ANCHOR FINANCIAL CORP, 10-K, 1998-03-30

ANCHOR FINANCIAL CORP
10-K, 1998-03-30
STATE COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File Number 0-13759

Anchor Financial Corporation
(Exact Name of Registrant as Specified in Its Charter)

Incorporated in the State of South Carolina
IRS Employer Identification Number 57-0778015
Address: 2002 Oak Street, Myrtle Beach, S.C. 29577
Telephone: (843) 448-1411

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK -- $6.00 PAR VALUE

Indicate by check mark whether the registrant: (1) has 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
Corporation was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]

As of March 2, 1998, the Corporation had 3,886,323 shares of common stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Corporation was $147,680,274, based on the market price of $38.00 per
share on March 2, 1998.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement dated March 30, 1998, relating to the
Annual Meeting of Stockholders of the Corporation to be held April 30, 1998,
are incorporated herein by reference in response to Part III.

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<PAGE>

CROSS REFERENCE INDEX

Page
------
<S> <C> <C> <C>
PART I Item 1 Business ............................................................................ 4
Item 2 Properties .......................................................................... 7, 34
Item 3 Legal Proceedings ................................................................... 7
Item 4 Submission of Matters to a Vote of Shareholders ..................................... 7
PART II Item 5 Market for the Registrant's Common Stock and
Related Shareholder Matters ......................................................... 8
Item 6 Selected Financial Data ............................................................. 10
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................. 9
Item 8 Financial Statements and Supplementary Data.......................................... 25
Consolidated Balance Sheet at December 31, 1997 and
1996 ................................................................................ 26
Consolidated Statement of Income for each of the three
years in the period ended December 31, 1997 .......... .............................. 27
Consolidated Statement of Changes in Stockholders'
Equity for each of the three years in the period ended
December 31, 1997 ................................................................... 28
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1997 ................................... 29
Notes to Consolidated Financial Statements .......................................... 30
Report of Independent Accountants ................................................... 25
Quarterly Financial Summary for 1997 and 1996 ....................................... 45
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
The Corporation had no disagreements with its
independent accountants on any matter of accounting
principles, practices or financial statement disclosure
during 1997, 1996, or 1995.
PART III Item 10 Directors and Executive Officers of the Registrant .................................. *, 7
Item 11 Executive Compensation .............................................................. *
Item 12 Security Ownership of Certain Beneficial Owners
and Management ...................................................................... *
Item 13 Certain Relationships and Related Transactions ...................................... *
PART IV Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a)(1) Financial Statements (See Item 8 for reference.)
(2) Financial Statement Schedules
All other financial statements and schedules not listed
under Item 8 of this report on Form 10-K are omitted
since they are not applicable, not required, or the
required information is included in the consolidated
financial statements.
(3) Exhibits
3.1 Articles of Incorporation as amended (incorporated
herein by reference to the Corporation's Form 10-K for
the year ended December 31, 1996).
3.2 By-Laws (incorporated herein by reference to the
Corporation's Form 10-K for the year ended December 31,
1996).
10 Material Contracts:
(a) Anchor Financial Corporation, The Anchor Bank
and The Anchor Bank of North Carolina Incentive
Stock Option Plan of 1996 (incorporated herein
by reference to the Corporation's Form 10-K for
the year ended December 31, 1995).
(b) Anchor Financial Corporation, The Anchor Bank
and The Anchor Bank of North Carolina Incentive
Stock Option Plan of 1994 (incorporated herein
by reference to the Corporation's Form 10-K for
the year ended December 31, 1993).
(c) Non-Qualified Stock Option Plan of 1988 dated
November 14, 1988 (incorporated herein by
reference to the Corporation's Form 10-K for the
year ended December 31, 1988).
21 Subsidiary of the Registrant.
23.1 Consents of Price Waterhouse LLP.
27 Financial Data Schedule
Exhibits have been filed separately with the Commission
and are available upon written request.

<PAGE>

(b) No reports of Form 8-K were filed during the fourth quarter of 1997.
</TABLE>

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* The information called for by Item 10 is incorporated herein by reference to
the information on pages 2 through 4 of the Corporation's definitive Proxy
Statement relating to the 1998 Annual Meeting of Stockholders of the
Corporation.

The information called for by Item 11 is incorporated herein by reference to
the information on pages 6 through 10 of the Corporation's definitive Proxy
Statement relating to the 1998 Annual Meeting of Stockholders of the
Corporation.

The information called for by Item 12 is incorporated herein by reference to
the information on page 5 of the Corporation's definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders of the Corporation.

The information called for by Item 13 is incorporated herein by reference to
the information on page 12 of the Corporation's definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders of the Corporation.

THIS REPORT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS REPORT.

3
<PAGE>

Business
General

Anchor Financial Corporation (the "Corporation") is a registered bank
holding company incorporated in 1984 under the laws of the State of South
Carolina. The purpose for incorporation was to acquire The Anchor Bank ("the
Bank") and to invest in other bank-related businesses. The Corporation provides
its customers with banking services through its principal subsidiary, the Bank,
and data processing services through its subsidiary, Anchor Automated Services,
Inc. The Corporation owns 100% of the issued and outstanding stock of the Bank
and Anchor Automated Services, Inc. (collectively the "Subsidiaries").

The principal role of the Corporation is to supervise and coordinate the
activities of its Subsidiaries and to provide them with capital and services of
various kinds. The Corporation derives substantially all of its income from
dividends from the Bank. Such dividends are determined on an individual basis,
generally in relation to the Bank's earnings, deposit growth and capital
position.

The Anchor Bank

Organized in 1974 as a state-chartered bank, The Anchor Bank of Myrtle
Beach, Inc. was acquired by the Corporation on June 15, 1984, and subsequently
changed its name to The Anchor Bank.

The Bank accounted for 100% of the Corporation's total consolidated assets
as of December 31, 1997, and 100% of total net income for 1997. The Bank
conducts its business through nineteen branches along the North Carolina and
South Carolina coasts.

The primary market area served by the Bank is centered in the City of
Myrtle Beach, South Carolina and includes the entire segment of the South
Carolina coast known as the Grand Strand, which stretches from Little River to
Pawleys Island and west to Conway, South Carolina. In the merger with 1st
Atlantic Bank in 1993, the Bank acquired two offices in Little River and Cherry
Grove, South Carolina, which are approximately 20 miles north of Myrtle Beach.
In 1994, the Bank opened a branch office in the Crescent Beach section of North
Myrtle Beach, South Carolina, which is 10 miles north of Myrtle Beach. In 1995,
the Bank opened branches in Mount Pleasant, South Carolina and Wilmington,
North Carolina. Mount Pleasant is located north of Charleston, South Carolina
and Wilmington is located in the southeast corner of North Carolina. In 1996,
the Bank opened an additional branch office in Wilmington, North Carolina. The
Bank maintains three other branch offices in the coastal communities of
Wilmington, Hampstead, and Jacksonville, North Carolina. In 1997, the Bank
opened a branch in Charleston, South Carolina. Myrtle Beach and Hilton Head
Island are coastal resort areas that serve a significant amount of tourists
primarily during the summer months. Because of the seasonal nature of these
market areas, most of the businesses, including financial institutions, are
subject to wide swings in activity between the winter and summer months.

On July 17, 1995, the Bank formed Anchor Capital Corporation ("ACC"), a
non-bank securities brokerage firm, to market non-traditional banking products
to customers in all its markets. ACC offers mutual funds, annuities, and other
securities.

For the year ended December 31, 1997, approximately 76% of the revenues of
the Bank were derived from interest and fees on loans, 14% from income on
investment securities, 1% from temporary investments, 4% from service charges
on deposit accounts, and 5% from other sources.

The Bank offers a full range of banking services, including trust
services, to both businesses and individuals in its market area. These services
include regular and interest checking, money market, savings and time deposit
accounts, as well as personal and business loans. The Bank also provides
automated twenty-four hour banking for the convenience of its customers. In
1997, the Bank began offering Anchor PC Banking, which allows customers to do a
wide range of banking functions from their home computers.

Anchor Automated Services, Inc.

Chartered in July 1985, Anchor Automated Services, Inc. has previously
provided data processing services to the Corporation and the Bank, as well as
to the public. This subsidiary was inactive for the year ended December 31,
1997.

4
<PAGE>

Employees

At December 31, 1997, the Corporation and its Subsidiaries employed a
total of 236 full-time equivalent persons.

Competition

The Bank faces intense competition for deposits from other banks
(including super-regional banks), savings and loan associations, federal
savings banks, and credit unions. In addition, many other companies such as
brokerage firms and insurance companies compete for loans and deposits. The
Bank's deposits totaled $420.2 million on June 30, 1996. The Bank had market
share of 13.3% in its primary market area. No institution had market share
exceeding 15% in this primary market area. The Bank had 11.1% and 2.8% market
share in all its South Carolina and North Carolina markets, respectively.

Reference is made to the Corporation's competitive position as measured in
terms of market share of commercial bank deposits on June 30, 1996 (the most
recent date that market share data is available). Any such reference is
intended solely as a method of placing the competition in perspective as of
that particular date. Due to the intense competition in the banking business,
the Corporation makes no representation that its competitive position has
remained constant, nor can it predict whether its position will change in the
future.

Supervision and Regulation

The Corporation

The Corporation is under the supervisory and regulatory authority granted
the Federal Reserve Board of Governors ("the Board") by the Bank Holding
Company Act of 1956, as amended (the "Act"). The Corporation is required to
file with the Board an annual report and such additional information as the
Board may require pursuant to the Act. The Board may also make examinations of
the Corporation and each of its subsidiaries. Under the Act, bank holding
companies are prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than five percent of the voting shares of
any company engaging in activities other than banking or managing or
controlling banks or furnishing services to or performing services for their
banking subsidiaries. However, the Act authorizes the Board to permit bank
holding companies to engage in, and to acquire or retain shares of companies
that engage in, activities which the Board determines to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto.

The Act requires every bank holding company to obtain the prior approval
of the Board before it may acquire substantially all the assets of any bank or
ownership or control, directly or indirectly, of more than five percent of the
voting shares of any such bank. The Act prohibits the Board from approving an
application by a registered bank holding company to acquire shares of a bank
located outside the state in which the operations of the applicant's banking
subsidiaries are principally conducted unless such acquisition is specifically
authorized by the laws of the state in which the bank to be acquired is located
or the acquisition involves a closed or failed bank, which also requires
special regulatory approval.

The States of South Carolina and North Carolina, where the Corporation
currently operates, each have laws relating specifically to acquisitions of
banks, bank holding companies, and other types of financial institutions in
those states by financial institutions that are based in, and not based in,
those states. South Carolina and North Carolina have enacted regional
reciprocal banking acts.

The Act generally imposes certain limitations on extensions of credit and
other transactions by and between banks which are members of the Federal
Reserve System and other affiliates (which includes any holding company of
which such bank is a subsidiary and any other non-bank subsidiary of such
holding company). Further, under Section 106 of the 1970 Amendments to the Act,
a bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property, or the furnishing of services.

The Anchor Bank

The Community Reinvestment Act of 1977 ("CRA") and the related Regulations
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve, and the Federal Deposit Insurance Corporation ("FDIC") are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial
institutions in satisfying their continuing and affirmative obligations to help
meet the credit needs of their local communities as part of their regulatory
examination of the institution. The results of such examinations are made
public and are taken into account upon the filing of any application to
establish a domestic branch or, to merge or to acquire the assets or assume the
liabilities of a bank. In the case of a bank holding company, the CRA
performance record of the subsidiary banks involved

5
<PAGE>

in the transaction are reviewed in connection with the filing of an application
to acquire ownership or control of shares or assets of a bank or to merge with
any other bank holding company. An unsatisfactory record can substantially
delay or block the transaction.

In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance
Fund, of which the Bank is a member, substantially revised bank regulations,
including capital standards, restricted certain powers of state banks, gave
regulators the authority to limit officer and director compensation and
required bank holding companies in certain circumstances to guarantee the
capital compliance of their banks. Among other things, FDICIA required the
federal banking agencies to take "prompt corrective action" in respect of banks
that do not meet minimum capital requirements. FDICIA established five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized," as defined
by regulations adopted by the Federal Reserve, the FDIC, and the other federal
depository institution regulatory agencies. A depository institution is well
capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, adequately capitalized if it
meets such measure, undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below such measure, and
critically undercapitalized if it fails to meet any critical capital level set
forth in the regulations. The critical capital level must be a level of
tangible equity capital equal to not less than 2% of total tangible assets and
not more than 65% of the minimum leverage ratio to be prescribed by regulation
(except to the extent that 2% would be higher than such 65% level). An
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.

If a depository institution fails to meet regulatory capital requirements,
the regulatory agencies can require submission and funding of a capital
restoration plan by the institution, place limits on its activities, require
the raising of additional capital and, ultimately, require the appointment of a
conservator or receiver for the institution. The obligation of a controlling
bank holding company under FDICIA to fund a capital restoration plan is limited
to the lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. If the controlling bank
holding company fails to fulfill its obligations under FDICIA and files (or has
filed against it) a petition under the Federal Bankruptcy Code, the FDIC's
claim may be entitled to a priority in such bankruptcy proceeding over third
party creditors of the bank holding company.

An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except under
certain circumstances and with prior regulatory approval, make any capital
distribution if, after making such payment or distribution, the institution
would be undercapitalized. FDICIA also restricts the acceptance of brokered
deposits by insured depository institutions and contains a number of consumer
banking provisions, including disclosure requirements and substantive
contractual limitations with respect to deposit accounts.

At December 31, 1997, the Bank was "well capitalized," and was not subject
to any of the foregoing restrictions.

FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("1994 Act") provides for nationwide interstate banking and branching with
certain limitations. The 1994 Act permits bank holding companies to acquire
banks without regard to state boundaries after September 29, 1996. The Federal
Reserve may approve an interstate acquisition only if, as a result of the
acquisition, the bank holding company would control less than 10% of the total
amount of insured deposits in the United States or 30% of the deposits in the
home state of the bank being acquired. The home state can waive the 30% limit
as long as there is no discrimination against out-of-state institutions.

Pursuant to the 1994 Act, interstate branching took effect on June 1,
1997, except under certain circumstances. Once a bank has established branches
in a host state (a state other than its headquarters state) through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the host state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. The 1994 Act further provides that individual
states may opt out of interstate branching. If a state did not opt out of
interstate branching prior to May 31, 1997, then a bank in that state may merge
with a bank in another state provided that neither of the states have opted
out.

Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts, and other financial institutions, are
being considered by the executive branch of the Federal government, Congress,
and various state governments, including South Carolina and North Carolina.
Certain of these proposals, if adopted, could significantly change

6
<PAGE>

the regulation of banks and the financial services industry. It cannot be
predicted whether any of these proposals will be adopted or, if adopted, how
these proposals will affect the Corporation or the Bank.

As a state nonmember bank with deposits insured by the FDIC, the Bank is
subject to the supervisory and regulatory authority of the FDIC and the South
Carolina State Board of Financial Institutions. The South Carolina State Board
of Financial Institutions and the North Carolina Banking Commission regulate
all areas of commercial banking operations of state chartered banks under their
supervision, including reserves, loans, mergers, payment of dividends, interest
rates, establishment of branches, and other aspects of operations.

Research

The Corporation makes no expenditures for research and development.

Dependence upon a Single Customer

Neither the Corporation nor the Bank is dependent upon a single customer
or very few customers. The economy of the Corporation's primary market area is,
however, heavily dependent on the tourism industry. Any adverse change in the
local tourism market is likely to have an adverse effect on the local economy
as well as the business and operations of the Corporation.

Properties

The Main Office of the Bank, which also serves as the principal office of
the Corporation, is located at 2002 Oak Street, Myrtle Beach, South Carolina.
The Main Office is an approximately 23,000 square foot, multi-story office
building that is owned by the Bank. To the limited extent necessary, the
Corporation occupies office space owned by the Bank.

The Bank owns the real property for thirteen of the branch offices. The
Bank owns the buildings, but leases the land for four branch offices, leases
the land and building on which one branch office is located from unaffiliated
third parties under long-term leases, and leases office space only for a branch
in Charleston, South Carolina, from an unaffiliated third party under a
long-term lease. In July 1997, the Bank purchased land and a 15,656 square foot
building in Conway, South Carolina, to house its new operations center. None of
the properties owned by the Corporation or the Bank are encumbered.

Legal Proceedings

At December 31, 1997, the Corporation had no material pending legal
proceedings or other actions, to which the Corporation or any of its
Subsidiaries is a party or of which any of their property is the subject, that
are expected to have any material adverse effect on the financial condition or
results of operations of the Corporation.

Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders of the
Corporation during the fourth quarter of 1997.

Directors and Executive Officers of the Corporation

Executive Officers

The following executive officers of the Corporation are principally
responsible for making policy for the Corporation and its Subsidiaries. The age
of each executive officer, his current position with the Corporation and/or
certain of its Subsidiaries and, if different, his business experience during
the past five years are as follows:

Stephen L. Chryst (52)
President and Chief Executive Officer of the Corporation since 1984 and the
Bank since 1982.

Robert E. Coffee, Jr. (50)
Executive Vice President and Chief Administrative Officer of the Bank since
1993. Mr. Coffee previously served as
President of 1st Atlantic Bank from 1986 through 1993.

Robert R. DuRant, III (52)
Executive Vice President and Chief Credit Officer of the Bank since February
1988.

Tommy E. Looper (50)
Executive Vice President and Chief Financial Officer of the Corporation and the
Bank since 1987.

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SHAREHOLDER INFORMATION

The following table presents stock price and book value per share
information for the Corporation at December 31 for the last five years.

Stock and Dividends Performance

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Closing price ................... $ 33.00 $ 21.67 $ 13.17 $ 9.17 $ 8.67
Price/earnings ratio ............ 21.9X 17.9X 14.2X 10.2X 13.8X
Price/book value ratio .......... 332% 251% 173% 132% 139%
Book value/share ................ $ 9.95 $ 8.63 $ 7.63 $ 6.93 $ 6.23
Dividend payout ratio ........... 23.56% 22.48% 25.84% 22.83% 20.95%
</TABLE>

Quarterly Common Stock Prices and Dividends

<TABLE>
<CAPTION>
1997 1996
---------------------------------------------- ---------------------------------------------
Quarter High Low Close Dividend High Low Close Dividend
- ----------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First .......... $ 23.00 $ 21.00 $ 21.33 $ 0.093 $ 14.67 $ 13.17 $ 13.67 $ 0.07
Second ......... 23.33 21.00 23.25 0.093 14.00 13.50 13.58 0.07
Third .......... 29.33 22.17 33.00 0.093 20.33 13.33 17.67 0.07
Fourth ......... 35.00 30.50 33.00 0.095 23.67 18.00 21.67 0.07
</TABLE>

Stock Exchange

The common stock of Anchor Financial Corporation is traded on The Nasdaq Stock
Market(SM) under the symbol AFSC.

Dividend Reinvestment Plan

The Dividend Reinvestment Plan enables shareholders to reinvest in full and
fractional shares of Anchor Financial Corporation. Shareholders with 100 or
more shares of stock are eligible for the program.

Stock Purchase Program

The Stock Purchase Program, which is available to Dividend Reinvestment Plan
participants, allows investors to make cash payments to the plan for the
purchase of additional shares of Anchor Financial Corporation stock.
Participants may make quarterly payments in an amount ranging from a minimum of
$100 to a maximum of $2,000.

Stock Transfer Agent and Investor Relations

The Anchor Bank
Post Office Box 2428
Myrtle Beach, SC 29578
(843) 946-3105
1-800-ANCHOR-8 (if long distance)

8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and tabular data presented below analyze major factors and
trends regarding the financial condition and results of operations of Anchor
Financial Corporation (the "Corporation") and its principal subsidiary, The
Anchor Bank (the "Bank") for each of the three years in the period ended
December 31, 1997. On August 11, 1997, the Board of Directors of the
Corporation declared a three-for-two stock split in the form of a 50% common
stock dividend paid on September 26, 1997, to shareholders of record of the
Corporation on August 29, 1997. All financial statement information presented
in this report has been restated to reflect the three-for-two stock split.

The following discussion and analysis should be read in conjunction with
the financial information and the Consolidated Financial Statements of the
Corporation (including the notes thereto) contained elsewhere in this document.
To the extent that any statement below (or elsewhere in this document) is not a
statement of historical fact and could be considered a forward-looking
statement, actual results could differ materially from those in the
forward-looking statement.

Results of Operations

Summary

Net income for the year ended December 31, 1997, totaled $6,113,668, an
increase of $1,344,665 or 28.2% over 1996. Net income for 1996 was $4,769,003,
an increase of $1,230,103 or 34.8% from the $3,538,900 earned in 1995. Basic
net income per share increased 27.7% to $1.59 in 1997, compared with $1.25 in
1996 and $0.93 in 1995. Diluted net income per share increased 24.9% to $1.51
in 1997, compared with $1.21 in 1996 and $0.93 in 1995.

The increase in earnings during 1997 was primarily due to a $3,890,636 or
19.7% increase in net interest income and a $552,915 or 14.7% increase in
noninterest income. These favorable changes were partially offset by a
$2,190,986 or 14.3% increase in noninterest expense, a $60,000 or 7.1% increase
in the provision for loan losses, and a $847,900 or 32.7% increase in the
provision for income taxes.

The increase in earnings from 1995 to 1996 was primarily due to an 18.7%
increase in net interest income and a 26.3% increase in noninterest income.
These favorable changes were partially offset by a 42.6% increase in the
provision for loan losses, a 13.1% increase in noninterest expense, and a 32.8%
increase in the provision for income taxes. Net income excluding investment
securities gains and losses increased $1,297,433 or 37.3% to $4,778,588 in
1996, versus $3,481,155 in 1995.

Return on average assets and return on average stockholders' equity are
key measures of earnings performance. Return on average assets for 1997 was
1.13% compared with 1.04% in 1996 and 0.93% in 1995. Return on average
stockholders' equity for 1997 was 17.21% versus 15.38% in 1996, and 12.75% in
1995.

In accordance with the Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994, the Corporation merged its two banking subsidiaries,
The Anchor Bank and The Anchor Bank of North Carolina, on October 4, 1996. The
Anchor Bank survived the merger and all information presented in this report
reflects this merger for all periods presented. The Anchor Bank of North
Carolina's five branch offices operate as part of The Anchor Bank branch
system. By bringing the two subsidiary banks together, the Corporation has
achieved greater economies of scale and improved efficiencies. Customers of
both institutions can do their banking at any of The Anchor Bank's nineteen
branches along the Carolina coast.

Table 1 provides a summary of the statement of income, balance sheet, and
selected ratios for the last five years. A more detailed analysis of each
component of the Corporation's net income is included under the appropriate
captions which follow.

9
<PAGE>

Table 1
SUMMARY OF OPERATIONS

<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Income Statement Data
Interest income ............................ $ 43,415,446 $ 35,880,068
Interest expense ........................... 19,740,943 16,096,201
------------ ------------
Net interest income ........................ 23,674,503 19,783,867
Provision for loan losses .................. 910,000 850,000
------------ ------------
Net interest income after ..................
provision for loan losses ................. 22,764,503 18,933,867
Noninterest income ......................... 4,312,672 3,759,757
Noninterest expense ........................ 17,521,521 15,330,535
------------ ------------
Income before income taxes and
cumulative effect of a change in
accounting principle ...................... 9,555,654 7,363,089
Provision for income taxes ................. 3,441,986 2,594,086
------------ ------------
Income before cumulative effect of a
change in accounting principle ............ 6,113,668 4,769,003
Cumulative effect on prior years (to
December 31, 1993) of changing to a
different method of accounting for
income taxes .............................. 0 0
------------ ------------
Net income ................................. $ 6,113,668 $ 4,769,003
============ ============
Net income per share -- basic .............. $ 1.59 $ 1.25
Net income per share -- diluted ............ 1.51 1.21
Cash dividend per share .................... 0.375 0.28
Average common shares outstanding --
basic ..................................... 3,843,227 3,830,103
Average common shares outstanding --
diluted ................................... 4,050,156 3,947,187
Selected Year-End Assets and
Liabilities
Total assets ............................... $585,396,625 $493,504,292
Interest-earning assets .................... 537,825,105 445,952,966
Investment securities ...................... 121,461,637 100,231,145
Loans -- net of unearned income ............ 415,699,240 345,405,167
Deposits ................................... 493,707,505 420,211,850
Noninterest-bearing deposits ............... 83,393,250 79,958,880
Interest-bearing deposits .................. 410,314,255 340,252,970
Interest-bearing liabilities ............... 458,413,935 377,437,946
Stockholders' equity ....................... 39,528,439 32,975,405
Selected Ratios
Return on average assets ................... 1.13% 1.04%
Return on average stockholders' equity ..... 17.21 15.38
Net yield on average interest-earning
assets (tax equivalent) ................... 4.79 4.74
Average loans to average deposits .......... 82.57 79.28
Net loan losses to average loans ........... 0.03 0.03
Nonperforming loans to total loans ......... 0.06 0.02
Allowance for loan losses to loans ......... 1.10 1.10
Allowance for loan losses to
nonperforming loans ....................... 2,006.79 7,169.91
Average stockholders' equity to
average assets ............................ 6.58 6.75
Total risk-based capital ratio ............. 12.42 13.33
Tier 1 leverage ratio ...................... 6.55 6.79
Dividend payout ratio ...................... 23.56 22.48

<CAPTION>
Five Year
Compound
1995 1994 1993 Growth Rate
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Income Statement Data
Interest income ............................ $ 30,269,788 $ 23,391,823 $ 19,612,321 19.8%
Interest expense ........................... 13,598,500 9,132,518 7,552,105 21.0
------------ ------------ ------------
Net interest income ........................ 16,671,288 14,259,305 12,060,216 18.9
Provision for loan losses .................. 596,000 940,117 521,526 9.2
------------ ------------ ------------
Net interest income after ..................
provision for loan losses ................. 16,075,288 13,319,188 11,538,690 19.4
Noninterest income ......................... 2,976,520 4,432,767 3,349,749 9.6
Noninterest expense ........................ 13,559,558 12,367,737 11,152,580 13.3
------------ ------------ ------------
Income before income taxes and
cumulative effect of a change in
accounting principle ...................... 5,492,250 5,384,218 3,735,859 28.6
Provision for income taxes ................. 1,953,350 1,879,616 1,366,585 28.8
------------ ------------ ------------
Income before cumulative effect of a
change in accounting principle ............ 3,538,900 3,504,602 2,369,274 28.5
Cumulative effect on prior years (to
December 31, 1993) of changing to a
different method of accounting for
income taxes .............................. 0 0 49,500 NM
------------ ------------ ------------
Net income ................................. $ 3,538,900 $ 3,504,602 $ 2,418,774 28.5
============ ============ ============
Net income per share -- basic .............. $ 0.93 $ 0.92 $ 0.64 28.2
Net income per share -- diluted ............ 0.93 0.90 0.63 26.9
Cash dividend per share .................... 0.24 0.21 0.20 13.4
Average common shares outstanding --
basic ..................................... 3,810,744 3,808,434 3,769,746 0.2
Average common shares outstanding --
diluted ................................... 3,823,007 3,881,538 3,827,532 1.3
Selected Year-End Assets and
Liabilities
Total assets ............................... $407,506,417 $351,866,962 $304,334,422 17.7%
Interest-earning assets .................... 368,649,235 316,949,552 269,163,354 18.3
Investment securities ...................... 83,446,700 79,079,276 60,066,395 25.4
Loans -- net of unearned income ............ 285,103,535 236,771,276 202,987,210 17.3
Deposits ................................... 353,875,756 308,208,417 271,758,555 16.3
Noninterest-bearing deposits ............... 61,748,670 52,730,429 48,516,294 19.6
Interest-bearing deposits .................. 292,127,086 255,477,988 223,242,261 15.7
Interest-bearing liabilities ............... 314,829,664 272,472,176 231,099,670 17.8
Stockholders' equity ....................... 28,542,018 24,774,618 23,216,579 13.2
Selected Ratios
Return on average assets ................... 0.93% 1.06% 0.85%
Return on average stockholders' equity ..... 12.75 13.94 10.70
Net yield on average interest-earning
assets (tax equivalent) ................... 4.84 4.77 4.70
Average loans to average deposits .......... 78.33 74.99 76.73
Net loan losses to average loans ........... 0.13 0.23 0.16
Nonperforming loans to total loans ......... 0.06 0.19 0.18
Allowance for loan losses to loans ......... 1.07 1.18 1.16
Allowance for loan losses to
nonperforming loans ....................... 1,666.10 638.27 505.66
Average stockholders' equity to
average assets ............................ 7.32 7.60 7.93
Total risk-based capital ratio ............. 12.18 13.53 14.46
Tier 1 leverage ratio ...................... 6.76 6.85 7.19
Dividend payout ratio ...................... 25.84 22.83 20.95
</TABLE>

NM -- not meaningful

10
<PAGE>

Net Interest Income

Net interest income, the major component of the Corporation's income, is
the amount by which interest and fees generated by earning assets exceed the
total interest costs of the funds used to carry them. Changes in the level of
interest rates and the change in the amount and composition of earning assets
and interest-bearing liabilities affect net interest income. Table 2,
Comparative Average Balance Sheets -- Yields and Costs, compares average
balance sheet items and analyzes net interest income on a tax equivalent basis
for the years ended December 31, 1997, 1996, and 1995.

Table 2
COMPARATIVE AVERAGE BALANCE SHEETS -- YIELDS AND COSTS
(Average balances on a tax equivalent basis for the years ended December 31 in
thousands)

<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
----------- -------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: ...................
Loans ..................................... $383,084 $36,290,990 9.47% $315,471 $29,578,147 9.38%
Investment securities:
Taxable .................................. 104,069 6,573,788 6.32 94,800 5,816,582 6.14
Non-taxable .............................. 5,195 407,561 7.85 3,934 323,503 8.22
-------- ----------- ---- -------- ----------- ----
Total investment securities ............... 109,264 6,981,349 6.39 98,734 6,140,085 6.22
Interest-bearing balances
due from banks ........................... 748 42,640 5.70 117 7,331 6.27
Federal funds sold and securities
purchased under agreements to resell ..... 4,339 239,037 5.51 4,965 264,496 5.33
-------- ----------- ---- -------- ----------- ----
Total interest-earning assets .............. 497,435 $43,554,016 8.76% 419,287 $35,990,059 8.58%
-------- ----------- ---- -------- ----------- ----
Noninterest-earning assets:
Cash and due from banks ................... 19,665 19,342
Premises and equipment .................... 16,433 14,758
Other, less allowance for loan losses ..... 6,630 5,865
-------- --------
Total noninterest-earning assets ......... 42,728 39,965
-------- --------
TOTAL ASSETS ............................... $540,163 $459,252
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking ........................ $ 43,040 $ 827,305 1.92% $ 40,151 $ 803,121 2.00%
Savings .................................. 27,406 693,940 2.53 30,472 775,337 2.54
Money market ............................. 187,352 9,147,989 4.88 159,920 7,531,176 4.71
Time deposits ............................ 121,852 6,677,373 5.48 94,585 5,204,301 5.50
-------- ----------- ---- -------- ----------- ----
Total interest-bearing deposits ........... 379,650 17,346,607 4.57 325,128 14,313,935 4.40
Federal funds purchased and securities
sold under agreements to repurchase ...... 4,266 200,590 4.70 2,735 136,976 5.01
Other short-term borrowings ............... 1,567 71,082 4.54 1,916 85,533 4.46
Long-term debt ............................ 19,356 1,191,439 6.16 17,811 1,104,069 6.20
Subordinated notes ........................ 11,000 931,225 8.47 5,197 455,688 8.77
-------- ----------- ---- -------- ----------- ----
Total interest-bearing liabilities ......... 415,839 19,740,943 4.75% 352,787 16,096,201 4.56%
-------- ----------- ---- -------- ----------- ----
Noninterest-bearing liabilities:
Demand deposits ........................... 84,301 72,806
Other liabilities ......................... 4,037 2,745
-------- --------
Total noninterest-bearing liabilities ...... 88,338 75,551
-------- --------
Stockholders' equity ....................... 35,986 30,914
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ...................... $540,163 $459,252
======== ========
Net interest income ........................ $23,813,073 $19,893,858
=========== ===========
Interest income/earning assets ............. 8.76% 8.58%
Interest expense/earning assets ............ 3.97 3.84
---- ----
Net interest income/earning assets ......... 4.79% 4.74%
==== ====

<CAPTION>
1995
-------------------------------------
Average Revenue/ Yield/
Balance Expense Rate
----------- -------------- ----------
<S> <C> <C> <C>
Interest-earning assets: ...................
Loans ..................................... $260,757 $25,277,156 9.69%
Investment securities:
Taxable .................................. 75,527 4,471,051 5.92
Non-taxable .............................. 3,368 286,533 8.51
-------- ----------- ----
Total investment securities ............... 78,895 4,757,584 6.03
Interest-bearing balances
due from banks ........................... 99 6,613 6.68
Federal funds sold and securities
purchased under agreements to resell ..... 6,807 325,856 4.79
-------- ----------- ----
Total interest-earning assets .............. 346,558 $30,367,209 8.76%
-------- ----------- ----
Noninterest-earning assets:
Cash and due from banks ................... 15,250
Premises and equipment .................... 12,969
Other, less allowance for loan losses ..... 4,221
--------
Total noninterest-earning assets ......... 32,440
--------
TOTAL ASSETS ............................... $378,998
========
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking ........................ $ 36,407 $ 743,781 2.04%
Savings .................................. 35,542 1,091,911 3.07
Money market ............................. 123,368 6,319,858 5.12
Time deposits ............................ 77,247 4,316,352 5.59
-------- ----------- ----
Total interest-bearing deposits ........... 272,564 12,471,902 4.58
Federal funds purchased and securities
sold under agreements to repurchase ...... 2,020 111,741 5.53
Other short-term borrowings ............... 2,883 157,504 5.46
Long-term debt ............................ 6,260 417,792 6.67
Subordinated notes ........................ 5,000 439,561 8.79
-------- ----------- ----
Total interest-bearing liabilities ......... 288,727 13,598,500 4.71%
-------- ----------- ----
Noninterest-bearing liabilities:
Demand deposits ........................... 60,320
Other liabilities ......................... 2,309
--------
Total noninterest-bearing liabilities ...... 62,629
--------
Stockholders' equity ....................... 27,642
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ...................... $378,998
========
Net interest income ........................ $16,768,709
===========
Interest income/earning assets ............. 8.76%
Interest expense/earning assets ............ 3.92
----
Net interest income/earning assets ......... 4.84%
====
</TABLE>

- ---------
(1) Average loan balances are stated net of unearned income and include
nonaccrual loans. Interest recognized on nonaccrual loans has been
included in revenues.

(2) Non-taxable income has been adjusted to a tax equivalent basis using the
federal income tax rate of 34%.

Net interest income on a tax equivalent basis increased $3,919,215 or
19.7% from $19,893,858 in 1996 to $23,813,073 in 1997. This increase was
primarily attributable to the increased volume and yield of earning assets. The
net interest margin increased five basis points from 4.74% in 1996 to 4.79% in
1997.

Interest income on a tax equivalent basis increased $7,563,957 or 21.0% in
1997 primarily due to the increased volume and yield of earning assets. Average
earning assets increased 18.6% to $497,435,000 or 92.1% of average total assets
in

11
<PAGE>

1997, compared with $419,287,000 or 91.3% in 1996. The two primary types of
earning assets are loans and investment securities. The income generated from
these assets is a function of their quality, growth, and yield. The growth in
these earning assets was primarily the result of improved quality loan demand
as average loans increased $67,613,000 or 21.4%. Average investment securities
increased $10,530,000 or 10.7%. The yield on earning assets increased 18 basis
points from 8.58% in 1996 to 8.76% in 1997. The primary reasons for the
increase in the yield on earning assets during the period were a more favorable
mix of earning assets and a higher yield earned on the loan and investment
securities portfolios. Average loans were 77.0% of average earning assets in
1997 and 75.2% in 1996. The yield on loans increased 9 basis points from 9.38%
in 1996 to 9.47% in 1997 largely due to a higher level of interest rates. The
yield on investment securities increased 17 basis points from 6.22% in 1996 to
6.39% in 1997, primarily due to replacing lower yielding U.S. Treasury
securities with higher yielding federal agency and mortgage-backed securities.
The yield on federal funds sold and securities purchased under agreements to
resell, collectively, rose 18 basis points from 5.33% in 1996 to 5.51% in 1997
largely due to the increase in rates paid on these short term investments.

The cost of funding sources increased $3,644,742 or 22.6% in 1997
primarily due to the increased volume and rate paid on average interest-bearing
liabilities. Average interest-bearing liabilities increased $63,052,000 or
17.9%. Interest-bearing deposits grew $54,522,000 or 16.8%, primarily due to
28.8% growth in time deposits and 17.2% growth in money market accounts.
Average long-term debt and subordinated notes increased $7,348,000 or 31.9% in
1997. The average rate paid on interest-bearing liabilities increased 19 basis
points from 4.56% in 1996 to 4.75% in 1997, primarily due to a higher level of
interest rates and a more costly mix of interest-bearing liabilities. The mix
of interest-bearing liabilities changed because traditionally lower-yielding
interest checking, savings, and money market deposit accounts as a group
decreased as a percentage of interest-bearing liabilities from 65.3% in 1996 to
62.0% in 1997. Average long-term debt and subordinated notes were 7.3% of
interest-bearing liabilities in 1997 versus 6.5% in 1996. Interest-bearing
liabilities decreased as a percentage of average earning assets to 83.6% in
1997 from 84.1% in 1996.

The net interest margin, computed by dividing net interest income by
average earning assets, reflects the impact of noninterest-bearing funds on net
interest income. The increase in net interest margin was primarily attributable
to an increase in noninterest-bearing funding sources. Noninterest-bearing
funding sources increased $15,096,000 or 22.7% in 1997 to 16.4% of average
earning assets from 15.9% in 1996. Table 3, the Analysis of Net Interest Income
Changes, shows the impact of balance sheet changes, which occurred during 1997
and 1996, and the changes in interest rate levels.

12
<PAGE>

Table 3
ANALYSIS OF NET INTEREST INCOME CHANGES

<TABLE>
<CAPTION>
1997 compared to 1996 1996 compared to 1995
--------------------------------------- ------------------------------------------
Change in Change in Change in Change in
Volume Rate Total Volume Rate Total
------------- ----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans .................................... $6,402,183 $ 310,660 $6,712,843 $5,153,422 $ (852,431) $4,300,991
Investment securities:
Taxable ................................. 581,607 175,599 757,206 1,177,321 168,210 1,345,531
Non-taxable ............................. 99,527 (15,469) 84,058 46,810 (9,840) 36,970
Interest-bearing balances due from
banks ................................... 36,029 (720) 35,309 1,147 (429) 718
Federal funds sold and securities
purchased under agreements to
resell .................................. (34,244) 8,785 (25,459) (95,199) 33,839 (61,360)
---------- --------- ---------- ---------- ---------- ----------
Total interest-earning assets .......... 7,085,102 478,855 7,563,957 6,283,501 (660,651) 5,622,850
---------- --------- ---------- ---------- ---------- ----------
Interest expense:
Interest checking ........................ 56,325 (32,141) 24,184 75,160 (15,820) 59,340
Savings .................................. (77,651) (3,746) (81,397) (143,620) (172,954) (316,574)
Money market ............................. 1,331,035 285,778 1,616,813 1,753,708 (542,390) 1,211,318
Time deposits ............................ 1,494,290 (21,218) 1,473,072 954,925 (66,976) 887,949
Federal funds purchased and
securities sold under agreements to
repurchase .............................. 72,450 (8,836) 63,614 36,599 (11,364) 25,235
Other short-term borrowings .............. (15,811) 1,360 (14,451) (46,577) (25,394) (71,971)
Long-term debt ........................... 95,151 (7,781) 87,370 718,063 (31,786) 686,277
Subordinated notes ....................... 491,790 (16,253) 475,537 17,276 (1,149) 16,127
---------- --------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities ..... 3,447,579 197,163 3,644,742 3,365,534 (867,833) 2,497,701
---------- --------- ---------- ---------- ---------- ----------
Net interest income .................... $3,637,523 $ 281,692 $3,919,215 $2,917,967 $ 207,182 $3,125,149
========== ========= ========== ========== ========== ==========
</TABLE>

- ---------
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.

(2) Balances of nonaccrual loans and related income recognized have been
included for computational purposes.

(3) Non-taxable income has been converted to a tax equivalent basis using the
federal income tax rate of 34%.

Net interest income on a tax equivalent basis for 1996 increased
$3,125,149 or 18.6% from the amount earned in 1995. This increase was primarily
attributable to the increased volume of earning assets. The net interest margin
decreased ten basis points from 4.84% in 1995 to 4.74% in 1996. Average earning
assets increased 21.0% to $419,287,000 or 91.3% of average total assets in
1996, compared with $346,558,000 or 91.4% in 1995. The cost of funding sources
increased $2,497,702 or 18.4% in 1996 primarily due to the $64,060,000 or 22.2%
increase in interest-bearing liabilities from 1995.

Noninterest Income

Noninterest income for the Corporation consists of service charges on
deposit accounts, trust revenues, mortgage banking income, gains and losses on
investment securities transactions, and other commissions and fees generated
from various banking and bank-related activities. Noninterest income has
traditionally been an important contributing factor to the Corporation's
overall profitability. Noninterest income increased $552,915 or 14.7% and
totaled $4,312,672 in 1997 compared to $3,759,757 in 1996. Noninterest income
excluding net investment securities transactions was $4,337,982 in 1997, an
increase of 14.9% from $3,774,280 in 1996.

Commissions and fees, which include revenues from credit card-related
services, ATM networks, and alternative investment product services increased
$355,020 or 37.8% to $1,293,434 in 1997 from $938,414 in 1996. The primary
reasons for this growth were increases of $186,410 or 34.2% in credit
card-related revenues, $88,828 or 63.8% in ATM network revenues, and $64,834 or
87.7% in investment fee income.

The Corporation's trust operation produced revenues of $312,913 in 1997,
an increase of 21.4% compared with $257,703 in 1996. In 1997, mortgage banking
income (which includes profits from the origination and sale of residential
real estate loans) rose $90,748 or 50.6% to a total of $270,285, compared with
$179,537 in 1996. The significant increase in mortgage

13
<PAGE>

banking income resulted from increased volume of loan originations due to the
favorable interest rate environment and the Corporation's expansion of its
mortgage origination program. In connection with its mortgage banking
activities, the Corporation primarily originates mortgage loans under mandatory
delivery commitments, which substantially limit the Corporation's risk of loss
on the loans during the period they are held or committed to borrowers.

Losses on sales of investment securities totaled $25,310 in 1997 and
$14,523 in 1996, compared with a gain of $87,492 in 1995. The net losses in
1997 and 1996 and net gain in 1995 resulted primarily from the sales of
short-term securities to provide liquidity for anticipated loan demand.

Although the Corporation achieved strong deposit growth, service charges
on deposit accounts experienced only a slight increase. Average deposits
increased 16.6% in 1997, whereas service charges on deposit accounts increased
only 3.6% over 1996. The Corporation completed a thorough analysis of its
service charge structure and initiated changes late in the year.

Other operating income decreased slightly in 1997. This decrease was due
in part to non-recurring income of $100,000 for check services and $100,657
from life insurance proceeds received in 1996.

Noninterest income excluding net investment securities transactions
increased $885,252 or 30.6% to $3,774,280 in 1996 compared to $2,889,028 in
1995. The primary reasons for this increase were a 25.4% increase in service
charges on deposit accounts and a 46.4% increase in commissions and fees. The
increase in service charges reflected significant deposit growth and
competitive pricing. The increase in commissions and fees resulted primarily
from growth in credit card-related revenues and ATM network revenues.

Noninterest Expense

Noninterest expense in 1997 increased $2,190,986 or 14.3% and totaled
$17,521,521 compared with $15,330,535 in 1996. Each category of noninterest
expense was affected by the significant growth experienced by the Corporation
during 1997 and 1996.

Salaries and employee benefits increased $1,452,432 or 17.6% during 1997,
primarily due to the investment in new personnel. The staffing cost increases
were largely due to the opening of a new branch office in Charleston, South
Carolina during the second quarter of 1997, and expansion of sales-related
positions in growing market areas. Merit increases, performance bonuses, and
increased contributions to fund the Corporation's employee benefit plans also
contributed to this increase.

Net occupancy expense increased $74,417 or 5.7% during 1997, largely due
to higher building depreciation and maintenance expenses. The Corporation
purchased the building which houses the South College Road branch office in
Wilmington, North Carolina during the third quarter of 1996 and a new
operations center in Conway, South Carolina in the third quarter of 1997.
Equipment expense increased $30,507 or 2.4%, primarily due to higher equipment
lease and maintenance costs.

Other operating expense increased $633,630 or 14.1% in 1997 primarily due
to the significant growth realized by the Corporation. Note 9 to the
consolidated financial statements presents a comparison of other operating
expense by category. The Corporation increased spending in selected areas to
enhance revenue growth. The selected areas included marketing-related expenses,
which increased 36.5%, and telephone and data communications expense, which
increased 18.5%. Legal expense increased 81.8% during 1997, which included
closing costs that the Corporation incurred in association with a home equity
line of credit promotion.

The Corporation recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. This issue affects computer
systems that have time-sensitive programs that may not properly recognize the
Year 2000. Potential software failures due to processing errors arising from
calculations using the Year 2000 date are a known risk. Early in 1997, a
corporate wide plan was initiated for the purpose of identifying, evaluating
and implementing changes to computer programs necessary to address the Year
2000 issue. As of December 31, 1997, the Corporation had completed its Year
2000 assessment. Internal Year 2000 issues are being addressed by the
Corporation with modifications to existing programs and conversions to new
programs. The Corporation is also communicating with software vendors and other
service providers with whom it conducts business to help it identify and
resolve Year 2000 issues. Software conversion and renovations are scheduled to
be completed by the Corporation as of December 31, 1998. The Corporation
expects to complete Year 2000 validation and testing of software by September
1999. The total cost associated with the required modifications and
conversions, while not completely known at this time, is not expected to exceed
$250,000. These costs are not expected to be material to the Corporation's
financial position and are being expensed as incurred.

14
<PAGE>

Noninterest expense in 1996 increased $1,770,977 or 13.1% from 1995. The
primary reasons for the increase were increases in all categories of
noninterest expense due to the Corporation's growth in 1996. Salaries and
employee benefits increased 15.4% due primarily to the increased number of
employees from expansion into new markets and investment in new personnel to
further develop the infrastructure of the Corporation. Net occupancy expense
and equipment expense increased 25.1% and 21.0%, respectively, because of two
new banking locations in Wilmington, North Carolina and investments to maintain
existing facilities. Other operating expense increased 4.3% primarily due to
expansion related expenses and expenses related to the significant growth
realized by the Corporation.

Income Taxes

Total income tax expense included in the Consolidated Statement of Income
was $3,441,986 in 1997, compared with $2,594,086 in 1996 and $1,953,350 in
1995. The primary reasons for the increase in income tax expense were higher
pre-tax income and a higher effective tax rate. The Corporation's effective tax
rates were 36.0%, 35.2%, and 35.6% in 1997, 1996, and 1995, respectively.

The Corporation's effective tax rate increased in 1997 primarily due to an
increase in state tax expense and a decrease in non-taxable income. The
Corporation's effective tax rate decreased slightly in 1996 primarily due to an
increase in non-taxable interest income and the receipt of life insurance
proceeds.

Table 4
SOURCES AND USES OF FUNDS
(Average balances in thousands)

<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
Amount Percent Amount Percent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Composition of Sources:
Demand deposits .................... $ 84,301 15.6% $ 72,806 15.9%
Interest checking .................. 43,040 8.0 40,151 8.8
Savings ............................ 27,406 5.1 30,472 6.6
Money market ....................... 187,352 34.7 159,920 34.8
Time deposits ...................... 121,852 22.5 94,585 20.6
Short-term borrowings .............. 5,833 1.1 4,651 1.0
Long-term borrowings ............... 19,356 3.6 17,811 3.9
Subordinated notes ................. 11,000 2.0 5,197 1.1
Other liabilities .................. 4,037 0.7 2,745 0.6
Stockholders' equity ............... 35,986 6.7 30,914 6.7
-------- ----- -------- -----
Total sources ..................... $540,163 100.0% $459,252 100.0%
======== ===== ======== =====
Composition of Uses:
Loans .............................. $383,084 70.9% $315,471 68.7%
Investment securities .............. 109,264 20.2 98,734 21.5
Other interest-earning assets ...... 5,087 1.0 5,082 1.1
-------- ----- -------- -----
Total interest-earning assets ..... 497,435 92.1 419,287 91.3
Noninterest-earning assets ......... 42,728 7.9 39,965 8.7
-------- ----- -------- -----
Total uses ........................ $540,163 100.0% $459,252 100.0%
======== ===== ======== =====
</TABLE>

- ---------
(1) Loan balances are stated net of unearned income.

Financial Condition

Investment Securities

Average investment securities represented 22.0% of average earning assets
during 1997 compared to 23.5% in 1996. The decrease in the percentage of
investment securities was due to strong loan growth in each of the
Corporation's market areas. At December 31, 1997, investment securities totaled
$121,461,637 or 22.6% of total earning assets.

The Corporation primarily invests in U.S. Treasury securities and
securities of other U.S. Government agencies and corporations with maturities
up to five years. The amortized cost and estimated fair value of debt
securities at December 31, 1997 are shown in Table 5. Actual maturities may
differ from contractual maturities because borrowers have the right to prepay
obligations with or without prepayment penalties.

15
<PAGE>

Table 5
INVESTMENT SECURITIES
(December 31 balances in thousands)

<TABLE>
<CAPTION>
1997
------------------------------------------------------------
Estimated Average Tax
Par Amortized Fair Maturity Equivalent
Value Cost Value (Yrs/Mos) Yield
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. Treasury securities:
Within one year ............ $ 2,500 $ 2,500 $ 2,494 5.06%
One to five years .......... 2,000 2,029 2,043 6.00
Five to ten years .......... 0 0 0 0.00
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 4,500 4,529 4,537 0/11 5.48
-------- -------- -------- ---- ----
Securities of other U.S.
Government agencies and
corporations:
Within one year ............ 2,030 2,018 2,020 5.97
One to five years .......... 2,000 1,995 2,000 5.99
Five to ten years .......... 0 0 0 0.00
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 4,030 4,013 4,020 1/9 5.98
-------- -------- -------- ---- ----
Obligations of states and
political subdivisions:
Within one year ............ 715 715 717 7.10
One to five years .......... 1,174 1,172 1,201 9.54
Five to ten years .......... 0 0 0 0.00
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 1,889 1,887 1,918 1/11 8.61
-------- -------- -------- ---- ----
Total portfolio ............. $ 10,419 $ 10,429 $ 10,475 1/5 6.24%
======== ======== ======== ==== ====
AVAILABLE-FOR-SALE
U.S. Treasury securities:
Within one year ............ $ 4,000 $ 3,980 $ 3,991 6.00%
One to five years .......... 18,000 18,037 18,288 6.34
Five to ten years .......... 0 0 0 0.00
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 22,000 22,017 22,279 1/11 6.28
-------- -------- -------- ---- ----
Securities of other U.S.
Government agencies
and corporations:
Within one year ............ 9,200 9,145 9,160 6.11
One to five years .......... 23,185 22,996 23,141 6.40
Five to ten years .......... 19,420 19,669 19,852 6.59
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 51,805 51,810 52,153 4/3 6.41
-------- -------- -------- ---- ----
Mortgage-backed securities:
Within one year ............ 0 0 0 0.00
One to five years .......... 0 0 0 0.00
Five to ten years .......... 12,747 12,539 12,653 6.58
Over ten years ............. 14,722 14,416 14,558 6.54
-------- -------- -------- ----
Total ..................... 27,469 26,955 27,211 5/8 6.56
-------- -------- -------- ---- ----
Obligations of states and
political subdivisions:
Within one year ............ 0 0 0 0.00
One to five years .......... 1,055 1,056 1,091 8.48
Five to ten years .......... 3,480 3,479 3,567 7.34
Over ten years ............. 0 0 0 0.00
-------- -------- -------- ----
Total ..................... 4,535 4,535 4,658 6/0 7.60
-------- -------- -------- ---- ----
Marketable equity securities 2,724 3,390 4,732 N/A 7.02
-------- -------- -------- ---- ----
Total portfolio ............. $108,533 $108,707 $111,033 4/2 6.49%
======== ======== ======== ==== ====

<CAPTION>
1996 1995
----------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. Treasury securities:
Within one year ............ $ 6,003 $ 6,021 $ 9,725 $ 9,708
One to five years .......... 5,050 5,037 10,060 10,078
Five to ten years .......... 0 0 0 0
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 11,053 11,058 19,785 19,786
------- ------- ------- -------
Securities of other U.S.
Government agencies and
corporations:
Within one year ............ 1,000 1,006 2,306 2,322
One to five years .......... 3,992 3,982 6,917 6,983
Five to ten years .......... 0 0 0 0
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 4,992 4,988 9,223 9,305
------- ------- ------- -------
Obligations of states and
political subdivisions:
Within one year ............ 90 91 227 225
One to five years .......... 1,962 1,994 1,807 1,823
Five to ten years .......... 90 95 361 383
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 2,142 2,180 2,395 2,431
------- ------- ------- -------
Total portfolio ............. $18,187 $18,226 $31,403 $31,522
======= ======= ======= =======
AVAILABLE-FOR-SALE
U.S. Treasury securities:
Within one year ............ $ 8,015 $ 8,058 $12,540 $12,566
One to five years .......... 21,065 21,218 14,505 14,711
Five to ten years .......... 0 0 0 0
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 29,080 29,276 27,045 27,277
------- ------- ------- -------
Securities of other U.S.
Government agencies
and corporations:
Within one year ............ 4,786 4,800 3,984 3,993
One to five years .......... 31,349 31,401 16,029 16,194
Five to ten years .......... 955 980 0 0
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 37,090 37,181 20,013 20,187
------- ------- ------- -------
Mortgage-backed securities:
Within one year ............ 3 3 0 0
One to five years .......... 0 0 3 3
Five to ten years .......... 5,535 5,560 0 0
Over ten years ............. 2,895 2,925 111 112
------- ------- ------- -------
Total ..................... 8,433 8,488 114 115
------- ------- ------- -------
Obligations of states and
political subdivisions:
Within one year ............ 0 0 0 0
One to five years .......... 653 678 538 560
Five to ten years .......... 2,193 2,242 869 889
Over ten years ............. 0 0 0 0
------- ------- ------- -------
Total ..................... 2,846 2,920 1,407 1,449
------- ------- ------- -------
Marketable equity securities 3,824 4,179 3,015 3,015
------- ------- ------- -------
Total portfolio ............. $81,273 $82,044 $51,594 $52,043
======= ======= ======= =======
</TABLE>

- ---------
(1) Tax equivalent yield has been calculated using an incremental income tax
rate of 34%.

16
<PAGE>

Investment securities available-for-sale are held for expected liquidity
requirements, capital planning, and asset/liability management. Such
securities, recorded at fair value, were $111,033,032 or 91.4% of the total
investment portfolio at December 31, 1997 compared with $82,044,037 or 81.9% at
December 31, 1996. Investment securities held-to-maturity and recorded at
amortized cost aggregated $10,428,605 or 8.6% of the total investment portfolio
at December 31, 1997 compared with $18,187,108 or 18.1% at December 31, 1996.
The estimated fair value of such securities exceeded the carrying value by
$45,964 or 0.4% and $38,745 or 0.2% at December 31, 1997 and 1996,
respectively.

Loans

Loans, the largest component of earning assets, represented 77.0% of
average earning assets and 70.9% of average total assets during 1997, compared
with 75.2% and 68.7%, respectively, during 1996. In 1997, average loans grew
21.4% to $383,084,000 from $315,471,000 in 1996. In 1997, the Corporation
focused on growth in new markets, loan quality, and expansion of existing
customer relationships.

Loan policies and procedures provide the overall direction for
administration of the loan portfolio. The lending strategy focuses on quality
growth in each of the Corporation's market areas. The Corporation's loan
underwriting process is intended to ensure that sound and consistent credit
decisions are made.

The Corporation's commercial lenders focus primarily on small and
medium-sized businesses in its primary market areas. Geographic and industry
diversification are difficult to attain, as the Corporation is a relatively
small commercial financial institution competing primarily along the coast of
South Carolina and North Carolina. Most of these markets are dependent on the
tourism industry and are seasonal in nature. However, the Corporation's lenders
have a high level of experience analyzing the different types of businesses
competing in this industry in its primary market areas.

Even though loan policies and procedures may provide the basis for a
quality loan portfolio with minimal risk, at times individual borrowers do
encounter problems which result in lower credit quality and higher risk of
loss. Additionally, general deterioration of loan quality may result from
weaknesses in specific industries or the economy in general. During 1997, the
Corporation did not experience any material credit deterioration attributable
to adverse trends in specific markets or the economy in general.

The Corporation's primary market area is centered in Myrtle Beach, South
Carolina and consists of the entire area known as the Grand Strand. The
addition of offices in Mount Pleasant and Charleston, South Carolina and
Wilmington, North Carolina, as well as, offices in other coastal areas of South
Carolina and North Carolina have provided an opportunity for growth and
diversification. Loans, net of unearned income at December 31, 1997 increased
20.4% to $415,699,240 compared with $345,405,167 reported in 1996. This growth
was due to quality loan demand and expansion into new market areas.

The composition of the loan portfolio at December 31 for the last five
years is presented in Table 6. Commercial, financial, and agricultural loans
decreased 5.0% from 1996 and represent 12.6% of gross loans at December 31,
1997. Real estate-construction loans, which were 13.3% of gross loans at
December 31, 1997, increased 54.3% compared to the previous year. Real
estate-mortgage or commercial real estate loans increased 18.7% from 1996 and
represent 40.0% of gross loans at December 31, 1997. Installment loans to
individuals, which include residential real estate loans, represent 27.7% of
gross loans and increased 16.2% during 1997.

Table 6
LOAN PORTFOLIO COMPOSITION
(December 31 balances in thousands)

<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Percent Percent
Amount of Gross Amount of Gross
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural .............. $ 52,541 12.6% $ 55,296 16.0%
Real estate - construction ..... 55,173 13.3 35,766 10.4
Real estate - mortgage ......... 166,199 40.0 139,969 40.5
Installment loans to
individuals ................... 115,052 27.7 98,998 28.7
Other .......................... 26,772 6.4 15,401 4.4
-------- ----- -------- -----
Gross loans .................... 415,737 100.0% 345,430 100.0%
===== =====
Unearned income ................ (38) (25)
-------- --------
Total loans .................... $415,699 $345,405
======== ========

<CAPTION>
1995 1994 1993
----------------------- ----------------------- ----------------------
Percent Percent Percent
Amount of Gross Amount of Gross Amount of Gross
------------ ---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural .............. $ 61,306 21.5% $ 51,738 21.8% $ 46,547 22.9%
Real estate - construction ..... 22,168 7.8 13,339 5.6 11,625 5.7
Real estate - mortgage ......... 102,614 36.0 102,908 43.5 82,687 40.7
Installment loans to
individuals ................... 87,420 30.6 60,418 25.5 55,600 27.4
Other .......................... 11,621 4.1 8,399 3.6 6,566 3.3
-------- ----- -------- ----- -------- -----
Gross loans .................... 285,129 100.0% 236,802 100.0% 203,025 100.0%
===== ===== =====
Unearned income ................ (25) (31) (38)
-------- -------- --------
Total loans .................... $285,104 $236,771 $202,987
======== ======== ========
</TABLE>

17
<PAGE>

The changing mix of the loan portfolio reflects the Corporation's
expansion into new market areas and the changing economy. While most categories
of loans increased during 1997, real estate-construction and commercial real
estate loans experienced the fastest growth. The primary reason for this
increase is the rapid growth and expansion in the Corporation's market areas.

Table 7
SELECTED LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(December 31, 1997 balances in thousands)

<TABLE>
<CAPTION>
One Year One to Over Five
or Less Five Years Years Total
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Types of loans:
Commercial, financial and agricultural ............... $ 24,716 $ 20,967 $ 6,858 $ 52,541
Real estate - construction ........................... 19,175 14,599 21,399 55,173
Real estate - mortgage ............................... 25,497 73,860 66,842 166,199
Installment loans to individuals and other loans ..... 57,391 72,095 12,300 141,786
-------- -------- -------- --------
Total ............................................... $126,779 $181,521 $107,399 $415,699
======== ======== ======== ========
Total of loans above with:
Predetermined interest rates ......................... $ 46,145 $142,758 $ 25,159 $214,062
Adjustable interest rates ............................ 80,634 38,763 82,240 201,637
-------- -------- -------- --------
Total ............................................... $126,779 $181,521 $107,399 $415,699
======== ======== ======== ========
</TABLE>

- ---------
(1) Loan balances include unearned income

Nonperforming assets

Nonperforming assets consist of nonaccrual loans on which the ultimate
collection of the full amount of principal and/or interest is uncertain,
restructured loans, loans past due ninety days or more as to principal or
interest, and other real estate owned. Management is not aware of any situation
where known information about a borrower would require disclosure as a
potential problem loan. The Corporation does not have any foreign loans or
loans for highly leveraged transactions. A summary of nonperforming assets at
December 31 follows:

NONPERFORMING ASSETS
(Balances at December 31)

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Nonaccrual loans ............................................ $ 228,674 $ 53,016
Loans past due ninety days or more .......................... 0 0
Troubled debt restructurings ................................ 0 0
Other real estate owned ..................................... 187,000 126,245
--------- ---------
Total nonperforming assets .................................. $ 415,674 $ 179,261
========= =========
Nonperforming assets to total loans and other real estate
owned ....................................................... 0.10% 0.05%

<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Nonaccrual loans ............................................ $ 182,801 $ 438,052 $ 293,256
Loans past due ninety days or more .......................... 0 0 68,103
Troubled debt restructurings ................................ 0 0 0
Other real estate owned ..................................... 0 0 105,689
--------- --------- ---------
Total nonperforming assets .................................. $ 182,801 $ 438,052 $ 467,048
========= ========= =========
Nonperforming assets to total loans and other real estate
owned ....................................................... 0.06% 0.19% 0.23%
</TABLE>

During 1997, nonperforming assets increased $236,413 to $415,674, compared
with $179,261 reported in 1996. There were no loans past due 90 days or more.
The nonperforming assets to total loans and other real estate owned ratio
increased to 0.10% and remains at a very favorable level. During 1996,
nonperforming assets declined slightly and the nonperforming assets to total
loans and other real estate owned ratio was 0.05%.

18
<PAGE>

Allowance for Loan Losses

An analysis of activity in the allowance for loan losses is presented in
Table 8. The allowance for loan losses is established and maintained through
charges to expense in the form of a provision for loan losses. Loan losses and
recoveries are charged or credited directly to the allowance.

Table 8
SUMMARY OF LOAN LOSS EXPERIENCE
(Balances for the years ended December 31)

<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Allowance for loan losses at beginning of year ......... $ 3,801,201 $ 3,045,656
----------- -----------
Amounts charged off during year:
Commercial, financial and agricultural ............... 80,166 164,009
Real estate - construction ........................... 0 0
Real estate-mortgage ................................. 133,125 85,890
Installment loans to individuals and other loans ..... 120,833 103,807
----------- -----------
Total loans charged off ............................. 334,124 353,706
----------- -----------
Amount of recoveries during year:
Commercial, financial and agricultural ............... 179,511 94,905
Real estate - construction ........................... 0 0
Real estate - mortgage ............................... 10,672 130,897
Installment loans to individuals and other loans ..... 21,736 33,449
----------- -----------
Total recoveries .................................... 211,919 259,251
----------- -----------
Net loans charged off .................................. 122,205 94,455
----------- -----------
Provision for loan losses .............................. 910,000 850,000
----------- -----------
Allowance for loan losses at end of year ............... $ 4,588,996 $ 3,801,201
=========== ===========
Ratio of net charge-offs during the year to average
loans outstanding during the year .................... 0.03% 0.03%

<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Allowance for loan losses at beginning of year ......... $ 2,795,941 $ 2,361,656 $ 2,162,265
----------- ----------- -----------
Amounts charged off during year:
Commercial, financial and agricultural ............... 214,651 315,001 196,559
Real estate - construction ........................... 0 0 0
Real estate-mortgage ................................. 146,768 216,146 142,148
Installment loans to individuals and other loans ..... 91,588 88,440 124,228
----------- ----------- -----------
Total loans charged off ............................. 453,007 619,587 462,935
----------- ----------- -----------
Amount of recoveries during year:
Commercial, financial and agricultural ............... 79,911 56,156 55,470
Real estate - construction ........................... 0 0 0
Real estate - mortgage ............................... 12,523 12,663 71,791
Installment loans to individuals and other loans ..... 14,288 44,936 13,539
----------- ----------- -----------
Total recoveries .................................... 106,722 113,755 140,800
----------- ----------- -----------
Net loans charged off .................................. 346,285 505,832 322,135
----------- ----------- -----------
Provision for loan losses .............................. 596,000 940,117 521,526
----------- ----------- -----------
Allowance for loan losses at end of year ............... $ 3,045,656 $ 2,795,941 $ 2,361,656
=========== =========== ===========
Ratio of net charge-offs during the year to average
loans outstanding during the year .................... 0.13% 0.23% 0.16%
</TABLE>

The ratio of net charge-offs to average loans was 0.03% in 1997, 0.03% in
1996, and 0.13% in 1995. The level of net charge-offs in 1997 remained the same
as in 1996. The provision for loan losses totaled $910,000 in 1997 compared
with $850,000 in 1996, and $596,000 in 1995.

The increased level of the provision for loan losses during 1997 was
primarily attributable to loan growth and a slight increase in net charge-offs.
The provision for loan losses was made to reflect potential losses inherent in
the loan portfolio and was not attributable to individual loans for which
management believed specific accruals were necessary at December 31, 1997. The
level of the provision for loan losses in 1996 and 1995 primarily reflected
significant loan growth.

In determining the amount of the provision for loan losses, management
reviews past experience of loan charge-offs, the level of past due and
nonaccrual loans, the size and mix of the portfolio, adverse classifications of
recent regulatory examinations, general economic conditions in the market area,
and most importantly, individual loans to identify potential credit problems.
The level of the allowance for loan losses is believed to be adequate in
relation to the current size, mix, and quality of the portfolio.

Any loans classified by the Corporation or regulatory examiners as loss,
doubtful, substandard, or special mention not disclosed herein, or within the
relevant tables, do not (i) represent or result from trends or uncertainties
that management expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which
management is aware of any information that causes management to have serious
doubt as to the abilities of such borrowers to comply with the loan repayment
terms.

In accordance with SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," the Corporation measures loans for impairment when it is probable
that all amounts, including principal and interest, will not be collected in
accordance with the contractual terms of the loan agreement. It is the
Corporation's policy to apply the provisions of SFAS No. 114 to nonaccrual
commercial loans. At December 31, 1997, impaired loans had a related specific
allowance for loan losses totaling $23,000. There were no material commitments
to lend additional funds to customers whose loans were classified as impaired
at December 31, 1997.

19
<PAGE>

Table 9 presents an allocation of the allowance for loan losses by
different loan categories. The breakdown is based upon a number of qualitative
factors, and the amounts presented are not necessarily indicative of actual
amounts which will be charged to any particular category.

TABLE 9
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(December 31 balances)

<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Percent of Percent of
Total Total
Amount Loans Amount Loans
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Commercial, financial, and
agricultural ...................... $ 895,048 12.64% $ 941,972 16.01%
Real estate - construction ......... 551,732 13.27 357,655 10.35
Real estate - mortgage ............. 949,737 39.98 799,844 40.52
Installment loans to individuals
and other loans ................... 1,692,479 34.11 1,201,730 33.12
Unallocated ........................ 500,000 500,000
---------- ----------
Total ............................ $4,588,996 100.00% $3,801,201 100.00%
========== ====== ========== ======

<CAPTION>
1995 1994 1993
-------------------------- -------------------------- -------------------------
Percent of Percent of Percent of
Total Total Total
Amount Loans Amount Loans Amount Loans
------------- ------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural ...................... $ 933,486 21.50% $ 787,802 21.85% $ 698,199 22.93%
Real estate - construction ......... 221,678 7.77 133,387 5.63 116,248 5.72
Real estate - mortgage ............. 513,072 35.99 514,541 43.46 413,437 40.73
Installment loans to individuals
and other loans ................... 877,420 34.74 860,211 29.06 683,772 30.62
Unallocated ........................ 500,000 500,000 450,000
---------- ---------- ----------
Total ............................ $3,045,656 100.00% $2,795,941 100.00% $2,361,656 100.00%
========== ====== ========== ====== ========== ======
</TABLE>

Funding Sources

Average deposits increased 16.6% to $463,951,000 in 1997 from $397,934,000
in 1996. In 1997, the mix of interest-bearing deposits changed as average
certificates of deposit increased 28.8%, while average interest checking, money
market and savings accounts as a group increased 11.8%. Average certificates of
deposit represented 26.3% of average deposits in 1997 compared with 23.8% in
1996. Average interest checking, money market and savings accounts as a group
were 55.6% of average deposits in 1997 compared with 57.9% in 1996. Average
demand deposits increased 15.8% to $84,301,000 and represented 18.2% of average
deposits in 1997 compared with 18.3% in 1996.

Average short-term borrowings increased $1,182,000 or 25.4% to $5,833,000
in 1997 from $4,651,000 in 1996. With the seasonality of the Corporation's
market area, the Corporation typically borrows money from correspondent banks,
the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank under its
seasonal borrowing privilege in the winter months when deposits are at their
lowest levels and loan demand is at its highest. Pursuant to collateral
agreements with the FHLB, advances are secured by stock in the FHLB and
qualifying first mortgage loans in the amount of $89.2 million. Advances on the
line of credit with the Federal Reserve Bank must be secured by U.S. Treasury
or Government agency securities. The Corporation's liquidity position remained
favorable through the winter months of 1997, however, the need for short-term
borrowings increased during the year. At December 31, 1997, the Corporation had
short-term borrowings of $14,099,680, an increase of $5,914,704 from the
$8,184,976 reported at December 31, 1996. The primary reason for this increase
was to fund seasonal lending needs.

Advances from the FHLB with an initial maturity of more than one year
totaled $23,000,000 at December 31, 1997, versus $18,000,000 at December 31,
1996. These advances are collateralized by the same collateral agreements as
short-term funds from the FHLB. Fixed interest rates on these advances ranged
from 5.48% to 7.21%, payable monthly or quarterly, with principal due at
various maturities ranging from 1998 to 2005.

On December 20, 1996, the Corporation issued $6,000,000 of 7.89%
Subordinated Notes due December 20, 2006. Under the terms of the Subordinated
Note Agreement, the balance of the debt can be prepaid on December 20, 2001 at
par plus accrued and unpaid interest. On December 20, 2001, the interest rate
on this issue will be reset to a rate approximately equal to the yield on the
5-year U.S. Treasury Note plus 195 basis points. On December 1, 1993, the
Corporation issued $5,000,000 of 8.60% Subordinated Notes due December 1, 2003.
Under the terms of the Subordinated Note Agreement, the balance of the debt
cannot be paid prior to its final maturity. The interest on these single
principal payment issues is payable semi-annually of each year and at maturity.
This long-term debt qualifies for inclusion in the determination of total
capital under the risk-based capital guidelines.

Capital Resources

The Corporation maintains a strong level of capital as a margin of safety
for its depositors and stockholders, as well as to provide for future growth
and the ability to pay dividends. At December 31, 1997, stockholders' equity
was $39,528,439 versus $32,975,405 at December 31, 1996. The Corporation paid
cash dividends of $0.375 per share in 1997, $0.28 per share in 1996, and $0.24
per share in 1995.

20
<PAGE>

During 1990, the Federal Reserve Board adopted a minimum leverage ratio of
3.0% for bank holding companies. This ratio (defined as stockholders' equity
less goodwill and certain other intangibles divided by average assets) was
6.55% and 6.79% at December 31, 1997 and 1996, respectively, for the
Corporation.

The Federal Reserve Board adopted risk-based capital guidelines, which
assign risk-weightings to assets and off-balance sheet items. The guidelines
define and set minimum capital requirements (risk-based capital ratios). All
banks are required to maintain core capital (Tier 1) of at least 4.0% of
risk-adjusted assets and total capital of 8.0% of risk-adjusted assets. Tier 1
capital consists principally of stockholders' equity less goodwill and certain
other intangibles, while total capital consists of Tier 1 capital, certain debt
instruments, and a portion of the allowance for loan losses. Banks, which meet
or exceed a Tier 1 ratio of 6.0%, a total capital to risk-adjusted assets ratio
of 10.0% and a Tier 1 leverage ratio of 5.0% are considered well-capitalized by
regulatory standards. The Corporation had a Tier 1 capital ratio of 8.79% and
9.13% at December 31, 1997 and 1996, respectively, and a total risk-based
capital ratio of 12.42% and 13.33% at December 31, 1997 and 1996, respectively,
well above the regulatory requirements for a well-capitalized institution. Note
15 to the consolidated financial statements presents the Bank's actual capital
amounts and ratios at December 31, 1997 and 1996.

The following table shows several capital ratios for the last three years:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Average stockholders' equity to:
Average assets ..................... 6.58% 6.75% 7.32%
Average deposits ................... 7.76 7.77 8.30
Average loans and leases ........... 9.39 9.80 10.60
Risk-based capital ratios:
Tier 1 ............................. 8.79 9.13 9.37
Total .............................. 12.42 13.33 12.18
Tier 1 Leverage ratio ................ 6.55 6.79 6.76

</TABLE>

Market Risk Management

Asset/liability management is the process by which the Corporation
monitors and attempts to control the mix and maturities of its assets and
liabilities in order to maximize net interest income. The functions of
asset/liability management are to ensure adequate liquidity and to maintain an
appropriate balance between interest-sensitive assets and liabilities.

Liquidity management involves meeting the cash flow requirements of the
Corporation which arise primarily from withdrawal of deposits, extensions of
credit, and payment of operating expenses. Because the economy of the
Corporation's primary market area is seasonal in nature, considerable attention
is required to manage liquidity needs. This seasonality is caused by the
economic impact of a large number of tourists visiting coastal South Carolina
and North Carolina during the summer months. Seasonality affects the
Corporation because there is an inverse relationship between sources of funds
(deposits) and demand for loans. Normally, deposits begin building on a
month-to-month basis in February or March, reach their peak in August or
September, and begin to decline thereafter. Loan demand begins building in
October and is highest during the winter months. This trend results in the
Corporation experiencing its heaviest need for funds to meet loan demand at the
time when deposits begin their annual decline.

To meet this need, the Corporation typically invests sizable amounts of
its deposit growth during the summer months in temporary investments and
short-term securities maturing during the winter months. Additionally, the
Corporation has access to other funding sources, including federal funds
purchased from correspondent banks and a line of credit with the FHLB, as well
as a seasonal borrowing privilege from the Federal Reserve Bank to meet its
liquidity needs during the winter months.

During the year ended December 31, 1997, the most significant cash flows
impacting the components of the Corporation's liquidity relate to a $70.5
million increase in net loans and a $19.6 million increase in net investment
securities, which were funded by an increase of $73.5 million in deposits, an
increase of $5.0 million in long-term debt and subordinated notes, and a $5.9
million increase in short-term borrowings.

Interest-sensitive assets and liabilities are those that are subject to
repricing in the near term, including floating rate instruments and those with
near-term maturities. The interest-sensitivity gap is the difference between
total interest-sensitive

21
<PAGE>

assets and liabilities during a given time period. Management's objective is to
maintain the difference between interest-sensitive assets and liabilities at a
level that will minimize the effects of significant interest rate shifts on the
net interest margin.

Table 10 shows the Corporation's interest rate sensitivity at December 31,
1997, indicating a liability-sensitive position in the three months or less
period and the four months to six months period and an asset-sensitive position
in the seven months to twelve months period. On a cumulative basis through one
year, the Corporation's rate sensitive liabilities exceed rate sensitive
assets, resulting in a liability-sensitive position of $75,122,000 or 14.1% of
total interest-earning assets. Generally a liability-sensitive position
indicates that declining interest rates would have a positive impact on net
interest income and rising interest rates would adversely affect net interest
income. Rising and declining interest rates, respectively, would typically have
the opposite effect on net interest income in an asset-sensitive position.
Other factors, including the speed at which assets and liabilities reprice in
response to changes in market rates and competitive factors, can influence the
ultimate impact on net interest income resulting from changes in interest
rates. Although management actively monitors and reacts to a changing interest
rate environment, it is not possible to fully insulate the Corporation against
interest rate risk. Given the current mix and maturity of the Corporation's
assets and liabilities, it is possible that a rapid, significant and prolonged
increase or decrease in interest rates could have an adverse impact on the
Corporation's net interest margin.

During 1996, the Corporation purchased an interest rate floor contract
with a notional value of $25 million and a three-year term. The floor index of
the contract is three-month Libor and it has a strike rate of 5.25%. The
Corporation paid a premium of $102,500 for the contract. In a floor contract,
the Corporation pays a premium at the initiation of the contract for the right
to receive payments if market interest rates are less than the strike rate
during a period of the contract. The Corporation's liability is limited to the
premium paid for the contract. The primary purpose of this contract is to
reduce the Corporation's exposure to a significant decline in interest rates.

Table 10
INTEREST RATE SENSITIVITY ANALYSIS
(December 31, 1997 balances in thousands)

<TABLE>
<CAPTION>
0-3 mos. 4-6 mos. 7-12 mos.
------------- -------------- -------------
<S> <C> <C> <C>
Interest-earning assets:
Loans .......................................... $217,694 $ 15,894 $ 24,519
Investment securities .......................... 3,748 3,127 11,658
Interest-bearing balances due from banks ....... 664 0 0
-------- -------- ---------
Total interest-earning assets ................. $222,106 $ 19,021 $ 36,177
======== ======== =========
Percent of total interest-earning assets ........ 41.7% 3.6% 6.8%
Interest-bearing liabilities:
Interest checking .............................. $ 0 $ 0 $ 0
Savings ........................................ 0 0 0
Money market ................................... 192,761 0 0
Certificates of deposit of $100,000 or more..... 35,193 19,867 12,667
Certificates of deposit less than $100,000...... 21,053 35,597 16,188
Short-term borrowings .......................... 14,100 0 0
Long-term debt ................................. 0 0 5,000
Subordinated notes ............................. 0 0 0
-------- -------- ---------
Total interest-bearing liabilities ............ 263,107 55,464 33,855
Other sources - net ............................ 0 0 0
-------- -------- ---------
Total sources - net ........................... $263,107 $ 55,464 $ 33,855
======== ======== =========
Percent of total interest-earning assets ........ 49.4% 10.4% 6.4%
Interest-sensitive gap .......................... $(41,001) $(36,443) $ 2,322
Cumulative interest-sensitive gap ............... (41,001) (77,444) (75,122)
Percent of total interest-earning assets ........ (7.7)% (14.5)% (14.1)%

<CAPTION>
Total Over one
within year or
one year non-sensitive Total
------------- --------------- -------------
<S> <C> <C> <C>
Interest-earning assets:
Loans .......................................... $258,107 $ 157,363 $ 415,470
Investment securities .......................... 18,533 98,197 116,730
Interest-bearing balances due from banks ....... 664 0 664
-------- --------- ---------
Total interest-earning assets ................. $277,304 $ 255,560 $ 532,864
======== ========= =========
Percent of total interest-earning assets ........ 52.0% 48.0% 100.0%
Interest-bearing liabilities:
Interest checking .............................. $ 0 $ 45,078 $ 45,078
Savings ........................................ 0 24,906 24,906
Money market ................................... 192,761 0 192,761
Certificates of deposit of $100,000 or more..... 67,727 1,375 69,102
Certificates of deposit less than $100,000...... 72,838 5,629 78,467
Short-term borrowings .......................... 14,100 0 14,100
Long-term debt ................................. 5,000 18,000 23,000
Subordinated notes ............................. 0 11,000 11,000
-------- --------- ---------
Total interest-bearing liabilities ............ 352,426 105,988 458,414
Other sources - net ............................ 0 74,450 74,450
-------- --------- ---------
Total sources - net ........................... $352,426 $ 180,438 $ 532,864
======== ========= =========
Percent of total interest-earning assets ........ 66.1% 33.9% 100.0%
Interest-sensitive gap .......................... $(75,122) $ 75,122 --
Cumulative interest-sensitive gap ............... (75,122) -- --
Percent of total interest-earning assets ........ (14.1)% -- --
</TABLE>

- ---------
(1) Loan balances are stated net of unearned income and do not include
nonaccrual loans.

22
<PAGE>

Table 10 is a "static gap" presentation, and while widely used as a
measure of interest rate sensitivity, it does not necessarily provide a true
indication of the Corporation's interest rate sensitivity position. The problem
with the "static gap" view is that it does not take into consideration that
changes in interest rates do not affect all assets and liabilities equally. In
addition, the Corporation's net interest income is also affected by other
significant factors in given interest rate environments, including the spread
between the prime rate and incremental borrowing cost and the volume and mix of
earning assets and liabilities. In view of these factors, the Corporation uses
a number of methods, including an asset/liability simulation model, to measure
and manage interest rate risk.

In January 1997, the Securities and Exchange Commission adopted new rules
that require more comprehensive disclosures of accounting policies for
derivatives as well as enhanced quantitative and qualitative disclosures of
market risk for derivative financial instruments and other financial
instruments. The market risk disclosures must be presented for most financial
instruments, which must be classified into two portfolios: financial
instruments entered into for trading purposes and all other financial
instruments (non-trading purposes). The Corporation does not maintain a trading
portfolio.

Table 11
FINANCIAL INSTRUMENTS
(Balances in thousands)

<TABLE>
<CAPTION>
Expected Maturity
-----------------------------------------------------------------------------
1998 1999 2000 2001 2002 Thereafter
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Loans, net of unearned income
Fixed Rate:
Book value ........................ $ 46,145 $ 34,284 $ 39,843 $ 32,643 $ 35,988 $ 25,159
Weighted average effective yield .. 9.28% 9.23% 9.17% 8.79% 8.85% 8.42%
Variable Rate:
Book value ........................ $ 80,634 $ 10,078 $ 6,939 $ 9,986 $ 11,760 $ 82,240
Weighted average effective yield .. 9.09% 9.30% 9.13% 8.94% 9.42% 9.05%
Securities held-to-maturity
Fixed Rate:
Book value ........................ $ 5,232 $ 2,433 $ 1,406 $ 1,268 $ 90 $ 0
Weighted average effective yield .. 5.69% 6.54% 7.36% 6.49% 9.29% 0.00%
Variable Rate:
Book value ........................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Weighted average effective yield .. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Securities available-for-sale
Fixed Rate:
Book value ........................ $ 12,154 $ 13,668 $ 12,324 $ 11,097 $ 5,432 $ 47,556
Weighted average effective yield .. 6.15% 6.50% 6.36% 6.35% 6.68% 6.64%
Variable Rate:
Book value ........................ $ 997 $ 0 $ 0 $ 0 $ 95 $ 2,978
Weighted average effective yield .. 5.21% 0.00% 0.00% 0.00% 6.10% 6.25%
Financial Liabilities:
Time deposits
Fixed Rate:
Book value ........................ $133,294 $ 3,918 $ 1,757 $ 193 $ 204 $ 0
Weighted average effective rate ... 5.58% 5.54% 5.75% 5.51% 5.59% 0.00%
Variable Rate:
Book value ........................ $ 7,087 $ 1,041 $ 72 $ 0 $ 2 $ 0
Weighted average effective rate ... 5.12% 5.12% 5.12% 0.00% 5.12% 0.00%
Long-term debt and subordinated notes
Fixed Rate:
Book value ........................ $ 5,000 $ 8,000 $ 5,000 $ 6,000 $ 0 $ 10,000
Weighted average effective rate ... 5.71% 5.59% 6.08% 7.89% 0.00% 7.91%
Variable Rate:
Book value ........................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Weighted average effective rate ... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

<CAPTION>
December 31, 1997
-------------------------
Total Fair Value
------------- -----------
<S> <C> <C>
Financial Assets:
Loans, net of unearned income
Fixed Rate:
Book value ........................ $ 214,062 $214,272
Weighted average effective yield .. 9.00%
Variable Rate:
Book value ........................ $ 201,637 $201,637
Weighted average effective yield .. 9.10%
Securities held-to-maturity
Fixed Rate:
Book value ........................ $ 10,429 $ 10,475
Weighted average effective yield .. 6.24%
Variable Rate:
Book value ........................ $ 0 $ 0
Weighted average effective yield .. 0.00%
Securities available-for-sale
Fixed Rate:
Book value ........................ $ 102,231 $102,231
Weighted average effective yield .. 6.50%
Variable Rate:
Book value ........................ $ 4,070 $ 4,070
Weighted average effective yield .. 5.99%
Financial Liabilities:
Time deposits
Fixed Rate:
Book value ........................ $ 139,366 $139,594
Weighted average effective rate ... 5.58%
Variable Rate:
Book value ........................ $ 8,202 $ 8,202
Weighted average effective rate ... 5.12%
Long-term debt and subordinated notes
Fixed Rate:
Book value ........................ $ 34,000 $ 34,236
Weighted average effective rate ... 6.77%
Variable Rate:
Book value ........................ $ 0 $ 0
Weighted average effective rate ... 0.00%
</TABLE>

Table 11 summarizes the expected maturities and weighted average effective
yields and interest rates associated with the Corporation's financial
instruments. Cash and short-term investments, deposits (excluding time
deposits), and short-term borrowings are excluded from Table 11, as their
respective carrying values approximate fair values. These financial instruments
generally expose the Corporation to insignificant market risk as they have
either no stated maturities or an average

23
<PAGE>

maturity of less than thirty days and carry interest rates that approximate
market. For further information on the fair value of financial instruments, see
Note 13 to the consolidated financial statements.

Accounting and Regulatory Matters

In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share ("EPS") by replacing the presentation of primary EPS with a presentation
of basic EPS. In addition, SFAS No. 128 requires a reconciliation of the
numerator and denominator of the diluted EPS calculation. The Corporation has
prospectively adopted SFAS No. 128 as of December 31, 1997 and has restated EPS
for all prior periods presented.

In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires that changes in the amounts of comprehensive income
items, currently reported as separate components of equity, be shown in a
financial statement, displayed as prominently as other financial statements.
The most common components of other comprehensive income include foreign
currency translation adjustments, minimum pension liability adjustments and/or
unrealized gains and losses on available-for-sale securities. SFAS No. 130 does
not require a specific format for the new financial statement, but does require
that an amount representing total comprehensive income be reported. The
Corporation plans to adopt SFAS No. 130 in 1998.

In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes new standards for
business segment reporting. Requirements of SFAS No. 131 include reporting of
(a) financial and descriptive information about reportable operating segments,
(b) a measure of segment profit or loss, certain specific revenue and expense
items and segment assets with reconciliations of such amounts to the
Corporation's financial statements, and (c) information regarding revenues
derived from the Corporation's products and services, information about major
customers and information related to geographic areas. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and thus will be
adopted by the Corporation in 1998.

Management is not aware of any known trends, events, uncertainties, or
current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on the Corporation's liquidity,
capital resources, or other operations.

24
<PAGE>

REPORT OF MANAGEMENT

The consolidated financial statements of Anchor Financial Corporation (the
"Corporation") and other financial information presented in this Annual Report
were prepared by management which is responsible for the integrity of the
information presented. The statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances, and
include amounts that are based on management's best estimates and judgment.

The Corporation maintains accounting and control systems which are
believed to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and produce records adequate for preparation of financial
information. Management recognizes the limits inherent in any system of
internal control, as the cost of controls should not exceed the benefits
derived. Management believes the Corporation's system provides an appropriate
balance.

In order to monitor compliance with its system of controls, the
Corporation has an internal audit program. The program includes a review for
compliance with written policies and procedures and a comprehensive review of
the adequacy and effectiveness of control systems. Internal audit reports are
issued to the Audit Committee of the Board of Directors. The independent
accountants receive copies of internal audit reports, and the reports are
available for review by regulatory authorities.

The Audit Committee of the Board of Directors meets as necessary with
management, internal auditors and the independent accountants to review audit
scopes, audit reports, and fee arrangements of the independent accountants, in
order to evaluate management's performance of its financial reporting
responsibility. Both internal auditors and independent accountants have access
to the Audit Committee without any management present in the discussions.
Independent accountants are recommended by the Audit Committee to the Board of
Directors for selection and ratification by the stockholders.

Price Waterhouse LLP, as independent accountants, is engaged to provide an
objective, independent review as to management's discharge of its
responsibilities relating to the fairness of reported operating results and
financial condition. They have an understanding of the Corporation's accounting
and financial controls and conduct such tests and related procedures as they
deem appropriate to arrive at an opinion of the fairness of the financial
statements. Their opinion is included as a part of this Annual Report on Form
10-K.

The management of the Corporation is committed to, and has always
maintained and enforced, a philosophy of high ethical standards in the conduct
of its business. The policies covering conflicts of interest, community
affairs, and other subjects are uniformly applicable to all officers and
employees of the Corporation.

ANCHOR FINANCIAL CORPORATION

Myrtle Beach, South Carolina
February 12, 1998

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Anchor Financial Corporation

In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of changes in stockholders' equity,
and of cash flows present fairly, in all material respects, the financial
position of Anchor Financial Corporation and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

[Price Waterhouse LLP signature appears here]

Columbia, South Carolina
February 12, 1998

25
<PAGE>

ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks ......................................................... $ 25,313,707 $ 25,346,998
Interest-bearing balances due from banks ........................................ 664,228 316,654
Investment securities:
Held-to-maturity, at amortized cost (fair value of $10,474,569 in 1997 and
$18,225,853 in 1996).......................................................... 10,428,605 18,187,108
Available-for-sale, at fair value (amortized cost of $108,707,284 in 1997 and
$81,272,830 in 1996).......................................................... 111,033,032 82,044,037
------------ ------------
Total investment securities ..................................................... 121,461,637 100,231,145
------------ ------------
Loans ........................................................................... 415,737,360 345,429,534
Less -- unearned income ....................................................... (38,120) (24,367)
-- allowance for loan losses ............................................. (4,588,996) (3,801,201)
------------ ------------
Net loans ....................................................................... 411,110,244 341,603,966
------------ ------------
Premises and equipment .......................................................... 16,875,259 16,121,015
Other assets .................................................................... 9,971,550 9,884,514
------------ ------------
Total assets ..................................................................... $585,396,625 $493,504,292
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits .............................................................. $ 83,393,250 $ 79,958,880
NOW and money market accounts ................................................ 237,839,188 199,879,530
Time deposits $100,000 and over............................................... 69,102,035 45,099,776
Other time and savings deposits .............................................. 103,373,032 95,273,664
------------ ------------
Total deposits ................................................................ 493,707,505 420,211,850
Federal funds purchased and securities sold under agreements to repurchase .... 11,912,314 6,337,197
Other short-term borrowings ................................................... 2,187,366 1,847,779
Long-term debt ................................................................ 23,000,000 18,000,000
Subordinated notes ............................................................ 11,000,000 11,000,000
Other liabilities ............................................................. 4,061,001 3,132,061
------------ ------------
Total liabilities ............................................................... 545,868,186 460,528,887
------------ ------------
Stockholders' Equity:
Common stock, $6.00 par value; 7,000,000 shares authorized; shares issued and
outstanding -- 3,876,047 in 1997 and 3,839,010 in 1996 ....................... 23,256,282 23,034,060
Surplus ....................................................................... 1,616,607 1,070,326
Retained earnings ............................................................. 13,691,474 9,006,968
Unrealized gains on investment securities available-for-sale, net of tax ...... 1,490,701 497,301
Unearned ESOP shares .......................................................... (526,625) (633,250)
------------ ------------
Total stockholders' equity ...................................................... 39,528,439 32,975,405
------------ ------------
Commitments and contingencies (Note 14)
Total liabilities and stockholders' equity ....................................... $585,396,625 $493,504,292
============ ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these financial statements.

26
<PAGE>

ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans .............................. $36,290,990 $29,578,147 $ 25,277,156
Interest on investment securities:
Taxable ............................................... 6,573,789 5,816,582 4,471,051
Non-taxable ........................................... 268,990 213,512 189,112
Other interest income ................................... 281,677 271,827 332,469
----------- ----------- ------------
Total interest income .................................... 43,415,446 35,880,068 30,269,788
----------- ----------- ------------
INTEREST EXPENSE:
Interest on deposits .................................... 17,346,607 14,313,935 12,471,902
Interest on short-term borrowings ....................... 271,673 222,509 269,245
Interest on long-term borrowings ........................ 1,191,439 1,104,069 417,792
Interest on subordinated notes .......................... 931,224 455,688 439,561
----------- ----------- ------------
Total interest expense ................................... 19,740,943 16,096,201 13,598,500
----------- ----------- ------------
Net interest income ...................................... 23,674,503 19,783,867 16,671,288
Provision for loan losses ................................ 910,000 850,000 596,000
----------- ----------- ------------
Net interest income after provision for loan losses ...... 22,764,503 18,933,867 16,075,288
----------- ----------- ------------
NONINTEREST INCOME:
Service charges on deposit accounts ..................... 1,982,970 1,914,131 1,526,467
Commissions and fees .................................... 1,293,434 938,414 641,031
Trust income ............................................ 312,913 257,703 216,336
Gains on sales of mortgage loans ........................ 270,285 179,537 308,811
Gains (losses) on sales of investment securities, net ... (25,310) (14,523) 87,492
Other operating income .................................. 478,380 484,495 196,383
----------- ----------- ------------
Total noninterest income ................................. 4,312,672 3,759,757 2,976,520
----------- ----------- ------------
NONINTEREST EXPENSE:
Salaries and employee benefits .......................... 9,713,887 8,261,455 7,159,298
Net occupancy expense ................................... 1,372,019 1,297,602 1,037,250
Equipment expense ....................................... 1,309,122 1,278,615 1,057,131
Other operating expense ................................. 5,126,493 4,492,863 4,305,879
----------- ----------- ------------
Total noninterest expense ................................ 17,521,521 15,330,535 13,559,558
----------- ----------- ------------
Income before income taxes ............................... 9,555,654 7,363,089 5,492,250
Provision for income taxes ............................... 3,441,986 2,594,086 1,953,350
----------- ----------- ------------
Net income ............................................... $ 6,113,668 $ 4,769,003 $ 3,538,900
=========== =========== ============
Net income per share -- basic ............................ $ 1.59 $ 1.25 $ 0.93
=========== =========== ============
Net income per share -- diluted .......................... $ 1.51 $ 1.21 $ 0.93
=========== =========== ============
Weighted average common shares outstanding -- basic ...... 3,843,227 3,830,103 3,810,744
=========== =========== ============
Weighted average common shares outstanding -- diluted .... 4,050,156 3,947,187 3,823,007
=========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these financial statements.

27
<PAGE>

ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock
Shares Amount Surplus
------------- -------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994 ............ 3,810,630 $22,863,780 $ 858,598
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ 848 5,085 7,669
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax ..................
Change in unearned ESOP shares ......... 9,064
Cash dividends ($0.24 per share)........
Net income .............................
--------- ---------- --------
Balance at December 31, 1995 ............ 3,811,478 22,868,865 875,331
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ 8,436 50,616 120,258
Stock Option Plan ..................... 19,096 114,579 (1,974)
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax ..................
Change in unearned ESOP shares ......... 76,711
Cash dividends ($0.28 per share)........
Net income .............................
--------- ---------- ---------
Balance at December 31, 1996 ............ 3,839,010 23,034,060 1,070,326
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ 7,542 45,252 157,221
Stock Option Plan ..................... 29,516 177,093 21,993
Payment in lieu of fractional shares
in stock split ........................ (21) (123)
Tax benefit from exercised stock
options ............................... 218,031
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax ..................
Change in unearned ESOP shares ......... 149,036
Cash dividends ($0.375 per share).......
Net income .............................
--------- ----------- ----------
Balance at December 31, 1997 ............ 3,876,047 $23,256,282 $1,616,607
========= =========== ==========

<CAPTION>
Unrealized gains Total
Retained (losses) on Unearned ESOP stockholders'
earnings investment securities shares equity
--------------- ----------------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ............ $ 2,696,267 ($ 636,918) ($ 1,007,109) $ 24,774,618
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ (1,695) 11,059
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax .................. 929,673 929,673
Change in unearned ESOP shares ......... 22,730 170,500 202,294
Cash dividends ($0.24 per share)........ (914,526) (914,526)
Net income ............................. 3,538,900 3,538,900
------------ ---------- ------------ -----------
Balance at December 31, 1995 ............ 5,341,676 292,755 (836,609) 28,542,018
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ (16,872) 154,002
Stock Option Plan ..................... (38,193) 74,412
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax .................. 204,546 204,546
Change in unearned ESOP shares ......... 23,495 203,359 303,565
Cash dividends ($0.28 per share)........ (1,072,141) (1,072,141)
Net income ............................. 4,769,003 4,769,003
------------ ---------- ------------ -----------
Balance at December 31, 1996 ............ 9,006,968 497,301 (633,250) 32,975,405
Common stock issued pursuant to:
Dividend Reinvestment Plan ............ (10,902) 191,571
Stock Option Plan ..................... (3,999) 195,087
Payment in lieu of fractional shares
in stock split ........................ (444) (567)
Tax benefit from exercised stock
options ............................... 218,031
Change in unrealized gains (losses)
on investment securities available-
for-sale, net of tax .................. 993,400 993,400
Change in unearned ESOP shares ......... 26,612 106,625 282,273
Cash dividends ($0.375 per share)....... (1,440,429) (1,440,429)
Net income ............................. 6,113,668 6,113,668
------------- ---------- ------------ ------------
Balance at December 31, 1997 ............ $ 13,691,474 $1,490,701 ($ 526,625) $ 39,528,439
============= ========== ============ ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these financial statements.

28
<PAGE>

ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1997
----------------
<S> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 6,113,668
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of investment securities ................................ (143,376)
Depreciation of premises and equipment ............................................. 1,285,654
Amortization of intangible assets .................................................. 419,142
Provision for loan losses .......................................................... 910,000
Losses (gains) on sales of investment securities, net .............................. 25,310
Gains on sales of mortgage loans ................................................... (270,285)
Gains on sales of premises and equipment ........................................... (9,230)
Change in interest receivable ...................................................... (650,068)
Change in prepaid expenses ......................................................... 83,659
Change in income taxes payable ..................................................... (41,970)
Change in deferred taxes ........................................................... 411,434
Change in interest payable ......................................................... 712,085
Change in accrued expenses ......................................................... 291,972
Origination of mortgage loans held for sale ........................................ (14,450,194)
Proceeds from sales of mortgage loans held for sale ................................ 14,815,889
Net change in unearned ESOP shares ................................................. 282,273
--------------
Net cash provided by operating activities ............................................ 9,785,963
--------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity .................................. 0
Proceeds from maturities of investment securities held-to-maturity .................. 7,754,099
Purchase of investment securities available-for-sale ................................ (54,656,216)
Proceeds from sales of investment securities available-for-sale ..................... 11,291,398
Proceeds from maturities of investment securities available-for-sale ................ 16,052,833
Net change in loans ................................................................. (70,511,688)
Capital expenditures ................................................................ (2,049,367)
Purchase of insurance policies related to Salary Continuation Plan .................. 0
Other, net .......................................................................... (926,791)
--------------
Net cash used for investing activities ............................................... (93,045,732)
--------------
Cash flows from financing activities:
Net change in deposits .............................................................. 73,495,655
Net change in federal funds purchased and securities sold under agreements to
repurchase ......................................................................... 5,575,118
Net change in other short-term borrowings ........................................... 339,586
Proceeds from issuance of long-term debt ............................................ 5,000,000
Proceeds from issuance of subordinated notes ........................................ 0
Proceeds from issuance of stock in accordance with:
Stock Option Plan .................................................................. 195,087
Dividend Reinvestment Plan ......................................................... 191,571
Cash dividends paid ................................................................. (1,440,429)
Other, net .......................................................................... 217,464
--------------
Net cash provided by financing activities ............................................ 83,574,052
--------------
Net change in cash and cash equivalents .............................................. 314,283
Cash and cash equivalents at January 1 ............................................... 25,663,652
--------------
Cash and cash equivalents at December 31 ............................................. $ 25,977,935
==============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................................ $ 19,028,858
Income taxes ........................................................................ 3,421,156

<CAPTION>
Year ended December 31,
---------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 4,769,003 $ 3,538,900
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of investment securities ................................ (91,747) 73,856
Depreciation of premises and equipment ............................................. 1,227,346 1,019,575
Amortization of intangible assets .................................................. 356,603 343,620
Provision for loan losses .......................................................... 850,000 596,000
Losses (gains) on sales of investment securities, net .............................. 14,523 (87,492)
Gains on sales of mortgage loans ................................................... (179,537) (308,811)
Gains on sales of premises and equipment ........................................... (14,302) (22,755)
Change in interest receivable ...................................................... (421,876) (566,687)
Change in prepaid expenses ......................................................... 14,907 216,406
Change in income taxes payable ..................................................... (11,277) 41,713
Change in deferred taxes ........................................................... (92,989) 321,291
Change in interest payable ......................................................... 365,551 403,758
Change in accrued expenses ......................................................... 391,721 (661,607)
Origination of mortgage loans held for sale ........................................ (9,755,750) (15,281,185)
Proceeds from sales of mortgage loans held for sale ................................ 9,279,337 16,791,283
Net change in unearned ESOP shares ................................................. 303,564 202,294
-------------- --------------
Net cash provided by operating activities ............................................ 7,005,077 6,620,159
-------------- --------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity .................................. (2,053,653) (4,005,000)
Proceeds from maturities of investment securities held-to-maturity .................. 15,222,608 5,992,552
Purchase of investment securities available-for-sale ................................ (54,387,844) (15,115,327)
Proceeds from sales of investment securities available-for-sale ..................... 10,770,039 4,759,856
Proceeds from maturities of investment securities available-for-sale ................ 14,063,823 5,428,171
Net change in loans ................................................................. (59,740,137) (49,879,830)
Capital expenditures ................................................................ (3,535,678) (3,259,103)
Purchase of insurance policies related to Salary Continuation Plan .................. (1,875,000) 0
Other, net .......................................................................... (395,536) (336,104)
-------------- --------------
Net cash used for investing activities ............................................... (81,931,378) (56,414,785)
-------------- --------------
Cash flows from financing activities:
Net change in deposits .............................................................. 66,336,094 45,667,340
Net change in federal funds purchased and securities sold under agreements to
repurchase ......................................................................... 4,589,070 (3,147,972)
Net change in other short-term borrowings ........................................... 893,328 (6,143,638)
Proceeds from issuance of long-term debt ............................................ 3,000,000 15,000,000
Proceeds from issuance of subordinated notes ........................................ 6,000,000 0
Proceeds from issuance of stock in accordance with:
Stock Option Plan .................................................................. 74,412 0
Dividend Reinvestment Plan ......................................................... 154,002 11,059
Cash dividends paid ................................................................. (1,072,141) (914,526)
Other, net .......................................................................... 0 0
-------------- --------------
Net cash provided by financing activities ............................................ 79,974,765 50,472,263
-------------- --------------
Net change in cash and cash equivalents .............................................. 5,048,464 677,637
Cash and cash equivalents at January 1 ............................................... 20,615,188 19,937,551
-------------- --------------
Cash and cash equivalents at December 31 ............................................. $ 25,663,652 $ 20,615,188
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................................ $ 15,730,650 $ 13,194,742
Income taxes ........................................................................ 2,850,785 2,014,245
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these financial statements.

29
<PAGE>

ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Anchor Financial Corporation and Subsidiaries (the "Corporation")
Anchor Financial Corporation (the "Parent")
The Anchor Bank (the "Bank")

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The Corporation is a bank holding company
incorporated under the laws of the State of South Carolina on January 6, 1984,
and registered under the Bank Holding Company Act of 1956, as amended. The
consolidated financial statements of the Corporation include the accounts of
the Parent and its wholly-owned subsidiaries, the Bank, Anchor Capital
Corporation, and Anchor Automated Services, Inc., after elimination of all
material intercompany accounts and transactions. In accordance with the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994, the
Corporation merged its two banking subsidiaries, The Anchor Bank and The Anchor
Bank of North Carolina on October 4, 1996. The Anchor Bank survived the merger
and all information presented in this report reflects this merger for all
periods presented. On August 11, 1997 the Board of Directors of the Corporation
declared a three-for-two stock split in the form of a 50% common stock dividend
paid on September 26, 1997, to shareholders of record of the Corporation on
August 29, 1997. All financial statement information presented in this report
has been restated to give retroactive effect to the stock split, including the
transfer of an appropriate amount to common stock from retained earnings.

Use of Estimates: The financial statements are prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Investment Securities: In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," management determines at the time of purchase the
classification of securities as either held-to-maturity or available-for-sale.
In determining such classification, securities that the Corporation has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. All other securities are
classified as available-for-sale and carried at estimated fair value with
unrealized gains and losses included in stockholders' equity on an after-tax
basis. Realized gains and losses are recognized on the specific identification
method.

Loans and Allowance for Loan Losses: Loans are reported at their face
amount less payments collected. Unearned income on discounted loans is reported
as a reduction of the loan balances and is recognized as income using the
sum-of-the-months-digits method. Interest on non-discounted loans is recognized
over the term of the loan based on the loan balance outstanding.

In many lending transactions, collateral is obtained to provide an
additional measure of security. Generally, the cash flow and earnings power of
the borrower represent the primary source of repayment and collateral is
considered as an additional safeguard to further reduce credit risk. The need
for collateral is determined on a case-by-case basis after considering the
current and prospective creditworthiness of the borrower, terms of the lending
transaction, and economic conditions. When a loan becomes 90 days past due as
to interest or principal or serious doubt exists as to collectibility, the
accrual of income is discontinued unless the loan is well secured and in
process of collection. Previously accrued interest is reversed against current
earnings and any subsequent interest is recognized on the cash basis.

Net nonrefundable fees and direct costs of loan originations are deferred
and amortized over the lives of the underlying loans as an adjustment to
interest income in accordance with SFAS No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases." Loan origination fees and direct costs associated with
originating mortgage loans for sale to investors are deferred until the related
loans are sold and are recognized as a component of the gain on sale of
mortgage loans.

The allowance for loan losses is maintained at a level considered adequate
by management to provide for potential losses inherent in the loan portfolio.
Management's evaluation of the adequacy of the allowance is based on a review
of

30
<PAGE>

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

individual loans, recent loss experience, current economic conditions, risk
characteristics of the various classifications of loans, underlying collateral
values, and other relevant factors. Losses on loans are charged to and
recoveries credited to the allowance at the time the loss or recovery occurs.
The provision for loan losses is the amount required to maintain the allowance
at adequate levels based on management's evaluation of relevant factors which
deserve current recognition. It is possible that a change in the relevant
factors used in management's evaluation may occur in the future.

Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the asset's estimated useful life (15 to 40 years for buildings and
improvements; 3 to 15 years for furniture and equipment). Gains or losses on
routine dispositions are charged to operating expenses, and improvements and
betterments are capitalized. Interest cost incurred related to the construction
of banking premises is included in the cost of the related asset.

Intangible Assets: Goodwill and deposit base premium amounts arising from
a bank acquisition in 1991 and included in other assets aggregated $972,813 and
$1,208,234 at December 31, 1997 and 1996, respectively, and are amortized over
the expected lives of the related assets (generally 10 to 15 years) using the
straight-line method of amortization.

Income Taxes: The Corporation recognizes deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities. See Note
6 for additional information on the components of income tax expense.

Statement of Cash Flows: For purposes of the Consolidated Statement of
Cash Flows, the Corporation has defined cash on hand, amounts due from banks,
and federal funds sold as cash and cash equivalents. Generally, federal funds
are purchased and sold for one-day periods.

Other: Securities and other property held by the Trust Department of the
Bank in a fiduciary or agency capacity are not included in the Consolidated
Balance Sheet since such items are not assets of the Corporation.

NOTE 2 -- RESTRICTION ON CASH AND DUE FROM BANK ACCOUNTS

The Bank is required by regulation to maintain average cash reserve
balances based on a percentage of deposits. The average amount of the cash
reserve balance for the year ended December 31, 1997 was approximately
$6,743,000.

NOTE 3 -- INVESTMENT SECURITIES

The amortized cost and the estimated fair value of investment securities
held-to-maturity at December 31, 1997 and 1996 are presented below:

<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ......... $ 4,529,046 $13,736 $ 5,595 $ 4,537,187
Securities of other U.S.
Government agencies
and corporations ............... 4,012,306 11,931 4,873 4,019,364
Obligations of states and
political subdivisions ......... 1,887,253 30,765 0 1,918,018
----------- ------- ------- -----------
Total debt securities ............ $10,428,605 $56,432 $10,468 $10,474,569
=========== ======= ======= ===========

<CAPTION>
1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ......... $11,052,945 $27,148 $22,124 $11,057,969
Securities of other U.S.
Government agencies
and corporations ............... 4,992,200 17,253 21,159 4,988,294
Obligations of states and
political subdivisions ......... 2,141,963 37,627 0 2,179,590
----------- ------- ------- -----------
Total debt securities ............ $18,187,108 $82,028 $43,283 $18,225,853
=========== ======= ======= ===========
</TABLE>

31
<PAGE>

NOTE 3 -- INVESTMENT SECURITIES -- Continued

The amortized cost and the estimated fair value of investment securities
available-for-sale at December 31, 1997 and 1996 are presented below:

<TABLE>
<CAPTION>
1997
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities .......... $ 22,016,546 $ 275,459 $13,412 $ 22,278,593
Securities of other U.S.
Government agencies and
corporations ..................... 51,809,788 367,643 24,261 52,153,170
Mortgage-backed securities ........ 26,955,347 255,622 285 27,210,684
Obligations of states and
political subdivisions ........... 4,535,222 122,785 0 4,658,007
------------ ---------- ------- ------------
Total debt securities ............. 105,316,903 1,021,509 37,958 106,300,454
Marketable equity securities ...... 3,390,381 1,342,197 0 4,732,578
------------ ---------- ------- ------------
Total investment securities ....... $108,707,284 $2,363,706 $37,958 $111,033,032
============ ========== ======= ============

<CAPTION>
1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities .......... $29,079,824 $242,233 $ 46,433 $29,275,624
Securities of other U.S.
Government agencies and
corporations ..................... 37,089,682 209,276 117,549 37,181,409
Mortgage-backed securities ........ 8,432,631 55,318 441 8,487,508
Obligations of states and
political subdivisions ........... 2,845,712 75,548 1,175 2,920,085
----------- -------- -------- -----------
Total debt securities ............. 77,447,849 582,375 165,598 77,864,626
Marketable equity securities ...... 3,824,981 354,430 0 4,179,411
----------- -------- -------- -----------
Total investment securities ....... $81,272,830 $936,805 $165,598 $82,044,037
=========== ======== ======== ===========
</TABLE>

The amortized cost and estimated fair value of debt securities
held-to-maturity at December 31, 1997, based on their contractual maturities,
are shown below. Actual maturities may differ from contractual maturities or
maturities shown below because borrowers have the right to prepay obligations
with or without prepayment penalties.

<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------- -------------
<S> <C> <C>
Due in one year or less ............... $ 5,232,597 $ 5,230,611
Due after one year through five years . 5,196,008 5,243,958
Due after five years through ten years 0 0
Due after ten years ................... 0 0
----------- -----------
Total ................................. $10,428,605 $10,474,569
=========== ===========
</TABLE>

The amortized cost and estimated fair value of debt securities
available-for-sale at December 31, 1997, based on contractual maturities, are
shown below. Actual maturities may differ from contractual maturities or
maturities shown below because borrowers have the right to prepay obligations
with or without prepayment penalties.

<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less .................... $ 13,124,060 $ 13,151,153
Due after one year through five years ...... 42,088,979 42,519,841
Due after five years through ten years ..... 35,687,881 36,071,250
Due after ten years ........................ 14,415,983 14,558,210
------------ ------------
Total ...................................... $105,316,903 $106,300,454
============ ============
</TABLE>

Investment securities with a par value of $61,550,000 and $41,400,000, at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, as collateral for short-term borrowings, and for other lawful
purposes.

Proceeds from sales of investment securities available-for-sale were
$11,291,398, $10,770,039, and $4,759,856 in 1997, 1996, and 1995, respectively.
Gross realized gains of $16,145, $5,009, and $87,492 were realized on these
sales during 1997, 1996, and 1995, respectively. Gross realized losses of
$41,455 and $19,532 were realized on these sales during 1997 and 1996,
respectively.

There were no sales of held-to-maturity investment securities during 1997,
1996, or 1995. On December 15, 1995, the Corporation transferred
held-to-maturity investment securities with an amortized cost of $1,458,229 and
an unrealized gain of $23,802 to available-for-sale in accordance with the
Financial Accounting Standards Board ("FASB") Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities."

Income tax (benefit) expense attributable to securities transactions was
($8,605), ($4,938), and $29,747 for 1997, 1996, and 1995, respectively.

32
<PAGE>

NOTE 4 -- LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at December 31 are comprised of the following:

<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Commercial, financial, and agricultural ..... $ 52,541,159 $ 55,295,682
Real estate -- construction ................. 55,173,492 35,765,701
Real estate -- mortgage ..................... 166,199,407 139,968,899
Installment loans to individuals ............ 115,051,762 98,997,901
Other ....................................... 26,771,540 15,401,351
------------ ------------
Gross Loans ................................. 415,737,360 345,429,534
Unearned income ............................. (38,120) (24,367)
------------ ------------
Total Loans ................................. $415,699,240 $345,405,167
============ ============
</TABLE>

Loans made by the Corporation to directors, executive officers, and their
associates totaled $11,550,019 and $10,619,042 at December 31, 1997 and 1996,
respectively. During 1997, loans made and other additions totaled $6,917,390
and repayments and other deductions totaled $5,986,413. All such loans were
made in the normal course of business on substantially the same terms as loans
to other customers of comparable size and financial status and the loans did
not include more than a normal risk of collectibility or present other
unfavorable features.

Installment loans to individuals include mortgage loans held-for-sale of
$995,290 and $1,090,700 in 1997 and 1996, respectively, and are recorded at the
lower of cost or estimated market value.

The primary market area served by the Corporation is centered in Myrtle
Beach, South Carolina and consists of the entire area known as the Grand
Strand. The coastal resort areas of the Grand Strand and Hilton Head Island are
largely dependent on the tourism industry and are seasonal in nature with most
of the businesses subject to wide swings in business activity between the
winter and summer months. At December 31, 1997 and 1996, the Corporation had
approximately 54% and 65%, respectively, of its loans outstanding in the Grand
Strand and Hilton Head Island areas as a result of the Corporation's expansion
in markets in southeastern North Carolina and the Charleston, South Carolina
area. The Corporation's borrowers may be subject to adverse economic events
including the effects of local economic conditions or natural disasters.

Activity in the allowance for loan losses for the years ended December 31
is summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year ................... $3,801,201 $3,045,656 $2,795,941
Provision for loan losses ...................... 910,000 850,000 596,000
Recoveries on loans previously charged off ..... 211,918 259,251 106,722
Loans charged off .............................. (334,123) (353,706) (453,007)
---------- ---------- ----------
Balance at end of year ......................... $4,588,996 $3,801,201 $3,045,656
========== ========== ==========
</TABLE>

Impaired loans are loans for which it is probable that all amounts,
including principal and interest, will not be collected in accordance with the
contractual terms of the loan agreement. Impaired (including cash basis) loans
at December 31, all of which are held by the Corporation, are summarized below:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Nonaccrual loans .................................... $228,674 $ 53,016
Other real estate owned ............................. 187,000 126,245
Interest income which would have been recorded on
nonaccrual loans pursuant to original terms ........ 20,270 7,595
Interest income recorded on nonaccrual loans ........ 14,906 3,556
</TABLE>

At December 31, 1997, impaired loans had a related specific allowance for
loan losses totaling $23,000. There were no material commitments to lend
additional funds to customers whose loans were classified as impaired at
December 31, 1997.

At December 31, 1997 and 1996, the Corporation did not have any loans for
which terms had been modified in troubled debt restructurings.

33
<PAGE>

NOTE 5 -- PREMISES AND EQUIPMENT

Premises and equipment at December 31 consist of the following:

<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Land .................................. $ 5,180,671 $ 5,081,628
Buildings and improvements ............ 12,228,686 10,635,714
Furniture and equipment ............... 9,029,111 8,411,575
Construction in process ............... 446,624 798,756
------------- ------------
Total ................................. 26,885,092 24,927,673
Less -- Accumulated depreciation ...... (10,009,833) (8,806,658)
------------- ------------
Net Premises and Equipment ............ $ 16,875,259 $ 16,121,015
============= ============
</TABLE>

Provisions for depreciation included in operating expense in 1997, 1996,
and 1995 were $1,285,654, $1,227,346, and $1,091,575, respectively.

The Corporation has entered into various noncancellable operating leases
for land, buildings, and equipment used in its operations. Certain leases have
various renewal options and require increased rentals under cost of living
escalation clauses. Rental expenses charged to occupancy and equipment expense
in 1997, 1996, and 1995 were $199,641, $243,804, and $127,309, respectively.

At December 31, 1997, future minimum rental commitments under
noncancellable operating leases that have a remaining life in excess of one
year are summarized as follows:

<TABLE>
<S> <C>
1998 ............................... $166,428
1999 ............................... 159,676
2000 ............................... 140,637
2001 ............................... 115,877
2002 ............................... 93,808
2003 and thereafter ................ 286,772
--------
Total minimum obligation ........... $963,198
========
</TABLE>

NOTE 6 -- INCOME TAXES

The components of consolidated income tax expense (benefit) for the years
ended December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal ........................... $3,269,562 $2,603,406 $1,929,797
State ............................. 328,227 201,318 197,315
---------- ---------- ----------
Total .............................. 3,597,789 2,804,724 2,127,112
---------- ---------- ----------
Deferred:
Federal ........................... (173,381) (213,465) (153,595)
State ............................. 17,578 2,827 (20,167)
---------- ---------- ----------
Total .............................. (155,803) (210,638) (173,762)
---------- ---------- ----------
Provision for income taxes ......... $3,441,986 $2,594,086 $1,953,350
========== ========== ==========
</TABLE>

34
<PAGE>

NOTE 6 -- INCOME TAXES -- Continued

The significant components of the Corporation's deferred tax liabilities
and assets recorded pursuant to SFAS No. 109 and included in other assets in
the Consolidated Balance Sheet at December 31, are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation over book .......... $ (590,748) $ (577,346) $ (531,221)
Unrealized gain -- SFAS No. 115 ..... (841,144) (273,907) (156,261)
Other, net .......................... (351,321) (251,443) (165,513)
------------ ------------ ----------
Total deferred tax liabilities ........ (1,783,213) (1,102,696) (852,995)
------------ ------------ ----------
Deferred tax assets:
Allowance for loan losses ........... 1,286,726 963,108 731,901
Deferred loan fees and costs ........ 148,195 259,457 234,999
Deferred compensation ............... 210,879 199,882 165,681
Other, net .......................... 210,141 164,411 111,584
------------ ------------ ----------
Total deferred tax assets ............. 1,855,941 1,586,858 1,244,165
------------ ------------ ----------
Net deferred tax asset ................ $ 72,728 $ 484,162 $ 391,170
============ ============ ==========
</TABLE>

SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that the tax benefits associated with temporary differences
will not be realized. Based on the current facts and circumstances, management
believes that it is more likely than not that the deferred tax assets will be
realized and, accordingly, does not believe that a valuation allowance is
necessary.

Total income tax expense differs from the amount of income tax determined
by applying the U.S. statutory federal income tax rate (34% for all years
presented) to pretax income as a result of the following differences:

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Tax expense at statutory rate .................. $3,248,922 $2,503,450 $1,867,365
Increase (decrease) in taxes resulting from:
Non-taxable interest on investment securities (78,772) (68,968) (64,298)
State income tax expense, net of federal
income tax benefit .......................... 228,231 135,623 110,070
Other, net ................................... 43,605 23,981 40,213
---------- ---------- ----------
Total .......................................... $3,441,986 $2,594,086 $1,953,350
========== ========== ==========
</TABLE>

NOTE 7 -- SHORT-TERM BORROWINGS

Short-term borrowings at December 31 include the following:

<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Federal funds purchased .............................. $ 8,500,000 $ 4,980,000
Securities sold under agreements to repurchase ....... 3,412,314 1,357,197
------------ -----------
Federal funds purchased and securities sold under
agreements to repurchase .......................... 11,912,314 6,337,197
------------ -----------
Other short-term borrowings .......................... 2,187,366 1,847,779
------------ -----------
Total short-term borrowings .......................... $ 14,099,680 $ 8,184,976
============ ===========
Weighted average interest rate at December 31 ........ 5.58% 5.82%
Weighted average interest rate during the year ....... 4.66 4.78
Maximum amount outstanding at any month-end .......... $ 16,145,548 $17,555,950
Average amount outstanding during the year ........... 5,832,527 4,651,093
</TABLE>

The Bank has a line of credit with the Federal Home Loan Bank ("FHLB")
under which short-term funds may be borrowed. At December 31, 1997, the Bank
had no short-term borrowings outstanding on this line of credit. Pursuant to
collateral agreements with the FHLB, advances are secured by stock in the FHLB
and qualifying first mortgage loans in the

35
<PAGE>

NOTE 7 -- SHORT-TERM BORROWINGS -- Continued

amount of $89.2 million. The Bank has a line of credit with the Federal Reserve
Bank of Richmond of $1,000,000 of which no amounts were outstanding at December
31, 1997. Advances on this line of credit must be secured by U.S. Treasury or
Government agency securities. Advances on the Federal Reserve Bank line of
credit generally mature within 31 days of the date of the advance. Securities
sold under agreements to repurchase generally mature on demand while federal
funds purchased are generally for one-day periods.

NOTE 8 -- LONG-TERM DEBT AND SUBORDINATED NOTES

Advances from the FHLB with an initial maturity of more than one year
totaled $23,000,000 at December 31, 1997. These advances are collateralized by
the same collateral agreements as short-term funds from the FHLB. Fixed
interest rates on these advances ranged from 5.48% to 7.21%, payable monthly or
quarterly, with principal due at various maturities ranging from 1998 to 2005.

On December 1, 1993, the Corporation issued $5,000,000 of 8.60%
Subordinated Notes due December 1, 2003. Under the terms of the Subordinated
Note Agreement, the balance of the debt cannot be paid prior to its final
maturity. On December 20, 1996, the Corporation issued $6,000,000 of 7.89%
Subordinated Notes due December 20, 2006. Under the terms of the Subordinated
Note Agreement, the balance of the debt can be prepaid on December 20, 2001 at
par plus accrued and unpaid interest. On December 20, 2001, the interest rate
on this issue will be reset to a rate approximately equal to the yield on the
5-year U.S. Treasury Note plus 195 basis points. The interest on these single
principal payment issues is payable semi-annually each year and at maturity.
There are no significant debt covenants related to Subordinated Notes. This
long-term debt qualifies for inclusion in the determination of total capital
under the Risk-Based Capital guidelines.

Principal maturities on long-term debt and subordinated notes are
summarized below:

<TABLE>
<S> <C>
1998 ........................ $ 5,000,000
1999 ........................ 3,000,000
2000 ........................ 5,000,000
2001 ........................ 0
2002 ........................ 5,000,000
2003 and thereafter ......... 16,000,000
-----------
Total ....................... $34,000,000
===========
</TABLE>

NOTE 9 -- COMPARISON OF OTHER OPERATING EXPENSE

Other operating expense for the years ended December 31 includes the
following:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Postage and freight ....................... $ 262,535 $ 241,444 $ 223,650
Directors fees ............................ 269,550 279,775 318,585
Advertising and promotional materials ..... 654,202 479,355 352,767
FDIC insurance assessment ................. 52,565 4,000 363,042
Legal ..................................... 274,101 150,739 85,834
Supplies .................................. 359,995 389,638 360,712
Telephone and data communications ......... 475,868 401,471 341,162
Other ..................................... 2,777,677 2,546,441 2,260,127
---------- ---------- ----------
Total ..................................... $5,126,493 $4,492,863 $4,305,879
========== ========== ==========
</TABLE>

NOTE 10 -- NET INCOME PER SHARE

In February 1997 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which establishes standards for computing
and presenting earnings per share ("EPS") by replacing the presentation of
primary EPS with a presentation of basic EPS. In addition, SFAS No. 128
requires dual presentation of basic and diluted EPS on the face of the income
statement and requires a reconciliation of the numerator and denominator of the
diluted EPS calculation. The Corporation has prospectively adopted SFAS No. 128
as of December 31, 1997 and has restated EPS for all prior periods presented.

36
<PAGE>

NOTE 10 -- NET INCOME PER SHARE -- Continued

Net income per share -- basic is computed by dividing net income by the
weighted average number of common shares outstanding. Net income per share --
diluted is computed by dividing net income by the weighted average number of
common shares outstanding and dilutive common share equivalents using the
treasury stock method. Dilutive common share equivalents include common shares
issuable upon exercise of outstanding stock options. Unallocated common shares
held by the Employee Stock Ownership Plan are excluded from the weighted
average number of common shares outstanding.

In accordance with SFAS No. 128, the calculation of net income per share
- -- basic and net income per share -- diluted is presented below:

<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income per share -- basic computation
Net income ...................................... $ 6,113,668 $ 4,769,003 $ 3,538,900
Income available to common shareholders ......... 6,113,668 4,769,003 3,538,900
=========== =========== ===========
Average common shares outstanding -- basic ...... 3,843,227 3,830,103 3,810,744
----------- ----------- -----------
Net income per share -- basic ................... $ 1.59 $ 1.25 $ 0.93
=========== =========== ===========
Net income per share -- diluted computation
Income available to common shareholders ......... $ 6,113,668 $ 4,769,003 $ 3,538,900
=========== =========== ===========
Average common shares outstanding -- basic ...... 3,843,227 3,830,103 3,810,744
Incremental shares from assumed conversions:
Stock Options ................................... 270,186 193,203 101,571
Unallocated ESOP Shares ......................... (63,257) (76,119) (89,309)
----------- ----------- -----------
Average common shares outstanding -- diluted .... 4,050,156 3,947,187 3,823,006
----------- ----------- -----------
Net income per share -- diluted ................. $ 1.51 $ 1.21 $ 0.93
=========== =========== ===========
</TABLE>

Options to purchase 30,000 shares of common stock at $33.50 per share were
outstanding during the fourth quarter of 1997, but were not included in the
computation of net income per share -- diluted because the options' exercise
price was greater than the average market price of the common shares. The
options, which expire on December 8, 2007 were still outstanding at December
31, 1997.

NOTE 11 -- EMPLOYEE BENEFIT PLANS

The Corporation has an Employee Stock Ownership Plan ("ESOP") and a
pre-tax savings plan ("401(k) Plan") which cover substantially all employees of
the Corporation. Contributions to the ESOP, which are at the discretion of and
determined annually by the Board of Directors, are not to exceed the maximum
amount deductible under the applicable sections of the Internal Revenue Code,
and are funded annually. The 401(k) Plan allows for discretionary employer
matching contributions. For 1997, the Board of Directors approved a
discretionary employer matching contribution of 100% of the amount of
compensation deferred by the employee up to 3% of the employee's total
compensation. Total expenses of the ESOP and 401(k) plans, including amounts
contributed, which are included in employee benefits expense for the three
years ended December 31, 1997, 1996, and 1995 were $584,763, $461,880, and
$396,694, respectively.

At various times, the ESOP has borrowed funds from the Bank and used the
proceeds to purchase stock of the Corporation. At December 31, 1997, the ESOP
owned 338,457 shares of Corporation stock of which 58,186 shares were pledged
to secure loans outstanding. At December 31, 1997 and 1996, the principal
balance outstanding on the loans was $526,625 and $633,250, respectively.

In accordance with the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," the Corporation
records compensation expense equal to the fair value of the shares released to
compensate employees. The Corporation reports the cost of unallocated shares as
a reduction of stockholders' equity on the Consolidated Balance Sheet. As of
December 31, 1997 and 1996, the historical cost of unallocated shares of
$526,625 and $633,250, respectively were reflected as a reduction of
stockholders' equity. Compensation expense related to the ESOP of $409,532,
$386,649, and $328,257, respectively, has been included in employee benefits
expense for the three years ended December 31, 1997, 1996, and 1995 as
discussed above.

37
<PAGE>

NOTE 11 -- EMPLOYEE BENEFIT PLANS -- Continued

During 1996, the Corporation adopted a Salary Continuation Plan for
certain officers. The plan provides for monthly benefits for a period of
fifteen years beginning at age 65 or at the death of the officer prior to age
65. The plan also provides for reduced benefits in the event of disability of
the officer prior to age 65 while still in the employ of the Corporation. The
officers are 30% vested in the accrued liability of the plan one year from the
date of the plan and vest in an additional 10% each year until they become
fully vested after eight years from the date of the plan. In the event of a
change in control of the Corporation as defined in the plan, the officers
become 100% vested in the total benefit immediately. The Corporation has
purchased life insurance policies on these officers in order to fund the
payments required by the plan. Compensation expense related to the Salary
Continuation Plan totaled $86,012 and $79,440 for 1997 and 1996, respectively.

NOTE 12 -- STOCK OPTION PLANS

During 1988, 1994 and 1996, the Corporation adopted stock option plans
covering certain of its officers. Options granted under the 1988 plan are fully
vested. Options granted under the 1994 and 1996 plans vest one-third each year
on the anniversary date of the grant. The exercise period for options granted
under the 1988 plan is ten years from each vesting date and the exercise period
for options granted under the 1994 and 1996 plans is ten years from the date of
grant.

Activity under the plans, after restatement for the two-for-one stock
split described in Note 1, is summarized below:

<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ........... 391,262 $ 7.98 410,358 $ 7.79
Granted .................................... 37,500 31.20 0 0.00
Exercised .................................. (29,516) ( 6.61) (19,096) (3.90)
Expired .................................... (499) ( 9.67) 0 0.00
------- ------- ------- -------
Outstanding at end of year ................. 398,747 $ 10.26 391,262 $ 7.98
------- ------- ------- -------
Options exercisable at end of year ......... 286,746 $ 7.68 241,262 $ 6.93
Weighted-average fair value of options
granted during the year .................. $ 14.00 $ 0.00

<CAPTION>
1995
------------------------------
Weighted-Average
Shares Exercise Price
------------ -----------------
<S> <C> <C>
Outstanding at beginning of year ........... 185,358 $ 5.51
Granted .................................... 225,000 9.67
Exercised .................................. 0 0.00
Expired .................................... 0 0.00
------- -------
Outstanding at end of year ................. 410,358 $ 7.79
------- -------
Options exercisable at end of year ......... 185,358 $ 5.51
Weighted-average fair value of options
granted during the year .................. $ 2.28
</TABLE>

At December 31, 1997, 286,746 optioned shares were exercisable at prices
between $3.90 and $9.67 per share for a total of $2,202,163. When options are
exercised, par value of the shares issued is recorded as an addition to common
stock, and the remainder of the proceeds (including any tax benefit, if
applicable) is credited to capital surplus. No income or expense has been
recognized in connection with the exercise of these stock options. The
following table summarizes information about stock options outstanding at
December 31, 1997.

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at December 31 Contractual Life Exercise Price at December 31 Exercise Price
- ----------------- ---------------- ------------------ ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 3.90-5.92 143,271 2.3 Years $ 5.69 143,271 $ 5.69
$ 9.67 217,976 7.5 Years 9.67 143,475 9.67
$ 22.00-33.50 37,500 9.8 Years 31.20 0 0.00
</TABLE>

In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 provides for a fair value approach to recording
stock-based compensation. The Statement also allows an entity to continue to
apply APB Opinion No. 25 for measurement of stock-based compensation. The
Corporation adopted SFAS No. 123 on January 1, 1996, and will continue to apply
the measurement principles of APB Opinion No. 25 to its stock option plans. The
Corporation has elected to provide SFAS No. 123 disclosures as if the
Corporation had adopted the fair value approach to recording stock-based
compensation in 1997, 1996 and 1995 as indicated below:

<TABLE>
<CAPTION>
As Reported Pro Forma
----------------------------------------------- -----------------------------------------------
1997 1996 1995 1997 1996 1995
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net income ..................... $ 6,113,668 $ 4,769,003 $ 3,538,900 $ 5,990,984 $ 4,659,563 $ 3,484,180
Net income per share -- basic .. $ 1.59 $ 1.25 $ 0.93 $ 1.56 $ 1.22 $ 0.91
Net income per share -- diluted $ 1.51 $ 1.21 $ 0.93 $ 1.48 $ 1.18 $ 0.91
</TABLE>

38
<PAGE>

NOTE 12 -- STOCK OPTION PLANS -- Continued

In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes Option
Pricing Model using the following assumptions for options granted in 1997 and
1995, a risk-free interest rate of 6.00% and 6.18%, a dividend yield of 1.70%
and 2.57%, an expected life of ten years, and a volatility ratio of 34% and 8%,
respectively. The effects of applying SFAS No. 123 in the above pro forma
disclosure are not indicative of future amounts. SFAS No. 123 does not apply to
awards granted prior to 1995.

NOTE 13 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized (See Note 14).

Many of the Corporation's financial instruments lack an available trading
market as characterized by a willing buyer and a willing seller engaging in an
exchange transaction. Further, the Corporation's general practice is to hold
its financial instruments to maturity and not to engage in trading activities.
Therefore, significant estimations and present value calculations were used by
the Corporation for the purpose of this disclosure. Such estimations involve
judgments as to economic conditions, risk characteristics, and future expected
loss experience of various financial instruments and other factors that cannot
be determined with precision. The fair value estimates presented herein are
based on pertinent information available to management as of December 31, 1997
and 1996.

The following is a description of the methods and assumptions used to
estimate the fair value of each class of the Corporation's financial
instruments:

Cash and short-term investments: The carrying amount is a reasonable
estimate of fair value.

Investment securities: For marketable securities held-to-maturity, fair
values are based on quoted market prices or dealer quotes. For securities
available-for-sale, fair value equals the carrying amount which is the quoted
market price. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.

Loans: For certain categories of loans, such as variable rate loans,
credit card receivables, and other lines of credit, the carrying amount,
adjusted for credit risk, is a reasonable estimate of fair value because there
is no contractual maturity and/or the Corporation has the ability to reprice
the loan as interest rate shifts occur. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. As the discount rates are based on current
loan rates as well as management estimates, the fair values presented may not
necessarily be indicative of the value negotiated in an actual sale.

Deposit liabilities: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities.

Short-term borrowings: The carrying amount is a reasonable estimate of
fair value.

Long-term debt and subordinated notes: The fair value of long-term debt
and subordinated notes is estimated using discounted cash flow analyses, based
on the Corporation's estimated borrowing rates for similar types of borrowing
arrangements.

Commitments to extend credit: For certain categories of commitments, such
as credit card lines and variable rate lines of credit, a reasonable estimate
of fair value would be nominal because the Corporation has the ability to
reprice the commitment as interest rate shifts occur. The fair value of other
types of commitments to extend credit is estimated by discounting the potential
future cash flows using the current rate at which similar commitments would be
made to borrowers with similar credit ratings. As the discount rates are based
on current loan rates as well as management estimates, the fair values
presented may not necessarily be indicative of the value negotiated in an
actual sale.

Standby letters of credit: The fair value of standby letters of credit are
generally based upon fees charged to enter into similar agreements taking into
account the remaining terms of the agreements and the counterparties' credit
standing. A reasonable estimate of fair value would be nominal.

Interest rate contracts: The fair values of interest rate contracts are
based on quoted markets prices or dealer quotes.

39
<PAGE>

NOTE 13 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued

The estimated fair values (in thousands) of the Corporation's financial
instruments at December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments ............. $ 25,978 $ 25,978 $ 25,664 $ 25,664
Investment securities ....................... 121,462 121,508 100,231 100,270
Loans ....................................... 411,110 411,320 341,604 342,500
Financial Liabilities:
Deposits .................................... 493,708 493,936 420,212 420,326
Short-term borrowings ....................... 14,100 14,100 8,185 8,185
Long-term debt and subordinated notes ....... 34,000 34,236 29,000 28,834
</TABLE>

<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Off-Balance Sheet Financial Instruments:
Commitments to extend credit ............... $110,031 ($97) $ 69,890 $ 6
Standby letters of credit .................. 2,079 0 1,150 0
Interest rate contracts .................... 25,000 24 25,000 103
</TABLE>

NOTE 14 -- COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK

The Corporation has various claims, commitments, and contingent
liabilities arising from the normal conduct of its business which are not
reflected in the accompanying consolidated financial statements and are not
expected to have any material adverse effect on the financial position or
results of operations of the Corporation.

The Corporation is party to financial instruments with off-balance sheet
risk (See Note 13) 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. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements. The notional value of those instruments
reflect the extent of involvement the Corporation has in each class of
financial instruments.

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Generally, the Corporation does not charge a
fee to customers to extend a commitment. Because many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Commitments on mortgage
loans to be held for sale are generally 45 to 60 days in duration. Commitments
to sell are made at prices comparable to the prices charged to customers to
originate loans and are generally contingent on the closing of the loan(s).

Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending credit to customers. The amount of collateral
obtained if deemed necessary by the Corporation upon extension of credit is
based on management's credit evaluation of the counterparty.

The Corporation's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the notional value of those
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The Corporation requires collateral or other security to support
certain financial instruments with credit risk. The notional and estimated fair
value of these financial instuments at December 31, 1997 and 1996 are presented
in Note 13.

The Corporation may utilize financial instruments such as interest rate
contracts to transfer, modify, or reduce its interest rate risk exposure. In an
interest rate cap or floor contract, the Corporation pays a premium at the
initiation of the contract for the right to receive payments if market interest
rates are greater than the strike rate of a cap or less than the strike

40
<PAGE>

NOTE 14 -- COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK -- Continued

rate of a floor during a period of the contract. The Corporation's liability is
limited to the premium paid for the contract. During 1996, the Corporation
purchased an interest rate floor contract with a notional value of $25 million
and a three-year term. The floor index of the contract is equal to three-month
Libor and has a strike rate of 5.25%. As of December 31, 1997, three-month
Libor was 5.8125%. The Corporation paid a premium of $102,500 for the contract.
The notional and estimated fair value of this interest rate contract at
December 31, 1997 and 1996 is presented in Note 13.

NOTE 15 -- REGULATORY MATTERS

The Corporation and the Bank 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 Corporation's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of the Corporation's and
the Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Corporation's and the
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital to risk-weighted
assets, and of Tier 1 capital to average assets as defined in the regulations.
Management believes, as of December 31, 1997, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.

As of December 31, 1997, the Corporation and the Bank were well
capitalized under this regulatory framework. To be categorized as
well-capitalized, each entity must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since December 31, 1997 that management believes have
changed either the Corporation's or the Bank's capital classifications.

41
<PAGE>

NOTE 15 -- REGULATORY MATTERS -- Continued

The Corporation's and the Bank's actual capital amounts and ratios are
also presented in the table.

<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------- ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ----------- -------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation $53,383,954 12.42% $34,392,639 8.00% $42,990,799 10.00%
The Anchor Bank ............. 47,399,253 11.07 34,266,636 8.00 42,833,295 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 37,794,958 8.79 17,196,319 4.00 25,794,479 6.00
The Anchor Bank ............. 38,310,257 8.94 17,133,318 4.00 25,699,977 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 37,794,958 6.55 23,085,343 4.00 28,856,678 5.00
The Anchor Bank ............. 38,310,257 6.67 22,969,320 4.00 28,711,649 5.00
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 47,000,204 13.33 28,209,962 8.00 35,262,453 10.00
The Anchor Bank ............. 41,882,059 11.95 28,036,768 8.00 35,045,960 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 32,199,003 9.13 14,104,981 4.00 21,157,472 6.00
The Anchor Bank ............. 33,580,858 9.58 14,018,384 4.00 21,027,576 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 32,199,003 6.79 18,978,444 4.00 23,723,055 5.00
The Anchor Bank ............. 33,580,858 7.12 18,858,441 4.00 23,573,051 5.00
</TABLE>

NOTE 16 -- ANCHOR FINANCIAL CORPORATION (PARENT COMPANY ONLY)

The Parent's principal assets are its investments in the Bank, and the
principal source of income for the Parent is dividends from the Bank. Certain
regulatory and legal requirements restrict payment of dividends and lending of
funds between the Bank and the Parent.

42
<PAGE>

NOTE 16 -- ANCHOR FINANCIAL CORPORATION (PARENT COMPANY ONLY) -- Continued

The Parent's condensed balance sheet at December 31, 1997 and 1996 and
condensed statements of income and of cash flows for each of the three years in
the period ended December 31, 1997 are presented below.

<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Balance Sheet Data
Assets:
Cash and cash equivalents ............................ $ 93,455 $ 165,600
Repurchase agreements ................................ 3,278,990 2,002,080
Investment in bank subsidiaries ...................... 39,932,214 35,064,165
Investment in bank subsidiary subordinated notes ..... 4,500,000 4,500,000
Investment in other subsidiaries ..................... 60,000 60,000
Loans ................................................ 526,625 633,250
Premises and equipment ............................... 646,498 665,684
Other assets ......................................... 2,039,394 1,057,803
----------- -----------
Total assets .......................................... $51,077,176 $44,148,582
=========== ===========
Liabilities and Stockholders' Equity:
Subordinated notes ................................... $11,000,000 $11,000,000
Other liabilities .................................... 548,737 173,177
----------- -----------
Total liabilities ..................................... 11,548,737 11,173,177
Stockholders' equity .................................. 39,528,439 32,975,405
----------- -----------
Total liabilities and stockholders' equity ............ $51,077,176 $44,148,582
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income Statement Data
Income:
Dividend income from bank subsidiaries ............. $2,450,000 $1,250,000 $1,650,000
Interest income from subsidiaries .................. 106,911 25,169 98,658
Interest and fees on loans ......................... 435,185 64,851 11,015
Other income ....................................... 40,345 39,643 44,997
---------- ---------- ----------
Total income ......................................... 3,032,441 1,379,663 1,804,670
---------- ---------- ----------
Expense:
Interest on short-term borrowings .................. 0 0 2,282
Interest on subordinated notes ..................... 931,225 455,688 439,561
Depreciation ....................................... 19,186 19,186 7,418
Other expense ...................................... 219,663 179,982 151,318
---------- ---------- ----------
Total expense ........................................ 1,170,074 654,856 600,579
---------- ---------- ----------
Income before equity in undistributed earnings of
subsidiaries and taxes ............................. 1,862,367 724,807 1,204,091
Equity in undistributed earnings of subsidiaries ..... 3,993,675 3,821,788 2,145,220
---------- ---------- ----------
Income before taxes .................................. 5,856,042 4,546,595 3,349,311
Benefit of income taxes .............................. (257,626) (222,408) (189,589)
---------- ---------- ----------
Net income ........................................... $6,113,668 $4,769,003 $3,538,900
========== ========== ==========
</TABLE>

43
<PAGE>

NOTE 16 -- ANCHOR FINANCIAL CORPORATION (PARENT COMPANY ONLY) -- Continued

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows Data
Cash flows from operating activities:
Net income ................................................. $ 6,113,668 $ 4,769,003 $ 3,538,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries .......... (3,993,675) (3,821,788) (2,145,220)
Depreciation of premises and equipment .................... 19,186 19,186 7,418
Change in interest payable ................................ 0 14,506 (200)
Change in income taxes payable ............................ (19,765) (3,207) (22,118)
------------ ------------ ------------
Net cash provided by operating activities ................ 2,119,414 977,700 1,378,780
------------ ------------ ------------
Cash flows from investing activities:
Investment in bank subsidiaries ............................ 0 (100,000) (1,500,000)
Investment in bank subsidiary subordinated notes ........... 0 (4,500,000) 0
Investment in bank repurchase agreement .................... (1,276,911) (1,700,169) 2,578,089
Net change in loans ........................................ 106,625 203,359 (836,609)
Capital expenditures ....................................... 0 0 (535,143)
Other, net ................................................. 33,066 (60,813) (28,852)
------------ ------------ ------------
Net cash used for investing activities ................... (1,137,220) (6,157,623) (322,515)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of subordinated notes ............... 0 6,000,000 0
Proceeds from issuance of common stock pursuant to:
Stock Option Plan ......................................... 195,086 154,002 0
Dividend Reinvestment Plan ................................ 191,571 74,412 11,059
Cash dividends paid ........................................ (1,440,429) (1,072,141) (914,526)
Other, net ................................................. (567) 0 0
------------ ------------ ------------
Net cash (used for) provided by financing activities ..... (1,054,339) 5,156,273 (903,467)
------------ ------------ ------------
Net change in cash and cash equivalents ...................... (72,145) (23,650) 152,798
Cash and cash equivalents at January 1 ....................... 165,600 189,250 36,452
------------ ------------ ------------
Cash and cash equivalents at December 31 ..................... $ 93,455 $ 165,600 $ 189,250
============ ============ ============
</TABLE>

The Parent received income tax refunds of $237,861, $219,201, and $167,471
for the years ended December 31, 1997, 1996, and 1995, respectively. The Parent
paid interest of $931,225, $441,182, and $442,043 in 1997, 1996, and 1995,
respectively.

44
<PAGE>

NOTE 17 -- QUARTERLY OPERATING RESULTS (UNAUDITED)

The following is a summary of the unaudited condensed consolidated
quarterly operating results of the Corporation for the years ended December 31,
1997 and 1996:

<TABLE>
<CAPTION>
1997
Quarter ended
-------------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
-------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................... $11,779,589 $11,062,726 $10,660,505 $9,912,626
Interest expense ......................... 5,475,155 4,964,861 4,813,130 4,487,797
----------- ----------- ----------- ----------
Net interest income ...................... 6,304,434 6,097,865 5,847,375 5,424,829
Provision for loan losses ................ 230,000 240,000 240,000 200,000
----------- ----------- ----------- ----------
Net interest income after
provision for loan losses .............. 6,074,434 5,857,865 5,607,375 5,224,829
Gains (losses) on sale of
investment securities, net ............. (29,323) 4,013 0 0
Noninterest income ....................... 1,131,339 1,103,660 1,054,249 1,048,734
Noninterest expense ...................... 4,567,078 4,431,961 4,342,487 4,179,995
---------- ---------- ---------- ----------
Income before income taxes ............... 2,609,372 2,533,577 2,319,137 2,093,568
Provision for income taxes ............... 971,478 906,919 804,680 758,909
---------- ---------- ---------- ----------
Net income ............................... $1,637,894 $1,626,658 $1,514,457 $1,334,659
========== ========== ========== ==========
Net income per share -- basic ........... $ 0.43 $ 0.42 $ 0.39 $ 0.35
Net income per share -- diluted ......... 0.40 0.40 0.38 0.33
Weighted average shares
outstanding -- basic .................. 3,851,385 3,843,364 3,839,010 3,839,010
Weighted average shares
outstanding -- diluted ................ 4,082,324 4,053,954 4,023,471 4,027,302

<CAPTION>
1996
Quarter ended
-------------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Interest income .......................... $9,323,962 $ 9,253,007 $8,898,570 $8,404,529
Interest expense ......................... 4,175,561 4,064,017 4,017,650 3,838,973
---------- ----------- ---------- ----------
Net interest income ...................... 5,148,401 5,188,990 4,880,920 4,565,556
Provision for loan losses ................ 260,000 200,000 230,000 160,000
---------- ----------- ---------- ----------
Net interest income after
provision for loan losses .............. 4,888,401 4,988,990 4,650,920 4,405,556
Gains (losses) on sale of
investment securities, net ............. 0 (3,860) (10,663) 0
Noninterest income ....................... 1,005,901 960,076 1,027,673 780,630
Noninterest expense ...................... 3,838,692 3,854,575 3,906,585 3,730,683
---------- ----------- ---------- ---------
Income before income taxes ............... 2,055,610 2,090,631 1,761,345 1,455,503
Provision for income taxes ............... 725,857 765,579 579,039 523,611
---------- ----------- ---------- ---------
Net income ............................... $1,329,753 $1,325,052 $1,182,306 $ 931,892
========== =========== ========== =========
Net income per share -- basic ........... $ 0.35 $ 0.35 $ 0.31 $ 0.24
Net income per share -- diluted ......... 0.33 0.34 0.30 0.24
Weighted average shares
outstanding -- basic .................. 3,836,427 3,831,737 3,827,393 3,824,769
Weighted average shares
outstanding -- diluted ................ 4,019,783 3,946,061 3,913,770 3,908,348
</TABLE>

45
<PAGE>

SIGNATURES

Pursuant to the requirements 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 as of March 30,
1998.

ANCHOR FINANCIAL CORPORATION
(Registrant)

By: /s/ STEPHEN L. CHRYST
-------------------------------------
Stephen L. Chryst
President and Chief Executive Officer

By: /s/ TOMMY E. LOOPER
-------------------------------------
Tommy E. Looper
Executive Vice President
and Chief Financial Officer

By: /s/ JOHN J. MORAN
-------------------------------------
John J. Moran
Senior Vice President and Comptroller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 30, 1998.

<TABLE>
<CAPTION>
Signature Title
--------- ------
<S> <C>
/s/ STEPHEN L. CHRYST President, Chief Executive Officer and
---------------------------------- Director
Stephen L. Chryst

/s/ TOMMY E. LOOPER Executive Vice President, Chief
---------------------------------- Financial Officer and Director
Tommy E. Looper

/s/ HOWELL V. BELLAMY, JR. Director
----------------------------------
Howell V. Bellamy, Jr.

/s/ JAMES E. BURROUGHS Director
----------------------------------
James E. Burroughs

/s/ C. DONALD CAMERON Director
----------------------------------
C. Donald Cameron

/s/ J. BRYAN FLOYD Director
----------------------------------
J. Bryan Floyd

/s/ ADMAH LANIER, JR. Director
----------------------------------
Admah Lanier, Jr.

/s/ W. GAIRY NICHOLS, III Director
----------------------------------
W. Gairy Nichols, III

/s/ RUPPERT L. PIVER Director
----------------------------------
Ruppert L. Piver
</TABLE>

46
<PAGE>

<TABLE>
<CAPTION>
Signature Title
--------- ---------
<S> <C>
/s/ THOMAS J. ROGERS Director
----------------------------------
Thomas J. Rogers

/s/ ALBERT A. SPRINGS, III Director
----------------------------------
Albert A. Springs, III

/s/ J. RODDY SWAIM Director
----------------------------------
J. Roddy Swaim

/s/ HARRY A. THOMAS Director
----------------------------------
Harry A. Thomas

/s/ ZEB M. THOMAS, SR. Director
----------------------------------
Zeb M. Thomas, Sr.
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
Exhibit Exhibit Title
- ----------- ---------------------------------
<S> <C>
21 Subsidiary of the Registrant
23.1 Consents of Price Waterhouse LLP
27 Financial Data Schedule
</TABLE>

<PAGE>

EXHIBIT 21

Subsidiary of the Registrant

<TABLE>
<CAPTION>
State or Other Jurisdiction
Subsidiary of Incorporation
- --------------------- ----------------------------
<S> <C>
The Anchor Bank South Carolina
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-84008) of Anchor Financial Corporation of our
report dated February 12, 1997 appearing on page 25 of this Annual Report on
Form 10-K.

(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP

Columbia, South Carolina
March 26, 1998
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-73186) of
Anchor Financial Corporation of our report dated February 12, 1997 appearing on
page 25 of this Form 10-K.

(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP

Columbia, South Carolina
March 26, 1998

<ARTICLE> 9

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,313,707
<INT-BEARING-DEPOSITS> 664,228
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,033,032
<INVESTMENTS-CARRYING> 10,428,605
<INVESTMENTS-MARKET> 10,474,569
<LOANS> 415,699,240
<ALLOWANCE> 4,588,996
<TOTAL-ASSETS> 585,396,625
<DEPOSITS> 493,707,505
<SHORT-TERM> 14,099,680
<LIABILITIES-OTHER> 4,061,001
<LONG-TERM> 34,000,000
0
0
<COMMON> 23,256,282
<OTHER-SE> 16,272,157
<TOTAL-LIABILITIES-AND-EQUITY> 585,396,625
<INTEREST-LOAN> 36,290,990
<INTEREST-INVEST> 6,842,779
<INTEREST-OTHER> 281,677
<INTEREST-TOTAL> 43,415,446
<INTEREST-DEPOSIT> 17,346,607
<INTEREST-EXPENSE> 19,740,943
<INTEREST-INCOME-NET> 23,674,503
<LOAN-LOSSES> 910,000
<SECURITIES-GAINS> (25,310)
<EXPENSE-OTHER> 17,521,521
<INCOME-PRETAX> 9,555,654
<INCOME-PRE-EXTRAORDINARY> 9,555,654
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,113,668
<EPS-PRIMARY> 1.59<F1>
<EPS-DILUTED> 1.51
<YIELD-ACTUAL> 4.79
<LOANS-NON> 228,674
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,801,201
<CHARGE-OFFS> 334,124
<RECOVERIES> 211,919
<ALLOWANCE-CLOSE> 4,588,996
<ALLOWANCE-DOMESTIC> 4,088,996
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 500,000

</TABLE>