements, and (c) executive management comments regarding
historical, current and anticipated business, operations and
financial performance and condition; and

- financial and other information for First National, with regard to
balance and off-balance sheet composition, profitability, interest
rates, volumes, maturities, trends, credit risk, interest rate risk,
liquidity risk and operations and shareholder information from First
National's (a) audited and unaudited financial statements for the
last three fiscal years and most recent quarter, incorporated in the
joint proxy statement/prospectus, regulatory and internal financial
and other reports, (b) the most recent three proxy statements, and
(c) executive management comments regarding historical, current and
anticipated business, operations and financial performance and
condition.

RP Financial reviewed financial, operational, market area and stock price
and trading characteristics for FirstBancorporation and First National relative
to publicly-traded banks and bank holding companies, respectively, with
comparable resources, financial condition, earnings, operations and markets. RP
Financial also considered the economic and demographic characteristics in the
local market area, and the potential impact of the regulatory, legislative and
economic environments on operations for FirstBancorporation and First National
and the public perception of the banking industry. RP Financial also considered:
the financial terms, financial and operating condition and market area of other
recently completed acquisitions of comparable banks both regionally and in South
Carolina; discounted cash flow analyses incorporating future prospects; the
financial aspects of expressions of interest by third party financial
institutions evaluating the prospects of a

29
<PAGE> 36

business combination with FirstBancorporation; and the pro forma impact on First
National of the acquisition of FirstBancorporation, which is expected to be
accounted for as a pooling of interests.

In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
FirstBancorporation and First National furnished by the respective institutions
to RP Financial for review, as well as publicly-available information regarding
other financial institutions and other third-party data and information
referenced above. FirstBancorporation and First National did not restrict RP
Financial as to the material it was permitted to review. RP Financial did not
perform or obtain any independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of FirstBancorporation
or First National.

RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the merger to be consummated. In rendering
its opinion, RP Financial assumed that, in the course of obtaining the necessary
regulatory and governmental approvals for the proposed merger, no restriction
will be imposed on First National that would have a material adverse effect on
the ability of the merger to be consummated as set forth in the merger
agreement.

RP Financial's opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of March
4, 1999 and June 10, 1999; events occurring after June 10, 1999 could materially
affect the assumptions used in preparing the opinion.

In connection with rendering its opinion dated March 4, 1999 and updated as
of June 10, 1999, RP Financial performed a variety of financial analyses that
are summarized below. Although the evaluation of the fairness, from a financial
point of view, of the merger consideration was to some extent subjective and
based on the experience and judgment of RP Financial, and not merely the result
of mathematical analyses of financial data, RP Financial relied, in part, on the
financial analyses summarized below in its determinations. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analyses or summary description. RP Financial believes its analyses must
be considered as a whole and that selecting portions of such analyses and
factors considered by RP Financial without considering all such analyses and
factors could create an incomplete view of the process underlying RP Financial's
opinion. In its analyses, RP Financial took into account its assessment of
general business, market, monetary, financial and economic conditions, industry
performance and other matters, many of which are beyond the control of
FirstBancorporation and First National, as well as RP Financial's experience in
securities valuation, its knowledge of financial institutions and its experience
in similar transactions. The analyses were prepared solely for purposes of RP
Financial providing its opinion as to the fairness of the merger consideration
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in RP
Financial's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. None of
the analyses performed by RP Financial was assigned a greater significance by RP
Financial than any other.

COMPARABLE TRANSACTIONS ANALYSIS

RP Financial compared the merger on the basis of acquisition pricing
multiples or ratios of reported earnings, book value, tangible book value,
assets, core deposit premium

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<PAGE> 37

and control premium of FirstBancorporation implied by the merger consideration
to be paid to the holders of FirstBancorporation common stock with the same
ratios in three separate groups of pending and completed acquisitions of
publicly-traded and non-publicly traded commercial banks and bank holding
companies from 1996 to the March 4, 1999 opinion: all Southeast; all Southeast
with assets less than $250 million; and all South Carolina. The median
acquisition pricing multiples or ratios at announcement for these groups of
commercial bank acquisitions are set forth below:

<TABLE>
<CAPTION>
SOUTHEAST
ASSETS LESS ALL
ALL THAN $250 SOUTH
SOUTHEAST MILLION CAROLINA
--------- ----------- --------
<S> <C> <C> <C>
Price/Book...................................... 252.52% 247.00% 375.17%
Price/Tangible Book............................. 257.86% 248.29% 372.29%
Price/Earnings (Trailing 12 Months)............. 21.45x 21.34x 32.73x
Price/Assets.................................... 24.49% 24.14% 29.43%
Tangible Book Premium/Core Deposits............. 19.85% 19.50% 29.64%
</TABLE>

In comparison to the median ratios of the three groups examined,
FirstBancorporation was generally similar in size, maintained higher levels of
capitalization and lower profitability, both in terms of average assets and
average equity. FirstBancorporation's acquisition pricing multiples or ratios
for price/earnings, price/tangible book, price/assets and tangible book
premium/core deposits are consistent with the range of these groups assuming the
merger consideration was equivalent to the closing price of First National
common stock as of March 3, 1999, the last trading day before the merger
agreement was signed, indicating the following pricing ratios for shares of
FirstBancorporation stock, based on financial statements as of or for the 12
months ended December 31, 1998: 37.05 times fully diluted earnings; 254.96
percent of reported tangible book value; 28.76 percent of assets; and 58.04
percent tangible book premium on core deposits.

No company or transaction used in this composite is identical to
FirstBancorporation or the merger. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies involved and other factors that could affect the public trading
values of the securities of the company or companies to which they are being
compared.

DISCOUNTED CASH FLOW ANALYSIS

In applying the discounted cash flow analysis, RP Financial estimated the
present value of both future dividends over a five-year period and a terminal
value at the end of the fifth year, reflecting three growth scenarios with
profitability comparable to FirstBancorporation's recent historical performance.
The price/tangible book value and price/earnings multiples utilized to determine
the terminal value range were derived from the comparable transaction analyses
discussed above. The cash flows were then discounted to present value based on a
15% discount rate incorporating the earnings capitalization rate of
publicly-traded banks, the treasury yield curve (i.e., the risk-free rate) and
perceived investment risks. The merger consideration exceeds the upper end of
the range of discounted cash flows based on each growth scenario.

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<PAGE> 38

PRO FORMA IMPACT ANALYSIS

RP Financial's analysis considered the pro forma impact of the merger on
First National, including financial condition, operations, size, market area
served, market capitalization and liquidity of the stock. The increased size,
market capitalization and market area served is expected to position First
National as a more competitive institution. The increased number of shares of
First National stock as a result of the merger is expected to favorably
influence the liquidity of First National's stock. The merger is estimated to be
marginally dilutive to First National's pro forma book value and tangible book
value per share and marginally dilutive to earnings per share in 1999,
incorporating anticipated merger synergies (before one-time merger adjustments).

As described above, RP Financial's opinion and presentation to the board of
directors of FirstBancorporation was one of many factors taken into
consideration by the board of directors of FirstBancorporation in making its
determination to approve the merger agreement and plan of merger. Although the
foregoing summary describes the material components of the analyses provided by
RP Financial as of March 4, 1999 and updated on June 10, 1999, in connection
with its opinion as of those dates, it does not purport to be a complete
description of all the analyses performed by RP Financial and is qualified by
reference to the written opinion of RP Financial set forth as Appendix D hereto,
which FirstBancorporation's shareholders are urged to read in its entirety.

THE MERGER AGREEMENT

THE EFFECTIVE TIME

Subject to the satisfaction or waiver of conditions contained in the merger
agreement, the parties will cause the merger to occur no later than 10 business
days following the expiration of all requisite regulatory waiting periods. At
the effective time, holders of shares of FirstBancorporation stock will cease to
be, and will have no rights as, shareholders of FirstBancorporation, other than
(i) to receive any dividend or other distribution with respect to shares of
FirstBancorporation stock with a record date occurring prior to the effective
time of the merger and the merger consideration and (ii) those rights afforded
to the holders of dissenting shares under South Carolina law. After the merger,
there will be no transfers on the stock transfer books of FirstBancorporation or
First National of shares of FirstBancorporation stock.

CONDUCT OF BUSINESS PRIOR TO THE MERGER

Until the merger has been consummated, FirstBancorporation has agreed that
it and its subsidiaries will conduct their respective businesses in the ordinary
course in substantially the same manner as presently conducted and will preserve
their respective relationships with other persons. Additionally,
FirstBancorporation has agreed that it and its subsidiaries will not take
certain actions without the prior written consent of First National, including
the following:

- amend their articles of incorporation, articles of association or bylaws;

- issue any securities other than the issuance of shares of
FirstBancorporation stock in connection with the exercise of options to
acquire FirstBancorporation stock;

- split, combine or reclassify any shares of their capital stock, declare
or pay any dividend, or redeem or otherwise acquire any of their
securities;

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<PAGE> 39

- incur or assume any debt, subject to certain exceptions; become liable
for the obligations of any other person; make an investment that is
greater than $10,000, or any loan that is greater than $350,000, subject
to certain exceptions; pledge or encumber shares of their capital stock;
or mortgage or pledge any of their assets, or create any lien thereupon,
except for certain permitted liens;

- adopt or amend any employee benefit plan or employment contract, or
increase the compensation or declare a bonus payable to any director,
officer or employee, subject to certain exceptions;

- enter into any contract or transaction outside the ordinary course of
business, or acquire, lease or dispose of any real property; enter into,
cancel or modify any material contract; acquire any company; or make any
new capital expenditure in excess of $10,000;

- voluntarily change or modify any of the accounting principles or
practices used by them, or revalue any of their assets;

- settle or compromise any pending or threatened suit, action or claim
relating to the merger; or

- take any action that would make any of the representations or warranties
contained in the merger agreement untrue or incorrect in any material
respect or would result in any of the conditions set forth in the merger
agreement not being satisfied.

In addition, until the effective time of the merger, First National has
agreed not to:

- declare or pay any cash dividend other than quarterly dividends at a rate
not more than 20% in excess of the current quarterly dividend rate of 13
cents per share, or establish a record date for any quarterly dividend
inconsistent with past practices;

- make any acquisition that materially delays the consummation of the
merger; or

- take any action that would make any of its representations and warranties
untrue or incorrect in any material respect or would result in any of the
conditions to the merger not being satisfied.

NONSOLICITATION

FirstBancorporation has agreed that it will not solicit or facilitate any
inquiries regarding any other merger, reorganization, consolidation, share
exchange or similar transaction involving a significant portion of its assets or
20% or more of its capital stock, or any tender offer for more than 20% of the
capital stock of FirstBancorporation. FirstBancorporation has also agreed not to
recommend or endorse any such transaction. However, the merger agreement does
not prohibit the board of directors of FirstBancorporation from engaging in
discussions with any third party in response to an unsolicited bona fide written
acquisition proposal if, among other things:

- the board of directors of FirstBancorporation concludes in good faith
that such transaction would be more favorable to FirstBancorporation's
shareholders than the proposed merger with First National;

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<PAGE> 40

- the board of directors of FirstBancorporation determines that failure to
take such action would result in a breach by the board of directors of
its fiduciary duties to FirstBancorporation shareholders; and

- prior to furnishing any information to, or entering into discussions
with, such third party, FirstBancorporation provides prompt written
notice to First National that it is furnishing information to, or
entering into discussions with, such third party.

If FirstBancorporation determines to terminate the merger agreement with
First National because it has received a superior acquisition proposal, it must
pay First National a termination fee of $960,000. See "-- Termination of the
Merger Agreement and Termination Fee."

OTHER COVENANTS

Under the merger agreement, FirstBancorporation has agreed, among other
things, to:

- merge FirstBank of the Midlands, National Association into FirstBank,
N.A.;

- merge FirstBank, N.A. with and into First National Bank;

- terminate its 401(k) profit-sharing plan as of the effective time of the
merger; and

- ensure that the merger does not result in the grant of any rights to any
person or restrict the ability of First National to exercise the rights
as a shareholder of FirstBancorporation's subsidiaries.

The merger agreement requires First National, among other things, to:

- list the shares of First National common stock to be issued in connection
with the merger on the American Stock Exchange;

- for a period of three years following the merger, maintain the directors'
and officers' liability insurance currently provided by
FirstBancorporation or acquire similar coverage on terms and conditions
not materially less favorable;

- indemnify the officers, directors and employees of FirstBancorporation
following the merger for any claims arising out of the fact that any such
person was a director, officer or employee of FirstBancorporation;

- pay to employees of FirstBancorporation who are terminated during the
six-month period after the merger a severance payment in an amount equal
to two times each employee's weekly salary, multiplied by the number of
years of credited service such employee had with First National and
FirstBancorporation;

- pay, or allow FirstBancorporation to pay, a retention bonus to certain
employees who agree to remain employed with FirstBancorporation until the
merger has occurred and for a period of three months thereafter, provided
the amount of such bonus does not in the aggregate exceed $75,000; and

- provide certain benefits to employees of FirstBancorporation who become
employees of First National that are consistent with the benefits
provided by First National to similarly situated employees, with credit
for past service for all plans except First National's pension plan.

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<PAGE> 41

The merger agreement also requires both parties, among other things, to:

- hold a shareholders' meeting at the earliest practicable date to vote on
the adoption of the merger agreement and plan of merger;

- use their reasonable best efforts to cause the merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986 and as a "pooling of interests" under generally
accepted accounting principles; and

- not publish any news release or other public announcement or disclosure
about the merger without the consent of the other party.

CONDITIONS TO THE MERGER

The obligations of First National and FirstBancorporation to consummate the
merger are subject to the satisfaction of several conditions, including the
following:

- the absence of any order that prohibits the consummation of the merger,
and the absence of any proceeding instituted by a governmental authority
that seeks to enjoin or prohibit the merger;

- the receipt of all necessary regulatory approvals and the expiration of
all waiting periods required by law;

- the absence of any stop order suspending the effectiveness of the
registration statement of which this joint proxy statement/prospectus is
a part;

- the listing of shares of First National common stock to be issued in
connection with the merger on the American Stock Exchange;

- the receipt from J.W. Hunt and Company, LLP of assurances satisfactory to
First National that the merger will be treated as a "pooling of
interests" for accounting purposes;

- certain representations and warranties of First National and
FirstBancorporation contained in the merger agreement must be true and
correct in all respects as of the closing date, and all other
representations and warranties of First National and FirstBancorporation
must be true and correct in all material respects as of the closing date;

- First National and FirstBancorporation must have complied in all material
respects with all of their respective covenants and agreements in the
merger agreement; and

- FirstBancorporation must have received an opinion of legal counsel to
First National as to the existence and corporate power of First National,
approval of the merger agreement, absence of a violation of the articles
of incorporation and bylaws of First National, and due authorization and
issuance of the First National common stock to be issued in connection
with the merger, and First National must have received a legal opinion
from legal counsel to FirstBancorporation as to, among other things, the
due incorporation, corporate power and capitalization of
FirstBancorporation and its subsidiaries, approval of the merger
agreement, absence of necessary consents, absence of a violation of the
articles of incorporation, bylaws or any order affecting
FirstBancorporation or any of its subsidiaries, and absence of litigation
affecting FirstBancorporation or any of its subsidiaries.

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<PAGE> 42

In addition, the obligations of First National to consummate the merger are
further subject to the satisfaction or waiver by First National of the following
conditions:

- there must not be any litigation pending or threatened against
FirstBancorporation, and there must not be any governmental orders
outstanding against FirstBancorporation, that would have, individually or
in the aggregate, a material adverse effect on FirstBancorporation;

- James A. Shuford, III must have entered into an employment agreement with
First National substantially as described in this joint proxy
statement/prospectus;

- FirstBancorporation must have obtained all consents required for
consummation of the merger under FirstBancorporation's real property
leases and one other contract;

- FirstBancorporation must have received extensions of the leases with
regard to FirstBancorporation's main office in Beaufort, South Carolina,
and branch office in Lady's Island, South Carolina, on terms reasonably
satisfactory to First National;

- the holders of more than five percent of the outstanding shares of
FirstBancorporation stock must not have given written notice of their
intent to dissent from the merger; and

- Robert A. Kerr must have entered into a consulting agreement with First
National Bank, in form and substance reasonably satisfactory First
National and FirstBancorporation, under which Mr. Kerr will agree to
provide consulting services to, and not compete with, First National and
its subsidiaries, in consideration of aggregate consulting payments to
Mr. Kerr over a three-year period of $120,000.

TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEE

The obligations of First National and FirstBancorporation under the merger
agreement may be terminated in the following circumstances:

<TABLE>
<S> <C>
- by the mutual written consent of the boards of directors
of First National and FirstBancorporation;
- by the board of directors of either First National or
FirstBancorporation, if there is any law or judgment that
prohibits consummation of the merger;
- by the board of directors of either First National or
FirstBancorporation, if the conditions to the merger have
not been fulfilled or waived by October 31, 1999, and if
the party seeking to terminate is in compliance with its
obligations under the merger agreement;
- by the board of directors of either First National or
FirstBancorporation, if a condition to the merger has become
incapable of fulfillment and has not been waived;
</TABLE>

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<PAGE> 43
<TABLE>
<S> <C>
* - by the board of directors of First National, if (a) the
board of directors of FirstBancorporation does not recommend
the merger to its shareholders, withdraws or modifies such
recommendation in a manner materially adverse to First
National, recommends to the shareholders of
FirstBancorporation any acquisition proposal other than
the First National merger, or has resolved or publicly
announced or disclosed to any person its intention to do
any of the foregoing, subject to certain exceptions; (b) a
tender or exchange offer for 20% or more of the
outstanding shares of FirstBancorporation stock is
commenced or a registration statement with respect thereto
has been filed and the board of directors of
FirstBancorporation, within 10 business days after such
tender or exchange offer is commenced, either fails to
recommend against acceptance of such tender or exchange
offer by its shareholders or takes no position with
respect to the acceptance of such tender or exchange offer
by its shareholders; or (c) any person or group of persons
acting in concert has, as a result of a tender or exchange
offer, open market purchases, privately negotiated
purchases or otherwise, become the beneficial owner of 20%
or more of the outstanding shares of FirstBancorporation
stock, and the shareholders of FirstBancorporation fail to
adopt or approve the merger at the FirstBancorporation
annual meeting;
* - by the board of directors of FirstBancorporation, if the
board of directors of FirstBancorporation has determined to
recommend a transaction with a third party that is
superior to the First National merger;
- by the board of directors of either First National or
FirstBancorporation, if the shareholders of either party
fail to adopt or approve the merger agreement, as required
by applicable law; or
** - by the board of directors of either First National or
FirstBancorporation, if the board of directors of First
National (a) does not recommend the merger to its
shareholders or (b) withdraws or modifies such
recommendation in a manner materially adverse to
FirstBancorporation, subject to certain exceptions.
</TABLE>

If the merger agreement is terminated by First National or
FirstBancorporation as described in the items denoted by an asterisk (*) in the
left hand margin above, FirstBancorporation must pay to First National a
termination fee of $960,000. If the merger agreement is terminated by First
National or FirstBancorporation as described in the item denoted by a double
asterisk (**) in the left hand margin above, First National must pay to
FirstBancorporation a termination fee of $960,000. If the merger agreement is
terminated and either party is entitled to a termination fee, that fee will be
its sole and exclusive remedy under the merger agreement.

EXPENSES, AMENDMENT AND WAIVER

First National and FirstBancorporation will pay all their respective costs
and expenses in connection with the merger, including their respective share of
the cost of preparing and printing this joint proxy statement/prospectus. The
merger agreement may be amended by the written agreement of First National and
FirstBancorporation. Except as provided in the merger agreement, any failure by
First National or FirstBancorporation to comply with any obligation,
representation, warranty, covenant, agreement or condition in the merger
agreement may be waived by the other party by a written instrument signed by the
party granting such waiver.

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<PAGE> 44

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. federal income tax
consequences of the merger to holders of FirstBancorporation stock and First
National stock. This summary is based on the Internal Revenue Code, treasury
regulations, administrative rulings and court decisions currently in effect, all
of which are subject to change at any time, possibly with retroactive effect.
This summary is not a complete description of all the consequences of the merger
and, in particular, may not address U.S. federal income tax considerations
applicable to shareholders of FirstBancorporation or First National subject to
special treatment under U.S. federal income tax law, such as non-U.S. persons,
financial institutions, dealers in securities and other persons who do not hold
FirstBancorporation stock as a capital asset, insurance companies or tax-exempt
entities, holders who acquired FirstBancorporation stock pursuant to the
exercise of a stock option that vested in whole or in part as a result of the
merger, holders of dissenting shares and holders of FirstBancorporation stock as
part of a hedge, straddle or conversion transaction. In addition, we have not
provided any information with respect to the tax consequences of the merger
under applicable foreign, state or local laws. WE URGE YOU TO CONSULT WITH YOUR
TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO YOU.

In the opinion of Robinson, Bradshaw & Hinson, P.A., counsel to First
National, the merger will be treated as a reorganization within the meaning of
Section 368 of the Internal Revenue Code. Accordingly, First National and its
shareholders will not recognize any gain or loss for U.S. federal income tax
purposes as a result of the merger. The material U.S. federal income tax
consequences of the merger to shareholders of FirstBancorporation who exchange
all their shares of FirstBancorporation stock for shares of First National stock
pursuant to the merger will be as follows:

- No gain or loss will be recognized by a FirstBancorporation shareholder,
except with respect to a FirstBancorporation shareholder who receives
cash in lieu of a fractional share interest in First National stock;

- The aggregate adjusted tax basis of shares of First National stock
received by a FirstBancorporation shareholder will be the same as the
aggregate adjusted tax basis of the shares of FirstBancorporation stock
exchanged therefor, reduced by any amount allocable to a fractional share
interest for which cash is received; and

- The holding period of shares of First National stock received by a
FirstBancorporation shareholder will include the holding period of the
FirstBancorporation stock exchanged therefor.

Based upon the current ruling position of the Internal Revenue Service,
cash received by a shareholder of FirstBancorporation in lieu of a fractional
share interest in First National will be treated as received in redemption of
such fractional share interest, and a shareholder of FirstBancorporation should
generally recognize capital gain or loss for U.S. federal income tax purposes
measured by the difference between the amount of cash received and the portion
of the tax basis of the share of FirstBancorporation stock allocable to such
fractional share interest. Such gain or loss should be a long-term capital gain
or loss if the holding period for such share of FirstBancorporation stock is
greater than one year at the time of the merger. The holding period of a share
of First National stock received in the merger will include the holder's holding
period of the FirstBancorporation stock surrendered in exchange therefor.

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<PAGE> 45

INTERESTS OF CERTAIN PERSONS IN THE MERGER

GENERAL

In connection with their approval of the merger agreement and the
transactions contemplated thereby, the boards of directors of
FirstBancorporation and First National considered the proposed post-merger
participation by certain affiliates of FirstBancorporation in the management of
First National or on its board of directors. The boards also considered the
interests of officers and directors of FirstBancorporation under existing
employment agreements and stock option plans. In addition, the merger agreement
contains provisions relating to the indemnification of such directors and
officers and directors' and officers' liability insurance.

BOARD COMPOSITION AFTER THE MERGER

First National has agreed that Colden R. Battey, Jr., Chairman of the Board
of FirstBancorporation, and Richard L. Gray, a director of FirstBancorporation,
or their designees (if reasonably acceptable to First National), will be elected
to the board of directors of First National after the merger to serve until the
2000 annual meeting of shareholders of First National. First National also has
agreed to use its reasonable best efforts to cause Richard L. Gray and Colden R.
Battey, Jr. to be nominated at the 2000 annual meeting of shareholders to serve
as a director of First National for terms expiring at the 2001 and 2002 annual
meetings of First National shareholders, respectively. In addition, First
National has agreed that Colden R. Battey, Jr., Richard L. Gray and Thomas E.
Suggs, or their designees (if reasonably acceptable to First National), will be
appointed to serve on the board of directors of First National Bank until the
2000 annual meeting of shareholders of First National Bank.

EMPLOYMENT AND CONSULTING AGREEMENTS WITH FIRST NATIONAL

James A. Shuford, III, President and Chief Executive Officer of
FirstBancorporation, will enter into a three-year employment agreement with
First National. See "-- Management After the Merger." In addition, First
National Bank will enter into a consulting agreement with Robert A. Kerr, who is
a director of FirstBancorporation, under which Mr. Kerr will provide consulting
services to First National and its subsidiaries over a three-year period after
the merger, and will agree not to compete with such entities. First National
Bank will pay Mr. Kerr consulting payments of $120,000 over such three-year
period.

CHANGE IN CONTROL AGREEMENTS WITH FIRSTBANCORPORATION

FirstBancorporation has entered into employment agreements with several of
its officers under which such officers would be entitled to certain benefits in
certain cases following a "change in control" of FirstBancorporation. The merger
will constitute a "change in control" of FirstBancorporation for purposes of
these employment agreements. Generally, such agreements provide that
FirstBancorporation or its successor must pay each such officer certain amounts
if after a change in control of FirstBancorporation, such officer either is
terminated or voluntary terminates his employment after a demotion, loss of
title, office or authority, reduction in compensation, or relocation, other than
in the case of death, disability or retirement. The employment agreement between
First National and James A. Shuford, III will replace Mr. Shuford's employment
agreement with FirstBancorporation, and no change in control payment will be
made to Mr. Shuford under

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<PAGE> 46

his current employment agreement with FirstBancorporation. However, Mr. Shuford
will be entitled to certain lump-sum payments under his employment agreement
with First National. The aggregate amount of change in control payments that
First National may be required to make under FirstBancorporation's employment
agreements is $482,000.

FIRSTBANCORPORATION STOCK OPTIONS

At the effective time of the merger, outstanding options to purchase shares
of FirstBancorporation common stock under certain of FirstBancorporation's stock
option plans will be converted into a replacement option to acquire First
National common stock. Moreover, all options granted by FirstBancorporation that
currently are not exercisable will become fully exercisable as a result of the
merger. The number of options that will become exercisable as a result of the
merger is set forth below:

<TABLE>
<CAPTION>
NAME POSITION NUMBER OF OPTIONS
---- -------- -----------------
<S> <C> <C>
James A. Shuford, III....... President and Chief Executive Officer 13,341
All other employees......... 8,135
</TABLE>

INSURANCE AND INDEMNIFICATION

The merger agreement provides that, for a period of three years after the
closing date, First National will maintain the directors' and officers'
liability insurance policies currently maintained by FirstBancorporation, or
acquire policies of at least the same coverage containing terms and conditions
that are not materially less favorable. In addition, under the merger agreement,
First National has agreed to indemnify, defend and hold harmless the directors,
officers and employees of FirstBancorporation against certain liabilities in
connection with their status as directors, officers or employees of
FirstBancorporation.

ACCOUNTING TREATMENT

The merger will be accounted for as a "pooling of interests" under
generally accepted accounting principles. The unaudited pro forma financial
information included in this joint proxy statement/prospectus reflects the
merger using the "pooling of interests" method of accounting. See
"Summary -- Unaudited Comparative Per Share Data," "-- Selected Financial Data
of First National and FirstBancorporation Combined" and "Unaudited Pro Forma
Combined Condensed Financial Information."

REGULATORY MATTERS

First National and FirstBancorporation cannot complete the merger until it
is approved by the Board of Governors of the Federal Reserve System. In
addition, under the merger agreement, FirstBancorporation has agreed to merge
FirstBank of the Midlands, National Association with FirstBank, N.A. and to
merge FirstBank, N.A. with First National Bank. In connection with such mergers,
First National and FirstBancorporation must obtain the approval of the Office of
the Comptroller of the Currency. In addition, First National and
FirstBancorporation will be required to obtain approval of the merger by the
South Carolina Commissioner of Banks. Under South Carolina law, the merger may
not be approved by the Commissioner of Banks until FirstBank of the Midlands has
merged with FirstBank, N.A.

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<PAGE> 47

The merger generally may not be consummated until 30 days (which may be
shortened to 15 days with the consent of the U.S. Department of Justice)
following the date of the Federal Reserve Board approval, during which time the
Department of Justice may challenge the merger on antitrust grounds. The
commencement of an antitrust action by the Department of Justice would stay the
effectiveness of the Federal Reserve Board's approval unless a court
specifically ordered otherwise. First National and FirstBancorporation believe
that the merger does not raise substantial antitrust or other significant
regulatory concerns.

First National and FirstBancorporation have filed all applications and
notices and have taken other appropriate action with respect to any requisite
approvals or other action of any governmental authority. The merger agreement
provides that the obligation of each of First National and FirstBancorporation
to consummate the merger is conditioned upon the receipt of all requisite
regulatory approvals. There can be no assurance that any governmental agency
will approve or take any required action with respect to any of the contemplated
mergers; and, if approvals are received or action is taken, there can be no
assurance as to the date of such approvals or action, that such approvals or
action will not be conditioned upon matters that would cause the parties to
mutually consent to abandon the merger or that no action will be brought
challenging such approvals or action, including a challenge by the Department of
Justice or, if such a challenge is made, the result thereof.

First National and FirstBancorporation are not aware of any governmental
approvals or actions that may be required for consummation of the merger other
than as described above. Should any other approval or action be required, First
National and FirstBancorporation currently contemplate that such approval or
action would be sought.

THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT THE REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN LIKEWISE BE NO
ASSURANCE THAT THE DEPARTMENT OF JUSTICE OR OTHER GOVERNMENTAL AUTHORITIES WILL
NOT CHALLENGE THE MERGER, OR, IF SUCH A CHALLENGE IS MADE, AS TO THE RESULT
THEREOF.

RESTRICTIONS ON RESALES BY AFFILIATES

First National has registered the shares of First National stock issuable
to shareholders of FirstBancorporation upon consummation of the merger under the
Securities Act of 1933. Such securities may be traded freely without restriction
by those FirstBancorporation shareholders who are not deemed to be "affiliates"
of FirstBancorporation at the time of the FirstBancorporation meeting. An
"affiliate" generally includes directors, certain executive officers and
beneficial owners of 10% or more of any class of capital stock.

Shares of First National stock received by affiliates of
FirstBancorporation may be resold only as permitted by Rule 145 under the
Securities Act of 1933, or as otherwise permitted under the Securities Act of
1933. Shares of First National stock received by persons who will become
affiliates of First National may be sold by them only in transactions permitted
under the provisions of Rule 144 under the Securities Act of 1933, or as
otherwise permitted under the Securities Act of 1933.

Guidelines of the Securities and Exchange Commission regarding "pooling of
interests" transactions also limit the sale of shares by affiliates of either
company in a

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<PAGE> 48

business combination. Securities and Exchange Commission guidelines generally
prohibit affiliates from disposing of any shares owned before the merger or
acquired in the merger during the period beginning 30 days before the merger is
consummated and ending when financial results covering at least 30 days of
post-merger operations of the combined companies have been published.

FirstBancorporation has agreed to cause each person who is an affiliate of
FirstBancorporation to deliver to First National a written agreement intended to
ensure compliance with the Securities Act of 1933 and to preserve the ability of
the merger to be accounted for as a pooling of interests. First National and
FirstBancorporation have also agreed to cause the merger to qualify as a pooling
of interests under generally accepted accounting principles and to cause their
affiliates to not transfer shares of First National stock in a manner that would
affect the treatment of the merger as a pooling of interests under generally
accepted accounting principles.

RIGHTS OF DISSENTING SHAREHOLDERS

Under Chapter 13 of the South Carolina Business Corporation Act,
shareholders of South Carolina corporations are permitted to dissent from, and
obtain the value of, their shares in the event of certain corporate actions.
Only holders of FirstBancorporation stock may exercise such dissenters' rights
with respect to the merger. Under the South Carolina Business Corporation Act,
holders of First National stock are not entitled to dissenters' rights.

The following is a summary of the rights of shareholders of
FirstBancorporation under Chapter 13 of the South Carolina Business Corporation
Act. Any shareholder who intends to dissent from consummation of the plan or
merger should carefully review the text and comply with the requirements of
Chapter 13 of the South Carolina Business Corporation Act which is attached as
Appendix E to this joint proxy statement/prospectus, as well as consult with an
attorney. FAILURE TO COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW
WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. No further notice of the events
giving rise to dissenters' rights or any steps associated therewith will be
furnished to shareholders and no notice of approval of the merger will be given
to shareholders.

The merger gives rise to shareholder dissenter's rights which may be
summarized as follows:

(i) A FirstBancorporation shareholder who intends to dissent from the
consummation of the plan of merger must give FirstBancorporation before the
vote is taken written notice of his intent to demand payment for his shares
if the plan of merger is effected. Notice should be mailed to
FirstBancorporation, 1121 Boundary Street, P.O. Box 2147, Beaufort, South
Carolina 29902, Attention: Secretary. A vote against the merger will not be
deemed to satisfy the notice requirement.

(ii) A shareholder of FirstBancorporation who wants to dissent must
not vote his shares in favor of the plan of merger but must instead either
vote against or abstain from voting on the plan of merger.

(iii) No later than ten days after the plan of merger is authorized at
FirstBancorporation's annual meeting, we must send to dissenters a written
dissenters' notice that (a) states where the payment demand must be sent
and where and when certificates for certificated shares must be deposited,
(b) informs holders of uncertificated shares to what extent transfer of the
shares is to be restricted after the

42
<PAGE> 49

payment demand is received, (c) supplies a form for demanding payment that
includes the date of the first announcement to news media or to
shareholders of the terms of the merger and that requires that the
dissenter certify whether or not he acquired beneficial ownership of the
shares before that date, (d) sets a date by which we must receive the
payment demand, which may not be fewer than 30 nor more than 60 days after
the date such notice is mailed, and sets a date by which certificates for
certificated shares must be deposited, which may not be earlier than 20
days after the demand date, and (e) is accompanied with a copy of Chapter
13 of the South Carolina Business Corporation Act. Dissenters receiving
such notice must then demand payment, certify whether they acquired
beneficial ownership of the shares before the date set forth in the
dissenters' notice, and deposit their certificates in accordance with the
terms of the notice provided by us.

(iv) As soon as the merger is consummated, or upon receipt of a
payment demand, we must pay each dissenter the amount we estimate to be the
fair value of the dissenter's dissenting shares, plus interest accrued to
the date of payment. The payment must be accompanied by (a)
FirstBancorporation's balance sheet as of December 31, 1998, (b)
FirstBancorporation's income statement for the year ending December 31,
1998, (c) FirstBancorporation's statement of cash flows for the year ending
December 31, 1998, (d) the latest available interim financial statements,
if any, for FirstBancorporation, (e) an explanation of how we estimated the
fair value of the dissenting shares, (f) an explanation of how the interest
was calculated, (g) a statement of the dissenter's rights to demand payment
and (h) a copy of Chapter 13 of the South Carolina Business Corporation
Act. We may elect to withhold payment required as described above from a
dissenter as to any shares of which he was not the beneficial owner on the
date of the first announcement to news media or to shareholders of the
terms of the plan of merger, unless the beneficial ownership of the shares
was transferred to him by operation of law from a person who was the
beneficial owner on the date of the first announcement. To the extent we
elect to withhold payment under such provisions, after taking the proposed
corporate action, we must estimate the fair value of the shares, plus
accrued interest, and must pay this amount to each dissenter who agrees to
accept it in full satisfaction of his demand. We must send with our offer a
statement of our estimate of the fair value of the shares, an explanation
of how the fair value and interest were calculated, and a statement of the
dissenter's right to demand additional payment.

(v) A dissenter may notify us in writing of his own estimate of the
fair value of his shares and amount of interest due and demand payment of
his estimate or reject our offer and demand payment of the fair value of
his shares and interest due, if the (a) dissenter believe that the amount
paid or offered is less than the fair value of his shares or that the
interest due is calculated incorrectly, (b) we fail to make or offer
payment, as the case may be, within 60 days after the date set for
demanding payment, or (c) having failed to take the proposed action, we do
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment. The notice must be given within 30 days after we made or
offered payment, as the case may be. A dissenter who fails to notify us in
writing of his demand for payment within the 30 day period will be deemed
to have withdrawn his dissent and demand for payment.

(vi) If demand for additional payment remains unsettled, we must
commence a proceeding within 60 days after receiving the demand for
additional payment and

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<PAGE> 50

petition a court to determine the fair value of the shares and accrued
interest. If we do not commence the proceeding within the 60-day period, we
must pay each dissenter whose demand remains unsettled the amount demanded.
We must commence the proceeding in the circuit court of the county where
FirstBancorporation's principal office is located, and we must make all
dissenters, whether or not residents of South Carolina, whose demands
remain unsettled parties to the proceeding as in an action against their
shares. All parties must be served with a copy of the petition, and
nonresidents may be served by registered or certified mail or publication.

MANAGEMENT AFTER THE MERGER

DIRECTORS AFTER THE MERGER

Immediately after the merger, the board of directors of First National will
have 20 members, consisting of 18 current directors of First National and Colden
R. Battey, Jr. and Richard L. Gray, who currently are directors of
FirstBancorporation, or their designees, if reasonably acceptable to First
National.

MANAGEMENT AFTER THE MERGER

It is a condition to the obligations of First National under the merger
agreement that James A. Shuford, III, President and Chief Executive Officer of
FirstBancorporation, enter into an employment agreement with First National as
described below. The term of the employment agreement is three years. Under the
agreement, Mr. Shuford will become the Executive Vice President and Division
Executive of First National Bank and will be entitled, among other things, to:

- a $75,000 signing bonus for entering into the employment agreement;

- an annual base salary of $125,000 (increased to $130,000 30 days after
the merger);

- the right to participate in First National's incentive bonus plans;

- an initial additional payment in the amount of $30,000 if Mr. Shuford
remains employed after the end of the six-month grace period following
the merger;

- a final additional payment in the amount of $45,000 if Mr. Shuford
terminates his employment with First National within one year after the
expiration of the six-month grace period; and

- the use of an automobile, payment of the cost for Mr. Shuford and his
spouse to attend one convention per year and reimbursement for any
country club and other civic dues and fees approved by First National's
board of directors.

The employment agreement provides that if Mr. Shuford is terminated without
"cause," First National must pay Mr. Shuford his base salary for the remainder
of the term and the initial additional payment and final additional payment, if
not already paid by First National. In addition, if Mr. Shuford terminates his
employment because First National assigns him to a position, responsibilities or
duties materially less than those at the time of the employment agreement, or if
he is required to relocate permanently from Beaufort County, South Carolina,
First National must pay Mr. Shuford his base salary for the remainder of the
term of the agreement and the initial additional payment and final additional
payment, if not already paid by First National. Further, if First National

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<PAGE> 51

terminates Mr. Shuford after a "change in control" of First National for any
reason other than disability or for "cause," First National must:

- pay Mr. Shuford an amount equal to his monthly base salary in effect at
the time of termination over a period of 24 months following the date of
termination;

- continue to provide such hospitalization, health, medical and dental
insurance benefits as were available to Mr. Shuford and his family
immediately prior to the change in control for a period of two years
following the date of termination or until Mr. Shuford accepts employment
that offers comparable benefits; and

- cause any non-vested stock options held by Mr. Shuford to vest and become
exercisable.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

First National stock is listed on the American Stock Exchange under the
trading symbol "FNC." As of June 7, 1999, there were 5,835,750 shares of First
National stock outstanding held of record by approximately 1,988 persons. The
following table sets forth the high and low closing market prices of First
National stock as reported by the American Stock Exchange and the quarterly
dividends for the periods indicated. Per share data have been adjusted to give
effect to all stock dividends and stock splits effected during the periods
shown.

<TABLE>
<CAPTION>
PRICE PER SHARE DIVIDENDS
--------------- DECLARED
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Second Quarter (through June 8, 1999)............... $28.50 $26.00 $0.13
First Quarter....................................... 29.00 25.00 0.13
YEAR ENDED DECEMBER 31, 1998
Fourth Quarter...................................... 28.80 22.50 0.13
Third Quarter....................................... 25.65 21.49 0.13
Second Quarter...................................... 25.09 21.49 0.11
First Quarter....................................... 23.40 21.38 0.11
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter...................................... 24.08 19.80 0.11
Third Quarter....................................... 24.35 22.50 0.10
Second Quarter...................................... 25.15 19.30 0.95
First Quarter....................................... * * 0.95
</TABLE>

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

* On January 28, 1997, First National common stock was listed for trading on the
American Stock Exchange. Trading on the American Stock Exchange opened at
$14.40 per share, and trading prices ranged from $14.40 to $19.47 per share
from January 28, 1997 to March 31, 1997 (in each case, after giving
retroactive effect to stock dividends and stock splits). First National
believes that, after giving retroactive effect to stock dividends and stock
splits, First National stock traded at prices ranging from $9.90 to $12.60 per
share during the period from January 1, 1996 to January 27, 1997. However,
management has knowledge of only a limited number of trades during such period
and has no independent means of verifying the price at which any such trades
occurred.

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<PAGE> 52

FirstBancorporation common stock is not listed on any securities exchange
or quoted on any automated quotation system, and there is no established public
trading market for FirstBancorporation stock. The market for FirstBancorporation
stock is highly illiquid. As of June 7, 1999, there were 963,325 shares of
FirstBancorporation Stock outstanding held of record by approximately 804
persons. The following table sets forth the high and low sales prices of the
FirstBancorporation stock, adjusted to reflect all stock dividends effected
during such period, for trades known to management for the periods indicated.

<TABLE>
<CAPTION>
PRICE PER SHARE
---------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Second Quarter (through June 8, 1999)..................... $25.00 $25.00
First Quarter............................................. 25.00 18.00
YEAR ENDED DECEMBER 31, 1998
Fourth Quarter............................................ 18.00 18.00
Third Quarter............................................. 18.00 18.00
Second Quarter............................................ 18.00 18.00
First Quarter............................................. 15.00 14.00
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter............................................ 14.00 14.00
Third Quarter............................................. 14.00 14.00
Second Quarter............................................ 14.00 13.00
First Quarter............................................. 11.82 11.82
</TABLE>

FirstBancorporation has never paid cash dividends.

INFORMATION ABOUT FIRST NATIONAL

First National is a multi-bank holding company established as a South
Carolina corporation in 1985 and is registered under the Bank Holding Company
Act, with its principal assets being the stock of its subsidiaries. First
National owns all the outstanding capital stock of First National Bank, a
national bank headquartered in Orangeburg, South Carolina, Florence County
National Bank, a national bank headquartered in Florence, South Carolina, and
National Bank of York County, a national bank headquartered in Rock Hill, South
Carolina. First National also owns 80% of NewSouth Financial Services
Corporation, an upscale finance company which opened for business in 1998. Some
of the major services that First National provides through its banking
subsidiaries include checking, NOW accounts, savings and other time deposits of
various types, alternative investment products such as annuities and mutual
funds, loans for businesses, agriculture, real estate, personal use, home
improvement and automobiles, credit cards, letters of credit, home equity lines
of credit, safe deposit boxes, bank money orders, wire transfer services, trust
services, discount brokerage services, and the use of automated teller machines.
The principal executive offices of First National are located at 950 John C.
Calhoun Drive, S.E., Orangeburg, South Carolina 29115, and its telephone number
is (803) 534-2175.

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<PAGE> 53

INFORMATION ABOUT FIRSTBANCORPORATION

FirstBancorporation is a multi-bank holding company registered under the
Bank Holding Company Act. Its business consists primarily of directing the
affairs of its two subsidiaries, FirstBank, N.A. and FirstBank of the Midlands,
National Association, each of which is a national bank regulated by the Office
of the Comptroller of the Currency. FirstBank, N.A. is the successor to The
Savings Bank of Beaufort County, FSB, a federally-chartered stock savings bank
that was formed as a de novo institution in 1986 and converted to a national
bank in June 1995. First Bank of the Midlands, National Association, was
chartered as a national bank on September 1, 1998. The principal executive
offices of FirstBancorporation are located at 1121 Boundary Street, Beaufort,
South Carolina 29902, and its telephone number is (843) 521-5600.

FirstBancorporation's national banking subsidiaries operate as community
banks devoted to serving the personal banking needs of residents of their
primary market areas, as well as the commercial banking needs of small
businesses owned and operated by those residents. Its business primarily
consists of attracting deposits from the general public and using those funds to
originate loans secured by real estate, including construction loans, located in
its primary market area. FirstBank, N.A. conducts its business from its main
office located in downtown Beaufort, South Carolina, a full service branch
office located on Lady's Island in Beaufort, South Carolina, and a full service
branch office located in Bluffton, South Carolina. FirstBank of the Midlands
conducts its business from its main office at 1900 Assembly Street, Columbia,
South Carolina. A copy of FirstBancorporation's 1998 annual report on Form
10-KSB is attached to the joint proxy statement/prospectus as Appendix G, and
FirstBancorporation's unaudited financial statements for the quarter ended March
31, 1999 are attached as Appendix H.

SUPERVISION AND REGULATION OF FIRST NATIONAL AND FIRSTBANCORPORATION

GENERAL

As registered bank holding companies, First National and
FirstBancorporation are subject to the supervision of, and to regular inspection
by, the Board of Governors of the Federal Reserve System. The bank subsidiaries
of both First National and FirstBancorporation are organized as national banking
associations, which are subject to regulation, supervision and examination by
the Comptroller of the Currency. These banks are also subject to regulation by
the Federal Deposit Insurance Corporation and other U.S. federal regulatory
agencies. In addition to banking laws, regulations and regulatory agencies,
First National and FirstBancorporation and their subsidiaries and affiliates are
subject to various other laws and regulations and supervision and examination by
other regulatory agencies, all of which, directly or indirectly, affect the
operations and management of First National and FirstBancorporation and their
ability to make distributions. The following discussion summarizes certain
aspects of those laws and regulations that affect First National and
FirstBancorporation.

The activities of First National and FirstBancorporation and those of
companies that each controls or in which either holds more than five percent of
the voting stock are limited to banking, managing or controlling banks,
furnishing services to or performing services for their subsidiaries or any
other activity that the Federal Reserve Board determines to be so closely
related to banking or managing or controlling banks as to be a

47
<PAGE> 54

proper incident thereto. In making such determinations, the Federal Reserve
Board is required to consider whether the performance of such activities by a
bank holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition or
gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. Generally, bank holding companies, such
as First National and FirstBancorporation, are required to obtain prior approval
of the Federal Reserve Board to engage in any new activity or to acquire more
than five percent of any class of voting stock of any company.

Bank holding companies are also required to obtain the prior approval of
the Federal Reserve Board before acquiring more than five percent of any class
of voting stock of any bank that is not already majority owned by the bank
holding company. Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, bank holding companies became able to acquire banks in
states other than their home states beginning September 29, 1995, without regard
to the permissibility of such acquisitions under state law, but subject to any
state requirement that the bank be organized and operating for a minimum period
of time, not to exceed five years, and the requirement that the bank holding
company, prior to or following the proposed acquisition, controls no more than
10% of the total amount of deposits of insured depository institutions in the
United States and less than 30% of such deposits in that state (or such lesser
or greater amount set by state law).

The Riegle-Neal Interstate Banking and Branching Act also authorizes banks
to merge across state lines, subject to certain restrictions, thereby creating
interstate branches. Pursuant to the Riegle-Neal Interstate Banking and
Branching Act, a bank is now able to open new branches in a state in which it
does not already have banking operations if the state enacts a law permitting
such de novo branching. Neither First National nor FirstBancorporation currently
operate interstate banks.

Proposals to change the laws and regulations governing the banking industry
are frequently introduced in the U.S. Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such proposals or bills being enacted and the impact they might have on First
National, FirstBancorporation and their subsidiaries cannot be determined at
this time.

CAPITAL AND OPERATIONAL REQUIREMENTS

The Federal Reserve Board, the Comptroller of the Currency and the Federal
Deposit Insurance Corporation have issued substantially similar risk-based and
leverage capital guidelines applicable to U.S. banking organizations. In
addition, those regulatory agencies may from time to time require that a banking
organization maintain capital above the minimum levels, whether because of its
financial condition or actual or anticipated growth. The Federal Reserve Board
risk-based guidelines define a two-tier capital framework. "Tier 1 Capital"
consists of common and qualifying preferred shareholders' equity, less certain
intangibles and other adjustments. "Tier 2 Capital" consists of subordinated and
other qualifying debt, and the allowance for credit losses up to 1.25% of
risk-weighted assets. The sum of Tier 1 capital and Tier 2 capital less
investments in unconsolidated subsidiaries represents qualifying "total
capital," at least 50% of which must consist of Tier 1 capital. Risk-based
capital ratios are calculated by dividing Tier 1 capital and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one

48
<PAGE> 55

of four categories of risk weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%.
First National's Tier 1 capital and total risk-based capital ratios under these
guidelines at March 31, 1999 were 13.8% and 15.2%, respectively, and
FirstBancorporation's were 18.6% and 19.7%, respectively.

The "leverage ratio" is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. First National's and FirstBancorporation's leverage ratios at
March 31, 1999 were 9.0% and 11.6%, respectively.

The Federal Deposit Insurance Corporation Improvement Act of 1991, among
other things, identifies five capital categories for insured depository
institutions (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized) and requires the
respective U.S. federal regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements within such categories. The Federal Deposit Insurance
Corporation Improvement Act of 1991 imposes progressively more restrictive
constraints on operations, management and capital distributions, depending on
the category in which an institution is classified. Failure to meet the capital
guidelines could also subject a banking institution to capital raising
requirements. An "undercapitalized" bank must develop a capital restoration plan
and its parent holding company must guarantee that bank's compliance with the
plan. The liability of the parent holding company under any such guarantee is
limited to the lesser of five percent of the bank's assets at the time it became
undercapitalized or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, the
Federal Deposit Insurance Corporation Improvement Act of 1991 requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.

The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by the Federal
Deposit Insurance Corporation Improvement Act of 1991, using the total
risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the
relevant capital measures. Such regulations establish various degrees of
corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of a least 5% and not be subject to a capital directive
order. An "adequately capitalized" institution must have a Tier 1 capital ratio
of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at
least 4%, or 3% in some cases. Under these guidelines, each of the banking
subsidiaries of First National and FirstBancorporation is considered "well
capitalized."

Banking agencies have also adopted regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet position) in the determination of a bank's
capital adequacy. Concurrently, banking agencies

49
<PAGE> 56

have proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, those banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.

DISTRIBUTIONS

First National and FirstBancorporation both derive funds primarily from
dividends received from their banking subsidiaries. Each of their banking
subsidiaries is subject to various general regulatory policies and requirements
relating to the payment of dividends, including requirements to maintain capital
above regulatory minimums. The appropriate U.S. federal regulatory authority is
authorized to determine under certain circumstances relating to the financial
condition of the bank or bank holding company that the payment of dividends
would be an unsafe or unsound practice and to prohibit payment thereof.

In addition to the foregoing, the ability of First National,
FirstBancorporation and their respective banking subsidiaries to pay dividends
may be affected by the various minimum capital requirements and the capital and
non-capital standards established under the Federal Deposit Insurance
Corporation Improvement Act of 1991, as described above. The right of First
National, FirstBancorporation, their respective shareholders and their
respective creditors to participate in any distribution of the assets or
earnings of their respective subsidiaries is further subject to the prior claims
of creditors of the respective subsidiaries.

"SOURCE OF STRENGTH" POLICY

According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance
Act, in the event of a loss suffered or anticipated by the Federal Deposit
Insurance Corporation -- either as a result of default of a banking or thrift
subsidiary of a bank holding company such as First National or
FirstBancorporation or related to the Federal Deposit Insurance Corporation's
assistance provided to a subsidiary in danger of default -- the other banking
subsidiaries of such bank holding company may be assessed for the Federal
Deposit Insurance Corporation's loss, subject to certain exceptions.

OTHER MATTERS RELATING TO THE FIRST NATIONAL MEETING

ELECTION OF DIRECTORS

The articles of incorporation of First National provide for a maximum of 20
directors, to be divided into three classes each serving three-year terms, with
the classes as equal in number as possible. The board of directors of First
National has set the number of directors at 20. William W. Coleman, Jr., Robert
R. Hill, Jr., Ralph W. Norman, C. Parker Dempsey, Anne H. Oswald, Samuel A.
Rodgers and A. Dewell Waters, all of whom currently are directors of First
National and whose terms expire at the annual meeting, have been nominated by
the First National board of directors for reelection by the shareholders. If
elected, all nominees except Mr. Dempsey will serve until the 2002 annual
meeting, and Mr. Dempsey will serve until the 2000 annual meeting. However, if

50
<PAGE> 57

the merger between First National and FirstBancorporation is consummated, Mr.
Dempsey and E. Everett Gasque, Jr. will resign from the board of directors of
First National at the effective time of the merger to create vacancies for two
persons designated by FirstBancorporation to be elected to the board of
directors of First National. First National's bylaws provide that no shareholder
may nominate a person for election as a director of First National unless the
shareholder has notified the Secretary of First National in writing not less
than 45 days prior to the meeting at which directors are to be elected. Such
notice must set forth the name of the nominee, his or her address, the number of
shares of First National stock owned by the nominee and the name and address of
the shareholder making the nomination.

The table below sets forth the name, age and business experience for the
past five years for each of the directors of First National.

William W. Coleman, Jr.(49).......... 1999 President of Florence County National Bank
since April 1998; Organizer of Florence
County National Bank from September 1997 to
April 1998; Area Executive for National
Bank of South Carolina from 1992 to 1997.
Robert R. Hill, Jr.(32).............. 1996 Senior Executive Vice President and Chief
Operating Officer of First National Bank
since January 1999; President of the
National Bank of York County from July 1996
to January 1999; Organizer of the National
Bank of York County from October 1995 to
July 1996; Team Leader for the northern
region of South Carolina for NationsBank,
N.A. from March 1995 to October 1995; Vice
President of Commercial Lending of Rock
Hill National Bank from October 1990 to
March 1995.
Ralph W. Norman(45).................. 1996 President of Warren Norman Co., Inc., a
real estate brokerage firm; Chairman of the
Board of the National Bank of York County.
Anne H. Oswald(51)................... 1991 Partner, Oswald and White Realty, a real
estate brokerage agency.
Samuel A. Rodgers(67)................ 1998 Vice Chairman of Carolina Eastern, Inc., a
distributor of agricultural products;
Chairman of the Board of Florence County
National Bank
A. Dewall Waters(54)................. 1987 Partner, Main Waters Enterprises
Partnership, which owns and operates
McDonalds' restaurants.
</TABLE>

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<PAGE> 58

C. Parker Dempsey(70)(1)............. 1983* Secretary of Dempsey Wood Products, Inc., a
lumber manufacturer, since 1990; prior to
1990, Executive Vice President of Stone
Forest Industries, a company engaged in
forestry services.

CURRENT DIRECTORS WHOSE TERMS EXPIRE IN 2000

Walter L. Tobin(57).................. 1996 Superintendent of School District Five in
Orangeburg County.
Charles W. Clark(49)................. 1993 President of Santee Shores, Inc., a company
engaged in the development and management
of real estate.
C. John Hipp, III(47)................ 1994 President and Chief Executive Officer of
First National and First National Bank
since 1994; from 1991 to 1994, President of
Rock Hill National Bank and Rock Hill
National Bank Corporation; from 1990 to
1991, Executive Vice President of Rock Hill
National Bank.
Dwight W. Frierson(42)............... 1996 Vice President and General Manager of
Orangeburg Coca-Cola Bottling Company;
owner and operator of TCBY franchise in
Orangeburg, South Carolina; Partner in a
TCBY franchise in Lexington County, South
Carolina.
Edward V. Mirmow, Jr.(68)............ 1983* Retired attorney.
Larry D. Westbury(66)................ 1986 Vice Chairman of the Board of First
National and First National Bank since
1998; from 1994 to 1998, Chairman of the
Board of First National and First National
Bank; Retired in 1994 as President and
Chief Executive Officer of First National
and First National Bank.

CURRENT DIRECTORS WHOSE TERMS EXPIRE IN 2001
E. Everett Gasque, Jr.(68)(1)........ 1993 President of E. E. Gasque & Son, Inc., a
company that provides farming supplies and
products.
John L. Gramling, Jr.(67)............ 1974* Farmer.
</TABLE>

52
<PAGE> 59

<TABLE>
<CAPTION>
YEAR ELECTED
NAME AND AGE DIRECTOR BUSINESS EXPERIENCE FOR THE PAST FIVE YEARS
- ------------ ------------ -------------------------------------------
<S> <C> <C>
Robert R. Horger(48)................. 1991 Chairman of the Board of First National and
First National Bank since 1998; from 1994
to 1998, Vice Chairman of the Board of
First National and First National Bank;
Attorney, Horger, Barnwell and Reid in
Orangeburg, South Carolina.
Harry M. Mims, Jr.(57)............... 1988 President of J. F. Cleckley & Company, a
company engaged in site development and
paving.
Cathy Cox Yeadon(49)................. 1997 Human Resources Manager of Cox Wood
Preserving Co., Inc, a wood preserver.
James W. Roquemore(43)............... 1994 Executive Vice President of Patten Seed
Company, Inc. in Lakeland, Georgia, and
General Manager of Super Sod/Carolina, a
company that produces and markets turf,
grass, sod and seed. Owner and operator of
golf courses in Georgia.
Johnny E. Ward(57)................... 1991 President of W & W Truck & Tractor Company,
Inc., a company that provides logging and
farming equipment, sales and service.
</TABLE>

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

* Includes service as a director of First National Bank prior to the formation
of First National in 1985.
(1) At the effective time of the merger of FirstBancorporation with First
National, C. Parker Dempsey and E. Everett Gasque, Jr. will resign from the
board of directors of First National to create vacancies for two persons
affiliated with FirstBancorporation to be elected to the board of directors
of FirstBancorporation. See "The Merger -- Management After the Merger."

COMPENSATION OF DIRECTORS

During 1998, First National directors each received an annual retainer of
$1,200, payable quarterly, plus a fee of $250 per month. In addition, members of
the executive committee also received an annual retainer of $7,800, paid at the
rate of $150 per week. Members of the audit committee were paid $100 per
committee meeting attended. Directors who are also officers of First National or
its subsidiaries do not receive any such fees.

MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES

During 1998, the board of directors of First National held six regular
meetings. Other than Walter L. Tobin, each director attended at least 75% of the
aggregate of (a) the total number of meetings of the board of directors of First
National held during the period for which he or she served as a director and (b)
the total number of meetings held by all committees of the board of directors of
First National on which he or she served.

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<PAGE> 60

The board of directors of First National maintains audit, compensation,
executive and policy committees. The functions, composition and frequency of
meetings for these committees during 1998 were as follows:

AUDIT COMMITTEE. The audit committee is composed of Johnny E. Ward,
Chairman, E. Everett Gasque, Jr., Ralph W. Norman, and Dwight W. Frierson. The
audit committee held 12 meetings in 1998. The audit committee recommends to the
board of directors the appointment of independent auditors, reviews with the
independent auditors the recommendations and results of the audit engagement,
maintains direct reporting responsibility and regular communication with the
internal audit staff of First National, First National Bank, Florence County
National Bank and the National Bank of York County, reviews the scope and the
results of the audits of First National's internal audit department and other
matters pertaining to First National's accounting and financial reporting
functions, approves the services to be performed by the independent auditors,
considers the range of audit and non-audit fees, and reviews the adequacy of
First National's, First National Bank's, Florence County National Bank's and the
National Bank of York County's systems of internal accounting controls.

EXECUTIVE COMMITTEE. The executive committee is composed of Robert R.
Horger, Chairman, Dwight W. Frierson, Larry D. Westbury, James W. Roquemore,
Edward V. Mirmow, Jr., Charles W. Clark, Harry M. Mims, Jr., and C. John Hipp,
III. The board of directors of First National may, by resolution adopted by a
majority of its members, delegate to the executive committee the power, with
certain exceptions, to exercise the authority of the board of directors in the
management of the affairs of First National. The executive committee also acts
as nominating committee for the purpose of recommending to the board of
directors nominees for election to the board of directors. The executive
committee will consider nominees recommended by record shareholders if the
nomination is in writing and delivered to the Secretary of First National not
less than 45 days prior to the meeting of shareholders at which directors are to
be elected. The written nomination must state the name, address and number of
shares owned by the nominee, and the name and address of the shareholder making
the nomination. The executive committee met 49 times in 1998.

COMPENSATION COMMITTEE. The compensation committee is composed of A.
Dewall Waters, Chairman, C. Parker Dempsey, Harry M. Mims, Jr., Larry D.
Westbury and C. John Hipp, III. The compensation committee met one time in 1998.
The compensation committee evaluates the performance of the executive officers
of First National and recommends to the board of directors, through the
executive committee, matters concerning compensation, salaries, and other forms
of executive compensation to officers of First National Bank, the National Bank
of York County, Florence County National Bank and NewSouth Financial Services
Corporation.

POLICY COMMITTEE. The policy committee is composed of Larry D. Westbury,
Chairman, Robert R. Horger, C. John Hipp, III, Dwight W. Frierson, III, Charles
W. Clark, Harry M. Mims, Jr., James W. Roquemore, and Edward V. Mirmow, Jr. The
primary purpose of the policy committee is to recommend new policies and review
present policies of First National. The policy committee met one time in 1998.

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<PAGE> 61

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of June 7, 1999, the number and
percentage of outstanding shares beneficially owned by (i) each director and
nominee for director of First National, (ii) each person named in the First
National Summary Compensation Table set forth below, and (iii) all executive
officers and directors of First National as a group. First National knows of no
person who owns more than five percent of the outstanding shares of First
National stock.

<TABLE>
<CAPTION>
SHARES OWNERSHIP
NAME BENEFICIALLY OWNED PERCENTAGE
---- ------------------ ----------
<S> <C> <C>
Charles W. Clark................................ 68,611 1.2%
William W. Coleman, Jr.......................... 12,452(1)(2) *
C. Parker Dempsey............................... 8,582 *
Dwight W. Frierson.............................. 5,217(3) *
E. Everett Gasque, Jr........................... 47,941(4) *
John L. Gramling, Jr............................ 6,573(5) *
Robert R. Hill, Jr.............................. 17,716(2)(6) *
C. John Hipp, III............................... 56,015(2)(7)(8) *
Robert R. Horger................................ 31,601(9) *
James C. Hunter, Jr............................. 28,922(2)(8)(10) *
Harry M. Mims, Jr............................... 29,316 *
Edward V. Mirmow, Jr............................ 94,707(11) 1.6%
Dane H. Murray.................................. 45,435(2)(8)(12) *
Ralph W. Norman................................. 5,785(13) *
Anne H. Oswald.................................. 727 *
Samuel A. Rodgers............................... 11,036 *
James W. Roquemore.............................. 15,601(14) *
Phil M. Smith................................... 29,955(2)(8)(15) *
Walter L. Tobin................................. 462(16) *
Johnny E. Ward.................................. 55,723(17) *
A. Dewall Waters................................ 24,078(18) *
Larry D. Westbury............................... 22,694 *
Cathy Cox Yeadon................................ 7,500(19) *
All directors and executive officers as a group
(25 persons).................................. 653,597(20) 11.2%
</TABLE>

- -------------------------
* Indicates less than one percent of the outstanding shares First National
common stock.

(1) Includes 110 shares owned jointly with Mr. Coleman's spouse and 2,541
shares held in an individual retirement account.

(2) Mr. Coleman, Mr. Hill, Mr. Hipp, Mr. Hunter, Mr. Murray and Mr. Smith are
partners in a partnership that owns shares of First National stock. The
partnership agreement requires unanimous consent to vote or dispose of any
shares of First National stock held by the partnership. The table above
reflects each partner's interest in such partnership as follows: Mr.
Coleman -- 6,686 shares; Mr. Hill -- 6,686 shares; Mr. Hipp -- 6,690
shares; Mr. Hunter -- 3,343 shares; Mr. Murray -- 3,343 shares; and Mr.
Smith -- 3,343 shares.

(3) Includes 3,306 shares jointly owned with Mr. Frierson's spouse and 1,911
shares held as custodian for Mr. Frierson's children.

55
<PAGE> 62

(4) Includes 2,736 shares owned by Mr. Gasque's spouse.

(5) Includes 748 shares owned by Mr. Gramling's spouse.

(6) Includes 1,005 shares held in an individual retirement account and 5,775
shares subject to currently exercisable options.

(7) Includes 4,506 shares in an individual retirement account; 382 shares owned
by Mr. Hipp's spouse in an individual retirement account; 9,240 shares
subject to currently exercisable options; and 13,158 shares of restricted
stock which Mr. Hipp presently has the right to vote.

(8) Mr. Hipp, Mr. Hunter, Mr. Murray and Mr. Smith are partners in a
partnership that owns shares of First National stock. The partnership
agreement requires unanimous consent to vote or dispose of any shares of
First National stock held by the partnership. The table reflects each
partner's interest in such partnership as follows: Mr. Hipp -- 5,788
shares; Mr. Hunter -- 5,788 shares; Mr. Murray -- 5,788 shares; and Mr.
Smith -- 5,788 shares.

(9) Includes 7,741 shares held in an individual retirement account; 693 shares
held as custodian for Mr. Horger's daughter; and 3,300 shares owned by Mr.
Horger's spouse.

(10) Includes 1,846 shares owned jointly with Mr. Hunter's spouse; 401 shares
owned by Mr. Hunter's spouse; and 4,330 shares held in an individual
retirement account.

(11) Includes 2,310 shares owned by Mr. Mirmow's spouse.

(12) Includes 5,794 shares held in an individual retirement account; 1,910
shares owned by Mr. Murray's spouse in an individual retirement account;
670 shares held by Mr. Murray's spouse as custodian for a child; and 5,775
shares subject to currently exercisable options.

(13) Includes 1,509 shares held by Mr. Norman's spouse as custodian for their
children.

(14) Includes 1,152 shares in an individual retirement account; 2,891 shares
owned by Mr. Roquemore's spouse in an individual retirement account; and
5,027 shares held by Mr. Roquemore as custodian for his children.

(15) Includes 14,241 shares owned jointly with Mr. Smith's spouse; 808 shares in
First National's 401(k) plan; and 5,775 shares subject to currently
exercisable options.

(16) Such shares are jointly owned with Mr. Tobin's spouse.

(17) Includes 19,623 shares held in an individual retirement account; 231 shares
held by Mr. Ward as custodian for his grandchild; 4,800 shares held by a
partnership in which Mr. Ward is a partner; 2,956 shares owned by Mr.
Ward's spouse; and 4,829 shares held in a retirement plan.

(18) Includes 11,391 shares held in an individual retirement account.

(19) Includes 2,015 shares owned by Mrs. Yeadon's spouse.

(20) Includes 54,400 shares subject to currently exercisable options.

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<PAGE> 63

EXECUTIVE COMPENSATION

The following table summarizes for the years indicated the current and
long-term compensation for the Chief Executive Officer of First National and the
four most highly compensated executive officers other than the Chief Executive
Officer.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------------
ANNUAL NUMBER OF
COMPENSATION(1) LONG TERM SECURITIES
EXECUTIVE OFFICER ------------------- RESTRICTED UNDERLYING ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY BONUS(2) STOCK AWARDS OPTIONS(3) COMPENSATION(4)
---------------------- ---- -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
C. John Hipp, III........ 1998 $204,721 $68,875 -- -- $5,556
President and Chief 1997 174,231 49,157 -- -- 4,523
Executive Officer 1996 157,772 30,704 135,000(5) 18,480 4,172
James C. Hunter, Jr...... 1998 105,250 42,031 -- -- 3,215
Executive Vice 1997 93,534 24,229 -- -- 2,578
President 1996 92,043 15,960 -- 11,550 2,467
Robert R. Hill, Jr....... 1998 105,077 6,000 -- -- 3,245
Senior Executive 1997 93,534 4,500 -- -- 2,781
Vice President 1996 92,043 -- -- 11,550 850
Dane H. Murray........... 1998 95,631 31,164 -- -- 2,951
Executive Vice 1997 81,236 25,459 -- -- 2,292
President 1996 72,312 22,558 -- 11,550 2,063
Phil M. Smith............ 1998 93,000 31,040 -- -- 2,947
Executive Vice 1997 82,543 24,207 -- -- 2,283
President 1996 70,897 21,458 -- 11,550 2,040
</TABLE>

- -------------------------
(1) Perquisites and personal benefits did not exceed the lesser of $50,000 or
10% of total salary plus bonus.

(2) Figures shown represent actual cash bonuses paid during the year indicated.
First National Bank maintains an incentive compensation plan. Amounts
payable under the incentive compensation plan are based on First National's
performance in terms of its return on equity for any calendar year. The
First National Bank compensation committee sets performance goals for First
National at the beginning of any calendar year. The board of directors of
First National, however, has the discretion to change during any year the
performance goals, payment amounts and other requirements of the incentive
compensation plan. The incentive compensation plan creates an "incentive
pool" determined by multiplying a certain percentage of First National Bank
income over a stated percentage return on equity for the calendar year in
question. Amounts paid into the incentive pool are distributed to
participating employees based on the individual employee's merit and salary
level.

(3) Figures shown represent the number of shares of First National stock subject
to options awarded to the named officers during the years indicated.

57
<PAGE> 64

(4) Includes contributions by First National Bank through matching or
discretionary contributions to its employee savings plan allocated to the
named officers' accounts, and term life insurance premiums paid by First
National Bank for the benefit of the named executive officers as follows:

<TABLE>
<CAPTION>
EMPLOYEE LIFE INSURANCE
SAVINGS PLAN PREMIUMS
------------ --------------
<S> <C> <C> <C>
C. John Hipp, III............................... 1998 $3,200 $2,356
1997 3,200 1,323
1996 3,000 1,172
James C. Hunter, Jr............................. 1998 2,031 1,184
1997 1,870 708
1996 1,789 678
Robert R. Hill, Jr.............................. 1998 2,150 1,095
1997 1,806 975
1996 -- 850
Dane H. Murray.................................. 1998 1,868 1,083
1997 1,647 645
1996 1,497 566
Phil M. Smith................................... 1998 1,877 1,070
1997 1,650 632
1996 1,479 561
</TABLE>

The employee savings plan is a "tax qualified" plan under Section
401(a) of the Internal Revenue Code and covers all First National Bank
employees.

(5) Represents the value as of the date of grant of 11,977 shares of restricted
stock granted to Mr. Hipp in 1996. The value of restricted stock holdings at
December 31, 1998 was $335,356.

EMPLOYMENT AGREEMENT

In March 1994, C. John Hipp, III, entered into an employment agreement with
First National providing for his employment as President and Chief Executive
Officer of First National Bank. The term of the agreement began May 1, 1994, and
ended April 30, 1997, with provision for Mr. Hipp's continued employment at will
after April 30, 1997. The agreement provides for compensation for Mr. Hipp at
the 1994 level or a greater rate set by the board of directors of First National
or by a committee appointed by the board of directors, plus fringe benefits and
reimbursement of expenses. Under the terms of the agreement, Mr. Hipp has also
been granted options to purchase up to a total of 13,975 shares of First
National stock (after giving effect to all stock dividends and splits since the
date of original grant) under the terms and conditions of First National's 1992
stock option plan. If Mr. Hipp's employment is terminated for any reason by
either Mr. Hipp or by First National after April 30, 1997 and prior to April 30,
2004, following a sale or merger, Mr. Hipp will be entitled to continued
compensation at the rate then in effect for a period of three years or until
April 30, 2004, whichever period is shorter. If Mr. Hipp is terminated after
April 30, 1997 and prior to April 30, 2004 without cause or because of death or
disability, Mr. Hipp (or his estate) will be entitled to be paid his then
current salary for a period of one year from the date of such termination. Upon
termination without cause, after a sale or merger, or after disability, Mr. Hipp
is under an affirmative

58
<PAGE> 65

obligation for one year following termination to actively seek and accept
comparable alternative employment, and any compensation received by him or
earnable by him with reasonable diligence following such termination will be
deducted from amounts owed to him by First National under the employment
agreement.

RESTRICTED STOCK PLAN

On January 25, 1996, the board of directors of First National approved the
issuance of restricted stock to C. John Hipp, III, President and Chief Executive
Officer of First National. On March 7, 1996, the board of directors fixed the
number of restricted shares issuable at 11,977 (after giving effect to all stock
dividends and splits since the date of original grant). The grant is conditioned
upon continued employment of Mr. Hipp as Chief Executive Officer of First
National at each vesting date as follows: a) 25% of the shares vest free of
restrictions in 1999; b) an additional 25% of the shares vest free of
restrictions in 2001; and c) the remaining 50% of the shares vest free of
restrictions in 2003. Termination of Mr. Hipp's employment as Chief Executive
Officer for any reason (except death or change in control of First National)
prior to a vesting date would terminate any interest in non-vested shares. Prior
to vesting of the shares, as long as Mr. Hipp remains Chief Executive Officer of
First National, he will have the right to vote such shares and to receive
dividends paid with respect to such shares. All restricted shares will fully
vest in the event of a change in control of First National or upon death of Mr.
Hipp while serving as Chief Executive Officer.

STOCK OPTIONS

The following table shows the total number of options held at December 31,
1998. None of the executive officers listed below exercised any options during
1998.

AGGREGATED OPTION EXERCISES DURING 1998 AND
YEAR END 1998 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-
SHARES UNEXERCISED OPTIONS(1) THE-MONEY OPTIONS(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXECUTIVE OFFICER EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. John Hipp, III.... -- -- 23,215 9,240 $407,005 $150,704
James C. Hunter,
Jr................. -- -- 5,775 5,775 94,190 94,190
Robert R. Hill,
Jr................. -- -- 5,775 5,775 94,190 94,190
Dane H. Murray....... -- -- 5,775 5,775 94,190 94,190
Phil M. Smith........ -- -- 5,775 5,775 94,190 94,190
</TABLE>

- -------------------------
(1) Figures shown represent the total number of shares subject to unexercised
options held by the indicated executive officers at year end 1998. The
number of shares subject to options which were exercisable and unexercisable
at year end 1998 is also shown. The number of options granted has been
adjusted to reflect all stock splits and dividends.

(2) Dollar amounts shown represent the value of stock options held by the
indicated executive officers at December 31, 1998. Only those shares subject
to options which are "in-the-money" are reported. Shares subject to an
option are considered to be "in-the-money" if the fair market value at
December 31, 1998 of such shares of First

59
<PAGE> 66

National stock exceeds the exercise or base price of such shares. At
December 31, 1998, First National's stock price exceeded the exercise price
of all shares subject to option, thus all stock options were considered
"in-the-money." For those options "in-the-money" value is computed based on
the difference between the fair market value of the First National stock at
December 31, 1998 and the exercise or base price of the shares subject to
underlying option. The value of shares subject to options exercisable and
unexercisable at December 31, 1998 is also shown.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee for the year ended December 31, 1998 was
composed of A. Dewall Waters, Chairman, C. Parker Dempsey, Harry M. Mims, Jr.,
Larry D. Westbury and C. John Hipp, III. Mr. Hipp is currently President and
Chief Executive Officer of First National and First National Bank, and Mr.
Westbury is currently Vice Chairman of the Board of First National and is the
former Chairman, President and Chief Executive Officer of First National and
First National Bank. Although Mr. Hipp specifically excluded himself from any
compensation committee discussions concerning his own compensation, he did
participate in discussions concerning the compensation of other executive
officers.

REPORT ON EXECUTIVE OFFICER COMPENSATION

First National's compensation committee is required to provide shareholders
of First National with a report discussing the basis for the compensation
committee's action in establishing compensation for First National's executive
officers. The report is also required to discuss the relationship, if any,
between First National's performance and executive officer compensation.
Finally, the report must specifically discuss the factors and criteria upon
which the compensation paid to First National's Chief Executive Officer was
based.

The fundamental philosophy of First National's compensation program is to
offer competitive compensation opportunities for executive officers that are
based both on the individual's contribution and on First National's performance.
The compensation paid is designed to retain and reward executive officers who
are capable of leading First National in achieving its business objectives in an
industry characterized by complexity, competitive-ness and change. The
compensation of First National's executive officers is reviewed and approved
annually by the First National Bank compensation committee, which acts as First
National's compensation committee. Annual compensation for First National's
Chief Executive Officer (and other executive officers) consists of three
elements.

- A base salary that is determined by individual contribution and
performance, and which is designed to provide a base level of
compensation comparable to that provided key executives of other
financial institutions of similar size and performance.

- A short-term cash incentive program that is directly linked to individual
performance and indirectly linked to First National's performance.

- A long-term incentive program that provides stock options to executive
officers. Stock option grants provide an incentive that focuses the
executive's attention on managing First National from the perspective of
a shareholder with an equity stake in the business. The economic value of
any stock option granted is directly tied to the future performance of
First National's stock and will provide value to the

60
<PAGE> 67

recipient only when the price of First National's stock increases over
the option grant price.

For First National's key executives, base salary is targeted to approximate
average salaries for individuals in similar positions with similar levels of
responsibilities who are employed by other banking organizations of similar size
and financial performance. During 1998, First National increased the Chief
Executive Officer's base salary by 17.5%. The compensation committee determined
that the 17.5% increase in the Chief Executive Officer's base salary was
appropriate in light of two primary factors. The first factor was a desire of
First National to provide the Chief Executive Officer with a base salary
comparable to that paid on average by other banking organizations of similar
size and financial performance. First National periodically participates in
local, state and other salary/compensation surveys and has access to other
published salary/compensation data. The compensation committee annually reviews
national, regional, statewide and local peer group salary data (to the extent
available) to assist it in setting appropriate levels of the Chief Executive
Officer's and other executive officers' base salaries. A second factor
considered by the Compensation Committee in setting and adjusting base salary
was First National's 1997 performance accomplishment of a 12.7% return on
equity. This performance indicator is updated annually, where needed, to help
determine the increase in First National's key executives' base salary and is
also used to help determine the annual cash incentive, as described below.

First National has also established a short-term cash incentive plan for
First National Bank. First National's other subsidiaries (Florence County
National Bank, NewSouth Financial Services Corporation and National Bank of York
County) did not participate in the incentive program for 1998, but National Bank
of York County will begin participating in 1999. Under the plan, all salaried
employees of the sponsoring subsidiary are eligible to participate. For purposes
of determining the cash incentive payable under the plan, performance is
measured based on return on equity. At the beginning of each year, the
compensation committee sets a performance goal expressed as a target return on
equity percentage. The board of directors, at its discretion, retains the
flexibility to change performance goals, bonus amounts and requirements of the
plan during the year. An "incentive pool" is determined by multiplying a certain
percentage of net income above the target return on equity for the calendar year
in question. Amounts paid into the incentive pool are distributed to salaried
employees based on their salary level and performance, which is measured by
their annual evaluation rating. For First National's key executives, the annual
cash incentive during the years 1996, 1997 and 1998 ranged from 19.5% to 33.6%
of base salary. This means that up to approximately 33.6% of annual compensation
was variable, fluctuates significantly from year to year, and was directly and
indirectly tied to business and individual performance.

For First National's key executives, the long-term stock option plan awards
during the years 1996, 1997 and 1998 were designed to provide economic value to
executives directly linked to increases in shareholder value. The number of
options granted were determined in the sole discretion of the board of
directors. The economic value of these awards will fluctuate from year to year,
based on changes in First National's stock price. However, the average economic
value accruing each year to First National executives during the years 1996,
1997 and 1998 has ranged from approximately 0% to 46% of base salary.

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<PAGE> 68

This report is provided as a summary of current practice with regard to
annual compensation review and authorization of executive officer compensation
and with respect to specific action taken for the Chief Executive Officer. The
$1,000,000 tax deduction limitation for executive compensation, added by the
Omnibus Budget Reconciliation Act of 1993, is not relevant to this year's report
and does not affect either First National or its subsidiaries' compensation
policy. Should such limitations become relevant, steps will be taken to amend
First National's and its subsidiaries' compensation policy to assure compliance.

Compensation Committee

<TABLE>
<S> <C> <C>
A. Dewall Waters, Chairman Harry M. Mims, Jr. C. John Hipp, III
C. Parker Dempsey Larry D. Westbury
</TABLE>

DEFINED BENEFIT PENSION PLAN

First National Bank maintains a noncontributory, defined benefit pension
plan covering its employees, including executive officers. The pension plan is a
"tax qualified" plan under Section 401(a) of the Internal Revenue Code and must
also comply with provisions of the Employee Retirement Income Security Act of
1974.

The pension table below shows estimated annual benefits payable upon
retirement to persons in the specified remuneration and years of service
categories as if retirement had occurred on December 31, 1998. The benefits
shown are computed on a single life only annuity basis.

ESTIMATED ANNUAL BENEFITS UNDER FIRST NATIONAL BANK'S PENSION PLAN

<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------
COMPENSATION(1) 10 20 30 40
- --------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 30,000.................................... $ 2,700 $ 5,400 $ 8,100 $ 9,450
40,000.................................... 4,172 8,344 12,516 14,602
50,000.................................... 5,722 11,444 17,166 20,027
60,000.................................... 7,272 14,544 21,816 25,452
70,000.................................... 8,822 17,644 26,446 30,877
80,000.................................... 10,372 20,744 31,116 36,302
90,000.................................... 11,922 23,844 35,766 41,727
100,000.................................... 13,472 26,944 40,416 47,152
110,000.................................... 15,022 30,044 45,066 52,577
120,000.................................... 16,572 33,144 49,716 58,002
</TABLE>

- -------------------------
(1) "Final Average Compensation" represents the average amount of a
participant's compensation earned over the 60 months prior to his or her
retirement date or early termination of employment.

Upon a participant's retirement at his normal retirement date (age 65), a
monthly retirement benefit will be paid in accordance with pension plan
provisions. The amount of such monthly retirement benefit will equal 1/12 of the
sum of (i) and (ii) as follows: (i) .90% of the pension plan participant's final
average compensation multiplied by his years of credited service up to a maximum
of 35 years; and (ii) .65% of the pension plan participant's final average
compensation in excess of his covered compensation multiplied

62
<PAGE> 69

by his years of credited service up to a maximum of 35 years. For purposes of
the above formula, a participant's final average compensation consists of the
average amount of a participant's compensation earned over the last 60 months
prior to early or normal retirement. In addition, a participant is credited with
one year of credited service under the pension plan for each year in which 1,000
or more hours are worked. Benefits under the pension plan are not subject to
deduction for social security or other offset amounts. For purposes of computing
a participant's final average compensation, the pension plan uses the following
definition of participant compensation: W-2 earnings, including bonuses,
overtime and commissions, but excluding employer contributions to employee
benefit plans, as limited by Section 401(a)(17) of the Internal Revenue Code.

For purposes of executive officer participation in the pension plan, the
executive officer compensation used for purposes of computing executive officer
benefits under the pension plan is the same as that shown in the Summary
Compensation Table. As of December 31, 1998, the named executive officers had
accumulated the following years of credited service toward retirement: C. John
Hipp, III, 5 years of credited service; James C. Hunter, Jr., 34 years credited
service; Robert R. Hill, Jr., 3 years credited service; Dane H. Murray, 28 years
of credited service; and Phil M. Smith, 25 years of credited service.

SHAREHOLDER PERFORMANCE GRAPH

First National is required to provide its shareholders with a line graph
comparing First National's cumulative total shareholder return with a
performance indicator of the overall stock market and either a published
industry index or a First National-determined peer comparison. Shareholder
return (measured through increases in stock price and payment of dividends) is
often a benchmark used in assessing corporate performance and the reasonableness
of compensation paid to executive officers.

Shareholders should recognize that corporations often use a number of other
performance benchmarks (in addition to shareholder return) to set various levels
of executive officer compensation. First National's 1998 Annual Report to
Shareholders contains a variety of relevant performance indicators concerning
First National. Thus, shareholders may wish to consider other relevant
performance indicators in assessing shareholder return and the reasonableness of
executive compensation, such as growth in earnings per share, book value per
share and cash dividends per share, along with return on equity and return on
assets percentages. As described in the Report on Executive Officer
Compensation, First National's compensation committee utilizes return on equity
in helping to determine short-term cash incentive program awards.

The performance graph below compares First National's cumulative total
return over the most recent five-year period with both the Nasdaq Composite
Index (reflecting overall stock market performance) and the Nasdaq Bank Index
(reflecting changes in banking industry stocks). Returns are shown on a total
return basis, assuming the reinvestment of dividends and a beginning stock index
price of $100 per share. The value of First National's stock as shown in the
graph is based on information known to First National regarding transactions in
First National stock. Because there was no active trading market in First
National's stock prior to listing on the American Stock Exchange in January
1997, the information prior to that time is based on a limited number of
transactions.

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<PAGE> 70

PERFORMANCE GRAPH

<TABLE>
<CAPTION>
First Nasdaq
Measurement Period National Composite Nasdaq
(Fiscal Year Covered) Corporation Index Bank Index
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 132.19 96.80 101.10
1995 165.33 135.42 146.39
1996 192.19 166.16 184.75
1997 329.13 202.06 302.25
1998 438.00 282.07 266.58
</TABLE>

1999 STOCK OPTION PLAN

At First National's 1999 annual meeting, shareholders will vote on a
proposal to approve the First National Corporation 1999 Stock Option Plan. The
purpose of the plan is to attract and retain persons eligible to participate in
the plan, to motivate participants to achieve long-term goals, to provide
incentive compensation opportunities that are competitive with those of other
companies and to further identify participants' interests with those of First
National's other shareholders. Under the plan, First National may grant options
to employees and non-employee directors of First National or any of its
subsidiaries. The plan permits the grant of both incentive stock options, which
are options that meet the requirements of Section 422(d) of the Internal Revenue
Code, and nonqualified stock options, which do not meet such requirements. The
plan authorizes the issuance of 400,000 shares of First National's common stock,
of which no more than 310,000 shares may be issued under incentive stock options
and no more than 90,000 shares may be issued under options granted to
non-employee directors. A copy of the plan is attached to this joint proxy
statement/prospectus as Appendix F.

The compensation committee of First National's board of directors will
administer the plan and will have the authority, among other things, to
determine the employees to receive options, the number of shares to be subject
to such options and the terms of such options. The compensation committee may
allocate any of its responsibilities and powers to one or more of its members.
No member of the compensation committee will be liable for any action taken or
decision made in good faith relating to the plan or any award granted under the
plan.

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<PAGE> 71

The plan provides that in determining which employees will be granted an
option, the compensation committee will consider the duties of such employees,
their present and potential contributions to First National's success and any
other factors that the committee deems to be relevant. Under the plan, no
employee may be granted in any year options to acquire more than 20,000 shares.
Also, the exercise price with respect to any option granted to an employee must
be at least 100% of the fair market value of the shares covered by the option at
the time of grant, and the option term may not exceed ten years. Options granted
to employees may be incentive stock options or nonqualified stock options.

Options granted under the plan to non-employee directors of First National
will be limited to those directors who, on the date of grant, are not employees
of First National or any of its subsidiaries. Options granted to non-employee
directors will be nonqualified stock options. The plan provides for the
automatic grant of options on December 30th of each odd-numbered calendar year
beginning in 1999 and ending in 2005, as follows:

- Non-employee directors of First National will each receive an option to
acquire 500 shares of First National common stock. In addition,
non-employee directors of First National who serve on the following
committees will receive an option to acquire the following number of
shares of First National common stock:

<TABLE>
<S> <C>
Executive Committee......................................... 250 shares
Audit Committee............................................. 100 shares
Compensation Committee...................................... 100 shares
</TABLE>

- Non-employee directors of the following subsidiaries of First National
who are not also directors of First National will receive an option to
acquire the following number of shares of First National common stock:

<TABLE>
<S> <C>
First National Bank......................................... 500 shares
National Bank of York County................................ 300 shares
Florence County National Bank............................... 300 shares
NewSouth Financial Services Corporation..................... 200 shares
</TABLE>

All such options will be exercisable at a price equal to the closing sales
price of First National stock on the date of grant and will be exercisable
immediately until the tenth anniversary of the date of grant, when they will
terminate. First National's compensation committee has the authority to change
the terms and number of options to be granted to non-employee directors.

Under the plan, only a participant may exercise an option granted to him.
If a participant dies, his option may be exercised, to the extent that it could
have been exercised on the date of death, by the estate or a person who acquired
the option by bequest or inheritance. The option price must be paid in cash or,
if permitted by the committee, shares of First National common stock. No option
may be transferred by a participant except by will or the laws of descent and
distribution.

Under the plan, the number of shares of First National common stock covered
by each outstanding option will be adjusted as the compensation committee
determines to be appropriate to reflect any stock dividend, stock split, share
combination or share exchange, merger, consolidation, separation,
reorganization, liquidation or similar transaction including First National. The
plan may be amended by the board of directors of First National, although no
such amendment may materially and adversely affect the rights or obligations of
a participant without his consent. The plan will become effective upon its

65
<PAGE> 72

approval by First National's shareholders, and no option may be granted under
the plan after May 31, 2009.

Generally, no participant who receives an incentive stock option will
recognize taxable income until shares of First National common stock covered by
the option are sold. At such time, the participant will generally recognize
taxable income. If the shares are sold more than two years from the date of
grant and one year from the date of exercise, the participant will recognize
capital gains measured by the difference between the fair market value of the
shares at the time of sale and the option price. If shares are sold before the
expiration of the required holding periods, the participant will recognize
ordinary income generally equal to the excess of the fair market value of the
shares on the date of exercise over the option price, and additional gain or
loss on such sale will be long-term or short-term capital gain or loss,
depending on the holding period. For nonqualified stock options, a participant
will not recognize any taxable income at the time of grant but will, upon
exercise, recognize ordinary income equal to the excess of the fair market value
of the shares on the date of exercise over the exercise price. Upon resale of
such shares, any difference between the sales price and the exercise price, to
the extent not recognized as ordinary income, will be treated as capital gain or
loss. First National generally will not be entitled to a tax deduction for
incentive stock options but will be entitled to a deduction for non-qualified
stock options in an amount equal to the ordinary income recognized by a
participant upon exercise of such option.

First National is not able at this time to determine the number or terms of
options that may be awarded to employees of First National or its subsidiaries
in 1999 or thereafter under the plan. The estimated number of options to be
granted to non-employee directors of First National in 2000, assuming that all
non-employee directors of First National in office immediately after the 1999
annual meeting continue to serve until December 30, 1999, is as follows:

NEW PLAN BENEFITS

<TABLE>
<CAPTION>
NUMBER
NAME OF OPTIONS
- ---- ----------
<S> <C>
Charles W. Clark............................................ 750
C. Parker Dempsey(1)........................................ 600
Dwight W. Frierson.......................................... 850
E. Everett Gasque, Jr.(1)................................... 600
John L. Gramling, Jr. ...................................... 500
Harry M. Mims, Jr. ......................................... 850
Edward V. Mirmow, Jr. ...................................... 750
Ralph W. Norman............................................. 600
Anne H. Oswald.............................................. 500
Samuel A. Rodgers........................................... 500
James W. Roquemore.......................................... 750
Walter L. Tobin............................................. 500
Johnny E. Ward.............................................. 600
</TABLE>

66
<PAGE> 73

<TABLE>
<CAPTION>
NUMBER
NAME OF OPTIONS
- ---- ----------
<S> <C>
A. Dewell Waters............................................ 600
Larry D. Westbury........................................... 850
Cathy Cox Yeadon............................................ 500
All non-employee directors as a group (16 persons).......... 10,300
</TABLE>

- -------------------------
(1) Messrs. Dempsey and Gasque will retire from the board of directors of First
National upon the merger of FirstBancorporation with First National. It is
anticipated that the vacancies created by their resignation will be filled
by Richard L. Gray and Colden R. Battey, Jr., who currently serve on the
board of directors of FirstBancorporation. In such event, Messrs. Gray and
Battey would be eligible to participate in First National's 1999 stock
option plan.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

First National Bank, Florence County National Bank and National Bank of
York County have loan and deposit relationships with some of the directors of
First National and its subsidiaries and with companies with which the directors
are associated as well as with members of the immediate families of the
directors. (The term "members of the immediate families" for purposes of this
paragraph includes each person's spouse, parents, children, siblings, mothers
and fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law.)
Such loans were made in the ordinary course of business, were made 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, at the time they were made involve more than the normal risk of
collectibility or present other unfavorable features.

Robert R. Horger, Chairman of the Board of First National, is a partner in
the law firm of Horger, Barnwell & Reid, which First National Bank has retained
as general counsel during the past five years. First National Bank proposes to
retain the firm during the current fiscal year.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

As required by Section 16(a) of the Exchange Act of 1934, directors,
executive officers and certain other individuals are required to report
periodically their ownership of First National stock and any changes in
ownership to the Securities and Exchange Commission. Based on a review of Forms
3, 4 and 5 and written representations made to First National, it appears that
all such reports for these persons were filed in a timely fashion in 1998.

INDEPENDENT ACCOUNTANTS

The board of directors of First National, upon the recommendation of the
audit committee, has appointed J. W. Hunt and Company, LLP, independent
certified public accountants, as independent accountants for First National for
the current fiscal year ending December 31, 1999, subject to ratification by
First National's shareholders. J. W. Hunt and Company, LLP has advised First
National that neither the firm nor any of its partners has any direct or
material interest in First National except as auditors and independent certified
public accountants of First National.

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<PAGE> 74

OTHER MATTERS RELATING TO THE FIRSTBANCORPORATION MEETING

ELECTION OF DIRECTORS

The number of directors of FirstBancorporation consists of not less than
five or more than 20. The board of directors has fixed the number of directors
at 11 effective at the 1999 annual meeting of shareholders. The board of
directors is divided into three classes with staggered terms, and each director
is elected for a three-year term after his initial election by shareholders.
Four directors have been nominated for election at the FirstBancorporation
annual meeting to serve for the terms specified in the following table or until
the merger with FirstBancorporation is consummated. The board of directors has
nominated Laurance H. Davis, Jr., Jerry H. Reeves, III, Carson R. Rentz and
Thomas E. Suggs for election as directors. Other than Mr. Suggs, all nominees
are current members of the boards of directors of FirstBancorporation and
FirstBank, N.A. The board of directors of FirstBancorporation recommends that
shareholders vote "FOR" the election of Messrs. Davis, Reeves, Rentz and Suggs.

If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the board of
directors of FirstBancorporation may recommend. At this time, the board of
directors knows of no reason why any nominee would be unavailable to serve.

The following table sets forth certain information regarding the nominees
for election at the meeting and other directors continuing in office after the
meeting.

<TABLE>
<CAPTION>
YEAR ELECTED BUSINESS EXPERIENCE
NAME AND AGE(1) DIRECTOR(2) IN LAST FIVE YEARS
--------------- ------------ -------------------
<S> <C> <C>
Director Nominees for Terms to Expire in 2002
Laurance H. Davis, Jr.(69)............. 1982 Secretary of Bundy Appraisal and
Management, Inc., Beaufort, South
Carolina, since 1992.
Jerry H. Reeves, III(68)............... 1993 President and owner of Resort
Services, Inc., Bluffton, South
Carolina, a wholesale bed and bath
linen supplier.
Carson R. Rentz(75).................... 1986 President and owner of Coastal
Contractors, Inc., Beaufort, South
Carolina, a residential and
commercial construction company.
Thomas E. Suggs(50).................... -- Owner of Rooney, McArthur and Suggs
property and casualty insurance
agency in Columbia, South Carolina;
Chairman of the Board of FirstBank
of the Midlands, National
Association.

Current Directors Whose Terms Expire in 2000
Richard L. Gray(68).................... 1986 President of Grayco, a lumber and
home products company.
Robert A. Kerr(78)..................... 1988 Retired commercial bank executive.
William C. Robinson(57)................ 1986 Certified public accountant.
</TABLE>

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<PAGE> 75

<TABLE>
<CAPTION>
YEAR ELECTED BUSINESS EXPERIENCE
NAME AND AGE(1) DIRECTOR(2) IN LAST FIVE YEARS
--------------- ------------ -------------------
<S> <C> <C>
James A. Shuford, III(47).............. 1993 President and Chief Executive
Officer of FirstBancorporation and
FirstBank, N.A since 1993; from
1989 to 1993, officer of South
Carolina Federal Savings Bank and
its successor, First Union National
Bank of South Carolina.

Current Directors Whose Terms Expire in 2001
Colden R. Battey, Jr.(63).............. 1986 Chairman of the Board of
FirstBancorporation and FirstBank,
N.A.; Senior Partner of Harvey &
Battey Law Firm, Beaufort, South
Carolina.
Russell L. Jeter(57)................... 1986 President and Owner of Jeter
Construction Company, Beaufort,
South Carolina, a paving
contractor.
James D. Neighbors(68)................. 1986 Retired; President of The Savings
Bank of Beaufort County, FSB
(predecessor to FirstBank, N.A.)
from 1986 to 1993.
</TABLE>

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

(1) As of December 31, 1998.
(2) Includes service on the board of directors of FirstBank, N.A. and its
predecessor, The Savings Bank of Beaufort County, FSB.

MEETINGS OF THE BOARD OF DIRECTORS

The boards of directors of FirstBancorporation, FirstBank, N.A. and
FirstBank of the Midlands, National Association conduct their business through
meetings and committees of the board. During the fiscal year ended December 31,
1998, the board of directors of FirstBancorporation held seven meetings, the
board of directors of FirstBank, N.A. held 13 meetings and the board of
directors of FirstBank of the Midlands held four meetings. No director of
FirstBancorporation or FirstBank attended fewer than 75% of the total meetings
of the boards and committees on which such board member served during this
period.

The board of directors of FirstBancorporation has standing audit,
executive, personnel and compensation, and nominating committees, among others.

The executive committee, consisting of Messrs. Battey, Gray, Jeter, Kerr,
and Shuford, acts with the authority of the board of directors when the full
board is not in session. The executive committee met 25 times during the year
1998.

The audit committee, consisting of Messrs. Robinson, Davis and Kerr,
reports directly to the board of directors on all matters concerning the
financial operation of FirstBancorporation and its subsidiaries, including
compliance review, annual audits, bank operation, internal auditing procedures
and selection of audit personnel. This committee met three times during the year
1998.

The personnel and compensation committee, consisting of Messrs. Kerr, Gray,
Jeter and Neighbors (Messrs. Battey and Shuford are ex-officio members), reviews
personnel for

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<PAGE> 76

promotion to officer positions and establishes guidelines for staff
compensation. This committee met twice during the year 1998.

The full board of directors of FirstBancorporation acts as the nominating
committee for selecting the nominees for election as directors. The board of
directors met once in its capacity as the nominating committee during the year
1998.

PRINCIPAL SHAREHOLDERS

Persons and groups who beneficially own in excess of five percent of
FirstBancorporation common stock are required to file certain reports with the
Securities and Exchange Commission and furnish a copy to FirstBancorporation
regarding such ownership pursuant to the Securities Exchange Act of 1934. Based
upon such reports, the following table sets forth, as of June 7, 1999, certain
information as to those persons (other than directors) who were beneficial
owners of more than five percent of the outstanding shares of
FirstBancorporation common stock. Management of FirstBancorporation knows of no
persons other than those set forth below who owned more than five percent of the
outstanding shares of FirstBancorporation stock as of June 7, 1999. The table
also sets forth, as of June 7, 1999, information as to the shares of
FirstBancorporation common stock beneficially owned by each director, each
nominee for director, each "named executive officer," and by all executive
officers, directors and nominees of FirstBancorporation as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
- ---------------- ----------------- ------------
<S> <C> <C>
DIRECTORS:
Colden R. Battey, Jr............................ 73,785(2) 7.66%
Russell L. Jeter................................ 52,003 5.40
James D. Neighbors.............................. 15,697 1.63
Laurance H. Davis, Jr........................... 1,225 0.13
Richard L. Gray................................. 76,362 7.93
Robert A. Kerr.................................. 17,991 1.87
Jerry H. Reeves, III............................ 7,737 0.80
Carson R. Rentz................................. 29,946 3.11
William C. Robinson............................. 27,278 2.83
Thomas E. Suggs................................. 1,500 0.16
NAMED EXECUTIVE OFFICER:*
James A. Shuford, III, President*............... 18,031 1.85
All executive officers, directors and nominees
as a group (12 persons)....................... 332,130(3) 33.9
</TABLE>

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

* Under Securities and Exchange Commission regulations, the term "named
executive officer" means the chief executive officer, regardless of
compensation level, and the four most highly compensated executive officers,
other than the chief executive officer, whose total annual salary and bonus
for the last completed fiscal year exceeded $100,000. Mr. Shuford was
FirstBancorporation's only "named executive officer" for the year ended
December 31, 1998. Mr. Shuford is also a director of FirstBancorporation.

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(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of
any shares of FirstBancorporation stock if he or she has voting and/or
investment power with respect to such security or has a right to acquire,
through the exercise of outstanding options or otherwise, beneficial
ownership at any time within 60 days from June 7, 1999. The table includes
shares owned by spouses, other immediate family members in trust, shares
held in retirement accounts or funds for the benefit of the named
individuals, and other forms of ownership, over which shares the named
persons possess voting and/or investment power.
(2) Includes pro-rata ownership of shares held by the Harvey & Battey Law Firm
pension plan, of which Mr. Battey is a senior partner, over which shares Mr.
Battey has voting and investment power of 6,514 shares. Includes 2,700
shares owned by the Harvey & Battey Law Firm over which Mr. Battey has
voting and investment power.
(3) Includes an aggregate of 21,260 shares subject to outstanding stock options
exercisable within 60 days of June 7, 1999.

DIRECTORS' COMPENSATION

FirstBank, N.A. pays all directors' fees of FirstBancorporation and
FirstBank, N.A. The Chairman of the Board of FirstBancorporation receives a
monthly fee of $800. Each director who serves on the executive committee
receives a monthly fee of $600. Except for James A. Shuford, III, all other
directors receive a monthly fee of $500 per month. FirstBank of the Midlands,
National Association, pays its director fees. Its Chairman receives $500 per
month. All other outside directors receive $300 per month. Mr. Shuford, who is
an officer of FirstBancorporation and FirstBank, N.A., and F. Wayne Lovelace,
who is an officer of FirstBank of the Midlands, do not receive fees. Total fees
paid to directors during the fiscal year ended December 31, 1998 were $70,000.
Directors of FirstBancorporation and of FirstBank, N.A. also participate in
FirstBancorporation's stock option plans.

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EXECUTIVE COMPENSATION

The following information is furnished with respect to compensation earned
by James A. Shuford, III, President and Chief Executive Officer of
FirstBancorporation, for the years ended December 31, 1998, 1997 and 1996. No
other executive officer of FirstBancorporation earned more than $100,000 in
salary and bonus during 1998, 1997 and 1996. All compensation is paid by
FirstBank, N.A.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- -------------------
OTHER ALL
ANNUAL NUMBER OTHER
COMPEN- OF COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS SATION(2)
- --------------------------- ---- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
James A. Shuford, III,.... 1998 $117,605 $17,760 $10,259(1) -- $2,966
President and Chief 1997 105,923 15,750 9,467(1) -- 2,711
Executive Officer 1996 99,781 4,900 9,510 -- 1,767
</TABLE>

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

(1) Includes health and life insurance premium payments of $6,154 in 1998 and
$6,167 in 1997.
(2) Consists of matching contribution made by FirstBank, N.A. under its 401(k)
plan.

EMPLOYMENT AGREEMENT. Effective November 15, 1995, FirstBancorporation and
FirstBank, N.A. entered into an amended and restated employment agreement with
James A. Shuford, III, President and Chief Executive Officer of
FirstBancorporation and FirstBank, N.A., to reflect the addition of
FirstBancorporation as a party to Mr. Shuford's prior employment agreement dated
October 20, 1993. Mr. Shuford's employment agreement provides for an 18-month
term which is extended each month for an additional month. Currently, all
compensation and benefits provided to Mr. Shuford under the agreement are
provided by FirstBank, N.A. The agreement provides for an annual salary review
by the board of directors of FirstBank, N.A. Mr. Shuford's current base salary
is $125,000. In addition, Mr. Shuford is eligible to participate in all benefit
or incentive plans that FirstBank, N.A. makes available to similarly situated
senior executive officers.

If Mr. Shuford is terminated without cause during the term of his
employment agreement, FirstBank is obligated to continue payment of Mr.
Shuford's then current base salary through the expiration of the current term of
the agreement. If Mr. Shuford is terminated involuntarily following a "change in
control" of FirstBancorporation or FirstBank, N.A. (as defined in the
agreement), FirstBank, N.A. is obligated to pay Mr. Shuford an amount equal to
2.99 times the highest base salary payable during any of the five fiscal years
preceding his termination. In addition, Mr. Shuford would be eligible to receive
continued coverage for a three-year period, at FirstBank, N.A.'s expense, under
FirstBank, N.A.'s other employee benefit programs. Mr. Shuford would receive
similar payments and benefits if he resigns following a change in control upon
the occurrence of certain events, including a reduction in the level of his
compensation prior to the change in control. If a change in control of
FirstBancorporation or FirstBank, N.A. had occurred on January 1, 1999, based
solely on the cash compensation paid to Mr. Shuford during 1998 and excluding
the value of any other employee benefits which may be payable, Mr. Shuford would
have received a payment of approximately $374,875. The proposed employment
agreement between First National and Mr. Shuford would replace

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<PAGE> 79

Mr. Shuford's current employment contract with FirstBank, N.A., including the
foregoing change in control provisions.

OPTION GRANTS. No options were granted to Mr. Shuford during the fiscal
year ended December 31, 1998.

OPTION EXERCISE/VALUE TABLE. The following information is presented for
Mr. Shuford.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED MONEY
NUMBER OF OPTIONS OPTIONS
SHARES AT FISCAL AT FISCAL
ACQUIRED DOLLAR YEAR END YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------- -------- ------------- -------------------
<S> <C> <C> <C> <C>
James A. Shuford, III......... -- -- 2,426/13,341 $17,661/$102,592
</TABLE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires
FirstBancorporation's executive officers and directors, and persons who own more
than 10% of the outstanding shares of FirstBancorporation common stock to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission within prescribed time periods. Executive officers, directors and
greater than 10% shareholders are required by regulation to furnish
FirstBancorporation with copies of all Section 16(a) forms they file.

On September 17, 1998, FirstBancorporation, on behalf of its officers and
directors, filed a Form 4 for each of the following directors and officers for
shares acquired by such persons in a public stock offering by
FirstBancorporation that closed on August 31, 1998: Colden R. Battey, Jr.,
Laurance H. Davis, Jr., Richard L. Gray, Jr., Russell L. Jeter, Robert A. Kerr,
James D. Neighbors, Jerry H. Reeves, Carson R. Rentz, William C. Robinson, James
A. Shuford, III, James L. Pate, III, Christine W. Beckert, and Richard E.
Morgan, Jr. Based solely on its review of the copies of all other forms it has
received and written representations provided to FirstBancorporation by the
above-referenced persons, FirstBancorporation believes that during the year
ended December 31, 1998, all other filing requirements applicable to its
reporting officers, directors and greater than 10% shareholders were properly
and timely complied with.

CERTAIN TRANSACTIONS

FirstBank, N.A., as successor to The Savings Bank of Beaufort County, FSB,
has entered into noncancelable operating leases for its main office facility and
for additional office space and parking with First Patriots Partnership, a
partnership among Messrs. Battey, Gray, Jeter, Rentz, and Kerr, each of whom is
a director of FirstBancorporation. These leases provide for lease terms of 20
years, expiring in 2013. The lease is subject to rent escalation provisions
which are computed every five years during the life of the lease. FirstBank paid
$122,852 in related lease expense for fiscal year 1998.

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<PAGE> 80

FirstBank, N.A., as successor to The Savings Bank of Beaufort County, FSB,
has also entered into an operating lease with Mr. Gray for FirstBank, N.A.'s
Lady's Island branch office. The lease term is five years which expires in 2003
with one additional option to renew for five more years. The lease is subject to
rent escalations based on the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics of the United States Department of
Labor. FirstBank, N.A. paid $41,594 in related lease expense for fiscal year
1998.

FirstBank, N.A. and FirstBank of the Midlands, National Association are
required under federal law not to make any loan or extension of credit in any
manner to any of its executive officers, directors, 10% shareholders and certain
other affiliated persons and entities, unless such loan or extension of credit
is made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and does not involve more than the normal risk of repayment or
present other unfavorable features. FirstBank, N.A. and FirstBank of the
Midlands, National Association, therefore, are prohibited from making any new
loans or extensions of credit to FirstBank, N.A.'s and FirstBank of the
Midlands, National Association's executive officers and directors at different
rates or terms than those offered to the general public and has adopted a policy
to this effect. FirstBank, N.A. and FirstBank of the Midlands, National
Association make loans to its directors, officers, and employees in the ordinary
course of business on substantially the same terms, including interest rate and
collateral, as similar loans to unrelated parties. Management believes that such
loans do not involve more than normal risk of collectability or present other
unfavorable features. All loans to related parties, and any subsequent renewal
thereof, are approved by a majority of the board of directors of the applicable
bank, with the related party abstaining from the vote. At December 31, 1998,
loans to executive officers and directors amounted to approximately $1.5
million, all of which were performing according to their respective terms at
that date.

COMPARATIVE RIGHTS OF SHAREHOLDERS OF
FIRST NATIONAL AND SHAREHOLDERS OF FIRSTBANCORPORATION

The following is a summary of certain of the material differences between
the rights of shareholders of FirstBancorporation before the merger and the
rights of such shareholders following the merger. Because FirstBancorporation
and First National are both organized under the laws of South Carolina, the
differences arise solely from differences between the various provisions of the
respective articles of incorporation and bylaws of FirstBancorporation and First
National. The following summary identifies certain material differences which
may affect the rights of shareholders of FirstBancorporation after the merger
but does not purport to be a complete statement of all such differences, and is
qualified in its entirety by reference to the relevant provisions of the
documents discussed below.

AUTHORIZED CAPITAL

The total number of shares that First National has authority to issue is
40,000,000 shares of common stock, par value $2.50 per share. The total number
of shares that FirstBancorporation has authority to issue is 1,000,000 shares of
preferred stock, par value $.01 per share, and 2,000,000 shares of common stock,
par value $.01 per share. Shares of FirstBancorporation preferred stock may have
such terms as determined by the board of

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<PAGE> 81

directors of FirstBancorporation and may be issued from time to time as approved
by the board of directors of FirstBancorporation without the approval of the
shareholders of FirstBancorporation.

NUMBER OF DIRECTORS

The articles of incorporation of First National provide that the board of
directors of First National consists of a maximum of 20 persons. Such provisions
may be amended only with the affirmative vote of the holders of not less than
80% of the outstanding voting stock of First National. The articles of
incorporation of First National also provide that directors may be removed with
or without cause only by the affirmative vote of the holders of 80% of the
outstanding shares of First National stock.

The articles of incorporation of FirstBancorporation provide that the
number of directors of FirstBancorporation is not less than five nor more than
20 persons. The articles of incorporation of FirstBancorporation also provide
that the number of directors may be increased or decreased within such range by
the vote of at least two-thirds of the directors then in office. Under
FirstBancorporation's articles of incorporation, directors may be removed only
for cause and with the affirmative vote of the holders of at least two-thirds of
the outstanding shares of capital stock entitled to vote generally in the
election of directors at a meeting called for such purpose.

The articles of incorporation of both First National and
FirstBancorporation provide that the board of directors of each company consists
of three classes of directors serving staggered three-year terms.

LIMITATIONS ON ACQUISITION OF CAPITAL STOCK

The articles of incorporation of FirstBancorporation provide that, subject
to certain exceptions, (i) no person may acquire beneficial ownership of 15% or
more of the outstanding voting stock of FirstBancorporation unless such
acquisition is approved by the holders of two-thirds of the outstanding shares
of the voting stock of FirstBancorporation or two-thirds of the directors then
in office; (ii) no person may acquire beneficial ownership of 10% or more of the
outstanding voting stock of FirstBancorporation without obtaining all regulatory
approvals required under applicable federal and state statutes; and (iii) no
person may offer to acquire beneficial ownership of 10% or more of the
outstanding voting stock of FirstBancorporation unless (a) the offer has been
approved by the affirmative vote of two-thirds of the directors then in office
or (b) such person has received all required federal and state regulatory
approvals and furnishes certain information to the board of directors of
FirstBancorporation. The articles of incorporation and bylaws of First National
do not contain any provisions comparable to the foregoing requirements.

FirstBancorporation and First National are both subject to the South
Carolina Control Share Acquisition Act, which generally precludes a person who
acquires voting shares of a South Carolina corporation in excess of specified
thresholds (one-fifth, one-third and one-half) from voting such shares without
the approval of a majority vote of the corporation's disinterested shareholders.

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BUSINESS COMBINATIONS

The articles of incorporation of First National require the approval of the
holders of not less than 80% of the outstanding voting stock of First National
to approve certain business transactions. Such approval is required for a
merger, exchange or consolidation of First National with, or a sale, exchange or
lease of all or substantially all the assets of First National to, any person or
entity, if such transaction is not recommended by the board of directors of
First National. Such approval also is required, together with the affirmative
vote of the holders of not less than 67% of the outstanding shares of voting
stock held by shareholders other than any shareholder who owns or controls 20%
or more of First National's voting stock at the time of the transaction (a
"controlling party"), to approve any such transaction that involves such
controlling party, unless the transaction is recommended by a majority of the
board of directors of First National or certain other requirements are met. The
foregoing provisions may be amended only by the affirmative vote of not less
than 80% of the outstanding voting stock of First National. Under First
National's articles of incorporation, the quorum requirements for any meeting
called to consider any of the foregoing transactions that are not recommended by
the board of directors is 80% of the outstanding shares of First National stock,
and any such meeting may not be adjourned absent notice if a quorum is not
present.

Under the bylaws of First National, the board of directors of First
National is required to consider all factors they deem relevant in evaluating
any proposed tender offer or exchange offer for First National stock, any
proposed merger or consolidation of First National and any proposal to purchase
or otherwise acquire all the assets of First National. The bylaws require the
board of directors to evaluate whether any such proposal is in the best
interests of First National by considering the best interests of its
shareholders and other factors the directors determine to be relevant, including
the social, legal and economic effects on First National employees and customers
and the communities served by First National and its subsidiaries. The bylaws
provide that the board of directors must evaluate the consideration being
offered to shareholders in any such transaction in relationship to the
then-current market value of First National, the then-current market value of
shares of First National stock in a freely-negotiated transaction, and the
directors' estimate of the future value of shares of First National stock as an
independent entity. Moreover, the articles of incorporation of First National
require the board of directors of First National, when evaluating any proposed
merger, consolidation, exchange or asset sale, to consider the interests of the
employees of First National and the communities in which First National does
business in addition to the interests of First National's shareholders.

Under the articles of incorporation of FirstBancorporation, the affirmative
vote of the holders of at least (i) two-thirds of the outstanding shares of
voting stock and (ii) two-thirds of the outstanding shares of voting stock
excluding shares owned by a "related person" is required to approve certain
mergers, consolidations, asset sales, issuances and acquisitions of equity
securities, reclassifications and other transactions involving a related person,
unless the transaction is approved by two-thirds of the "continuing directors"
of FirstBancorporation. Under these provisions, a "related person" is any person
or entity that beneficially owns 10% or more of the outstanding shares of
FirstBancorporation common stock and any affiliate of such person or entity, and
a "continuing director" generally is a director who is unaffiliated with the
related party and who became a director before the related party became a
related party or who was recommended to succeed a continuing director by a
majority of the continuing directors in office at the time.

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<PAGE> 83

The articles of incorporation of FirstBancorporation further provide that
when evaluating a business combination or a tender or exchange offer, the board
of directors of FirstBancorporation must, in addition to the adequacy of the
amount to be paid in any such transaction, give due consideration to (i) the
social and economic effects of the transaction on FirstBancorporation and its
subsidiaries, employees, depositors, loan and other customers, creditors and
other elements of the communities in which it does business, (ii) the business
and financial condition and earnings prospects of the acquiring entity and the
possible effect of such condition upon FirstBancorporation and the other
elements of the communities in which it operates, and (iii) the competence,
experience and integrity of the acquiring entity and its management.

First National and FirstBancorporation are both subject to the South
Carolina Business Combination Act. The Business Combination Act provides that an
"interested shareholder," which generally includes any shareholder that owns
more than 10% of a corporation's voting stock, may not engage in a business
combination with the corporation unless the transaction is approved by the board
of directors or certain other conditions are met.

SHAREHOLDERS' MEETINGS

Under the articles of incorporation and bylaws of First National, special
meetings of the shareholders of First National may be called by the President,
the Chairman of the Board, a majority of directors or the holders of not less
than 50% of the shares entitled to vote at such meeting. The bylaws of First
National also provide that no shareholder proposal may be considered at any
shareholders' meeting unless the shareholder submits notice thereof to the
Secretary of First National no less than 45 days before the meeting. Such notice
must provide the name and address of the shareholder making the proposal and the
text of the resolution to be voted on.

Under the articles of incorporation of FirstBancorporation, a special
meeting of the shareholders of FirstBancorporation may be called by the
President, the Chairman of the Board, the board of directors or as required by
law. The articles of incorporation of FirstBancorporation also provide that no
action may be taken by the shareholders of FirstBancorporation by written
consent without a meeting. The articles of incorporation of FirstBancorporation
further provide that at an annual meeting of the shareholders of
FirstBancorporation, the only business to be considered will be (i) such
business specified in the notice of the meeting, (ii) such business brought
before the meeting by or at the direction of the board of directors or (iii)
such business properly brought before the meeting by a shareholder. To be
properly brought by a shareholder, the shareholder must give notice to
FirstBancorporation that is received by FirstBancorporation not less than 30
days or more than 90 days prior to the meeting, unless less than 45 days' notice
or prior public disclosure of the date of the meeting is given or made, in which
case such notice must be received by FirstBancorporation no later than the close
of business on the 15th day after the day on which notice of the meeting was
mailed or made. Such notice must describe the business to be brought before the
meeting and the reason for conducting such business, the name and address of the
shareholder proposing such business, the number of shares of stock owned by such
shareholder and any material interest of the shareholder in such business.

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NOMINATION OF DIRECTORS

Under First National's bylaws, a shareholder may not nominate a person for
election as a director unless the shareholder delivers notice to the Secretary
of First National no less than 45 days prior to the shareholders' meeting at
which directors are to be elected. Such notice must set forth the name of the
nominee, his address, the number of shares of First National stock owned by the
nominee and the name and address of the shareholder making the nomination.

Under the articles of incorporation of FirstBancorporation, a shareholder
may not nominate a person for election as a director unless the shareholder
sends notice received by the Secretary of FirstBancorporation not less than 30
days nor more than 90 days prior to an annual meeting, unless less than 45 days'
notice or prior public disclosure of the date of the meeting is given, in which
case such notice must be received not later than the close of business on the
15th day following the day on which notice of the date of the annual meeting was
made or public disclosure given. Such notice must set forth the name, address
and occupation of the nominee, the name and address of the shareholder making
the nomination, the number of shares owned by the nominee and shareholder making
the nomination and certain other information.

RETIREMENT OF DIRECTORS

Under the bylaws of First National, directors of First National must be
shareholders who are not under the age of 25 or over the age of 72. If a
director attains the age of 72 while in office, he or she may serve only until
the next shareholders' meeting after his or her 72nd birthday, at which time his
or her successor will be appointed to serve out the remainder of his or her
term. The articles of incorporation and bylaws of FirstBancorporation do not
contain any provisions comparable to the foregoing requirements.

AMENDMENT OF ARTICLES OF INCORPORATION

The articles of incorporation of FirstBancorporation generally may be
amended if such action is approved by at least two-thirds of the directors then
in office and by the holders of at least a majority of the outstanding voting
stock of FirstBancorporation. However, certain provisions of the articles of
incorporation dealing with, among others, special shareholder meetings, the
absence of preemptive rights, shareholder proposals and nominations for
director, the board of directors, removal of directors, limitation of director
liability, indemnification, limitation on the acquisition of FirstBancorporation
stock, approval of certain business combinations and the amendment of bylaws,
must be approved by the holders of at least two-thirds of the outstanding voting
stock unless such proposal was approved by two-thirds of continuing directors. A
"continuing director" generally is a director who is not affiliated with a
"related party" and who becomes a director before a related party became a
related party or who was recommended to succeed a continuing director by a
majority of the continuing directors in office at the time. The articles of
incorporation of First National do not contain any provisions comparable to the
foregoing requirements, although certain amendments to the articles of
incorporation of First National require the approval of 80% the outstanding
shares of First National stock as discussed above.

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<PAGE> 85

AMENDMENT OF BYLAWS

Under the articles of incorporation of First National, the board of
directors of First National has the power to amend the bylaws of First National,
and shareholders of First National may amend the bylaws only upon the
affirmative vote of the holders of not less than 80% of the outstanding shares
of First National stock. Under the articles of incorporation of
FirstBancorporation, the board of directors of FirstBancorporation is authorized
to amend the bylaws of FirstBancorporation by the affirmative vote of two-
thirds of the directors then in office, and shareholders of FirstBancorporation
may amend the bylaws only upon the vote of the holders of not less than
two-thirds of the outstanding shares of FirstBancorporation voting stock.

EXPERTS

The consolidated balance sheets of First National as of December 31, 1998
and 1997 and the related consolidated statements of income, cash flows and
changes in shareholders' equity for the three-year period ended December 31,
1998, included in First National's annual report on Form 10-K for the year ended
December 31, 1998, have been audited by J.W. Hunt and Company, LLP, independent
certified public accountants, as indicated in their report with respect thereto,
dated February 2, 1999, and are incorporated by reference herein in reliance
upon the authority of J.W. Hunt and Company, LLP, as experts in accounting and
auditing.

The consolidated balance sheets of FirstBancorporation as of December 31,
1998 and 1997, and the related consolidated statements of income, cash flows and
changes in shareholders' equity for the three-year period ended December 31,
1998, included in FirstBancorporation's annual report on Form 10-KSB for the
year ended December 31, 1998, have been audited by J.W. Hunt and Company, LLP,
independent certified public accountants, as indicated in their report with
respect thereto, dated February 10, 1999, and are incorporated by reference
herein in reliance upon the authority of J.W. Hunt and Company, LLP, as experts
in accounting and auditing.

Representatives of J.W. Hunt and Company, LLP are expected to be present at
the First National and FirstBancorporation meetings. Such representatives will
have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.

LEGAL MATTERS

The validity of the shares of First National common stock offered hereby
will be passed upon by Robinson, Bradshaw & Hinson, P.A., Charlotte, North
Carolina, as counsel to First National.

SHAREHOLDER PROPOSALS

First National plans to hold its 2000 annual meeting of shareholders on
April 25, 2000. Shareholders of First National who intend to present proposals
for consideration at the 2000 annual meeting of the shareholders of First
National are hereby advised that any such proposals must be received by the
Secretary of First National no later than the close

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of business on November 29, 1999, if such proposal is to be considered for
inclusion in the 2000 proxy materials of First National. A shareholder who
desires to nominate a person for election to the board of directors of First
National or to make any other proposal for consideration by shareholders at a
shareholders' meeting must deliver notice of such proposed action to the
Secretary of First National no less than 45 days before such meeting. For a
nominee for director, such notice must set forth the name of the nominee, his or
her address, the number of shares of First National stock owned by the nominee
and the name and address of the shareholder making the nomination. For any other
shareholder proposal, such notice must set forth the name and address of the
shareholder making the proposal and the text of the resolution to be voted on.

FirstBancorporation will hold its 2000 annual meeting of shareholders only
if the merger is not consummated. If the meeting is held, any proposals of
shareholders of FirstBancorporation intended to be presented at the 2000 annual
meeting of shareholders of FirstBancorporation must have been received by the
Secretary of FirstBancorporation no later than December 1, 1999, in order to be
considered for inclusion in the FirstBancorporation 2000 proxy materials.

OTHER MATTERS

As of the date of this joint proxy statement/prospectus, the boards of
directors of First National and FirstBancorporation know of no matters that will
be presented for consideration at the meetings other than as described in this
joint proxy statement/ prospectus. If any other matters properly come before
either the First National meeting or the FirstBancorporation meeting or any
adjournments or postponements thereof and are voted upon, the enclosed proxies
will be deemed to confer discretionary authority on the individuals named as
proxies therein to vote the shares represented by such proxies as to any such
matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective management of
FirstBancorporation and First National.

WHERE YOU CAN FIND MORE INFORMATION

First National and FirstBancorporation file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that the companies file with the Securities and Exchange Commission at the
Securities and Exchange Commission's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. These Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
Internet world wide web site maintained by the Securities and Exchange
Commission at "http://www.sec.gov." Reports, proxy statements and other
information regarding First National are also available for inspection at the
offices of the American Stock Exchange.

First National has filed a registration statement on Form S-4 to register
with the Securities and Exchange Commission the First National stock to be
issued under the merger agreement. This joint proxy statement/prospectus is a
part of that registration statement and constitutes a prospectus of First
National. As allowed by Securities and Exchange Commission rules, this joint
proxy statement/prospectus does not contain all the

80
<PAGE> 87

information you can find in First National's registration statement or the
exhibits to that registration statement.

The Securities and Exchange Commission allows FirstBancorporation and First
National to "incorporate by reference" information into this joint proxy
statement/prospectus, which means that the companies can disclose important
information to you by referring you to another document filed separately with
the Securities and Exchange Commission. The information incorporated by
reference is considered part of this joint proxy statement/prospectus, except
for any information superseded by information contained directly in this joint
proxy statement/prospectus or in later filed documents incorporated by reference
in this joint proxy statement/prospectus.

This joint proxy statement/prospectus incorporates by reference the
documents set forth below that FirstBancorporation and First National have
previously filed with the Securities and Exchange Commission. These documents
contain important information about FirstBancorporation and First National and
their finances.

<TABLE>
<CAPTION>
PERIOD/AS OF DATE
-----------------
<S> <C>
FIRST NATIONAL (File No. 1-12669)
Annual Report on Form 10-K............ Year ended December 31, 1998
Quarterly Report on Form 10-Q......... Quarter ended March 31, 1999
Registration Statement on Form 8-A.... Filed on January 21, 1997
FIRSTBANCORPORATION (File No. 0-28106)
Annual Report on Form 10-KSB.......... Year ended December 31, 1998
Quarterly Report on Form 10-QSB....... Quarter ended March 31, 1999
</TABLE>

A copy of FirstBancorporation's annual report on Form 10-KSB is attached as
Appendix G to this joint proxy statement/prospectus. FirstBancorporation and
First National also incorporate by reference additional documents that may be
filed with the Securities and Exchange Commission between the date of this joint
proxy statement/prospectus and the date of their 1999 annual meetings. These
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.

First National has supplied all information contained or incorporated by
reference in this joint proxy statement/prospectus relating to First National,
and FirstBancorporation has supplied all such information relating to
FirstBancorporation.

As noted earlier in this joint proxy statement/prospectus,
FirstBancorporation shareholders should not send in their FirstBancorporation
certificates until they receive the transmittal materials from First National.

If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the
Securities and Exchange Commission or the Securities and Exchange Commission's
Internet web site as described above. Documents incorporated by reference are
available from us without charge, excluding all exhibits, except that if we have
specifically incorporated by reference an exhibit in this joint proxy
statement/prospectus, the exhibit will also be available without charge.
Shareholders may obtain documents incorporated by reference in this joint proxy

81
<PAGE> 88

statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:

<TABLE>
<S> <C>
First National Corporation FirstBancorporation, Inc.
950 John C. Calhoun Drive, S.E 1121 Boundary Street
Orangeburg, South Carolina 29115 P.O. Box 2147
Attn.: Secretary Beaufort, South Carolina 29902
Telephone: (803) 531-0527 Attn.: Secretary
Telephone: (843) 521-5600
</TABLE>

IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY JULY 13,
1999 TO RECEIVE THEM BEFORE THE MEETING.

You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus. We have not authorized
anyone to provide you with information that is different from what is contained
in this joint proxy statement/prospectus. Therefore, if anyone gives you
different or additional information, you should not rely on it. This joint proxy
statement/prospectus is dated June 9, 1999. You should not assume that the
information contained in this joint proxy statement/prospectus is accurate as of
any date other than that date. Neither the mailing of this joint proxy
statement/prospectus to shareholders nor the issuance of First National common
stock in the merger creates any implication to the contrary.

UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION

The following Pro Forma Combined Condensed Balance Sheet (Unaudited) as of
March 31, 1999 combines the historical consolidated balance sheets of First
National and FirstBancorporation as if the merger had been effective on March
31, 1999, after giving effect to certain adjustments described in the attached
Notes to the Unaudited Pro Forma Combined Condensed Financial Statements. First
National's historical financial statements are included in First National's
annual report on Form 10-K filed with the Securities and Exchange Commission on
March 31, 1999. In addition, First National's historical interim financial
statements for the three months ended March 31, 1999 are included in First
National's Form 10-Q as filed with the Securities and Exchange Commission on May
14, 1999. FirstBancorporation's historical financial statements are included in
its annual report on Form 10-KSB for the year ended December 31, 1998 as filed
with the Securities and Exchange Commission on March 30, 1999. In addition,
FirstBancorporation's historical interim financial statements for the three
months ended March 31, 1999 are included in FirstBancorporation's Form 10-QSB as
filed with the Securities and Exchange Commission on May 13, 1999. A copy of
FirstBancorporation's annual report on Form 10-KSB is attached to this joint
proxy statement/prospectus as Appendix G, and FirstBancorporation's unaudited
financial statements for the quarter ended March 31, 1999 are attached as
Appendix H. The unaudited pro forma combined condensed financial information
should be read in conjunction with the historical financial statements of First
National and FirstBancorporation.

The Pro Forma Combined Condensed Statements of Income (Unaudited) for the
three months ended March 31, 1999 and the years ended December 31, 1998, 1997
and 1996 present the combined results of operations of First National and
FirstBancorporation as if the merger had been effective at January 1, 1996,
after giving effect to certain

82
<PAGE> 89

adjustments described in the attached Notes to the Unaudited Pro Forma Combined
Condensed Financial Statements.

The unaudited pro forma combined condensed financial information and
accompanying notes reflect the application of the pooling of interests method of
accounting. Under this method of accounting, the recorded assets, liabilities,
shareholders' equity, income and expenses of First National and
FirstBancorporation are combined and reflected at their historical amounts.

First National expects to achieve certain merger benefits in the form of
operating cost savings that may be significant. The pro forma earnings, which do
not reflect any direct costs or potential savings that are expected to result
from the consolidation of operations of First National and FirstBancorporation,
may not be indicative of the results of future operations. No assurance can be
given with respect to the ultimate level of expense savings. The merger expenses
reflected in the pro forma condensed balance sheet include severance, change in
control and other employee-related expenses, as well as legal, investment
banking and other professional fees.

83
<PAGE> 90

FIRST NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1999
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FIRST PRO FORMA PRO FORMA
NATIONAL FIRSTBANCORPORATION ADJUSTMENTS COMBINED
-------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS

Cash and due from banks........ $ 27,131 $ 10,724 $ -- $ 37,855
Investment securities.......... 219,663 12,133 (100) 231,696
Loans, net..................... 424,324 81,891 -- 506,215
Premises and equipment, net.... 11,114 1,864 -- 12,978
Other assets................... 11,038 3,025 -- 14,063
-------- -------- ------- --------
Total assets............ $693,270 $109,637 $ (100) $802,807
======== ======== ======= ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Deposits:
Demand.................... $ 81,722 $ 9,420 $ -- $ 91,142
Interest-bearing
transaction accounts.... 70,976 39,424 -- 110,400
Savings................... 51,857 4,597 -- 56,454
Time...................... 334,897 35,730 -- 370,627
-------- -------- ------- --------
Total deposits.......... 539,452 89,171 -- 628,623
Other liabilities.............. 91,052 7,742 600 99,394
-------- -------- ------- --------
Total liabilities....... 630,504 96,913 600 728,017
-------- -------- ------- --------
Shareholders' equity:
Common stock................. 14,589 10 2,933 17,532
Surplus...................... 40,305 10,129 (3,033) 47,401
Retained earnings............ 7,603 2,606 (600) 9,609
Accumulated other
comprehensive income
(loss).................... 269 (21) -- 248
-------- -------- ------- --------
Total shareholders'
equity............... 62,766 12,724 (700) 74,790
-------- -------- ------- --------
Total liabilities and
shareholders'
equity............... $693,270 $109,637 $ (100) $802,807
======== ======== ======= ========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements

84
<PAGE> 91

FIRST NATIONAL CORPORATION

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIRST PRO FORMA PRO FORMA
NATIONAL FIRSTBANCORPORATION ADJUSTMENTS COMBINED
---------- ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income............. $ 12,241 $ 2,092 $ -- $ 14,333
Interest expense............ 4,854 863 $ -- 5,717
---------- -------- ---- ----------
Net interest income....... 7,387 1,229 -- 8,616
Provision for loan losses... 293 54 -- 347
---------- -------- ---- ----------
Net interest income after
provision for loan
losses................. 7,094 1,175 -- 8,269
Noninterest income.......... 2,246 213 -- 2,459
Noninterest expense......... 6,222 1,218 -- 7,440
---------- -------- ---- ----------
Income before provision
for income taxes....... 3,118 170 -- 3,288
Provision for income
taxes..................... 995 71 -- 1,066
---------- -------- ---- ----------
Net income............. $ 2,123 $ 99 $ -- $ 2,222
========== ======== ==== ==========
Net income per
share -- basic............ $ 0.36 $ 0.11 $ 0.32
Net income per
share -- diluted.......... $ 0.36 $ 0.11 $ 0.32
Weighted average shares
outstanding -- basic...... 5,824,881 911,184 6,938,348
Weighted average shares
outstanding -- diluted.... 5,880,136 919,467 7,003,725
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements

85
<PAGE> 92

FIRST NATIONAL CORPORATION

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIRST FIRSTBANCOR- PRO FORMA PRO FORMA
NATIONAL PORATION ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Interest income................... $ 46,120 $ 7,848 $ -- $ 53,968
Interest expense.................. 19,557 3,565 -- 23,122
---------- -------- ----- ----------
Net interest income............. 26,563 4,283 -- 30,846
Provision for loan losses......... 1,013 200 -- 1,213
---------- -------- ----- ----------
Net interest income after
provision for loan losses.... 25,550 4,083 -- 29,633
Noninterest income................ 7,893 1,483 -- 9,376
Noninterest expense............... 22,549 4,179 -- 26,728
---------- -------- ----- ----------
Income before provision for
income taxes................. 10,894 1,387 -- 12,281
Provision for income taxes........ 3,389 531 -- 3,920
---------- -------- ----- ----------
Income before cumulative effect
of a change in accounting
principle (see Note 6)....... $ 7,505 $ 856 $ -- $ 8,361
========== ======== ===== ==========
Income before cumulative effect of
a change in accounting principle
per share -- basic.............. $ 1.30 $ 1.13 $ 1.25
Income before cumulative effect of
a change in accounting principle
per share -- diluted............ $ 1.29 $ 1.05 $ 1.22
Weighted average shares
outstanding -- basic............ 5,778,189 758,052 6,704,529
Weighted average shares
outstanding -- diluted.......... 5,832,640 815,898 6,829,668
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements

86
<PAGE> 93

FIRST NATIONAL CORPORATION

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIRST FIRSTBANCOR- PRO FORMA PRO FORMA
NATIONAL PORATION ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Interest income................... $ 41,144 $ 7,542 $ -- $ 48,686
Interest expense.................. 17,365 3,423 -- 20,788
---------- -------- ------- ----------
Net interest income............. 23,779 4,119 -- 27,898
Provision for loan losses......... 1,251 165 -- 1,416
---------- -------- ------- ----------
Net interest income after
provision for loan losses.... 22,528 3,954 -- 26,482
Noninterest income................ 6,259 952 -- 7,211
Noninterest expense............... 19,454 3,378 -- 22,832
---------- -------- ------- ----------
Income before provision for
income taxes................. 9,333 1,528 -- 10,861
Provision for income taxes........ 2,867 581 -- 3,448
---------- -------- ------- ----------
Net income................... $ 6,466 $ 947 $ -- $ 7,413
========== ======== ======= ==========
Net income per share -- basic..... $ 1.26 $ 1.37 $ 1.24
Net income per share -- diluted... $ 1.25 $ 1.29 $ 1.22
Weighted average shares
outstanding -- basic............ 5,146,699 690,285 5,990,227
Weighted average shares
outstanding -- diluted.......... 5,189,811 735,507 6,088,600
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements

87
<PAGE> 94

FIRST NATIONAL CORPORATION

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIRST FIRSTBANCOR- PRO FORMA PRO FORMA
NATIONAL PORATION ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Interest income................... $ 34,263 $ 6,920 $ -- $ 41,183
Interest expense.................. 13,986 3,281 -- 17,267
---------- -------- ------- ----------
Net interest income............. 20,277 3,639 -- 23,916
Provision for loan losses......... 1,319 162 -- 1,481
---------- -------- ------- ----------
Net interest income after
provision for loan losses.... 18,958 3,477 -- 22,435
Noninterest income................ 5,344 737 -- 6,081
Noninterest expense............... 16,352 3,391 -- 19,743
---------- -------- ------- ----------
Income before provision for
income taxes................. 7,950 823 -- 8,773
Provision for income taxes........ 2,422 322 -- 2,744
---------- -------- ------- ----------
Net income................... $ 5,528 $ 501 $ -- $ 6,029
========== ======== ======= ==========
Net income per share -- basic..... $ 1.14 $ 0.73 $ 1.06
Net income per share -- diluted... $ 1.13 $ 0.69 $ 1.04
Weighted average shares
outstanding -- basic............ 4,869,699 686,042 5,708,042
Weighted average shares
outstanding -- diluted.......... 4,902,067 725,813 5,789,010
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements

88
<PAGE> 95

NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION

NOTE 1. BASIS OF PRESENTATION

On March 4, 1999, First National Corporation entered into a definitive
agreement and plan of merger with FirstBancorporation, Inc. The agreement calls
for a tax-free exchange of 1.222 shares of First National common stock for each
outstanding share of FirstBancorporation common stock.

The unaudited pro forma combined condensed financial statements have been
prepared assuming that the merger will be accounted for under the
pooling-of-interests method of accounting for business combinations and is based
on the historical consolidated financial statements of First National and
FirstBancorporation. Certain amounts in the historical consolidated financial
statements of FirstBancorporation have been reclassified to conform to First
National's historical financial presentation.

The pro forma adjustments represent management's best estimates based on
available information at this time. Actual adjustments will differ from those
reflected in the unaudited pro forma combined condensed financial statements.
First National and FirstBancorporation are still in the process of reviewing
their respective accounting policies relative to those followed by the other
entity. As a result of this review, it may be necessary to restate certain
amounts in First National's or FirstBancorporation's financial statements to
conform to those accounting policies that are most appropriate. In management's
opinion, any such restatements will not be material.

The unaudited pro forma combined condensed financial statements presented
are not necessarily indicative of the results of operations or the combined
financial position that would have resulted had the merger been consummated at
the beginning of the periods indicated, nor are they necessarily indicative of
the results of operations in future periods or the future financial position of
the combined entities.

The unaudited pro forma combined condensed financial statements should be
read in conjunction with the historical consolidated financial statements and
the related notes thereto of each of First National and FirstBancorporation.
First National's historical financial statements are incorporated by reference
in the First National annual report on Form 10-K for the year ended December 31,
1998 as filed with the Securities and Exchange Commission on March 31, 1999.
FirstBancorporation's historical financial statements are incorporated by
reference in the FirstBancorporation annual report on Form 10-KSB for the year
ended December 31, 1998, as filed with the Securities and Exchange Commission on
March 30, 1999. A copy of FirstBancorporation's annual report on Form 10-KSB is
attached to this joint proxy statement/prospectus as Appendix G.

NOTE 2. SHAREHOLDERS' EQUITY

In conjunction with the merger, First National will exchange 1.222 shares
of its common stock for each share of FirstBancorporation common stock.

The pro forma adjustments herein reflect, where applicable, the 1.222
exchange ratio for each of the 963,325 shares of FirstBancorporation common
stock which were issued and outstanding at March 31, 1999. The capital accounts
have been adjusted to reflect the issuance of 1,177,183 shares of First National
common stock in exchange for all of the

89
<PAGE> 96
NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

outstanding shares of FirstBancorporation stock based on the exchange ratio. The
excess ($2,933,000) of the par value of the First National common stock issued
over the par value of FirstBancorporation stock received in exchange has been
charged to surplus.

At March 31, 1999, First National owned 5,555 shares of FirstBancorporation
common stock with a recorded value of $100,000. Consequently, the investment
balance and the related shares of common stock were eliminated.

NOTE 3. PER SHARE DATA

Basic earnings per common share has been computed by dividing the pro forma
combined net income by the weighted average number of common shares outstanding
of First National common stock plus the weighted average number of common shares
of FirstBancorporation adjusted by the exchange ratio of 1.222 as of the
earliest period presented.

Diluted earnings per common share has been computed by dividing the pro
forma combined net income by the weighted average number of common shares
outstanding and dilutive common share equivalents of First National common stock
plus the weighted average number of common shares outstanding and dilutive
common share equivalents of FirstBancorporation adjusted by the exchange ratio
of 1.222 as of the earliest period presented, using the treasury stock method.
Dilutive common share equivalents include common shares issuable upon exercise
of stock options outstanding.

NOTE 4. MERGER-RELATED EXPENSES

In connection with the merger, First National expects to incur
merger-related expenses of approximately $600,000, after tax. These expenses
relate primarily to severance, change in control, and other employee-related
items, as well as legal, investment banking and other professional fees. The
impact of these expenses, net of the related tax effect, has been reflected in
the pro forma combined condensed balance sheet as of March 31, 1999.

NOTE 5. OPERATING COST SAVINGS

First National expects to achieve a certain level of cost savings after the
merger through the optimization of delivery systems, reduction of corporate
overhead, elimination of redundant staff functions, consolidation of business
lines, data processing and back office operations, infrastructure and vendor
leverage, and the elimination of certain duplicate or excess facilities.
However, the unaudited pro forma combined condensed financial statements do not
reflect any direct costs or potential savings which are expected to result from
the consolidation of operations of the combining companies, and, therefore, do
not purport to be indicative of future operations.

NOTE 6. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES

In 1998, FirstBancorporation adopted AICPA Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 provides
guidance on the

90
<PAGE> 97
NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

financial reporting of start-up costs and organization costs and requires such
costs to be expensed as incurred. The adoption of SOP 98-5 is reported as the
cumulative effect of a change in accounting principle in FirstBancorporation's
1998 financial statements included in its annual report on Form 10-KSB. Adoption
of SOP 98-5 reduced FirstBancorporation's net income for 1998 by $90,000 and
basic and diluted earnings per common share by $0.12 and $0.11, respectively.
Prior to adopting SOP 98-5, deferred organization costs were amortized using the
straight-line method. In accordance with Instruction 1 to Article 11 of
Regulation S-X, pro forma net income and basic and diluted earnings per share
for First National for 1998 excludes such cumulative effect adjustment.

91
<PAGE> 98

APPENDIX A

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

MERGER AGREEMENT

BETWEEN

FIRST NATIONAL CORPORATION

AND

FIRSTBANCORPORATION, INC.

DATED AS OF MARCH 4, 1999

- --------------------------------------------------------------------------------
<PAGE> 99

TABLE OF CONTENTS

ARTICLE I

DEFINED TERMS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.1 Definitions................................................. A- 1
ARTICLE II
THE MERGER
2.1 The Merger.................................................. A- 8
2.2 Effective Time.............................................. A- 8
2.3 Effect of the Merger........................................ A- 9
2.4 Articles of Incorporation; Bylaws........................... A- 9
2.5 Directors and Officers...................................... A- 9
ARTICLE III
CONVERSION AND EXCHANGE OF SHARES
3.1 Merger Consideration........................................ A- 9
3.2 Rights as Shareholders; Stock Transfers..................... A-10
3.3 Fractional Shares........................................... A-10
3.4 Exchange Procedures......................................... A-10
3.5 Anti-Dilution Provisions.................................... A-11
3.6 Stock Options............................................... A-11
3.7 Dissenting Shares........................................... A-12
ARTICLE IV
THE CLOSING
4.1 Closing..................................................... A-12
4.2 Deliveries by FirstBancorporation........................... A-12
4.3 Deliveries by FNC........................................... A-13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FIRSTBANCORPORATION
5.1 Organization, Standing and Power............................ A-13
5.2 Authority; No Breach By Agreement........................... A-13
5.3 Capital Stock............................................... A-14
5.4 Records..................................................... A-15
5.5 Subsidiaries and Affiliates................................. A-15
5.6 Financial Statements........................................ A-15
5.7 Tax Matters................................................. A-16
5.8 Real Property............................................... A-18
5.9 Assets...................................................... A-18
5.10 Intellectual Property Rights................................ A-19
5.11 Loans, Accounts, Notes and Other Receivables; Loan
Collateral.................................................. A-19
5.12 Securities Portfolio and Investments........................ A-21
5.13 Environmental Matters....................................... A-21
5.14 Compliance with Laws........................................ A-21
5.15 Labor Relations; Employment Matters......................... A-21
5.16 Employee Benefit Plans; ERISA............................... A-22
</TABLE>

A-i
<PAGE> 100

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.17 Insurance................................................... A-24
5.18 Material Contracts.......................................... A-25
5.19 Legal Proceedings........................................... A-25
5.20 Absence of Other Liabilities................................ A-26
5.21 Absence of Changes or Events................................ A-26
5.22 Reports..................................................... A-26
5.23 Accounting, Tax and Regulatory Matters...................... A-27
5.24 Charter Provisions.......................................... A-27
5.25 Certain Regulated Businesses................................ A-27
5.26 Commissions................................................. A-27
5.27 Registration Statement; Joint Proxy Statement/Prospectus.... A-27
5.28 Takeover Laws............................................... A-28
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF FNC
6.1 Organization................................................ A-28
6.2 Authority; No Breach By Agreement........................... A-29
6.3 Capital Stock............................................... A-29
6.4 FNC's Financial Statements.................................. A-30
6.5 Reports..................................................... A-30
6.6 Absence of Changes.......................................... A-30
6.7 Legal Proceedings........................................... A-30
6.8 Accounting, Tax and Regulatory Matters...................... A-30
6.9 Commissions................................................. A-31
6.10 Registration Statement; Joint Proxy Statement/Prospectus.... A-31
6.11 Tax Matters................................................. A-31
6.12 Loans, Accounts, Notes and Other Receivables; Loan
Collateral.................................................. A-33
6.13 Securities Portfolio and Investments........................ A-34
6.14 Environmental Matters....................................... A-35
6.15 Compliance with Laws........................................ A-35
6.16 Labor Relations; Employment Matters......................... A-35
6.17 Absence of Other Liabilities................................ A-36
6.18 Certain Regulated Businesses................................ A-36
6.19 Takeover Laws............................................... A-36
ARTICLE VII
COVENANTS
7.1 Covenants of FirstBancorporation............................ A-36
7.2 Covenants of FNC............................................ A-41
7.3 Covenants of All Parties to the Agreement................... A-44
ARTICLE VIII
DISCLOSURE OF ADDITIONAL INFORMATION
8.1 Access to Information by FirstBancorporation................ A-46
8.2 Access to Information....................................... A-46
8.3 Access to Premises.......................................... A-46
8.4 Confidentiality............................................. A-46
8.5 Publicity................................................... A-46
</TABLE>

A-ii
<PAGE> 101

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IX
CONDITIONS TO CLOSING
9.1 Mutual Conditions........................................... A-47
9.2 Conditions to the Obligations of FirstBancorporation........ A-48
9.3 Conditions to the Obligations of FNC........................ A-49
ARTICLE X
TERMINATION
10.1 Termination................................................. A-51
10.2 Procedure and Effect of Termination......................... A-52
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Expenses.................................................... A-53
11.2 Survival of Representations................................. A-53
11.3 Amendment and Modification.................................. A-53
11.4 Waiver of Compliance; Consents.............................. A-53
11.5 Notices..................................................... A-54
11.6 Assignment; Third Party Beneficiaries....................... A-54
11.7 Separable Provisions........................................ A-55
11.8 Governing Law............................................... A-55
11.9 Counterparts................................................ A-55
11.10 Interpretation.............................................. A-55
11.11 Entire Agreement............................................ A-55
</TABLE>

<TABLE>
<S> <C>
SCHEDULES
Schedule 1.1 FirstBancorporation Transaction Fees and Expenses
Schedule 5.1 Jurisdictional Qualifications
Schedule 5.2 Exceptions to Representation of no Breaches
Schedule 5.3 Five Percent Holders
Schedule 5.5 Affiliates
Schedule 5.7 Income Tax
Schedule 5.8 Real Property
Schedule 5.9 Liens
Schedule 5.10 Intellectual Property
Schedule 5.11 Delinquent Loans
Schedule 5.14 Compliance With Laws
Schedule 5.15 Loans to Officers, Directors, and Employees
Schedule 5.16 Employee Benefit Plans; ERISA
Schedule 5.17 Insurance
Schedule 5.18(a) Material Contracts
Schedule 5.18(b) Contracts Requiring Consents
Schedule 5.19 Litigation
Schedule 5.20 Undisclosed Liabilities
Schedule 6.11 Income Tax
Schedule 6.12 FNC Delinquent Loans
Schedule 6.15 FNC Compliance with Laws
Schedule 6.17 FNC Undisclosed Liabilities
</TABLE>

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Schedule 7.1(a) Ordinary Conduct of Business
Schedule 7.1(e) Retention Bonus Employees
Schedule 7.2 FNC Acquisitions
EXHIBITS
Exhibit A Form of Plan of Merger
Exhibit B Form of Affiliate Agreement
Exhibit C Form of Opinion of Counsel to FNC
Exhibit D Form of Employment and Noncompetition Agreement with James
A. Shuford, III
Exhibit E Form of Opinion of Counsel to FirstBancorporation

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MERGER AGREEMENT

THIS MERGER AGREEMENT (this "AGREEMENT"), dated as of March 4, 1999, is by
and between FIRST NATIONAL CORPORATION, a South Carolina corporation ("FNC"),
and FIRSTBANCORPORATION, INC., a South Carolina corporation
("FIRSTBANCORPORATION").

BACKGROUND STATEMENT

FNC and FirstBancorporation desire to effect a merger pursuant to which
FirstBancorporation will merge with and into FNC, and FNC will be the surviving
corporation (the "MERGER"). The parties intend that the Merger qualify as a
tax-free reorganization under Section 368 of the Internal Revenue Code of 1986,
as amended, and qualify for "pooling-of-interest" accounting treatment.

STATEMENT OF AGREEMENT

In consideration of the premises and the mutual representations,
warranties, covenants, agreements and conditions contained herein, the parties
hereto agree as follows:

ARTICLE I

DEFINED TERMS

1.1 DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:

"ACQUISITION PROPOSAL" has the meaning given to it in SECTION 7.1(B).

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

"AFFILIATE" means, with respect to any Person, each of the Persons
that directly or indirectly, through one or more intermediaries, owns or
controls, or is controlled by or under common control with, such Person.
For the purpose of this Agreement, "CONTROL" means the possession, directly
or indirectly, of the power to direct or cause the direction of management
and policies, whether through the ownership of voting securities, by
contract or otherwise.

"AFFILIATE AGREEMENT" has the meaning given to it in SECTION 7.1(D).

"AGREEMENT" means this Merger Agreement and the exhibits and schedules
hereto, as amended or modified from time to time in accordance with SECTION
11.3.

"ARTICLES OF MERGER" has the meaning given to it in SECTION 2.2.

"ASSETS" means all of the assets, properties, businesses and rights of
a Person of every kind, nature, character and description, whether real,
personal or mixed, tangible or intangible, accrued or contingent, whether
or not carried on any books and records of such Person, whether or not
owned in such Person's name and wherever located. Notwithstanding the
foregoing, "ASSETS", does not include Loan Collateral not foreclosed as of
the date with respect to which the term Assets is being used.

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"ASSUMABLE OPTIONS" has the meaning given to it in SECTION 3.6.

"BANK MERGER" has the meaning given to it in SECTION 7.1(F).

"BENEFIT PLAN" means any employee pension, retirement, profit-sharing,
stock bonus, incentive, deferred compensation, stock option, employee stock
ownership, hospitalization, medical, dental, vacation, insurance, sick pay,
disability, severance or other plan, fund, program, policy, contract or
arrangement, whether arrived at through collective bargaining or otherwise,
providing employee benefits (including but not limited to any "employee
benefit plan" as that term is defined in Section 3(3) of ERISA and any
employee benefit plan that is a "cafeteria plan" as described in Section
125 of the Code), currently maintained or previously maintained at any time
in the last five years by, sponsored in whole or in part by, or contributed
to by FirstBancorporation or any Subsidiary, for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries, whether created in writing, through an employee manual or
similar document, or orally.

"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
that shall be a legal holiday in the State of South Carolina.

"CLAIM" has the meaning given to it in SECTION 7.2(C)(II).

"CLOSING" means the closing of the Merger, as identified more
specifically in ARTICLE IV.

"CLOSING DATE" has the meaning given to it in SECTION 4.1.

"COBRA" has the meaning given to it in SECTION 5.16.

"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to
sections of the Code shall be construed also to refer to any successor
sections.

"CONSENT" means any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person given or granted
with respect to any Contract, Law, Order, or Permit.

"CONTINUING EMPLOYEES" has the meaning given to it in SECTION 7.2(E).

"CONTRACT" means any agreement, warranty, indenture, mortgage,
guaranty, lease, license or other contract, agreement, arrangement,
commitment or understanding, written or oral, to which a Person is a party.

"DEFAULT" means, with respect to a Contract, Order or Permit, (i) any
breach or violation of or default under such Contract, Order or Permit,
(ii) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of or
default under such Contract, Order or Permit, or (iii) any occurrence of
any event that with or without the passage of time or the giving of notice
would give rise to a right to terminate or revoke, change the current terms
of, or renegotiate, or to accelerate, increase, or impose any Liability
under, such Contract, Order or Permit.

"DISSENTING SHARES" has the meaning given to it in SECTION 3.7.

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"EFFECTIVE DATE" means the day on which the Effective Time occurs.

"EFFECTIVE TIME" has the meaning given to it in SECTION 2.2.

"ENVIRONMENTAL LAWS" means any federal, state or local law, statute,
ordinance, rule, regulation, permit, directive, license, approval,
guidance, interpretation, order or other legal requirement relating to the
protection of human health or the environment, including, but not limited
to, any requirement pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of materials
that are or may constitute a threat to human health or the environment.
Without limiting the foregoing, each of the following is an Environmental
Law: the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. sec. 9601 et seq.) ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. sec. 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. sec. 6901 et seq.) ("RCRA"), the Federal Water
Pollution Control Act (33 U.S.C. sec. 1251 et seq.), the Clean Air Act (42
U.S.C. sec. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. sec.
2601 et seq.), the Safe Drinking Water Act (42 U.S.C. sec. 300 et seq.) and
the Occupational Safety and Health Act (29 U.S.C. sec. 651 et seq.)
("OSHA"), as such laws and regulations have been or are in the future
amended or supplemented, and each similar federal, state or local statute,
and each rule and regulation promulgated under such federal, state and
local laws.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.

"EXCHANGE RATIO" has the meaning given to it in SECTION 3.1.

"FDIC" means the Federal Deposit Insurance Corporation.

"FFIEC" means the Federal Financial Institutions Examination Council.

"FINANCIAL STATEMENTS" means FirstBancorporation's audited
consolidated statements of income, cash flow and shareholder's equity for
the years ended December 31, 1998, December 31, 1997 and 1996 and audited
balance sheets as of December 31, 1998 and 1997.

"FIRST NATIONAL BANK" means First National Bank, a national banking
association.

"FIRST SECURITIES CORPORATION" means First Securities Corporation, a
South Carolina corporation.

"FIRSTBANK" means FirstBank, National Association, a national banking
association.

"FIRSTBANCORPORATION" has the meaning given to it in the introductory
paragraph hereof.

"FIRSTBANCORPORATION OPTION" has the meaning given to it in SECTION
5.3.

"FIRSTBANCORPORATION STOCK" means the common stock of
FirstBancorporation, par value $.01 per share.

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"FLORENCE COUNTY NATIONAL BANK" means Florence County National Bank, a
national banking association.

"FNC" has the meaning given to it in the introductory paragraph
hereof.

"FNC FINANCIAL STATEMENTS" has the meaning given to it in SECTION 6.4.

"FNC FIRSTBANCORPORATION SHARES" has the meaning given to it in
SECTION 3.1(C).

"FNC STOCK" means the common stock of FNC, par value $2.50 per share,
as traded on the American Stock Exchange.

"FNC SUBSIDIARIES" means First National Bank, Florence County National
Bank, and National Bank of York County, and "FNC SUBSIDIARY" means any of
them.

"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means generally
accepted accounting principles as recognized by the American Institute of
Certified Public Accountants, as in effect from time to time, consistently
applied and maintained on a consistent basis for a Person throughout the
period indicated and consistent with such Person's prior financial
practice.

"GOVERNMENTAL AUTHORITY" means any nation, province or state, or any
political subdivision thereof, and any agency, department, natural person
or other entity exercising executive, legislative, regulatory or
administrative functions of or pertaining to government, including
Regulatory Authorities.

"HAZARDOUS MATERIAL" means any substance or material that either is or
contains a substance designated as a hazardous waste, hazardous substance,
hazardous material, pollutant, contaminant or toxic substance under any
Environmental Law or is otherwise regulated under any Environmental Law, or
the presence of which in some quantity requires investigation, notification
or remediation under any Environmental Law.

"INCOME TAXES" means all federal, state or local income taxes
(inclusive of any interest and penalties thereon) imposed on a Person with
respect to its assets or operations and which are based in whole or in part
upon income, but does not include any other Taxes.

"INDEMNIFIED LIABILITIES" has the meaning given to it in SECTION
7.2(C)(II).

"INDEMNIFIED PARTIES" has the meaning given to it in SECTION
7.2(C)(II).

"INTELLECTUAL PROPERTY" means (a) all inventions and discoveries
(whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications
and patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof,
(b) all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations
and combinations thereof and including all goodwill associated therewith,
and all applications, registrations and renewals in connection therewith,
(c) all copyrights and all applications, registrations and renewals in
connection therewith, (d) all know-how, trade secrets, whether patentable
or unpatentable and whether or not reduced to practice (including ideas,
research and development, know-how, formulas, compositions, manufacturing
and production process and techniques, technical data, designs,

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drawings, specifications, pricing and cost information and business and
marketing plans and proposals), (e) all computer software (including data
and related documentation other than off-the-shelf software) and (f) all
other proprietary rights.

"INTERIM FINANCIAL STATEMENTS" means the Interim Monthly Financial
Statements and the Interim Quarterly Financial Statements.

"INTERIM MONTHLY FINANCIAL STATEMENTS" has the meaning given to it in
SECTION 7.1(G).

"INTERIM QUARTERLY FINANCIAL STATEMENTS" has the meaning given to it
in SECTION 7.1(G).

"JOINT PROXY STATEMENT/PROSPECTUS" has the meaning given to it in
SECTION 5.27.

"KNOWLEDGE OF FNC" means the actual knowledge of the directors and
senior officers of FNC and the FNC Subsidiaries.

"KNOWLEDGE OF FIRSTBANCORPORATION" means the actual knowledge of the
directors and senior officers of FirstBancorporation and the Subsidiaries.

"LAW" means any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business promulgated, interpreted or enforced by any
Governmental Authority.

"LIABILITY" means any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured or otherwise,
which is required under Generally Accepted Accounting Principles to be
reflected in an audited balance sheet or disclosed in the notes thereto.

"LIEN" means, whether contractual or statutory, any conditional sale
agreement, participation or repurchase agreement, assignment, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge or claim of any nature whatsoever of, on, or with respect to any
property or property interest.

"LITIGATION" means any action, arbitration, cause of action,
complaint, criminal prosecution, governmental investigation, hearing, or
administrative or other proceeding, but shall not include regular, periodic
examinations of depository institutions and their Affiliates by Regulatory
Authorities.

"LOAN COLLATERAL" means, with respect to any Person, all of the
assets, properties, businesses and rights of every kind, nature, character
and description, whether real, personal, or mixed, tangible or intangible,
accrued or contingent, owned by whomever and wherever located, in which
such Person has taken a security interest with respect to, on which such
Person has placed a Lien with respect to, or which is otherwise used to
secure, any loan made by such Person or any note, account, or other
receivable payable to such Person.

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"MATERIAL ADVERSE EFFECT" means, with respect to a party, any effect
or effects that (i) are or could reasonably be material and adverse to the
condition (financial or otherwise), operations, business, loan portfolio or
investment portfolio of such party and its subsidiaries taken as a whole,
or (ii) would materially impair the ability of such party to perform its
obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however, that Material Adverse
Effect shall not be deemed to include the impact of (a) changes in banking
and similar laws of general applicability or interpretations thereof by
courts or Governmental Authorities, or other changes affecting depository
institutions generally, including changes in general economic conditions
and changes in prevailing interest and deposit rates; (b) changes in
Generally Accepted Accounting Principles or regulatory accounting
requirements applicable to banks and their holding companies generally; (c)
any modifications or changes to valuation policies and practices in
connection with the Merger or restructuring change taken at the written
request of FNC in connection with the Merger, in each case in accordance
with Generally Accepted Accounting Principles; (d) changes resulting from
transaction expenses (such as legal, accounting and investment bankers'
fees) incurred in connection with this Agreement and the Merger (which fees
and expenses for FirstBancorporation shall not materially exceed the
estimates set forth on Schedule 1.1); and (e) actions or omissions of a
party or its subsidiaries taken with the written consent of the other party
in consideration of the transactions contemplated by the Agreement.

"MATERIAL CONTRACT" has the meaning given to it in SECTION 5.18(A).

"MATERIAL PERMIT" has the meaning given to it in SECTION 5.2(B).

"MERGER" has the meaning given to it in the Background Statement
hereof.

"MERGER CONSIDERATION" has the meaning given to it in SECTION 2.1.

"MIDLANDS BANK" means FirstBank of the Midlands, National Association,
a national banking association.

"NATIONAL BANK OF YORK COUNTY" means National Bank of York County, a
national banking association.

"NEW CERTIFICATES" has the meaning given to it in SECTION 3.4.

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

"OLD CERTIFICATES" has the meaning given to it in SECTION 3.4.

"ORDER" means any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local, foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Governmental Authority.

"PERMIT" means any approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or right given by a
Governmental Authority to which any Person is a subject or that is or may
be binding upon or inure to the benefit of any Person or its securities,
Assets or business.

"PERMITTED LIENS" means (a) Liens for current property Taxes not yet
due and payable, (b) pledges to secure deposits in the ordinary course of
business consistent

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with past practices, (c) Liens as security for Federal Home Loan Bank and
Federal Reserve Bank advances entered into in the ordinary course of
business consistent with past practices, (d) Liens granted in connection
with repurchase agreements entered into in the ordinary course of business
consistent with past practices and (e) in the case of Real Property,
easements, restrictions and similar non-monetary Liens which do not
adversely affect the use, value or marketability of such Real Property.

"PERSON" means a corporation, a company, an association, a joint
venture, a partnership, an organization, a business, an individual, a
trust, a Governmental Authority or any other legal entity.

"PLAN OF MERGER" has the meaning given to it in SECTION 2.2.

"POLICIES" has the meaning given to it in SECTION 5.17.

"REAL PROPERTY" means all of the land, buildings, premises, or other
real property in which a Person has ownership or possessory rights, whether
by title, lease or otherwise (including banking facilities and any
foreclosed properties). Notwithstanding the foregoing, "REAL PROPERTY" does
not include any Loan Collateral not yet foreclosed as of the date with
respect to which the term "REAL PROPERTY" is being used.

"REGISTRATION STATEMENT" has the meaning given to it in SECTION 5.27.

"REGULATORY AUTHORITIES" means, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of Governors
of the Federal Reserve System, the South Carolina Commissioner of Banks,
the OCC, the FDIC, and all other federal and state regulatory agencies
having jurisdiction over the parties and their respective subsidiaries, and
the SEC.

"REGULATORY REPORTS" has the meaning given to it in SECTION 5.22.

"REPLACEMENT OPTIONS" has the meaning given to it in SECTION 3.6.

"REPORTS" has the meaning given to it in SECTION 6.5.

"REPRESENTATIVES" has the meaning given to it in SECTION 7.1(B).

"SCBCA" means the South Carolina Business Corporation Act of 1988, as
amended.

"SEC" means the Securities and Exchange Commission.

"SEC REPORTS" has the meaning given to it in SECTION 5.22.

"SECURITIES LAWS" means the Securities Act of 1933, the Securities
Exchange Act of 1934, the Investment Company Act of 1940, the Investment
Advisors Act of 1940, the Trust Indenture Act of 1939, each as amended, and
the rules and regulations of any Governmental Authority promulgated under
each.

"SHAREHOLDER MEETINGS" has the meaning given to it in SECTION 5.27.

"STOCK OPTION PLANS" has the meaning given to it in SECTION 3.6.

"SUBSIDIARY MERGER" has the meaning given to it in SECTION 7.1(F).

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"SUBSIDIARIES" means, collectively, FirstBank, Midlands Bank, First
Securities Corporation, and "SUBSIDIARY" means any of them.

"SUPERIOR PROPOSAL" has the meaning given to it in SECTION 7.1(B).

"SURVIVING CORPORATION" has the meaning given to it in SECTION 2.1.

"TAKEOVER LAWS" means the South Carolina Control Share Acquisition Act
(Section 35-2-101 et seq. of the Code of Laws of South Carolina 1976) and
the South Carolina Business Combination Act (Section 35-2-201 et seq. of
the Code of Laws of South Carolina 1976).

"TAXES" means all taxes, charges, fees, levies or other assessments
(whether federal, state, local or foreign), including without limitation
income, gross receipts, excise, property, estate, sales, use, value added,
transfer, license, payroll, franchise, ad valorem, withholding, Social
Security and unemployment taxes, as well as any interest, penalties and
other additions to such taxes, charges, fees, levies or other assessments.

"TAX RETURN" means any report, return or other information required to
be supplied to a taxing authority in connection with Taxes.

"TREASURY REGULATIONS" means the Income Tax Regulations to the Code.

"TREASURY SHARES" has the meaning given to it in SECTION 3.1.

ARTICLE II

THE MERGER

2.1 THE MERGER. Upon the terms hereof and subject to the conditions set
forth in ARTICLE IX, and in accordance with the SCBCA, at the Effective Time,
FirstBancorporation shall be merged with and into FNC. As a result of the
Merger, the separate corporate existence of FirstBancorporation shall cease and
FNC shall continue as the surviving corporation of the Merger (the "SURVIVING
CORPORATION"). Notwithstanding anything to the contrary contained in this
SECTION 2.1, FNC may elect to merge FirstBancorporation with and into a direct
or indirect wholly-owned subsidiary of FNC; provided, however, that no such
election shall (i) alter or change the amount or kind of consideration to be
issued to holders of FirstBancorporation Stock as provided for in this Agreement
(the "MERGER CONSIDERATION"), (ii) cause the Merger not to qualify as a tax-free
reorganization under Section 368 of the Code or for "pooling of interests"
accounting treatment, (iii) materially impede or materially delay consummation
of the transactions contemplated by this Agreement, or (iv) materially diminish
or alter the obligations of FNC under this Agreement. In such event, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
the foregoing and to provide, as the case may be, that such other wholly-owned
subsidiary of FNC shall be the Surviving Corporation.

2.2 EFFECTIVE TIME. Subject to the satisfaction or waiver of the conditions
set forth in ARTICLE IX, the Merger shall become effective on the date and at
the time of the filing of articles of merger (the "ARTICLES OF MERGER"), in the
form required by and executed in accordance with the SCBCA, or at such other
time specified in the Articles of Merger. The date and time when the Merger
shall become effective shall be referred to herein as the "EFFECTIVE TIME."
Unless otherwise agreed by the parties, at or as soon as practicable
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after the Closing, FNC and FirstBancorporation shall cause the Articles of
Merger to be executed and filed with the Secretary of State of South Carolina,
as required by the SCBCA, and shall take any and all other actions and do any
and all other things to cause the Merger to become effective as contemplated
hereby. The plan of merger, which shall be substantially in the form of EXHIBIT
A hereto (the "PLAN OF MERGER"), shall be set forth in the Articles of Merger.

2.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the SCBCA. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of FirstBancorporation
shall vest in the Surviving Corporation, and all debts, liabilities,
obligations, restrictions, disabilities and duties of FirstBancorporation shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.

2.4 ARTICLES OF INCORPORATION; BYLAWS.

(a) Unless otherwise determined by FNC prior to the Effective Time, at the
Effective Time, the Articles of Incorporation of FNC, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation (as amended by the Articles of Merger).

(b) Unless otherwise determined by FNC prior to the Effective Time, the
Bylaws of FNC, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended as provided by
law, the Articles of Incorporation of the Surviving Corporation and such Bylaws.

2.5 DIRECTORS AND OFFICERS. The directors of FNC immediately after the
Effective Time, together with the two individuals designated in SECTION
7.2(D)hereof, shall be the directors of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation and the SCBCA, and the officers of FNC immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.

ARTICLE III

CONVERSION AND EXCHANGE OF SHARES

3.1 MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:

(a) Each share of FirstBancorporation Stock, excluding Dissenting
Shares, Treasury Shares and FNC FirstBancorporation Shares, issued and
outstanding immediately prior to the Effective Time shall become and be
converted into 1.222 shares of FNC Stock (the "EXCHANGE RATIO"). The
Exchange Ratio is subject to adjustment as set forth in SECTION 3.5.

(b) Each share of FNC Stock issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

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(c) Each share of FirstBancorporation Stock held in treasury by
FirstBancorporation or otherwise owned by FirstBancorporation or the
Subsidiaries ("TREASURY SHARES"), and each share of FirstBancorporation
Stock owned by FNC or the FNC Subsidiaries ("FNC FIRSTBANCORPORATION
SHARES"), immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in
exchange therefor.

3.2 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of shares of FirstBancorporation Stock shall cease to be, and shall have
no rights as, shareholders of FirstBancorporation, other than (i) to receive any
dividend or other distribution with respect to shares of FirstBancorporation
Stock with a record date occurring prior to the Effective Time and the
consideration provided under this ARTICLE III and (ii) those rights afforded to
the holders of Dissenting Shares under the SCBCA. After the Effective Time,
there shall be no transfers on the stock transfer books of FirstBancorporation
or the Surviving Corporation of shares of FirstBancorporation Stock.

3.3 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of FNC Stock and no certificates or scrip therefor, or other
evidence of ownership thereof, will be issued in the Merger; instead, FNC shall
pay to each holder of FirstBancorporation Stock who would otherwise be entitled
to a fractional share of FNC Stock (after taking into account all Old
Certificates delivered by such holder) an amount in cash (without interest)
determined by multiplying such fraction by the last sale price of FNC Stock
published by the American Stock Exchange (as reported in The Wall Street Journal
or, if not reported therein, in another authoritative source), for the trading
day immediately preceding the Effective Date.

3.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Time, but not later than 10 Business Days after the Effective Date, FNC shall
send or cause to be sent to each former holder of record of shares of
FirstBancorporation Stock immediately prior to the Effective Time transmittal
materials for use in exchanging such shareholder's certificates formerly
representing shares of FirstBancorporation Stock (the "OLD CERTIFICATES") for
the consideration set forth in this ARTICLE III. FNC shall cause the
certificates representing the shares of FNC Stock (the "NEW CERTIFICATES") into
which shares of FirstBancorporation Stock are converted at the Effective Time
and/or any check in respect of any fractional share interest or dividends or
distributions which such Person shall be entitled to receive to be delivered to
such shareholder upon delivery to FNC of Old Certificates representing such
shares of FirstBancorporation Stock (or indemnity reasonably satisfactory to FNC
that such certificates are lost, stolen or destroyed) owned by such shareholder
and properly completed transmittal materials. No interest will be paid on any
such cash to be paid in lieu of fractional share interests or in respect of
dividends or distributions which any such Person shall be entitled to receive
pursuant to this ARTICLE III upon such delivery. Old Certificates surrendered
for exchange by any Affiliate of FirstBancorporation shall not be exchanged for
New Certificates until FNC has received an Affiliate Agreement from such Person
as specified in SECTION 7.1(D). Notwithstanding the foregoing, no party hereto
shall be liable to any former holder of FirstBancorporation Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws. At the election of FNC, no dividends or other
distributions with respect to FNC Stock with a record date occurring on or after
the Effective Date shall be paid to the holder of any unsurrendered Old
Certificate representing shares of FirstBancorporation Stock converted in the
Merger into the right to receive shares of such FNC Stock until the holder
thereof shall be entitled to receive New

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Certificates in exchange therefor in accordance with the procedures set forth in
this SECTION 3.4. After becoming so entitled in accordance with this SECTION
3.4, the record holder thereof shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of FNC Stock such holder had the right to
receive upon surrender of the Old Certificates.

3.5 ANTI-DILUTION PROVISIONS. In the event FNC changes (or establishes a
record date for changing) the number of shares of FNC Stock issued and
outstanding prior to the Effective Time as a result of a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding FNC Stock and the record date or effective date therefor shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.

3.6 STOCK OPTIONS. At the Effective Time, each outstanding option to
purchase shares of FirstBancorporation Stock (in each case, an "ASSUMABLE
OPTION") granted under (i) the 1986 Amended and Restated Non-Qualified Stock
Option Plan of FirstBancorporation, Inc., and (ii) the 1996 Stock Option Plan of
FirstBancorporation, Inc. (collectively, the "STOCK OPTION PLANS"), which have
not been exercised prior to the Effective Time, shall be converted into an
option (a "REPLACEMENT OPTION") to acquire, on the same terms and conditions as
were applicable under such Assumable Option, the number of shares of FNC Stock
equal to (A) the number of shares of FirstBancorporation Stock subject to the
Assumable Option, multiplied by (B) the Exchange Ratio (such product rounded to
the nearest whole number), at an exercise price per share (rounded to the
nearest whole cent) equal to (y) the aggregate exercise price for the shares of
FirstBancorporation Stock which were purchasable pursuant to such Assumable
Option divided by (z) the number of full shares of FNC Stock subject to such
Replacement Option in accordance with the foregoing. Notwithstanding the
foregoing, each Assumable Option which is intended to be an "incentive stock
option" (as defined in Section 422 of the Code) shall be adjusted in accordance
with the requirements of Section 424 of the Code. At or prior to the Effective
Time, FirstBancorporation shall use its reasonable best efforts to take all
action necessary, including obtaining any necessary consents from optionees, to
permit the replacement of the outstanding Assumable Options by FNC pursuant to
this SECTION 3.6 and to permit FNC to assume the Stock Option Plans.
FirstBancorporation shall further take all action necessary to amend the Stock
Option Plans to eliminate automatic grants or awards thereunder following the
Effective Time. At the Effective Time, FNC shall assume the Stock Option Plans
provided that such assumption shall be only in respect of the Replacement
Options and that FNC shall have no obligation with respect to any awards under
the Stock Option Plans other than the Replacement Options and shall have no
obligation to make any additional grants or awards under the Stock Option Plans.
Prior to and at all times after the Effective Time, FNC shall reserve for
issuance such number of shares of FNC Stock as necessary so as to permit the
exercise of Replacement Options granted in the manner contemplated by this
Agreement. FNC shall file a registration statement on Form S-8 (or an amendment
to the Registration Statement to the same effect) as soon as reasonably
practicable after the Effective Time so as to permit the exercise of such
options and the sale of the shares received by the optionee upon such exercise
at and after the Effective Time and FNC shall continue to make such filings
thereafter as may be necessary to permit the continued exercise of options and
sale of such shares; provided, however, that the parties acknowledge and agree
that "affiliates" (as described in SECTION 7.1(D)) of FirstBancorporation as of
the Effective Time and affiliates of FNC shall be required to comply with the
provisions of Rule 144 and Rule 145 under

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the Securities Act of 1933, as amended (or any successor rules) with respect to
the sale of shares of FNC Stock acquired upon the exercise of Replacement
Options.

3.7 DISSENTING SHARES.

(a) Notwithstanding any provision of this Agreement to the contrary, shares
of FirstBancorporation Stock that are outstanding immediately prior to the
Effective Time and which are held by a holder who shall have properly given
written notice of his intent to exercise dissenters' rights with respect to such
shares in connection with the Merger and in compliance with Chapter 13 of the
SCBCA (collectively, the "DISSENTING SHARES") shall not be converted into or
represent the right to receive the Merger Consideration. Such holder shall be
entitled to receive payment of the appraised value of such Dissenting Shares
held by him in accordance with the provisions of such Chapter 13, except that
all Dissenting Shares held by shareholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to appraisal of such
shares under such Chapter 13 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon surrender,
in the manner provided in SECTION 3.4, of the Old Certificates.

(b) FirstBancorporation shall give FNC (i) prompt notice of any demands for
appraisal received by FirstBancorporation, withdrawals of such demands, and any
other instruments served pursuant to the SCBCA in respect of Dissenting Shares
and received by FirstBancorporation and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
SCBCA. FirstBancorporation shall not, except with the prior written consent of
FNC, make any payment with respect to any demands for appraisal or offer to
settle or settle any such demands.

ARTICLE IV

THE CLOSING

4.1 CLOSING. Upon the terms hereof and subject to the satisfaction or
waiver of the conditions set forth in ARTICLE IX, the Closing of the Merger
shall take place at the offices of FNC in Orangeburg, South Carolina on a date
specified by FNC (such date, the "CLOSING DATE") after the expiration of any and
all required waiting periods following the effective date of required approvals
of the Merger by Regulatory Authorities (but in no event more than 10 Business
Days following the expiration of all such required waiting periods). At the
Closing, the parties will execute, deliver and file all documents necessary to
effect the transactions contemplated herein, including the Articles of Merger.

4.2 DELIVERIES BY FIRSTBANCORPORATION. At or by the Closing,
FirstBancorporation shall have caused the following documents to be executed and
delivered to FNC:

(a) the agreements, opinions, certificates, instruments and other
documents contemplated in SECTION 9.3; and

(b) all other documents, certificates and instruments required
hereunder to be delivered by FirstBancorporation, or as may reasonably be
requested by FNC at or prior to the Closing.

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4.3 DELIVERIES BY FNC. At or by the Closing, FNC shall have caused the
following documents to be executed and delivered to FirstBancorporation:

(a) the agreements, opinions, certificates, instruments and other
documents contemplated in SECTION 9.2; and

(b) all other documents, certificates and instruments required
hereunder to be delivered by FNC, or as may reasonably be requested by
FirstBancorporation at or prior to the Closing.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF FIRSTBANCORPORATION

FirstBancorporation represents and warrants to FNC as follows:

5.1 ORGANIZATION, STANDING AND POWER.

(a) Each of FirstBancorporation and First Securities Corporation is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of South Carolina, and FirstBancorporation is duly registered as a
bank holding company under the Act. Each of FirstBank and Midlands Bank is a
national banking association organized and existing under the laws of the United
States of America. Each of FirstBancorporation and the Subsidiaries has the
corporate power and authority to carry on its business as now conducted and to
own, lease and operate its Assets. Each of FirstBancorporation and the
Subsidiaries is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed (except where the failure to
be so qualified or licensed would not have a Material Adverse Effect on
FirstBancorporation), and all such jurisdictions are set forth on Schedule 5.1.
Schedule 5.1 also lists and separately identifies any additional jurisdictions
in which FirstBancorporation or any Subsidiary has offices or conducts business,
or where its employees are present to provide services on behalf of
FirstBancorporation or such Subsidiary, but in which such Person is not so
qualified or licensed.

(b) Each of FirstBank and Midlands Bank is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and all deposits in FirstBank and Midlands Bank are insured by the
FDIC to the maximum extent permitted by applicable Law. FirstBancorporation has
received all requisite approvals and consents of the Regulatory Authorities to
own and operate the Subsidiaries.

5.2 AUTHORITY; NO BREACH BY AGREEMENT.

(a) FirstBancorporation has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of its obligations under this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of FirstBancorporation, subject only to the adoption and approval of this
Agreement by the shareholders of FirstBancorporation. This Agreement shall
constitute a legal, valid and binding obligation of FirstBancorporation,
enforceable against FirstBancorporation in accordance with its terms (except in
all cases as such enforceability may be limited by a court acting in equity,
applicable bankruptcy,

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insolvency, reorganization, moratorium or similar Laws affecting the enforcement
of creditors' rights generally).

(b) Neither the execution and delivery of this Agreement by
FirstBancorporation, nor the consummation by FirstBancorporation of the
transactions contemplated hereby, nor compliance by FirstBancorporation with any
of the provisions hereof, will (i) conflict with or result in a breach of any
provision of (A) the articles of association or bylaws of FirstBank or Midlands
Bank or (B) the articles of incorporation or bylaws of FirstBancorporation or
any other Subsidiary, or (ii) except as disclosed in Schedule 5.2 or in Schedule
5.18, constitute or result in a Default under, or require any Consent pursuant
to, or result in the creation of any Lien on any Asset of FirstBancorporation or
any Subsidiary under, (A) any Material Contract or Material Permit (as defined
below) of FirstBancorporation or any Subsidiary or (B) any material loan,
account, note or other receivable reflected as an asset on the books and records
of FirstBancorporation and the Subsidiaries, or (iii) subject to obtaining the
requisite Consents referred to in SECTION 9.1(B)of this Agreement, violate any
Law or Order applicable to FirstBancorporation or any Subsidiary or any of their
respective Assets in a manner that would impose any material liability,
obligation or limitation on FirstBancorporation, any Subsidiary, FNC, any FNC
Subsidiary or any of their respective businesses. For purposes of this
Agreement, "MATERIAL PERMIT" shall mean a Permit that is necessary for a party
and its subsidiaries to operate their respective businesses as currently
conducted or to own their respective Assets.

(c) Except as disclosed in Schedule 5.2, no notice to, filing with or
Consent of any Governmental Authority by FirstBancorporation or any Subsidiary
is necessary for the consummation by FirstBancorporation of the Merger and the
other transactions contemplated in this Agreement.

(d) The affirmative vote of the holders of two-thirds of the outstanding
shares of FirstBancorporation Stock is the only vote of the holders of any class
or series of FirstBancorporation capital stock necessary to approve this
Agreement and the Merger.

5.3 CAPITAL STOCK.

(a) The authorized capital stock of FirstBancorporation consists of (i)
1,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding, and (ii) 3,000,000 shares of
FirstBancorporation Stock, of which 963,325 shares are issued and outstanding as
of the date of this Agreement, which constitutes FirstBancorporation's only
issued and outstanding securities. As of the date of this Agreement, there are
Assumable Options to purchase 15,575 shares of FirstBancorporation Stock
outstanding under the Stock Option Plans and options to purchase 13,341 shares
of FirstBancorporation Stock outstanding under 1986 Bank Incentive Stock Option
Plan of The Savings Bank of Beaufort County, F.S.B., which options will
terminate upon the Effective Time of the Merger unless exercised prior thereto
(together with the Assumable Options, the "FIRSTBANCORPORATION OPTIONS"). Other
than the aforementioned shares of FirstBancorporation Stock and
FirstBancorporation Options, there are no outstanding warrants, options,
agreements, convertible or exchangeable securities, or other commitments
pursuant to which FirstBancorporation is or may become obligated to issue, sell,
purchase, return, or redeem any shares of capital stock or other securities of
FirstBancorporation, and there are no equity securities of FirstBancorporation
reserved for issuance for any purpose. Each outstanding share of
FirstBancorporation Stock (i) has been duly authorized and is validly issued and
outstanding, and is fully paid and

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nonassessable, (ii) has not been issued in violation of the preemptive rights of
any shareholder, and (iii) has been issued in compliance with the Securities
Laws.

(b) Schedule 5.3 sets forth the names of all Persons of record who own more
than 5% of the outstanding shares of FirstBancorporation Stock and the number of
shares of FirstBancorporation Stock owned by each such Person.

(c) The authorized capital stock of (A) FirstBank is (x) 1,000,000 shares
of preferred stock, no par value, of which no shares are issued and outstanding,
and (y) 1,000,000 shares of common stock, par value $5.00 per share, of which
1,000 shares are issued and outstanding and owned of record and beneficially
held entirely by FirstBancorporation, (B) Midlands Bank is 1,000,000 shares of
common stock, no par value, of which 200,000 shares are issued and outstanding
and owned of record and beneficially held entirely by FirstBancorporation, and
(C) First Securities Corporation is 1,000,000 shares of common stock, par value
$.01 per share, of which 100,000 shares are issued and outstanding and owned of
record and beneficially held entirely by FirstBank. There are no outstanding
warrants, options, agreements, convertible or exchangeable securities, or other
commitments pursuant to which any Subsidiary is or may become obligated to
issue, sell, purchase, return, or redeem any shares of capital stock or other
securities of any Subsidiary, and there are no equity securities of any
Subsidiary reserved for issuance for any purpose. Each outstanding share of
capital stock of the Subsidiaries (i) has been duly authorized and is validly
issued and outstanding, and is fully paid and nonassessable, (ii) has not been
issued in violation of the preemptive rights of any shareholder, and (iii) has
been issued in compliance with the Securities Laws.

5.4 RECORDS. Complete and accurate copies of the articles of incorporation
or charter and bylaws of each of FirstBancorporation and the Subsidiaries have
been delivered to FNC. The stock book of each such Person contains complete and
accurate records of the record share ownership of the issued and outstanding
shares of stock thereof; provided, however, that this sentence shall be deemed
to be accurate for purposes of SECTION 9.3(A) unless any such incompleteness or
inaccuracy could reasonably be expected to impose a liability or obligation on
FirstBancorporation, any Subsidiary, FNC or any FNC Subsidiary or impede, delay
or prevent the consummation of the transactions contemplated hereby.

5.5 SUBSIDIARIES AND AFFILIATES. Other than marketable securities issued
by Persons of which FirstBancorporation and the Subsidiaries do not, in the
aggregate, own more than 5% of the outstanding shares of voting common stock,
neither FirstBancorporation nor any Subsidiary owns, directly or indirectly, any
capital stock of or any other equity interests in any Person other than the
Subsidiaries. Neither FirstBancorporation or any Subsidiary own any shares of
FNC Stock. Schedule 5.5 sets forth all Affiliates of FirstBancorporation or any
Subsidiary.

5.6 FINANCIAL STATEMENTS. FirstBancorporation has provided or made
available to FNC complete copies of all of the Financial Statements. Each of the
Financial Statements, together with notes thereto, have been, and on the Closing
Date each of the Interim Quarterly Financial Statements will have been, prepared
in accordance with Generally Accepted Accounting Principles and fairly present,
and on the Closing Date each of the Interim Quarterly Financial Statements will
fairly present, in all material respects the results of operations and financial
position of FirstBancorporation and the Subsidiaries for the periods and as of
the dates set forth therein (except that in respect of Interim Quarterly
Financial Statements, notes may be omitted and such statements may be subject to
normal recurring year-end adjustments). Each of the Interim Monthly

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Financial Statements will be prepared in the ordinary course of business
consistent with past practices.

5.7 TAX MATTERS. Each of FirstBancorporation and the Subsidiaries has
timely filed (including extension periods) all Tax Returns required to be filed
for any period ending on or before the date hereof, or if applicable, any period
that includes such date. All such Tax Returns are correct and complete in all
material respects. Each of FirstBancorporation and the Subsidiaries has timely
paid or will timely pay or cause to be paid all Taxes (whether or not shown on
any Tax Return) when due to any taxing authority with respect to all such
periods. Neither FirstBancorporation nor any of the Subsidiaries has received
written notice that the Internal Revenue Service or any other taxing authority
has asserted against FirstBancorporation or any of the Subsidiaries any
deficiency or claim for additional Taxes in connection therewith which could
reasonably result in a material liability to FirstBancorporation or FNC and
neither FirstBancorporation nor any of the Subsidiaries reasonably expects any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. Neither FirstBancorporation nor any of the Subsidiaries has
filed a consent under Code sec.341(f) concerning collapsible corporations.
Neither FirstBancorporation nor any of the Subsidiaries has made any payments,
nor is it obligated to make any payments, nor is it a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Code sec.280G. Neither FirstBancorporation nor any
of the Subsidiaries has been a United States real property holding corporation
within the meaning of Code sec.897(c)(2) during the applicable period specified
in Code sec.897(c)(1)(A)(ii). To the Knowledge of FirstBancorporation, each of
FirstBancorporation and the Subsidiaries has disclosed on the federal Income Tax
Returns of FirstBancorporation and the Subsidiaries all positions taken therein
that could give rise to a substantial understatement of federal Income Taxes
within the meaning of Code sec.6662. Neither FirstBancorporation nor any of the
Subsidiaries has been a member of an affiliated group (as defined by the Code)
filing a consolidated federal income tax return with any Person other than
FirstBancorporation or the Subsidiaries nor does it have any liability for the
Income Taxes of any Person other than FirstBancorporation and the Subsidiaries
under Treas. Reg. sec.1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or otherwise. The books
and records of FirstBancorporation and each of the Subsidiaries accurately and
completely set forth in all material respects the basis of FirstBancorporation
and the Subsidiaries in its assets and the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to FirstBancorporation or the Subsidiaries,
all as of December 31, 1998. The unpaid Income Taxes of FirstBancorporation and
the Subsidiaries did not, as of December 31, 1998, exceed in any material
respect the reserve for tax liability (rather than any reserve for deferred
taxes established to reflect timing differences between book and tax income) set
forth on the balance sheet as of such date contained in the Financial
Statements, and any such unpaid Income Taxes do not exceed in any material
respect that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past practices of FirstBancorporation in filing its
Income Tax returns. Neither FirstBancorporation nor any of the Subsidiaries has
been granted nor has FirstBancorporation or any of the Subsidiaries been given
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of any Tax. All deposits required by law to be made by
FirstBancorporation or the Subsidiaries with respect to employees' withholding
taxes have been made. Each of FirstBancorporation and the Subsidiaries has
withheld and paid in all material respects all Taxes required to have been
withheld and paid in connection with the amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.

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There are no Liens for the payment of Taxes on any assets of FirstBancorporation
or any of the Subsidiaries except for statutory Liens for property Taxes that
are not past due as to payment. There are no disputes or claims pending against
FirstBancorporation or any of the Subsidiaries for past due Taxes in a material
amount, and, to the Knowledge of FirstBancorporation, there is no claim or
dispute threatened against FirstBancorporation or any of the Subsidiaries, or
any basis for such a claim or dispute, for past due Taxes. During the past five
years, no such claim has been made by an authority in a jurisdiction where
FirstBancorporation or any of the Subsidiaries does not file Tax Returns. As of
the date hereof, there are not any matters under discussion with any federal,
state, local or other authority with respect to any additional Taxes relating to
FirstBancorporation or any of the Subsidiaries. All amounts required to be paid
by FirstBancorporation or any of the Subsidiaries as estimated Income Taxes
under Code Section 6655, and any comparable provisions of state or local
statutes, have been duly paid, except where the failure to make such payment
would not, individually or in the aggregate with other such nonpayments, result
in a material liability to FirstBancorporation or FNC. There are no tax rulings,
requests for rulings or closing agreements relating to FirstBancorporation or
any of the Subsidiaries that could affect its liability for Income Taxes for any
period after the Closing Date. Any adjustment of Taxes of FirstBancorporation or
any of the Subsidiaries made by the Internal Revenue Service in any examination
which is required to be reported to state, foreign, or local taxing authorities
has been so reported and any additional Taxes due with respect thereto have been
paid. To the Knowledge of FirstBancorporation, there are no facts that, if known
to any taxing authority, would likely result in the issuance of a notice of
proposed deficiency or similar notice of intention to assess Income Taxes in any
material amount against FirstBancorporation or any of the Subsidiaries. Neither
FirstBancorporation nor any of the Subsidiaries has taken any action not in
accordance with its past practices that would have the effect of deferring any
tax liability for FirstBancorporation or any of the Subsidiaries from any
taxable period ending on or before the Closing Date to any taxable period ending
after the Closing Date. No material amount of income recognized, for federal,
state, local or foreign Income Tax purposes, by FirstBancorporation or any of
the Subsidiaries during the period beginning January 1, 1999 and ending on the
Closing Date will be derived other than in the ordinary course of business or
arise from transactions of a type not reflected on the relevant return for the
taxable period ending on December 31, 1998. Neither FirstBancorporation nor any
of the Subsidiaries has any deferred gain or loss arising from deferred
intercompany transactions (as described in Section 1.1502-13 of the Treasury
Regulations) with respect to the stock or obligations of any other member of
FirstBancorporation's or any of the Subsidiaries' affiliated group (as described
in Section 1.1502-14 of the Treasury Regulations). No property of
FirstBancorporation or any of the Subsidiaries is "tax exempt use property"
within the meaning of Section 168(h) of the Code. Except as set forth on
Schedule 5.7, neither FirstBancorporation nor any of the Subsidiaries is
required to include in income any adjustment pursuant to Section 481(a) of the
Code (or similar provisions of other law or regulation) by reason of a change in
an accounting method, nor does FirstBancorporation or any of the Subsidiaries
have any knowledge that the Internal Revenue Service (or other taxing authority)
has proposed or is considering any such change in an accounting method. Neither
FirstBancorporation nor any of the Subsidiaries is a party to an interest rate
swap, currency swap, or similar transaction. Neither FirstBancorporation nor any
of the Subsidiaries has any corporate acquisition indebtedness, as defined in
Section 279(b) of the Code, or any obligations described in Section 279(a)(2) of
the Code. The accruals for deferred federal income taxes reflected in the
Financial Statements for the period ended December 31, 1998 are adequate to
cover any deferred income tax liability of

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FirstBancorporation and each of the Subsidiaries determined in accordance with
Generally Accepted Accounting Principles through the date thereof. All Income
Taxes as to which FirstBancorporation and each of the Subsidiaries may be liable
which relate to a period ending on or before December 31, 1998 have been
adequately accrued or reserved in the Financial Statements as of such date in
accordance with Generally Accepted Accounting Principles.

5.8 REAL PROPERTY.

(a) Schedule 5.8 lists all Real Property owned or leased by
FirstBancorporation or any of the Subsidiaries as of the date hereof, separately
listing that which is owned and that which is leased and whether it is owned or
leased by FirstBancorporation or one of the Subsidiaries. Except as indicated on
Schedule 5.8, with respect to all Real Property owned by FirstBancorporation or
any of the Subsidiaries, FirstBancorporation or the Subsidiary, as the case may
be, has good and marketable fee simple title to such Real Property and owns the
same free and clear of all Liens (other than Permitted Liens). Except as set
forth on Schedule 5.8, with respect to all Real Property leased by
FirstBancorporation or any of the Subsidiaries: (i) each lease of Real Property
is valid and enforceable in accordance with its terms in all material respects,
(ii) there exists no material Default by FirstBancorporation or any of the
Subsidiaries under such lease, and (iii) each such lease may be assigned to FNC
and the FNC Subsidiaries, and the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not create a
material Default thereunder. All improvements and fixtures in or on the Real
Property owned or leased by FirstBancorporation or any of the Subsidiaries are
in good condition and repair, ordinary wear and tear excepted, and to the
Knowledge of FirstBancorporation, there does not exist any condition that
interferes with FirstBancorporation's or the Subsidiaries', as the case may be,
use or affects the economic value thereof.

(b) The Real Property owned or leased by FirstBancorporation or any of the
Subsidiaries substantially complies with all applicable federal, state and local
laws, regulations, ordinances or orders of any Governmental Authority, including
those relating to zoning, building and use permits, and such Real Property as is
currently used for commercial banking facilities may be so used under applicable
zoning ordinances as a matter of right rather than as a conditional or
nonconforming use.

5.9 ASSETS. Except as disclosed on Schedule 5.9, each of
FirstBancorporation and the Subsidiaries has good and marketable title, free and
clear of all Liens (other than Permitted Liens), to all of their respective
owned material Assets. All material tangible personal properties used in the
business of FirstBancorporation or any of the Subsidiaries are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business consistent with FirstBancorporation's or the Subsidiary's
past practices. All material Assets held under leases or subleases by
FirstBancorporation or any of the Subsidiaries are held under valid Contracts
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought), and each such Contract is in full force and effect.
The Assets of FirstBancorporation and the Subsidiaries include all assets
required to operate the business of FirstBancorporation and the Subsidiaries as
presently conducted.

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5.10 INTELLECTUAL PROPERTY RIGHTS.

(a) Each of FirstBancorporation and the Subsidiaries owns all right, title
and interest to, free and clear of all Liens (other than Permitted Liens), or
has the legally enforceable right to use (pursuant to license, sublicense,
agreement or permission), free and clear of all Liens (other than Permitted
Liens), all Intellectual Property currently used in or necessary to its business
as currently conducted, except where the failure to have any such right would
not, individually or in the aggregate with all other such failures, have a
Material Adverse Effect on FirstBancorporation. All registered trademarks and
patents owned or used by FirstBancorporation or any of the Subsidiaries
(together with any application therefor) and all trade names, copyrights and
processes used by FirstBancorporation or any of the Subsidiaries are listed on
Schedule 5.10. Except as disclosed on Schedule 5.10, neither FirstBancorporation
nor any of the Subsidiaries has pledged, mortgaged, assigned, licensed, granted
permission with respect to or otherwise transferred any such Intellectual
Property to any third party. Except as set forth on Schedule 5.10, none of
FirstBancorporation's or the Subsidiaries' rights with respect to any such
Intellectual Property will be terminated, limited or otherwise affected by its
execution of this Agreement or its consummation of the transactions contemplated
by this Agreement, except where any such termination, limitation or affect would
not, individually or in the aggregate with all other such terminations,
limitations or affects, have a Material Adverse Effect on FirstBancorporation.

(b) Neither FirstBancorporation nor any of the Subsidiaries has received,
or has reason to believe that it will not continue to receive, a rating of less
than "satisfactory" on any Year 2000 Report of Examination of any Regulatory
Authority. FirstBancorporation has made available to FNC a complete and accurate
copy of its plan, including an estimate of the anticipated associated costs, for
addressing the issues set forth in the statements of the FFIEC dated May 5,
1997, entitled "Year 2000 Project Management Awareness," and December 17, 1997,
entitled "Safety and Soundness Guidelines Concerning the Year 2000 Business
Risk," as such issues affect it and the Subsidiaries, and such plan is in
material compliance with the schedule set forth in the FFIEC statements. Except
as set forth on Schedule 5.10, to the Knowledge of FirstBancorporation, there
are no issues with respect to its or the Subsidiaries hardware and software
systems that would prevent it or the Subsidiaries from being Year 2000 compliant
in a timely manner, except where any such issue would not, individually or in
the aggregate with all other such issues, have a Material Adverse Effect on
FirstBancorporation.

5.11 LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES; LOAN COLLATERAL.

(a) All loans, accounts, notes and other receivables reflected as assets on
each of FirstBancorporation's and the Subsidiaries' books and records (i) have
resulted from bona fide business transactions in the ordinary course of such
Person's operations, (ii) were to the Knowledge of FirstBancorporation made in
compliance with such Person's standard loan policies and procedures, and (iii)
are owned by such Person free and clear of all Liens (other than Permitted
Liens), or other exceptions to title or to the ownership or collection rights of
any other person or entity.

(b) All records of FirstBancorporation and the Subsidiaries regarding all
outstanding loans, accounts, notes and other receivables are accurate in all
material respects, and with respect to each loan that FirstBancorporation's or
any of the Subsidiaries' loan documentation indicates is secured by Loan
Collateral, to the Knowledge of FirstBancorporation such loan is secured by
valid, perfected and enforceable liens on all

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such Loan Collateral having the priority described in such Person's
documentation of such loan.

(c) Each material loan reflected as an asset on FirstBancorporation's or
any of the Subsidiaries' books as of the date hereof, and each material guaranty
therefor, is the legal, valid and binding obligation of the obligor or guarantor
thereon, and no defense, offset or counterclaim has been asserted with respect
to any such loan or guaranty.

(d) Schedule 5.11 lists as of the date hereof: (i) each loan, extension of
credit or other Asset that is classified by any Regulatory Authority or
FirstBancorporation or any of the Subsidiaries as "Loss", "Doubtful",
"Substandard" or "Special Mention" (or otherwise by words of similar import) or
that FirstBancorporation or any of the Subsidiaries has designated as a special
asset or for special handling or placed on any "watch list" because of concerns
regarding the ultimate collectibility or deteriorating condition of such Asset
or any obligor or Loan Collateral therefor; and (ii) each loan or extension of
credit of FirstBancorporation or any of the Subsidiaries that is past due 30
days or more as to the payment of principal and/or interest, or as to which
FirstBancorporation or any Subsidiary has given written notice of default which
has not been cured, or is to the Knowledge of FirstBancorporation the subject of
a proceeding in bankruptcy, or as to which the obligor otherwise has indicated
any inability or intention not to repay such loan or extension of credit.

(e) Each of the loans and other extensions of credit by FirstBancorporation
or any of the Subsidiaries (with the exception of those loans and extensions of
credit listed on Schedule 5.11) is as of the date hereof to the Knowledge of
FirstBancorporation collectible in the ordinary course of such Person's business
in an amount that is not less than the amount at which it is carried on such
Person's books and records net of reserves reflected on such Person's books and
records.

(f) Each of FirstBancorporation's and the Subsidiaries' reserve for
possible loan losses shown in the Financial Statements and the Interim Quarterly
Financial Statements (i) has been (or will be in the case of the Interim
Quarterly Financial Statements) established in conformity with Generally
Accepted Accounting Principles and all applicable requirements of applicable
Regulatory Authorities, (ii) in the reasonable opinion of such Person's
management, as of the respective dates referenced therein, is (or will be in the
case of the Interim Quarterly Financial Statements) reasonable in view of the
size and character of such Person's loan portfolio, current economic conditions
and other relevant factors, and (iii) in the reasonable opinion of such Person's
management, as of the respective dates referenced therein, is (or will be in the
case of the Interim Quarterly Financial Statements) adequate to provide for
losses relating to or the risk of loss inherent in such Person's loan portfolio.

(g) Neither the terms of any loan made by FirstBancorporation or any of the
Subsidiaries, nor any of the loan documentation, nor the manner in which such
loans have been administered and serviced, violates in any material respect any
Law applicable thereto, including without limitation, the Truth-in-Lending Act,
the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
Regulations O and Z of the Federal Reserve Board, the Community Reinvestment Act
of 1977, the Equal Credit Opportunity Act, all as amended, and state laws, rules
and regulations relating to consumer protection, installment sales and usury,
except where any such violation would not, individually or in the aggregate with
all other such violations, have a Material Adverse Effect on
FirstBancorporation.

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5.12 SECURITIES PORTFOLIO AND INVESTMENTS. All securities owned by
FirstBancorporation or any of the Subsidiaries (whether owned of record or
beneficially) are held free and clear of all Liens (other than Permitted Liens).
There are no voting trusts or other agreements or undertakings to which
FirstBancorporation or any of the Subsidiaries is a party with respect to the
voting of any such securities. Except for fluctuations in the market values of
United States Treasury and agency or municipal securities, since December 31,
1998, there has been no significant deterioration or material adverse change in
the quality, or any material decrease in the value, of the securities portfolio
of FirstBancorporation and the Subsidiaries, taken as a whole.

5.13 ENVIRONMENTAL MATTERS.

(a) All of the Real Property owned or leased by FirstBancorporation or any
Subsidiary and all of the Loan Collateral that is in the nature of real property
is and has been in compliance with all Environmental Laws, except where any such
noncompliance would not, individually or in the aggregate with all other such
noncompliances, have a Material Adverse Effect on FirstBancorporation.

(b) As of the date hereof, there is no Litigation pending or, to the
Knowledge of FirstBancorporation, threatened, before any court, Governmental
Authority, board or other forum relating to the Real Property owned or leased by
FirstBancorporation or any Subsidiary or any Loan Collateral that is in the
nature of real property in which FirstBancorporation or any Subsidiary has been
or may be named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or (ii)
relating to the release into the environment of any Hazardous Material, and to
the Knowledge of FirstBancorporation there is no reasonable basis for any such
Litigation.

(c) There have been no releases of Hazardous Materials in, on, under or
affecting any of the Real Property owned or leased by FirstBancorporation or any
Subsidiary or any Loan Collateral that is in the nature of real property, except
where any such release would not, individually or in the aggregate with all
other such releases, have a Material Adverse Effect on FirstBancorporation.

5.14 COMPLIANCE WITH LAWS. Each of FirstBancorporation and the
Subsidiaries has in effect all Permits required for it to own, lease, or operate
its Assets and to carry on its business as now conducted, and there has occurred
no Default under any Material Permit. Except as disclosed in Schedule 5.14,
neither FirstBancorporation nor any of the Subsidiaries: (i) is in material
violation of any Laws, Orders, or Permits applicable to its business or
employees conducting its business; and (ii) has since December 31, 1995,
received any notification or communication from any Governmental Authority (A)
asserting that it is in material violation of any of the Laws or Orders that
such Governmental Authority enforces, (B) threatening to revoke any Permits, or
(C) requiring it to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment, or memorandum of understanding,
or to adopt any resolution or similar undertaking that restricts the conduct of
its business or in any manner relates to its capital adequacy, its credit or
reserve policies, its management or the payment of dividends.

5.15 LABOR RELATIONS; EMPLOYMENT MATTERS.

(a) Neither FirstBancorporation nor any of the Subsidiaries is party to any
collective bargaining agreement, nor is it the subject of any Litigation seeking
to compel it to bargain

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with any labor organization as to wages or conditions of employment, nor is
there any strike or other labor dispute involving FirstBancorporation or any of
the Subsidiaries pending or threatened, and to the Knowledge of
FirstBancorporation, there is no activity involving FirstBancorporation's or any
of the Subsidiaries' employees seeking to certify a collective bargaining unit
or engaging in any other organization activity.

(b) Except as set forth in Schedule 5.15, there are no obligations
(including obligations under any loans) payable or owing by FirstBancorporation
or any Subsidiary to any Affiliates, officers, directors, or employees of
FirstBancorporation or any Subsidiary or any of their Affiliates, except
salaries, wages, bonuses and salary advances, benefits and reimbursement of
expenses incurred and accrued in the ordinary course of business, nor are there
any obligations (including obligations under any loans) payable or owing by any
such Persons or their Affiliates to FirstBancorporation or any Subsidiary, nor
has FirstBancorporation or any Subsidiary guaranteed any of such Persons' loans
or obligations to any Person; provided, however, that the foregoing
representation and warranty shall only apply to material obligations payable or
owing by FirstBancorporation or any Subsidiary to, and material obligations
payable or owing by, employees of FirstBancorporation or any Subsidiary who are
not Affiliates, officers or directors of FirstBancorporation or any Subsidiary.
Except as set forth in Schedule 5.15, each employee of FirstBancorporation and
each Subsidiary is employed on an "at-will" basis, and there are no employment
agreements or similar arrangements with any such employees.

(c) Each of FirstBancorporation and the Subsidiaries is in substantial
compliance with all laws and other obligations relating to employment, denial of
employment or employment opportunity and termination of employment.

(d) There is no controversy pending or, to the Knowledge of
FirstBancorporation, threatened between FirstBancorporation or any of the
Subsidiaries and any of its present or former officers, directors, supervisory
personnel or any group of its employees, except where any such controversy would
not, individually or in the aggregate with all other such controversies, have a
Material Adverse Effect on FirstBancorporation.

5.16 EMPLOYEE BENEFIT PLANS; ERISA.

(a) Schedule 5.16 identifies each Benefit Plan by name and ERISA plan
number, if any. Neither FirstBancorporation nor any of the Subsidiaries has a
formal plan or commitment nor has it made an announcement of its intentions,
whether or not legally binding, to create any additional Benefit Plan or modify
or change any existing Benefit Plan except as specifically contemplated by this
Agreement. With respect to each Benefit Plan, a true and complete copy of each
of the following has been delivered to FNC:

(i) the written Benefit Plan, if any (including all amendments
thereto);

(ii) the annual returns or reports (including, without limitation,
reports on the Form 5500 series, including all attachments thereto), if
required under ERISA or the Code, for the three most recent plan years with
filing deadlines prior to the date of the Agreement or for which returns
have actually been prepared or filed prior to the date of the Agreement and
a copy of each summary annual report with respect to each such annual
report;

(iii) the most recent summary plan description, if any, together with
each subsequent summary of material modifications, required under ERISA,
and all other material employee communications;

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(iv) all written rules, regulations, procedures and interpretations,
if any, for such Benefit Plan;

(v) if such Benefit Plan is funded through a trust or other funding
arrangement, including insurance contracts, the trust or other funding
agreement (including all amendments thereto) and the latest financial
statements thereof;

(vi) all contracts relating to such Benefit Plan with respect to which
it may have any liability, including, without limitation, insurance
contracts, investment management agreements, subscription and participation
agreements, administration agreements and record keeping agreements;

(vii) if such Benefit Plan is intended to be qualified under Section
401(a) of the Code, (A) the most recent determination letter received from
the Internal Revenue Service, (B) each subsequent determination letter, and
(C) complete copies of the determination letter applications (including
attachments and cover letters) for such determination letters; and

(viii) all rulings, opinion letters, information letters or advisory
opinions issued by the Internal Revenue Service or the United States
Department of Labor within the ten-year period prior to the date of this
Agreement.

(b) Prohibited Transactions. No prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) or transaction that would
violate Section 404 of ERISA has occurred with respect to any Benefit Plan which
is an "employee benefit plan" as defined in Section 3(3) of ERISA in connection
with which FirstBancorporation or any of the Subsidiaries or any of their
respective officers, directors or employees would be subject, directly or
indirectly, to any tax, penalty or liability to any person for prohibited
transactions or breach of fiduciary responsibility under ERISA or the Code
(including, without limitation, liability for a breach of fiduciary
responsibility by a cofiduciary pursuant to Section 405 of ERISA).

(c) Funding. Except as disclosed on Schedule 5.16, full payment has been
made of all amounts that each of FirstBancorporation and the Subsidiaries is
required to have paid under the terms of each Benefit Plan and applicable law
(including any employee salary deferral contributions described in Section 125
or 401(k) of the Code).

(d) Compliance with Applicable Law. (i) Each Benefit Plan that is subject
to Title I of ERISA conforms to, and its administration is in substantial
compliance with, applicable federal laws, including but not limited to ERISA;
(ii) each Benefit Plan that is intended to be qualified under Section 401(a) of
the Code meets all of the applicable operational requirements for qualification
and meets all of the plan document requirements for qualification that are
required to be included in the plan document as of the Closing Date, and either
a favorable determination letter has been received or has been applied for, and
nothing has occurred since the most recent favorable determination letter that
would adversely affect such qualification; (iii) each Benefit Plan that includes
a cash or deferred arrangement described in Section 401(k) of the Code has been
administered in accordance with all applicable requirements of Section 401(k)
and the Treasury Regulations issued thereunder; and (iv) each Benefit Plan that
includes a cafeteria plan described in Section 125 of the Code has been
administered in accordance with all applicable requirements of Section 125 and
the Treasury Regulations issued thereunder. There is no pending or, to the
Knowledge of FirstBancorporation, threatened action, claim or proceeding against
or with respect to any Benefit Plan by the Internal Revenue Service,

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the Department of Labor, the Equal Employment Opportunity Commission, or any
participant, beneficiary or any other person or entity involving any aspect of
the Benefit Plans (other than routine benefit claims), nor to the Knowledge of
FirstBancorporation are there any facts that could form the basis for any such
action, claim or proceeding. The reporting and disclosure requirements of the
Code and ERISA, the bonding requirements of ERISA, and other provisions
applicable to the Benefit Plans have been fully complied with in all material
respects.

(e) Multiemployer Plans; Pension Plans. Neither FirstBancorporation nor
any of the Subsidiaries participates in or contributes to, nor has it ever
participated in or contributed to, any "multiemployer plan." Except as disclosed
on Schedule 5.16, neither FirstBancorporation nor any of the Subsidiaries
maintains nor has ever maintained an "employee pension benefit plan" as defined
in Section 3(2) of ERISA that is subject to Title IV of ERISA.

(f) Effect of Agreement. Except as disclosed on Schedule 5.16, the
execution and performance of this Agreement will not result in any (i) payment
(whether retirement benefits, severance pay, unemployment compensation,
"change-in-control" payment or otherwise) becoming due from FirstBancorporation,
any Subsidiary, FNC or any FNC Subsidiary to any employee, former employee or
director of FirstBancorporation or any of the Subsidiaries, (ii) increase in
benefits otherwise payable under any Benefit Plan, or (iii) acceleration of the
time of payment or vesting of any such benefits. No amounts payable by
FirstBancorporation, any Subsidiary, FNC or any FNC Subsidiary to any officer,
employee or director of FirstBancorporation or any of the Subsidiaries under any
Benefit Plan in connection with the transactions contemplated hereby will fail
to be deductible for federal income tax purposes by virtue of Section 280G or
Section 162(m) of the Code.

(g) Benefits for Former Employees. Except as disclosed on Schedule 5.16,
no Benefit Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
beyond retirement or other termination of service other than (i) coverage
mandated by Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA
and Title XXII of the Public Health Service Act (collectively, "COBRA"); (ii)
death benefits or retirement benefits under any Benefit Plan qualified under
Section 401(a) of the Code; (iii) disability benefits under any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) that have been fully
provided for by insurance or otherwise; (iv) deferred compensation benefits
accrued as liabilities on the books of FirstBancorporation or any of the
Subsidiaries; or (v) benefits the full cost of which is borne by the current or
former employee (or his or her beneficiary). Each Benefit Plan that is subject
to the provisions of COBRA has been, and as of the Closing Date will have been,
maintained in compliance with the provisions of COBRA.

5.17 INSURANCE. Schedule 5.17 lists all of the insurance policies
involving a one-time or annual premium payment in excess of $10,000 (the
"POLICIES") maintained by each of FirstBancorporation and the Subsidiaries, and
for each indicates the insurer's name, policy number, expiration date and amount
and type of coverage. The Policies provide coverage in such amounts and against
such liabilities, casualties, losses or risks as is customary or reasonable for
entities engaged in FirstBancorporation's or the Subsidiary's, as the case may
be, business or as is required by applicable law or regulations. Each of the
Policies is in full force and effect and is valid and enforceable in accordance
with its terms, and is underwritten by an insurer of recognized financial
responsibility and qualified to transact

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business in South Carolina. FirstBancorporation or the Subsidiary, as the case
may be, has taken all requisite actions (including the giving of required
notices) under each such Policy in order to preserve all rights thereunder with
respect to all matters, and the coverage of all such Policies will not be
restricted as a result of the transactions contemplated hereby. Neither
FirstBancorporation nor any of the Subsidiaries is in Default under the
provisions of any Policy, nor has it received notice of cancellation,
nonrenewal, reduction or elimination of coverage, or premium increase with
respect to any Policy, except as set forth in Schedule 5.17. There has been no
failure to pay any premium on any Policy, and there have been no material
inaccuracies or misstatements in any application for any Policy. There are no
material pending claims with respect to any Policy that are not fully covered by
insurance maintained by FirstBancorporation or any Subsidiary (subject only to
deductible amounts), and to the Knowledge of FirstBancorporation, there exists
no state of facts and there is no anticipated event the occurrence of which is
reasonably likely to form the basis for any such claim.

5.18 CONTRACTS.

(a) Schedule 5.18(a) sets forth each Contract (other than Contracts
evidencing loans or other extensions of credit, deposit liabilities, purchases
of federal funds, Federal Home Loan Bank or Federal Reserve Bank advances and
trade payables, in each case entered into in the ordinary course of business
consistent with past practices) to which FirstBancorporation or any Subsidiary
is a party or by which it or its Assets are bound that (i) is not terminable in
writing without penalty on 30 days' notice or less and involves an annual
obligation to or by FirstBancorporation or any Subsidiary exceeding $10,000,
(ii) relates to the borrowing of money by FirstBancorporation or any Subsidiary
or the guarantee by FirstBancorporation or any Subsidiary of any obligation for
borrowed money, (iii) is a lease of Real Property by FirstBancorporation or a
Subsidiary, or (iv) is otherwise material to FirstBancorporation's or any
Subsidiary's business or its Assets (other than documentation regarding lending
transactions) (such Contracts set forth on Schedule 5.18(a) being referred to
herein as the "MATERIAL CONTRACTS"). With respect to each Material Contract,
except as noted on Schedule 5.18(a), (i) such Material Contract is in full force
and effect; (ii) no party thereto is in Default thereunder; (iii) no party
thereto has repudiated or waived any material provision thereof; and (iv) a
complete copy thereof, including all amendments thereto, has been delivered to
FNC. Except as noted on Schedule 5.18(a), with respect to any Material Contract
under which FirstBancorporation or any of the Subsidiaries is indebted for money
borrowed, such indebtedness is prepayable at any time by FirstBancorporation or
the Subsidiary, as the case may be, without penalty or premium.

(b) Schedule 5.18(b) sets forth each Material Contract to which
FirstBancorporation or any of the Subsidiaries is a party or by which it or its
Assets are bound, the terms of which (i) prevent or restrict the assignment of
such Material Contract by FirstBancorporation or any Subsidiary, and define
assignment to include a change in control of FirstBancorporation or any
Subsidiary, the merger or consolidation of FirstBancorporation or any Subsidiary
with another entity or other similar dispositions of FirstBancorporation or any
Subsidiary, (ii) will be or are likely to be violated by the consummation of the
transactions contemplated herein, or (iii) otherwise make the Consent of one or
more other parties to such Material Contract necessary or desirable in
connection with the transactions contemplated herein.

5.19 LEGAL PROCEEDINGS. Except as listed on Schedule 5.19, as of the date
hereof, there is no Material Litigation (as defined below) instituted or pending
or, to the

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Knowledge of FirstBancorporation, threatened against FirstBancorporation or any
of the Subsidiaries or against any of their respective Assets, and there are no
Orders outstanding against or unsatisfied by FirstBancorporation or any of the
Subsidiaries or against any of their respective Assets. For purposes of this
Agreement, "MATERIAL LITIGATION" shall mean (i) any Litigation involving a claim
for equitable relief or monetary damages in excess of $10,000, (ii) any
Litigation commenced by, or involving, any Governmental Authority and (iii) any
other Litigation that in the reasonable opinion of FirstBancorporation is
material to its business and operations. FirstBancorporation shall provide FNC
with notice of all Material Litigation and Orders arising after the date hereof.

5.20 ABSENCE OF OTHER LIABILITIES. Except as disclosed on Schedule 5.20,
neither FirstBancorporation nor any of the Subsidiaries has any Liabilities
other than (i) Liabilities reserved against or otherwise disclosed in the
Financial Statements or the notes to the Financial Statements, and (ii)
Liabilities incurred after December 31, 1998 in the ordinary course of business
consistent (in amount and kind) with past practice or Liabilities incurred in
accordance with the specific terms of this Agreement (and transaction fees and
expenses not materially in excess of the estimates set forth in Schedule 1.1).
Except as disclosed in Schedule 5.20, no facts or circumstances exist that would
reasonably be expected to serve as the basis for any other Liabilities of
FirstBancorporation or any of the Subsidiaries that would be required to be
disclosed on Schedule 5.20.

5.21 ABSENCE OF CHANGES OR EVENTS. Since December 31, 1998, neither
FirstBancorporation nor any Subsidiary has: (i) issued any shares of its capital
stock or declared, set aside or paid any dividend or distribution with respect
to shares of its capital stock other than the issuance of shares pursuant to the
exercise of FirstBancorporation Options and dividends and distributions to
FirstBancorporation by the Subsidiaries; (ii) made any material changes in any
Benefit Plan; (iii) granted or made any commitments with respect to any
increases in any form of compensation to its employees except in the ordinary
course of business consistent with past practices; (iv) entered into any
Material Contract or conducted its business other than in the ordinary course of
business consistent with past practices and this Agreement; or (v) suffered any
Material Adverse Effect.

5.22 REPORTS.

(a) Since December 31, 1995, FirstBancorporation has filed on a timely
basis all reports, registrations and statements, together with any amendments,
that it was required to file with the SEC, including without limitation Forms
10-KSB, Forms 10-QSB and proxy statements (collectively, the "SEC REPORTS"). As
of their respective dates, the SEC Reports complied in all material respects
with all of the rules and regulations promulgated by the SEC and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.

(b) Each of FirstBancorporation and the Subsidiaries has filed and
delivered or made available to FNC to the extent permitted by Law all forms,
reports, statements and documents, together with any amendments required to be
made with respect thereto, required to be filed by such Person with the OCC, the
FDIC and the Board of Governors of the Federal Reserve System and any other
Regulatory Authority since December 31, 1995 (other than the SEC Reports)
(collectively, the "REGULATORY REPORTS"). The Regulatory Reports at the time
filed and amended were in all material respects accurate

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and complete and complied in all material respects with all applicable Laws and
the other requirements applicable thereto. As of its respective date, each such
Regulatory Report did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.

(c) None of the information supplied or to be supplied by
FirstBancorporation or any of the Subsidiaries in writing for inclusion in any
document to be filed by FNC or FirstBancorporation or any of the Subsidiaries
with the OCC, the FDIC, the Board of Governors of the Federal Reserve System or
any other Regulatory Authority in connection with the actions contemplated
hereby is or will be false or misleading with respect to any material fact, nor
does it or will it omit to state any material fact necessary to make such
information not misleading. All documents that FirstBancorporation or any of the
Subsidiaries is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.

5.23 ACCOUNTING, TAX AND REGULATORY MATTERS. Neither FirstBancorporation
nor any of the Subsidiaries has taken any action, and to the Knowledge of
FirstBancorporation there is no fact or circumstance, that is reasonably likely
to (i) prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or as a reorganization
within the meaning of Section 368(a) of the Code, or (ii) materially impede or
delay receipt of any Consents of Regulatory Authorities referred to in SECTION
9.1(B) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such Section.

5.24 CHARTER PROVISIONS. Each of FirstBancorporation and the Subsidiaries
has taken all action so that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement do not and will not result in the grant of any rights to any Person
under the articles of incorporation, articles of association, bylaws, or other
governing instruments of FirstBancorporation and the Subsidiaries or restrict or
impair the ability of FNC or any FNC Subsidiary to vote or otherwise to exercise
the rights of a shareholder with respect to shares of FirstBancorporation and
the Subsidiaries that may be directly or indirectly acquired or controlled by
it.

5.25 CERTAIN REGULATED BUSINESSES. Neither FirstBancorporation nor any of
the Subsidiaries is an "investment company" as defined in the Investment Company
Act of 1940, as amended, nor is it a "public utility holding company" as defined
in the Public Utility Holding Company Act of 1935, as amended.

5.26 COMMISSIONS. No broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees from FirstBancorporation or any
Subsidiary in connection with the transactions contemplated hereby by reason of
any action taken by FirstBancorporation, any of the Subsidiaries or any of
FirstBancorporation's shareholders other than the payment of fees to RP
Financial LC in an amount not to exceed $42,500, plus reasonable out-of-pocket
expenses.

5.27 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations contained in SECTION 6.10, the information
supplied by FirstBancorporation or any Subsidiary in writing for inclusion in
the registration statement (the "REGISTRATION STATEMENT") covering the shares of
FNC Stock to be issued pursuant to this Agreement shall not, at the time the
Registration Statement (including any

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amendments or supplements thereto) is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
The joint proxy statement/prospectus that may be sent to the shareholders of FNC
to consider the Merger and the issuance of shares of FNC Stock in connection
with the Merger (if the Merger is structured as a merger of FirstBancorporation
with and into FNC as provided by SECTION 2.1 of this Agreement), and that will
be sent to the shareholders of FirstBancorporation in connection with the
meeting of the shareholders of FirstBancorporation to consider the Merger (all
such meetings collectively, the "SHAREHOLDER MEETINGS") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"JOINT PROXY STATEMENT/PROSPECTUS") will not, on the date the Joint Proxy
Statement/Prospectus is first mailed to shareholders, at the time of the
Shareholder Meetings and at the Effective Time, (a) contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (b) contain any statement which (i) at the time and in light
of the circumstances under which it was made is false or misleading with respect
to any material fact or (ii) omits to state any material fact necessary to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Shareholder Meetings which has become false or misleading. If at
any time prior to the Effective Time any event relating to FirstBancorporation
or any Subsidiary or any of their Affiliates, officers or directors should be
discovered by FirstBancorporation or any Subsidiary which should be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, FirstBancorporation will promptly inform FNC. The Joint
Proxy Statement/Prospectus shall comply in all material respects with the
requirements of the Securities Laws. Notwithstanding the foregoing, neither
FirstBancorporation nor any Subsidiary makes any representation or warranty with
respect to any information supplied by FNC or any FNC Subsidiary which is
contained or incorporated by reference in, or furnished in connection with the
preparation of, the Registration Statement or the Joint Proxy
Statement/Prospectus.

5.28 TAKEOVER LAWS. FirstBancorporation has taken all actions required to
be taken by it in order to exempt this Agreement and the transactions
contemplated hereby from the requirements of any Takeover Laws applicable to
FirstBancorporation and the Subsidiaries.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF FNC

FNC represents and warrants to FirstBancorporation as follows:

6.1 ORGANIZATION.

(a) FNC is a corporation duly organized, validly existing and in good
standing under the Laws of the State of South Carolina, and is duly registered
as a bank holding company under the Act. Each of the FNC Subsidiaries is a
national banking association organized and existing under the laws of the United
States of America. Each of FNC and the FNC Subsidiaries has the corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its Assets.

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(b) Each FNC Subsidiary is an "insured institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and all
deposits in the FNC Subsidiaries are insured by the FDIC to the maximum extent
permitted by applicable Law.

6.2 AUTHORITY; NO BREACH BY AGREEMENT.

(a) FNC has the corporate power and authority necessary to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of and performance
of its obligations under this Agreement and the other documents contemplated
hereby, and the consummation of the transactions contemplated herein, including
the Merger, have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of FNC, subject only to the approval of
this Agreement by the shareholders of FNC. This Agreement represents a legal,
valid, and binding obligation of FNC, enforceable against it in accordance with
its terms (except in all cases as such enforceability may be limited by a court
acting in equity, applicable bankruptcy, insolvency, reorganization, moratorium
or similar Laws affecting the enforcement of creditors' rights generally).

(b) Neither the execution and delivery of this Agreement by FNC, nor the
consummation by FNC of the transactions contemplated hereby, nor compliance by
FNC with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of (A) the articles of association or bylaws of any FNC
Subsidiary, or (B) the articles of incorporation or bylaws of FNC, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of FNC or any FNC Subsidiary
under, (A) any "material contract" (within the meaning of Item 601(b)10 of the
SEC's Regulation S-K) or Material Permit of FNC or any FNC Subsidiary or (B) any
material loan, account, note or other receivable reflected as an asset on the
books and records of FNC and the FNC Subsidiaries, or (iii) subject to obtaining
the requisite Consents referred to in SECTION 9.1(B) of this Agreement, violate
any Law or Order applicable to FNC or any FNC Subsidiary or any of their
respective Assets in a manner that would impose any material liability,
obligation or limitation on FNC or any FNC Subsidiary.

(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings, or notifications that are to be made or obtained pursuant to this
Agreement, no notice to, filing with, or Consent of, any Governmental Authority
is necessary for the consummation by FNC of the Merger and the other
transactions contemplated in this Agreement.

(d) Assuming the Board of Directors of FNC recommends this Agreement to the
shareholders of FNC, the affirmative vote of the holders of two-thirds of the
outstanding shares of FNC Stock is the only vote of the holders of any class or
series of FNC capital stock necessary to approve this Agreement and the Merger.

6.3 CAPITAL STOCK.

(a) The authorized capital stock of FNC consists of 40,000,000 shares of
FNC Stock, of which 5,821,775 shares were issued and outstanding as of December
31, 1998, which constitutes FNC's only issued and outstanding securities as of
such date. Each

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outstanding share of FNC Stock (i) has been duly authorized and is validly
issued and outstanding, and is fully paid and nonassessable, (ii) has not been
issued in violation of the preemptive rights of any shareholders, and (iii) has
been issued in compliance with the Securities Laws.

(b) Shares of FNC Stock to be issued hereunder are duly authorized and,
upon issuance, will be validly issued and outstanding and fully paid and
nonassessable, free and clear of any Liens. Shares of FNC Stock to be issued
hereunder will be issued in compliance with the Securities Laws. None of the
shares of FNC Stock to be issued pursuant to this Agreement will be issued in
violation of any preemptive rights of the current or past shareholders of FNC.

6.4 FNC'S FINANCIAL STATEMENTS. FNC's consolidated audited statements of
income, cash flow and shareholders' equity for the years ended December 31,
1998, 1997 and 1996 and audited balance sheet as of December 31, 1998 and 1997,
together with the notes thereto, which have been provided or made available to
FirstBancorporation (collectively, the "FNC FINANCIAL STATEMENTS"), have been
prepared in accordance with Generally Accepted Accounting Principles and fairly
present in all material respects the results of operations and financial
position of FNC for the periods and as of the dates set forth therein.

6.5 REPORTS. Since December 31, 1995, FNC has filed on a timely basis all
reports, registrations and statements, together with any required amendments
thereto, that it was required to file with: (i) the SEC, including without
limitation Forms 10-K, Forms 10-Q and proxy statements; and (ii) other
Regulatory Authorities (collectively, the "REPORTS"). The Reports at the time
filed and amended were in all material respects accurate and complete and
complied in all material respects with all applicable Laws and the other
requirements applicable thereto. As of its respective date, each such Report did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading.

6.6 ABSENCE OF CHANGES. Since December 31, 1998, FNC and the FNC
Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement and the transactions contemplated hereby), and FNC has not incurred a
Material Adverse Effect.

6.7 LEGAL PROCEEDINGS. Except as disclosed in the Reports filed by FNC
prior to the date hereof, there is no Litigation instituted or pending or, to
the Knowledge of FNC, threatened against FNC or any FNC Subsidiary, or against
any Asset, interest or right of FNC or any FNC Subsidiary, that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
FNC, nor are there any Orders outstanding against FNC or any FNC Subsidiary that
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FNC.

6.8 ACCOUNTING, TAX AND REGULATORY MATTERS. Neither FNC nor any of the FNC
Subsidiaries has taken any action, and to the Knowledge of FNC there is no fact
or circumstance, that is reasonably likely, to (i) prevent the Merger from
qualifying for pooling-of-interests accounting treatment or as a reorganization
within the meaning of Section 368(a) of the Code, or (ii) materially impede or
delay obtaining any Consents of Regulatory Authorities referred to in SECTION
9.1(B) of this Agreement or result in the

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imposition of a condition or restriction of the type referred to in the last
sentence of such Section.

6.9 COMMISSIONS. No broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees from FNC or any FNC Subsidiary in
connection with the transactions contemplated hereby by reason of any action
taken by FNC or any of the FNC Subsidiaries other than the payment of fees to
The Robinson-Humphrey & Company.

6.10 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations contained in SECTION 5.27, the information
supplied by FNC or any FNC Subsidiary in writing for inclusion in the
Registration Statement shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Joint Proxy Statement/Prospectus will not, on the
date the Joint Proxy Statement/Prospectus is first mailed to shareholders, at
the time of the Shareholder Meetings and at the Effective Time, (a) contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of circumstances under which they were
made, not misleading, or (b) contain any statement which (i) at the time and in
light of the circumstances under which it was made is false or misleading with
respect to any material fact or (ii) omits to state any material fact necessary
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Shareholder Meetings which has become false or misleading. If at
any time prior to the Effective Time any event relating to FNC, the FNC
Subsidiaries or any of their Affiliates, officers or directors should be
discovered by FNC or any FNC Subsidiary which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, FNC will promptly inform FirstBancorporation. The Joint
Proxy Statement/Prospectus shall comply in all material respects with the
requirements of the Securities Laws. Notwithstanding the foregoing, FNC makes no
representation or warranty with respect to any information supplied by
FirstBancorporation or the Subsidiaries which is contained or incorporated by
reference in, or furnished in connection with the preparation of, the
Registration Statement or the Joint Proxy Statement/Prospectus.

6.11 TAX MATTERS. Each of FNC and the FNC Subsidiaries has timely filed
(including extension periods) all Tax Returns required to be filed for any
period ending on or before the date hereof, or if applicable, any period that
includes such date. All such Tax Returns are correct and complete in all
material respects. Each of FNC and the FNC Subsidiaries has timely paid or will
timely pay or cause to be paid all Taxes (whether or not shown on any Tax
Return) when due to any taxing authority with respect to all such periods.
Neither FNC nor any of the FNC Subsidiaries has received written notice that the
Internal Revenue Service or any other taxing authority has asserted against FNC
or any of the FNC Subsidiaries any deficiency or claim for additional Taxes in
connection therewith which could reasonably result in a material liability to
FNC and neither FNC nor any of the FNC Subsidiaries reasonably expects any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. Neither FNC nor any of the FNC Subsidiaries has filed a consent
under Code sec.341(f) concerning collapsible corporations. Neither FNC nor any
of the FNC Subsidiaries has made any payments, nor is it obligated to make any
payments, nor is it a party to any agreement that under certain

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circumstances could obligate it to make any payments that will not be deductible
under Code sec.280G. Neither FNC nor any of the FNC Subsidiaries has been a
United States real property holding corporation within the meaning of Code
sec.897(c)(2) during the applicable period specified in Code
sec.897(c)(1)(A)(ii). To the knowledge of FNC, each of FNC and the FNC
Subsidiaries has disclosed on the federal Income Tax Returns of FNC and the FNC
Subsidiaries all positions taken therein that could give rise to a substantial
understatement of federal Income Taxes within the meaning of Code sec.6662.
Neither FNC nor any of the FNC Subsidiaries has been a member of an affiliated
group (as defined by the Code) filing a consolidated federal income tax return
with any Person other than FNC or the FNC Subsidiaries nor does it have any
liability for the Income Taxes of any Person other than FNC and the FNC
Subsidiaries under Treas. Reg. sec.1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
The books and records of FNC and each of the FNC Subsidiaries accurately and
completely set forth in all material respects the basis of FNC and the FNC
Subsidiaries in its assets and the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to FNC or the FNC Subsidiaries, all as of
December 31, 1998. The unpaid Income Taxes of FNC and the FNC Subsidiaries did
not, as of December 31, 1998, exceed in any material respect the reserve for tax
liability (rather than any reserve for deferred taxes established to reflect
timing differences between book and tax income) set forth on the balance sheet
as of such date contained in the FNC Financial Statements, and any such unpaid
Income Taxes do not exceed in any material respect that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past
practices of FNC in filing its Income Tax returns. Neither FNC nor any of the
FNC Subsidiaries has been granted nor has FNC or any of the FNC Subsidiaries
been given any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of any Tax. All deposits required by
law to be made by FNC or the FNC Subsidiaries with respect to employees'
withholding taxes have been made. Each of FNC and the FNC Subsidiaries has
withheld and paid in all material respects all Taxes required to have been
withheld and paid in connection with the amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party. There are no
Liens for the payment of Taxes on any assets of FNC or any of the FNC
Subsidiaries except for statutory Liens for property Taxes that are not past due
as to payment. There are no disputes or claims pending against FNC or any of the
FNC Subsidiaries for past due Taxes in a material amount, and, to the Knowledge
of FNC, there is no claim or dispute threatened against FNC or any of the FNC
Subsidiaries, or any basis for such a claim or dispute, for past due Taxes.
During the past five years, no such claim has been made by an authority in a
jurisdiction where FNC or any of the FNC Subsidiaries does not file Tax Returns.
As of the date hereof, there are not any matters under discussion with any
federal, state, local or other authority with respect to any additional Taxes
relating to FNC or any of the FNC Subsidiaries. All amounts required to be paid
by FNC or any of the FNC Subsidiaries as estimated Income Taxes under Code
Section 6655, and any comparable provisions of state or local statutes, have
been duly paid, except where the failure to make such payments would not,
individually or in the aggregate with other such nonpayments, result in a
material liability to FNC. There are no tax rulings, requests for rulings or
closing agreements relating to FNC or any of the FNC Subsidiaries that could
affect its liability for Income Taxes for any period after the Closing Date. Any
adjustment of Taxes of FNC or any of the FNC Subsidiaries made by the Internal
Revenue Service in any examination which is required to be reported to state,
foreign, or local taxing authorities has been so reported and any additional
Taxes due with respect thereto have

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been paid. To the Knowledge of the FNC, there are no facts that, if known to any
taxing authority, would likely result in the issuance of a notice of proposed
deficiency or similar notice of intention to assess Income Taxes in any material
amount against FNC or any of the FNC Subsidiaries. Neither FNC nor any of the
FNC Subsidiaries has taken any action not in accordance with its past practices
that would have the effect of deferring any tax liability for FNC or any of the
FNC Subsidiaries from any taxable period ending on or before the Closing Date to
any taxable period ending after the Closing Date. No material amount of income
recognized, for federal, state, local or foreign Income Tax purposes, by FNC or
any of the FNC Subsidiaries during the period beginning January 1, 1999 and
ending on the Closing Date will be derived other than in the ordinary course of
business or arise from transactions of a type not reflected on the relevant
return for the taxable period ending on December 31, 1998. Neither FNC nor any
of the FNC Subsidiaries has any deferred gain or loss arising from deferred
intercompany transactions (as described in Section 1.1502-13 of the Treasury
Regulations) with respect to the stock or obligations of any other member of
FNC's or any of the FNC Subsidiaries' affiliated group (as described in Section
1.1502-14 of the Treasury Regulations). No property of FNC or any of the FNC
Subsidiaries is "tax exempt use property" within the meaning of Section 168(h)
of the Code. Except as set forth on SCHEDULE 6.11, neither FNC nor any of the
FNC Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or similar provisions of other law or regulation) by
reason of a change in an accounting method, nor does FNC or any of the FNC
Subsidiaries have any knowledge that the Internal Revenue Service (or other
taxing authority) has proposed or is considering any such change in an
accounting method. Neither FNC nor any of the FNC Subsidiaries is a party to an
interest rate swap, currency swap, or similar transaction. Neither FNC nor any
of the FNC Subsidiaries has any corporate acquisition indebtedness, as defined
in Section 279(b) of the Code, or any obligations described in Section 279(a)(2)
of the Code. The accruals for deferred federal income taxes reflected in the FNC
Financial Statements, for the period ended December 31, 1998 are adequate to
cover any deferred income tax liability of FNC and each of the FNC Subsidiaries
determined in accordance with Generally Accepted Accounting Principles through
the date thereof. All Income Taxes as to which FNC and each of the FNC
Subsidiaries may be liable which relate to period ending on or before the
December 31, 1998 have been adequately accrued or reserved in the FNC Financial
Statements as of such date in accordance with Generally Accepted Accounting
Principles.

6.12 LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES; LOAN COLLATERAL.

(a) All loans, accounts, notes and other receivables reflected as assets on
each of FNC's and the FNC Subsidiaries' books and records (i) have resulted from
bona fide business transactions in the ordinary course of such Person's
operations, (ii) were to the Knowledge of FNC made in compliance with such
Person's standard loan policies and procedures, and (iii) are owned by such
Person free and clear of all Liens (other than Permitted Liens), or other
exceptions to title or to the ownership or collection rights of any other person
or entity.

(b) All records of FNC and the FNC Subsidiaries regarding all outstanding
loans, accounts, notes and other receivables are accurate in all material
respects, and with respect to each loan that FNC's or any of the FNC
Subsidiaries' loan documentation indicates is secured by Loan Collateral, to the
Knowledge of FNC such loan is secured by valid, perfected and enforceable liens
on all such Loan Collateral having the priority described in such Person's
documentation of such loan.

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(c) Each material loan reflected as an asset on FNC's or any of the FNC
Subsidiaries' books as of the date hereof, and each material guaranty therefor,
is the legal, valid and binding obligation of the obligor or guarantor thereon,
and no defense, offset or counterclaim has been asserted with respect to any
such loan or guaranty.

(d) Schedule 6.12 lists as of the date hereof: (i) each loan, extension of
credit or other Asset that is classified by any Regulatory Authority or FNC or
any of the FNC Subsidiaries as "Loss", "Doubtful", "Substandard" or "Special
Mention" (or otherwise by words of similar import) or that FNC or any of the FNC
Subsidiaries has designated as a special asset or for special handling or placed
on any "watch list" because of concerns regarding the ultimate collectibility or
deteriorating condition of such Asset or any obligor or Loan Collateral
therefor; and (ii) each loan or extension of credit of FNC or any of the FNC
Subsidiaries that is past due 30 days or more as to the payment of principal
and/or interest, or as to which FNC or any FNC Subsidiary has given written
notice of default which has not been cured, or is to the Knowledge of FNC the
subject of a proceeding in bankruptcy, or as to which the obligor otherwise has
indicated any inability or intention not to repay such loan or extension of
credit; provided that Schedule 6.12 shall list only such loans, extensions of
credit or Assets described in subclauses (i) and (ii) above that have an
original principal amount in excess of $250,000.

(e) Each of the loans and other extensions of credit by FNC or any of the
FNC Subsidiaries (with the exception of those loans and extensions of credit
listed on Schedule 6.12) is as of the date hereof to the Knowledge of FNC
collectible in the ordinary course of such Person's business in an amount that
is not less than the amount at which it is carried on such Person's books and
records net of reserves reflected on such Person's books and records.

(f) Each of FNC's and the FNC Subsidiaries' reserve for possible loan
losses shown in the FNC Financial Statements (i) has been established in
conformity with Generally Accepted Accounting Principles and all applicable
requirements of applicable Regulatory Authorities, (ii) in the reasonable
opinion of such Person's management, as of the respective dates referenced
therein, is reasonable in view of the size and character of such Person's loan
portfolio, current economic conditions and other relevant factors, and (iii) in
the reasonable opinion of such Person's management, as of the respective dates
referenced therein, is adequate to provide for losses relating to or the risk of
loss inherent in such Person's loan portfolio.

(g) Neither the terms of any loan made by FNC or any of the FNC
Subsidiaries, nor any of the loan documentation, nor the manner in which such
loans have been administered and serviced, violates in any material respect any
Law applicable thereto, including without limitation, the Truth-in-Lending Act,
the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
Regulations O and Z of the Federal Reserve Board, the Community Reinvestment Act
of 1977, the Equal Credit Opportunity Act, all as amended, and state laws, rules
and regulations relating to consumer protection, installment sales and usury,
except where any such violation would not, individually or in the aggregate with
all other such violations, have a Material Adverse Effect on FNC.

6.13 SECURITIES PORTFOLIO AND INVESTMENTS. All securities owned by FNC or
any of the FNC Subsidiaries (whether owned of record or beneficially) are held
free and clear of all Liens (other than Permitted Liens). There are no voting
trusts or other agreements or undertakings to which FNC or any of the FNC
Subsidiaries is a party with respect to the voting of any such securities.
Except for fluctuations in the market values of United States

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Treasury and agency or municipal securities, since December 31, 1998, there has
been no significant deterioration or material adverse change in the quality, or
any material decrease in the value, of the securities portfolio of FNC and the
FNC Subsidiaries, taken as a whole.

6.14 ENVIRONMENTAL MATTERS.

(a) All of the Real Property owned or leased by FNC or any FNC Subsidiary
and all of the Loan Collateral that is in the nature of real property is and has
been in compliance with all Environmental Laws, except where any such
noncompliance would not, individually or in the aggregate with all other such
noncompliances, have a Material Adverse Effect on FNC.

(b) As of the date hereof, there is no Litigation pending or, to the
Knowledge of FNC, threatened, before any court, Governmental Authority, board or
other forum relating to the Real Property owned or leased by FNC or any FNC
Subsidiary or any Loan Collateral that is in the nature of real property in
which FNC or any FNC Subsidiary has been or may be named as a defendant or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, and to the Knowledge of FNC there is no
reasonable basis for any such Litigation.

(c) There have been no releases of Hazardous Materials in, on, under or
affecting any of the Real Property owned or leased by FNC or any FNC Subsidiary
or any Loan Collateral that is in the nature of real property, except where any
release would not, individually or in the aggregate with all other such
releases, have a Material Adverse Effect on FNC.

6.15 COMPLIANCE WITH LAWS. Each of FNC and the FNC Subsidiaries has in
effect all Permits required for it to own, lease, or operate its Assets and to
carry on its business as now conducted, and there has occurred no Default under
any Material Permit. Except as disclosed in Schedule 6.15, neither FNC nor any
of the FNC Subsidiaries: (i) is in material violation of any Laws, Orders, or
Permits applicable to its business or employees conducting its business; and
(ii) has since December 31, 1995, received any notification or communication
from any Governmental Authority (A) asserting that it is in material violation
of any of the Laws or Orders that such Governmental Authority enforces, (B)
threatening to revoke any Permits, or (C) requiring it to enter into or consent
to the issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any resolution or
similar undertaking that restricts the conduct of its business or in any manner
relates to its capital adequacy, its credit or reserve policies, its management
or the payment of dividends.

6.16 LABOR RELATIONS; EMPLOYMENT MATTERS.

(a) Each of FNC and the FNC Subsidiaries is in substantial compliance with
all laws and other obligations relating to employment, denial of employment or
employment opportunity and termination of employment.

(b) There is no controversy pending or, to the Knowledge of FNC, threatened
between FNC or any of the FNC Subsidiaries and any of its present or former
officers, directors, supervisory personnel or any group of its employees, except
where any such controversy would not, individually or in the aggregate with all
other such controversies, have a Material Adverse Effect on FNC.

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6.17 ABSENCE OF OTHER LIABILITIES. Except as disclosed on Schedule 6.17,
neither FNC nor any of the FNC Subsidiaries has any Liabilities other than (i)
Liabilities reserved against or otherwise disclosed in the FNC Financial
Statements or the notes thereto, and (ii) Liabilities incurred after December
31, 1998 in the ordinary course of business consistent (in amount and kind) with
past practice or Liabilities incurred accordance with this Agreement (including
transaction fees and expenses incurred in connection with the Merger). Except as
disclosed in Schedule 6.17, no facts or circumstances exist that would
reasonably be expected to serve as the basis for any other Liabilities of FNC or
any of the FNC Subsidiaries that would be required to be disclosed on Schedule
6.17. Neither FNC nor any of the FNC Subsidiaries has received, or has reason to
believe that it will not continue to receive, a rating of less than
"satisfactory" on any Year 2000 Report of Examination of any Regulatory
Authority.

6.18 CERTAIN REGULATED BUSINESSES. Neither FNC nor any of the FNC
Subsidiaries is an "investment company" as defined in the Investment Company Act
of 1940, as amended, nor is it a "public utility holding company" as defined in
the Public Utility Holding Company Act of 1935, as amended.

6.19 TAKEOVER LAWS. FNC has taken all actions required to be taken by it
in order to exempt this Agreement and the transactions contemplated hereby from
the requirements of any Takeover Laws applicable to FNC and the FNC
Subsidiaries.

ARTICLE VII

COVENANTS

7.1 COVENANTS OF FIRSTBANCORPORATION.

(a) Ordinary Conduct of Business. Except as otherwise contemplated by this
Agreement, FirstBancorporation will, and will cause each of the Subsidiaries to,
from the date of this Agreement to the Closing, conduct its business in the
ordinary course in substantially the same manner as presently conducted and will
make reasonable commercial efforts consistent with past practices to preserve
its relationships with other Persons. Additionally, except as otherwise
contemplated by this Agreement or as set forth on Schedule 7.1(a),
FirstBancorporation will not, nor will it permit any of the Subsidiaries to, do
any of the following without the prior written consent of FNC:

(i) amend its articles of incorporation, articles of association or
bylaws;

(ii) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver any stock, options or equity equivalents of any
class or any other of its securities (other than the issuance of shares of
FirstBancorporation Stock pursuant to the exercise of FirstBancorporation
Options outstanding on the date of this Agreement), or amend any of the
terms of any securities outstanding as of the date hereof;

(iii) (A) split, combine or reclassify any shares of its capital
stock, (B) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or (C) redeem or otherwise acquire any of its
securities;

(iv) (A) incur or assume any long-term debt or issue any debt
securities or, except under existing lines of credit and in amounts not
material to it, incur or

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assume any short-term debt other than in the ordinary course of business,
(B) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other Person, (C) make any capital contributions to, or investments in, any
other Person that, individually or in the aggregate, are greater than
$10,000, or any new loan, loan renewal or advance to any Person or its
Affiliates that, individually or in the aggregate, is greater than $350,000
other than those loans, renewals or advances for which FirstBancorporation
or any Subsidiary has committed to make as of the date hereof (provided
that any consent of FNC to make any such loan, loan renewal or advance
shall not be unreasonably withheld), (D) pledge or otherwise encumber
shares of its capital stock or (E) mortgage or pledge any of its Assets,
tangible or intangible, or create or suffer to exist any Lien thereupon,
except for Permitted Liens;

(v) adopt or amend any Benefit Plan;

(vi) grant to any director or senior officer any increase in his or
her compensation or grant to any employee an increase in his or her
compensation other than in the ordinary course of business consistent with
past practice, or pay or agree to pay to any such person any bonus,
severance or termination payment except in accordance with this Agreement,
specifically including any such payment that becomes payable by virtue of
the Merger or upon the termination of such person after the Closing;

(vii) enter into or amend any employment Contract;

(viii) (A) acquire, sell, lease or dispose of any material Assets
outside the ordinary course of business, (B) enter into any Contract or
transaction outside the ordinary course of business consistent with past
practice, or (C) acquire, lease, dispose or agree to acquire, lease or
dispose of any Real Property;

(ix) (A) voluntarily change or modify any of the accounting principles
or practices used by it or (B) revalue in any material respect any of its
Assets, including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course
of business;

(x) (A) acquire any Person (or division thereof), any equity interest
therein or the assets thereof; (B) enter into, cancel or modify any
Contract other than in the ordinary course of business consistent with past
practices; (C) enter into, cancel or modify any Material Contract (provided
that any consent of FNC to renew a Material Contract shall not be
unreasonably withheld); (D) authorize any new capital expenditure or
expenditures that, individually or in the aggregate, are in excess of
$10,000 (provided that any consent of FNC to authorize such expenditure or
expenditures shall not be unreasonably withheld); or (E) enter into or
amend any Contract with respect to any of the foregoing;

(xi) pay, discharge or satisfy, cancel, waive or modify any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business of liabilities reflected or reserved
against in or contemplated by the Financial Statements or on Schedule 5.20,
or incurred in the ordinary course of business consistent with past
practices or in connection with this Agreement and the Merger;

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(xii) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby;

(xiii) take, or agree in writing or otherwise to take, any action that
would make any of the representations or warranties of it contained in this
Agreement untrue or incorrect in any material respect or would result in
any of the conditions set forth in this Agreement not being satisfied; or

(xiv) agree, whether in writing or otherwise, to do any of the
foregoing.

(b) No Solicitation. From the date of this Agreement until the Effective
Time or the termination of this Agreement pursuant to its terms,
FirstBancorporation agrees that it will not and will not permit any of the
Subsidiaries, or any of its or their officers, directors, employees,
representatives, agents, or Affiliates, including, without limitation, any
investment banker, attorney or accountant retained by FirstBancorporation or any
of the Subsidiaries (collectively, the "REPRESENTATIVES") to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate (including
by way of furnishing information), any inquiries or the making of any proposal
or offer that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as defined below), or (ii) enter into or maintain or
continue discussions or negotiate with any Person in furtherance of such
inquiries or to obtain an Acquisition Proposal, or (iii) agree to, approve,
recommend, or endorse any Acquisition Proposal, or authorize or permit any of
the Subsidiaries or Representatives to take any such action and
FirstBancorporation shall promptly notify FNC of any such inquiries and
proposals received by FirstBancorporation or any of the Subsidiaries or
Representatives, relating to any of such matters; provided, however, that
nothing contained in this Agreement shall prohibit the board of directors of
FirstBancorporation from (A) furnishing information to, or engaging in
discussions or negotiations with, any Person in response to an unsolicited bona
fide written Acquisition Proposal; or (B) recommending such an unsolicited bona
fide written Acquisition Proposal to the shareholders of FirstBancorporation, if
and only to the extent that (1) the board of directors of FirstBancorporation
concludes in good faith (after consultation with its financial advisors) that
such Acquisition Proposal would constitute a Superior Proposal (as hereinafter
defined), (2) the board of directors of FirstBancorporation determines in good
faith (after consultation with outside legal counsel) that the failure to take
such action would result in a breach by the board of directors of
FirstBancorporation of its fiduciary duties to FirstBancorporation shareholders
under the Laws of South Carolina, (3) prior to furnishing such information to,
or entering into discussions or negotiations with, such Person,
FirstBancorporation provides prompt written notice to FNC to the effect that it
is furnishing information to, or entering into discussions or negotiations with,
such Person (which notice shall identify the nature and material terms of the
proposal) and (4) prior to providing any information or data to any Person in
connection with an Acquisition Proposal by any such Person, the board of
directors of FirstBancorporation receives from such Person an executed
confidentiality agreement with provisions no less favorable to
FirstBancorporation than the confidentiality agreement previously entered into
between FirstBancorporation and FNC in connection with the consideration of the
Merger. FirstBancorporation agrees that it will, and will cause its
Representatives to, immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any parties regarding any
Acquisition Proposal. FirstBancorporation agrees to keep FNC fully and timely
informed of the status of any discussions, negotiations, furnishing of non-
public information, or other activities relating to an Acquisition Proposal.

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For purposes of this Agreement, "ACQUISITION PROPOSAL" means an inquiry,
offer or proposal regarding any of the following (other than the transactions
contemplated by this Agreement) involving FirstBancorporation or the
Subsidiaries: (i) any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution, or other
similar transaction involving, or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of all or any significant portion of the assets or
20% or more of the equity securities of, FirstBancorporation or any of the
Subsidiaries, in a single transaction or series of related transactions which
could reasonably be expected to interfere with the completion of the Merger; or
(ii) any tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of FirstBancorporation or the filing of a registration
statement under the Securities Laws in connection therewith.

For purposes of this Agreement, "SUPERIOR PROPOSAL" means a bona fide
Acquisition Proposal received by FirstBancorporation after the date hereof from
a third Person that the board of directors of FirstBancorporation determines in
its good faith judgment to be more favorable to FirstBancorporation's
shareholders than the Merger (based on, among other things, the written opinion
of FirstBancorporation's independent financial advisor that the value of the
consideration to FirstBancorporation's shareholders provided for in such
proposal exceeds the value of the consideration to FirstBancorporation's
shareholders provided for in the Merger) and for which financing, to the extent
required, is then committed or which, in the good faith judgment of the board of
directors of FirstBancorporation (based on the written advice of
FirstBancorporation's independent financial advisor), is reasonably capable of
being obtained by such third Person.

(c) Charter Provisions. FirstBancorporation shall take all necessary
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the articles of
incorporation, articles of association, bylaws or other governing instruments of
FirstBancorporation or any Subsidiary or restrict or impair the ability of FNC
to exercise the rights of a shareholder with respect to shares of a
FirstBancorporation Subsidiary that are to be acquired or controlled by it.

(d) Agreements of Affiliates. Not later than the 15th day prior to the
mailing of the Joint Proxy Statement/Prospectus to the shareholders of
FirstBancorporation, FirstBancorporation shall deliver to FNC a schedule of each
Person that, to the Knowledge of FirstBancorporation, is or is reasonably likely
to be, as of the date of the FirstBancorporation Shareholders' Meeting, deemed
to be an "affiliate" of FirstBancorporation as that term is used in Rule 145
under the Securities Act of 1933, as amended, or SEC Accounting Series Releases
130 and 135. FirstBancorporation shall use its reasonable best efforts to cause
each Person who may be deemed to be an affiliate of FirstBancorporation as
described above to execute and deliver to FirstBancorporation and FNC on or
before the date of mailing of the Joint Proxy Statement/Prospectus an agreement
(each an "AFFILIATE AGREEMENT") in the form attached as EXHIBIT B to this
Agreement. Shares of FNC Stock issued to an affiliate of FirstBancorporation
described above in exchange for shares of FirstBancorporation Stock shall not be
transferable until such time as such transfer would not affect the treatment of
the Merger as a "pooling of interest" under Generally Accepted Accounting
Principles (which under current Law would be after financial results covering at
least 30 days of combined operations of FNC and FirstBancorporation have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies). Shares of FNC Stock issued to an affiliate of
FirstBancorporation described above in exchange for shares of FirstBancorpora-

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tion Stock shall not be transferable except in accordance with the Securities
Laws and the rules and regulations thereunder, including Rules 144 and 145 under
the Securities Act of 1933, as amended. FNC shall be entitled to place
restrictive legends upon certificates for FNC Stock issued to affiliates of
FirstBancorporation described above pursuant to this Agreement to enforce the
provisions of this SECTION 7.1(D).

(e) Shareholder Approval. FirstBancorporation will, at the earliest
practical date after the Registration Statement becomes effective, hold a
meeting of its shareholders for the purpose of voting upon adoption of this
Agreement and approval of the Merger under applicable Law. In connection with
such Shareholders' Meeting, (i) FirstBancorporation shall use its reasonable
best efforts to cause its board of directors to recommend (subject to compliance
with the board members' fiduciary duties as advised by counsel) to its
shareholders the adoption of this Agreement and the consummation of the Merger,
and (ii) FirstBancorporation shall use its reasonable best efforts to cause its
board of directors and officers (subject to compliance with the board members'
and officers' fiduciary duties as advised by counsel) to obtain such shareholder
approval.

(f) Merger of FirstBank and Midlands Bank. If requested by FNC,
FirstBancorporation shall take all action necessary to cause Midlands Bank to be
merged with and into FirstBank (the "SUBSIDIARY MERGER") not later than
immediately prior to the Effective Time, including without limitation filing all
applications, reports and statements with all Regulatory Authorities having
jurisdiction over such transaction. If requested by FNC, FirstBancorporation
shall take all action necessary to cause FirstBank and Midlands Bank to file
applications, reports and statements with all Regulatory Authorities having
jurisdiction regarding the merger of such Subsidiaries with and into First
National Bank (the "BANK MERGER") not earlier than the Effective Time.
Notwithstanding anything to the contrary, in connection with the transactions
and filings described in this SECTION 7.1(F), (i) FNC shall bear the cost of all
filing fees and charges to be paid to Regulatory Authorities, (ii) neither the
Subsidiary Merger nor the Bank Merger will be undertaken if it would materially
impede or delay the consummation of the Merger or cause the Merger not to
qualify as a tax-free organization under Section 368 of the Code or for "pooling
of interests" accounting treatment, and (iii) FirstBancorporation shall be under
no obligation to consummate the Subsidiary Merger until it shall have received
reasonably satisfactory evidence that the Merger will be consummated immediately
thereafter.

(g) Financial Statements. No later than the 10th day of each month from
the date of this Agreement until the Effective Time or the termination of this
Agreement pursuant to its terms, FirstBancorporation shall deliver to FNC such
interim monthly unaudited statements of income, cash flow and shareholder's
equity for the immediately preceding calendar month and an interim unaudited
balance sheet as of the end of such month (collectively, the "INTERIM MONTHLY
FINANCIAL STATEMENTS") that it prepares in the ordinary course of business
consistent with past practices. No later than 45 days after the end of each
calendar quarter following the date of this Agreement until the Effective Time
or the termination of this Agreement pursuant to its terms (but in no event
later than the availability of such financial statements), FirstBancorporation
shall deliver to FNC consolidated interim quarterly unaudited statements of
income, cash flow and shareholder's equity for the immediately preceding
calendar quarter and an interim unaudited balance sheet as of the end of such
quarter (collectively, the "INTERIM QUARTERLY FINANCIAL STATEMENTS"). The
Interim Quarterly Financial Statements shall be prepared in accor-

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dance with Generally Accepted Accounting Principles except that notes thereto
may be omitted and such statements may be subject to normal recurring year-end
adjustment.

(h) Benefit Plans. FirstBancorporation shall take all action necessary or
otherwise appropriate to terminate any 401(k) profit-sharing plan of
FirstBancorporation or the Subsidiaries, effective prior to the Effective Time,
including without limitation (i) the timely adoption of a valid resolution of
the appropriate board of directors terminating such plan, and (ii) fully vesting
all account balances of participants in such plan.

7.2 COVENANTS OF FNC.

(a) Listing of Additional Shares. FNC will notify the American Stock
Exchange by the Effective Time of the listing of the shares of FNC Stock to be
issued in connection with the Merger and FNC shall take all other actions
required to effect such listing as of the Effective Time.

(b) Shareholder Approval. If the Merger is structured as a Merger of
FirstBancorporation with and into FNC as provided by SECTION 2.1 of this
Agreement, FNC will, at the earliest practicable date after the Registration
Statement becomes effective, hold a meeting of its shareholders for the purpose
of voting upon the adoption of this Agreement and the approval of the Merger
and/or the issuance of the Merger Consideration under applicable Law. In
connection with such Shareholders' Meeting, (i) FNC shall use its reasonable
best efforts to cause its board of directors to recommend (subject to compliance
with the board members' fiduciary duties as advised by counsel) to its
shareholders the adoption of this Agreement and the consummation of the Merger,
and (ii) FNC shall use its reasonable best efforts to cause its board of
directors and officers (subject to compliance with the board members' and
officers' fiduciary duties as advised by counsel) to obtain such shareholder
approval.

(i) FNC shall maintain, or shall cause the FNC Subsidiaries to
maintain, in effect for three years from the Closing Date, if available,
the current directors' and officers' liability insurance policies
maintained by FirstBancorporation and the Subsidiaries; provided, however,
that FNC may substitute therefor policies of at least the same coverage
containing terms and conditions that are not taken as a whole materially
less favorable to the insured with respect to matters occurring prior to
the Effective Time of the Merger. If such insurance is not obtained at
least five Business Days prior to the anticipated Closing Date, then
FirstBancorporation shall be permitted to purchase tail coverage on the
existing policies for such three year period.

(ii) From and after the Effective Time, FNC shall indemnify, defend
and hold harmless each person who is now, or who has been at any time
before the date hereof or who becomes before the Effective Time, an
officer, director or employee of FirstBancorporation or the Subsidiaries
(the "INDEMNIFIED PARTIES") against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees), liabilities, judgments,
fines or amounts that are paid in settlement (which settlement shall
require the prior written consent of FNC, which consent shall not be
unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, or administrative
(each a "CLAIM"), in which an Indemnified Party is, or is threatened to be
made, a party or witness arising in whole or in part out of the fact that
such person is or was a director, officer or employee of
FirstBancorporation or any of the Subsidiaries if such Claim pertains to
any matter or

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fact arising, existing or occurring before the Effective Time (including
without limitation the Merger and the other transactions contemplated
hereby), regardless of whether such Claim is asserted or claimed before, at
or after the Effective Time (the "INDEMNIFIED LIABILITIES"), to the fullest
extent permitted by applicable Law in effect as of the date hereof or as
amended applicable to a time before the Effective Time. Any Indemnified
Party wishing to claim indemnification under this SECTION 7.2(C)(II), upon
learning of any Claim, shall notify FNC (but the failure so to so notify
shall not relieve FNC from any liability which it may have under this
SECTION 7.2(C)(II), except to the extent such failure materially prejudices
FNC). In the event of any such Claim, whether arising before, on or after
the Effective Time, (A) FNC shall have the right to assume the defense
thereof (in which event the Indemnified Parties will cooperate in the
defense of any such matter) and upon such assumption, FNC shall not be
liable to any Indemnified Party for any legal expenses of other counsel or
any other expenses subsequently incurred by any Indemnified Party in
connection with the defense therefor, except that if FNC elects not to
assume such defense, or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are or may be (whether or not
any have yet actually arisen) issues which raise conflicts of interest
between FNC and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them, and FNC shall pay the reasonable
fees and expenses of such counsel for the Indemnified Parties, (B) FNC
shall be obligated pursuant to this paragraph to pay for only one firm of
counsel for all Indemnified Parties whose reasonable fees and expenses
shall be paid promptly as statements are received, (C) FNC shall not be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld), and (D) FNC shall have no
obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and nonappealable, that indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by
applicable Law (it being acknowledged by the parties hereto that in the
event of any good faith dispute about the lawfulness of such
indemnification, FNC or FirstBancorporation or the Subsidiaries may place
the amounts at issue in escrow pending the final and nonappealable
determination of such dispute). The obligations of FNC pursuant to this
SECTION 7.2(C) are intended to be enforceable against FNC directly by the
Indemnified Parties. If FNC or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and in
each case, FNC (or such successor and assign) shall use its reasonable best
efforts to cause the successors and assigns of FNC to assume the
obligations set forth in this SECTION 7.2(C)(II).

(d) Directors. At the Effective Time, FNC will cause Colden R. Battey, Jr.
and Richard L. Gray (or their designees, if reasonably acceptable to FNC) to be
elected to the board of directors of FNC to serve as such until the 2000 annual
meeting of FNC's shareholders. FNC will use its reasonable best efforts to cause
Richard L. Gray and Colden R. Battey, Jr. to be nominated at the 2000 annual
meeting of FNC's shareholders to serve as a director of the Company for a term
expiring at the 2001 annual meeting of FNC's shareholders and the 2002 annual
meeting of FNC's shareholders, respectively. At the Effective Time or as soon
thereafter as practicable, FNC will cause Colden R. Battey, Jr., Richard L. Gray
and Thomas E. Suggs (or their designees, if reasonably acceptable to FNC) to
serve as members of the board of directors of First National Bank until the 2000
annual meeting of FNC's shareholders.

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(e) Employees.

(i) After the Effective Time, except as specifically provided by this
Agreement or set forth on Schedule 5.15, any and all of
FirstBancorporation's or the Subsidiaries' employees will be employed on an
"at-will" basis, and nothing in this Agreement shall be deemed to
constitute an employment agreement with any such person to obligate FNC or
any FNC Subsidiary to employ any such person for any specific period of
time or in any specific position or to restrict FNC's or any FNC
Subsidiary's right to terminate the employment of any such person at any
time and for any reason satisfactory to it (subject to the payment of
severance as set forth in subsection (ii) below).

(ii) FNC shall, with respect to each employee of FirstBancorporation
or any Subsidiary who is employed by FirstBancorporation or any Subsidiary
immediately before the Effective Time who experiences a separation of
service during the six-month period commencing on the Effective Time, pay
to such employee a one-time severance payment in the amount of two times
such employee's weekly salary at the time of termination times the number
of years of credited service of such employee with FirstBancorporation or
any Subsidiary and FNC or any FNC Subsidiary plus any accrued but unused
vacation leave during such service; provided, however, that the aggregate
liability of FNC hereunder shall not exceed $200,000, and provided further
that the provisions hereof shall not apply to James A. Shuford, III or any
employee of FirstBancorporation or any Subsidiary that is entitled to
severance or a change of control payment pursuant to a written agreement
with FirstBancorporation or any Subsidiary that is in effect on the date
hereof or at the Effective Time.

(iii) Each employee of FirstBancorporation or a Subsidiary set forth
on Schedule 7.1(e) shall be entitled to receive a "retention" bonus from
FirstBancorporation or the Subsidiaries equal to no more than six months of
such employee's annual base salary as of the date of this Agreement in the
event that FirstBancorporation and FNC determine in good faith that the
retention bonus is appropriate to induce the employee to continue his
employment through the Effective Date and up to three months thereafter;
provided, that retention bonuses in the aggregate shall not exceed $75,000
and no retention bonus shall be paid to an employee who voluntarily
terminates his employment prior to the expiration of the designated
retention period (which shall be no earlier than the Effective Date).

(iv) Employees of FirstBancorporation or any Subsidiary that continue
employment with FNC or the FNC Subsidiaries after the Effective Time will
be entitled to benefits consistent with and no less favorable than the
benefits being provided or to be provided to similarly situated employees
of FNC and the FNC Subsidiaries ("CONTINUING EMPLOYEES"), with credit for
past service with FirstBancorporation or the Subsidiaries for purposes of
participation, eligibility, vesting and accrual of benefits under all of
such benefit plans and arrangements, except that there will be no past
credit service for the accrual of benefits under any existing qualified
defined benefit pension plan. Continuing Employees shall not be subject to
any waiting periods or pre-existing condition exclusions under the group
health plan of FNC or any FNC Subsidiary to the extent that such periods
are longer or restrictions impose a greater limitation than the periods or
limitations imposed under the applicable group health plan of
FirstBancorporation or the applicable Subsidiary; and provided to the
extent that the initial period of coverage for Continuing Employees under
any plan of FNC or any FNC Subsidiary, whichever is applicable, that is an
"employee welfare benefit

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plan" as defined in Section 3(1) of ERISA is not a full 12-month period of
coverage, Continuing Employees shall be given credit under the applicable
welfare plan for any deductibles and co-insurance payments made by such
Continuing Employees under the corresponding welfare plan of
FirstBancorporation or any of the Subsidiaries during the balance of such
12-month period of coverage.

(v) FNC shall, and shall cause the FNC Subsidiaries to, honor any and
all vacation and sick leave of Continuing Employees accrued with
FirstBancorporation or the Subsidiaries and shall credit each Continuing
Employee for past service with FirstBancorporation or the Subsidiaries for
purposes of calculating such employee's entitlements to vacation and sick
leave under the employment policies of FNC and the FNC Subsidiaries.

(vi) At the Closing, FNC shall cause First National Bank to enter into
a consulting arrangement with Robert A. Kerr in form and substance
reasonably satisfactory to FNC and FirstBancorporation (the "Consulting
Agreement"), under which Mr. Kerr shall agree to provide consulting
services to FNC and the FNC Subsidiaries and to not compete with such
entities, and First National Bank would make aggregate consulting payments
to Mr. Kerr in an amount not in excess of $120,000 over the three-year
period after Closing.

(f) Negative Covenants. From the date of this Agreement until the
Effective Time, FNC covenants and agrees that it will not do or agree or commit
to do, or permit any of the Subsidiaries to do or agree or commit to do, any of
the following with the prior written consent of FirstBancorporation, which
consent shall not be unreasonably withheld with regard to subclause (ii) or
subclause (iii):

(i) in the case of FNC only, declare or pay any cash dividend other
than quarterly dividends at a rate not more than 20% in excess of the
current quarterly dividend rate of 13 cents per share or establish a record
date for any such quarterly dividends inconsistent with past practices; or

(ii) make any acquisition (including an acquisition of branch offices
and related deposit liabilities) that materially delays the consummation of
the Merger except as set forth on Schedule 7.2; or

(iii) take, or agree to take in writing or otherwise, any action that
would make any of the representations or warranties of it contained in this
Agreement untrue or incorrect in any material respect or would result in
any of the conditions set forth in this Agreement not being satisfied.

7.3 COVENANTS OF ALL PARTIES TO THE AGREEMENT.

(a) Joint Proxy Statement/Prospectus; Registration Statement. FNC and
FirstBancorporation shall cooperate in the timely preparation and filing with
the SEC of the Registration Statement. FirstBancorporation will furnish to FNC
the information required to be included in the Registration Statement with
respect to its business and affairs before it is filed with the SEC and again
before any amendments are filed, and shall have the right to review and consult
with FNC on the form of, and any characterizations of such information included
in, the Registration Statement prior to the filing with the SEC. Such
Registration Statement, at the time it becomes effective and on the Effective
Date, shall in all material respects conform to the requirements of the
Securities Laws. FNC shall take all actions required to register or obtain
exemptions from such registration

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for the FNC Common Stock to be issued in connection with the Merger under
applicable state "Blue Sky" securities laws, as appropriate. The Registration
Statement shall include the form of Joint Proxy Statement/Prospectus. The
parties shall use their reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be cleared by the SEC for mailing to their respective
shareholders, and the Joint Proxy Statement/Prospectus shall, on the date of
mailing and on the Effective Time, conform in all material respects to the
requirements of the Securities Laws. FirstBancorporation and FNC (if applicable)
shall cause the Joint Proxy Statement/Prospectus to be mailed to their
respective shareholders.

(b) Reorganization for Tax Purposes. Each of the parties hereto undertakes
and agrees to use its reasonable best efforts to cause the Merger to qualify as
a "reorganization" within the meaning of Section 368(a) of the Code and that it
will not intentionally take any action that would cause the Merger to fail to so
qualify.

(c) Accounting Treatment. Each of the parties hereto undertakes and agrees
to use its reasonable best efforts to cause the Merger to qualify to be treated
as a "pooling-of-interests" under Generally Accepted Accounting Principles and
that it will not intentionally take any action that would cause the Merger to
fail to so qualify. Each of the parties hereto shall use its reasonable best
efforts to cause its "affiliates" (as defined in SECTION 7.1(D)of this
Agreement) to not transfer shares of FNC Stock until such time as such transfer
would not affect the treatment of the Merger as a "pooling of interest" under
Generally Accepted Accounting Principles.

(d) Notification. Each party hereto agrees to notify promptly the other
party hereto of any event, fact, or other circumstance arising after the date
hereof that would have caused any representation or warranty herein, including
any information on any schedule hereto, to be untrue or misleading had such
event, fact, or circumstance arisen prior to the execution of this Agreement.
The parties hereto will exercise their reasonable best efforts to ensure that no
such events, facts, or other circumstances occur, come to pass, or become true.

(e) Consummation of Agreement. The parties hereto each agree to use their
reasonable best efforts to perform or fulfill all conditions and obligations to
be performed or fulfilled by them under this Agreement so that the transactions
contemplated hereby shall be consummated. Except for events that are the subject
of specific provisions of this Agreement, if any event should occur, either
within or outside the control of FirstBancorporation or FNC that would
materially delay or prevent fulfillment of the conditions upon the obligations
of any party hereto to consummate the transactions contemplated by this
Agreement, each party will notify the others of any such event and the parties
will use their reasonable, diligent and good faith efforts to cure or minimize
the same as expeditiously as possible. Each party hereto shall use its
reasonable best efforts to obtain all Consents required for the consummation of
the transactions contemplated by this Agreement and to assist in the procuring
or providing of all documents which must be procured or provided pursuant to
ARTICLE IX hereof.

(f) Maintenance of Corporate Existence. Each of the parties hereto shall
maintain in full force and effect their respective corporate existences.

(g) Applications and Reports. FNC shall promptly prepare and file, and
FirstBancorporation and the Subsidiaries shall cooperate in the preparation and,
where appropriate, filing of, applications, reports and statements with all
Regulatory Authorities having jurisdiction over the transactions contemplated by
this Agreement seeking the

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requisite Consents necessary to consummate the transactions contemplated by this
Agreement. The party responsible for the making of any filing shall provide the
other party with its proposed filing information for review and comment prior to
filing (including any subsequent filings) and copies of all comments and
correspondence received from Regulatory Authorities with respect thereto.

ARTICLE VIII

DISCLOSURE OF ADDITIONAL INFORMATION

8.1 ACCESS TO INFORMATION BY FIRSTBANCORPORATION. Prior to the Closing
Date, FirstBancorporation shall, and FirstBancorporation shall cause each of the
Subsidiaries to:

(a) give FNC and its authorized representatives reasonable access, during
normal business hours and upon reasonable notice, to the books, records, offices
and other facilities and properties of FirstBancorporation; and

(b) furnish FNC with such financial and operating data and other
information with respect to the business operations of FirstBancorporation
including, but not limited to, information relating to Taxes as FNC may from
time to time request.

8.2 ACCESS TO INFORMATION BY FNC. Prior to the Closing Date, FNC shall,
and FNC shall cause each of the FNC Subsidiaries to:

(a) give FirstBancorporation and its authorized representatives reasonable
access, during normal business hours and upon reasonable notice, to the books,
records, offices and other facilities and properties of FNC; and

(b) furnish FirstBancorporation with such financial and operating data and
other information with respect to the business operations of FNC including, but
not limited to, information relating to Taxes as FirstBancorporation may from
time to time request.

8.3 ACCESS TO PREMISES. Prior to Closing, FirstBancorporation shall give
FNC and its authorized representatives access to all of the Real Property owned
or leased by FirstBancorporation or any Subsidiary for the purpose of inspecting
such property.

8.4 CONFIDENTIALITY. Prior to Closing, except as otherwise provided in
this Agreement, the parties hereto shall not discuss or disclose, and each will
use its reasonable best efforts to cause its employees, lenders, accountants,
representatives, agents, consultants and advisors not to discuss or disclose, or
use for any purpose other than the transactions contemplated hereby, the subject
matter or transactions contemplated by this Agreement or information pertaining
to FirstBancorporation or FNC, with any other Person without the prior consent
of the other party hereto, unless (a) such information is public other than as a
result of a violation of this Agreement or (b) the use of such information is
necessary or appropriate in making any filing or obtaining any Consent necessary
or desirable for the consummation of the transactions contemplated hereby.

8.5 PUBLICITY. Without the prior consent of the other party (which consent
shall not be unreasonably withheld), no party hereto shall issue any news
release or other public announcement or disclosure, or prior to the initial
press release regarding the execution of this Agreement, have any communications
with its employees, suppliers or customers, regarding this Agreement or the
transactions contemplated hereby, except as may be

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required by law, but in which case the disclosing party shall provide the other
parties hereto with reasonable advance notice of the timing and substance of any
such disclosure.

ARTICLE IX

CONDITIONS TO CLOSING

9.1 MUTUAL CONDITIONS. The respective obligations of each party hereto to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by both parties:

(a) Adverse Proceedings. Neither FirstBancorporation, any Subsidiary, FNC
nor any FNC Subsidiary shall be subject to any order, decree or injunction of a
court of competent jurisdiction that enjoins or prohibits the consummation of
this Agreement and no Governmental Authority shall have instituted a suit or
proceeding that is then pending and seeks to enjoin or prohibit the transactions
contemplated hereby. Any party who is subject to any such order, decree or
injunction or the subject of any such suit or proceeding shall take any steps
within that party's control to cause any such order, decree or injunction to be
modified so as to permit the Closing and to cause any such suit or proceeding to
be dismissed.

(b) Regulatory Approvals. All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for consummation of
the Merger, the Subsidiary Merger and the Bank Merger shall have been obtained
or made and shall be in full force and effect and all waiting periods required
by Law shall have expired. No Consent obtained from any Regulatory Authority
that is necessary to consummate the actions contemplated hereby shall contain
non-standard conditions which in the reasonable judgment of the board of
directors of either party hereto would so materially adversely impact the
economic or business assumptions of the transactions contemplated by this
Agreement that had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into this Agreement.

(c) Effectiveness of Registration Statement. (i) The Registration
Statement covering the shares of FNC Stock to be issued pursuant hereto shall
have been declared effective by the SEC, and no stop order suspending such
effectiveness shall have been initiated or, to the Knowledge of FNC, threatened
by the SEC, and (ii) FNC shall have received all state securities or "Blue Sky"
permits or other authorizations, or confirmations as to the availability of an
exemption from such registration requirements as may be necessary to issue the
shares of FNC Stock to be issued in the Merger, and no proceedings shall be
pending or, to the Knowledge of FNC, threatened by any state "Blue Sky"
securities administration to suspend the effectiveness of the Registration
Statement.

(d) AMEX Listing. The shares of FNC Stock to be issued in the Merger shall
have been approved for listing on the American Stock Exchange as of the
Effective Time, subject to notice of issuance.

(e) Pooling Opinion. FNC shall have received assurances from J.W. Hunt &
Company, LLP, in form and substance reasonably satisfactory to FNC, to the
effect that the Merger will qualify to be treated as a "pooling of interests"
for accounting purposes. FNC also shall have received a letter from J.W. Hunt &
Company, LLP, in form and substance reasonably satisfactory to FNC, to the
effect that such accountants are not

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aware of any fact or circumstance applicable to FirstBancorporation that might
cause the Merger not to qualify for such treatment. Nothing shall have come to
the attention of FNC that any event has occurred or will occur or that any
condition or circumstance exists that makes it likely that the Merger may not so
qualify.

9.2 CONDITIONS TO THE OBLIGATIONS OF FIRSTBANCORPORATION. The obligation
of FirstBancorporation to effect the transactions contemplated hereby shall be
further subject to the fulfillment of the following conditions, unless waived by
FirstBancorporation:

(a) All representations and warranties of FNC contained in SECTIONS 6.1,
6.2, 6.3, 6.9 and 6.18 of this Agreement shall be true and correct as of the
Closing Date as though made as of such date (except for representations and
warranties that are made as of a specific date, which shall be true and correct
as of such date). All other representations and warranties of FNC contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made as of such date (except for representations and
warranties that are made as of a specific date, which shall be true and correct
in all material respects as of such date, and except for representations and
warranties qualified by the words "material," "in all material respects," "in
any material amount," "substantial," and the like, and representations and
warranties that exclude matters that would not have a "material effect," result
in a "material liability," have a "Material Adverse Effect" or the like, which
representations and warranties shall be true and correct). FNC and the FNC
Subsidiaries shall have performed and complied in all material respects with all
covenants and agreements contained in this Agreement required to be performed
and complied with by them at or prior to the Closing. FirstBancorporation shall
have received a certificate to the matters set forth in this SECTION 9.2(A)
signed by FNC.

(b) All documents required to have been executed and delivered by FNC to
FirstBancorporation at or prior to the Closing shall have been so executed and
delivered, whether or not such documents have been or will be executed and
delivered by the other parties contemplated thereby.

(c) FirstBancorporation shall have received an opinion of Robinson,
Bradshaw & Hinson, P.A., counsel to FNC, dated as of the Closing Date, in form
and substance reasonably acceptable to FirstBancorporation, as to the matters
set forth in EXHIBIT C.

(d) As of the Closing Date, FirstBancorporation shall have received the
following documents with respect to FNC:

(i) a true and complete copy of its articles of incorporation and all
amendments thereto, certified by the jurisdiction of its incorporation as
of a recent date;

(ii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;

(iii) a certificate from its Secretary or an Assistant Secretary
certifying that its articles of incorporation have not been amended since
the date of the certificate described in subsection (i) above and that
nothing has occurred since such date that would adversely affect its
existence;

(iv) a true and complete copy of the resolutions of its board of
directors and shareholders authorizing the execution, delivery and
performance of this Agreement, and all instruments and documents to be
delivered in connection herewith, and the transactions contemplated hereby,
certified by its Secretary or an Assistant Secretary;

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(v) a certificate from its Secretary or an Assistant Secretary
certifying the incumbency and signatures of its officers who will execute
documents at the Closing or who have executed this Agreement; and

(vi) such other documents, agreements or certificates as reasonably
requested by FirstBancorporation.

9.3 CONDITIONS TO THE OBLIGATIONS OF FNC. The obligations of FNC to effect
the transactions contemplated hereby shall be further subject to the fulfillment
of the following conditions, unless waived by FNC:

(a) All representations and warranties of FirstBancorporation contained in
SECTIONS 5.1, 5.2, 5.3, 5.4, 5.5, 5.24, 5.25, and 5.26 of this Agreement shall
be true and correct as of the Closing Date as though made as of such date
(except for representations and warranties that are made as of a specific date,
which shall be true and correct as of such date). All other representations and
warranties of FirstBancorporation contained in this Agreement shall be true and
correct in all material respects as of the Closing Date as though made as of
such date (except for representations and warranties that are made as of a
specific date, which shall be true and correct in all material respects as of
such date, and except for representations and warranties qualified by the words
"material," "in all material respects," "in any material amount," "substantial,"
and the like, and representations and warranties that exclude matters that would
not have a "material effect", result in a "material liability," have a "Material
Adverse Effect" or the like, which representations and warranties shall be true
and correct). FirstBancorporation and the Subsidiaries shall have performed and
complied in all material respects with all covenants and agreements contained in
this Agreement required to be performed and complied with by them at or prior to
the Closing. FNC shall have received certificates to the matters set forth in
this SECTION 9.3(A) signed by an authorized officer of FirstBancorporation.

(b) There shall be no Litigation instituted or pending or, to the Knowledge
of FirstBancorporation, threatened against FirstBancorporation or any of the
Subsidiaries or against any of their respective Assets, and there shall be no
Orders outstanding or unsatisfied by FirstBancorporation or any of the
Subsidiaries or against any of their respective Assets, that would have,
individually or in the aggregate with all such Litigation and Orders, a Material
Adverse Effect on FirstBancorporation. FNC shall have received a certificate to
the matters set forth in this SECTION 9.3(B) signed by an authorized officer of
FirstBancorporation.

(c) All documents required to have been executed and delivered by
FirstBancorporation to FNC at or prior to the Closing shall have been so
executed and delivered, whether or not such documents have been or will be
executed and delivered by the other parties contemplated thereby.

(d) James A. Shuford, III, shall have entered into an Employment and
Noncompetition Agreement with FNC substantially in the form of EXHIBIT D and
such agreement shall be in full force and effect as of the Effective Time.

(e) FNC shall have received the written Affiliate Agreements signed by all
Persons who are affiliates of FirstBancorporation as provided in SECTION 7.1(D).

(f) FNC shall have received a legal opinion from Breyer & Associates, PC,
special counsel to FirstBancorporation, dated as of the Closing Date, in form
and substance reasonably satisfactory to FNC, as to the matters set forth in
EXHIBIT E.

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(g) FirstBancorporation hereto shall have obtained any and all Consents
required for consummation of the Merger or for the preventing of any Default
under any and all Real Property leases and FirstBancorporation's servicing
contract with Jack Henry and Associates, Inc.

(h) FNC shall have received evidence that FirstBancorporation or a
Subsidiary shall have received extensions for the leases on terms reasonably
satisfactory to FNC for (i) the main office of FirstBancorporation located in
Beaufort, South Carolina, and (ii) the branch office of FirstBancorporation or a
Subsidiary located in Lady's Island, South Carolina.

(i) The holders of no more than 5% of the outstanding shares of
FirstBancorporation Stock shall have given written notice of their intent to
demand payment for their shares and shall not have voted for the Merger,
pursuant to Chapter 13 of the SCBCA.

(j) As of the Closing Date, FNC shall have received the following documents
with respect to FirstBancorporation and each of the Subsidiaries:

(i) a long-form certificate of its corporate existence issued by the
jurisdiction of its incorporation as of a recent date and a certificate of
existence or authority as a foreign corporation issued as of a recent date
by each of the jurisdictions in which it is qualified to do business as a
foreign corporation, as indicated on SCHEDULE 5.1;

(ii) a true and complete copy of its articles of incorporation or
articles of association and all amendments thereto, certified by the
jurisdiction of its incorporation as of a recent date;

(iii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;

(iv) a certificate from its Secretary or an Assistant Secretary
certifying that its articles of incorporation have not been amended since
the date of the certificate described in subsection (ii) above, and that
nothing has occurred since the date of issuance of the certificate of
existence specified in subsection (i) above that would adversely affect its
existence;

(v) with respect to FirstBancorporation only, a true and complete copy
of the resolutions of its board of directors and shareholders authorizing
the execution, delivery and performance of this Agreement, and all
instruments and documents to be delivered in connection herewith, and the
transactions contemplated hereby, certified by its Secretary or an
Assistant Secretary;

(vi) with respect to FirstBancorporation only, a certificate from its
Secretary or an Assistant Secretary certifying the incumbency and
signatures of its officers who will execute documents at the Closing or who
have executed this Agreement; and

(vii) such other documents, agreements or certificates as reasonably
requested by FNC.

(k) Robert A. Kerr shall have entered into the Consulting Agreement.

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ARTICLE X

TERMINATION

10.1 TERMINATION. The obligations of the parties hereunder may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:

(a) By mutual written consent of the boards of directors of
FirstBancorporation and FNC;

(b) By the board of directors of either FNC or FirstBancorporation, if
there shall be any Law or regulation that makes consummation of this Agreement
illegal or otherwise prohibited or if any judgment, injunction, order or decree
enjoining FirstBancorporation or its shareholders, or FNC or its shareholders,
from consummating this Agreement is entered and such judgment, injunction, order
or decree shall become final and non-appealable;

(c) By the board of directors of either FNC or FirstBancorporation, if the
conditions to the obligation to effect the transactions contemplated hereby of
the party seeking termination shall not have been fulfilled or waived by October
31, 1999, and if the party seeking termination is in material compliance with
all of its obligations under this Agreement;

(d) By the board of directors of either FNC or FirstBancorporation, if a
condition to the obligation to effect the transactions contemplated hereby of
the party seeking termination shall have become incapable of fulfillment
(notwithstanding the efforts of the party seeking to terminate as set forth in
SECTION 7.3(E)) and has not been waived;

(e) By the board of directors of FNC, if (i) the board of directors of
FirstBancorporation (A) does not recommend this Agreement or the Merger to its
shareholders; (B) withdraws or modifies such recommendation in a manner
materially adverse to FNC; (C) shall have recommended to the shareholders of
FirstBancorporation any Acquisition Proposal or resolved to do so; or (D) shall
have resolved or publicly announced or disclosed to any Person its intention to
do any of the foregoing (provided, however, that in the case of subclauses (A)
and (B), except where such action is based on a breach by FNC of its
representations and warranties hereunder or a failure (or anticipated failure)
to satisfy the conditions to the obligations of FirstBancorporation set forth in
SECTIONS 9.1 or 9.2 of this Agreement); (ii) a tender or exchange offer for 20%
or more of the outstanding shares of FirstBancorporation Stock is commenced or a
registration statement with respect thereto shall have been filed and the board
of directors of FirstBancorporation, within 10 Business Days after such tender
or exchange offer is commenced, either fails to recommend against acceptance of
such tender or exchange offer by its shareholders or takes no position with
respect to the acceptance of such tender or exchange offer by its shareholders,
or (iii) any Person or group of Persons acting in concert as a partnership or
other group shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become, after the
date hereof, the "beneficial owner" (within the meaning of such term under Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of 20% or more of
outstanding shares of FirstBancorporation Stock and the shareholders of
FirstBancorporation shall fail to adopt or approve the Merger at the
Shareholders Meeting held by FirstBancorporation;

(f) By the board of directors of FirstBancorporation, if the board of
directors of FirstBancorporation shall have determined to recommend an
Acquisition Proposal to its

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shareholders after determining, pursuant to SECTION 7.1(B), that such
Acquisition Proposal constitutes a Superior Proposal, and FirstBancorporation
gives FNC at least three Business Days prior notice of its intention to effect
such termination pursuant to this SECTION 10.1(F), and FirstBancorporation makes
the payment required pursuant to SECTION 10.2(D) of this Agreement;

(g) By the board of directors of either FNC or FirstBancorporation, if the
shareholders of a party fail to adopt or approve this Agreement, and to the
extent applicable, the transactions contemplated herein, as required by
applicable law; provided any termination or right of termination under SECTION
10.1(E), (F) or (H) shall take precedence over a termination under this SECTION
10.1(G), even where notice of termination under SECTION 10.1(E), (F) or (H) is
given after notice of termination under this SECTION 10.1(G); or

(h) By the board of directors of either FNC or FirstBancorporation, if the
board of directors of FNC (i) does not recommend this Agreement or the Merger to
its shareholders or (ii) withdraws or modifies such recommendation in a manner
materially adverse to FirstBancorporation, and in each such case such action is
not based on a breach by FirstBancorporation of its representations and
warranties hereunder or a failure (or anticipated failure) to satisfy the
conditions to the obligations of FNC set forth in SECTIONS 9.1 and 9.3 of this
Agreement.

10.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of a termination
contemplated hereby by any party pursuant to SECTION 10.1, the party seeking to
terminate this Agreement shall give prompt written notice thereof to the other
party, and the transactions contemplated hereby shall be abandoned, without
further action by any party hereto. In such event:

(a) The parties hereto shall continue to be bound by their obligations of
confidentiality set forth in SECTION 8.4, and all copies of the information
provided by FirstBancorporation and FNC hereunder will be returned to
FirstBancorporation and FNC, respectively, or destroyed immediately upon its
request therefor.

(b) All filings, applications and other submissions relating to the
transactions contemplated hereby shall, to the extent practicable, be withdrawn
from the Person to which made.

(c) Unless this Agreement is terminated pursuant to SECTION 10.1(E),
10.1(F) or 10.1(H), the terminating party shall be entitled to seek any remedy
to which such party may be entitled at law or in equity for the willful
violation or willful breach of any agreement, covenant, representation or
warranty contained in this Agreement.

(d) If this Agreement is terminated (i) by FNC pursuant to SECTION 10.1(E),
or (ii) by FirstBancorporation pursuant to SECTION 10.1(F), FirstBancorporation
shall pay to FNC by wire transfer in immediately available funds within one
Business Day of such termination, a termination fee of $960,000 in cash, which
the parties agree is a reasonable estimate of the out-of-pocket expenses of FNC
for attorneys, accountants and financial advisors paid by FNC in connection with
the proposed Merger, the cost of management time and overhead devoted to
pursuing the proposed Merger, and FNC's loss of opportunity to pursue other
transactions by pursuing the proposed Merger. If this Agreement is terminated by
FNC or FirstBancorporation pursuant to SECTION 10.1(H), FNC shall pay to
FirstBancorporation by wire transfer in immediately available funds within one
Business Day of such termination, a termination fee of $960,000 in cash, which

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the parties agree is a reasonable estimate of the out-of-pocket expenses of
FirstBancorporation for attorneys, accountants and financial advisors paid by
FirstBancorporation in connection with the proposed Merger, the cost of
management time and overhead devoted to pursuing the Merger, and
FirstBancorporation's loss of opportunity to pursue other transactions by
pursuing the Merger.

(e) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to SECTION 10.1, no party to this Agreement shall have any
liability or further obligation to any other party hereunder except as set forth
in SECTION 10.2(A)-(D), provided, however, if a party is entitled to relief
under SECTION 10.2(D), such relief shall be its sole and exclusive remedy.

ARTICLE XI

MISCELLANEOUS PROVISIONS

11.1 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, (i) FNC shall pay all costs and expenses incurred by it and the FNC
Subsidiaries in connection with this Agreement and the transactions contemplated
hereby and (ii) FirstBancorporation shall pay all costs and expenses incurred by
it and the Subsidiaries in connection with this Agreement and the Merger.
Without limiting the effect of the foregoing, FirstBancorporation and FNC shall
each pay their respective share of the cost of preparing and printing the Joint
Proxy Statement/Prospectus and soliciting the approval of their respective
shareholders in respect of the Merger.

11.2 SURVIVAL OF REPRESENTATIONS. The representations and warranties made
by the parties hereto will not survive the Closing, and no party shall make or
be entitled to make any claim based upon such representations and warranties
after the Closing Date; provided, however, that the parties' agreements
contained in SECTIONS 7.2(C), 7.2(D) and 7.2(E)(II), (III) (IV) and (V) shall
survive the Closing Date and shall be enforceable directly by each person
benefited or intended to be benefited by such sections. No warranty or
representation shall be deemed to be waived or otherwise diminished as a result
of any due diligence investigation by the party to whom the warranty or
representation was made or as a result of any actual or constructive knowledge
by such party with respect to any facts, circumstances or claims or by the
actual or constructive knowledge of such person that any warranty or
representation is false at the time of signing or Closing.

11.3 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by written agreement of FirstBancorporation and FNC
approved by their respective boards of directors; provided after the Shareholder
Meetings, or either of them, this Agreement may not be amended if it would
violate the SCBCA.

11.4 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided in this
Agreement, any failure by FNC or FirstBancorporation to comply with any
obligation, representation, warranty, covenant, agreement or condition herein
may be waived by the other party or parties only by a written instrument signed
by the party or parties granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent

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shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this SECTION 11.4.

11.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or by facsimile
transmission (with confirmed receipt), one Business Day after sending by a
reputable national over-night courier service or three Business Days after
mailing when mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties in the manner provided below:

(a) Any notice to FirstBancorporation shall be delivered to the following
addresses:

FirstBancorporation, Inc.
1121 Boundary Street
Beaufort, SC 29902
Attention: James A. Shuford, III
Telephone: (843) 521-5600
Facsimile: (843) 521-5625

with a copy to:

Breyer & Associates, PC
1100 New York Avenue, Suite 700 East
Washington, DC 20005
Attention: John F. Breyer, Jr.
Telephone: (202) 737-7900
Facsimile: (202) 737-7979

(b) Any notice to FNC shall be delivered to the following addresses:

First National Corporation
950 John C. Calhoun Drive, S.E.
Orangeburg, South Carolina 29115
Attention: C. John Hipp, III
Telephone: (803) 531-0565
Facsimile: (803) 531-0596

with a copy to:

Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Attention: Robin L. Hinson
Telephone: 704/377-2536
Facsimile: 704/378-4000

Any party may change the address to which notice is to be given by notice given
in the manner set forth above.

11.6 ASSIGNMENT; THIRD PARTY BENEFICIARIES. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other party, except that FNC

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may assign its rights and obligations under this Agreement to any Affiliate of
FNC. If such assignment is made, the assignee shall be entitled to all the
rights and shall assume all the obligations of FNC hereunder, but FNC shall not
be released from liability for the performance of the obligations of such
assignee under this Agreement. Except as set forth in SECTION 7.2(C), 7.2(D) and
7.2(E)(II), (III), (IV) and (V), this Agreement shall not be deemed to confer
upon any third party beneficiaries or other Persons, including any employees of
FirstBancorporation, any rights or remedies hereunder.

11.7 SEPARABLE PROVISIONS. If any provision of this Agreement shall be
held invalid or unenforceable, the remainder nevertheless shall remain in full
force and effect.

11.8 GOVERNING LAW. The execution, interpretation and performance of this
Agreement shall be governed by the internal laws and judicial decisions of the
State of South Carolina.

11.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

11.10 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.

11.11 ENTIRE AGREEMENT. This Agreement, including the Schedules and any
exhibits hereto, embodies the entire agreement and understanding of the parties
with respect of the subject matter of this Agreement. This Agreement supersedes
all prior agreements and understandings between the parties with respect to the
transactions contemplated hereby and subject matter hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

FIRST NATIONAL CORPORATION

By: /s/ C. JOHN HIPP, III
-----------------------------------
C. John Hipp, III
President

FIRSTBANCORPORATION, INC.

By: /s/ JAMES A. SHUFORD, III
-----------------------------------
James A. Shuford, III
President

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APPENDIX B

PLAN OF MERGER

A. CORPORATIONS PARTICIPATING IN MERGER.

FirstBancorporation, Inc., a South Carolina corporation (the "Merging
Corporation"), shall merge (the "Merger") into First National Corporation, a
South Carolina corporation which shall be the surviving corporation (the
"Surviving Corporation").

B. NAME OF SURVIVING CORPORATION.

After the Merger, the Surviving Corporation shall be named "First National
Corporation."

C. MERGER.

The Merger shall be effected pursuant to the terms and conditions of this
Plan of Merger (the "Plan"). At the Effective Time (as defined below), the
corporate existence of the Merging Corporation shall cease, and the corporate
existence of the Surviving Corporation shall continue. The time when the Merger
becomes effective is hereinafter referred to as the "Effective Time."

D. CONVERSION AND EXCHANGE OF SHARES.

At the Effective Time, the outstanding shares of the Merging Corporation
and the Surviving Corporation shall be converted and exchanged as follows:

1. Merging Corporation. At the Effective Time, each outstanding share
of common stock, par value $.01 per share, of the Merging Corporation
("FirstBancorporation Stock"), other than Dissenting Shares, Treasury
Shares and FNC Shares (as each such term is defined in the immediately
succeeding sentence), shall be converted into 1.222 shares (the "Exchange
Ratio") of common stock, par value $2.50 per share, of the Surviving
Corporation ("FNC Stock"). For purposes of this Plan of Merger, "Dissenting
Shares" shall have the meaning given to it in Section E; "Treasury Shares"
shall mean shares of FirstBancorporation Stock held in treasury by the
Merging Corporation or otherwise owned by the Merging Corporation or any of
its subsidiaries; and "FNC Shares" shall mean shares of FirstBancorporation
Stock owned by the Surviving Corporation or any of its subsidiaries.
Dissenting Shares shall be treated in the manner set forth in Section E. At
the Effective Time, Treasury Shares and FNC Shares shall be cancelled and
retired, and no consideration shall be issued in exchange therefor. In the
event the Surviving Corporation changes (or establishes a record date for
changing) the number of shares of FNC Stock issued and outstanding prior to
the Effective Time as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding FNC
Stock and the record date or effective date thereof shall be prior to the
Effective Time, the Exchange Ratio shall be proportionately adjusted.

2. Surviving Corporation. Each outstanding share of the Surviving
Corporation shall remain issued and outstanding and unaffected by the
Merger.

3. Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of FNC Stock and no certificates or scrip therefor, or
other evidence of

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ownership thereof, shall be issued in the Merger; instead, FNC shall pay to
each holder of FirstBancorporation Stock who would otherwise be entitled to
a fractional share of FNC Stock (after taking into account all Old
Certificates (as defined below) held by such holder) an amount of cash
(without interest) determined by multiplying such fraction by the last sale
price of FNC Stock published by the American Stock Exchange (as reported by
The Wall Street Journal or, if not reported therein, in another
authoritative source) for the trading day immediately preceding the day on
which the Effective Time occurs.

4. Surrender of Share Certificates. The Surviving Corporation shall
send or cause to be sent to each former holder of record of shares of
FirstBancorporation Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such shareholder's certificates
formerly representing shares of FirstBancorporation Stock (the "Old
Certificates") for the consideration set forth in Section D.1. hereof. The
Surviving Corporation shall cause the certificates representing the shares
of FNC Stock (the "New Certificates") into which shares of
FirstBancorporation Stock are converted at the Effective Time and/or any
check in respect of any fractional share interest or dividends or
distributions which such person shall be entitled to receive to be
delivered to such shareholder upon delivery to FNC of Old Certificates
representing such shares of FirstBancorporation Stock (or indemnify
reasonably satisfactory to FNC that such certificates are lost, stolen or
destroyed) owned by such shareholder and properly completed transmittal
materials. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions
which any such person shall be entitled to receive pursuant to this Plan.
Old Certificates surrendered for exchange by any person required to deliver
an affiliate agreement to the Surviving Corporation (as provided in that
certain Merger Agreement, dated as of March 4, 1999, between First National
Corporation and FirstBancorporation, Inc. (the "Merger Agreement")) shall
not be exchanged for New Certificates until the Surviving Corporation has
received such affiliate agreement from such person as specified in Section
7.1(d) of the Merger Agreement. Notwithstanding the foregoing, neither the
Merging Corporation nor the Surviving Corporation shall be liable to any
former holder of FirstBancorporation Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. At the election of the Surviving Corporation, no
dividends or other distributions with respect to FNC Stock with a record
date occurring on or after the Effective Time shall be paid to the holder
of any unsurrendered Old Certificate representing shares of
FirstBancorporation Stock converted in the Merger into the right to receive
shares of FNC Stock until the holder thereof shall be entitled to receive
New Certificates in exchange therefor in accordance with the procedures set
forth herein. After becoming so entitled in accordance herewith, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FNC Stock such holder had the right to
receive upon surrender of the Old Certificates.

E. DISSENTING SHARES.

Notwithstanding any provision of this Plan to the contrary, shares of
FirstBancorporation Stock that are outstanding immediately prior to the
Effective Time and which are held by a holder who shall have properly given
written notice of his intent to exercise dissenters' rights with respect to such
shares in connection with the Merger and in

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compliance with Chapter 13 of the South Carolina Business Corporation Act of
1988, as amended (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the consideration to be paid to
shareholders of FirstBancorporation Stock pursuant to Section D.1. of this Plan
(the "Merger Consideration"). Such holder shall be entitled to receive payment
of the appraised value of such Dissenting Shares held by him in accordance with
the provisions of such Chapter 13, except that all Dissenting Shares held by
shareholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares under such Chapter 13
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section D.4. of this Plan, of the Old Certificates.

F. ABANDONMENT.

After approval of this Plan by the shareholders of the Merging Corporation
and the Surviving Corporation, and at any time prior to Effective Time, the
board of directors of the Merging Corporation or the Surviving Corporation may,
in each of their discretion, abandon the Merger.

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The Robinson-Humphrey Company, LLC

APPENDIX C

June 10, 1999

Board of Directors
First National Corporation
950 John C. Calhoun Drive, S.E.
Orangeburg, South Carolina 29115

Members of the Board of Directors:

We understand that First National Corporation (the "Company") has entered
into an agreement to purchase FirstBancorporation, Inc. ("FirstBank") (the
"Proposed Transaction"). The terms and conditions of the Proposed Transaction
are set forth in more detail in the Definitive Merger Agreement (the
"Agreement").

We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company of the
consideration to be paid in the Proposed Transaction.

In arriving at our opinion, we reviewed and analyzed: (1) publicly
available information concerning the Company and FirstBank which we believe to
be relevant to our inquiry, (2) financial and operating information with respect
to the business, operations and prospects of the Company and FirstBank furnished
to us by the Company, (3) a comparison of the historical financial results and
present financial condition of the Company and FirstBank with those of other
companies which we deemed relevant, and (4) a comparison of the financial terms
of the Proposed Transaction with the terms of certain other recent transactions
which we deemed relevant. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.

We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts/projections of
the Company and FirstBank, we have assumed that such forecasts/projections have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and FirstBank. In arriving at our opinion,
we have not conducted a physical inspection of the properties and facilities of
FirstBank and have not made nor obtained any evaluations or appraisals of the
assets or liabilities of FirstBank. Our opinion is necessarily based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.

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We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion.

Based upon and subject to the forgoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
in the Proposed Transaction is fair to the Company.

Very truly yours,

/s/The Robinson-Humphrey Company, LLC
The Robinson-Humphrey Company, LLC

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(RP Financial Letterhead) APPENDIX D

June 10, 1999

Board of Directors
FirstBancorporation, Inc.
1121 Boundary Street
Beaufort, South Carolina 29902

Members of the Board:

You have requested RP Financial, LC. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
stockholders of FirstBancorporation, Inc., Beaufort, South Carolina
("FirstBancorporation"), the South Carolina multiple bank holding company for
FirstBank, N.A. and FirstBank of the Midlands, of the Merger Agreement (the
"Agreement") by and between FirstBancorporation and First National Corporation
("FNC"), a South Carolina multiple bank holding company for First National Bank
of Orangeburg, National Bank of York County and Florence County National Bank.
Unless otherwise defined, all capitalized terms incorporated herein have the
meanings ascribed to them in the Agreement, which is incorporated herein by
reference.

SUMMARY DESCRIPTION OF MERGER CONSIDERATION

The following summary description of the "Merger Consideration" does not
purport to be a complete description, and incorporates by reference the complete
description of the Merger Consideration as set forth in the Agreement.

At the Effective Time of the Merger, each share of common stock of
FirstBancorporation issued and outstanding immediately prior to the Effective
Time shall become and be converted into 1.222 shares of FNC common stock (the
"Exchange Ratio") and all FirstBancorporation treasury shares shall be cancelled
and retired. As of the date of the Agreement, there were 963,325 shares issued
and outstanding. FNC will pay cash in lieu of issuing fractional shares. In
addition, at the Effective Time, each outstanding option to purchase shares of
FirstBancorporation common stock granted under (i) the 1996 Stock Option Plan
and (ii) the 1986 Bank Incentive Stock Option Plan (collectively the "Stock
Option Plans"), whether exercisable or not, shall be converted into options to
acquire shares of FNC common stock equal to the (A) number of shares of
FirstBancorporation common stock pursuant to the Stock Option Plans multiplied
by (B) the Exchange Ratio (rounded to the nearest whole number), at an exercise
price per share (rounded to the nearest whole cent) equal to (Y) the option
aggregate exercise price divided by (Z) the number of full shares of FNC shares
following the Exchange. The number of FirstBancorporation options pursuant to
the Stock Option Plans as of the date of the Agreement was 28,916.
(Letterhead Addresses)

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RP FINANCIAL BACKGROUND AND EXPERIENCE

RP Financial, as part of its valuation and consulting practice for the
financial services industry, is regularly engaged in the valuation of financial
institution securities (and their respective holding companies, if applicable),
in connection with mergers and acquisitions of commercial banks and thrift
institutions, initial and secondary offerings, and business valuations for other
corporate purposes for financial institutions and other financial
intermediaries. As specialists in the securities of financial institutions (and
their respective holding companies, if applicable), RP Financial has experience
in, and knowledge of, the South Carolina and Southeast markets for financial
institution securities and financial institutions operating in South Carolina
and the Southeast.

MATERIALS REVIEWED

In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement, including exhibits; (2) financial and other
information for FirstBancorporation, all with regard to balance and off-balance
sheet composition, profitability, interest rates, volumes, maturities, trends,
credit risk, interest rate risk, liquidity risk and operations and shareholder
information from FirstBancorporation's (a) audited and unaudited financial
statements for the last three fiscal years and most recent quarter, incorporated
in stockholder, regulatory and internal financial and other reports, (b) the
most recent three proxy statements, and (c) executive management comments
regarding historical, current and anticipated business, operations and financial
performance and condition; and (3) financial and other information for FNC, with
regard to balance and off-balance sheet composition, profitability, interest
rates, volumes, maturities, trends, credit risk, interest rate risk, liquidity
risk and operations and shareholder information from FNC's (a) audited and
unaudited financial statements for the last three fiscal years and the most
recent quarter, incorporated in stockholder, regulatory and internal financial
and other reports, (b) the most recent three proxy statements, and (c) executive
management comments regarding historical, current and anticipated business,
operations and financial performance and condition.

RP Financial reviewed financial, operational, market area and stock price
and trading characteristics for FirstBancorporation and FNC relative to
publicly-traded banks and bank holding companies, respectively, with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and economic
environments on operations for FirstBancorporation and FNC and the public
perception of the banking industry. RP Financial also considered: the financial
terms, financial and operating condition and market area of other recently
completed acquisitions of comparable banks both regionally and in South
Carolina; discounted cash flow analyses incorporating future prospects; the
financial aspects of expressions of interest by third party financial
institutions evaluating the prospects of a business combination with
FirstBancorporation; and the pro forma impact on FNC of the acquisition of
FirstBancorporation, which is expected to be accounted for as a pooling.

In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
FirstBancorporation and FNC furnished by the respective institutions to RP
Financial for review, as well as publicly-available information regarding other
financial institutions and other third party data and information referenced
above. FirstBancorporation and FNC did not restrict RP Financial

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as to the material it was permitted to review. RP Financial did not perform or
obtain any independent appraisals or evaluations of the assets and liabilities
and potential and/or contingent liabilities of FirstBancorporation or FNC.

RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the merger as set forth in the Agreement to
be consummated. In rendering its opinion, RP Financial assumed that, in the
course of obtaining the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed on FNC that would have a
material adverse effect on the ability of the Merger to be consummated as set
forth in the Agreement.

OPINION

It is understood that this letter is directed to the Board of Directors of
FirstBancorporation in its consideration of the Agreement, and does not
constitute a recommendation to any stockholder of FirstBancorporation as to any
action that such stockholder should take in connection with the Agreement, or
otherwise.

It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.

It is understood that this opinion may be included in its entirety in any
communication by FirstBancorporation or its Board of Directors to the
stockholders of FirstBancorporation. It is also understood that this opinion may
be included in its entirety in any regulatory filing by FirstBancorporation or
FNC, and that RP Financial consents to the summary of the opinion in the proxy
materials of FirstBancorporation, and any amendments thereto. Except as
described above, this opinion may not be summarized, excerpted from or otherwise
publicly referred to without RP Financial's prior written consent.

Based upon and subject to the foregoing, and other such matters considered
relevant, it is RP Financial's opinion that, as of the date hereof, the Merger
Consideration to be received by FirstBancorporation's stockholders, as described
in the Agreement, is fair to such stockholders from a financial point of view.

Respectfully submitted,

RP FINANCIAL, LC.

/s/ RP Financial, LC.

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APPENDIX E

CODE OF LAWS OF SOUTH CAROLINA 1976 ANNOTATED
TITLE 33. CORPORATIONS, PARTNERSHIPS AND ASSOCIATIONS
CHAPTER 13. DISSENTERS' RIGHTS
ARTICLE 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

Current through End of 1998 Reg. Sess.

sec. 33-13-101. Definitions.

In this chapter:

(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when
and in the manner required by Sections 33-13-200 through 33-13-280.

(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. The value of the
shares is to be determined by techniques that are accepted generally in the
financial community.

(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.

(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.

(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

sec. 33-13-102. Right to dissent.

(A) A shareholder is entitled to dissent from, and obtain payment of the
fair value of, his shares in the event of any of the following corporate
actions:

(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
33-11-103 or the articles of incorporation and the shareholder is entitled
to vote on the merger or (ii) if the corporation is a subsidiary that is
merged with its parent under Section 33-11-104 or 33-11-108 or if the
corporation is a parent that is merged with its subsidiary under Section
33-11-108;

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(2) consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares are to be acquired, if the
shareholder is entitled to vote on the plan;

(3) consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale must be distributed to
the shareholders within one year after the date of sale;

(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:

(i) alters or abolishes a preferential right of the shares;

(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;

(iii) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;

(iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or

(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Section 33-6-104; or

(5) in the case of corporations which are not public corporations, the
approval of a control share acquisition under Article 1 of Chapter 2 of
Title 35;

(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.

(B) Notwithstanding subsection (A), no dissenters' rights under this
section are available for shares of any class or series of shares which, at the
record date fixed to determine shareholders entitled to receive notice of a vote
at the meeting of shareholders to act upon the agreement of merger or exchange,
were either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.

sec. 33-13-103. Dissent by nominees and beneficial owners.

(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.

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(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.

ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS

sec. 33-13-200. Notice of dissenters' rights.

(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.

(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.

sec. 33-13-210. Notice of intent to demand payment.

(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must give to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (2) must not vote his shares in favor of
the proposed action. A vote in favor of the proposed action cast by the holder
of a proxy solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.

(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.

sec. 33-13-220. Dissenters' notice.

(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).

(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:

(1) state where the payment demand must be sent and where certificates
for certificated shares must be deposited;

(2) inform holders of uncertificated shares to what extent transfer of
the shares is to be restricted after the payment demand is received;

(3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he or, if he is a nominee
asserting dissenters' rights on behalf of a beneficial shareholder, the
beneficial shareholder acquired beneficial ownership of the shares before
that date;

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(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty days after
the date the subsection (a) notice is delivered and set a date by which
certificates for certificated shares must be deposited, which may not be
earlier than twenty days after the demand date; and

(5) be accompanied by a copy of this chapter.

sec. 33-13-230. Shareholders' payment demand.

(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.

(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.

(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.

sec. 33-13-240. Share restrictions.

(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section
33-13-260.

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.

sec. 33-13-250. Payment.

(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.

(b) The payment must be accompanied by:

(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;

(2) a statement of the corporation's estimate of the fair value of the
shares and an explanation of how the fair value was calculated;

(3) an explanation of how the interest was calculated;

(4) a statement of the dissenter's right to demand additional payment
under Section 33-13-280; and

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(5) a copy of this chapter.

sec. 33-13-260. Failure to take action.

(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.

(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.

sec. 33-13-270. After-acquired shares.

(a) A corporation may elect to withhold payment required by section
33-13-250 from a dissenter as to any shares of which he (or the beneficial owner
on whose behalf he is asserting dissenters' rights) was not the beneficial owner
on the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.

(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.

sec. 33-13-280. Procedure if shareholder dissatisfied with payment or offer.

(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due and demand payment of
his estimate (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:

(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares
or that the interest due is calculated incorrectly;

(2) corporation fails to make payment under Section 33-13-250 or to
offer payment under Section 33-13-270 within sixty days after the date set
for demanding payment; or

(3) corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.

(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.

E-5
<PAGE> 171

sec. 33-13-300. Court action.

(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.

(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.

(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.

(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.

(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.

sec. 33-13-310. Court costs and counsel fees.

(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.

(b) The court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

(1) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not comply substantially with the
requirements of Sections 33-13-200 through 33-13-280; or

(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.

(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not

E-6
<PAGE> 172

be assessed against the corporation, the court may award to these counsel
reasonable fees to be paid out of the amounts awarded the dissenters who were
benefited.

(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.

E-7
<PAGE> 173

APPENDIX F

FIRST NATIONAL CORPORATION

1999 STOCK OPTION PLAN

1. PURPOSE OF PLAN. This 1999 Stock Option Plan (the "Plan") has been
established by First National Corporation ("First National") (i) to attract and
retain persons eligible to participate in the Plan; (ii) to motivate
participants, by means of appropriate incentives, to achieve long-term goals;
(iii) to provide incentive compensation opportunities that are competitive with
those of other similar companies; and (iv) to further identify participants'
interests with those of the Company's other shareholders.

2. SHARES SUBJECT TO PLAN. The options granted under this Plan will be
options to acquire shares of First National's common stock, $2.50 par value. The
maximum number of shares that may be issued pursuant to this Plan is 400,000.
The maximum number of shares that may be issued pursuant to options that are
intended to be Incentive Stock Options shall be 310,000 shares. The maximum
number of shares that may be issued to directors pursuant to Section 5 is
90,000.

3. ADMINISTRATION OF PLAN. The Compensation Committee (the "Committee") of
First National's Board of Directors will administer the Plan.

The Committee, in addition to any other powers granted to it hereunder,
shall have the powers, subject to the expressed provisions of the Plan:

(a) in its discretion, to determine the Employees (defined in Section
4(a) hereof) to receive options, the times when options shall be granted,
the times when options may be exercised, the number of shares to be subject
to each option, the exercise price of each option, and any restrictions on
the transfer or ownership of shares purchased pursuant to an option;

(b) to determine the extent to which awards under the Plan will be
structured to conform to the requirements applicable to performance-based
compensation as described in Code section 162(m), and to take such action,
establish such procedures, and impose such restrictions at the time such
awards are granted as the Committee determines to be necessary or
appropriate to conform to such requirements;

(c) to change the provisions of Section 5 of the Plan, to specify
different Grant Dates or numbers of options or otherwise, subject to the
limitation on maximum number of shares as set forth in Section 2;

(d) to prescribe, amend and repeal rules and regulations of general
application relating to the Plan;

(e) to construe and interpret the Plan;

(f) to require of any person exercising an option granted under the
Plan, at the time of such exercise, the execution of any paper or making or
any representation or the giving of any commitment that the Committee
shall, in its discretion, deem necessary or advisable by reason of the
securities laws of the United States or any State, or the execution of any
paper or the payment of any sum of money in respect of taxes or the
undertaking to pay or have paid any such sum that the Committee

F-1
<PAGE> 174

shall, in its discretion, deem necessary by reason of the Internal Revenue
Code or any rule or regulation thereunder, or by reason of the tax laws of
any State;

(g) to amend stock options previously granted and outstanding, but no
amendment to any such agreement shall be made without the consent of the
optionee if such amendment would adversely affect the rights of the
optionee under his stock option agreement or would disqualify an "incentive
stock option" (as defined in Section 422 of the Internal Revenue Code) (an
"incentive stock option") from being such under the Internal Revenue Code;
and no amendment shall be made to any stock option agreement that would
cause the inclusion therein of any term or provision inconsistent with the
Plan; and

(h) to make all other determinations necessary or advisable for the
administration of the Plan. Determinations of the Committee with respect to
the matters referred to in this section shall be conclusive and binding on
all persons eligible to participate under the Plan and their legal
representatives and beneficiaries. The Committee shall have full authority
to act with respect to the participation of any Employee, including any
directors or officers, and nothing in the Plan shall be construed to be in
derogation of such authority.

The Committee may designate selected Committee members or employees of
First National Corporation to assist the Committee in the administration of the
Plan and may grant authority to such persons to execute documents, including
options, on behalf of the Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.

Decisions and determinations of the Committee on all matters relating to
the Plan shall be in its sole discretion and shall be conclusive. No member of
the Committee, nor any person authorized to act on behalf of the Committee,
shall be liable for any action taken or decision made in good faith relating to
the Plan or any award thereunder.

4. GRANT OF OPTION TO EMPLOYEES.

(a) EMPLOYEES TO WHOM OPTIONS MAY BE GRANTED. The Committee may grant
an incentive stock option to any employee of First National or any of its
subsidiaries ("Employee"). In determining which Employees will be granted
an option, the Committee shall consider the duties of the Employees, their
present and potential contributions to the success of First National, and
such other factors as the Committee deems relevant in connection with
accomplishing the purposes of the Plan.

(b) NUMBER OF SHARES. The Committee may grant to an Employee an
option to purchase such number of shares as the Committee may choose,
except that no Employee shall be granted, in any single calendar year,
options to acquire more than 20,000 shares.

(c) EXERCISE PRICE. The Committee will specify the exercise price
with respect to each option granted hereunder, but with respect to each
option the exercise price must be at least 100% of the fair market value of
the shares covered by the option at the time the option is granted.

F-2
<PAGE> 175

(d) TERM OF OPTIONS. The Committee will specify the expiration date
of each option granted hereunder; provided, however, that no option granted
hereunder may be exercised after the expiration of ten years from the date
on which such option was granted.

(e) TYPE OF OPTIONS. Options granted under this Section 4 may be
either "Incentive Stock Options" or non-qualified stock options. An
"Incentive Stock Option" is an option that is intended to qualify for tax
treatment as an "incentive stock option" as described in section 422(b) of
the Internal Revenue Code.

5. OPTIONS FOR INDEPENDENT DIRECTORS. The grant of options under this
Section 5 shall be limited to those directors of First National or any
subsidiary of First National who, on the date of grant, are not employees of
First National or any subsidiary (such directors are referred to herein as
"Eligible Directors").

On December 30 of each odd-numbered calendar year beginning with 1999 and
ending with 2005 (or, if December 30 is not a business day, the immediately
preceding business day (the "Grant Date")), each Eligible Director shall
automatically receive options to acquire the number of shares of common stock
specified below at an exercise price equal to the closing sales prices of the
common stock on such date, as follows:

(a) Eligible Directors of First National: 500 shares

(b) Eligible Directors of First National who are members of the
following committees of the First National Board of Directors:

Executive Committee: 250 shares
Audit Committee: 100 shares
Compensation Committee: 100 shares

First National Bank: 500 shares
NBYC: 300 shares
FCNB: 300 shares

(d) Eligible Directors of New South: 200 shares

Each such option shall be exercisable immediately and at any time and from
time to time thereafter (subject to Section 6 hereof) until and including the
date which is the business day immediately preceding the tenth anniversary of
the Grant Date. Notice of each such option granted on a Grant Date shall be
given to each Eligible Director within a reasonable time after the Grant Date.

6. EXERCISE. Subject to the provisions of this Plan, an option granted
under Section 4 hereof shall be exercisable at such time or times after the date
of grant thereof, according to such schedule and upon such conditions as may be
determined by the Committee at the time of grant, and an option granted under
Section 5 hereof shall be exercisable in accordance with the provisions of
Section 5 hereof. An option granted hereunder may be exercised as to part or all
of the shares covered thereby at any time before the expiration date of such
option.

During the participant's lifetime, only the participant may exercise an
option granted to him. If a participant dies prior to the expiration date of an
option granted to him,

F-3
<PAGE> 176

without having exercised his option as to all of the shares covered thereby, the
option may be exercised, to the extent of the shares with respect to which the
option could have been exercised on the date of the participant's death, by the
estate or a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Employee.

7. PAYMENT OF EXERCISE PRICE. The exercise price will be payable upon
exercise of the option to purchase shares. Payment of the exercise price shall
be made in cash or, to the extent permitted by the Committee and as set forth in
the Memorandum of Option, with shares of First National common stock, valued at
the fair market value on the date of exercise.

8. TRANSFERABILITY. No option granted hereunder may be transferred by the
participant except by will or by the laws of descent and distribution, upon the
death of the participant.

9. MEMORANDUM OF OPTION.

(a) GENERAL. The Committee will deliver to each participant to whom
an option is granted a Memorandum of Option, stating the terms of the
option.

(b) INCENTIVE STOCK OPTION RULES. It is intended that options granted
under Section 4 of this Plan may qualify for treatment for federal income
tax as "incentive stock options," as that term is defined by Section 422 of
the Internal Revenue Code, provided that the Employee follows certain rules
concerning the exercise of the options. In the Memorandum of Option
referred to in this paragraph the Committee will set forth the rules that
the Employee must observe if his option is to qualify as an incentive stock
option.

10. CAPITAL ADJUSTMENTS. The number of shares of common stock covered by
each outstanding option granted under the Plan, and the option price thereof,
will be subject to an appropriate and equitable adjustment, as determined by the
Committee, to reflect any stock dividend, stock split or share combination, and
will be subject to such adjustment as the Committee may deem appropriate to
reflect any exchange of shares, recapitalization, merger, consolidation,
separation, reorganization, liquidation or the like, of or by First National.

11. AMENDMENT OR DISCONTINUANCE. The Plan may be amended, altered or
discontinued by the Board of Directors of First National. No termination or
amendment of the Plan shall materially and adversely affect any rights or
obligations of the holder of an option theretofore granted under the Plan
without his consent.

12. EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action
of the Board or the Committee shall be deemed to give any person any right to be
granted an option to purchase common stock of First National or any other rights
hereunder except as may be expressly granted by the Committee (or granted
pursuant to Section 5) and evidenced by a Memorandum of Option described in
Section 9. Notwithstanding any other provision of the Plan, First National shall
have no liability to deliver any shares under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity. To the extent that the Plan provides
for issuance of stock certificates to

F-4
<PAGE> 177

reflect the issuance of shares, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.

13. EFFECTIVENESS OF THE PLAN; DURATION. The Plan shall be subject to
approval by the vote of the holders of a majority of the shares of stock of
First National entitled to vote at the 1999 annual meeting of shareholders. The
Plan shall be effective at once upon such approval. No option may be granted
prior to the approval of the Plan by shareholders. No options may be granted
under this Plan after May 31, 2009.

F-5
<PAGE> 178

APPENDIX G
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-KSB

<TABLE>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

COMMISSION FILE NUMBER 0-28106

FIRSTBANCORPORATION, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
SOUTH CAROLINA 57-1033905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1121 BOUNDARY STREET 29901-2147
P.O. BOX 2147, (Zip Code)
BEAUFORT, S.C.
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code: 843-521-5600

Securities registered pursuant to Section 12(b) of the Act
NONE

Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Authorized 2,000,000 shares
Issued and Outstanding 963,325 shares

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Revenues for its most recent fiscal year: $9,331,045.

The registrant's voting stock is not regularly and actively traded in any
established market, and there are no regularly quoted bid and asked prices for
the registrant's voting stock which is evidenced by the limited number of trades
during the period of January 1, 1999 to March 8, 1999. The aggregate market
value of the voting stock held by non-affiliates of the registrant, computed by
reference to the price of recent private trades was approximately $17,339,850
(963,325 shares) as of March 8, 1999. For the purposes of this calculation
officers and directors of the registrant are considered non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G-1
<PAGE> 179

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I
Item 1. Description of Business........................... G- 3
Item 2. Description of Property........................... G-22
Item 3. Legal Proceedings................................. G-22
Item 4. Submission of Matters to a Vote of Security
Holders................................................ G-23
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters............................ G-24
Item 6. Management's Discussion and Analysis.............. G-24
Item 7. Financial Statements.............................. G-35
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... G-68
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance with Section 16(a) of the
Exchange Act........................................... G-68
Item 10. Executive Compensation........................... G-70
Item 11. Security Ownership of Certain Beneficial Owners
and Management......................................... G-71
Item 12. Certain Relationships and Related Transactions... G-73
Part IV
Item 13. Exhibits List and Reports on Form 8-K............ G-74
</TABLE>

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

FirstBancorporation, Inc. ("Company") is a multi-bank holding company
registered under the Bank Holding Company Act and regulated by the Federal
Reserve Board. FirstBank, N.A. ("Beaufort Bank") and FirstBank of the Midlands,
N.A. ("Midlands Bank") (collectively as the "Banks") are the Company's only
wholly-owned subsidiaries and the current business of the Company consists
primarily of directing the affairs of the two Banks.

In 1998 the Company opened the Midlands Bank in Columbia, South Carolina.
See Note 1 of Notes to Consolidated Financial Statements contained in Item 7 of
this Report.

The Company uses the premises, furniture and equipment of the Banks to
conduct its operations.

The Banks are national banks regulated by the Office of the Controller of
the Currency ("OCC"). The Beaufort Bank is the successor to The Savings Bank of
Beaufort County, FSB, a federally-chartered stock savings bank that was formed
as a de novo institution in 1986 and converted to a national bank charter on
June 5, 1995. The Beaufort Bank reorganized as a wholly-owned subsidiary of the
Company on November 1, 1995. The Midlands Bank received its national bank
charter on September 1, 1998 and began operations on that date.

The Banks operate as community banks devoted to serving the personal
banking needs of residents of their primary market area, as well as the
commercial banking needs of small businesses owned and operated by those
residents. The Banks' business primarily consists of attracting deposits from
the general public and using these funds to originate loans secured by real
estate, including construction loans, located in the primary market area. The
Banks also originate commercial loans and consumer loans. The Beaufort Bank
conducts its business from its main office located in downtown Beaufort, South
Carolina, a full service branch office located on Lady's Island in Beaufort,
South Carolina, and a full service branch office located in Bluffton, South
Carolina. The Midlands Bank conducts it business from its main office at 1900
Assembly Street, Columbia, South Carolina. See "Item 2. Description of
Property."

PROPOSED MERGER WITH FIRST NATIONAL CORPORATION

On March 4, 1999, the Company signed a definitive merger agreement with
First National Corporation ("FNC") which is headquartered in Orangeburg, South
Carolina, pursuant to which the Company will be merged into FNC. The surviving
entity will be First National Corporation, a bank holding company with three
wholly-owned bank subsidiaries, First National Bank ("FNB"), The National Bank
of York County and Florence County National Bank. FNC expects to merge the
Beaufort Bank and the Midlands Bank into FNB. The agreement provides that each
share of the Company's stock will be exchanged for 1.222 shares of FNC common
stock. The merger is intended to constitute a tax-free reorganization and is to
be accounted for as a pooling-of-interests. Consummation of the merger is
subject to numerous conditions, including the receipt of

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<PAGE> 181

applicable regulatory approvals and approval by both the Company's and FNC's
stockholders.

PERSONNEL

As of December 31, 1998, the Company had 53 full-time and three part-time
employees, none of whom is represented by a collective bargaining unit. The
Company believes its relationship with its employees is good.

MARKET AREA

The Beaufort Bank's primary market area is Beaufort County, South Carolina,
excluding Hilton Head Island. The economy of this area is based primarily on
retirement and tourism industries and the military. The area is noted for its
beaches, state park, historical sites and fishing. The U.S. military presence in
Beaufort County is significant with the Marine Corps Recruit Depot at Parris
Island and the Marine Corps Air Station and the Naval Hospital, both in
Beaufort.

Land use in Beaufort County is primarily residential. Beaufort County is
experiencing steady population growth which creates a continued demand for
mortgage loan funds. According to the 1990 U.S. Census, the population of
Beaufort County has increased from approximately 65,000 in 1980 to 86,000 in
1990. In March 1997, the U.S. Census Bureau estimated the 1996 Beaufort County
population at 103,000.

The Midlands Bank's primary market area is Richland and Lexington counties
including Columbia, South Carolina. The economy of the area is based primarily
on state government, education and the military. Columbia is the state capital,
home of the University of South Carolina and the base of Fort Jackson, a U.S.
Army training facility.

SELECTED FINANCIAL DATA:

The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Company at the
dates and years indicated:

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA (IN THOUSANDS):
Total assets....................... $107,494 $91,699 $91,733 $83,047 $77,311
Loans receivable, net.............. 82,583 80,064 78,150 72,026 68,900
Loans held for sale................ 1,740 676 663 251 --
Investment securities held to
maturity......................... -- -- -- -- 2,755
Investment securities available for
sale............................. 9,066 2,182 2,485 2,630 --
Interest-bearing deposits with
banks............................ 4,665 1,969 3,349 1,548 218
Cash and amounts due from banks.... 4,089 4,127 4,721 4,197 3,359
Deposits........................... 87,753 77,462 78,300 74,905 69,273
FHLB borrowings and other
borrowings....................... 6,350 5,050 5,600 1,000 1,000
Stockholders' equity............... 12,125 7,981 7,045 6,517 5,895
</TABLE>

G-4
<PAGE> 182

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total interest income.................... $7,848 $7,542 $6,920 $6,296 $5,184
Total interest expense................... 3,565 3,423 3,281 3,106 2,220
Net interest income...................... 4,283 4,119 3,639 3,190 2,964
Provision for loan losses................ 200 165 162 192 179
Net interest income after provision for
loan losses............................ 4,083 3,954 3,477 2,998 2,785
Non interest income...................... 1,483 952 737 587 512
SAIF recapitalization assessment......... -- -- 445 -- --
Non interest expenses.................... 4,178 3,378 2,946 2,707 2,474
Income before income taxes............... 1,387 1,528 823 878 823
Provision for income taxes............... 531 581 322 351 302
Net income before cumulative effect of a
change in accounting principle......... 856 947 501 527 521
Cumulative effect of a change in
accounting principle, net of tax....... 90 -- -- -- --
Net income............................... 766 947 501 527 521
Earnings per share....................... 1.01 1.37 .73 .78 .78
Earnings per share, assuming dilution.... .94 1.29 .69 .71 .71
</TABLE>

<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net interest rate spread................. 3.89% 4.27% 3.95% 3.81% 3.95%
Net yield on average interest earning
assets................................. 4.56 4.82 4.43 4.20 4.19
Return on average assets................. .76 1.04 .57 .65 .70
Return on average equity................. 7.96 12.73 7.41 8.51 9.29
Ratio of average equity to average
assets................................. 9.49 8.16 7.71 7.64 7.49
Loan loss allowance to total loans
receivable............................. 1.06 .90 .80 .65 .49
Net loan charge-offs to average loans
receivable............................. .08 .08 .02 .09 .12
Ratio of non accrual loans to total
assets................................. .45 .47 .44 .16 .35
</TABLE>

LENDING ACTIVITIES

GENERAL. At December 31, 1998, the Company's total loans receivable, net
of loans in process, was $83.4 million, or 77.7% of total assets. The Company
has traditionally concentrated its lending activities on the origination of
conventional first mortgage loans secured by one-to-four family properties, with
such loans amounting to $46.3 million of the total loans receivable portfolio at
December 31, 1998.

The Company's principal market area (the "PMA") for loans is the northern
two-thirds of Beaufort County and the Midlands area of South Carolina which
includes Richland and Lexington counties.

The Company concentrates its lending activities on first mortgage loans
secured by residential properties, and on other consumer and commercial loans in
the PMA. The Company's portfolio is comprised of adjustable rate mortgages,
which include provisions

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<PAGE> 183

for periodic interest rate adjustments and short-term loans, which reflect
interest rate fluctuations, such as consumer, commercial and real estate
construction loans.

The Company's principal lending activity consists of the origination of
permanent and construction loans on residential real estate (single-family
dwellings and multifamily dwellings of up to four units), consumer loans and
commercial loans to small businesses. The Company retains in its loan portfolio
adjustable rate mortgage loans with terms of up to 30 years. Federal Housing
Administration ("FHA"),Veterans Administration ("VA") and conventional
fixed-rate mortgage loans are generally sold in the secondary mortgage market.
At December 31, 1998, approximately 57.6% of the Company's total loan portfolio
consisted of loans secured by first mortgage permanent residential real estate
loans. Of the total loan portfolio, approximately 85.1% of all loans are
adjustable rate or short-term (maturities of less than one year). The Company
utilizes the Federal Home Loan Mortgage Corporation ("FHLMC") and other
secondary sources (notably other financial institutions) as sources for loan
sales. The majority of loans are underwritten using guidelines published by
both, thus enabling the Company to market loans to these entities. There are,
due to the nature of adjustable rate mortgages in the industry, unqualifiable
risks resulting from increased cost to the borrower as a result of periodic
repricing. Despite the benefits of adjustable rate mortgages to the Company's
asset/liability management program, they do pose potential additional risks,
primarily because as interest rates rise, the underlying payment by the borrower
rises, increasing the potential for default. At the same time, the marketability
of the underlying property may be adversely affected by higher interest rates.
During 1998, the Company originated a larger volume of fixed rate long-term
loans than adjustable rate long-term loans which resulted in an overall decrease
in permanent mortgage loans outstanding in the portfolio.

Construction financing is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The Company's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. If the
estimate of construction cost or the salability of the property upon completion
of the project proves to be inaccurate, the Company may be required to advance
funds beyond the amount originally committed to permit completion of the
development. If the estimate of value proves to be inaccurate, the Company may
be confronted, at or prior to maturity of the loan, with a collateral source
with insufficient value to assure full repayment.

Although commercial real estate loans typically have shorter terms to
maturity and higher interest rates than residential mortgage loans, they also
involve greater credit risks than certain residential mortgage loans. Commercial
real estate and construction mortgage loans may involve large loan balances to
single borrowers or groups of related borrowers. In addition, payment experience
on loans secured by income producing properties is typically dependent on the
successful operation of the properties and thus may be subject to a greater
extent to adverse conditions in the real estate market, or in the economy
generally.

The Company sells most of its fixed rate loans in the secondary mortgage
market as the loans are originated. The Company generally has the ability to
generate an adequate volume of loans within its market area without seeking loan
purchases from other institutions.

Using loan underwriting guidelines established by its Board of Directors,
the Company's first-mortgage real estate loans are granted for loan-to-value
ratios of 80% or

G-6
<PAGE> 184

less. If borrowers require additional financing, private mortgage insurance
insuring the Company's exposure above 80% is generally required. Loan
underwriting and credit policies are determined by the Board of Directors and
monitored for compliance by the Board's Loan Committee.

All real estate loans require that the borrower maintain hazard insurance
in an amount that is adequate to insure repayment of the loan in case of a loss.
The Company also requires various other types of insurance, such as title,
flood, casualty and, in some cases, life insurance on the borrower.

The Company solicits loan originations through newspaper advertisements,
officer, director, and employee referrals, and employs full-time loan
originators. Once an application has been received, the loan is underwritten and
either approved by the loan officer if within loan authority or forwarded to one
of the Company's loan review committees. These committees consist of at least
two directors and the Company's Chief Executive Officer. All loans which do not
require prior approval of the full Board of Directors are approved by one of
these four committees.

The Company makes consumer loans secured by junior liens on real estate,
including home improvement and home equity loans; loans secured by personal
property, such as automobiles, recreational vehicles or boats, as well as loans
to depositors of the institution on the security of their savings accounts. The
Company also offers unsecured personal loans and overdraft lines of credit,
which are in conjunction with its NOW accounts. At December 31, 1998,
approximately 11.4% of the Company's total loan portfolio consisted of these
types of consumer loans. Consumer loans historically have had higher rates of
default than residential mortgage loans; although the Company's loan loss
experience to date has been favorable in comparison to industry averages.

The Company makes secured and unsecured loans for commercial, corporate and
business purposes, concentrating on loans to small businesses for purposes of
providing working capital, construction and leasehold improvements. Such loans
typically have variable interest rates that are indexed to prime rate or a one-
or three-year United States Treasury index. At December 31, 1998, approximately
11.4% of the Company's total loan portfolio consisted of loans secured by real
estate other than permanent 1-4 family homes, and approximately 11.4% consisted
of other commercial loans, both unsecured and secured by assets other than real
estate. Commercial business loans are advantageous to the Company because the
loans are short-term; however, they also involve more risk than residential
mortgage loans because of the higher potential for defaults and the difficulties
involved in disposing of the collateral, if any.

The following table presents information regarding loans receivable at
December 31, 1998 and 1997 (dollars in thousands):

<TABLE>
<CAPTION>
% OF % OF
1998 TOTAL 1997 TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Real estate -- mortgage....................... $55,831 66.9% $60,017 74.3%
Real estate -- construction................... 8,657 10.5 5,949 7.4
Commercial, financial, and other.............. 9,533 11.4 4,845 6.0
Consumer...................................... 9,538 11.4 10,078 12.5
Unearned interest............................. (116) (.2) (97) (.2)
------- ----- ------- -----
Total loans................................... $83,443 100.0% $80,792 100.0%
======= ===== ======= =====
</TABLE>

G-7
<PAGE> 185

LOAN MATURITY. The following table sets forth, as of December 31, 1998,
information regarding the dollar amount of loans maturing in the Company's
commercial and real estate-construction loan portfolio based on their
contractual terms to maturity, but does not include potential prepayments.
Demand loans, loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. Loan balances
do not include undisbursed loan proceeds, unearned discounts, unearned income,
and allowance for loan losses.

<TABLE>
<CAPTION>
WITHIN AFTER 1 YEAR
1 YEAR THROUGH 5 YEARS AFTER 5 YEARS TOTAL
------- --------------- ------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial......................... $ 4,172 $5,052 $309 $ 9,533
Real estate-construction........... 8,432 225 -- 8,657
------- ------ ---- -------
Total............................ $12,604 $5,277 $309 $18,190
======= ====== ==== =======
</TABLE>

The following table sets forth the dollar amount of all Commercial and Real
estate-construction loans due after December 31, 1999 which have fixed interest
rates and have floating or adjustable interest rates.

<TABLE>
<CAPTION>
FIXED FLOATING OR
RATES ADJUSTABLE RATES
------ ----------------
(IN THOUSANDS)
<S> <C> <C>
Commercial.............................................. $3,753 $1,608
Real estate-construction................................ 222 3
------ ------
Total................................................. $3,975 $1,611
====== ======
</TABLE>

LOAN ORIGINATIONS, SALES AND PURCHASES. The Company's primary lending
activity has been the origination of one- to- four family residential mortgage
loans. The Company generally originates ARM loans for retention in its
portfolio. Fixed-rate one- to- four family mortgage loans are generally sold to
the FHLMC and other institutions (primarily other financial institutions). The
Company generally does not assume any "pipeline risk" (i.e., the risk that the
value of the loan will decline during the period between the time the loan is
originated and the time of sale because of changes in market interest rates)
when it sells loans because it obtains a purchase commitment from the
prospective purchaser at the time it commits to fund the loan at a given
interest rate.

LOAN COMMITMENTS AND LETTERS OF CREDIT. The Company issues, without a fee,
commitments to approved residential mortgage loan applicants conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 30 days. At December
31, 1998, the Company had total such commitments to extend credit of $3.1
million. See Note 17 of Notes to Consolidated Financial Statements contained in
Item 7 of this Report.

As an accommodation to its commercial business borrowers, the Company
issues standby letters of credit in favor of entities for whom the Company's
borrowers are performing work or other services. At December 31, 1998, the
Company had outstanding standby letters of credit of $493,000. See Note 17 of
Notes to Consolidated Financial Statements contained in Item 7 of this Report.

LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans
and fees for making loan commitments, the Company receives loan origination fees
or "points" for

G-8
<PAGE> 186

originating loans. Loan origination fees charged to the borrower for originating
a loan are based on a percentage of the principal amount of the mortgage loan.

Fees vary with the volume and type of loans and commitments made and
purchased and the competitive conditions present in mortgage markets, which in
turn respond to the demand for and availability of money. The Company also
receives other fees and charges relating to existing loans, such as late charges
and fees collected in connection with a change in borrower or other loan
modifications. As required by Generally Accepted Accounting Principles, loan
origination fees and certain origination expenses are amortized over the life of
the related loan, and the Company defers loan origination fees and certain
direct loan origination costs. Such costs and fees are recognized as an
adjustment to yield over the lives of the related loans utilizing a method of
amortization that approximates the level yield method.

Commitment fees to originate loans are deferred and, if the commitment is
exercised, recognized over the life of the loan as an adjustment of yield. If
the commitment expires unexercised, commitment fees are recognized in income
upon expiration of the commitment.

NONPERFORMING ASSETS AND DELINQUENCIES. When a borrower fails to make a
required payment when due, the Company institutes collection procedures. The
first notice is mailed to the borrower ten to 15 days after the payment due
date. Attempts to contact the borrower by telephone generally begin
approximately 25 days after the payment due date. If a satisfactory response is
not obtained, continuous follow-up contacts are attempted until the loan has
been brought current. In most cases, delinquencies are cured promptly; however,
if by the 90th day of delinquency, or sooner if the borrower is chronically
delinquent and all reasonable means of obtaining payment on time have been
exhausted, foreclosure, according to the terms of the security instrument and
applicable law, is initiated. If management determines on the 90th day of
delinquency that all remedies to cure the delinquency have been exhausted, the
loan generally is placed on non-accrual status if the collateral status is such
that the interest or principal are unlikely to be recouped. All previously
recorded accrued interest income is reversed. Consumer loans are charged off
when amounts are determined to be uncollectible.

The Company's Board of Directors is informed monthly as to the status of
all loans with outstanding balances in excess of $10,000 that are delinquent 60
days or more and are classified "substandard". The Board of Directors is
informed of the status of all loans currently in foreclosure, and the status of
all foreclosed and repossessed property owned by the Company.

G-9
<PAGE> 187

The following table sets forth information with respect to the Company's
non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1998 1997
------- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Residential............................................... $ 428 $405
Commercial................................................ 25 3
Consumer.................................................. 27 21
------ ----
Total.................................................. 480 429
Accruing loans which are contractually past due 90 days or
more:
Residential............................................... 650 27
Commercial................................................ 139 150
Consumer.................................................. 21 28
------ ----
Total.................................................. 810 205
Total of non-accrual loans and 90 day past due loans........ 1,290 634
------ ----
Real estate owned........................................... 40 127
Restructured loans.......................................... 97 --
------ ----
Total nonperforming assets............................. $1,427 $761
====== ====
Total loans delinquent 90 days or more, accruing and
non-accruing, to net loans................................ 1.55% .79%
Total loans delinquent 90 days or more, accruing and
non-accruing, to total assets............................. 1.20% .69%
</TABLE>

Gross interest income of $48,169 would have been recorded for the year
ended December 31, 1998 if non-accrual loans had been current according to their
original terms and had been outstanding throughout the entire year. Interest
income of $42,755 on such loans were included in net income for the year as a
result of cash payments received.

FORECLOSED REAL ESTATE. At December 31, 1998, the Company had foreclosed
real estate of $40,000 consisting of three unimproved lots. See Note 2 of Notes
to Consolidated Financial Statements contained in Item 7 of this Report for a
discussion of the Company's accounting for foreclosed real estate.

ALLOWANCE FOR LOAN LOSSES. The Company has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans. The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the loan portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions. Such evaluations are
particularly susceptible to changes in economic, operating or other conditions
that may be beyond the Company's control.

G-10
<PAGE> 188

The following table sets forth an analysis of the Company's allowance for
loan losses for the years indicated. When recoveries are recognized from
charge-offs to the allowance for loan losses, the allowance for loan losses is
credited to the extent of the charge-off. Likewise, any subsequent loss that may
occur from the disposition of collateral is charged to current period expense.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1998 1997
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $728 $631
Charge-offs:
Residential............................................... 5 19
Commercial................................................ 29 21
Consumer.................................................. 38 33
---- ----
Total charge-offs...................................... 72 73
Recoveries:
Residential............................................... 0 2
Commercial................................................ 2 --
Consumer.................................................. 1 3
---- ----
Total recoveries....................................... 3 5
Net charge-offs............................................. 69 68
Provision for possible loan losses.......................... 200 165
---- ----
Balance at end of year...................................... $859 $728
==== ====
Ratio of allowance to total loans outstanding at end of
year...................................................... 1.06% .90%
Ratio of net charge-offs to average loans outstanding during
year...................................................... .08% .08%
</TABLE>

INVESTMENT ACTIVITIES

At December 31, 1998, the sole equity investments of the Company were its
investment in the Banks. As national banks, the Company's subsidiaries are
permitted under federal law to invest in various types of liquid assets,
including U.S. Treasury obligations, securities of various federal agencies and
of state and municipal governments, deposits at the FHLB of Atlanta,
certificates of deposit of federally insured institutions, certain bankers'
acceptances and federal funds. Subject to various restrictions, the Company may
also invest a portion of its assets in commercial paper and corporate debt
securities. The Banks are also required to maintain investments in FHLB of
Atlanta stock and Federal Reserve Bank of Richmond stock as a condition of
membership in each institution. Neither the Company nor the Banks invest in high
yielding, non-investment grade securities, or "junk-bonds." See Note 4 of Notes
to Consolidated Financial Statements contained in Item 7 of this Report.

G-11
<PAGE> 189

The following table sets forth the composition of the Company's securities
portfolio at the dates indicated. At December 31, 1998 and 1997, the Company's
entire securities portfolio was designated as available-for-sale.

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1998 1997
--------------------- ---------------------
CARRYING PERCENT OF CARRYING PERCENT OF
VALUE(1) PORTFOLIO VALUE(1) PORTFOLIO
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB stock............................. $ 567 6.3% $ 548 24.8%
Federal Reserve Bank stock............. 329 3.6 130 5.9
US Government and agency obligations... 4,070 44.8 99 4.5
Mortgage-backed securities............. 4,121 45.3 1,429 64.8
------ ----- ------ -----
Total................................ $9,087 100.0% $2,206 100.0%
====== ===== ====== =====
</TABLE>

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

(1) The market value of the investment portfolio amounted to $9.1 million and
$2.2 million at December 31, 1998 and 1997, respectively.

All U.S. Government and agency securities had original maturities of less
than one year. At December 31, 1998, mortgage-backed securities were comprised
of $1.0 million of Government National Mortgage Association ("GNMA") adjustable
rate securities with adjustment intervals of one year and $3.1 million of
Federal National Mortgage Association ("FNMA") fixed rate mortgage-backed
securities collateralized by fully amortizing ten year FNMA mortgages.
Investments increased at December 31, 1998 as compared to December 31, 1997 as a
result of the opening of the Midlands Bank and its higher level of non loan type
investments, and as a result of lower demand for portfolio-type loans during the
year in the Beaufort Bank.

DEPOSITS

GENERAL. Deposits are the primary source of funds for the Company's
lending and investment activities. None of the deposit instruments offered by
the Company have rates subject to regulation. Deposit inflows and outflows vary
widely and are influenced by prevailing interest rates and money market
conditions. Transaction account balances are influenced considerably by general
economic activity. The Company's ability to attract and retain deposits and the
Company's cost of funds has been, and will continue to be, significantly
affected by market conditions.

Most of the Company's deposits are obtained from residents of South
Carolina, principally from residents in Beaufort, Richland and Lexington
counties, the Company's largest deposit markets. In the past, the Company has
accepted brokered deposits typically in denominations of $99,000 from
out-of-state depositors at rates comparable to rates offered to local
depositors. At December 31, 1998, these deposits totaled approximately $5.2
million.

G-12
<PAGE> 190

The following table indicates the amount of jumbo certificates of deposit
by time remaining until maturity at December 31, 1998. Jumbo certificates of
deposit require minimum deposits of $100,000.

<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNT
- --------------- --------------
(IN THOUSANDS)
<S> <C>
Three months or less........................................ $ 4,266
Over three through twelve months............................ 5,052
Over twelve months.......................................... 942
-------
Total..................................................... $10,260
=======
</TABLE>

The following table sets forth the balances and changes in dollar amounts
of savings deposits in the various types of deposit accounts offered by the
Company at the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
PERCENT OF INCREASE PERCENT OF INCREASE
AMOUNT TOTAL (DECREASE) AMOUNT TOTAL (DECREASE)
------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Non-interest
bearing............. $ 6,955 7.9% $ 280 $ 6,675 8.6% $ (494)
Now and money
markets............. 38,718 44.1 10,785 27,933 36.1 2,061
Regular savings....... 4,566 5.2 (610) 5,176 6.7 (794)
Certificates of
deposit maturing:
Within 1 year......... 32,210 36.7 1,830 30,380 39.1 (690)
After 1 year, but
within 3 years...... 5,007 5.8 (2,085) 7,092 9.2 (344)
After 3 years......... 297 .3 91 206 .3 (577)
------- ----- ------- ------- ----- -------
Total............... $87,753 100.0% $10,291 $77,462 100.0% $ (838)
======= ===== ======= ======= ===== =======
</TABLE>

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

(1) At December 31, 1998 and 1997, jumbo certificates amounted to $10.3 million
and $8.8 million, respectively.

(2) IRA accounts included in certificate balances totaled $2.7 million and $3.1
million at December 31, 1998 and 1997, respectively.

The following table sets forth the time deposits in the Company classified
by rates at the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
2.00 -- 3.99%............................................... $ 261 $ 41
4.00 -- 5.99%............................................... 29,854 22,675
6.00 -- 7.99%............................................... 7,399 14,962
------- -------
Total....................................................... $37,514 $37,678
======= =======
</TABLE>

G-13
<PAGE> 191

The following table sets forth the savings activities of the Company for
the years indicated.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance........................................... $77,462 $78,300
Interest credited........................................... 3,412 3,127
Net increase (decrease) in savings deposits................. 6,879 (3,965)
------- -------
Ending balance.............................................. $87,753 $77,462
======= =======
</TABLE>

BORROWING

The Company's subsidiaries can use the FHLB of Atlanta for advances to
support additional loan demand and other funding needs. At December 31, 1998,
the Company had a borrowing capacity of $11.0 million at the FHLB of Atlanta, of
which $4.25 million was outstanding. In addition, the Company has a $2.1 million
loan outstanding with a commercial bank. This loan was obtained in September
1998 for a portion of the initial capitalization of the Midlands Bank. This loan
has no prepayment penalty and is based on a prime lending rate, adjusted
annually. See Note 1 of Notes to Consolidated Financial Statements contained in
Item 7 of this Report.

The following tables set forth certain information regarding the Company's
short-term borrowings at the end of and during the years indicated.

<TABLE>
<CAPTION>
AT
DECEMBER 31,
-------------
1998 1997
----- ----
<S> <C> <C>
Weighted average rate paid on:
FHLB borrowings -- short-term............................. 6.92 % 6.5%0
Commercial bank borrowing................................. 7.50 --
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Maximum amount of borrowing outstanding at any month end:
FHLB borrowings -- short-term
Commercial bank borrowing
Approximate average short-term borrowings outstanding with
respect to:.............................................. $3,050 $4,700
FHLB borrowings short-term............................... 2,100 --
Commercial bank borrowing................................ $1,119 $2,762
Approximate weighted average rate paid on:................. 702 --
FHLB borrowings short-term............................... 6.47% 5.85%
Commercial bank borrowing................................ 7.60 --
</TABLE>

G-14
<PAGE> 192

COMPETITION

The Company faces competition in its primary market areas for the
attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from commercial banks, credit unions, thrifts operating in its market area,
and other financial institutions such as brokerage firms and insurance
companies. Major regional banks as well as South Carolina based banks, local
credit unions and securities brokerage firm operate in the northern Beaufort
county market. The Midlands Bank is a de novo bank which faces competition from
many financial institutions in Richland and Lexington counties, a larger
metropolitan market. Particularly in times of high interest rates, the Banks
face additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. The
Company's competition for loans comes from commercial banks, thrift
institutions, credit unions and mortgage bankers.

SUBSIDIARY ACTIVITIES

There are no other subsidiaries of the Company other than the Banks. The
Beaufort Bank has one wholly-owned subsidiary, First Securities Corporation
("First Securities"), that is engaged in the sale of alternative investments
including mutual funds, stocks, bonds and variable annuities. At December 31,
1998, the Beaufort Bank's investment in First Securities was $59,000.

REGULATION

REGULATION OF THE BANKS

GENERAL. As federally insured national banks, the Banks are subject to
extensive regulation. Lending activities and other investments must comply with
various statutory and regulatory requirements, including prescribed minimum
capital standards. The Banks are regularly examined by the OCC and the FDIC and
file periodic reports concerning their activities and financial condition with
those regulatory agencies. The Banks' relationship with depositors and borrowers
also is regulated to a great extent by both federal law and the laws of the
State of South Carolina, especially in such matters as the ownership of savings
accounts and the form and content of mortgage documents.

The federal banking laws and regulations govern all areas of the operation
of the Banks, including reserves, loans, mortgages, capital, issuance of
securities, payment of dividends and establishment of branches. Federal
regulatory agencies also have the general authority to limit the dividends paid
by insured banks and bank holding companies if such payments should be deemed to
constitute an unsafe and unsound practice. The respective primary federal
regulators of the Company and the Banks have authority to impose penalties,
initiate civil and administrative actions and take other steps intended to
prevent banks from engaging in unsafe or unsound practices.

DEPOSIT INSURANCE. The FDIC maintains two separate insurance funds: the
Bank Insurance Fund ("BIF") and the SAIF. Beaufort Bank's deposit accounts are
insured by the FDIC under the SAIF, while Midlands Bank's deposit accounts are
insured by the FDIC under the BIF. The FDIC insures deposits at the Banks to the
maximum extent permitted by law.

G-15
<PAGE> 193

Beaufort Bank and Midlands Bank currently pay deposit insurance premiums to
the FDIC based on a risk-based assessment system established by the FDIC for all
SAIF and BIF member institutions. Under applicable regulations, the FDIC assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period. The capital categories are: well-capitalized, adequately
capitalized, or undercapitalized. An institution is also placed in one of three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information that
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is assigned
with the most well-capitalized, healthy institutions receiving the lowest rates.

On September 30, 1996, the Deposit Insurance Funds Act ("Act") was enacted,
which, among other things, imposed a special one-time assessment on SAIF member
institutions, including Beaufort Bank, to recapitalize the SAIF. As a result of
the Act and the special one-time assessment, the FDIC reduced the assessment
schedule for SAIF members, effective January 1, 1997, to a range of 0% to 0.27%,
with most institutions, including Beaufort Bank, paying 0%. This assessment
schedule is the same as that for the BIF, which reached its designated reserve
ratio in 1995. In addition, since January 1, 1997, SAIF members are charged an
assessment of 0.065% of SAIF-assessable deposits for the purpose of paying
interest on the obligations issued by the Financing Corporation in the 1980s to
help fund the thrift industry cleanup. BIF-assessable deposits are charged an
assessment to help pay interest on the Financing Corporation bonds at a rate of
approximately .013%. Full pro rata sharing of the Financing Corporation payments
between BIF and SAIF members will occur until the earlier of December 31, 1999,
or the date the BIF and SAIF are merged. Beaufort Bank's and Midlands Bank's
assessments expensed for the year ended December 31, 1998, equaled $48,000 and
$0, respectively.

The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Banks.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OCC. Management of the Banks does not know of any practice, condition or
violation that might lead to termination of their respective deposit insurance.

PROMPT CORRECTIVE ACTION. Each federal banking agency (including the OCC)
is required to implement a system of prompt corrective action for institutions
which it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be: (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to specified requirements to meet and maintain a
specific capital level for any capital measure; (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, has a Tier I risk-based
capital ratio of 4.0% or more, has a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain

G-16
<PAGE> 194

circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a Tier
I leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, has a Tier I risk-based capital
ratio that is less than 3.0% or a Tier I leverage capital ratio that is less
than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.

A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. (The FDIC may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)

An institution generally must file a written capital restoration plan which
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.

At December 31, 1998, the Banks were respectively categorized as "well
capitalized" under the OCC prompt corrective action regulations.

STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed regulatory standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (iv) asset quality; (vii)
earnings and (vii) compensation, fees and benefits. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. If the OCC determines that either of the Banks fail to meet any
standard prescribed by the Guidelines, the agency may require the Beaufort Bank
or Midlands Bank to submit to the agency an acceptable plan to achieve
compliance with the standard, as required by the FDIA. Management is aware of no
conditions relating to these safety and soundness standards which would require
submission of a plan of compliance for the Banks.

CAPITAL REQUIREMENTS. The OCC's regulations establish two capital
standards for national banks: a leverage requirement and a risk-based capital
requirement. In addition, the OCC may, on a case-by-case basis, establish
individual minimum capital requirements for a national bank that vary from the
requirements which would otherwise apply under OCC regulations. A national bank
that fails to satisfy the capital requirements established under the OCC's
regulations will be subject to such administrative action or sanctions as the
OCC deems appropriate.

The leverage ratio requires a minimum ratio of "Tier 1 capital" to adjusted
total assets of 3% for national banks rated Composite 1 under the CAMEL rating
system for banks. National banks not rated Composite 1 are required to maintain
a minimum ratio of Tier 1 capital to adjusted total assets of 4% to 5%,
depending upon the level and nature of

G-17
<PAGE> 195

risks of their operations. For purposes of the OCC's leverage requirement, Tier
1 capital generally consists of tangible capital plus certain intangibles. At
December 31, 1998, Beaufort Bank's and Midlands Bank's Tier 1 leverage ratio was
8.2% and 63.1%.

The OCC risk-based capital requirement requires national banks to maintain
"total capital" equal to at least 8% of total risk-weighted assets. For purposes
of the risk-based capital requirement, "total capital" means Tier 1 capital (as
described above) plus "Tier 2 capital" (as described below), provided that the
amount of Tier 2 capital may not exceed the amount of Tier 1 capital, less
certain assets. The components of Tier 2 capital generally consists of certain
permanent and maturing capital instruments that do not qualify as core capital
and general loan and lease loss allowances up to a maximum of 1.35% of risk
weighted assets. Total risk-weighed assets include all assets, including certain
off-balance sheet items, multiplied by a risk weight, ranging from 0% to 100%,
based on the risk inherent in the type of asset. At December 31, 1998, Beaufort
Bank's and Midlands Bank's risked-based capital ratio was 14.0% and 111.7%,
respectively.

The OCC has revised its risk-based capital requirements to permit it to
require higher level of capital for an institution in light of its interest rate
risk. In addition, the OCC has adopted a rule that requires a bank's interest
rate risk exposure be quantified using either the measurement system required by
regulation or the institution's internal model for measuring such exposure, if
such model is determined to be adequate by the institution's examiner. Small
institutions that are highly capitalized and have minimal interest rate risk,
such as the Banks, are exempt from the rule unless otherwise determined by the
OCC.

DIVIDENDS. Dividends from the Banks constitute the major source of funds
for dividends which may be paid by the Company. Federal law and OCC regulations
provide that all dividends by a national bank must be paid out of current or
retained net profits, after deducting reserves for losses and bad debts. Federal
Law further restricts the payment of dividends out of net profits by prohibiting
a national bank from declaring a dividend on its shares of common stock until
the surplus fund equals the amount of capital stock or, if the surplus fund does
not equal the amount of capital stock, until one-tenth of the bank's net profits
for the preceding half year in the case of quarterly or semi-annual dividends,
or the preceding two half-year periods in the case of annual dividends, are
transferred to the surplus fund. In addition, the prior approval of the OCC is
required for the payment of a dividend if the total of all dividends declared by
a national bank in any calendar year would exceed the total of its net profits
for the year combined with its net profits for the two preceding years, less any
required transfers to surplus or a fund of the retirement of any preferred
stock.

The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, the Banks would be prohibited by federal statute
and the OCC's prompt corrective action regulations from making any capital
distribution if, after giving effect to the distribution, the Banks would be
classified as "undercapitalized" under the OCC's regulations. See "-- Prompt
Corrective Action." Moreover, the OCC also has the general authority to limit
the dividends paid by national banks if such payments should be deemed to
constitute an unsafe and unsound practice.

LIQUIDITY. National banks are not subject to any prescribed regulatory
liquidity requirements. At December 31, 1998, management of the Banks believed
that they maintained sufficient liquid assets to meet its commitments at that
date.

G-18
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LOANS-TO-ONE-BORROWER. Federal law limits the amount of loans that the
Banks can extend to any one borrowers and the borrower's related entities.
Generally, this limit is 15% of a bank's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At December 31, 1998, Beaufort Bank's and Midlands
Bank's loans-to-one borrower limit was approximately $1.3 million and $.7
million, respectively. At December 31, 1998, the Banks were in compliance with
this requirement.

FEDERAL RESERVE SYSTEM. Regulation D promulgated by the Federal Reserve
imposes reserve requirements on all depository institutions that maintain
transaction accounts or non personal time deposits. These reserves may be in the
form of cash or non-interest-bearing deposits with the regional Federal Reserve
Bank. NOW accounts and other types of accounts that permit payments or transfers
to third parties fall within the definition of transaction accounts and are
subject to Regulation D reserve requirements, as are any non personal time
deposits at a bank. Under Regulation D, a bank must establish reserves equal to
0% of the first $4.9 million of net transaction accounts, 3% of the next $41.6
million, and 10% plus $1.56 million of the remainder. The reserve requirement on
non-personal time deposits with original maturities of less than 1 1/2 years is
0%. As of December 31, 1998, the Banks met their reserve requirements.

AFFILIATE TRANSACTIONS. The Company and the Banks are separate and
distinct legal entities. Various legal limitations restrict the Banks from
lending or otherwise supplying funds to the Company (an "affiliate"), generally
limiting such transactions with the affiliate to 10% of the Banks' capital and
surplus and limiting all such transactions to 20% of the Banks' capital and
surplus. Such transactions, including extensions of credit, sales of securities
or assets and provision of services, also must be on terms and conditions
consistent with safe and sound banking practices, including credit standards,
that are substantially the same or at least as favorable to the Banks as those
prevailing at the time for transactions with unaffiliated companies.

Federally insured banks are subject, with certain exceptions, to certain
restrictions on extensions of credit to their parent holding companies or other
affiliates, on investments in the stock or other securities of affiliates and on
the taking of such stock or securities as collateral from any borrower. In
addition, such banks are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or the providing of any property or
service.

COMMUNITY REINVESTMENT ACT. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate
federal bank regulatory agency, in connection with its regular examination of a
bank, to assess the bank's record in meeting the credit needs of the community
serviced by the bank, including low and moderate income neighborhoods. The
regulatory agency's assessment of the bank's record is made available to the
public. Further, such assessment is required of any bank which has applied,
among other things, to establish a new branch office that will accept deposits,
relocate an existing office or merge or consolidate with, or acquire the assets
or assume the liabilities of, a federally regulated financial institution. The
Beaufort Bank received a "satisfactory" rating during its latest CRA
examination. The Midlands Bank has not yet received a CRA examination.

G-19
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REGULATION OF THE COMPANY

GENERAL. The Company is a bank holding company registered as such with the
Federal Reserve and subject to comprehensive regulation by the Federal Reserve
under the BHCA and the regulations thereunder. The Company is required to file
with the Federal Reserve annual reports and such additional information as the
Federal Reserve may require and is subject to regular examinations by the
Federal Reserve. The Federal Reserve also has extensive enforcement authority
over bank holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries (including its bank
subsidiaries). Generally, enforcement actions may be initiated for violations of
law and regulations and unsafe or unsound practices.

Under Federal Reserve policy, a bank holding company must serve as a source
of strength for its subsidiary banks. Under this policy the Federal Reserve may
require, and has required, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.

Under the BHCA, the Company must obtain Federal Reserve approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.

Any direct or indirect acquisition by a bank holding company or its
subsidiaries of more than 5% of the voting shares of, or substantially all of
the assets of, any bank located outside of the state in which the operations of
the bank holding company's banking subsidiaries are principally conducted, may
not be approved by the Federal Reserve unless the laws of the state in which the
bank to be acquired is located specifically authorize such an acquisition. See
"-- Interstate Banking and Branching." Since September 30, 1995, federal law
permits well capitalized and well managed bank holding companies to acquire
control of an existing bank in any state.

The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank or bank holding company and from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. Under
the BHCA, the Federal Reserve is authorized to approve the ownership of shares
by a bank holding company in any company, the activities of which the Federal
Reserve has determined to be so closely related to the business of banking or
managing or controlling banks as to be a proper incident thereto. The list of
activities determined by regulation to be closely related to banking within the
meaning of the BHCA includes, among other things: operating a savings
institution, mortgage company, finance company, credit card company or factoring
company; performing certain data processing operations; providing certain
investment and financial advice; underwriting and acting as an insurance agent
for certain types of credit-related insurance; leasing property on a
full-payout, non-operating basis; selling money orders, travelers' checks and
U.S. Savings Bonds; real estate and personal property appraising; providing tax
planning and preparation services; and, subject to certain limitations,
providing securities brokerage services for customers.

G-20
<PAGE> 198

INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking and
Branching Act of 1994 ("Riegle-Neal") was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, Riegle-Neal allows the Federal
Reserve to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve may not approve the
acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory laws of the host
state. Riegle-Neal also prohibits the FRB form approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. Riegle-Neal does not affect the authority of states to
limit the percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation does
not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit
contained in the Act. Generally, South Carolina law permits any bank holding
company to acquire banks or bank holding companies located in South Carolina
subject to the requirements that the laws of the state in which the acquiring
bank holding company is located permit bank holding companies located in South
Carolina to acquire banks or bank holding companies in the acquiror's state and
that the South Carolina bank sought to be acquired has been in existence for at
least five years.

Additionally, beginning on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks opts out Riegle-Neal by adopting a law after the date of
enactment of Riegle-Neal and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressing prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions are also be subject to the nationwide
and statewide insured deposit concentration amounts described above.

Riegle-Neal authorizes the OCC and FDIC to approve interstate branching de
novo by national and state banks, respectively, only in states which
specifically allow for such branching. Riegle-Neal also requires the appropriate
federal banking agencies to prescribe regulations by June 1, 1997 which prohibit
any out-of-state bank from using the interstate branching authority primarily
for the purpose of deposit production. These regulations must include guidelines
to ensure that interstate branches operated by an out-of-state bank in a host
state are reasonably helping to meet the credit needs of the communities which
they serve.

DIVIDENDS. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earning retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations the Federal Reserve

G-21
<PAGE> 199

may prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized" under the prompt
corrective action regulations.

Generally, bank holding companies are required to give the Federal Reserve
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption of
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve. This notification
requirement does not apply to any company that meets the well-capitalized
standard for commercial banks, has a safety and soundness examination rating of
at least at "2" and is not subject to any unresolved supervisory issues.

CAPITAL REQUIREMENTS. The Federal Reserve has established capital adequacy
requirements for bank holding companies that generally parallel the capital
requirements for national banks. For bank holding companies with consolidated
assets of less than $150 million, like the Company, compliance is measured on a
bank-only basis. See "-- Regulation of the Banks -- Capital Requirements" and
Note 19 of Notes to Consolidated Financial Statements contained in Item 7 of
this Report.

ITEM 2. DESCRIPTION OF PROPERTY

The Beaufort Bank's main office is located at 1121 Boundary Street,
Beaufort, South Carolina. The office was opened in 1986. The office building is
leased from First Patriots Partnership, a South Carolina general partnership
among Colden R. Battey, Jr., Richard L. Gray, Russell L. Jeter, Carson R. Rentz
and Robert A. Kerr, all of whom are directors of the Company and the Beaufort
Bank. The Beaufort Bank also leases additional parking space adjacent to the
main office from First Patriots Partnership.

The Beaufort Bank operates a 2,100 square foot branch office located on
U.S. Highway 21 on Lady's Island in Beaufort, South Carolina. The office was
opened in 1988. The building is leased from Richard L. Gray, a director of the
Company and the Beaufort Bank.

The Beaufort Bank owns and operates an 8,700 square foot office located at
One Burnt Church Road, Bluffton, South Carolina. The Beaufort Bank occupies
approximately 3,850 square feet as a branch office and leases the remaining
space. The office was opened in 1993.

The Midlands Bank operates a 6,600 square foot main office location at 1900
Assembly Street, Columbia, South Carolina. The building is leased from a non
affiliated party.

ITEM 3. LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits involving the
Company such as claims to enforce liens, condemnation proceedings on properties
in which the Company holds security interests, claims involving the making and
servicing of real property loans and other issues incident the Company's
business. The Company is not a party to any

G-22
<PAGE> 200

pending legal proceedings that it believes would have a material adverse effect
on the financial condition or operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the security holders during
the fourth quarter of the fiscal year ended December 31, 1998.

G-23
<PAGE> 201

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's voting common stock is not regularly or actively traded in
any established market, and there are not regularly quoted bid and asked prices
for the stock. During 1998, 6,590 shares were traded at an average price of
approximately $17.73 per share based upon transfer records and the per share
price of any trades of which the Company is made aware. In addition, during the
year, the Company sold 193,422 new shares of common stock at $18.00 per share.
The most recent trade of which the Company was aware was for 1,000 shares at a
price of $19.00 on February 9, 1999. As of March 9, 1999 there were 837
shareholders of record and an estimated 120 shareholders in street name. The
Company paid no cash or stock dividends during 1998 and no cash dividends have
been paid by the Company since its inception in 1986. Cash dividends may be
declared and paid only from retained earnings of the Company. Additional
regulatory restrictions apply. See Item 6, Managements' Discussion and
Analysis -- Liquidity and Capital Resources contained in this Report.

The stock prices below represent the historical highs and lows by quarter
for the Company's stock:

<TABLE>
<CAPTION>
PRICE PER SHARE
---------------
QUARTER ENDED HIGH LOW
- ------------- ------ ------
<S> <C> <C>
March 31, 1997.............................................. $11.82 $11.82
June 30, 1997............................................... 14.00 13.00
September 30, 1997.......................................... -- --
December 31, 1997........................................... 14.00 14.00
March 31, 1998.............................................. 15.00 14.00
June 30, 1998............................................... 18.00 18.00
September 30, 1998.......................................... 18.00 18.00
December 31, 1998........................................... 18.00 18.00
</TABLE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes thereto contained in Item 7 of this Report.

PROPOSED MERGER WITH FIRST NATIONAL CORPORATION

As previously discussed, on March 4, 1999, the Company entered into a
definitive merger agreement ("Agreement") with First National Corporation,
Orangeburg, South Carolina ("FNC") pursuant to which the Company will be merged
into FNC. The surviving entity will be FNC. The Agreement provides that each
share of the Company's common stock will be exchanged for 1.222 shares of FNC
common stock. The merger is intended to be a tax-free reorganization.
Consummation of the merger is subject to

G-24
<PAGE> 202

numerous conditions, including receipt of applicable regulatory approvals and
approval by both the Company's and FNC's stockholders.

OPERATING STRATEGY

The Company transacts its business through its two banking subsidiaries.
The Company's business consists principally of attracting retail deposits from
the general public and using these funds to originate mortgage loans secured by
one-to-four family residences located in its primary market area. The Company
also originates commercial loans to small businesses and professionals, home
equity loans, construction loans and consumer loans. The Company funds its
assets primarily with retail deposits and, to a lesser extent, FHLB of Atlanta
advances.

The Company's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When the
yield on interest-earning assets equals or exceeds the rate paid on
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The Company's profitability is also affected by the level
of other operating income and expenses. Other operating income includes service
charges and fees and gain on sale of mortgage loans. Other operating expenses
primarily include compensation and benefits, occupancy and equipment expenses,
deposit insurance premiums and data processing expenses. The Company's results
of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation and monetary and fiscal policies.

The Company's business strategy is to operate its banking subsidiaries as
well-capitalized and profitable financial institutions dedicated to financing
community credit needs and providing quality customer service. The Company
emphasizes the origination for retention in its portfolio of adjustable-rate
loans in order to reduce its interest rate risk. Fixed-rate loans with
maturities of 15 years or more are generally originated for sale in the
secondary market.

ASSET AND LIABILITY MANAGEMENT

The Company's asset and liability management program is designed to
decrease the Company's vulnerability to material changes in interest rates or
"interest rate risk." The principal determinant of the exposure of the Company's
earnings to interest rate risk is the timing difference between the repricing or
maturity of the Company's interest-earning assets and the repricing or maturity
of its interest-bearing liabilities. If the maturities or repricings of the
Company's assets and liabilities were perfectly matched, and if the interest
rate borne by its assets and liabilities were equally flexible and moved
concurrently (neither of which is the case) the impact on net interest income of
any material changes in interest rates would be minimal.

The Company's asset and liability policies are directed toward the
objectives of maintaining the interest rate sensitivity of the Company's assets
and matching the maturities of the Company's interest-earning assets and
interest-bearing liabilities to the extent practical. At December 31, 1998, the
Company's total interest-bearing liabilities due within one year exceeded
interest-earning assets due within one year by approximately $14.0 million,
resulting in a cumulative one-year negative gap to total earning assets ratio

G-25
<PAGE> 203

of 13.9%. The Company is constantly monitoring and attempting to control or
improve its short-term gap position through periodic review of asset and
liability repricing and through its internal analysis of the effects of changing
rate environments on its net interest income.

A significant part of the Company's program of asset and liability
management has been to emphasize the origination of adjustable-rate and/or
short-term loans, which includes adjustable-rate residential mortgage ("ARM")
loans and short-term construction loans. At December 31, 1998, residential real
estate mortgage loans that provided for repayment or interest-rate adjustment
within three years totaled approximately $38.3 million, and represented
approximately 45.9% of total loans receivable. The Company sells in the
secondary market almost all of the 15 to 30 year fixed-rate mortgage loans it
originates. Generally, a commitment to sell such loans, subject to approval, is
in place at the time of origination of these loans. The Company generally holds
such loans in its portfolio only for the length of time it takes to receive
funding from the purchaser of the loan. In fiscal 1998, the Company originated
approximately $14.3 million of ARM loans versus $26.1 million of fixed-rate
loans. ARM loans are generally originated for retention in the portfolio. When
long-term rates fall, residential mortgage demand typically favors fixed-rate
lending. The prevailing lower rate environment of 1998 favored fixed rate
lending and as a result overall loan portfolio growth increased by only $2.7
million as a result of more loans being sold in the secondary market.

Another strategic objective of the Company's asset and liability management
effort has been to originate short-term consumer and commercial business loans.
These loans are usually originated with variable interest rates. At December 31,
1998, consumer loans, including open-ended lines of credit totaled approximately
$9.5 million, or approximately 11.4% of total loans, and commercial business
loans totaled approximately $9.5 million, or 11.4% of total loans. Consumer and
commercial loans are considered to involve greater credit risk than residential
loans.

The Company's objective is to increase its retail deposit base by promoting
the growth of transaction accounts and by maintaining competitive rates in order
to retain and attract longer-term certificates. As of December 31, 1998, the
Company's total Now, Money Market and non interest-bearing demand deposit
accounts totaled $45.7 million or 52.1% of total deposits at that date.

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<PAGE> 204

INTEREST SENSITIVITY ANALYSIS

The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1998.

<TABLE>
<CAPTION>
0-3 4-12 1-2 3-4
MONTHS MONTHS YEARS YEARS YEAR 5+ TOTAL
-------- -------- ------- ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and loans
held-for-sale........ $ 28,098 $ 23,093 $19,863 $9,396 $ 4,821 $85,271
GNMA mortgage-backed
securities........... 433 611 -- -- 3,077 4,121
Overnight and other
investments.......... 11,381 -- -- -- 329 11,710
-------- -------- ------- ------ ------- -------
Total interest
earning assets..... 39,912 23,704 19,863 9,396 8,227 101,102
Interest-bearing
liabilities:
Regular savings......... 4,565 -- -- -- -- 4,565
NOW and money market
accounts............. 38,718 -- -- -- -- 38,718
Certificate accounts.... 14,626 17,593 5,008 287 -- 37,514
FHLB and other
borrowing............ -- 2,150 1,200 3,000 -- 6,350
-------- -------- ------- ------ ------- -------
Total rate sensitive
liabilities........ 57,909 19,743 6,208 3,287 -- 87,147
-------- -------- ------- ------ ------- -------
Excess (deficiency) of
interest sensitive
assets over interest
sensitive liabilities... $(17,997) $ 3,961 $13,655 $6,109 $ 8,227 $13,955
======== ======== ======= ====== ======= =======
Cumulative excess
(deficiency) of interest
sensitive assets over
interest sensitive
liabilities............. $(17,997) $(14,036) $ (381) $5,728 $13,955
======== ======== ======= ====== =======
Ratio of interest-earning
assets to
interest-bearing
liabilities............. 68.9% 120.1%
Cumulative ratio of
interest-earning assets
to interest-bearing
liabilities............. 68.9% 81.9%
</TABLE>

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<PAGE> 205

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST

The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances for a year have been
calculated using average daily balances during such year.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
AT ------------------------------------------------------------
DECEMBER 31, 1998 1997
1998 ----------------------------- ----------------------------
------------ INTEREST INTEREST
YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
------------ -------- --------- ------ ------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total net loans(1)........... 8.46% $ 81,461 $7,156 8.78% $81,221 $7,282 8.97%
FHLB overnight investments... 4.95 8,910 473 5.30 1,815 101 5.56
Other investments............ 5.85 3,634 219 6.03 2,485 159 6.40
---- -------- ------ ---- ------- ------ ----
Total interest-earning
assets................... 7.99 94,005 7,848 8.35 85,521 7,542 8.82
Non-interest-earning
assets..................... 7,378 5,662
-------- -------
Total assets............... $101,383 $91,183
======== =======
Interest-bearing liabilities:
NOW and money market
accounts................... 2.50 $ 33,440 1,026 3.07% $27,479 $ 818 2.98%
Other savings................ 2.32 4,689 108 2.31 5,479 126 2.30
Certificates of deposit...... 5.47 38,163 2,207 5.78 38,847 2,272 5.83
---- -------- ------ ---- ------- ------ ----
Total interest-bearing
deposits................. 3.87 76,292 3,341 4.38 71,805 3,216 4.47
FHLB advances................ 5.57 2,954 171 5.79 3,429 207 6.03
Other borrowings............. 7.60 702 53 7.60 -- -- --
---- -------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities.............. 4.04 79,948 3,565 4.46 75,234 3,423 4.55
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits................... 8,490 6,441
Other liabilities............ 3,320 2,065
-------- -------
Total liabilities.......... 91,758 83,740
Stockholders' equity........... 9,625 7,443
-------- -------
Total liabilities and
stockholders' equity..... 101,383 91,183
Net interest income............ $4,283 $4,119
====== ======
Interest rate spread........... 3.95% 3.89% 4.27%
==== ==== ====
Net interest margin............ 4.56% 4.82%
==== ====
Ratio of average
interest-earning assets to
average interest-bearing
liabilities.................. 1.18 1.14
==== ====
</TABLE>

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

(1) Does not include interest on non-accrual loans.

G-28
<PAGE> 206

RATE/VOLUME ANALYSIS

The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to (i)
effects on net interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on net interest income
attributable to changes in rate (changes in rate multiplied by prior volume)and
(iii) the net change (the sum of the prior columns). The changes attributable to
changes in both rate and volume are allocated proportionately to the changes in
rate and the changes in volume.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
COMPARED TO COMPARED TO
DECEMBER 31, 1997 DECEMBER 31, 1996
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
------------------------ -------------------------
RATE VOLUME NET RATE VOLUME NET
----- ------ ----- ---- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).... $(147) $ 21 $(126) $332 $316 $648
FHLB overnight
investments......... (5) 377 372 (4) (3) (7)
Investments............ (10) 70 60 (4) (15) (19)
----- ---- ----- ---- ---- ----
Total interest
income............ (162) 468 306 324 298 622
Interest-bearing
liabilities:
Interest-bearing NOW
and MMA accounts.... 26 182 208 40 59 99
Other savings.......... 1 (18) (17) (3) (23) (26)
Certificates of
deposit............. (26) (40) (66) 19 (2) 17
FHLB and other
borrowings.......... 3 14 17 6 46 52
----- ---- ----- ---- ---- ----
Total interest
expense........... 4 138 142 62 80 142
----- ---- ----- ---- ---- ----
Net interest income...... $(166) $330 $ 164 $262 $218 $480
===== ==== ===== ==== ==== ====
</TABLE>

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

(1) Does not include interest on non-accrual loans.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND 1997

Total assets increased by $15.8 million from December 31, 1997 to December
31, 1998. Loans receivable, net, increased 3.2% from $80.8 million at December
31, 1997 to $83.4 million at December 31, 1998. Interest-bearing deposits with
banks, interest-bearing time deposits with banks, securities held-for-sale and
loans held-for-sale also increased by $2.7 million, $2.0 million, $6.9 million
and $1.1 million, respectively, from December 31, 1997 to December 31, 1998.
Premises and equipment, net of depreciation, increased from $1.3 million to $1,9
million during the year primarily as a result of the opening of the Midlands
Bank in 1998. These increases were funded by increases in total deposits of
$10.3 million, other borrowings of $2.1 million and increases in stockholders'
equity of $4.1 million. Stockholders' equity increased primarily from the sale
of $3.5 million of additional common stock in 1998.

G-29
<PAGE> 207

COMPARISON OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997

NET INCOME. Net income decreased 19.1% from $947,000 in 1997 ($1.37 per
basic earnings per common share and $1.29 per share on a diluted basis) to
$766,000 in 1998 ($1.01 per basic earnings per common share and $.94 per share
on a diluted basis) primarily as a result of an increase of $35,000 in the
provision for loan losses, $800,000 in non interest expenses and $90,000 from a
cumulative effect of a change in accounting principle, net of tax. These
increases in expenses were partially offset by an increase in net interest
income of $163,000, an increase in non interest income of $531,000 and a decline
in income tax expense of $50,000.

NET INTEREST INCOME. Net interest income increased 3.9% from $4.1 million
in 1997 to $4.3 million in 1998. The Company's interest rate spread decreased
from 4.27% in 1997 to 3.89% in 1998 as the average yield on interest-earning
assets decreased from 8.82% in 1997 to 8.35% in 1998 while the average rate paid
on interest-bearing liabilities only decreased from 4.55% in 1997 to 4.46% in
1998. Net interest margin declined from 4.82% to 4.56% during the year.

Total interest and dividend income increased 4.0% from $7.5 million in 1997
to $7.8 million in 1998. Interest and fees on loans decreased from $7.3 million
in 1997 to $7.2 million in 1998 because of a decrease in the average yield from
8.97% in 1997 to 8.78% in 1998. The decline in interest income on loans was
offset by a increase in interest on overnight and other investments of $432,000.
The Company increased its short-term investments as a result of the opening of
the Midlands Bank. Also, the higher demand for fixed-rate residential mortgage
loans (which are typically sold in the secondary market) reduced the demand for
funds for portfolio loans.

Total interest expense increased 4.2% from $3.4 million in 1997 to $3.6
million in 1998. The average balance of interest-bearing liabilities increased
from $75.2 million in 1997 to $79.9 million in 1998 and the average rate paid on
interest-bearing liabilities decreased from 4.55% in 1997 to 4.46% in 1998.

PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered
adequate by management to provide for probable known and inherent loan losses
based on management's evaluation of the collectibility of the loan portfolio. In
determining the adequacy of the allowance for loan losses, management considers
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect a borrower's ability to repay, the estimated value of
any underlying collateral, and current economic conditions. Although management
uses the best information available, future adjustments to the allowance may be
necessary as a result of changes in economic, operating, regulatory and other
conditions that may be beyond the Company's control. While the Company maintains
its allowance for loan losses at a level that management considers as adequate
to provide for probable known and inherent losses, there can be no assurance
that further additions will not be made to the allowance for loan losses or that
actual losses will not exceed the estimated amounts.

The provision for loan losses increased from $165,000 in 1997 to $200,000
in 1998. At December 31, 1998, the Company's allowance for loan losses as a
percent of total loans was 1.06%.

NON-INTEREST INCOME. Total non-interest income increased 55.8% from
$952,000 in 1997 to $1.5 million in 1998 primarily as a result of a higher level
of loan related fees

G-30
<PAGE> 208

attributable to loan sales and a higher level of other service charges and fees
attributable to larger numbers of transaction deposit accounts.

NON-INTEREST EXPENSES. Total non-interest expenses were $4.2 million in
1998 versus $3.4 million in 1997. Compensation expense increased by $353,000 due
to the opening of the Midlands Bank, higher loan production and security sales
commissions, and general salary increases. Occupancy , furniture and equipment,
supplies and printing and marketing increased by $108,000, $48,000, $27,000 and
$56,000, respectively, in 1998 primarily as a result of the opening of the
Midlands Bank. Item processing and bank charges increased by $23,000 as a result
of increased transaction accounts.

PROVISION FOR INCOME TAXES. The Company pays Federal corporate income
taxes and South Carolina bank taxes. The provision for income taxes decreased
from $581,000 in 1997 to $531,000 in 1998 as a result of lower income before
income taxes. The effective tax rate was 38.3% in 1998 and 38.0% in 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds are customer deposits, proceeds from
principal and interest payments on and the sale of loans, maturing securities
and FHLB advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.

National banks are not subject to any prescribed regulatory liquidity
requirements. However, a bank must maintain adequate liquidity to ensure that
funds are available to fund loan originations and deposit withdrawals, to
satisfy other financial commitments and to take advantage of investment
opportunities. The Company, through its subsidiary banks, generally maintains
sufficient cash and short-term investments to meet short-term liquidity needs.
At December 31, 1998, the Company had cash and cash equivalents of $8.8 million,
interest-bearing time deposits with banks of $2.1 million, and marketable
securities available-for-sale of $9.1 million. At December 31, 1998, the Company
also maintained an uncommitted credit facility with the FHLB of Atlanta, which
provided for immediately available advances up to an aggregate amount of $11.0
million, of which $4.3 million was outstanding.

The Company's primary investing activity is the origination of construction
and permanent mortgage loans. During the years ended December 31, 1998 and 1997,
the Company originated $52.1 million and $28.0 million of such loans,
respectively. At December 31, 1998, the Company had loan commitments totaling
$3.1 million, unused lines of credit of $12.7 million and standby letters of
credit totaling $493,000. Certificates of deposit that are scheduled to mature
in less than one year from December 31, 1998 totaled $32.2 million.

OCC regulations require banks to maintain specific amounts of regulatory
capital. As of December 31, 1998, the Company and its subsidiary banks complied
with all regulatory capital requirements as of that date and met all
requirements for being well-capitalized by regulators. See Note 19 of Notes to
Consolidated Financial Statements contained in Item 7 of this Report for detail
of the Banks' and Company's capital position and requirements.

G-31
<PAGE> 209

YEAR 2000 READINESS DISCLOSURE

The Company is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be effected by the year 2000 issue.
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.

The Company's Y2K Task Force is chaired by its Chief Financial Officer who
oversees operational matters of the Company and includes a cross-section of bank
managers. The Audit Committee of the Board of Directors is charged with
oversight of the Y2K readiness effort. The Task Force makes a progress report to
the Board of Directors at least quarterly. Management has been active in
promoting customer confidence and public education on Y2K issues.

The Y2K Task Force has developed and is implementing a comprehensive plan
to make all information and non-information technology assets year 2000
compliant. The plan is comprised of the following phases:

1. Awareness -- Educational initiatives on year 2000 issues and
concerns. This phase is complete.

2. Assessment -- Develop a plan, identify and evaluate all vital
systems of the Company. This phase was completed as of June 30, 1998.

3. Renovation -- Upgrade or replace any critical system that is
non-year 2000 compliant. This phase was substantially completed as of
December 31, 1998.

4. Validation -- Testing all critical systems and third-party vendors
for year 2000 compliance. The validation phase was substantially complete
as of March 31, 1999 and will be complete by June 30, 1999. The Company
replaced most in-house equipment (teller station equipment, etc.) with year
2000 compliant equipment in 1997 when it underwent a system-wide data
processing conversion. The Company processes its core banking applications
using Jack Henry and Associates CIF 20/20 system ("JHA"). JHA now warrants
its 20/20 product as being Y2K compliant. The Company is relying on the
results of proxy testing by JHA for certain date sensitive testing. The
proxy testing, which involved the use of live client data, tested the
results of transactions at various test dates before and after the year
2000 date change and covered all of the applications used by the Company.
This proxy testing was completed in December 1998. The Company successfully
conducted connectivity testing during March 1999. Connectivity testing
involved The Company and its third-party service bureau each rolling
forward their computer systems to January 3, 2000 so that the Company could
process its own data files under simulated year 2000 conditions using all
applications. Other parties whose year 2000 compliance may effect the
Company include the Federal Home Loan Bank of Atlanta, The Federal Reserve
Bank of Richmond, brokerage firms, the Company's item processor and the
operator of the Company's automated teller machine network. These third
parties have indicated their compliance or intended compliance. Where it is
possible to do so, the Company has scheduled testing with these third
parties. Where testing is not possible, the Company will rely on
certifications from vendors and service providers.

G-32
<PAGE> 210

5. Implementation -- Placement of renovated systems on-line. The
Company believes that its mission critical systems over which it has
control are year 2000 compliant as of March 1999. Systems including
electric and telephone systems are beyond the control of the Company and
will be addressed in the Company's Contingency plan.

The Company estimates its total cost to identify, fix and replace computer
equipment, software programs or other equipment containing embedded
microprocessors that were not year 2000 compliant to be $100,000, of which
$65,000 has been incurred as of December 31, 1998. This excludes the cost of the
Company's 1997 computer conversion which was not considered to be undertaken for
the express purpose of Year 2000 remediation. System maintenance or modification
costs are charged to expense as incurred, while the cost of new hardware,
software or other equipment is capitalized and amortized over their estimated
useful lives.

Because the Company depends substantially on its computer systems and those
of third parties, the failure of these systems to be year 2000 compliant could
cause substantial disruption of the Company's business and could have a material
adverse financial impact on the Company. Failure to resolve year 2000 issues
presents the following risks to the Company: (1) The Company could lose
customers to other financial institutions, resulting in a loss of revenue, if
the Company's third party service bureau is unable to properly process customer
transactions; (2) governmental agencies, such as the Federal Home Loan Bank of
Atlanta, and correspondent institutions could fail to provide funds to the
Company, which could materially impair the Company's liquidity and affect The
Company's ability to fund loans and deposit withdrawals; (3) concern on the part
of depositors that year 2000 issues could impair access to their deposit account
balances could result in The Company experiencing deposit outflows prior to
December 31, 1999; and (4) The Company could incur increased personnel costs if
additional staff is required to perform functions that inoperative systems would
have otherwise performed.

The Company has developed a Y2K Contingency Master Plan to minimize
disruption of service and risk of loss from safety and soundness, profitability
and customer confidence concerns. The Contingency Master Plan is further defined
in two specific types of contingency plans: the Business Resumption Plan and the
Remediation Contingency Plan.

The Business Resumption Contingency Plan addresses the actions the Company
would take if core business processes, such as paying and receiving, cannot be
carried out in the normal manner through the century date change due to system
or vendor failure. The Company's Business Resumption Contingency Plan follows an
industry-recognized four phase approach:

- Organization Planning

- Business Impact Analysis

- Contingency Planning

- Validation

The first three phases are complete and the validation phase will be
complete by September 30, 1999. The Y2K Task Force and the existing Disaster
Recovery Control Group, has identified the interdependency between critical
systems and the core business processes, and has completed a risk assessment of
possible failure scenarios. An individual

G-33
<PAGE> 211

business resumption plan has been drafted for each core business process under
every failure scenario rated medium or high risk.

A Remediation Contingency Plan is in place and will be implemented in the
event that a critical system will not meet regulatory deadlines for renovation,
validation or implementation. Management is confident that the Remediation
Contingency Plan will not need to be implemented, as all critical systems have
been renovated, validated and implemented within required time frames.

Management believes that it is not possible to estimate the potential lost
revenue due to the year 2000 issue, as the extent and longevity of any potential
problem cannot be predicted. Because the majority of the Company's loan
portfolio consists of loans to individuals and small business enterprises,
management believes that year 2000 issues will not impair the ability of the
Company's borrowers to repay their debt.

There can be no assurances that the Company's year 2000 plan will
effectively address the year 2000 issue, that the Company's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of the Company or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
the Company's business, financial condition or results of operations. However,
management of the Company is confident of its ability to complete the transition
into the next century with minimal disruption of normal service levels.

The Company received an OCC year 2000 exam in October, 1998 and is
scheduled for a second on-site OCC Y2K examination in April, 1999.

EFFECT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant impact
on a financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.

G-34
<PAGE> 212

ITEM 7. FINANCIAL STATEMENTS

AUDIT COMMITTEE'S REPORT

Dear Stockholder:

The Audit Committee of the Board of Directors is composed of independent
directors. The members of the Audit Committee are: William C. Robinson,
Chairman, Laurance H. Davis, Jr., and Robert A. Kerr. The Committee held three
meetings during fiscal year 1998.

The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. In fulfilling its responsibility, the
Committee recommended to the Board of Directors the Company's independent public
accountant. The Audit Committee discussed with the Company's independent public
accountants the overall scope and specific plans for its audit. The Committee
also discussed the Company's financial statements and the adequacy of the
internal controls.

The independent auditors and representation of management meet regularly
(separately and jointly) with the Committee to review the activities of each, to
ensure that each is properly discharging its responsibilities and to assess the
effectiveness of the system of internal controls and the overall quality of the
organization's financial reporting. The meetings also were designed to
facilitate any private communication with the Committee desired by the
independent public accountants.

/s/ William C. Robinson
--------------------------------------
William C. Robinson

Audit Committee
March 22, 1999

G-35
<PAGE> 213

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ G-37

Consolidated Balance Sheets at December 31, 1998 and 1997... G-38

Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996.......................... G-39

Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996...... G-41

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... G-42

Notes to Consolidated Financial Statements.................. G-44
</TABLE>

G-36
<PAGE> 214

INDEPENDENT AUDITORS' REPORT

To the Stockholders and the Board of Directors
FirstBancorporation, Inc.
Beaufort, South Carolina

We have audited the accompanying consolidated balance sheets of
FirstBancorporation, Inc., and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
FirstBancorporation, Inc. and Subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.

As discussed in Note 23 to the consolidated financial statements, on March
4, 1999, the Company's Board of Directors entered into a merger agreement
whereby the Company will be merged into another company.

J.W. Hunt and Company, LLP
Columbia, South Carolina
February 10, 1999
(except for Note 23, as to which
the date is March 4, 1999)

G-37
<PAGE> 215

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash and amounts due from banks.......................... $ 4,088,540 $ 4,126,603
Interest-bearing deposits with banks..................... 4,665,410 1,968,995
------------ -----------
Total cash and cash equivalents................... 8,753,950 6,095,598
Interest-bearing time deposits with banks................ 2,099,000 99,000
Securities available-for-sale............................ 9,066,478 2,182,412
Real estate loans held-for-sale.......................... 1,740,365 676,279
Loans receivable -- net of loans in process.............. 83,442,732 80,792,015
Less, allowance for loan losses........................ (859,456) (728,043)
------------ -----------
Loans receivable, net............................. 82,583,276 80,063,972
------------ -----------
Accrued interest receivable.............................. 595,812 555,537
Premises and equipment, net.............................. 1,932,254 1,288,233
Foreclosed real estate................................... 39,559 126,500
Deferred organization costs.............................. -- 123,233
Deferred tax asset....................................... 337,050 263,987
Prepaid expenses and other assets........................ 346,396 224,064
------------ -----------
Total assets...................................... $107,494,140 $91,698,815
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits:
Non interest-bearing................................ $ 6,955,291 $ 7,129,011
------------ -----------
Interest-bearing.................................... 38,717,943 27,479,190
Total demand deposits............................. 45,673,234 34,608,201
Savings deposits......................................... 4,565,381 5,176,093
Time deposits............................................ 37,514,044 37,677,994
------------ -----------
Total deposits.................................... 87,752,659 77,462,288
Federal Home Loan Bank advances.......................... 4,250,000 5,050,000
Note payable............................................. 2,100,000 --
Amounts due to depository institutions (non
interest-bearing)...................................... 489,573 305,315
Advance payments by borrowers for taxes and insurance.... 84,872 54,630
Accrued liabilities:
Interest payable....................................... 280,129 208,410
Expenses payable....................................... 166,252 173,025
Other.................................................. 246,002 464,146
------------ -----------
Total liabilities................................. 95,369,487 83,717,814
------------ -----------
Stockholders' Equity:
Preferred stock -- $0.01 par value, shares
authorized -- 1,000,000, issued and
outstanding -- none
Common stock -- $0.01 par value, shares authorized --
2,000,000, issued and
outstanding -- 887,637 -- 1998; issued and
outstanding -- 690,323 -- 1997...................... 8,876 6,903
Additional paid-in capital............................. 9,622,883 6,248,777
Accumulated other comprehensive income (loss).......... (12,948) (14,497)
Retained earnings...................................... 2,505,842 1,739,818
------------ -----------
Total stockholders' equity........................ 12,124,653 7,981,001
------------ -----------
Total liabilities and stockholders' equity........ $107,494,140 $91,698,815
============ ===========
</TABLE>

The accompanying notes are an integral part of the Consolidated Financial
Statements

G-38
<PAGE> 216

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest and Dividend income:
Interest on loans.......................... $7,156,521 $7,281,594 $6,634,443
Interest on securities
available-for-sale...................... 92,956 104,175 119,322
Other interest income...................... 545,781 108,765 120,362
Dividends -- Federal Reserve Bank and
Federal Home Loan Bank.................. 52,630 47,555 45,931
---------- ---------- ----------
Total interest and dividend
income.......................... 7,847,888 7,542,089 6,920,058
---------- ---------- ----------
Interest expense:
Deposits................................... 3,340,727 3,215,938 3,125,187
Federal Home Loan Bank advances............ 171,154 206,747 155,460
Note payable............................... 53,375 -- --
---------- ---------- ----------
Total interest expense............. 3,565,256 3,422,685 3,280,647
---------- ---------- ----------
Net interest income.......................... 4,282,632 4,119,404 3,639,411
Provision for loan losses.................... 200,000 165,000 162,000
---------- ---------- ----------
Net interest income after provision for loan
losses..................................... 4,082,632 3,954,404 3,477,411
---------- ---------- ----------
Noninterest income:
Loan related fees.......................... 519,797 210,522 116,180
Other service charges and fees............. 908,462 700,468 577,077
Rental income.............................. 54,898 40,915 43,603
---------- ---------- ----------
Total noninterest income........... 1,483,157 951,905 736,860
---------- ---------- ----------
Noninterest expenses:
Compensation and benefits.................. 2,108,575 1,755,139 1,553,094
Occupancy.................................. 400,294 291,413 275,314
Insurance.................................. 99,817 93,910 617,948
Furniture and equipment.................... 307,801 259,928 234,915
Data processing............................ 145,397 152,042 156,330
Item processing and bank charges........... 209,866 187,135 119,380
Professional fees.......................... 102,472 107,791 115,973
Supplies and printing...................... 129,624 103,144 70,275
Marketing.................................. 143,686 87,393 61,942
Telephone and postage...................... 139,600 119,477 101,552
Automobile................................. 8,525 7,598 8,787
Regulatory fees............................ 37,558 36,158 34,532
Automated teller system.................... 49,336 43,232 13,667
Other expenses............................. 295,904 133,952 27,253
---------- ---------- ----------
Total noninterest expenses......... 4,178,455 3,378,312 3,390,962
---------- ---------- ----------
Income before provision for income taxes and
cumulative effect of a change in accounting
principle.................................. 1,387,334 1,527,997 823,309
Provision for income taxes................... 531,071 580,639 322,498
---------- ---------- ----------
</TABLE>

G-39
<PAGE> 217
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 -- (CONTINUED)

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income before cumulative effect of a change
in accounting principle.................... 856,263 947,358 500,811
---------- ---------- ----------
Cumulative effect of a change in accounting
principle, net of tax...................... 90,239 -- --
---------- ---------- ----------
Net income................................... $ 766,024 $ 947,358 $ 500,811
========== ========== ==========
Average number of common shares
outstanding................................ 758,052 690,285 686,042
Average number of common shares outstanding,
assuming dilution.......................... 815,898 735,507 725,813
Earnings per common share:
Income per share before cumulative effect
of a change in accounting principle..... $ 1.13 $ 1.37 $ 0.73
Per share for cumulative effect of a change
in accounting principle, net of tax..... (0.12)
---------- ---------- ----------
Net income per share....................... $ 1.01 $ 1.37 $ 0.73
========== ========== ==========
Earnings per common share, assuming dilution:
Income per share before cumulative effect
of a change in accounting principle..... $ 1.05 $ 1.29 $ 0.69
Per share for cumulative effect of a change
in accounting principle, net of tax..... (0.11)
---------- ---------- ----------
Net income per share....................... $ 0.94 $ 1.29 $ 0.69
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

G-40
<PAGE> 218

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------------ ADDITIONAL COMPREHENSIVE TOTAL
NUMBER PAID-IN RETAINED INCOME STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS (LOSS) EQUITY
--------- ------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. 595,848 $5,958 $5,037,021 $1,493,810 $(19,325) $ 6,517,464
Issuance of 29,738 shares of stock for
5% stock dividend..................... 29,738 298 386,295 (386,593) -- --
Stock options exercised................. 2,001 20 17,990 -- -- 18,010
-----------
Comprehensive income:
Net income............................ -- -- -- 500,811 -- 500,811
Change in unrealized loss on
securities available-for-sale, net
of applicable deferred income
taxes............................... -- -- -- -- 8,394 8,394
-----------
Total comprehensive income...... -- -- -- -- -- 509,205
------- ------ ---------- ---------- -------- -----------
Balance, December 31, 1996.............. 627,587 6,276 5,441,306 1,608,028 (10,931) 7,044,679
Stock issuance cost..................... -- -- (7,470) -- -- (7,470)
Issuance of 62,736 shares of stock for
10% stock dividend.................... 62,736 627 814,941 (815,568) -- --
-----------
Comprehensive income:
Net income............................ -- -- -- 947,358 -- 947,358
Change in unrealized loss on
securities available-for-sale, net
of applicable deferred income
taxes............................... -- -- -- -- (3,566) (3,566)
-----------
Total comprehensive income.......... -- -- -- -- -- 943,792
------- ------ ---------- ---------- -------- -----------
Balance, December 31, 1997.............. 690,323 6,903 6,248,777 1,739,818 (14,497) 7,981,001
Sale of shares.......................... 193,422 1,934 3,450,684 -- -- 3,452,618
Stock options exercised................. 3,892 39 38,042 -- -- 38,081
Stock issuance cost..................... -- -- (114,620) -- -- (114,620)
-----------
Comprehensive income:
Net income............................ -- -- -- 766,024 -- 766,024
Change in unrealized loss on
securities available-for-sale, net
of applicable deferred income
taxes............................... -- -- -- -- 1,549 1,549
-----------
Total comprehensive income.......... -- -- -- -- -- 767,573
------- ------ ---------- ---------- -------- -----------
Balance, December 31, 1998.............. 887,637 $8,876 $9,622,883 $2,505,842 $(12,948) $12,124,653
======= ====== ========== ========== ======== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

G-41
<PAGE> 219

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 766,024 $ 947,358 $ 500,811
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Amortization of deferred loan fees
and discounts................... (63,854) (27,018) (3,654)
Provision for loan losses......... 200,000 165,000 162,000
Depreciation and amortization..... 469,506 266,762 202,949
Deferred income taxes............. (73,063) (78,815) (43,992)
Gain on sales of loans to
investors....................... (326,073) (146,632) (101,573)
Originations of loans sold to
investors....................... (26,139,168) (14,164,921) (7,521,386)
Proceeds from sales of loans to
investors....................... 26,465,241 14,311,553 7,622,959
Disbursements on loans serviced
for others...................... (7,514,304) (1,611,484) (1,227,215)
Receipts on loans serviced for
others.......................... 3,232,079 1,710,947 1,226,719
Gain on sale of foreclosed real
estate.......................... (6,859) (4,573) (50,393)
Net change in:
Interest receivable............. 40,275 (53,125) (5,967)
Prepaid expenses and other
assets....................... (307,794) (56,888) (65,965)
Real estate loans held for
sale......................... (1,064,086) (12,963) (411,966)
Accrued interest payable........ 71,719 89,351 14,398
Accrued expenses................ (6,773) (40,543) 162,695
Other liabilities............... (218,144) 284,913 56,585
------------ ------------ ------------
Net cash provided (used) by
operating activities......... (4,475,274) 1,578,922 517,005
------------ ------------ ------------
Cash flows from investing activities:
Purchases of securities
available-for-sale................ (12,284,468) (98,602) (97,315)
Purchases of interest-bearing time
deposits with banks............... (2,000,000) -- --
Maturities of interest-bearing time
deposits with banks............... -- 100,177 --
Proceeds from sales and maturities of
securities available-for-sale..... 7,700,927 387,060 350,613
Purchases of Federal Home Loan Bank
stock and dividends received...... (18,400) -- (103,800)
Purchases of Federal Reserve Bank
stock............................. (198,450) -- --
Loans originations and principal
collections, net.................. (480,751) (2,193,574) (6,546,392)
</TABLE>

G-42
<PAGE> 220
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Proceeds from sales of foreclosed
real estate....................... $ 161,887 $ 149,534 $ 530,500
Additions to premises and
equipment......................... (928,065) (387,101) (293,894)
------------ ------------ ------------
Net cash used by investing
activities...................... (8,047,320) (2,042,506) (6,160,288)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand deposit
accounts.......................... 11,065,033 1,566,985 3,631,534
Net decrease in savings deposit
accounts.......................... (610,712) (793,429) (1,329,939)
Net increase (decrease) in time
deposits.......................... (163,954) (1,611,287) 1,093,499
Proceeds from Federal Home Loan Bank
advances.......................... 5,000,000 16,450,000 15,150,000
Repayment of Federal Home Loan Bank
advances.......................... (5,800,000) (17,000,000) (10,550,000)
Proceeds from note payable........... 2,100,000 -- --
Increase (decrease) in amounts due to
depository institutions........... 184,258 105,198 (37,973)
Increase (decrease) in advance
payments by borrowers for taxes
and insurance..................... 30,242 (21,843) (7,188)
Proceeds from issuance of common
stock............................. 3,452,618 -- --
Stock issuance costs................. (114,620) (7,470) --
Proceeds from stock options
exercised......................... 38,081 -- 18,010
------------ ------------ ------------
Net cash provided (used) by
financing activities............ 15,180,946 (1,311,846) 7,967,943
Net increase (decrease) in cash and
cash equivalents..................... 2,658,352 (1,775,430) 2,324,660
Cash and cash equivalents at beginning
of year.............................. 6,095,598 7,871,028 5,546,368
------------ ------------ ------------
Cash and cash equivalents at end of
year................................. $ 8,753,950 $ 6,095,598 $ 7,871,028
============ ============ ============
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest on deposits and
borrowings........................ $ 3,493,537 $ 3,333,334 $ 3,110,789
============ ============ ============
Income taxes......................... $ 611,921 $ 637,505 $ 400,160
============ ============ ============
Supplemental disclosures of noncash
investing activities:
Non-cash transfers during the year
for transfer of loans receivable
to foreclosed real estate......... $ 58,387 $ 43,951 $ 264,752
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

G-43
<PAGE> 221

FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION:

FirstBancorporation, Inc. (the Company) was organized under the laws of the
State of South Carolina on February 28, 1995, for the purpose of becoming a bank
holding company for FirstBank, N.A. (FirstBank).

In 1996, First Securities Corporation (FSC) was incorporated in South
Carolina. FSC was organized to provide alternative investment services in
FirstBank's service area. FSC began operations in the second quarter of 1997 and
is a wholly-owned subsidiary of FirstBank.

In September 1998, FirstBank of the Midlands (FBM) commenced operations in
Columbia, South Carolina, following approval by the Comptroller of the Currency
and other regulators. Upon completion of its organization, the common stock of
FBM was acquired by the Company.

FirstBank and FBM (the Banks) operate as wholly-owned subsidiaries of the
Company. The Banks provide a variety of financial services to individuals and
small to middle-market businesses located within Beaufort County and Richland
County, South Carolina and surrounding areas. The Banks' primary deposit
products are savings and term certificate accounts and their primary lending
products are consumer and residential and commercial mortgage loans.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles and with the prevailing
practices within the banking industry.

PRINCIPLES OF CONSOLIDATION:

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, FirstBank and FBM. All
significant intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES:

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the balance sheet and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of deferred tax assets.

G-44
<PAGE> 222
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK:

Most of the Company's activities are with customers located within Beaufort
and Richland Counties and surrounding areas in South Carolina. Note 4 discusses
the types of securities in which the Company invests. The types of lending that
the Company engages in is discussed in Note 5. The Company does not have any
significant concentrations to any one industry or customer.

CASH AND CASH EQUIVALENTS:

For purposes of presentation in the consolidated statements of cash flows,
cash and cash equivalents include cash and amounts due from banks, time deposits
and federal funds sold, all of which mature within ninety days.

SECURITIES AVAILABLE-FOR-SALE:

Securities that may be sold prior to maturity for asset/liability
management purposes, or that may be sold in response to changes in interest
rates, changes in prepayment risk, to increase regulatory capital or other
similar factors, are classified as available-for-sale and are carried at fair
value. Unrealized gains and losses on securities available-for-sale are excluded
from earnings and reported in other comprehensive income. Gains and losses on
the sale of securities available-for-sale are recorded on the trade date and are
determined using the specific identification method. Federal Home Loan Bank
(FHLB) and Federal Reserve Bank (FRB) stock are carried at cost.

Premiums and discounts are recognized in interest income using methods
approximating the interest method over the terms of the securities.

LOANS HELD FOR SALE:

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.

FirstBank originates loans for sale in the secondary market generally
without recourse under commitments or other arrangements in place prior to loan
origination. Sales are completed at or near the loan origination date. All fees
and other income from these activities are recognized in income when loan sales
are completed.

LOANS RECEIVABLE:

The Banks grant mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans in
Beaufort County. The ability of the Banks' debtors to honor their contracts is
dependent upon the real estate and general economic conditions in the Banks'
service areas.

Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at their
outstanding

G-45
<PAGE> 223
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

unpaid principal balances adjusted for charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment of the
yield of the related loan.

The accrual of interest on mortgage and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.

All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.

ALLOWANCE FOR LOAN LOSSES:

The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Banks do not separately identify
individual consumer and residential loans for impairment disclosures.
G-46
<PAGE> 224
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MORTGAGE SERVICING:

Mortgage servicing assets are recognized as separate assets when rights are
acquired through purchase or through sale of mortgage loans. Capitalized
servicing rights are reported in other assets and are amortized into noninterest
income in proportion to, and over the period of, the estimated future net
servicing income of the underlying mortgage loans. Mortgage servicing assets are
evaluated for impairment based upon the fair value of the rights as compared to
amortized cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions. Mortgage
servicing rights were not impaired at December 31, 1998 and 1997.

FORECLOSED REAL ESTATE:

Real estate properties acquired through foreclosure or in full or partial
satisfaction of the related loan are to be sold and are initially recorded at
fair value, at the date of foreclosure, establishing a new cost basis.
Subsequent to foreclosure, valuations are periodically performed by management
and the real estate is carried at the lower of carrying amount or fair value
less estimated cost to sell. Revenue and expenses from operations and changes in
the valuation allowance (if any) are included in other expenses.

PREMISES AND EQUIPMENT:

Land is stated at cost. Office equipment, furnishings, and buildings are
stated at cost less accumulated depreciation and amortization computed using the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are 31 1/2 years for buildings and three to five years for
furniture and equipment.

TRANSFERS OF FINANCIAL ASSETS:

Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

MARKETING EXPENSES:

The costs of marketing are expensed as incurred.

DEFERRED ORGANIZATION COSTS, PREOPENING COSTS AND STOCK OFFERING COSTS:

The Company adopted Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities" in 1998. This SOP provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization

G-47
<PAGE> 225
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs to be expensed as incurred. The adoption of this SOP is reported as the
cumulative effect of a change in accounting principle. Adopting this SOP
resulted in net income decreasing $90,239 and basic earnings per common share
and diluted earnings per common share declining $0.12 and $0.11, respectively,
in 1998.

Prior to adopting this SOP, deferred organization costs were amortized
using the straight-line method. Preopening costs associated with the
organization of FBM were expensed as incurred.

Stock offering costs have been charged to additional paid-in capital.

AMOUNTS DUE TO DEPOSITORY INSTITUTIONS:

The Banks invest excess funds on deposit at other depository institutions
(including amounts intended for payment of issued and outstanding checks) on a
daily basis in overnight interest-bearing accounts. Accordingly, issued and
outstanding checks are recorded as a liability.

INCOME TAXES:

Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The provision for income taxes of each entity is
recorded as if the entity filed a separate return.

RETIREMENT PLAN:

FirstBank has a contributory 401(k) plan covering substantially all
employees. Contributions to the plan are made on a matching basis of 75% up to a
maximum of 6% of employees' plan contributions. Contributions to the plan
totaled approximately $40,000, $31,000 and $18,000 for 1998, 1997 and 1996,
respectively.

LEASE COMMITMENTS:

FirstBank has entered into operating lease agreements for land, buildings,
and equipment used in operations. The agreements expire over various terms with
the longest such term extending to the year 2013. Certain of the leases are
subject to rent escalation provisions. In addition, FirstBank pays maintenance,
property taxes and insurance on the leased properties.

STOCK COMPENSATION PLANS:

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
However, it also allows an entity to

G-48
<PAGE> 226
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date (or
other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plans have no
intrinsic value at the grant date, and under Opinion No. 25 no compensation cost
is recognized for them. The Company has elected to continue with the accounting
methodology in Opinion No. 25 and, as a result, has provided pro forma
disclosures of net income and earnings per share and other disclosures, as if
the fair value based method of accounting had been applied.

EARNINGS PER COMMON SHARE:

Basic earnings per common share represent income available to common
stockholders divided by the weighted average number of shares outstanding during
the year. Diluted earnings per common share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Company relate
solely to outstanding stock options, and are determined using the treasury stock
method. All common share and per share amounts have been restated to reflect
stock dividends.

The computation of basic and diluted earnings per common share is shown as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Earnings per Common Share:
Net income applicable to common stock......... $766,024 $947,358 $500,811
======== ======== ========
Weighted average shares outstanding........... 758,052 690,285 686,042
Basic earnings per common share............... $ 1.01 $ 1.37 $ 0.73
======== ======== ========
Earnings per Common Share, assuming dilution:
Net income applicable to common stock......... $766,024 $947,358 $500,811
======== ======== ========
Weighted average shares outstanding........... 758,052 690,285 686,042
Common stock equivalents -- stock options..... 57,846 45,222(a) 39,771
-------- -------- --------
Total...................................... 815,898 735,507 725,813
======== ======== ========
Earnings per common share, assuming
dilution................................... $ 0.94 $ 1.29 $ 0.69
======== ======== ========
</TABLE>

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

(a) Options to purchase 3,500 shares of common stock were not included in the
computation of diluted earnings per common share because the options'
exercise prices were greater than the average market price of the common
shares for 1997.

G-49
<PAGE> 227
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE INCOME:

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
securities available-for-sale, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS No. 130 had no effect
on the Company's net income or stockholders' equity. Currently, the Company's
only component of Other Comprehensive Income is its unrealized losses on
securities available-for-sale.

FINANCIAL INSTRUMENTS:

Credit-related financial instruments -- In the ordinary course of business,
the Company has entered into commitments to extend credit, including commitments
under stand-by letters of credit. Such financial instruments are recorded in the
financial statements when they are funded.

SEGMENTS:

FirstBancorporation, Inc. through its banking subsidiaries, FirstBank and
FMB, provides a broad range of financial services to individuals and companies
in South Carolina. These services include demand, time, and savings deposits;
lending services; ATM processing; and similar financial services. While the
Company's decision makers monitor the revenue streams of the various financial
products and services, operations are managed and financial performance is
evaluated on a company-wide basis. Accordingly, all of the Company's banking
operations are considered by management to be aggregated in one reportable
operating segment.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented may not necessarily represent the underlying fair value
of the Company.

G-50
<PAGE> 228
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following methods and assumptions were used in estimating fair values
of financial instruments as disclosed herein:

CASH AND SHORT-TERM INSTRUMENTS. The carrying amounts of cash and
short-term instruments approximate their fair value.

SECURITIES AVAILABLE-FOR-SALE. Fair values for securities, excluding
Federal Home Loan Bank and Federal Reserve Bank stock, are based on quoted
market prices.

REAL ESTATE LOANS HELD-FOR-SALE. Fair values of real estate loans
held-for-sale are based on carrying values.

LOANS RECEIVABLE. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (for example,
one-to-four family residential) and other consumer loans are based on
quoted market prices of similar loans sold, adjusted for differences in
loan characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for nonperforming loans are estimated
using discounted cash flow analyses or underlying collateral values, where
applicable.

DEPOSIT LIABILITIES. The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). Fair values for certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.

FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE. Fair value of the
advances are estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rate for similar types of borrowing
arrangements.

ACCRUED INTEREST AND AMOUNTS DUE TO DEPOSITORY INSTITUTIONS. The
carrying amounts approximate their fair values.

OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet,
credit-related financial instruments, are based on fees currently charged
to enter into similar agreements, taking into account the remaining terms
of the agreements and the counterparties' credit standings.

ACCOUNTING PRONOUNCEMENTS:

Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" is effective for 2000. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative, that is gains and losses, depends on the
intended use of the

G-51
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FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

derivative and the resulting designation. The adoption of this Statement in 2000
is not expected to have a material effect on the Company's consolidated
financial statements.

Statements of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a nonmortgage
banking enterprise. This Statement is effective in 1999 and is not expected to
have a material effect on the Company's consolidated financial statements.

OTHER:

Certain amounts previously reported have been restated in order to conform
with current year presentation. Such reclassifications had no effect on net
income.

NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS:

As a member of the Federal Reserve System, the Banks are required by
regulation to maintain an average cash reserve balance with the FRB or in vault
cash. The average daily reserve balance requirement for December 31, 1998 and
1997, was met by vault cash held by the Banks.

At December 31, 1998, the Banks had due from bank balances in excess of
federally insured limits of approximately $608,000. Management believes the risk
associated with exceeding these limits is balanced by the stability of the
depository institutions involved.

NOTE 4. SECURITIES AVAILABLE-FOR-SALE:

Securities available-for-sale consist of the following:

<TABLE>
<CAPTION>
1998
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities.......... $4,121,368 $ -- $(20,884) $4,100,484
U.S. Government securities.......... 4,070,744 -- -- 4,070,744
Federal Home Loan Bank stock........ 566,500 -- -- 566,500
Federal Reserve Bank stock.......... 328,750 -- -- 328,750
---------- -------- -------- ----------
Total............................. $9,087,362 -- $(20,884) $9,066,478
========== ======== ======== ==========
</TABLE>

G-52
<PAGE> 230
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities.......... $1,428,793 $ -- $(23,383) $1,405,410
U.S. Government securities.......... 98,602 -- -- 98,602
Federal Home Loan Bank stock........ 548,100 -- -- 548,100
Federal Reserve Bank stock.......... 130,300 -- -- 130,300
---------- -------- -------- ----------
Total............................. $2,205,795 -- $(23,383) $2,182,412
========== ======== ======== ==========
</TABLE>

The mortgage-backed securities held at December 31, 1998, consist of GNMA
Adjustable Rate Mortgage Securities (ARMS) and mature generally between 10 and
24 years and FNMA fixed rate loans with maturities of 10 years. Such securities
held at December 31, 1997 consist solely of GNMA ARMS. The actual lives of these
securities may be shorter as a result of prepayments. The U.S. Government
securities mature in 1999. Other securities consist of the required capital
stock of the FHLB and the FRB and have no contractual maturity.

There were no realized gains or losses on sales of investment securities
during the three-year period ending December 31, 1998.

At December 31, 1998 and 1997, the FHLB stock was pledged as collateral on
the FHLB advances and securities with carrying values of approximately $873,000
and $1,154,000, respectively, were pledged to secure public deposits and for
other purposes as required and permitted by law.

The amortized cost and fair value of debt securities by contractual
maturity at December 31, 1998 follows:

<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-----------------------
AMORTIZED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Within 1 year........................................... $4,070,744 $4,070,744
Over 1 year through 5 years............................. -- --
After 5 years through 10 years.......................... -- --
Over 10 years........................................... 895,250 895,250
---------- ----------
4,965,994 4,965,994
Mortgage-backed securities.............................. 4,121,368 4,100,484
---------- ----------
Total................................................. $9,087,362 $9,066,478
========== ==========
</TABLE>

G-53
<PAGE> 231
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. LOANS RECEIVABLE:

Loans receivable at December 31, 1998 and 1997, consisted of the following:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Mortgage loans:
Permanent........................................... $57,817,138 $60,522,713
Construction........................................ 8,656,783 5,949,087
----------- -----------
Total mortgage loans............................. 66,473,921 66,471,800
----------- -----------
Other loans:
Consumer loans...................................... 7,436,023 9,527,554
Commercial loans.................................... 9,532,788 4,792,661
----------- -----------
Total other loans................................ 16,968,811 14,320,215
----------- -----------
Loans receivable................................. $83,442,732 $80,792,015
=========== ===========
</TABLE>

Loans receivable above are net of approximately $116,000 and $97,000,
representing deferred loan origination fees net of related costs at December 31,
1998 and 1997, respectively. These deferred fees are primarily attributable to
permanent mortgage loans.

Loans receivable consists principally of adjustable rate residential first
mortgage loans to individuals for single family homes in the northern two-thirds
of Beaufort County. At December 31, 1998, the total loan portfolio included
adjustable rate loans totaling approximately $17.5 million, having interest rate
adjustments indexed to prime, and approximately $31.3 million of adjustable rate
loans, having interest rate adjustments indexed to the one or three year U.S.
Treasury bill adjusted to a constant maturity. Future market factors may, in
certain instances, affect the correlation of the interest rate adjustment with
the rates the Banks pay on the short-term deposits and FHLB advances that have
been primarily utilized to fund these loans.

Transactions in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Beginning balance................................. $728,043 $630,557 $470,198
Provision (charged to income)..................... 200,000 165,000 162,000
Recoveries of charge-offs......................... 3,262 5,000 26,993
Charge-offs....................................... (71,849) (72,514) (28,634)
-------- -------- --------
Ending balance.................................... $859,456 $728,043 $630,557
======== ======== ========
</TABLE>

Real estate mortgage loans include investments of approximately $544,000
and $663,000 in participating interests on loans originated and serviced by
other financial institutions as of December 31, 1998 and 1997, respectively.

G-54
<PAGE> 232
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of information pertaining to impaired loans:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Impaired loans without a valuation allowance............... $170,151 $ 73,081
Impaired loans with a valuation allowance.................. 26,264 213,662
-------- --------
Total impaired loans..................................... $196,415 $286,743
======== ========
Valuation allowance related to impaired loans.............. $ 2,626 $ 55,970
======== ========
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Average investment in impaired loans.............. $207,373 $392,316 $261,613
======== ======== ========
Interest income recognized on impaired loans...... $ 13,928 $ 32,359 $ 26,263
======== ======== ========
Interest income recognized on a cash basis on
impaired loans.................................. $ 13,928 $ 32,359 $ 26,263
======== ======== ========
</TABLE>

No additional funds are committed to be advanced in connection with impaired
loans.

NOTE 6. SERVICING:

Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage loans serviced for
others totaled approximately $14,456,000 and $10,798,000 at December 31, 1998
and 1997, respectively.

The balance of capitalized servicing rights included in other assets at
December 31, 1998 and 1997, was $72,452 and $41,152, respectively. The fair
values of these rights were approximately $72,300 and $41,100, respectively. The
fair value of servicing rights was determined using a discount rate of 8% and a
prepayment speed of 14.3%. No valuation allowances were required.

The following summarizes mortgage servicing rights capitalized and
amortized:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Mortgage servicing rights capitalized....................... $50,402 $42,776
======= =======
Mortgage servicing rights amortized......................... $19,102 $ 1,624
======= =======
</TABLE>

G-55
<PAGE> 233
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. PREMISES AND EQUIPMENT:

Premises and equipment at December 31, 1998 and 1997, consists of the
following:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cost:
Land................................................ $ 497,656 $ 251,000
Buildings and leasehold improvements................ 646,965 461,576
Equipment and furnishings........................... 2,319,965 1,820,046
----------- -----------
Total cost....................................... 3,464,586 2,532,622
Less, accumulated depreciation and amortization....... (1,532,332) (1,244,389)
----------- -----------
Premises and equipment -- net.................... $ 1,932,254 $ 1,288,233
=========== ===========
</TABLE>

Depreciation expense charged to operations was $284,044, $245,995 and
$182,662 in 1998, 1997, and 1996, respectively.

NOTE 8. LEASES:

FirstBank leases its main office facility and additional office space and
parking under a noncancelable operating lease from a partnership in which
certain of FirstBank's directors are partners. FirstBank has also entered into a
lease with a director of FirstBank for a branch facility on Lady's Island, South
Carolina. The leases require FirstBank to pay for all utilities, property taxes
and hazard insurance related to the leased properties.

The main office facility lease provides for a lease term of 20 years,
expiring in 2013. The lease is subject to rent escalation provisions which are
computed every five years during the life of the lease. The Lady's Island branch
facility lease provides for a five-year lease expiring in 2003.

FBM leases office space under a noncancellable operating lease with an
initial term of 5 years beginning on September 1, 1998. The lease terms provide
for three, three-year renewal options. The landlord is responsible for
improvements and property taxes on the leased property up to the amount paid for
1997 taxes. FBM is required to pay any property tax increases over 1997 taxes.
Annual base rent in lease years one through five is $90,750. Subsequent lease
renewals will increase lease payments by the greater of 12.5% or the increase in
the Consumer Price Index.

Aggregate future minimum lease payments under all operating leases are as
follows:

<TABLE>
<S> <C>
Year ending December 31:
1999................................................... $ 262,011
2000................................................... 262,011
2001................................................... 262,011
2002................................................... 262,011
2003................................................... 229,172
Thereafter............................................. 1,137,532
----------
Total minimum payments............................... $2,414,748
==========
</TABLE>

G-56
<PAGE> 234
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total rental expense for the years ended December 31, 1998, 1997 and 1996,
was approximately $193,000, $161,000 and $161,000, respectively.

NOTE 9. DEPOSITS:

Certificates of deposits, each with a minimum denomination of $100,000,
totaled approximately $10.3 million and $8.8 million at December 31, 1998 and
1997, respectively.

At December 31, 1998, the scheduled maturities of certificates of deposit
are as follows (in thousands of dollars):

As a former federal savings bank, FirstBank's deposits are insured by the
Savings Association Insurance Fund (SAIF) of the FDIC. To recapitalize the
reserves of SAIF, a special assessment on institutions with SAIF-insured
deposits was approved by the U.S. Congress. FirstBank expensed approximately
$445,000 for the special assessment during 1996.

NOTE 10. FEDERAL HOME LOAN BANK ADVANCES:

FirstBank has an $11 million line-of-credit with the FHLB of Atlanta. At
December 31, 1998 and 1997, advances from the FHLB of Atlanta totaled $4.25
million and $5.05 million, respectively.

At December 31, 1998, the maturity dates and interest rates on the advances
were as follows (in thousands of dollars):

<TABLE>
<CAPTION>
MATURITY DATE INTEREST RATE AND TYPE ADVANCE AMOUNT
- ------------- ---------------------- --------------
<S> <C> <C>
June 2001.................................... 6.92% fixed $ 250,000
June 2003 (callable June 2000)............... 5.40% fixed 1,000,000
June 2008 (callable June 2003)............... 5.51% fixed 3,000,000
----------
$4,250,000
==========
</TABLE>

As security for advances, FirstBank, under a blanket floating lien, is
required to maintain qualifying mortgages with unpaid principal balances, when
discounted at 75% of the unpaid principal balances, at least equal to 100% of
its outstanding advances. All stock in the FHLB is also pledged to secure these
advances. Advance agreements contain penalty provisions for early repayment if
current advance rates are lower than the interest rates on the advances being
repaid.

G-57
<PAGE> 235
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Such advances during 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Maximum amount of advances at any month end............ $4,300,000 $6,300,000
========== ==========
Average borrowings during the year..................... $2,954,000 $3,428,000
========== ==========
Weighted average interest rate during the year......... 5.79% 6.03%
========== ==========
</TABLE>

NOTE 11. NOTE PAYABLE:

In connection with the organization of FBM, the Company borrowed $2,100,000
from a bank in August 1998. The loan principal is scheduled for repayment
monthly over five years, beginning October 1, 2003, and is subject to repayment
prior to consummation of the merger (see Note 23). Interest is due monthly
beginning October 1, 1998, through maturity in September 2008, at a variable
rate of prime less one percent (7.5% at December 31, 1998). The common stock of
each Bank serves as collateral.

The loan agreement contains certain loan covenants that, among other
things, place limits on additional borrowings and capital expenditures and,
require the Company and each subsidiary Bank to maintain their status as "well
capitalized" as defined by the regulations. The Company was in compliance with
these loan covenants.

NOTE 12. INCOME TAXES:

The Company files consolidated federal income tax returns on a
calendar-year basis.

The provision for income taxes for the three years ended December 31, 1998
consists of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal....................................... $549,589 $589,579 $336,524
State......................................... 55,494 67,690 29,967
-------- -------- --------
Total...................................... 605,083 657,269 366,491
-------- -------- --------
Deferred tax benefit:
Federal....................................... (44,523) (70,061) (40,046)
State......................................... (29,489) (6,569) (3,947)
-------- -------- --------
Total...................................... (74,012) (76,630) (43,993)
-------- -------- --------
Total income taxes......................... $531,071 $580,639 $322,498
======== ======== ========
Effective tax rate......................... 38.3% 38.0% 39.2%
======== ======== ========
</TABLE>

G-58
<PAGE> 236
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes for 1998, 1997, and 1996 differed from
amounts computed by applying the statutory federal rate to income before income
taxes as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income taxes at statutory rate on pre-tax
income.......................................... $471,694 $519,519 $279,925
State income taxes, net of federal tax
benefit...................................... 36,626 40,339 17,173
Other, net...................................... 22,751 20,781 25,400
-------- -------- --------
Total provision.............................. $531,071 $580,639 $322,498
======== ======== ========
</TABLE>

The sources of deferred tax assets and liabilities at December 31, 1998 and
1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................ $288,611 $254,739
Start-up costs........................................... 74,849 --
State tax net operating loss carryforward................ 27,503 --
Deferred loan fees....................................... -- 34,896
Unrealized losses on securities available-for-sale....... 7,936 8,885
Other.................................................... 5,981 9,018
-------- --------
Total................................................. 404,880 307,538
-------- --------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends................... (43,551) (43,551)
-------- --------
Net deferred tax asset before valuation allowance..... 364,329 263,987
Less, valuation allowance............................. (24,279) --
-------- --------
Net deferred tax asset................................ $337,050 $263,987
======== ========
</TABLE>

At December 31, 1998, the Company had net operating loss (NOL)
carryforwards for state income tax purposes of approximately $586,000 available
to offset future state taxable income. The NOL carryforwards expire in the years
2010 through 2013. The valuation allowance represents management's estimate of
the allowance for the NOL deferred tax asset and specifically relates to
FirstBancorporation and FMB.

NOTE 13. STOCK OPTIONS:

Options to purchase shares of the Company's common stock have been granted
to its directors and officers. Under the 1996 Stock Option Plan up to 17,325
shares of common stock were authorized to be granted to selected key employees
and nonemployee directors in the form of incentive and nonqualified stock
options. A committee of the Board of Directors determines the dates options
shall be granted and exercised, the period of vesting schedule and the term of
the exercise period (not to exceed 10 years). Under the 1987 Non-Qualified Stock
Option Plan and 1986 Incentive Stock Option Plan, 112,386 shares of common stock
were authorized and granted to outside directors and officers. These options
expire in 2006.

G-59
<PAGE> 237
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company applies APB Opinion 25 and related Interpretations in
accounting for the stock option plans. Accordingly, no compensation cost has
been recognized. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per share would have been adjusted to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income
As reported..................................... $766,024 $947,358 $500,811
Pro forma....................................... $754,441 $912,968 $476,352
Earnings per share -- basic
As reported..................................... $ 1.01 $ 1.37 $ 0.73
Pro forma....................................... $ 1.00 $ 1.32 $ 0.69
Earnings per share -- assuming dilution
As reported..................................... $ 0.94 $ 1.29 $ 0.69
Pro forma....................................... $ 0.92 $ 1.24 $ 0.66
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield............................... 0.00% 0.00% 0.00%
Expected life................................ 5 - 6 years 6 - 7 years 6 - 7 years
Expected volatility.......................... 27% 20% 20%
Risk-free interest rate...................... 5.28% 6.0% 6.0%
</TABLE>

A summary of the status of the Company's stock option plans is presented
below:

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options:
Outstanding at beginning
of year.............. 108,464 $ 8.06 105,885 $ 7.85 97,315 $7.76
Granted................. 4,491 16.71 5,700 13.61 10,571 9.60
Exercised............... (3,892) 11.08 -- -- (2,001) 8.18
Forfeited............... (4,459) 6.73 (3,121) 10.44 -- --
------- ------- -------
Outstanding at end of
year................. 104,604 $ 7.79 108,464 $ 8.06 105,885 $7.85
======= ======= =======
</TABLE>

G-60
<PAGE> 238
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information pertaining to options outstanding at December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 6.41 -- $ 6.73............ 70,230 5.7 years $ 6.43 74,689 $ 6.43
$10.30 -- $11.82............ 28,874 6.7 years 10.83 10,443 10.99
$14.00 -- $18.00............ 5,500 8.9 years 15.73 400 14.00
------- --------- ------ ------ ------
Outstanding at end of
year...................... 104,604 6.1 years $ 8.06 85,532 $ 7.02
======= ========= ====== ====== ======
</TABLE>

NOTE 14. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES:

The Banks, as national banks, are subject to certain restrictions regarding
the transfer of funds to the Company in the form of cash dividends, loans, or
advances. The approval of the OCC is required to pay dividends in excess of the
Banks' net profits for the current year plus retained net profits (net profits
less dividends paid) for the preceding two years, less any required transfers to
surplus. As of December 31, 1998, approximately $1,283,000 of the Banks'
retained earnings are available for distribution to the Company as dividends
without prior regulatory approval.

Under FRB regulations, the Banks are also limited as to the amount it may
loan to the Company unless such loans are collateralized by specified
obligations. The maximum amount available for transfer from the Banks to the
Company in the form of loans or advances totaled approximately $2,845,000 at
December 3l, 1998.

NOTE 15. RELATED PARTY TRANSACTIONS:

During 1998 and 1997, FirstBank and in 1998, FBM had loan relationships
with certain related parties; principally, directors and executive officers,
their immediate families and their business interests. All of these
relationships were in the ordinary course of business. Total loans outstanding
to this group (including immediate families and business interests) amounted to
$1,462,900 at December 31, 1998, and $1,203,791 at December 31, 1997. During
1998, $1,110,593 of new loans were originated to this group. Repayments of
$851,484 were made during 1998.

G-61
<PAGE> 239
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Related party deposits totaled approximately $3,188,000 and $2,451,000 at
December 31, 1998 and 1997, respectively.

NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES:

The Company is involved at times in various litigation arising out of the
normal course of business. In the opinion of the Company's legal counsel, there
is no pending or threatened litigation that will have a material effect on the
Company's consolidated financial statements.

The Company has entered into contracts that provide certain officers salary
continuation plans for up to three years in the event of a change in control of
the Company.

YEAR 2000 CONSIDERATIONS

Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If uncorrected, many
applications could fail or create erroneous results by or at the year 2000. The
year 2000 issue affects virtually all organizations.

The Company uses the services of outside software vendors for certain of
its data processing applications. Based on discussions with software vendors and
the execution of its year 2000 plan to date, management does not expect the cost
of addressing any year 2000 issue will be a material event or uncertainty that
would cause its reported financial information not to be necessarily indicative
of future operating results or future financial condition, or that the costs or
consequences of incomplete or untimely resolution of any year 2000 issue
represent a known material event or uncertainty that is reasonably likely to
affect its future financial results, or cause its reported financial information
not to be necessarily indicative of future operating results or future financial
condition. Costs to address the year 2000 issue are estimated to total
approximately $100,000, of which approximately $65,000 was incurred in 1998.

NOTE 17. OFF-BALANCE-SHEET ACTIVITIES:

The Company is a party to credit related financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Such commitments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated balance sheets.

The Company's exposure to credit loss is represented by the contractual
amount of the commitments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.

G-62
<PAGE> 240
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998 and 1997, the following financial instruments were
outstanding whose contract amounts represent credit risk:

<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Commitments to grant loans............................ $ 3,060,000 $ 3,371,000
Unfunded commitments under lines of credit............ 12,696,000 10,327,000
Commercial and standby letters of credit.............. 493,000 288,000
</TABLE>

Commitments to grant loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. These
commitments generally have fixed expiration dates and are generally
collateralized by real estate.

Unfunded commitments under lines of credit are generally unfunded balances
on loans closed and include unfunded lines on home equity loans, other open
ended loans, overdraft protection lines and construction loans. Construction
loans are generally for a fixed term and may require a fee to be paid. Lines of
credit are generally collateralized by real estate.

Unfunded commitments under commercial lines of credit, revolving credit
lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit are
uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those letters of
credit are primarily issued to support public and private borrowing
arrangements. Essentially standby letters of credit have expiration dates within
one year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The Company
generally holds collateral supporting those commitments if deemed necessary.

NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair value of the Company's financial instruments at December
31, 1998 and 1997, are as follows:

<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents... $ 8,753,950 $ 8,753,950 $ 6,095,598 $ 6,095,598
Time deposits with banks.... 2,099,000 2,099,000 99,000 99,000
Securities
available-for-sale....... 9,066,478 9,066,478 2,182,412 2,182,412
Real estate loans held for
sale..................... 1,740,365 1,740,365 676,279 676,279
Loans receivable -- net..... 82,583,276 82,643,199 80,063,972 80,250,247
Accrued interest
receivable............... 595,812 595,812 555,537 555,537
</TABLE>

G-63
<PAGE> 241
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits.................... $87,752,659 $87,909,255 $77,462,288 $77,529,026
Federal Home Loan Bank
advances................. 4,250,000 4,318,856 5,050,000 5,059,257
Note payable................ 2,100,000 2,100,000 -- --
Amounts due to depository
institutions............. 489,573 489,573 305,315 305,315
Accrued interest payable.... 280,129 280,129 208,410 208,410
Unrecognized financial
instruments:
Commitments to grant
loans.................... 3,060,000 3,060,000 3,371,000 3,371,000
Lines-of-credit............. 12,696,000 12,696,000 10,327,000 10,327,000
Standby letters of credit... 493,000 493,000 288,000 288,000
</TABLE>

NOTE 19. MINIMUM REGULATORY CAPITAL REQUIREMENTS:

The Company (on a consolidated basis) and the Banks are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and Banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1998 and 1997, that the Company and the Banks meet all capital adequacy
requirements to which they are subject.

As of September 22, 1997, the most recent notifications from the OCC
categorized FirstBank as well capitalized under the regulatory framework for
prompt corrective action. FBM has not received any notification from the OCC,
but was required to be well capitalized. To be categorized as well capitalized,
an institution must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the following tables. There are no
conditions or events since that notification that management believes have
changed the Banks' categories.

G-64
<PAGE> 242
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's and the Banks' actual capital amounts and ratios are also
presented in the table as follows (in thousands of dollars):

<TABLE>
<CAPTION>
MINIMUM
REQUIRED
TO BE WELL
MINIMUM CAPITALIZED
REQUIRED UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
--------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1998:
Tier I Capital (to Average Assets):
Consolidated............................ $12,131 11.1% $4,359 4.0% $5,449 5.0%
FirstBank............................... 8,165 8.2% 4,007 4.0% 5,009 5.0%
FBM..................................... 4,673 63.1% 296 4.0% 444 5.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated............................ $12,131 17.6% $2,752 4.0% $4,129 6.0%
FirstBank............................... 8,165 12.8% 2,554 4.0% 3,831 6.0%
FBM..................................... 4,673 111.4% 168 4.0% 252 6.0%
Total Capital (to Risk Weighted Assets):
Consolidated............................ $12,943 18.8% $5,504 8.0% $6,881 10.0%
FirstBank............................... 8,964 14.0% 5,108 8.0% 6,386 10.0%
FBM..................................... 4,686 111.7% 335 8.0% 419 10.0%
At December 31, 1997:
Tier I Capital (to Average Assets):
Consolidated............................ $ 7,854 8.7% $3,608 4.0% $4,509 5.0%
FirstBank............................... 7,737 8.6% 3,607 4.0% 4,508 5.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated............................ 7,854 12.1% 2,587 4.0% 3,880 6.0%
FirstBank............................... 7,737 12.0% 2,587 4.0% 3,880 6.0%
Total Capital (to Risk Weighted Assets):
Consolidated............................ 8,582 13.3% 5,173 8.0% 6,470 10.0%
FirstBank............................... 8,465 13.1% 5,173 8.0% 6,467 10.0%
</TABLE>

NOTE 20. FIRST SECURITIES CORPORATION:

FSC completed its first year of operations in 1997. Financial information
pertaining only to FSC is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Total assets................................................ $61,007 $73,000
======= =======
</TABLE>

G-65
<PAGE> 243
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1998 1997
-------- -------
<S> <C> <C>
Gross commission income..................................... $137,797 $40,400
======== =======
Net loss.................................................... $ 16,446 $24,350
======== =======
</TABLE>

NOTE 21. CONDENSED FINANCIAL STATEMENTS:

Presented below are the condensed financial statements for
FirstBancorporation, Inc. (parent company only):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Balance Sheets:
Assets:
Cash............................................. $ 1,169,835 $ 15,586
Investment in banking subsidiaries............... 12,832,257 7,864,255
Other assets..................................... 222,561 109,847
----------- ----------
Total assets..................................... $14,224,653 $7,989,688
=========== ==========
Liabilities:
Amounts due to banking subsidiaries.............. $ -- $ 7,241
Other liabilities................................ -- 1,446
Long-term debt................................... 2,100,000 --
Stockholders' equity............................. 12,124,653 7,981,001
----------- ----------
Total liabilities and stockholders' equity....... $14,224,653 $7,989,688
=========== ==========
Statements of Income:
Dividends from banking subsidiaries................. $ 860,000 $ 100,000
Interest............................................ 1,281 --
----------- ----------
Total income..................................... $ 861,281 $ 100,000
=========== ==========
Expenses:
Interest............................................ $ 53,375 $ --
Compensation........................................ -- 16,915
Amortization........................................ 8,076 7,887
Other............................................... 21,027 31,275
----------- ----------
Income before equity in undistributed earnings of
subsidiaries........................................ 778,803 43,923
Applicable income tax benefit......................... 20,769 21,310
Equity in undistributed earnings of subsidiaries...... (33,548) 882,125
----------- ----------
Net income.......................................... $ 766,024 $ 947,358
=========== ==========
Statements of Cash Flows:
Cash flows from operating activities:
Net income....................................... $ 766,024 $ 947,358
</TABLE>

G-66
<PAGE> 244
FIRSTBANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization expense........................... $ 23,090 $ 7,887
Increase in other assets....................... (27,913) (78,145)
Increase (decrease) in other liabilities....... (8,687) 8,687
Equity in undistributed earnings of
subsidiaries................................ 33,548 (882,125)
----------- ----------
Net cash provided by operating activities... 786,062 3,662
Cash flows from investing activities:
Investment in FBM................................... (5,107,892) --
----------- ----------
Net cash used in investing activities................. (5,107,892) --
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ 2,100,000 --
Common stock issued................................. 3,490,699 --
Stock issuance cost................................. (114,620) (7,470)
----------- ----------
Net cash provided (used) by financing activities...... 5,476,079 (7,470)
----------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... 1,154,249 (3,808)
Cash at beginning of year............................. 15,586 19,394
----------- ----------
Cash at end of year................................... $ 1,169,835 $ 15,586
=========== ==========
</TABLE>

NOTE 22. OTHER COMPREHENSIVE INCOME:

The components of other comprehensive income and related tax effects are as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized holding losses on available-for-sale
securities......................................... $20,846 $23,383 $17,631
Less: Reclassification adjustment for gains (losses)
realized in income (expense)....................... -- -- --
------- ------- -------
Net unrealized losses................................ 20,846 23,383 17,631
Tax effect........................................... (7,898) (8,886) (6,700)
------- ------- -------
Net-of-tax amount.................................... $12,948 $14,497 $10,931
======= ======= =======
</TABLE>

NOTE 23. SUBSEQUENT EVENTS:

The Boards of Directors of the Company and First National Corporation (FNC)
approved on March 4, 1999, a merger of the two companies. In the merger, the
Company's stockholders will receive 1.222 shares of FNC common stock for each
share of the Company's common stock. The merger is anticipated to be accounted
for as a pooling-of-interests and a tax-free reorganization. Consummation of the
merger is subject to several conditions, including the receipt of applicable
regulatory approvals and approval by the stockholders of both companies.

G-67
<PAGE> 245

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The Company's Board of Directors presently consists of ten directors as
required by the Company's Bylaws. The Board of Directors is divided into three
classes with staggered terms, and each director is elected for a three-year term
after their initial election by shareholders. The executive officers of the
Company and the Banks are elected annually and hold office until their
respective successors have been elected and qualified or until resignation or
removal by the Board of Directors.

The following table sets forth certain information regarding the Directors
and Executive Officers of the Company.

<TABLE>
<CAPTION>
YEAR
FIRST YEAR
PRINCIPLE OCCUPATION ELECTED TERM
NAME AGE(1) DURING THE PAST FIVE YEARS DIRECTOR EXPIRES
- ---- ------ -------------------------------- -------- -------
<S> <C> <C> <C> <C>
Laurance H. Davis, Jr.... 69 Secretary of Bundy Appraisal and 1986(2) 1999
Management, Inc., Beaufort,
South Carolina.
Jerry H. Reeves, III..... 68 President and owner of Resort 1993(2) 1999
Services, Inc., Bluffton, South
Carolina, a wholesale bed and
bath linen supplier.
Carson R. Rentz.......... 75 President and owner of Coastal 1986(2) 1999
Contractors, Inc., Beaufort,
South Carolina, a residential
and commercial construction
company.
Richard L. Gray.......... 68 President of Grayco, a lumber 1986(2) 2000
and home products company.
Robert A. Kerr........... 78 Retired commercial bank 1988(2) 2000
executive.
William C. Robinson...... 57 Certified public accountant, 1986(2) 2000
Robinson, Grant & Co., P.A.
James A. Shuford, III.... 47 President and Chief Executive 1993(2) 2000
Officer of the Company;
President and Chief Executive
Officer of FirstBank, N.A. and
director of FirstBank of the
Midlands, N.A.
</TABLE>

G-68
<PAGE> 246

<TABLE>
<CAPTION>
YEAR
FIRST YEAR
PRINCIPLE OCCUPATION ELECTED TERM
NAME AGE(1) DURING THE PAST FIVE YEARS DIRECTOR EXPIRES
- ---- ------ -------------------------------- -------- -------
<S> <C> <C> <C> <C>
Colden R. Battey, Jr..... 63 Chairman of the Board of the 1986(2) 2001
Company and FirstBank, N.A. and
director of FirstBank of the
Midlands, N.A.; Senior Partner
of Harvey & Battey Law Firm,
Beaufort, South Carolina.
Russell L. Jeter......... 57 President and Owner of Jeter 1986(2) 2001
Construction Company, Beaufort,
South Carolina, a paving
contractor.
James D. Neighbors....... 68 Retired; President of FirstBank, 1986(2) 2001
N.A. from 1986 to 1993.
</TABLE>

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

(1) At December 31, 1998.

(2) Includes prior service on the Board of Directors of FirstBank, N.A. and its
predecessor, The Savings Bank of Beaufort County, FSB.

Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of any registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC within prescribed time periods. Executive officers,
directors and greater than 10% shareholders are required by regulation to
furnish the Company with copies of all Section 16(a) forms they file.

On September 17, 1998, the Company, on behalf of officers and directors,
filed a Form 4 for each of the following directors and officers for shares
acquired in its secondary stock offering which closed on August 31, 1998: Colden
R. Battey, Jr., Laurance H. Davis, Jr., Richard L. Gray, Jr., Russell L. Jeter,
Robert A. Kerr, James D. Neighbors, Jerry H. Reeves, Carson R. Rentz, William C.
Robinson, James A. Shuford, III, James L. Pate, III, Christine W. Beckert, and
Richard E. Morgan, Jr. Based solely on its review of the copies of such forms it
has received and written representations provided to the Company by the above
referenced persons, the Company believes that during the year ended December 31,
1998, all other filing requirements applicable to its reporting officers,
directors and greater than 10% shareholders were properly and timely complied
with.

G-69
<PAGE> 247

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following information is furnished for Mr.
Shuford. All compensation is paid by FirstBank, N.A.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- ----------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James A. Shuford, III......... 1998 $117,605 $17,760 $10,259(1) $2,966(2)
President 1997 105,923 15,750 9,467 2,711
1996 99,781 4,900 9,510 1,767
</TABLE>

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

(1) Includes health and life insurance premium payments ($6,154) and other
perquisites ($4,105).

(2) Consists of matching contribution made by FirstBank, N.A. under the 401(k)
Plan.

EMPLOYMENT AGREEMENT. Effective November 15, 1995, the Company and
FirstBank, N.A. entered into an amended and restated employment agreement
("Agreement") with James A. Shuford, III, President and Chief Executive Officer
of the Company and FirstBank, N.A., to reflect the addition of the Company as a
party to Mr. Shuford's prior employment agreement dated October 20, 1993. The
Agreement provides for an 18-month term which is extended each month for an
additional month. Currently, all compensation and benefits provided to Mr.
Shuford under the Agreement are provided by FirstBank, N.A. The Agreement
provides for annual salary review by the Board of Directors of FirstBank, N.A.
Mr. Shuford's current base salary is $125,000. In addition, Mr. Shuford is
eligible to participate in all benefit or incentive plans which FirstBank, N.A.
makes available to similarly situated senior executive officers.

In the event of Mr. Shuford's termination without cause during the term of
the Agreement, FirstBank, N.A. is obligated to continue payment of Mr. Shuford's
then current base salary through the expiration of the current term of the
Agreement. In the event of Mr. Shuford's involuntary termination following a
change in control of the Company or FirstBank, N.A. (as defined in the
Agreement), FirstBank, N.A. is obligated to provide Mr. Shuford with a payment
equal to 2.999 times the highest base salary payable during any of the five
fiscal years preceding his termination. In addition, Mr. Shuford would be
eligible to receive continued coverage for a three-year period at FirstBank,
N.A.'s expense under its other employee benefit programs. Mr. Shuford would
receive similar payments and benefits in the event of his resignation following
a change in control upon the occurrence of certain events, including a reduction
in the level of his compensation prior to the change in control. In the event
that a change of control of the Company or FirstBank, N.A. had occurred on
January 1, 1999, based solely on the cash compensation paid to Mr. Shuford
during 1998 and excluding the value of any other employee benefits which may be
payable, Mr. Shuford would have received a payment of approximately $374,875.

OPTION GRANTS. No options were granted to Mr. Shuford during the fiscal
year ended December 31, 1998.

G-70
<PAGE> 248

OPTION EXERCISE/VALUE TABLE. The following information is provided for Mr.
Shuford.

<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
SHARES DOLLAR AT FISCAL YEAR END(#) YEAR END($) NAME
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Shuford, III..... -- -- 2,426 13,341 17,661 102,592
</TABLE>

DIRECTORS' COMPENSATION

FirstBank, N.A. pays all directors' fees of FirstBancorporation, Inc. and
FirstBank, N.A. The Chairman of the Board receives a monthly fee of $800. Each
director who serves on the Executive Committee receives a monthly fee of $600.
Except for James A. Shuford, III, all other directors receive a monthly fee of
$500. FirstBank of the Midlands pays its directors fees. Its Chairman receives
$500 per month. All other outside directors receive $300 per month. Mr. Shuford,
who is an officer of the Company and FirstBank, N.A. and F. Wayne Lovelace who
is an officer of FirstBank of the Midlands, N.A. do not receive fees. Total fees
paid to directors during the fiscal year ended December 31, 1998 were $70,000.

Directors of the Company and of FirstBank, N.A. also participate in the
Company's stock option plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) Security Ownership of Certain Beneficial Owners

Persons and groups who beneficially own in excess of 5% of the Company's
Common Stock are required to file certain reports with the Securities and
Exchange Commission ("SEC"), and furnish a copy to the Company, regarding such
ownership pursuant to the Securities Exchange Act of 1934, as amended ("Exchange
Act"). Based upon such reports, the following table sets forth, as of the Record
Date, certain information as to those persons who were beneficial owners of more
than 5% of the outstanding shares of Common Stock. Management knows of no
persons other than those set forth in (b) below who owned more than 5% of the
outstanding shares of Common Stock as of the Record Date.

(b) Security Ownership of Management

The table sets forth, as of the Record Date, information as to the shares
of Common Stock beneficially owned by each director and by all executive
officers and directors of the Company as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) COMMON STOCK OUTSTANDING
- ---------------- --------------------------- ------------------------
<S> <C> <C>
DIRECTORS
Colden R. Battey, Jr.,
Chairman of the Board....... 73,785(2) 7.66%
Russell L. Jeter.............. 52,003 5.40
James D. Neighbors............ 15,697 1.63
</TABLE>

G-71
<PAGE> 249

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) COMMON STOCK OUTSTANDING
- ---------------- --------------------------- ------------------------
<S> <C> <C>
Laurance H. Davis, Jr. ....... 1,225 .13%
Richard L. Gray............... 76,362 7.93
Robert A. Kerr................ 17,991 1.87
Jerry H. Reeves, III.......... 7,737 .80
Carson R. Rentz............... 29,946 3.11
William C. Robinson........... 27,278 2.83
NAMED EXECUTIVE OFFICER*
James A. Shuford, III,
President**................. 4,690 .49
All Executive Officers and
Directors as a group (11
persons).................... 314,674(3) 32.67
</TABLE>

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

* Under SEC regulations, the term "named executive officer" is defined to
include the chief executive officer, regardless of compensation level, and
the four most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last
completed fiscal year exceeded $100,000. Mr. Shuford was the Company's only
"named executive officer" for the fiscal year ended December 31, 1998.

** Mr. Shuford is also a director of the Company.

(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of the
Company's Common Stock if he or she has voting and/or investment power with
respect to such security or has a right to acquire, through the exercise of
outstanding options or otherwise, beneficial ownership at any time within 60
days from the Record Date. The table includes shares owned by spouses, other
immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of
ownership, over which shares the named persons possess voting and/or
investment power.

(2) Includes pro-rata ownership of shares held by the Harvey & Battey Law Firm
pension plan, of which Mr. Battey is a senior partner, over which Mr. Battey
has voting and investment power of 6,514 shares. Includes 2,700 shares owned
by the Harvey and Battey Law Firm over which Mr. Battey has voting and
investment power.

(3) Includes an aggregate of 5,260 shares subject to outstanding stock options
exercisable within 60 days of the Record Date.

Except for the merger agreement which is discussed in "Item 1: Description
of Business" of this Report, the Company is not aware of any arrangements,
including any pledge by a person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the Company.

G-72
<PAGE> 250

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FirstBank, N.A., as successor to The Savings Bank of Beaufort County, FSB,
has entered into a noncancelable operating lease for its main office facility
and for additional office space and parking with First Patriots Partnership
("Partnership"), a partnership among Directors Battey, Gray, Jeter, Rentz, and
Kerr. These leases provide for lease terms of 20 years, expiring in 2013. The
lease is subject to rent escalation provisions which are computed every five
years during the life of the lease. FirstBank, N.A. paid $122,852 in related
lease expense for fiscal year 1998.

FirstBank, N.A., as successor to The Savings Bank of Beaufort County, FSB,
has also entered into an operating lease with Director Gray for FirstBank,
N.A.'s Lady's Island Branch Office. The current lease term is five years which
expires in 2003 with one additional option to renew for five more years. The
lease is subject to rent escalations based on the Consumer Price Index for All
Urban Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor. FirstBank, N.A. paid $41,594 in related lease expense for
fiscal year 1998.

FirstBank, N.A. and FirstBank of the Midlands, N.A. are required under
federal law not make any loan or extension of credit in any manner to any of its
executive officers or directors, or to any person who directly or acting through
or in concert with one or more persons, owns, controls, or has the power to vote
more than 10% of any class of voting securities of such institution, or to any
company controlled by such executive officer, director, or person, or to any
political or campaign committee the funds or services of which will benefit such
executive officer, director, or person or which is controlled by such executive
officer, director, or person, unless such loan or extension of credit is made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and does
not involve more than the normal risk of repayment or present other unfavorable
features. FirstBank, N.A. and FirstBank of the Midlands, N.A., therefore, are
prohibited from making any new loans or extensions of credit to FirstBank,
N.A.'s and FirstBank of the Midlands, N.A.'s executive officers and directors at
different rates or terms than those offered to the general public and has
adopted a policy to this effect. FirstBank, N.A. and FirstBank of the Midlands,
N.A. make loans to its directors, officers, and employees in the ordinary course
of business on substantially the same terms, including interest rate and
collateral, as similar loans to unrelated parties. Management believes that such
loans do not involve more than normal risk of collectibility or present other
unfavorable features. All loans to related parties, and any subsequent renewal
thereof, are approved by a majority of the board of directors of the applicable
bank, with the related party abstaining from the vote. At December 31, 1998,
loans to executive officers and directors amounted to approximately $1.5
million, all of which were performing according to their respective terms at
that date.

G-73
<PAGE> 251

PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<C> <C> <S>
3. -- Exhibits
3.1 -- Articles of Incorporation of FirstBancorporation, Inc.
(incorporated by reference to Exhibit 3.1 contained in the
Company's Current Report on Form 8-k dated November 7, 1995)
3.2 -- Bylaws of FirstBancorporation, Inc. (incorporated by
reference to Exhibit 3.2 contained in the Company's Current
Report on form 8-k dated November 7, 1995)
10.1 -- Employment Agreement with James A. Shuford, III
(incorporated by reference to Exhibit 10(g) contained in the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995)
10.2 -- Employment agreement with James L. Pate, III (incorporated
by reference on Registration Statement on Form SB-2)
10.3 -- Employment Agreement with Richard E. Morgan, Jr.
(incorporated by reference on Registration Statement on Form
SB-2)
10.4 -- Employment Agreement with F. Wayne Lovelace (incorporated by
reference on Registration Statement on Form SB-2)
10.5 -- 1996 Stock Option Plan (incorporated by reference to Exhibit
A appended to the Company's 1996 annual meeting proxy
statement)
10.6 -- Qualified Incentive Stock Option Plan (incorporated by
reference to Exhibit 10(b) contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995)
10.7 -- Amended and Restated Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10(c) contained in the
Company's Annual Report on form 10-KSB for the year ended
December 31, 1995)
10.8 -- Lease for Company's main office (incorporated by reference
to Exhibit 10(e) contained in the company's Annual Report on
Form 10-KSB for the year ended December 31, 1995)
10.9 -- Lease for Company's main office (incorporated by reference
to Exhibit 10(e) contained in the company's Annual Report on
Form 10-KSB for the year ended December 31, 1995)
10.10 -- Lease for Columbia, South Carolina Office (incorporated by
reference on Registration Statement on Form SB-2)
(21) -- Subsidiaries of the Registrant
(27) -- Financial Data Schedule (for SEC use only)
</TABLE>

(b) The Company did not file any Reports on Form 8-K during the quarter
ended December 31, 1998.

G-74
<PAGE> 252

SIGNATURES

Pursuant to the requirement of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FirstBancorporation, Inc.

By /s/ JAMES A. SHUFORD, III
-----------------------------------
James A. Shuford, III
President and Chief Executive
Officer
Dated: March 22, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES L. PATE, III Senior Vice March 22, 1999
- --------------------------------------------------- President
James L. Pate, III (Principal Finance
and Accounting
Officer)

/s/ JAMES A. SHUFORD, III President, Chief March 22, 1999
- --------------------------------------------------- Executive Officer
James A. Shuford, III and Director
(Principal
Executive Officer)

/s/ COLDEN R. BATTEY, JR. Director, Chairman March 22, 1999
- --------------------------------------------------- of the Board
Colden R. Battey, Jr.

/s/ LAURANCE H. DAVIS, JR. Director, Secretary March 22, 1999
- ---------------------------------------------------
Laurance H. Davis, Jr.

/s/ RICHARD L. GRAY Director March 22, 1999
- ---------------------------------------------------
Richard L. Gray

/s/ RUSSELL L. JETER Director March 22, 1999
- ---------------------------------------------------
Russell L. Jeter

/s/ ROBERT A. KERR, SR. Director March 22, 1999
- ---------------------------------------------------
Robert A. Kerr, Sr.

Director March 22, 1999
- ---------------------------------------------------
James D. Neighbors
</TABLE>

G-75
<PAGE> 253

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

Director March 22, 1999
- ---------------------------------------------------
Jerry H. Reeves, III

/s/ CARSON R. RENTZ Director March 22, 1999
- ---------------------------------------------------
Carson R. Rentz

/s/ WILLIAM C. ROBINSON Director March 22, 1999
- ---------------------------------------------------
William C. Robinson
</TABLE>

G-76
<PAGE> 254

EXHIBIT 21
SUBSIDIARIES OF REGISTRANT

PARENT

FIRSTBANCORPORATION, INC.

<TABLE>
<CAPTION>
JURISDICTION OR
SUBSIDIARIES PERCENTAGE OWNED STATE OF INCORPORATION
- ------------ ---------------- ----------------------
<S> <C> <C>
FirstBank, N.A............................... 100% United States
FirstBank of the Midlands, N.A............... 100% United States
First Securities Corporation................. 100% South Carolina
</TABLE>

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

(a) The operation of the Company's wholly-owned subsidiaries is included in the
Company's Financial statements contained in Item 7, Financial Statements of
this Report.

(b) First Securities Corporation is a wholly-owned subsidiary of FirstBank, N.A.

G-77
<PAGE> 255

APPENDIX H

UNAUDITED QUARTERLY FINANCIAL STATEMENTS OF
FIRSTBANCORPORATION, INC.
AS OF MARCH 31, 1999

BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1999 1998
------------ ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from banks..................... $ 5,154 $ 4,089
Interest bearing overnight deposits................. 5,570 4,665
Securities available-for-sale....................... 12,133 11,165
Loans available-for-sale............................ 1,464 1,740
Loans............................................... 82,792 83,443
Less allowance for loan losses.................... (901) (860)
-------- --------
Net loans......................................... 81,891 82,583
-------- --------
Premises and equipment.............................. 1,864 1,932
Accrued interest receivable......................... 538 596
Real estate owned-acquired through foreclosure...... 28 40
Deferred tax asset.................................. 337 337
Other assets........................................ 658 346
-------- --------
Total assets...................................... $109,637 $107,494
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits.......................................... $ 89,171 $ 87,753
Federal Home Loan Bank advances................... 4,250 4,250
Other borrowed funds.............................. 2,100 2,100
Amounts due to depository institutions............ 133 490
Advances from borrowers for taxes and insurance... 50 85
Accrued interest payable.......................... 269 280
Expenses payable.................................. 149 166
Other liabilities................................. 791 245
-------- --------
Total liabilities.............................. $ 96,913 $ 95,369
-------- --------
Stockholders' Equity
Preferred stock -- $.01 par value; shares
authorized -- 1,000,000, issued and
outstanding -- none
Common stock -- $.01 par value; shares authorized --
3,000,000, issued and
outstanding -- 963,325 -- 3/31/99;
887,637 -- 12/31/98............................... $ 10 $ 9
Additional paid-in capital.......................... 10,129 9,623
Accumulated other comprehensive loss: Unrealized
loss on securities available-for-sale, net of
applicable deferred income taxes.................. (21) (13)
Retained earnings................................... 2,606 2,506
-------- --------
Total stockholders' equity..................... $ 12,724 $ 12,125
-------- --------
Total liabilities and stockholders' equity..... $109,637 $107,494
======== ========
</TABLE>

H-1
<PAGE> 256

FIRSTBANCORPORATION, INC.

CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
3/31/99 3/31/98
------- -------
<S> <C> <C>
Interest income
Interest on mortgage loans.................................. $ 946 $1,091
Interest on other loans..................................... 842 720
Interest on investments..................................... 233 72
------ ------
Total interest income..................................... 2,021 1,883
Interest expense
Interest on deposits........................................ 764 800
Interest on FHLB advances................................... 99 31
------ ------
Total interest expense.................................... 863 831
Net interest income......................................... 1,158 1,052
------ ------
Provision for loan losses................................... 54 45
------ ------
Net interest income after provision for loan losses......... 1,104 1,007
Noninterest income
Service charges on deposit accounts......................... 155 154
Other noninterest income.................................... 129 96
------ ------
Total noninterest income.................................. 284 250
Noninterest expenses
Compensation and benefits................................... 571 440
Occupancy................................................... 187 137
Data processing............................................. 41 32
Other noninterest expenses.................................. 419 252
------ ------
Total noninterest expenses................................ 1,218 861
Net income before taxes..................................... 170 396
------ ------
Income tax expense.......................................... 71 156
------ ------
Net income................................................ $ 99 $ 240
====== ======
Net income per share -- basic............................... $ 0.11 $ 0.35
====== ======
Net income per share -- diluted............................. $ 0.11 $ 0.33
====== ======
</TABLE>

H-2
<PAGE> 257

FIRSTBANCORPORATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDING MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE TOTAL
COMMON COMMON PAID-IN RETAINED INCOME STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS (LOSS) EQUITY
------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1997....................... 690,323 $ 7 $ 6,249 $1,740 $(15) $ 7,981
Comprehensive income:
Net income................. 240 240
Other comprehensive income
(loss) net of tax:
Unrealized loss on securities
available for sale......... 6 6
-------
Comprehensive income......... 240 6 246
------ ---- -------
Stock options exercised...... 2,425 26 26
Balances at March 31, 1998... 692,748 $ 7 $ 6,275 $1,980 $( 9) $ 8,253
======= === ======= ====== ==== =======
Balances at December 31,
1997....................... 887,637 $ 9 $ 9,623 $2,506 $(13) $12,125
Comprehensive income:
Net income................. 99 99
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale......... (8) (8)
-------
Comprehensive income......... 99 (8) 91
------ ---- -------
Stock options exercised...... 75,688 1 507 508
Balances at March 31, 1999... 963,325 $10 $10,130 $2,605 $(21) $12,724
======= === ======= ====== ==== =======
</TABLE>

H-3
<PAGE> 258

FIRSTBANCORPORATION, INC.

STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED
MARCH 31, 1999 AND 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
3/31/99 3/31/98
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 99 $ 240
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Amortization of deferred loan fees.......................... (34) (4)
Provision for loan losses................................... 54 45
Depreciation and amortization............................... 96 71
Deferred income taxes....................................... 0 9
Decrease(increase) in interest receivable................... 57 19
Decrease (increase) in other assets......................... (231) 139
Originations of loans sold to investors..................... (5,972) (4,953)
Proceeds from sales of loans to investors................... 5,972 4,953
Disbursements on loans serviced for others.................. (1,992) (628)
Receipts on loans serviced for others....................... 1,917 547
(Increase) decrease in real estate loans held for sale...... 276 (1,249)
Increase (decrease) in accrued interest payable............. (12) 48
(Increase) decrease in expenses payable..................... 69 (53)
Increase (decrease) in other liabilities.................... 314 (11)
------- -------
Net cash provided (used) by operating activities............ 613 (827)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale................... (5,137) 0
Maturities and repayments of securities
available-for-sale........................................ 4,169 82
Loans originated or acquired, net........................... 771 1,265
Proceeds from the sale of foreclosed real estate............ 12 0
Capital expenditures........................................ (34) (13)
------- -------
Net cash provided (used) for investing activities......... (219) 1,334
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in non interest-bearing demand
accounts.................................................. 2,198 (292)
Increases in Now, Money Market and Savings accounts......... 1,012 4,098
Increase (decrease) in certificates of deposit, net......... (1,805) 450
Repayment of Federal Home Loan Bank advances................ 0 (4,200)
Increase in amounts due to depository institutions.......... (301) (128)
Increase (decrease) in advances from borrowers for taxes and
insurance................................................. (35) 18
Stock issuance costs........................................ 0 (18)
Proceeds from stock options exercised....................... 508 26
------- -------
Net cash provided (used) by financing activities............ 1,577 (46)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,971 (461)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 8,754 6,096
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $10,724 $ 6,557
======= =======
CASH PAID DURING THE PERIOD:
Interest paid on deposits and borrowings.................. $ 883 $ 783
======= =======
Income tax paid........................................... $ 131 $ 28
======= =======
</TABLE>

H-4
<PAGE> 259

FIRSTBANCORPORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. On October 31, 1995, FirstBank, N.A. ("Bank"), (formerly The Savings Bank of
Beaufort County, FSB) reorganized as a wholly-owned subsidiary of
FirstBancorporation, Inc. ("Company"). As a result of the reorganization,
each issued and outstanding share of common stock, $5.00 par value per share,
of the Bank was converted into one share of common stock, $.01 par value per
share, of the Company. On September 1, 1998 the Company opened FirstBank of
the Midlands, National Association (FBM) after receiving all regulatory
approvals. The Company's principal business is its investment in the two
banks. On March 4, 1999, the Company entered into a definitive merger
agreement with First National Corporation in which First National will
exchange 1.222 shares of its common stock outstanding for each share of
FirstBancorporation common stock outstanding in a transaction which will be
accounted for as a pooling of interests.

2. The unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the reported interim periods. Such
adjustments are of a normal recurring nature. The interim consolidated
financial statements, including related notes, should be read in conjunction
with the consolidated financial statements for the year ended December 31,
1998 appearing in the 1998 Annual Report of FirstBancorporation, Inc. on Form
10-KSB. The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the results of operations for the full year.

3. Earnings Per Share -- Basic earnings per common share are calculated on the
basis of the weighted average number of shares outstanding during the year.
Diluted earnings per common share include stock options which have been
granted but not exercised. Average basic shares outstanding for the three
month periods ending March 31, 1999 and 1998 totaled 911,184 shares and
692,155 shares respectively. Average diluted shares outstanding for the three
month periods ended March 31, 1999 and 1998 totaled 919,467 and 736,716
shares respectively.

4. Loan Commitments -- At March 31, 1999, the Bank had total unused loan
commitments outstanding of $12,748,000 which were comprised of construction
and commercial unfunded lines of $5,550,000, unfunded consumer lines of
credit of $6,888,000 and letters of credit issued totaling $310,000. In the
normal course of business, the Bank issues loan commitments to customers at
market rates of interest. The Company's general practice is to obtain
investor commitments for fixed rate loans at the time of commitment. At March
31, 1999, all fifteen to thirty year fixed rate residential loan commitments
were covered by commitments from investors for purchase.

5. Statement of Cash Flows -- For the purposes of reporting cash flows, cash and
cash equivalents include cash, interest-bearing overnight deposits and other
short-term investments with original maturities of 90 days or less.

6. FirstBank of the Midlands, National Association was granted regulatory
authority to open for business on September 1, 1998. FBM is located at 1900
Assembly Street, Columbia, South Carolina. The Company acquired all of the
common stock of FBM for $5.0 million. The acquisition of FBM's common stock
was funded from the proceeds of the sale of additional common stock of the
Company and a loan from an unaffiliated commercial bank.

H-5
<PAGE> 260

FIRSTBANCORPORATION, INC.

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

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998

Total assets increased from $107.5 million at December 31, 1998 to $109.6
million at March 31, 1999. Loans receivable, net, decreased from $82.6 million
at December 31, 1998 to $81.9 million at March 31, 1999 primarily as a result of
mortgage loan repayments and prepayments. Cash and cash equivalents increased
from $8.7 million at December 31, 1998 to $10.7 million at March 31, 1999. Total
deposits increased 1.6% from $87.8 million at December 31, 1998 to $89.2 million
at March 31, 1999 primarily as a result of increases in NOW, savings and money
market accounts of $1.0 million, increases in non interest demand accounts of
$2.2 million and decreases in certificate accounts of $1.8 million. Total
stockholders' equity increased from $12.1 million at December 31, 1998 to $12.7
million at March 31, 1999 as a result of retained net income of $99,000 and
proceeds of $508,000 received from the exercise of stock options (75,688 shares
at an average exercise price of $6.71 per share).

COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

NET INCOME. Net income decreased 58.8% from $240,000 for the three months
ended March 31, 1998 ($0.35 per basic earnings per common share and $0.33 per
share on a diluted basis) to $99,000 for the three months ended March 31, 1999
($0.11 per basic earnings per common share and $0.11 per share on a diluted
basis) primarily as a result of a $357,000 increase in non interest expenses
which were primarily the result of additional overhead costs of FBM and
professional fees associated with the planned merger with First National
Corporation. These were offset by a $34,000 increase in non-interest income and
a $106,000 increase in net interest income.

NET INTEREST INCOME. Net interest income increased to $1.2 million in the
three months ended March 31, 1999 from $1.1 million for the first quarter of
1998. The Company's interest rate spread decreased from 4.31% for the three
months ended March 31, 1998 to 4.12% for the same period in 1999 as the average
yield on interest-earning assets decreased from 8.73% for the three months ended
March 31, 1998 to 8.10% for the comparative period in 1999 while the average
rate paid on interest-bearing liabilities decreased from 4.42% for the three
months ended March 31, 1998 to 3.98% for the same period in 1999.

Interest income increased from $1.9 million for the three months ended
March 31, 1998 to $2.1 million for the three months ending March 31, 1999.
Interest expense increased from $831,000 for the three months ended March 31,
1998 to $863,000 for the same period in 1999 primarily as a result of higher
average deposits and borrowings outstanding.

H-6
<PAGE> 261

value of any underlying collateral, and current economic conditions. Although
management uses the best information available, future adjustments to the
allowance may be necessary as a result of changes in economic, operating,
regulatory and other conditions that may be beyond the Company's control. While
the Company maintains its allowance for loan losses at a level that management
considers as adequate to provide for probable known and inherent losses, there
can be no assurance that further additions will not be made to the allowance for
loan losses or that actual losses will not exceed the estimated amounts.

The provision for loan losses increased from $45,000 for the three months
ended March 31, 1998 to $54,000 for the three months ended March 31, 1999. Total
loans 90 days past due and on non accrual totaled $1,125,000 at March 31, 1999
versus $1,290,000 at December 31, 1998. At March 31, 1999, the Company's
allowance for loan losses as a percent of total loans was 1.09%.

NONINTEREST INCOME. Noninterest income increased from $250,000 for the
three months ended March 31, 1998 to $284,000 for the same period in 1998
primarily as a result of increased gains on sale of loans sold.

NONINTEREST EXPENSES. Noninterest expenses increased 17.8% from $861,000
for the three months ended March 31, 1998 to $1,218,000 for the three months
ended March 31, 1999 primarily as a result of a $51,000 increase in compensation
expense related to salary expense associated with FBM and general salary
increases and a $83,000 increase in occupancy expense attributable to rent
increases on the Beaufort main office lease and expenses related to the office
space for FBM.

PROVISION FOR INCOME TAX EXPENSE. The Company pays Federal corporate
income taxes and South Carolina bank taxes. The provision for income taxes
decreased from $156,000 for the three months ended March 31, 1998 to $71,000 for
the three months ended March 31, 1999 as a result of lower income before income
taxes.

H-7
<PAGE> 262

ASSET/LIABILITY AND LIQUIDITY MANAGEMENT

INTEREST SENSITIVITY POSITION MARCH 31, 1999

<TABLE>
<CAPTION>
YEAR 1 YEAR 2 - 3 YEARS 4 THRU 7 YEAR 8 + TOTAL
------- ---------- -------------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and loans held for
sale..................... $49,589 $18,899 $10,893 $ 6,021 $81,606
GNMA MBSs................... 1,015 0 0 0 1,097
Overnight and other
investments.............. 13,395 0 0 280 16,360
------- ------- ------- ------- -------
Total interest-earning
assets................. 63,999 18,899 10,893 6,301 99,063
Interest-bearing liabilities:
Deposits.................... 54,784 18,021 7,202 0 80,006
FHLB borrowings/long term
debt..................... 2,200 150 1,000 3,000 6,350
------- ------- ------- ------- -------
Total interest-bearing
liabilities............ 56,984 18,171 8,202 3,000 86,356
Asset (liability) gap
position.................... $ 7,015 $ 729 $ 2,691 $ 5,082 $15,517
======= ======= ======= ======= =======
Cumulative gap position....... $ 7,015 $ 7,744 $10,435 $15,517
======= ======= ======= =======
Cumulative Gap to Total
Earning Assets.............. 6.89% 7.60% 10.24% 15.23%
======= ======= ======= =======
</TABLE>

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

(1) Contractual terms regarding periodic repricing during the loan terms are
used to determine repricing periods. Loans are net of undisbursed portions
of loans in process.

(2) Now, regular savings and money marketings accounts are considered
interest-sensitive.

As of March 31, 1999, the Company's interest-earning assets that reprice
within one year totaled $63,999,000 while interest-bearing liabilities repricing
within one year totaled $56,984,000. This resulted in a positive gap position of
$7,015,000 or 6.89% of total interest-earning assets.

H-8
<PAGE> 263

YIELDS EARNED AND RATES PAID

The following table is a comparison of the three months ended March 31,
1999 and 1998.

AVERAGE BALANCES AND YIELDS EARNED VERSUS RATES PAID
QUARTER ENDED MARCH 31, 1999 COMPARED TO 1998

<TABLE>
<CAPTION>
AVERAGE INTEREST EARNED ANNUALIZED
BALANCE OR PAID YIELD/RATE
------------------ --------------- -----------
FOR THE QUARTER ENDED MARCH 31,
--------------------------------------------------
1999 1998 1999 1998 1999 1998
-------- ------- ------ ------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets Loans..... $ 84,340 $81,267 $1,841 $1,811 8.73% 8.91%
Investments....................... 18,065 4,987 232 72 5.14 5.78
-------- ------- ------ ------ ---- ----
Total earning
assets/Income
earned............... 102,405 86,254 2,073 1,883 8.10 8.73
Non-earning assets................ 6 ,110 4,359
-------- -------
Total assets................. $108,515 $90,613
======== =======

LIABILITIES:
Interest-bearing deposits......... $ 80,619 $73,265 $ 764 $ 800 3.79 4.37
Borrowings........................ 6,350 2,081 98 31 6.22 5.98
-------- ------- ------ ------ ---- ----
Interest-bearing deposits and
borrowings/expense.............. 86,969 75,346 863 831 3.98 4.42
Non-interest-bearing
liabilities..................... 9,025 7,197
Stockholders' equity.............. 12,521 8,070
-------- -------
Total Liabilities and
Stockholders' equity....... $108,515 $90,613
======== =======
Net interest income............... $1,210 $1,052
====== ======
Interest Rate Spread(1)........... 4.12 4.31
Net yield on average
interest-earning assets(1)...... 4.73% 4.88%
</TABLE>

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

(1) Net interest income is the difference between interest income and interest
expense. Interest rate spread is the difference between the average rate on
earning assets and the average rate on interest-bearing liabilities. Net
yield on average interest-earning assets is net interest income divided by
total interest-earning assets.

Net interest income increased by $106,000 during the current year's quarter
as a result of a higher volume of interest-earning assets. Yield on
interest-earning assets decreased by .63% during the current year's quarter and
the rate paid on interest bearing liabilities decreased by .44% resulting in an
decrease in the net interest rate spread of .19% over the same period last year.
Total average interest-earning assets increased by $17,902,000 as result of a
higher volumes of loans of $3,073,000 and higher investments of $13,078,000.
Interest-bearing liabilities increased by $11,623,000 from the first quarter
1998.

H-9
<PAGE> 264

CAPITAL RESOURCES

For regulatory purposes, each of the Company's banks is required to
maintain a minimum of level of capital based upon the risk related composition
of its loan portfolio. This risk-based capital requirement requires that the
each bank maintain capital at a minimum 8% level of its regulatory defined risk
weighted assets. A bank may not declare or pay a cash dividend or repurchase any
of its capital stock, if the effect would cause the stockholders' equity to be
reduced below its capital requirements. As of March 31, 1999, both banks met all
of risk- based capital requirements and met the definition of a "well
capitalized institution" under the OCC's regulation entitled Prompt and
Corrective Action.

The Company's and subsidiary banks' actual capital ratios are presented in
the following table (dollars in thousands):

<TABLE>
<CAPTION>
AT MARCH 31, 1999 AMOUNT RATIO
- ----------------- ------- -----
<S> <C> <C>
Tier 1 Capital (to Total Assets):
Consolidated.............................................. $12,724 11.6%
FirstBank, N.A............................................ 8,483 9.0
FirstBank of the Midlands, National Association........... 4,547 30.7
Tier 1 Capital (to Risk Weighted Assets):
Consolidated.............................................. $12,724 18.6%
FirstBank, N.A............................................ 8,483 15.2
FirstBank of the Midlands, National Association........... 4,547 61.4
Total Capital (to Risk Weighted Assets):
Consolidated.............................................. $13,513 19.7%
FirstBank, N.A............................................ 9,248 13.6
FirstBank of the Midlands, National Association........... 4,573 61.7
</TABLE>

YEAR 2000 READINESS DISCLOSURE

1. Awareness -- Educational initiatives on year 2000 issues and
concerns. This phase is complete.

H-10
<PAGE> 265

2. Assessment -- Develop a plan, identify and evaluate all vital
systems of the Company. This phase was completed as of June 30, 1998.

3. Renovation -- Upgrade or replace any critical system that is
non-year 2000 compliant. This phase was substantially completed as of
December 31, 1998.

The Company estimates its total cost to identify, fix and replace computer
equipment, software programs or other equipment containing embedded
microprocessors that were not year 2000 compliant to be no more than $100,000,
of which $83,000 has been incurred as of March 31, 1999. This excludes the cost
of the Company's 1997 computer conversion which was not considered to be
undertaken for the express purpose of Year 2000 remediation. System maintenance
or modification costs are charged to expense as incurred, while the cost of new
hardware, software or other equipment is capitalized and amortized over their
estimated useful lives.

H-11
<PAGE> 266

Company, which could materially impair the Company's liquidity and affect The
Company's ability to fund loans and deposit withdrawals; (3) concern on the part
of depositors that year 2000 issues could impair access to their deposit account
balances could result in The Company experiencing deposit outflows prior to
December 31, 1999; and (4) The Company could incur increased personnel costs if
additional staff is required to perform functions that inoperative systems would
have otherwise performed.

- Organization Planning

- Business Impact Analysis

- Contingency Planning

- Validation

The Company received an OCC year 2000 exam in October, 1998 and a second
on-site OCC Y2K examination in April, 1999.

H-12
<PAGE> 267
APPENDIX A

P R O X Y FIRST NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS

C. John Hipp, III and W. Louis Griffith, or either of them, with full
power of substitution, are hereby appointed as agent(s) of the undersigned to
vote as proxies all of the shares of Common Stock of First National Corporation
held of record by the undersigned on the record date at the annual meeting of
shareholders to be held on July 20, 1999, and at any adjournment thereof, as
follows:

1. APPROVAL OF MERGER WITH FIRSTBANCORPORATION, INC.:
Approval of the merger agreement, dated as of March 4, 1999, between
First National Corporation and FirstBancorporation, Inc. and related plan of
merger, providing for the merger of FirstBancorporation with and into First
National, with each share of common stock of FirstBancorporation then
outstanding to be converted into the right to receive 1.222 shares of common
stock of First National, plus cash in lieu of fractional shares, all as
described in more detail in the accompanying joint proxy statement/prospectus. A
copy of the merger agreement and plan of merger are attached to the joint proxy
statement/prospectus as Appendices A and B, respectively.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

2. ELECTION OF DIRECTORS:

[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote for
below (except any I have all nominees listed below
written below)

William W. Coleman, Jr., Robert R. Hill, Jr.,
Ralph W. Norman, Anne H. Oswald, Samuel A. Rodgers,
A. Dewall Waters and C. Parker Dempsey

INSTRUCTION: To withhold authority to vote for any individual(s), write the
nominee's(s') name(s) on the line below.

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

3. PROPOSAL TO APPROVE THE FIRST NATIONAL CORPORATION 1999 STOCK
OPTION PLAN:

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. PROPOSAL TO RATIFY APPOINTMENT OF J.W. HUNT AND COMPANY, LLP,
CERTIFIED PUBLIC ACCOUNTANTS, AS FIRST NATIONAL'S INDEPENDENT ACCOUNTANTS FOR
1999:
[ ] FOR [ ] AGAINST [ ] ABSTAIN

5. And, in the discretion of said agents, upon such other
business as may properly come before the meeting, and matters incidental to the
conduct of the meeting.

THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH
RESPECT TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR"
SUCH MATTER.

<PAGE> 268
APPENDIX B

P R O X Y FIRSTBANCORPORATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS

The board of directors of FirstBancorporation, Inc., with full power of
substitution, is hereby appointed as agent(s) of the undersigned to vote as
proxies all of the shares of Common Stock of FirstBancorporation, Inc. held of
record by the undersigned on the record date for the annual meeting of
shareholders to be held on July 20, 1999, and at any adjournment thereof, as
follows:

1. APPROVAL OF MERGER WITH FIRST NATIONAL CORPORATION:

Approval of the merger agreement, dated as of March 4, 1999, between
First National Corporation and FirstBancorporation, Inc. and related plan of
merger, providing for the merger of FirstBancorporation with and into First
National, with each share of common stock of FirstBancorporation then
outstanding to be converted into the right to receive 1.222 shares of common
stock of First National, plus cash in lieu of fractional shares, all as
described in more detail in the accompanying joint proxy statement/prospectus. A
copy of the merger agreement and plan of merger are attached to the joint proxy
statement/prospectus as Appendices A and B, respectively.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

2. ELECTION OF DIRECTORS

[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote for
below (except any I have all nominees listed below
written below)

Laurance H. Davis, Jr., Jerry H. Reeves, III, Carson R. Rentz and
Thomas E. Suggs

INSTRUCTION: To withhold authority to vote for any individual(s), write the
nominee's(s') name(s) on the line below.

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

3. And, in the discretion of said agents, upon such other
business as may properly come before the meeting, and matters incidental to the
conduct of the meeting.

THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH
RESPECT TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR"
SUCH MATTER.

Please sign exactly as name appears below. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title. If more
than one trustee, all should sign. All joint owners must sign.

Dated: ______________________________, 1999

____________________________________________