FIRST NATIONAL CORP /SC/
EXHIBIT 10.8
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>10
<FILENAME>a4396900ex108.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>
                                  Exhibit 10.8


ANY DISPUTE OR CONTROVERSY ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT SHALL BE SUBJECT TO ARBITRATION PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION

                   SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

         THIS AGREEMENT, made as of this 2nd day of January, 2003, between South
Carolina Bank & Trust (the "Bank") and C.J. Hipp, III (the "Employee"). The Bank
and the Employee shall be individually referred to as a "Party" and collectively
referred to as the "Parties"

                                   WITNESSETH:

         WHEREAS, the Employee is currently a valued employee of the Bank who is
a member of a select group of management or a highly-compensated employee of the
Bank; and

         WHEREAS, the Bank wishes to induce the Employee's continued employment
by supplementing the Employee's retirement income; and

         WHEREAS, the Bank desires to adopt and establish, effective as of
January 1, 2003, a non-qualified unfunded supplemental executive retirement
agreement with the Employee with such agreement and certain other agreements
with other employees of the Bank together constituting the South Carolina Bank &
Trust Executive Retirement Plan.

         NOW, THEREFORE, the Bank and the Employee do hereby adopt and approve
this Agreement consisting of the terms and provisions set forth below:

         Section 1. Definitions. A number of terms are defined throughout this
Agreement when the term is first used. In addition, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:

          (a)  "After-Tax Factor" means the factor determined by subtracting the
               Bank's top marginal income tax rate for the tax year that ends
               during the applicable Plan Year from one (1). For example, if the
               Bank's top marginal income tax rate maximum equaled 35%, the
               After-Tax Factor would equal 65% (1 minus 35%).

          (b)  "Annual After-Tax Cost of Funds" means the product of the
               Cumulative Costs as of the last day of the prior Plan Year
               multiplied by the After-Tax Cost-of-Funds Rate for the Plan Year
               in which such computation is being made. An example of After-Tax
               Cost of Funds is attached to this Agreement on Exhibit A.

<PAGE>


          (c)  "Annual After-Tax Cost-of-Funds Rate" means the Lehman Brothers
               Intermediate U.S. Government Bond Index yield in effect on the
               first day of the Plan Year multiplied by the After-Tax Factor.

          (d)  "Annual Benefit Credit" means the annual benefit credit as
               described in Section 2 below.

          (e)  "Annual Earnings on Bank-Owned Life Insurance" means, for the
               Bank-Owned Life Insurance, the annual increases in cash value in
               excess of annual premiums paid, plus death benefits received in
               excess of cash values released at death.

          (f)  "Bank-Owned Life Insurance" means the policies listed on Schedule
               I.

          (g)  "Base Benefit Amount" means, with respect to the Employee, a
               maximum annual benefit of $170,000.00.

          (h)  "Benefit Credit Balance" means the difference between (1) the sum
               of the Annual Benefit Credits for the current Plan Year and all
               previous Plan Years minus (2) the sum of the Installment Payments
               paid during the current Plan Year and all previous Plan Years.

          (i)  "Cause" means: (1) the repeated failure of Employee to perform
               the responsibilities and duties for which he has been employed;
               (2) the commission of an act by Employee constituting dishonesty
               or fraud against the Holding Company or the Bank; (3) the
               conviction for or the entering of a guilty or no contest plea
               with respect to a felony; (4) habitual absenteeism, chronic
               alcoholism or any other form of substance abuse; or (5) the
               commission of an act by Employee involving gross negligence or
               moral turpitude that brings the Holding Company or any of its
               affiliates into public disrepute or disgrace or causes material
               harm to the customer relations, operations or business prospects
               of the Holding Company or any of its affiliates.

          (j)  "Cumulative Costs" means (1) with respect to the initial Plan
               Year, the product of (a) the difference between the premiums paid
               under the Bank-Owned Life Insurance during the initial Plan Year
               minus the death benefits received from the Bank-Owned Life
               Insurance during the initial Plan Year, multiplied by (b) the sum
               of one plus the Annual After-Tax Cost-of-Funds Rate for such Plan
               Year; (2) with respect to each subsequent Plan Year, the sum of
               (z) the product of Cumulative Cost of the prior Plan Year
               multiplied by the sum of one plus the Annual After-Tax

                                       2

<PAGE>


               Cost-of-Funds Rate for such Plan Year plus (y) the difference
               between the premiums paid under the Bank-Owned Life Insurance
               during such Plan Year minus the death benefits received from the
               Bank-Owned Life Insurance during such Plan Year. An example of
               the computation of Cumulative Costs is attached to this Agreement
               on Exhibit A.

          (k)  "Designated Beneficiary" means any person or persons (who may be
               designated contingently or successively) to whom payments are to
               be made under Sections 3(b), 3(c) or 3(d) and which are so
               designated by the Employee signing a form provided by the Bank
               for such purpose. A beneficiary designation form will be
               effective only after the signed form is filed with the Bank while
               the Employee is alive and such form will cancel all beneficiary
               designation forms signed and filed earlier with the Bank. If the
               Employee fails to designate a beneficiary as provided herein, or
               if all the designated beneficiaries of the Employee die before
               the Employee or before complete payment of all amounts due
               hereunder, the Bank shall pay the unpaid amount to the legal
               representative or representatives of the estate of the last to
               die of the Employee and the Designated Beneficiary (or
               beneficiaries).

          (l)  "Holding Company" means First National Corporation or such
               successor corporation.

          (m)  "Installment Payments" means all payments made under this
               Agreement to the Employee or to a Designated Beneficiary.

          (n)  "Performance Ratio" means a fraction, the numerator equaling the
               number of Plan Years that the per share earnings (on a diluted
               basis) on shares of common stock of the Holding Company on the
               last day of the Plan Year is greater than or equal to 110% of the
               per share earnings (on a diluted basis) on shares of common stock
               of the Holding Company on the last day of the previous Plan Year
               (or December 31, 2002 with respect to the first Plan Year under
               this Agreement) and the denominator equaling the number of Plan
               Years from the inception of this Agreement until the Employee's
               termination of service with the Bank. For purposes of this
               subsection, per share earnings (on a diluted basis) on shares of
               common stock of the Holding Company on the last day of the
               applicable Plan Year or December 31, 2002 with respect to the
               first Plan year under this Agreement (hereinafter referred to as
               a "Determination Date") shall be determined by the Board of
               Directors of the Bank or its designee, within 190 days of the
               applicable Determination Date, utilizing the information
               contained in the applicable Form 10-K Annual Report Pursuant to
               Section 13 or 15(D) of the Securities Exchange Act of 1934 and
               such other information (such as stock repurchases and other

                                       3

<PAGE>

               extraordinary events) as the Board of Directors of the Bank deems
               appropriate. Notwithstanding the first sentence of this
               subsection, if the per share earnings (on a diluted basis) of
               shares of common stock of the Holding Company on December 31,
               2007 (or after the initial five Plan Year period ending on
               December 31, 2007, the last day of the Plan Year that concludes
               the next five Plan Year period; e.g., December 31, 2012, December
               31, 2017, etc.) is greater than or equal to 161 % of the per
               share earnings on shares of common stock of the Holding Company
               on the December 31, 2002 (or after the initial five Plan Year
               period ending on December 31, 2007, the last day of the Plan Year
               prior to the beginning of the next five Plan Year period; e.g.,
               December 31, 2007, December 31, 2012, etc.) and the Employee
               remains employed by the Bank, the Holding Company or an entity
               affiliated with the foregoing as of such last day of the
               applicable five Plan Year period, the numerator of the fraction
               utilized for computing the Performance Ratio will be determined
               as if the 110% target had been attained for any Plan Year during
               that five Plan Year period in which the 110% target had not been
               attained. None of the provisions of this subsection shall be
               interpreted as permitting the determination or computation of a
               Performance Ratio in excess of 100%.

          (o)  "Plan Year" means calendar year.

         Section 2. Crediting of Benefits. As of the first day of each Plan
Year, for so long as the Employee is entitled to future Installment Payments,
and to the extent the Benefit Credit Balance is less than the future benefits
payable under this Agreement, the Bank shall credit to a book reserve account
maintained for the Employee an amount equal to the Annual Benefit Credit. The
Annual Benefit Credit shall be an amount equal to the quotient of (1) the
difference between (a) the Annual Earnings on Bank-Owned Life Insurance, minus
(b) the Annual After-Tax Cost-of-Funds; divided by (2) the After-Tax Factor. An
example of the crediting of benefits is attached to this Agreement on Exhibit A.

         The amount of the book reserve account shall accumulate without
interest. The Parties acknowledge that the book reserve account is used solely
to measure the amount that accrues for the Employee's benefit under this
Agreement and that the Bank shall have no duty to set aside assets in such
account to cover its obligations hereunder. The right of the Employee or any
designated beneficiary to receive a distribution under this Agreement is an
unsecured claim against the general assets of the Bank.

         Any insurance policy or other asset acquired by the Bank shall be
deemed to not be held in trust for the benefit of the Employee nor to be
collateral security for the performance of the obligations of the Bank, but
shall remain a general, unpledged and unrestricted asset of the Bank. The
Employee and designated beneficiaries have the status of general unsecured
creditors of the Bank. This Agreement constitutes a mere promise by the Bank to
make benefit payments in the future.

                                       4

<PAGE>

         Section 3. Payment of Benefits. (a) Upon Retirement. Subject to the
provisions of subsection 3(e), upon the Employee's retirement on or after the
attainment of age sixty-five, the Bank shall pay the Employee 240 monthly
Installment Payments equal to the quotient of (1) the product of (a) the Base
Benefit Amount, multiplied by (b) the Performance Ratio; (2) divided by 12.
Installment Payments will commence not later than thirty days after the Employee
reaches age sixty-five or his actual retirement date, if later.

         Alternatively, subject to the provisions of subsection 3(e), upon the
Employee's retirement on or after the attainment of age sixty-two (but before
the attainment of age sixty-five), the Bank shall pay the Employee 240 monthly
Installment Payments equal to the quotient of (1) the product of (a) the Base
Benefit Amount, multiplied by (b) the Performance Ratio, multiplied by (c) the
Early Retirement Commencement Adjustment Factor; (2) divided by 12. For purposes
of this subsection 3(a), "Early Commencement Adjustment Factor" means one less
five-ninths of one percent (0.5556%) for each month that the Employee's
retirement precedes the first day of the month coincident or immediately
preceding the date upon which the Employee attains age sixty-five. Installment
Payments will commence not later than thirty days after the Employee's actual
retirement date.

                  (b) After Termination of Employment. If the Employee's
employment with the Bank is terminated for any reason, other than death or
Cause, prior to the Employee's attainment of age sixty-two, the Bank shall pay
to the Employee (or the Employee's Designated Beneficiary, if the Employee dies
prior to receipt of all of the Installment Payments payable under this section)
240 monthly Installment Payments equal to the quotient of (1) the product of (a)
the Benefit Credit Balance (as of the first day of the Plan Year in which the
Employee's employment is terminated) multiplied by (b) the Vesting Factor
multiplied by (c) the Performance Ratio; (2) divided by 240. This monthly
benefit will commence no later than thirty days after the Employee attains the
age of sixty-five. The Vesting Factor will be determined as follows:

                  Years of Service                           Vesting Factor
                  ----------------                           --------------
         Up to five years of service                               0%
         From five to nine years of service                       33%
         From ten years to fourteen years of service              67%
         Fifteen years of service                                100%

For purposes of this Agreement, the Employee will earn one year of service for
each complete Plan Year that occurs after the execution of this Agreement in
which the Employee continues to provide services to the Bank on a substantially
full-time basis. Upon payment of the amounts described in this subsection, the
Bank shall have no further obligation under this Agreement.

                  (c) In the Event of Death Prior to Commencement of Installment
Payments. If the Employee dies while employed by the Bank, but prior to the
commencement of any Installment Payments, the Bank shall pay to the Employee's
Designated Beneficiary (1) a lump sum Installment Payment equal to $850,000.00

                                       5

<PAGE>

plus (2) 120 monthly Installment Payments in the amount equal to the Base
Benefit Amount divided by 12. The lump sum Installment Payment and the monthly
Installment Payments shall commence within thirty days of the Employee's death.
The Installment Payments shall be subject to the provisions of subsection 3(e)
below. Upon payment of the amounts described in this subsection, the Bank shall
have no further obligation under this Agreement.

                  (d) In the Event of Death After the Commencement of
Installment Payments. If the Employee dies after Installment Payments have
commenced, as described in subsection 3(a), the Bank shall continue Installment
Payments to the Employee's Designated Beneficiary for the difference between (a)
240 minus (b) the number of Installment Payments previously paid to the
Employee. Such Installment Payments shall be subject to the provisions of
subsection 3(e) below. Upon payment of the amounts described in this subsection,
the Bank shall have no further obligation under this Agreement.

                  (e) Suspension of Benefits. Notwithstanding the provisions of
subsections 3(a), 3(c), and 3(d), in the event the Benefit Credit Balance is
less than an Installment Payment to be paid, the Installment Payment shall not
be made. To the extent that Installment Payments are suspended under this
section, such suspended Installment Payments (without interest) shall be paid as
soon as the Benefit Credit Balance is greater than or equal to the suspended
Installment Payment or Installment Payments.

         Section 4. Forfeiture and Change in Control. (a) Forfeitures. The
Employee's benefits under this Agreement shall be forfeited upon the Employee's
entering into "competition" with the Bank at any time after his employment is
terminated for any reason. For purposes of this section, "competition" shall
mean the Employee's engaging in any manner, directly or indirectly,
individually, as a stockholder, partner, member, consultant, or agent of any
company or other business organization or otherwise that engages in the
development, marketing, selling or maintenance of any line of business that the
Bank actively conducts (the "Company Business") in any county in which the
Holding Company, the Bank or an affiliated entity has an office or facility (the
"Noncompete Area").

         Notwithstanding the previous sentence, "competition" shall not include
the Employee's ownership of no more than 2% of the debt or equity securities of
corporations listed on a registered securities exchange that directly or
indirectly engage in the Company Business in the Noncompete Area. In addition,
the provisions of this Section 4(a) shall not apply if the Employee is
terminated after a Change in Control (as defined in Section 4(c)) for reasons
other than Cause.

     (b) Vesting and Establishment of a Grantor Trust upon a Change in Control.
Notwithstanding the provisions of subsection 3(b), upon a Change in Control, the
Vesting Factor (described in Section 3(b)) shall be the percentage determined by
dividing the years of service of the Employee (computed in accordance with the
provisions of Section 3(b)) by 15. Notwithstanding the previous sentence, in no
event shall the Vesting Factor exceed 100%. In addition, upon a Change in
Control, the Bank shall establish a grantor trust which shall be used
exclusively for the funding of benefits under the South Carolina Bank & Trust

                                       6

<PAGE>

Executive Retirement Plan and satisfying the claims of general creditors of the
Bank in the event the Bank becomes insolvent.

     (c) Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean:

          (1)  Any "person" (as that term is used in Sections 13(d) and 14(d)(2)
               of the Securities Exchange Act of 1934, as amended), other than
               (A) a trustee or other fiduciary holding securities under an
               employee benefit plan of the Holding Company or (B) Employee or a
               group of persons including Employee, is or becomes the beneficial
               owner (as that term is used in Section 13(d) of the Securities
               Exchange Act of 1934), directly or indirectly, of 50% or more of
               the common voting stock of the Holding Company, the Bank or their
               successors;

          (2)  There shall be any consolidation or merger of the Holding Company
               or the Bank in which such entity is not the continuing or
               surviving corporation or as a result of which the holders of the
               voting capital stock of the Holding Company or the Bank (as the
               case may be) immediately prior to the consummation of the
               transaction do not own more than 50% of the voting capital stock
               of the surviving corporation; or

          (3)  There occurs the sale of all or substantially all of the assets
               of the Holding Company or the Bank.

         Section 5. Unfunded Arrangement. The Bank's obligation to make payments
to any person under this Agreement is purely contractual. The Parties do not
intend that the amounts payable hereunder be held by the Bank in trust or as a
segregated fund for the Employee, the Designated Beneficiary, or other person
entitled to payments hereunder. The benefits provided under this Agreement shall
be payable solely from the general assets of the Bank, and neither the Employee
nor any other person entitled to payments hereunder shall have any interest in
any assets of the Bank by virtue of this Agreement. The Bank's obligation under
this Agreement shall be merely that of an unfunded and unsecured promise of the
Bank to pay money in the future. To the extent that this Agreement should be
deemed to be a "pension plan," the Parties intend that it be unfunded for
federal income tax purposes, as well as for Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").

         Section 6. Administration. (a) Named Fiduciary and Administrator. The
named fiduciary shall be the Bank. The named fiduciary shall have the authority
to control and manage the operation and administration of this Agreement. The
administration of this Agreement shall be under the supervision of a Director,
officer or employee of the Bank (hereinafter referred to as the "Administrator")
designated by the Board of Directors of the Bank (the "Board"). It shall be a
principal duty of the Administrator to see that the Agreement is carried out, in
accordance with the terms of the Agreement.

                                       7

<PAGE>

                  (b) Power of the Board or Designee. The Board, and any persons
designated to act for the Board shall have such powers as are necessary to
discharge their duties, including but not limited to interpretation and
construction of the Agreement, the determination of all questions of
eligibility, benefits and all other related or incidental matters. The Board,
and any persons designated to act for the Board shall decide all questions in
accordance with the terms of the controlling legal documents and applicable law
and their good faith decision will be binding on the Bank, the Employee, and all
other interested parties, subject to review or correction only when the
interpretation or determination is arbitrary, capricious, contrary to law, or
not supported by substantial evidence.

                  (c) Expenses of Board, or Designee. The reasonable expenses of
the Board or the Board's designee, if any, incurred by such persons in the
performance of their duties under the Agreement, including, without limitation,
reasonable counsel fees and expense of other agents, shall be paid by the Bank.

         Section 7. Claims for Benefits. (a) Any claim for specific benefits
under this Agreement shall be made in writing to the Administrator. If any claim
for benefits under this Agreement is wholly or partially denied, notice of the
decision shall be furnished to the claimant within a reasonable period of time,
not to exceed 90 days after receipt of the claim by the Administrator, unless
special circumstances require an extension of time for processing the claim. If
such an extension of time is required, written notice of the extension shall be
furnished to the claimant prior to the termination of the initial 90-day period.
In no event shall such extension exceed the period of 90 days from the end of
such initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date on which the
administrator expects to render a decision.

                  (b) The Administrator shall provide every claimant who is
denied a claim for benefits written notice setting forth, in a manner calculated
to be understood by the claimant, the following: (1) specific reasons for the
denial; (2) specific reference to pertinent provisions upon which the denial is
based; (3) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material or
information is necessary; and (4) an explanation of the Agreement's claims
review procedure as set forth below.

                  (c) The claimant may appeal the denial of his claim to the
named fiduciary for a full and fair review. The claimant or his duly authorized
representative may request a review upon written application to the
Administrator, review pertinent documents, and submit issues and comments in
writing. A claimant (or his duly authorized representative) shall request a
review by filing a written application for review with the Board or its designee
(the "Reviewer") at any time within 60 days after receipt by the claimant of
written notice of the denial of his claim.

                  (d) The decision on review shall be made by the Reviewer, who
may, in his discretion, hold a hearing on the denied claim; the Reviewer shall
make his decision promptly, and not later than 60 days after the Administrator
receives the request for review, unless special circumstances require extension

                                       8

<PAGE>

of time for processing, in which case a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for review.
If such an extension of time for review is required, written notice of the
extension (including the special circumstances requiring the extension of time)
shall be furnished to the claimant prior to the commencement of the extension.
In the event that the decision on review is not furnished within the time period
set forth in this paragraph, the claim shall be deemed denied on review.

         The decision on review shall be in writing and shall include reasons
for the decision, written in a manner calculated to be understood by the
claimant, and specific references to the pertinent provisions in the relevant
documents on which the decision is based.

         Section 8. Amendment and Termination. The Bank reserves the right to
amend, terminate or extend this Agreement at any time. The Bank has established
this Agreement with a bona fide intention and expectation that from year to year
it will deem it advisable to continue it in effect. However, the Board of the
Bank, in its sole discretion, reserves the right to terminate this Agreement in
its entirety at any time. However, no such amendment or termination shall
deprive the Employee of any benefit that has accrued hereunder prior to the date
of such amendment or termination.

         Section 9. Miscellaneous. (a) Spendthrift Clause. To the extent
permitted by law, no benefits payable under this Agreement shall be subject to
the claim of any creditor of the Employee (or Designated Beneficiary, if
applicable) or to any legal process by any creditor of any such person. The
Employee or Designated Beneficiary, if applicable, shall have no right to
alienate, anticipate, pledge or assign any benefits under the Agreement.

                  (b) Successors in Interest. The Bank will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Bank, to expressly assume and agree to perform the Agreement in the same manner
and to the same extent that the Bank would be required to perform if no
succession had taken place.

                  (c) Rules of Construction. Section and subsection headings
have been inserted for convenience of reference only and are to be ignored in
any construction of the provisions hereof. If any provision of this Agreement
shall for any reason be invalid or unenforceable, the remaining provisions shall
nevertheless be valid, enforceable and fully effective. The Agreement shall be
construed, administered and governed in all respects under and by the law of the
State of South Carolina to the extent applicable, and to the extent such laws
are not applicable or superseded, by the law of the United States.

                  (d) Arbitration. After exhausting the administrative
procedures contained in Paragraph 7, any dispute or controversy arising under,
or in connection with, the Agreement shall be settled exclusively by arbitration
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.

                                       9

<PAGE>

                  (e) No Contract of Employment. This Agreement in no way
constitutes a contract of employment between the Bank and the Employee and
continued employment of the Employee by the Bank is not guaranteed.

                  (f) No Amendment of Other Plans. Nothing in this Agreement
shall operate or be construed in any way to modify, amend or affect the terms
and provisions of any pension, profit sharing or other employee benefit plan
established by the Bank. This Agreement shall not effect the rights the Employee
may have under any other employee benefit plan established by the Bank.

                  (g) Survivor Annuities and QDROs. Nothing contained in this
Agreement is intended to give or shall give any spouse or former spouse of the
Employee or any other person any right to benefits under this Agreement by
virtue of sections 401(a)(11) and 417 of the Internal Revenue Code of 1986, as
amended (the "Code") (relating to qualified preretirement survivor annuities and
qualified joint and survivor annuities) or Code sections 401(a)(13)(B) and
414(p) (relating to qualified domestic relations orders).

                  (h) Early Benefit Payments. Notwithstanding the preceding
provisions of this Agreement, the Bank may make payments before they would
otherwise be due if, based on a change in the federal or applicable state tax or
revenue laws, a published ruling or similar announcement issued by the Internal
Revenue Service, a regulation issued by the Secretary of the Treasury, or a
closing agreement made under Code Section 7121 that is approved by the Internal
Revenue Service and involves the Employee, it determines that the Employee has
or will recognize income for federal or state income tax purposes with respect
to amounts that are or will be payable under the Agreement before they otherwise
would be paid. The amount of any payments pursuant to this Section shall not
exceed the amount of the assessed or determined tax liability.

                  (i) Taxes. The Bank reserves the right to withhold all
applicable federal, state and local taxes on any monies paid to the Employee
under this Agreement.

                  (j) Representations. This Agreement contains all
representations, written or oral, made by the Bank to the Employee regarding the
special retirement benefit.

                                       10

<PAGE>

         The Bank and the Employee, respectively, have caused these presents to
be signed by themselves or their duly authorized officers as of the day and year
first above written.

                                                   SOUTH CAROLINA BANK AND TRUST

                                                   By: /s/ Richard C. Mathis
                                                       ---------------------
                                                           Richard C. Mathis

                                    EMPLOYEE


                                                   By: /s/ C. John Hipp, III
                                                       ---------------------
                                                           C. John Hipp, III

                                       11

<PAGE>



                                   SCHEDULE I

                       Bank-Owned Life Insurance Policies


<PAGE>



                                    EXHIBIT A

(1)      Examples of Cumulative Costs

                  If a single premium payment of $500,000 is made during the
         initial Plan Year and the Annual After-Tax Cost of Funds Rate for the
         initial Plan Year is 3%, Year 2 is 2%, Year 3 is 3%, and Year 4 is 4%,
         the Cumulative Cost calculations are as follows:

                  Initial Year      $500,000 x 1.03 =  $515,000
                  Year 2            $515,000 x 1.02 =  $525,300
                  Year 3            $525,300 x 1.03 =  $541,059
                  Year 4            $541,059 x 1.04 =  $562,701

         Further, assume in year 5, the Bank receives $75,000 in death benefits
         and the Annual After-Tax Cost of Funds Rate is 2%, the Cumulative Cost
         calculation is as follows:

                  Year 5            ($562,701 x 1.02) - $75,000 = $498,955


(2)      Example of Annual After-Tax Cost of Funds

                  If the Cumulative Costs and the Annual After-Tax Cost of Funds
         are the same as in item (1) above, the Annual After-Tax Costs of Funds
         are as follows:

                  Initial Year      $500,000 x .03 = $15,000
                  Year 2            $515,000 x .02 = $10,300
                  Year 3            $525,300 x .03 = $15,759
                  Year 4            $541,059 x .04 = $21,442

(3)      Examples of Crediting Benefits

                  If the Annual Earning on the Bank-Owned Life Insurance after
         year 10 equaled $85,000, the Cumulative Cost was $1,000,000, the Annual
         After-Tax Cost-of-Funds Rate was 4%, and the After-Tax Factor equaled
         .65, then the following amount would be credited to the Employee's book
         reserve account:

                  [$85,000  - ($1,000,000  x  .04)]  /  .65  =  $69,231





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</DOCUMENT>
