EXHIBIT 13

                                  Annual Report
<PAGE>
                                  ANNUAL REPORT

                               September 30, 1998

                      FIRST PALMETTO FINANCIAL CORPORATION


<PAGE>
                                TABLE of CONTENTS

Letter to Stockholders                                              1-2

FIRST PALMETTO FINANCIAL CORPORATION

   The Company                                                        3

   Selected Consolidated Financial and Other Data                   3-4

   Management's Discussion and Analysis of Financial Condition
      and Results of Operations                                    5-16

   Consolidated Financial Statements

       Consolidated Statements of Financial Condition                17
       Consolidated Statements of Income                             18
       Consolidated Statements of Stockholders' Equity               19
       Consolidated Statements of Cash Flows                      20-21
       Notes to Consolidated Financial Statements                 22-42

   Independent Auditors' Report                                      43

   Board of Directors and Executive Officers                         44

   Corporate Information                                             45

   Common Stock Information                                          46

<PAGE>
Dear First Palmetto Stockholder:

We are happy to report to you that First  Palmetto  again had a very  successful
year.  Our earnings were a record $4.18 million or $5.90 per share,  compared to
our previous year's earnings of $3.33 million or $4.80 per share.

This has been  another  challenging  and  exciting  year and your  corporation's
employees  have  worked  very  hard and  long to meet  those  challenges.  Their
dedication and efforts have again enabled us to obtain our  outstanding  results
for the year.

Financial highlights for fiscal 1998 were:

       Assets  increased to $433.7 million from $372.9  million,  an increase of
16.3%.

       Loans  increased to $264.0  million from $252.3  million,  an increase of
4.6%.

       Deposits increased to $343.9 million from $320.8 million,  an increase of
7.2%.

       Our  dividend  was $2.20 per  share up from  $1.90 per share  paid in the
previous year.

We have continued our ongoing process of looking for  opportunities  for growth,
and in  December  of 1997,  we  opened  our  Briarcliff,  Myrtle  Beach  office.
Additionally,  we opened our North  Myrtle Beach  office in October,  1998.  The
Briarcliff office has grown to over $20 million in deposits in its first year of
operation and the North Myrtle Beach office is off to a good start. We feel very
confident  that this  area of  coastal  South  Carolina  offers us an  excellent
expansion  opportunity  and we  believe  that  these two  offices  will be great
additions for our corporation.

During the fiscal year 1998,  First  Palmetto sold its Beaufort  office to First
Citizens.  The  result of this sale was a  non-recurring  gain,  net of tax,  of
$474,000.  This office was profitable  for us,  however,  it was  geographically
distant  from any of our other  locations  and we believed the Myrtle Beach area
was a better location to concentrate our coastal expansion efforts.

We have  been  able to  maintain  high  quality  in our loan  portfolio  and our
nonperforming loans at September 30, 1998, were $636,000 or .24% of total loans.
Our loan loss reserves as of September 30, 1998,  were $4.65 million as compared
to $3.0 million as of September 30, 1997.

I know that many of you may be  concerned  that the Year 2000 could have a major
effect on the  ability of  computerized  operations  to  continue to function as
designed.  Our Bank is  acutely  aware  of this  potential  problem  and we have
devoted a great  amount of time and  resources to solving it. Our Year 2000 plan
is in place and our testing is almost  complete.  We  anticipate  operating  our
business as normal at the turn of the Year 2000.

                                       1
<PAGE>
We will  continue  our  long-term  philosophy  of  growing  the Bank,  enhancing
shareholder  value,  providing  excellent  service to our  customers,  and being
actively involved in communities that we serve. The staff and directors of First
Palmetto appreciate the support of our shareholders and we will continue to work
to ensure that your confidence has been well placed.

                                         Very truly yours,

                                         /s/ Samuel R. Small

                                         Samuel R. Small, President and
                                         Chief Executive Officer

                                       2
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

THE COMPANY

       First  Palmetto  Financial  Corporation  ("First  Palmetto") is a holding
company  organized to provide  ownership for First Palmetto Savings Bank, F.S.B.
(the "Bank"), a wholly owned subsidiary. The Bank is a federally chartered stock
savings bank. The Bank's deposits are insured by the Federal  Deposit  Insurance
Corporation  ("FDIC")  and  the  Bank  is  regulated  by the  Office  of  Thrift
Supervision  ("OTS").  The Bank's business is conducted  through its home office
located in Camden,  South  Carolina and through  fifteen branch offices in other
South Carolina locations of Bishopville,  Camden, Columbia,  Darlington,  Elgin,
Irmo, Kershaw, Lancaster, Lexington, Lugoff, Manning, Myrtle Beach, Pageland and
Pontiac.

       The Bank is engaged  in the  business  of  attracting  deposits  from the
general  public and  investing  in loans  secured  by first  liens on single and
multi-family  residences,  condominiums,  commercial  properties,  and on  other
improved real estate.  The Bank originates  loans secured by first liens on land
to be developed  into lots ready for  construction  of single family homes.  The
Bank also invests in unsecured and secured home  improvement  loans,  automobile
loans, equity loans on residential real estate,  interest-bearing bank deposits,
U.S.  Government and agency  obligations,  mortgage-backed  securities and other
investments as permitted by applicable laws and regulations.

       First  Palmetto's  results  of  operations  depend  primarily  on its net
interest income, which is the difference between the interest income it receives
from its loan and investment portfolios and its cost of funds. Other significant
sources of income are service charges on deposit  accounts,  loan servicing fees
and gain on sale of loans.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

       The following tables present selected consolidated  financial information
and other data for First Palmetto at the dates and for the periods indicated.

Consolidated Financial Condition Data
<TABLE>
<CAPTION>

                                                        At September 30,
                                     -----------------------------------------------------
                                        1998       1997       1996       1995       1994
                                        ----       ----       ----       ----       ----
                                                         (In thousands)
<S>                                  <C>         <C>        <C>        <C>       <C>

Assets ............................  $ 433,745   $372,948   $344,547   $323,183  $ 278,056
Loans, net ........................    263,989    252,336    227,209    198,373    163,649
Cash and investment securities (a)      56,944     74,030     70,519     71,807     72,826
Mortgage-backed securities ........     95,862     32,367     33,010     39,410     31,159
Deposits ..........................    343,947    320,769    288,157    267,313    225,417
Federal Home Loan Bank
  ("FHLB") advances ...............     60,667     27,233     32,550     33,367     31,000
Stockholders' equity, substantially
  restricted ......................     25,169     22,855     20,208     19,345     17,804

 (a)   Includes  cash and due from  banks,  interest-bearing  deposits  in other
       banks,  certificates  of  deposit  in  other  banks,   available-for-sale
       securities and investment securities.
</TABLE>
                                       3
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

Consolidated Summary of Operations
<TABLE>
<CAPTION>
                                                                         Years Ended September 30,                      
                                          -------------------------------------------------------------------------
                                               1998           1997           1996            1995           1994
                                          ------------   ------------   ------------    ------------   ------------
                                                                        (In thousands)
<S>                                      <C>            <C>            <C>             <C>            <C>
Interest income                          $     31,026   $     27,902   $     26,016    $     22,794   $     16,890
Interest expense                               17,275         15,025         14,186          12,483          8,213
                                         ------------   ------------   ------------    ------------   ------------
Net interest income                            13,751         12,877         11,830          10,311          8,677
Provision for loan losses                       2,262          1,428            885             482            523
                                         ------------   ------------   ------------    ------------   ------------
Net interest income after provision
  for loan losses                              11,489         11,449         10,945           9,829          8,154
Other income                                    3,904          2,636          2,255           1,934          1,651
Other expense                                   8,861          8,846          9,993           8,105          6,597
                                         ------------   ------------   ------------    ------------   ------------
Income before income taxes                      6,532          5,239          3,207           3,658          3,208
Income taxes                                    2,354          1,909          1,195           1,300          1,184
Cumulative effect of change
 in accounting principle                            -              -              -               -            243
                                         ------------   ------------   ------------    ------------   ------------
Net income                              $       4,178   $      3,330   $      2,012    $      2,358   $      2,267
                                        =============   ============   ============    ============   ============
</TABLE>

<TABLE>
Financial Ratios
<CAPTION>
                                                                         Years Ended September 30,                      
                                               -------------------------------------------------------------------------
                                                    1998           1997           1996            1995           1994
                                               ------------   ------------   ------------    ------------   ------------
<S>                                            <C>             <C>            <C>            <C>             <C>
Return on average assets (net income
  divided by average total assets)                  1.04%            .93%           .61%           .78%            .90%

Return on average equity (net income
  divided by average equity)                       17.40%          15.68%         10.33%         13.17%          13.25%

Average equity-to-assets ratio (average
  equity divided by average total assets)           5.95%           6.00%          5.87%          5.90%           6.79%

Net income per common share-basic              $     5.90     $      4.80    $      2.90     $     3.40     $      3.36

Book value per common share-basic              $    35.55     $     32.28    $     29.16     $    27.90     $     25.68

Dividends per common share                     $     2.20     $      1.90    $      1.60     $     1.40     $      1.25
</TABLE>

                                       4
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

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

RESULTS of OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, COMPARED
  with the FISCAL YEAR ENDED SEPTEMBER 30, 1997

       Net income for the fiscal year ended September 30, 1998, was $4.2 million
as compared to $3.3 million for the preceding  fiscal year. Net income increased
by $848,000 or 25.5%.

       Net interest  income for fiscal 1998 equaled $13.8 million as compared to
$12.9 million for the fiscal year ended September 30, 1997. The increase of 6.8%
amounted to $874,000.  Other income for fiscal 1998 was $3.9 million as compared
to $2.6 million for fiscal 1997 while other  expense for the  respective  fiscal
years were $8.9 million and $8.8  million.  A more  detailed  discussion  of the
comparative years follows.

       Net interest income increased by $874,000 or 6.8%. The primary reason for
the increase in net interest income was an increase in average  interest-earning
assets  for  fiscal  1998  of   approximately   $38.5  million.   The  yield  on
interest-earning  assets was relatively constant,  decreasing only .02%. Average
cost of funds  increased  during  the year  from  4.83%  during  the year  ended
September 30, 1997 to 5.04% during the year ended  September 30, 1998.  Interest
rate spread decreased to 3.28% as compared to 3.51% for the previous year.

       Total interest income for fiscal 1998 was $31.0 million,  up $3.1 million
or 11.2% from $27.9 million for fiscal 1997. The primary reason for the increase
was an increase in average  interest-earning  assets due to the  acquisition  of
mortgage-backed  securities  and an increase in loan demand mainly in commercial
real estate  loans.  The  average  yield on interest  earning  assets  decreased
slightly to 8.32% for fiscal 1998 versus 8.34% for fiscal year 1997.

       Total  interest  expense  for fiscal 1998 was $17.3  million  compared to
$15.0 million for fiscal 1997. The increase of $2.2 million  represented a 15.0%
increase in interest expense. The increase in interest expense was primarily due
to the increase in average interest-bearing  liabilities as a result of deposits
received by offering highly competitive rates in targeted markets. Cost of funds
remained  stable at 5.04% for the 1998  period as compared to 4.83% for the 1997
period.  Average  interest-bearing  liabilities were $342.6 million at September
30, 1998 as compared to $311.0 million at September 30, 1997.

                                       5
<PAGE>
Average Balances, Interest and Average Yields

     The  following  table  sets forth  certain  information  relating  to First
Palmetto's  average balance sheets and reflects the average yields on assets and
average costs of  liabilities  for the periods  indicated and the average yields
earned and rates paid at September  30, 1998.  Such yields and costs are derived
by  dividing  income  or  expense  by the  average  daily  balance  of assets or
liabilities, respectively, for the periods presented.

<TABLE>
<CAPTION>
                                                        Years Ended September 30,
                              -----------------------------------------------------------------------------
                                       1998                       1997                      1996
                              -----------------------  -------------------------  -------------------------
                                              Average                    Average                    Average   At September 1998
                             Average           Yield/  Average            Yield/  Average            Yield/   -----------------
                             Balance Interest   Cost   Balance  Interest   Cost   Balance  Interest   Cost     Balance   Rate
                             ------- --------   ----   -------  --------   ----   -------  --------   ----     -------   ----
                                                              (Dollars in thousands)
<S>                         <C>      <C>       <C>    <C>      <C>        <C>    <C>       <C>       <C>     <C>         <C>
    Interest-earning assets:

 Loans (1)                  $253,003 $23,011   9.10%  $240,224 $21,576    8.98%  $212,955  $19,477   9.15%   $263,989    8.80%
 Interest-earning deposits    22,820   1,414   6.20     15,411   1,000    6.49      9,619      694   7.21      11,992    5.46
 Investment securities (2)    45,431   2,989   6.58     46,632   3,163    6.78     51,882    3,411   6.57      37,969    6.49
 Mortgage-backed securities   51,803   3,612   6.97     32,249   2,163    6.71     36,365    2,434   6.69      95,862    6.06
                            -------- -------          -------- -------          --------   -------           --------
  Total interest-earning
      assets                 373,057  31,026   8.32    334,516  27,902    8.34    310,821   26,016   8.37     409,812    7.84
                                     -------                   -------                     -------
Noninterest-earning assets    19,435                    19,061                     21,127                      23,933
                            --------                  --------                   --------                    --------
     Total assets           $392,492                  $353,577                   $331,948                    $433,745
                            ========                  ========                   ========                    ========

(1) Average balances include non-accrual loans.
(2) Includes available-for-sale securities.
</TABLE>
                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                        Years Ended September 30,
                              -----------------------------------------------------------------------------
                                       1998                       1997                      1996
                              -----------------------  -------------------------  -------------------------
                                              Average                    Average                    Average   At September 1998
                             Average           Yield/  Average            Yield/  Average            Yield/   -----------------
                             Balance Interest   Cost   Balance  Interest   Cost   Balance  Interest   Cost     Balance   Rate
                             ------- --------   ----   -------  --------   ----   -------  --------   ----     -------   ----
                                                              (Dollars in thousands)
<S>                         <C>      <C>       <C>    <C>      <C>        <C>    <C>       <C>       <C>     <C>         <C>
Interest-bearing
  liabilities:
   Interest-bearing
     demand deposits(1)     $57,075  $ 1,502   2.63%  $ 56,923 $ 1,487    2.61%  $ 54,503  $ 1,378  2.53%    $ 57,739    2.58%
   Savings deposits          21,994      524   2.38     22,151     562    2.54     23,181      586  2.53       22,482    2.29
   Time deposits            229,975   13,143   5.71    203,052  11,369    5.60    183,357   10,365  5.65      241,688    5.59
   FHLB borrowings           33,572    2,106   6.27     28,906   1,607    5.56     33,202    1,857  5.59       60,667    5.50
                            -------  -------          --------  ------           --------  -------           --------
     Total interest-bearing
        liabilities         342,616   17,275   5.04    311,032  15,025    4.83    294,243   14,186  4.82      382,576    4.93
                                     -------                    ------                     -------
Noninterest-bearing
 liabilities:
   Noninterest demand
     deposits                23,900                     19,886                     15,585                     22,038
   Other                      3,036                      2,149                      2,645                      3,962
                             ------                     ------                      -----                      -----
    Total liabilities       369,552                    333,067                    312,473                    408,576
Stockholders' equity         22,940                     20,510                     19,475                     25,169
                            -------                    -------                    -------                    -------
    Total liabilities
      and stockholders'
      equity               $392,492                   $353,577                   $331,948                   $433,745
                           ========                   ========                   ========                   ========

Net interest income                 $ 13,751                    $12,877                    $11,830
                                    ========                    =======                    =======

Interest rate spread                           3.28%                      3.51%                      3.55%              2.91%
                                               =====                      =====                      =====              =====
Net yield on average interest-earning
  assets                                       3.69%                      3.85%                      3.81%
                                               =====                      =====                      =====

Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                  1.09%                      1.08%                      1.06%
                                               =====                      =====                      =====

(1)  Includes NOW's and MMDA
</TABLE>
                                       7
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

Rate/Volume Analysis

     The following  table sets forth certain  information  regarding  changes in
First Palmetto's interest income and interest expense for the periods indicated.
For each  category of  interest-earning  asset and  interest-bearing  liability,
information is provided on changes attributable to (1) changes in volume (change
in volume  multiplied by the prior year's rate); (2) changes in rates (change in
rate  multiplied  by the prior year's  volume);  and (3) changes in  rate-volume
(change in rate  multiplied  by the change in volume).  The  combined  effect of
changes in rate-volume has been allocated  proportionately  to changes in volume
and rate.
<TABLE>
<CAPTION>

                                                                  Years Ended September 30,
                                             -------------------------------------------------------------
                                                       1998 vs. 1997                     1997 vs. 1996    
                                             -----------------------------       -------------------------
                                                    Increase (Decrease)               Increase (Decrease)
                                                          Due to                           Due to
                                             -----------------------------       -------------------------
                                               Volume      Rate      Total       Volume     Rate     Total
                                               ------      ----      -----       ------     ----     -----
                                                                       (In thousands)
Interest income:
<S>                                          <C>        <C>        <C>          <C>       <C>         <C>

   Loans .........................           $ 1,155    $   280    $ 1,435      $ 2,472    $  (373)   $ 2,099
   Investment securities .........               (80)       (94)      (174)        (350)       102       (248)
   Mortgage-backed securities ....             1,337        112      1,449         (275)         4       (271)
   Other .........................               470        (56)       414          397        (91)       306
                                             -------    -------    -------      -------    -------    -------
Total interest-earning assets ....             2,882        242      3,124        2,244       (358)     1,886
                                             -------    -------    -------      -------    -------    -------

Interest expense:
   Deposits ......................             1,300        451      1,751          999         90      1,089
   FHLB advances .................               274        225        499         (239)       (11)      (250)
                                             -------    -------    -------      -------    -------    -------
Total interest-bearing liabilities             1,574        676      2,250          760         79        839
                                             -------    -------    -------      -------    -------    -------

Net interest income ..............           $ 1,308    $  (434)   $   874      $ 1,484    $  (437)   $ 1,047
                                             =======    =======    =======      =======    =======    =======
</TABLE>
       The provision  for loan losses for fiscal 1998 was $2.3 million  compared
to $1.4 million for the preceding year. The increased  provision for loan losses
resulted from the higher level of loans  outstanding and the continuing shift in
the loan mix from lower risk  residential  lending to higher risk  consumer  and
commercial lending.  Also during the year,  management has emphasized increasing
loans  with  large  balances  as  evidenced  by six loans  over $1.0  million at
September  30, 1998,  compared to one loan over $1.0  million at  September  30,
1997. Net  charge-offs to the allowance for loan losses were $622,000 during the
fiscal year ended September 30, 1998, as compared to $783,000 for the year ended
September  30, 1997.  The balance in the  allowance for loan losses at September
30, 1998 was $4.6 million  compared to $3.0 million at September  30, 1997.  The
allowance  for loan  losses  as a  percentage  of loans  was  1.73% and 1.18% at
September 30, 1998 and 1997,  respectively.  Management  continually reviews the
adequacy of the allowance for loan losses,  considering  such factors as reviews
of delinquent  loans and other loans with  problems,  composition  of the Bank's
loan portfolio,  history of charge-offs,  general  economic  conditions that may
affect borrowers ability to repay and the value of collateral.

       Other income for fiscal 1998 was $3.9 million as compared to $2.6 million
for fiscal 1997. The other income increase was primarily attributable to gain on
sale of investments in the amount of $632,000 and a gain in the sale of a branch
office in the amount of $784,000.

                                       8
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

       Other expenses for fiscal 1998 was $8.9 million  compared to $8.8 million
for fiscal 1997, an increase of $15,000 or .17%.  Tabular  comparisons  of broad
expense categories for fiscal 1998 compared to fiscal 1997 are as follows:

                                                         Years Ended
                                                         September 30,    
                                                     -------------------
                                                     1998           1997
                                                     ----           ----
                                                        (In thousands)

 Compensation and related benefits                $      4,153   $      3,979
 Occupancy and data processing fees                      1,939          2,130
 Federal deposit and other insurance premiums              315            367
 Amortization of intangible assets                         349            579
 Telephone, postage, supplies and other                  2,105          1,791
                                                  ------------   ------------
     Totals                                       $      8,861   $      8,846
                                                  ============   ============

       The effective tax rate was 36.0% for the year ended September 30, 1998 as
compared  to 36.4% for the year ended  September  30,  1997.  See Note 12 to the
Notes to Consolidated Financial Statements.

RESULTS of OPERATIONS FOR THE FISCAL YEAR  ENDED  SEPTEMBER 30,  1997,  COMPARED
  with the FISCAL YEAR ENDED SEPTEMBER 30, 1996

       Net income for the fiscal year ended September 30, 1997, was $3.3 million
as compared to $2.0 million for the preceding  fiscal year. Net income increased
by $1.3 million or 65.5%.

       The primary reason for the increase in net income was a one-time  special
assessment by the FDIC during the fiscal year ending  September 30, 1996, in the
amount of $1.3 million  ($813,000 net of income tax) to recapitalize the Savings
Association  Insurance  Fund  (SAIF).  This  one-time  charge  resulted in total
insurance  premiums  for the 1996 fiscal  year in the amount of $1.8  million as
compared to $289,000 for the current fiscal year.

       Net interest  income for fiscal 1997 equaled $12.9 million as compared to
$11.8 million for the fiscal year ended September 30, 1996. The increase of 8.9%
amounted  to $1.1  million.  Other  income for fiscal  1997 was $2.6  million as
compared to $2.3 million for fiscal 1996 while other expense for the  respective
fiscal years were $8.8 million and $10.0 million. A more detailed  discussion of
the comparative years follows.

       Net interest income increased by $1.1 million or 8.9%. The primary reason
for  the   increase  in  net   interest   income  was  an  increase  in  average
interest-earning  assets for fiscal 1997 of  approximately  $23.7  million.  The
yield on interest-earning assets was relatively constant,  decreasing only .03%.
Average cost of funds increased during the year from 4.82% during the year ended
September 30, 1996 to 4.83% during the year ended  September 30, 1997.  Interest
rate spread decreased to 3.51% as compared to 3.55% for the previous year.

       Total interest income for fiscal 1997 was $27.9 million,  up $1.9 million
or 7.2% from $26.0 million for fiscal 1996.  The primary reason for the increase
was an  increase in average  interest-earning  assets due to an increase in loan
demand mainly in commercial real estate and in 1-4 family real estate loans. The
average yield on interest earning assets decreased  slightly to 8.34% for fiscal
1997 versus 8.37% for fiscal year 1996.

                                       9
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

       Total  interest  expense  for fiscal 1997 was $15.0  million  compared to
$14.2  million for fiscal  1996.  The  increase of $839,000  represented  a 5.9%
increase in interest expense. The increase in interest expense was primarily due
to the increase in average interest-bearing  liabilities as a result of deposits
received by offering highly competitive rates in targeted markets. Cost of funds
remained  stable at 4.83% for the 1997  period as compared to 4.82% for the 1996
period.  Average  interest-bearing  liabilities were $311.0 million at September
30, 1997 as compared to $294.2 million at September 30, 1996.

       The provision  for loan losses for fiscal 1997 was $1.4 million  compared
to $885,000 for the  preceding  year.  The  increased  provision for loan losses
resulted from the higher level of loans  outstanding and the continuing shift in
the loan mix from lower risk  residential  lending to higher risk  consumer  and
commercial  lending.  Net  charge-offs  to the  allowance  for loan  losses were
$783,000  during the fiscal  year ended  September  30,  1997,  as  compared  to
$321,000 for the year ended September 30, 1996. The balance in the allowance for
loan losses at September  30, 1997 was $3.0 million  compared to $2.4 million at
September  30, 1996.  The allowance for loan losses as a percentage of loans was
1.18%  and  1.04% at  September  30,  1997 and  1996,  respectively.  Management
continually  reviews the adequacy of the allowance for loan losses,  considering
such  factors as  reviews of  delinquent  loans and other  loans with  problems,
composition  of the  Bank's  loan  portfolio,  history of  charge-offs,  general
economic  conditions that may affect borrowers ability to repay and the value of
collateral.

       Other income for fiscal 1997 was $2.6 million as compared to $2.3 million
for fiscal 1996. Other income remained relatively stable with the increase being
primarily attributable to gain on sale of investments in the amount of $254,000.

       Other expenses for fiscal 1997 was $8.8 million compared to $10.0 million
for fiscal 1996, a decrease of $1.2 million or 11.5%.  The primary  decrease was
in federal  insurance  premiums.  During the year ended  September 30, 1996, the
Bank was assessed by the FDIC a one-time  special  assessment  of $1.3  million.
This assessment was made in order to recapitalize  the SAIF.  Deposit  insurance
premiums during the 1997 year were lower as a result of the  recapitalization of
the SAIF. Insurance,  telephone, postage, supplies and other increased primarily
due to increased  expenses as a result of the opening of the Lexington branch in
fiscal 1997.  Tabular  comparisons  of broad expense  categories for fiscal 1997
compared to fiscal 1996 are as follows:

                                                           Years Ended
                                                           September 30,    
                                                    ---------------------------
                                                         1997           1996
                                                         ----           ----
                                                           (In thousands)

 Compensation and related benefits                  $      3,979   $      3,658
 Occupancy and data processing fees                        2,130          1,848
 Federal deposit and other insurance premiums                367          1,877
 Amortization of intangible assets                           579            769
 Telephone, postage, supplies and other                    1,791          1,841
                                                    ------------   ------------
     Totals                                         $      8,846   $      9,993
                                                    ============   ============

       The effective tax rate was 36.4% for the year ended September 30, 1997 as
compared  to 37.3% for the year ended  September  30,  1996.  See Note 12 to the
Notes to Consolidated Financial Statements.

                                       10
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

FINANCIAL CONDITION

     Total assets at  September  30,  1998,  were $433.7  million as compared to
$372.9 million at September 30, 1997, an increase of $60.8 million or 16.3%.

       Loans  receivable  at September  30, 1998,  increased by $11.7 million to
$264.0  million as  compared to $252.3  million at the  previous  year-end.  The
increase was  primarily as a result of the  employment  of several loan officers
whose primary  function is the production of consumer and  commercial  loans and
the entry into new markets as a result of branching efforts.

       Mortgage-backed  securities increased $63.5 million from $32.3 million at
September  30, 1997 to $95.9  million at September  30,  1998.  The increase was
primarily funded by FHLB advances and an increase in deposits.

       Deposits increased $23.2 million to $343.9 million at September 30, 1998,
compared to $320.8 million at the previous year end as First  Palmetto  targeted
several markets for growth by offering highly competitive rates.

       FHLB advances increased to $60.7 million at September 30, 1998 from $27.2
million at September 30, 1997 as First Palmetto  sought to reduce  interest rate
sensitivity by borrowing for longer terms at historically low rates.

       Stockholders'  equity  increased to $25.2  million at September  30, 1998
compared to $22.9  million at September  30, 1997.  Increases  were $4.2 million
from  net  income.  Decreases  were  the  elimination  of  unrealized  gains  on
available-for-sale securities in the amount of $305,000 and payment of dividends
of approximately $1.6 million.

CAPITAL RESOURCES

       Regulatory   Capital   Requirements.   Under  OTS   regulations   savings
associations  must  maintain  "Tier 1" capital  equal to at least 4% of adjusted
total assets,  "Tier 1" capital equal to at least 4% of  "risk-weighted"  assets
and a  "total  capital"  equal to at least  8% of  "risk-weighted"  assets.  For
purposes of the regulations, "Tier 1" capital is defined as common stockholders'
equity,  noncumulative  perpetual preferred stock and related surplus,  minority
interest in the equity  accounts  of fully  consolidated  subsidiaries,  certain
nonwithdrawable accounts and pledged deposits and qualifying intangibles.  "Tier
1" capital is  generally  reduced  by the  amount of the  savings  association's
intangible  assets  for  which  no  market  exists.  Limited  exceptions  to the
deduction of intangible  assets are provided for mortgage  servicing  rights and
certain qualifying intangibles. "Tier 1" capital are to be further reduced by an
amount  equal  to  a  savings  association's  debt  and  equity  investments  in
subsidiaries engaged in activities not permissible to national banks.

       At September 30, 1998,  the Bank's "Tier 1" capital ratio to total assets
was  5.58%,  "Tier 1" to  risk-weighted  assets  ratio  was  9.84% and its total
capital to  risk-weighted  assets ratio was 11.10%.  At that date,  the Bank had
$491,000 of qualifying intangibles and $535,000 of investments in and extensions
of credit to  subsidiaries  engaged in activities not  permissible  for national
banks.

                                       11
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

ASSET and LIABILITY MANAGEMENT, INTEREST RATE SENSITIVITY and MARKET RISK

       Market risk is the risk of loss from adverse changes in market prices and
rates.  The Bank's  market  risk  arises  principally  from  interest  rate risk
inherent in its lending,  deposit and borrowing activities.  Management actively
monitors and manages its interest rate risk exposure.  Although the Bank manages
other risks,  as in credit  quality and liquidity  risk, in the normal course of
business,  management  considers  interest rate risk to be its most  significant
market risk and could potentially have the largest material effect on the Bank's
financial condition and results of operations. Other types of market risks, such
as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of the Bank's business activities.

       First   Palmetto   manages   the   different   maturity   and   repricing
characteristics of its  interest-earning  asset and  interest-bearing  liability
portfolios to achieve a desired interest rate  sensitivity  position and thereby
limiting its exposure to interest rate risk.  The primary  objective of interest
rate  sensitivity  management  is to maintain net interest  income  growth while
reducing exposure to the risks inherent to interest rate movements.

       Profitability is affected by fluctuations in interest rates. A sudden and
substantial  increase in interest rates may adversely impact the Bank's earnings
to  the  extent  that  the  interest  rates  on   interest-earning   assets  and
interest-bearing liabilities do not change at the same speed, to the same extent
or on the same basis.  As part of its effort to manage  interest rate risk,  the
Bank monitors its net portfolio value ("NPV"), a methodology  adopted by the OTS
to assist the Bank in assessing interest rate risk.

       Generally,  NPV is the discounted present value of the difference between
incoming  cash flows on  interest-earning  assets and other  assets and outgoing
cash  flows  on   interest-bearing   liabilities  and  other  liabilities.   The
application of the  methodology  attempts to quantify  interest rate risk as the
change in the NPV which would result from the theoretical 200 basis point ("bp")
(1 basis  point  equals  .01%)  change in market  rates.  Both a 200 basis point
increase  in market  interest  rates and a 200 basis  point  decrease  in market
interest rates are considered.

       The  following  table  presents the Bank's NPV at September  30, 1998, as
calculated by the OTS, based on information provided to the OTS by the Bank.

Change                   Net Portfolio Value               NPV as % of PV Assets
In rates   $ Amount          $ Change         % Change     NPV Ratio    Change
--------   --------      -------------------  --------     ---------    ------
  +400 bp  $ 30,756           $  (814)             -3%       7.23%      +11 bp
  +300 bp    32,107               537              +2%       7.46%      +34 bp
  +200 bp    32,815             1,245              +4%       7.54%      +42 bp
  +100 bp    32,623             1,053              +3%       7.42%      +30 bp
     0 bp    31,570                                          7.12%
  -100 bp    29,719            (1,851)             -6%       6.66%      -46 bp
  -200 bp    27,978            (3,592)            -11%       6.22%      -90 bp
  -300 bp    26,683            (4,887)            -15%       5.87%     -125 bp
  -400 bp    25,201            (6,369)            -20%       5.49%     -163 bp

Risk measures:  200 bp rate shock                                    9/30/98
                                                              --------------

Pre-shock NPV ratio:  NPV as % of PV of assets                         7.12%
Post-shock NPV ratio                                                   6.22%
Sensitivity Measure:  Decline in NPV ratio                             90 bp

                                       12
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

       The  computation of  prospective  effects of  hypothetical  interest rate
changes are based on numerous  assumptions,  including relative levels of market
interest  rates,  loan  prepayments  and deposit decay rates,  and should not be
relied upon as indicative of actual results. The computations do not contemplate
any actions the Bank could undertake in response to changes in interest rates.

       Another  important  measure of interest rate risk is the  Asset/Liability
Gap ratio.  The  difference  between the amount of  interest-earning  assets and
interest-bearing  liabilities  to be repriced  during a specified time period is
referred to as the asset/liability gap position. Key assumptions for determining
the  period  for   repricing   are  as   follows:   (1)  fixed  rate  loans  and
mortgage-backed  securities  are  generally  amortized  adjusted by market based
prepayment rates; (2) adjustable rate loans and  mortgage-backed  securities are
repriced on their respective  adjustment dates; (3) loans with call features are
amortized  without any prepayment  assumption with the balance  repricing at the
call date;  (4) investment  securities are repriced at maturity;  (5) NOW, money
market and  savings are  repriced  using  market  based  decay  rates;  (6) time
deposits  are repriced at maturity;  (7) fixed rate  borrowings  are repriced at
maturity adjusted for contractual principal repayments;  and (8) adjustable rate
borrowings are repriced on their  adjustment  dates.  Management  believes these
assumptions are reasonable based upon First Palmetto's historical experience.

       First Palmetto's liability sensitive cumulative gap position for one year
at September 30, 1998 was (9.93%). A liability sensitive gap indicates that over
the  course of a year an upward  movement  in rates will  negatively  impact net
interest income (and  consequently  operating  results) since  liabilities  will
reprice faster than assets. Conversely, a liability sensitive gap in a declining
interest  rate  environment  will  positively  impact net  interest  income (and
consequently  operating  results)  since  liabilities  will reprice  faster than
assets.

        The following table presents First Palmetto's asset/liability gap ratios
as of September 30, 1998.
<TABLE>
<CAPTION>
                                               Six months
At September 30, 1998               Six months       to one      One to      Three to     Over five
                                       or less         year   three years   five years      years        Total
                                       -------         ----   -----------   ----------      -----        -----
Interest-earning assets                                         (Dollars in thousands)
<S>                                <C>          <C>           <C>          <C>          <C>          <C>
  Loans and mortgage-backed
    securities (1)                 $    91,174  $    80,911   $   141,628  $    26,746  $    24,041  $   364,500
  Investment securities                  7,982        7,009        13,986        8,992            -       37,969
  Other interest-earning assets (2)     11,992            -             -            -            -       11,992
      Total interest-earning
        assets                         111,148       87,920       155,614       35,738       24,041      414,461
                                   -----------  -----------   -----------  -----------  -----------  -----------

Interest-bearing liabilities
  Interest-bearing deposits            196,205       39,023        61,863        9,300       15,518      321,909
  Borrowings                             5,000            -         4,667            -       51,000       60,667
                                   -----------  -----------   -----------  -----------  -----------  -----------
      Total interest-bearing
        liabilities                    201,205       39,023        66,530        9,300       66,518      382,576
                                   -----------  -----------   -----------  -----------  -----------  -----------
Sensitivity gap
  Period                           $   (90,057) $    48,897   $    89,084  $    26,438  $   (42,477) $    31,885
                                   ===========  ===========   ===========  ===========  ===========  ===========
  Cumulative                       $   (90,057) $   (41,160)  $    47,924  $    74,362  $    31,885  $    31,885
                                   ===========  ===========   ===========  ===========  ===========  ===========

Gap as a percentage of
  interest-earning assets
  Period                              (21.73)%       11.80%        21.49%        6.38%     (10.25)%        7.69%
                                   ===========  ===========   ===========  ===========  ===========  ===========
  Cumulative                          (21.73)%      (9.93)%        11.56%       17.94%        7.69%        7.69%
                                   ===========  ===========   ===========  ===========  ===========  ===========

(1)  Excludes the allowance for loan losses.
(2)  Includes  interest-earning  deposits and  certificates  of deposit in other
banks.
</TABLE>
                                       13
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

       To reduce First Palmetto's exposure to interest rate risk, management has
implemented the following strategies:

(1)    Originate  for its own  portfolio  only  adjustable  rate  mortgages  and
       longer-term  amortizing  loans with call provisions of five years or less
       (unless specific exceptions are made).

(2)    Originate  fixed rate mortgages  according to the  specifications  of the
       Federal Home Loan Mortgage Corporation, and selling them in the secondary
       mortgage market.

(3)    Increase  commercial real estate and consumer lending activities in order
       to increase outstanding loans with shorter maturities or adjustable rates
       so as to increase the interest rate  sensitivity of First Palmetto's loan
       portfolio.

(4)    Invest in securities with maturities of five years or less.

(5)    Extend the lives of liabilities through the use of Federal Home Loan Bank
       advances or other extended maturity obligations.

(6)    Offer premium rates on certificates of deposit with matures  greater than
       twelve months.

       Senior management oversees  implementation of the strategies noted above.
It  reviews   national  and  local  market   economic  data  and  interest  rate
projections.  Senior management also regularly reviews the relationship  between
interest sensitive assets and interest sensitive  liabilities and reports to the
full Board of Directors on the  progress of First  Palmetto's  attempt to reduce
the mismatch existing between them.

IMPACT OF INFLATION

       First Palmetto does not believe that inflation has had a material  effect
on its  operations  during the last three fiscal  years.  Increases in personnel
costs,  supplies,  occupancy,  data processing fees or other operating  expenses
should the current  rates of inflation  increase  materially  could affect First
Palmetto's  operations,  however,  in the past First Palmetto has generally been
able to  increase  net  yields  and  other  items of income  sufficient  to meet
negative impacts of increasing costs.

IMPACT OF CHANGING PRICES

       First Palmetto provides financial and related services and its assets and
liabilities  are monetary in nature,  therefore  First  Palmetto is not directly
subject to impact  from  changes  in prices of  production  materials.  Interest
rates,  which  have  a  more  significant   impact  on  financial   institutions
performance,  do not  necessarily  move in the  same  direction  or in the  same
magnitude  as the prices of goods and  services,  which  would be more  directly
affected by inflation.

                                       14
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

LIQUIDITY

       Liquidity management involves meeting the cash flow requirements of First
Palmetto both at the holding  company level as well as at the subsidiary  level.
The holding company requires cash for various  operating needs including general
operating  expenses  and  payment  of  dividends  to  shareholders.  Sources  of
liquidity for the holding company include dividends from the Bank to the holding
company and existing cash reserves and earnings.

       First  Palmetto's  primary  sources of  liquidity  are  deposits and loan
principal and interest repayments. Additionally, First Palmetto has historically
generated  funds  through the sale in the  secondary  market of mortgage  loans.
During the current year funds were made available primarily from the increase of
deposits of $38.7 million,  FHLB advances of $45.0 million, the sale of loans on
the  secondary  market in the amount of $30.0  million,  from the  maturities of
investment  securities  in the  amount  of $30.5  million,  and  from  principal
collections of  mortgage-backed  securities of $16.9  million.  These funds were
used to purchase mortgage-backed  securities of $80.4 million, fund net loans of
$23.3  million,  repay FHLB advances  $11.6  million and to purchase  investment
securities in the amount of $20.6 million.

       These and other factors resulted in cash and cash equivalents  decreasing
$5.9 million during the year ended September 30, 1998.

       The Bank,  as a member of the Federal Home Loan Bank System,  is required
by regulation  to maintain a daily  average  balance of liquid assets equal to a
certain  percentage  of net  withdrawable  savings and current  borrowings.  The
Bank's  liquidity  ratio  at  September  30,  1998 is in  excess  of  regulatory
requirements of 4% and will remain so in the upcoming fiscal year.

NEW ACCOUNTING PRONOUNCEMENTS

       Reporting  Comprehensive  Income. In June, 1997, the FASB issued SFAS No.
130,  "Reporting  Comprehensive  Income."  The purpose of SFAS 130 is to address
concerns  over the  practice  of  reporting  elements  of  comprehensive  income
directly  in  equity.  This SFAS  requires  all items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial statement that is displayed in equal prominence with the
other financial  statements.  This statement is effective for periods  beginning
after  December 15, 1997,  and is not expected to have a material  impact on the
Bank.  Comparative  financial  statements  are  required to be  reclassified  to
reflect the provisions of this statement.  The Bank will adopt the provisions of
this SFAS for fiscal year 1999.

       Disclosures about Segments of an Enterprise and Related  Information.  In
June,  1997,  the FASB issued SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information."  This  statement  applies  to all public
entities.  The  provisions  of SFAS 131 require  certain  disclosures  regarding
material  industry  segments  within an entity.  This statement is effective for
periods  beginning  after December 15, 1997.  SFAS 131 is not expected to have a
material impact on the Bank.

       SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", revises employers' disclosures about pension and other postretirement
benefit plans. It does not change  measurement or recognition,  but standardizes
the  disclosure  requirements,  requires  additional  information  on changes in
benefit obligations and fair values of plan assets. Certain disclosures that are
no longer useful as in the past are eliminated.  This statement is effective for
fiscal  years  beginning  after  December 15, 1997.  Earlier  periods  which are
presented should be restated.

                                       15
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

       SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative instruments embedded in other contracts and hedging
activities.  It requires  that an entity  recognize  all  derivatives  as either
assets or liabilities in the statement of financial position,  and measure those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  designated  as (a) a hedge of the  exposure to changes in the fair
value of a recognized  asset or liability or a firm  commitment,  (b) a hedge of
the exposure to variable cash flows of a forecasted transaction,  or (c) a hedge
of the foreign currency  exposure of a net investment in a foreign  corporation.
This statement is effective for fiscal quarters beginning after June 15, 1999.

YEAR 2000 CONSIDERATIONS

       Many existing computer programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the impact of the upcoming change in the century. If uncorrected,  many computer
programs could fail or create erroneous results by or at the Year 2000. The Year
2000 issue affects virtually all companies and organizations.

     The business risks associated with Year 2000 are considerable.  Some of the
risks include errors in accruing interest for loans and deposits,  communication
devices may become  inoperable,  and basic  utilities  may cease to be provided.
Recognizing the risks of computer errors as the result of Year 2000, the Federal
Financial  Institutions  Examination  Council  ("FFIEC")  issued an  interagency
statement on May 5, 1997,  providing an outline for  institutions to effectively
manage the Year 2000  challenges.  The guidance  identified  the following  five
stages for Year 2000 management: awareness, assessment,  renovation, testing and
implementation stages. First Palmetto has substantially  completed the awareness
and  assessment  stages.  A  significant  portion  of First  Palmetto's  mission
critical products and services are provided by a third party service bureau. The
service bureau has completed the renovations  stage and in November of 1998, the
Bank began testing the renovated  software.  The testing phase is expected to be
concluded  by the end of January,  1999 at which time the  implementation  phase
shall commence.  Implementation  should be complete in all material  respects by
the end of May,  1999 at which time First  Palmetto  shall be prepared  for Year
2000.

       In fiscal 1998,  First Palmetto paid the service bureau a $40,000 fee for
its Year 2000 efforts and $15,000 for various  hardware  and software  upgrades.
The Bank has not estimated the salaries paid to employees whose responsibilities
include ensuring First Palmetto is Year 2000 ready.

       The third party business  contingency  plan is expected to be complete by
December 31, 1998; and its  contingency  procedures will be announced in January
of 1999, at which time the Bank will develop its contingency  plan in consonance
with the third party plan.

                                       16
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                 Consolidated Statements of Financial Condition
                           September 30, 1998 and 1997

ASSETS                                                      1998           1997
                                                            ----           ----
                                                               (In thousands)

Cash and due from banks                                     $  6,983   $  6,721
Interest-bearing deposits in other banks                      11,892     18,085
Certificates of deposit in other banks                           100        399
Available-for-sale securities (cost of  $422 at
  September 30, 1997)                                              -        907
Investment securities (market value of $38,521 and
  $48,430 at September 30, 1998 and 1997, respectively)       37,969     47,918
Mortgage-backed securities held for investment
  (market value of $97,654 and $32,693 at
  September 30, 1998 and 1997, respectively)                  95,862     32,367
Loans, net of allowance for loan losses of
  $4,649 in 1998 and $3,009 in 1997                          263,989    252,336
Accrued interest receivable                                    3,126      2,726
Real estate acquired in settlement of loans                      500        332
Stock in the Federal Home Loan Bank (FHLB)                     3,333      2,030
Premises and equipment                                         6,664      6,071
Prepaid expenses and other assets                              3,327      3,056
                                                            --------   --------
           Total assets                                     $433,745   $372,948
                                                            ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                    $343,947   $320,769
FHLB advances                                                 60,667     27,233
Accrued expenses and other liabilities                         3,962      2,091
                                                            --------   --------
           Total liabilities                                 408,576    350,093
                                                            --------   --------

Stockholders' equity
   Preferred stock, $.01 par value, 500,000 shares
     authorized, none issued and outstanding                       -          -
   Common stock, $.01 par value, 1,500,000 shares
     authorized, 748,014 shares issued                             7          7
   Additional paid-in capital                                  6,680      6,680
   Retained earnings, substantially restricted                19,107     16,488
   Unrealized gain on available-for-sale securities, net           -        305
   Treasury stock, at cost (40,004 shares in 1998 and 1997)     (625)      (625)
                                                            --------   --------
           Total stockholders' equity                         25,169     22,855
                                                            --------   --------
Commitments

           Total liabilities and stockholders' equity       $433,745   $372,948
                                                            ========   ========

           See accompanying notes to consolidated financial statements

                                       17
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                        Consolidated Statements of Income
                 Years ended September 30, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                                                            1998              1997             1996
                                                                        -------------    --------------    -------------
Interest income:                                                               (Dollars in thousands, except earnings
per share data)
<S>                                                                     <C>              <C>               <C>          
   Loans                                                                $      23,011    $       21,576    $      19,477
   Investment securities                                                        2,989             3,163            3,411
   Mortgage-backed securities                                                   3,612             2,163            2,434
   Other                                                                        1,414             1,000              694
                                                                        -------------    --------------    -------------
       Total interest income                                                   31,026            27,902           26,016
                                                                        -------------    --------------    -------------
Interest expense:
   Deposits                                                                    15,169            13,418           12,329
   FHLB advances                                                                2,106             1,607            1,857
                                                                        -------------    --------------    -------------
       Total interest expense                                                  17,275            15,025           14,186
                                                                        -------------    --------------    -------------
       Net interest income                                                     13,751            12,877           11,830
Provision for loan losses                                                       2,262             1,428              885
                                                                        -------------    --------------    -------------
       Net interest income after provision for loan losses                     11,489            11,449           10,945
                                                                        -------------    --------------    -------------
Other income:
   Service charges                                                              1,293             1,205            1,167
   Loan servicing                                                                 451               524              513
   Gain on sales of loans                                                         515               173              103
   Gain on sale of investments                                                    632               254                -
   Gain on sale of branch                                                         784                 -                -
   Miscellaneous                                                                  229               480              472
                                                                        -------------    --------------    -------------
       Total other income                                                       3,904             2,636            2,255
                                                                        -------------    --------------    -------------
Other expense:
   Compensation and related benefits                                            4,153             3,979            3,658
   Net occupancy                                                                1,133             1,233            1,027
   Data processing fees                                                           806               897              821
   Federal deposit and other insurance premiums                                   315               367            1,877
   Telephone, postage, and supplies                                               612               709              655
   Amortization of intangible assets                                              349               579              769
   Miscellaneous                                                                1,493             1,082            1,186
                                                                        -------------    --------------    -------------
       Total other expense                                                      8,861             8,846            9,993
                                                                        -------------    --------------    -------------

   Income before income taxes                                                   6,532             5,239            3,207

Income taxes                                                                    2,354             1,909            1,195
                                                                        -------------    --------------    -------------
       Net income                                                       $       4,178    $        3,330    $       2,012
                                                                        =============    ==============    =============
Net income per common share-basic                                       $        5.90    $        4.80     $        2.90
                                                                        =============    =============     =============
Average number of common shares outstanding-basic                             708,010          693,174           693,044
                                                                        ==============   ==============    =============
</TABLE>
           See accompanying notes to consolidated financial statements

                                       18
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                 Consolidated Statements of Stockholders' Equity
                  Years ended September 30 1998, 1997, and 1996
<TABLE>
<CAPTION>
                                                                               Unrealized
                                                                                gain on
                                                 Additional                    available-                      Total
                                  Common          paid-in       Retained       for-sale        Treasury     stockholders'
                                   stock          capital       earnings     securities, net     stock         equity
                                   -----          -------       --------     ---------------     -----         ------
Balance at                                                      (In thousands)
<S>                            <C>             <C>            <C>            <C>             <C>            <C>
  September 30, 1995           $          7    $      6,080   $     13,570   $        309    $       (621)  $     19,345
                               ------------    ------------   ------------   ------------    ------------   ------------

Purchase of common stock                  -               -              -              -              (4)            (4)

Net income                                -               -          2,012              -               -          2,012

Cash dividends ($1.60 per
  share)                                  -               -         (1,108)             -               -         (1,108)

Change in unrealized gain on
  available-for-sale securities,
  net                                     -               -              -            (37)              -            (37)
                               ------------    ------------   ------------   ------------    ------------   ------------

Balance at
  September 30, 1996                      7           6,080         14,474            272            (625)        20,208
                               ------------    ------------   ------------   ------------    ------------   ------------

Sale of common stock                      -             600              -              -               -            600

Net income                                -               -          3,330              -               -          3,330

Cash dividends ($1.90 per
  share)                                  -               -         (1,316)             -               -         (1,316)

Change in unrealized gain on
  available-for-sale securities,
  net                                     -               -              -             33               -             33
                               ------------    ------------   ------------   ------------    ------------   ------------
Balance at
  September 30, 1997                      7           6,680         16,488            305            (625)        22,855
                               ------------    ------------   ------------   ------------    ------------   ------------

Net income                                -               -          4,178              -               -          4,178

Cash dividends ($2.20 per
  share)                                  -               -         (1,559)             -               -         (1,559)

Change in unrealized gain on
  available-for-sale securities,
  net                                     -               -              -           (305)              -           (305)
                               ------------    ------------   ------------   ------------    ------------   ------------
Balance at
  September 30, 1998           $          7    $      6,680   $     19,107   $        -0-    $       (625)  $     25,169
                               ============    ============   ============   ============    ============   ============
</TABLE>

           See accompanying notes to consolidated financial statements

                                       19
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows
                 Years ended September 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>

                                                                               1998              1997             1996
                                                                               ----              ----             ----
<S>                                                                     <C>              <C>               <C>
Cash flows from operating activities:                                                           (In thousands)
   Net income                                                           $       4,178    $        3,330    $       2,012
   Adjustments to reconcile net income to net cash
     provided by operating activities
       Decrease in deferred loan fees, net                                        (34)              (10)             (27)
       Accretion and amortization of discounts and
         premiums, net                                                           (136)             (250)            (203)
       Provision for loan losses                                                2,262             1,428              885
       Gain on sale of available-for-sale securities                             (632)             (254)               -
       Gain on sale of real estate acquired in settlement
         of loans, net                                                            (28)              (15)             (74)
       Gain on sale of branch                                                    (784)                -                -
       Depreciation                                                               434               468              353
       Amortization of intangible assets                                          349               579              769
       Proceeds from sale of loans                                             29,961            11,764           16,210
       Originations and principal repayments of loans
         held for sale, net                                                   (29,446)          (11,591)         (16,107)
       (Increase) decrease in accrued interest receivable                        (400)             (346)             158
       (Increase) decrease in prepaid expenses and other assets                  (812)               69             (755)
       Increase (decrease) in accrued expenses and other
          liabilities                                                           1,871            (1,573)             581
                                                                        -------------    --------------    -------------
       Net cash provided by operating activities                                6,783             3,599            3,802
                                                                        -------------    --------------    -------------

Cash flows from investing activities:

   Net decrease in certificates of deposit in other banks                         299                 -                -
   Proceeds from maturities of investment securities                           30,480            20,000           12,995
   Purchases of investment securities                                         (20,623)          (21,079)          (2,000)
   Proceeds from sale of available-for-sale securities                          1,304               426                -
   Purchases of mortgage-backed securities                                    (80,433)           (4,563)               -
   Principal collected on mortgage-backed securities                           16,918             5,206            6,379
   Net increase in loans                                                      (23,297)          (27,226)         (30,405)
   Proceeds from sale of real estate acquired in
     settlement of loans                                                          326               671            1,233
   Improvements made to real estate held for
     development and sale                                                        (366)                -                -

</TABLE>
                                                                     (Continued)

                                       20
<PAGE>
                                       FIRST PALMETTO FINANCIAL CORPORATION

                                       Consolidated Statements of Cash Flows
                                  Years ended September 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
                                                                                 ----              ----             ----

<S>                                                                     <C>               <C>              <C>
Cash flows from investing activities, continued:                                                (In thousands)
   Proceeds from sale of FHLB stock                                                56                93                -
   Purchases of FHLB stock                                                     (1,359)                -                -
   Capital expenditure for premises and equipment                              (1,317)           (1,497)          (1,489)
   Retirements of premises and equipment                                          272                82              107
   Sale of branch                                                              (5,549)                -                -
                                                                        -------------    --------------    -------------
       Net cash used in investing activities                                  (83,289)          (27,887)         (13,180)
                                                                        -------------    --------------    -------------

Cash flows from financing activities:

   Net increase in deposits                                                    38,701            32,611           20,844
   Proceeds from FHLB advances                                                 45,000             7,000           21,000
   Repayment of FHLB advances                                                 (11,567)          (12,317)         (21,817)
   Sale (purchase) of common stock                                                  -               600               (4)
   Cash dividends                                                              (1,559)           (1,316)          (1,108)
                                                                        -------------    --------------    -------------
       Net cash provided by financing activities                               70,575            26,578           18,915
                                                                        -------------    --------------    -------------

Net increase (decrease) in cash and cash equivalents                           (5,931)            2,290            9,537

Cash and cash equivalents at beginning of year                                 24,806            22,516           12,979
                                                                        -------------    --------------    -------------
Cash and cash equivalents at end of year                                $      18,875    $       24,806    $      22,516
                                                                        =============    ==============    =============
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
       Interest                                                         $      17,005    $       14,829    $      14,009
       Income taxes                                                             1,654             2,231            1,744

Supplemental schedule of noncash investing and financing activities:

       Loans transferred to real estate acquired in
         settlement loans                                                         691               508              607

       Increase (decrease) in unrealized gain on
         available-for-sale securities, net                                      (305)               33              (37)

</TABLE>
           See accompanying notes to consolidated financial statements

                                       21
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements
                       September 30, 1998, 1997, and 1996

(1)    Summary of Significant Accounting Policies

       The following is a description  of the more  significant  accounting  and
       reporting  policies  which  First  Palmetto  Financial   Corporation  and
       subsidiary  (First  Palmetto)  followed in preparing and  presenting  the
       consolidated financial statements.

       (a)    Principles of Consolidation and Reporting

              The accompanying  consolidated  financial  statements  include the
              accounts of First Palmetto  Financial  Corporation  and its wholly
              owned subsidiary, First Palmetto Savings Bank, F.S.B. (the "Bank")
              and its  subsidiary.  All significant  intercompany  balances have
              been eliminated.

       (b)    Use of Estimates in the Preparation of Financial Statements

              The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities and disclosure of contingent liabilities at
              the date of the financial  statements and the reported  amounts of
              revenues and expenses during the reporting period.  Actual results
              could differ from those estimates.

       (c)    Reclassifications

              Certain  amounts in the September  30, 1997 and 1996  consolidated
              financial  statements  have been  reclassified to conform with the
              1998 presentations.  These  reclassifications had no impact on the
              net income or stockholders' equity as previously reported.

       (d)    Securities

              Statement  of  Financial   Accounting  Standards  (SFAS)  No.  115
              addresses the accounting  and reporting for  investments in equity
              securities  that have  readily  determinable  fair  values and all
              investments in debt securities.  These  investments are classified
              into three categories as follows:

              -   held-to-maturity securities - reported at amortized cost,

              -   trading  securities  - reported  at fair value with unrealized
                  gains and losses included in earnings, or

              -   available-for-sale  securities  - reported  at fair value with
                  unrealized  gains and losses reported as a separate  component
                  of stockholders' equity (net of tax effect).

              Certain   investments  in  equity  securities  are  classified  as
              available-for-sale.  All other  securities have been classified as
              held-to-maturity  securities because First Palmetto has the intent
              and the ability to hold all such securities until maturity.

                                                                     (Continued)

                                       22
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

              Gains  and  losses  on sales of  securities  are  recognized  on a
              specific   identification   basis.   Premiums  and  discounts  are
              amortized into interest income using a level yield method.

              Regulations  require  First  Palmetto  to  maintain  cash and U.S.
              Government and other  approved  securities in an amount equal to a
              prescribed  percentage  (4% at  September  30,  1998)  of  deposit
              accounts  (net of  loans  on  deposit  accounts)  plus  short-term
              borrowings.  First Palmetto was in compliance with such regulation
              at September 30, 1998.

       (e)    Loans Held for Sale

              Loans held for sale are  carried at the lower of cost or market as
              determined  by  the  outstanding  commitments  from  investors  to
              purchase  such  loans  or  current  investor  yield   requirements
              calculated  on the  aggregate  loan  basis.  Gains and  losses are
              realized  at the  time of sale to a third  party.  First  Palmetto
              originates and sells whole loans, generally retaining servicing on
              conventional loans and releasing  servicing on governmental loans.
              Servicing fees range from .25% to .375% on conventional loans.

       (f)    Provision for Loan Losses

              The allowance for loan losses is the amount considered adequate to
              absorb  inherent  losses  in  the  loan  portfolio.   Management's
              evaluation  of the adequacy of the  allowance is based on a review
              of such factors which  include the market value of the  underlying
              collateral,  growth and  composition  of the loan  portfolio,  the
              relationship  of the  allowance  for loan  losses  to  outstanding
              loans,  delinquency  trends,  history of charge-offs  and economic
              conditions.

              While  management  uses the  best  information  available  to make
              evaluations,  future adjustments to the allowance may be necessary
              if  conditions  differ  from the  assumptions  used in making  the
              evaluations.

              In addition,  various regulatory agencies,  as an integral part of
              their  examination  process,  periodically  review the adequacy of
              First  Palmetto's  allowance  for loan losses.  Such  agencies may
              require First  Palmetto to recognize  adjustments to the allowance
              based on their  judgments about  information  available to them at
              the time of their examination.

       (g)    Real Estate Acquired in Settlement of Loans

              Real estate acquired in settlement of loans represents real estate
              acquired through foreclosure or deed in lieu of foreclosure and is
              initially   recorded   at  the  lower   cost  or  fair  value  and
              subsequently  reduced for estimated selling costs.  Costs relating
              to  the   development   and   improvement   of  the  property  are
              capitalized,  whereas,  those relating to holding the property are
              charged to expense.

                                                                     (Continued)

                                       23
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       (h)    Premises and Equipment

              Premises and  equipment are recorded at cost and  depreciation  is
              provided  over the  estimated  useful lives of the related  assets
              principally on a straight-line  basis.  Estimated lives are ten to
              forty years for buildings,  building  components and  improvements
              and two to ten years for furniture, fixtures and equipment.

              Leasehold  improvements  are recorded at cost and  amortization is
              provided  over the lesser of the related  lease term or  estimated
              useful life principally on a straight-line basis.

              Maintenance  and repairs  are  charged to expense as incurred  and
              improvements   are   capitalized.   The  costs   and   accumulated
              depreciation   relating  to  premises  and  equipment  retired  or
              otherwise  disposed of are  eliminated  from the  accounts and any
              resulting gains or losses are credited or charged to operations.

       (i)    Loan Interest Income

              When  loans  become  more than 90 days past  due,  First  Palmetto
              places such loans on  nonaccrual  status or provides an  allowance
              for uncollected interest on accrued interest if, in the opinion of
              management,  collectibility  of that accrued interest is doubtful.
              Any allowance is netted against accrued interest receivable in the
              consolidated financial statements.  If the delinquent payments are
              made, the loan is returned to accrual  status.  Interest income on
              impaired loans is recognized on a cash basis.

       (j)    Loan Origination Fees and Costs

              Loan origination  fees and certain direct loan  origination  costs
              are deferred and amortized over the contractual life, adjusted for
              prepayments,  of the  related  loan as an  adjustment  of the loan
              yield using the level yield method.  Direct costs of  unsuccessful
              loans and indirect costs are expensed as incurred.

       (k)    Income Taxes

              Deferred tax assets and  liabilities are recognized for the future
              tax consequences attributable to differences between the financial
              statement  carrying amounts of existing assets and liabilities and
              their  respective tax bases.  Deferred tax assets and  liabilities
              are measured  using enacted tax rates expected to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected  to be  recovered  or settled.  Under SFAS No.  109,  the
              effect on deferred tax assets and  liabilities  of a change in tax
              rates is  recognized  in income in the period  that  includes  the
              enactment date.

       (l)    Intangible Assets

              Goodwill, representing the excess cost of investment over the fair
              value of net assets  acquired,  is being  amortized  by charges to
              operations  generally over twelve years,  using the  straight-line
              method.

                                                                     (Continued)

                                       24
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

              Deposit-based   premiums,   representing  the  cost  of  acquiring
              deposits from other financial institutions, are being amortized by
              charges to operations over seven years, an estimate of the life of
              the existing deposit relationship, using the straight-line method.
              The amount of goodwill and deposit based premiums at September 30,
              1998 was $830,000 and at September 30, 1997 was $2.0 million. This
              was included in other assets.

       (m)    Cash and Cash Equivalents

              Cash and cash  equivalents  include  cash and due from  banks  and
              interest-bearing balances in other banks. Generally, cash and cash
              equivalents  are considered to have  maturities of three months or
              less.

       (n)    Earnings Per Share

              First Palmetto has adopted the  provisions of SFAS 128,  "Earnings
              per Share"  ("EPS"),  for the year ended  September 30, 1998.  The
              presentation  of primary and  fully-diluted  EPS has been replaced
              with basic and diluted  EPS.  All  prior-period  EPS data has been
              restated to reflect the adoption of SFAS 128.  Basic  earnings per
              share are  computed by dividing  net income  applicable  to common
              shareholders  by the  weighted-average  number  of  common  shares
              outstanding.  Diluted  earnings per share are computed by dividing
              net  income  by the  weighted-average  number  of shares of common
              stock and common stock equivalents  outstanding during the period,
              with  common  stock  equivalents  calculated  based on the average
              market  price.  The  effect  of  common  stock  equivalent  shares
              applicable  to stock  option  plans has not been  included  in the
              calculation  of net income per share  because no shares  have been
              granted pursuant to the plan.

       (o)    Other Accounting Changes

              As of October 1, 1996, the Bank adopted the provisions of SFAS No.
              122,  "Accounting for Certain Mortgage Banking  Activities," which
              requires that a mortgage banking enterprise  recognize as separate
              assets the rights to service  mortgage  loans for others,  however
              those servicing rights are acquired. A mortgage banking enterprise
              that  acquires  mortgage   servicing  rights  through  either  the
              purchase or origination of mortgage loans and sells or securitizes
              those loans with servicing  rights  retained  should  allocate the
              total cost of the mortgage loans to the mortgage  servicing rights
              and the loans  (without the mortgage  servicing  rights)  based on
              their  relative fair values if it is practicable to estimate those
              fair values.  If it is not practicable to estimate the fair values
              of the mortgage  servicing  rights and the mortgage loans (without
              the mortgage servicing  rights),  the entire cost of purchasing or
              originating  the loans  should be  allocated  only to the mortgage
              loans without the mortgage  servicing rights.  Additionally,  this
              standard requires that a mortgage banking enterprise  periodically
              assess its capitalized  mortgage  servicing  rights for impairment
              based on the fair value of those  rights.  Currently,  the Bank is
              capitalizing  1% of loans sold with servicing  rights retained and
              is amortizing  this asset over five years using the  straight-line
              method. The remaining balance is included in other assets.

                                                                     (Continued)

                                       25
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

              As of October 1, 1996, the Bank adopted the provisions of SFAS No.
              123  "Accounting  for  Stock  Based  Compensation."  SFAS No.  123
              established  a fair  value-based  method of  accounting  for stock
              options and other equity instruments.  It requires the use of that
              method for  transactions  with other than employees and encourages
              its use for  transactions  with employees.  It permits entities to
              continue  to use the  intrinsic  value  method  included in APB 25
              (Accounting for Stock Issued to Employees),  but regardless of the
              method used to account for the  compensation  cost associated with
              stock option and similar plans, it requires  employers to disclose
              information in accordance with SFAS No. 123.

              The  general  principle  underlying  SFAS No.  123 is that  equity
              instruments are recognized at the fair value of the  consideration
              received for them. If the fair value of the consideration received
              cannot be  reasonably  determined,  the fair  value of the  equity
              instrument itself may be used. The fair value method of accounting
              for stock  options  and other  instruments  applies  this  general
              principle, measuring compensation cost for employers as the excess
              of the fair value of the equity instrument over the amount paid by
              the  employee.  The  Bank  has  elected  to  continue  to use  the
              intrinsic value method in APB 25 for financial statement purposes.
              No  additional  disclosure  under SFAS No. 123 is required for the
              Bank at this time because no stock  options have been granted (See
              Footnote 15).

              As of January 1, 1997, the Bank adopted the provisions of SFAS No.
              125,  "Accounting for Transfers and Servicing of Financial  Assets
              and   Extinguishment  of  Liabilities."   SFAS  No.  125  provides
              accounting and reporting  standards for transfers and servicing of
              financial assets and extinguishment of liabilities. This statement
              applies prospectively to transactions occurring after December 31,
              1996, and  establishes new standards that focus on control whereby
              after a transfer of financial  assets,  an entity  recognizes  the
              financial and servicing  assets it controls and the liabilities it
              has incurred,  derecognizes financial assets when control has been
              surrendered,  and derecognizes  liabilities when extinguished.  In
              December,  1996,  the FASB issued SFAS No. 127,  "Deferral  of the
              Effective  Date of Certain  Provisions of FASB Statement No. 125."
              SFAS No. 127 defers for one year the effective date of portions of
              SFAS No. 125 that address  secured  borrowings  and collateral for
              all transactions.  Additionally,  SFAS No. 127 defers for one year
              the effective date of transfers of financial  assets that are part
              of   repurchase   agreements,   securities   lending  and  similar
              transactions.  The adoption of SFAS No. 125 as amended by SFAS No.
              127 did not  have a  material  impact  on the  Bank's  results  of
              operations or financial positions.

(2)    Available-for-Sale Securities

       Available-for-sale securities consist of the following:

                                                       Gross
                                   Amortized        Unrealized         Market
                                      Cost             Gains            Value
                                      ----             -----            -----
       September 30, 1997:
          Equity securities    $         422    $          485    $         907
                               =============    ==============    =============

       During the year ended September 30, 1998, gross proceeds from the sale of
       available-for-sale  securities was $1,304,000 which resulted in a gain of
       $632,000.

                                                                     (Continued)

                                       26
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(3)    Investment Securities

       Investment securities consist of the following:
<TABLE>
<CAPTION>

                                                                              Gross             Gross
                                                          Amortized        Unrealized        Unrealized          Market
                                                             Cost             Gains            Losses            Value
                                                             ----             -----            ------            -----
       September 30, 1998:                                                        (In thousands)
         U.S. Government obligations due:
           <S>                                        <C>               <C>              <C>               <C>

           Within 12 months                           $      14,991     $         148    $            -    $      15,139
           Beyond 12 months but
             within 5 years                                  22,978               404                 -           23,382
                                                      -------------     -------------    --------------    -------------
                                                      $      37,969     $         552    $          -0-    $      38,521
                                                      =============     =============    ==============    =============
       September 30, 1997:
         U.S. Government obligations due:
           Within 12 months                           $      15,909     $          62    $            -    $      15,971
           Beyond 12 months but
             within 5 years                                  32,009               450                 -           32,459
                                                      -------------     -------------    --------------    -------------
                                                      $      47,918     $         512    $          -0-    $      48,430
                                                      =============     =============    ==============    =============
</TABLE>
       During 1998,  1997 and 1996,  investment  securities with total amortized
       cost of $30.5  million,  $20.0 million and $13.0  million,  respectively,
       matured  or were sold  within 90 days of  maturity.  Proceeds  from these
       maturities and sales were $30.5 million,  $20.0 million and $13.0 million
       which resulted in gross realized losses of $5,156 for 1996.

       At September 30, 1998,  investment  securities  with an amortized cost of
       $37.9  million  were  pledged to secure  public  deposits and deposits of
       individuals.

(4)    Mortgage-Backed Securities

       Mortgage-backed securities consist of the following:
<TABLE>
<CAPTION>
                                                                              Gross             Gross
                                                          Amortized        Unrealized        Unrealized          Market
         September 30, 1998:                                 Cost             Gains            Losses            Value
                                                             ----             -----            ------            -----
         FHLMC participation certificates                                        (In thousands)
         <S>                                          <C>               <C>              <C>               <C>

           (5.28% - 7.90%, due 2008 through
            2028)                                     $      43,568     $         617    $            -    $      44,185

         FNMA mortgage-backed securities
           (5.30% - 7.80%, due 2003 through
            2028)                                            52,209             1,173                 -           53,382

         Various mortgage-backed securities                      85                 2                 -               87
                                                      -------------     -------------    --------------    -------------
                                                      $      95,862     $       1,792    $          -0-    $      97,654
                                                      =============     =============    ==============    =============


</TABLE>
                                                                     (Continued)
                                       27
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                                                                              Gross             Gross
                                                          Amortized        Unrealized        Unrealized          Market
         September 30, 1997:                                 Cost             Gains            Losses            Value
                                                             ----             -----            ------            -----
        <S>                                          <C>               <C>              <C>               <C> 
        FHLMC participation certificates                                         (In thousands)
           (6% - 11%, due 2008 through 2023)          $      29,305     $         287    $          (85)   $      29,507

         FNMA mortgage-backed securities
           (6.50% - 7.80%, due 2003 through 2022)             2,936               120                 -            3,056

         Various mortgage-backed securities
           (8%, due 2001 through 2002)                          126                 4                 -              130
                                                      -------------     -------------    --------------    -------------
                                                      $      32,367     $         411    $          (85)   $      32,693
                                                      =============     =============    ==============    =============
</TABLE>
       There were no sales of  mortgage-backed  securities  during 1998, 1997 or
1996.

(5)    Loans

       Loans consist of the following:

                                                           September 30,    

                                                       1998             1997
                                                       ----             ----
       Real estate mortgage (principally single           (In thousands)
         family dwellings, 1-4 units)           $      117,928    $     128,602
       Commercial real estate                           97,557           78,147
       Real estate construction                          9,127            8,462
       Commercial                                       15,724           13,525
       Installment                                      29,847           29,131
       Loans held for sale                               2,019              642
       Undisbursed proceeds on real estate
         construction                                   (3,325)          (2,891)
       Deferred loan fees, net                            (239)            (273)
       Allowance for loan losses                        (4,649)          (3,009)
                                                --------------    -------------
                                                $      263,989    $     252,336
                                                ==============    =============

       Loans  serviced  for  others approximated $130.4 million, $128.9 million,
       and $136.5 million at September 30, 1998, 1997, and 1996, respectively.

       The following summarizes the changes in the allowance for loan losses for
       the years ended September 30, 1998, 1997, and 1996:

                                             1998          1997          1996
                                          ----------    ----------    ---------
                                                      (In thousands)

       Balance at beginning of year       $    3,009    $    2,364    $   1,800
       Provision for loan losses               2,262         1,428          885
       Loan charge-offs                         (937)         (917)        (567)
       Recoveries                                315           134          246
                                          ----------    ----------    ---------
       Balance at end of year             $    4,649    $    3,009    $   2,364
                                          ==========    ==========    =========

                                                                     (Continued)

                                       28
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       At September 30, 1998 and 1997, the recorded investment in loans that are
       considered to be impaired was $851,000 and $759,000,  respectively. There
       was no specific allowance for credit losses related to the impaired loans
       as of September  30, 1998 and 1997.  The average  recorded  investment in
       impaired  loans  during the years ended  September  30, 1998 and 1997 was
       $923,000 and $396,000,  respectively.  Interest income  recognized on the
       cash basis for  impaired  loans  amounted to $127,000 and $27,000 for the
       years ended  September 30, 1998 and 1997,  respectively.  Large groups of
       smaller-balance  homogenous  loans  such  as  residential  mortgages  and
       consumer installment loans are not evaluated for impairment individually.

       First Palmetto had nonaccrual loans of approximately $636,000,  $981,000,
       and  $984,000,  at September  30,  1998,  1997,  and 1996,  respectively.
       Foregone  interest income related to nonaccrual loans for the years ended
       September  30,  1998,  1997 and 1996  amounted  to  $36,216,  $60,274 and
       $94,868, respectively. Interest income recognized on nonaccrual loans for
       the years ended  September  30, 1998,  1997 and 1996 amounted to $25,025,
       $37,792 and $52,032, respectively.

       First  Palmetto  offers  mortgage  and  consumer  loans to its  officers,
       directors and employees  for the financing of their  personal  residences
       and for other  personal  purposes.  These loans are currently made in the
       ordinary course of business and are made on substantially the same terms,
       including  interest  rates  and  collateral,  prevailing  at the time for
       comparable  transactions with other persons.  Management does not believe
       these  loans  involve  more than the  normal  risk of  collectibility  or
       present other unfavorable features. The following summarizes the activity
       of loans to the officers, directors and employees at September 30, 1998.

                                                       (In thousands)

       Loan balances, September 30, 1997              $       2,783
       New loans originated                                   3,439
       Loan repayment                                        (1,848)
                                                      -------------
       Loan balances, September 30, 1998              $       4,374
                                                      =============

       First Palmetto is a party to financial instruments with off-balance-sheet
       risk in the normal course of business to meet the financing  needs of its
       customers.  These  financial  instruments  include  commitments to extend
       credit and  standby  letters of credit.  Those  instruments  involve,  to
       varying  degrees,  elements of credit and interest rate risk in excess of
       the amount recognized in the statement of financial position.

       First Palmetto'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  contract
       amount of those instruments. First Palmetto uses the same credit policies
       in making  commitments as it does for  on-balance-sheet  instruments.  At
       September 30, 1998 and 1997,  preapproved  but unused lines of credit for
       loans  totaled  approximately  $22.7 million and $18.0  million,  standby
       letters  of  credit  approximated  $1.4  million  and $2.7  million,  and
       outstanding  loan  commitments  aggregated $2.2 million and $1.9 million,
       respectively.  Of  these  loan  commitments,  $-0-  and  $916,000  are at
       variable  rates  and $2.2  million  and  $948,000  are at fixed  rates at
       September 30, 1998 and 1997,  respectively.  The interest rates for these
       commitments  at  September  30,  1998  range from  5.925% to 9.5%.  These
       commitments,   including  undisbursed  proceeds  on  construction  loans,
       represent  no more  than the  normal  lending  risk that  First  Palmetto
       commits to its borrowers.  Management believes that these commitments can
       be funded through normal operations.  First Palmetto is not involved with
       any other types of financial instruments with off-balance sheet risk.

                                                                     (Continued)

                                       29
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       First Palmetto grants residential, residential construction,  commercial,
       and  installment  loans to  customers  throughout  its  market  area.  As
       reflected in the summary of loans  receivable at September 30, 1998,  the
       largest  component  of  First  Palmetto's  loan  portfolio   consists  of
       lower-risk  single-family,  1-4 unit,  residential loans. The higher risk
       components  of the loan  portfolio  consist of real estate  construction,
       commercial,  and installment  loans for which repayment is more dependent
       on the current real estate market and general economic conditions.

(6)    Accrued Interest

       Accrued interest receivable consists of the following:

                                                      September 30,
                                              ---------------------------
                                                  1998             1997
                                                  ----             ----
                                                     (In thousands)

       Loans                                  $    1,742        $   1,661
       Investment securities                         821              853
       Mortgage-backed securities                    563              212
                                              ----------        ---------
                                              $    3,126        $   2,726
                                              ==========        =========

       At September 30, 1998  and  1997,  the allowance for uncollected interest
       amounted to $35,530 and $17,696, respectively.

(7)    Real Estate Acquired in Settlement of Loans

       Real estate acquired in settlement of loans consists of the following:

                                                           September 30,
                                                -------------------------------
                                                      1998             1997
                                                      ----             ----
                                                         (In thousands)

       Undeveloped land                         $            -    $          48
       Single family residences                             81              275
       Commercial property                                 419                9
                                                --------------    -------------
                                                $          500    $         332
                                                ==============    =============

(8)    Investments Required by Law

       First  Palmetto is  required by law to invest in stock of a Federal  Home
       Loan Bank (FHLB). No ready market exists for the FHLB stock and it has no
       quoted  market value.  This stock is  redeemable  at $100 per share,  its
       historical cost basis, subject to certain limitations set by the FHLB.

       Eligible  deposit  accounts  are  insured up to  $100,000  by the Federal
       Deposit Insurance Corporation. Federal deposit insurance expense amounted
       to approximately $247,000,  $288,000 and $1.8 million for the years ended
       September 30, 1998, 1997, and 1996, respectively.  On September 30, 1996,
       First  Palmetto was assessed a one time  assessment of  approximately  65
       basis point for every $100 of domestic deposits.  The one time assessment
       amounted to $1.3 million.

                                                                     (Continued)

                                       30
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

 (9)   Premises and Equipment

       Premises and equipment consist of the following:

                                                          Accumulated   Net Book
                                                  Cost    Depreciation   Value
                                                  ----    ------------   -----
       September 30, 1998:                               (In thousands)
          Land and improvements                 $ 2,918    $      4    $ 2,914
          Office buildings and improvements       4,476       1,197      3,279
          Leasehold improvements                    790         670        120
          Furniture, fixtures and equipment         926         609        317
          Automobiles                                88          54         34
                                                -------    --------    -------
                                                $ 9,198    $  2,534    $ 6,664
                                                =======    ========    =======
       September 30, 1997:

          Land and improvements                 $ 2,612    $      -    $ 2,612
          Office buildings and improvements       3,995       1,233      2,762
          Leasehold improvements                    850         676        174
          Furniture, fixtures and equipment         886         411        475
          Automobiles                                76          28         48
                                                -------    --------    -------
                                                $ 8,419    $  2,348    $ 6,071
                                                =======    ========    =======

       First Palmetto  leases various  equipment and real estate under operating
       leases expiring on various dates through 2019.  Minimum lease commitments
       under all noncancelable leases are as follows:

       Years ending September 30,                 (In thousands)
       --------------------------
                  1999                           $          133
                  2000                                      116
                  2001                                       98
                  2002                                       74
                  2003                                       61
                  Later years                               301
                                                 --------------
                                                 $          783
                                                 ==============

       Rent  expense  was  $139,325,  $133,002  and $143,443 for the years ended
       September 30, 1998, 1997, and 1996, respectively.


                                                                     (Continued)

                                       31
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(10)   Deposits

       Deposits consist of the following:
                                                                 September 30,
                                                         -----------------------
                                                               1998        1997
                                                               ----        ----
                                                                (In thousands)

       Noninterest bearing checking                      $   22,038   $   22,545
       NOWs (1.50% in 1998 and 1.75% in 1997)                38,228       37,436
       MMDAs (3.00% in 1998 and 1997)                        19,511       19,786
       Savings (2.25% in 1998 and 2.50% in 1997)             22,482       22,038
                                                         ----------   ----------
                                                            102,259      101,805
                                                         ----------   ----------
       Time:
          Less than 3.00%                                        16           21
          3.00% to 4.99%                                     20,117        4,547
          5.00% to 6.99%                                    221,357      212,678
          7.00% to 9.99%                                        198        1,718
                                                         ----------   ----------
                                                            241,688      218,964
                                                         ----------   ----------
                                                         $  343,947   $  320,769
                                                         ==========   ==========
       Weighted average cost of deposits
         (as of dates indicated above)                        4.82%        4.76%
                                                         ==========   ==========

       A summary of time deposits by maturity as of September 30, 1998 follows:

                                                              (In thousands)

          October 1, 1998 - September 30, 1999                $      201,519
          After September 30, 1999                                    40,169
                                                              --------------
               Total time deposits                            $      241,688
                                                              ==============

       At September 30, 1998 and 1997, the aggregate  amount of time deposits of
       $100,000  or  more   amounted  to  $58.4   million  and  $34.6   million,
       respectively.

       Interest expense on deposits consists of the following:

                                          Years ended September 30,
                                     ---------------------------------------
                                     1998              1997             1996
                                     ----              ----             ----
                                                 (In thousands)

       NOWs and MMDAs       $       1,502    $        1,487    $       1,378
       Savings                        524               562              586
       Time                        13,143            11,369           10,365
                            -------------    --------------    -------------
                            $      15,169    $       13,418    $      12,329
                            =============    ==============    =============

       At  September  30,  1998,   approximately  $37.9  million  in  investment
       securities  were  pledged  to secure  public  deposits  and  deposits  of
       individuals.

                                                                     (Continued)

                                       32
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(11)   FHLB Advances

       FHLB advances consist of the following:

                                    Interest              September 30,      
              Maturity Date           Rate            1998             1997
              -------------           ----            ----             ----
                                                         (In thousands)

              December 11, 1997       5.66%                -    $       2,500
              January 29, 1998        5.32%                -            2,000
              March 31, 1998          5.03%                -              200
              April 28, 1998          4.98%                -              200
              January 8, 1999         5.57%            5,000           10,000
              February 25, 1999       5.30%              500            1,000
              April 28, 1999          5.23%              167              333
              July 27, 1999           5.82%            1,000            1,000
              July 27, 2000           6.02%            1,000            1,000
              January 29, 2001        5.69%            2,000            2,000
              June 8, 2004            5.55%           25,000                -
              July 5, 2004            6.49%            6,000            7,000
              May 19, 2008            5.09%           16,000                -
              June 19, 2008           4.97%            4,000                -
                                              --------------    -------------
                                              $       60,667    $      27,233
                                              ==============    =============

       At  September  30,  1998,  all stock in the FHLB,  and a blanket  lien on
       certain first  mortgage  loans secured by one to four unit  single-family
       dwellings were pledged as collateral to secure these advances.

(12)   Income Taxes

       Income tax expense consists of the following:

                                        Years ended September 30,
                          ------------------------------------------------
                                   1998              1997             1996
                                   ----              ----             ----
       Current:                                (In thousands)
          Federal         $       3,014    $        1,629    $       1,725
          State                     277                42               76
                          -------------    --------------    -------------
                                  3,291             1,671            1,801
                          -------------    --------------    -------------
       Deferred:

          Federal                  (818)              211             (516)
          State                    (119)               27              (90)
                          -------------    --------------    -------------
                                   (937)              238             (606)
                          -------------    --------------    -------------
                          $       2,354    $        1,909    $       1,195
                          =============    ==============    =============

                                                                     (Continued)

                                       33
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       The income tax expense of First  Palmetto  for the years ended  September
       30,  1998,  1997,  and 1996 was  different  from the amount  computed  by
       applying  the  federal  income  tax rate to income  before  income  taxes
       because of the following:

                                                     Years ended September 30,
                                              ----------------------------------
                                                   1998        1997        1996
                                                   ----        ----        ----
                                                      (Dollars in thousands)

  Income tax expense at federal rate          $    2,220   $    1,781  $   1,091
  Increase in income taxes resulting from:
     Other, net                                      134          128        104
                                              ----------   ----------  ---------
                                              $    2,354   $    1,909  $   1,195
                                              ==========   ==========  =========
  Effective tax rate                               36.0%       36.4%       37.3%
                                              ==========   =========   =========

       The tax effects of temporary  differences  that give rise to  significant
       portions of deferred tax assets and deferred tax liabilities at September
       30, 1998 and 1997 are presented below:

                                                               September 30,
                                                        -----------------------
                                                           1998           1997
                                                           ----           ----
       Deferred tax assets:                                   (In thousands)

          Provision for loan losses                     $   1,720    $   1,116
          Net fees deferred for financial reporting             -           94
          Accrued vacation pay                                 25           26
          Tax over book basis in intangible asset             373            -
          Depreciation                                         20            -
          Other                                                27           21
                                                        ---------    ---------
              Total gross deferred tax assets               2,165        1,257
                                                        ---------    ---------
       Deferred tax liabilities:
          Tax bad debts in excess of base year                447          447
          FHLB stock basis over tax basis                     315          315
          Depreciation                                          -           29
          Unrealized gains on securities                        -          179
                                                        ---------    ---------
              Total gross deferred tax liability              762          970
                                                        ---------    ---------
                  Net deferred tax asset                $   1,403    $     287
                                                        =========    =========

       A portion  of the  change in the net  deferred  tax asset  relates to the
       unrealized gains on securities available-for-sale. Under SFAS No. 115 the
       related  deferred  tax  benefit  of $179 has been  recorded  directly  to
       shareholders' equity. The balance of the change in the deferred tax asset
       results from the current period deferred tax benefit of $937.

       No valuation  allowance for deferred tax assets was required at September
       30, 1998 and 1997.  The  realization  of net  deferred  tax assets may be
       based on utilization of carrybacks to prior taxable periods, anticipation
       of future  taxable  income in certain  periods,  and the  utilization  of
       tax-planning strategies. Management has determined that it is more likely
       than not that the net  deferred  tax asset can be  supported  based  upon
       these criteria.

                                                                     (Continued)

                                       34
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       Prior to recent legislation  enacted by Small Business Job Protection Act
       of 1996,  the Bank was  allowed a special bad debt  deduction  related to
       additions  to tax  bad  debt  reserves  established  for the  purpose  of
       absorbing losses. The provisions of the Code permitted the Bank to deduct
       from taxable  income an allowance for bad debts based on the greater of a
       percentage  (8%) of taxable  income before such  deduction or actual loss
       experience.  For 1996,  the percentage of taxable income method was used.
       For tax years beginning after fiscal 1996, this method has been repealed.
       In 1997, First Palmetto used the "Bank" experience method or the specific
       charge-off  method.  First Palmetto is required to recapture into taxable
       income the portion of it's bad debt  reserves  that exceeds its base year
       reserves.  The amount of bad debt reserves  subject to recapture over six
       years  for the Bank is $1.2  million.  The  base  year  reserves  of $4.6
       million will not be subject to recapture unless the bad debt reserves are
       used for purposes  other than to absorb bad debt losses or the Bank fails
       to meet the tax definition of a thrift.

       Income  tax  returns  for  1993  and  subsequent  years  are  subject  to
examination by the taxing authorities.

(13)   Regulatory Capital Requirements

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

       As of September 30, 1998, the Bank was  categorized  as  well-capitalized
       under the regulatory  framework for prompt  corrective  action. To remain
       well capitalized, the Bank must maintain minimum total risk-based, Tier I
       risk-based,  and  Tier I core  ("leverage")  ratios  as set  forth in the
       table.  There are no conditions or events since that date that management
       believes have changed the Bank's category.

                                                                     (Continued)

                                       35
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                                         To be well
                                                                                                     capitalized under
                                                                      For capital adequacy           prompt corrective
                                                Actual                      purposes                 action provisions 
                                    -------------------------------------------------------------------------------------
                                     Amount           Ratio         Amount          Ratio          Amount          Ratio
                                     ------           -----         ------          -----          ------          -----

       As of September 30, 1998:
       <S>                     <C>                  <C>       <C>                   <C>      <C>

       Tier 1 capital
         (to total assets)     $     24,144          5.58%    $     17,308          4.00%    $     21,635          5.00%
       Tier I capital
         (to risk-weighted assets)   24,144          9.84            9,814          4.00           14,720          6.00
       Total capital
         (to risk-weighted assets)   27,230         11.10           19,628          8.00           24,534         10.00

       As of September 30, 1997:
       Tangible capital
         (to total assets)     $     19,066         5.15%     $      5,556         1.50%
       Core capital
         (to total assets)           19,736         5.32            11,132         3.00      $     18,553         5.00%
       Tier I capital
         (to risk-based assets)      22,434        10.39                 -            -            12,955         6.00
       Risk-based capital
         (to risk-based assets       22,434        10.39            17,266         8.00            21,583        10.00
</TABLE>

       Under the  framework,  the Bank's capital levels allow the Bank to accept
       brokered deposits without prior approval from regulators.

       OTS  capital   distributions   specify  the  conditions  relative  to  an
       institution's   ability  to  pay  dividends.   The   regulations   permit
       institutions  meeting fully phased-in  capital  requirements  and subject
       only to normal  supervision  to pay out 100 percent of net income to date
       over the calendar year and 50 percent of surplus capital  existing at the
       beginning of the calendar year without supervisory approval.

       The Bank may not declare or pay a cash  dividend on, or purchase,  any of
       its common  stock,  if the effect  thereof would cause the capital of the
       Bank to be reduced below the minimum regulatory capital requirements.

                                                                     (Continued)

                                       36
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(14)   Pension Plan

       First Palmetto has a noncontributory  defined contribution profit sharing
       plan for substantially all employees. Contributions are 8% of each active
       participant's  compensation  for  the  year  plus  5.7%  of  each  active
       participant's  compensation  for the year over $10,000.  First Palmetto's
       expense  related to the plan amounted to $340,000,  $330,000 and $300,000
       for the years ended September 30, 1998, 1997, and 1996, respectively.

(15)   Stock Option Plan

       Options  under the First  Palmetto  Financial  Corporation's  1990  Stock
       Option  Plan (the 1990 Plan) may be granted to  employees  at an exercise
       price  equal to the  fair  market  value of the  stock on the date of the
       grant  and shall be  exercisable  within  ten years  from the date of the
       grant.  In the  case of an  employee  who  owns  more  than  10% of First
       Palmetto's  outstanding  common  stock at the time the option is granted,
       the option  price may not be less than 110% of the fair  market  value of
       the shares on the date of the grant,  and shall not be exercisable  after
       the  expiration of five years from the date it is granted.  Option shares
       may be paid for in cash,  shares of common  stock,  or a  combination  of
       both. An aggregate of 66,459  additional shares of common stock have been
       reserved for issuance  under this plan. At September 30, 1998, no options
       had been granted under this plan.

(16)   Fair Value of Financial Instruments

       Fair value estimates,  methods,  and assumptions as of September 30, 1998
       and 1997 for First  Palmetto  are set forth  below and are subject to the
       following limitations.

       Fair  value  estimates  are made at a  specific  point in time,  based on
       relevant  market   information   and  information   about  the  financial
       instrument.  These  estimates do no reflect any premium or discount  that
       could result from offering for sale at one time First  Palmetto's  entire
       holdings of a particular financial  instrument.  Because no market exists
       for a portion  of First  Palmetto's  financial  instruments,  fair  value
       estimates  are  based  on  judgments   regarding   future  expected  loss
       experience,  current economic conditions, risk characteristics of various
       financial instruments,  and other factors. These estimates are subjective
       in nature and involve  uncertainties and matters of significant  judgment
       and therefore cannot be determined with precision. Changes in assumptions
       could significantly affect the estimates.

       Fair value  estimates  are based on existing  on- and  off-balance  sheet
       financial  instruments  without  attempting  to  estimate  the  value  of
       anticipated future business. The value of assets and liabilities that are
       not considered  financial  assets or  liabilities  including the mortgage
       banking operation,  deferred tax liabilities, and premises and equipment.
       In addition,  the tax  ramifications  related to the  realization  of the
       unrealized  gains and losses can have a significant  effect on fair value
       estimates and have not been considered.

                                                                     (Continued)

                                       37
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

       First Palmetto's fair value methods and assumptions are as follows:

       -  Cash and due from banks,  interest-bearing  balances  in other  banks,
          certificates of deposit in other banks,  accrued interest  receivable,
          and FHLB stock - the carrying  value is a reasonable  estimate of fair
          value.

       -  Available-for-sale    securities,     investment    securities,    and
          mortgage-backed  securities - fair value is based on available  quoted
          market  prices or quoted  market  prices for similar  securities  if a
          quoted market price is not available.

       -  Loans - fair value for fixed and  adjustable  rate loans is  estimated
          based  upon   discounted   future  cash  flows  using  discount  rates
          comparable to rates currently offered for such loans.

       -  Deposits - the fair value of time  deposits is  estimated  using rates
          currently  offered for deposits of similar remaining  maturities.  The
          fair value of all other deposit account types is the amount payable on
          demand at year-end.

       -  FHLB  advances - fair value is  estimated  based on the current  rates
          offered to First Palmetto for debt with the same remaining maturities.

       -  Commitments  to extend  credit and  standby  letters of credit - First
          Palmetto's  variable  rate credit  commitments  are subject to minimal
          interest rate risk exposure  since the rates  periodically  (generally
          one year or less) adjust to market. Fixed rate loan commitments do not
          represent  significant  interest rate risk exposure as these loans are
          typically sold.

       Based on the  limitations,  methods,  and  assumptions  noted above,  the
       estimated fair values of First  Palmetto's  financial  instruments are as
       follows:

                                                      Carrying          Fair
                                                       Amount           Value
                                                       ------           -----
 September 30, 1998:                                        (In thousands)

   Financial assets:

       Cash and due from banks                        $    6,983    $    6,983
       Interest-bearing accounts in other banks           11,892        11,892
       Certificates of deposit in other banks                100           100
       Investment securities                              37,969        38,521
       Mortgage-backed securities                         95,862        97,654
       Loans                                             263,989       265,851
       Accrued interest receivable                         3,126         3,126
       FHLB stock                                          3,333         3,333

   Financial liabilities:

       Deposits                                          343,947       345,553
       FHLB advances                                      60,667        61,688

                                                                     (Continued)

                                       38
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

 September 30, 1997:
    Financial assets:

        Cash and due from banks                         $   6,721    $   6,721
        Interest-bearing accounts in other banks           18,085       18,085
        Certificates of deposit in other banks                399          399
        Available-for-sale securities                         907          907
        Investment securities                              47,918       48,430
        Mortgage-backed securities                         32,367       32,693
        Loans                                             252,336      255,524
        Accrued interest receivable                         2,726        2,726
        FHLB stock                                          2,030        2,030

    Financial liabilities:

        Deposits                                          320,769      321,019
        FHLB advances                                      27,233       26,964

                                                                     (Continued)

                                       39
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(17)   Summary of Quarterly Income Statement Information (Unaudited)

A  summary  of  quarterly  income  statement  information  for the  years  ended
September 30, 1998 and 1997
       follows:

<TABLE>
<CAPTION>
                                                            (In thousands, except per share amounts)

                                                                          Three months ended
       1998                                           December 31       March 31         June 30         September 30
       ----                                           -----------       --------         -------         ------------
       <S>                                            <C>               <C>              <C>              <C>
       Interest income                                $       7,394     $       7,472    $        7,879    $       8,281
       Interest expense                                       4,056             4,072             4,408            4,739
                                                      -------------     -------------    --------------    -------------
           Net interest income                                3,338             3,400             3,471            3,542

       Provision for loan losses                                671               404               500              687
                                                      -------------     -------------    --------------    -------------
           Net interest income after
             provision for loan losses                        2,667             2,996             2,971            2,855

       Other income                                           1,874               749               630              651
       Other expense                                          2,366             2,094             2,186            2,215
                                                      -------------     -------------    --------------    -------------
       Income before income taxes                             2,175             1,651             1,415            1,291
       Income taxes                                             783               594               515              462
                                                      -------------     -------------    --------------    -------------
           Net income                                 $       1,392     $       1,057    $          900    $         829
                                                      =============     =============    ==============    =============
       Per common share data-basic                    $        1.97     $        1.49    $        1.27     $        1.17
                                                      =============     =============    =============     =============
       Average common shares outstanding-basic              708,010           708,010           708,010          708,010
                                                      =============     =============    ==============    =============


                                                                          Three months ended
       1997                                           December 31       March 31         June 30         September 30
       ----                                           -----------       --------         -------         ------------

       Interest income                                $       6,746     $       6,771    $        7,051    $       7,334
       Interest expense                                       3,650             3,633             3,734            4,008
                                                      -------------     -------------    --------------    -------------
           Net interest income                                3,096             3,138             3,317            3,326

       Provision for loan losses                                125               365               225              713
                                                      -------------     -------------    --------------    -------------
           Net interest income after
             provision for loan losses                        2,971             2,773             3,092            2,613

       Other income                                             736               793               527              580
       Other expense                                          2,366             2,238             2,253            1,989
                                                      -------------     -------------    --------------    -------------
       Income before income taxes                             1,341             1,328             1,366            1,204
       Income taxes                                             510               468               509              422
                                                      -------------     -------------    --------------    -------------
           Net income                                 $         831     $         860    $          857    $         782
                                                      =============     =============    ==============    =============
       Per common share data-basic                    $        1.20     $        1.24    $        1.24     $        1.12
                                                      =============     =============    =============     =============
       Average common shares outstanding-basic              693,010           693,010           693,010          693,662
                                                      =============     =============    ==============    =============
</TABLE>
       Amounts  for the  second  and  third  quarter  of  fiscal  1998 have been
       restated primarily due to the amortization of mortgage-backed  securities
       as follows:

                                                    March 31           June 30
                                                 -------------    --------------
       Previously reported net income            $         854    $          826
                                                 =============    ==============

                                                                     (Continued)

                                       40
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

(18)   Parent Company Financial Data

       The  primary  asset  of  First  Palmetto  (the  Parent  Company)  is  its
       investment in the Bank and its principal  sources of income are dividends
       from the Bank and equity in undistributed net income of the Bank. Certain
       regulatory  and other  requirements  restrict the lending of funds by the
       Bank to the Parent Company and the amount of dividends  which can be paid
       to the Parent  Company.  At September  30, 1998,  the Bank had  available
       undivided profits of approximately $6.5 million for payments of dividends
       without obtaining prior regulatory approval.

       The  following  is a summary of selected  financial  information  for the
Parent Company:

                Statements of Financial Condition

                                                          September 30,    
                                                          -------------
                                                      1998          1997
                                                      ----          ----
  Assets                                                  (In thousands)
  ------
  Cash on deposit with subsidiary                $       246    $     920
  Available-for-sale securities                            -          907
  Investment in subsidiary                            25,189       21,301
  Taxes receivable                                         9            -
                                                 -----------    ---------
      Total assets                               $    25,444    $  23,128
                                                 ===========    =========
  Liabilities
  -----------

  Taxes payable                                  $         -    $      94
  Deferred taxes                                           -          179
  Due to subsidiary                                      275            -
                                                 -----------    ---------
      Total liabilities                                  275          273
                                                 -----------    ---------
  Stockholders' equity
  --------------------
  Common stock                                             7            7
  Additional paid-in capital                           6,680        6,680
  Retained earnings, substantially restricted         19,107       16,488
  Unrealized gain on available-for-sale securities         -          305
  Treasury stock, at cost                               (625)        (625)
                                                 -----------   ----------
      Total stockholders' equity                      25,169       22,855
                                                 -----------   ----------
      Total liabilities and stockholders' equity $    25,444   $   23,128
                                                 ===========   ==========

                              Statements of Income

                                            Years ended September 30,
                                    ----------------------------------------
                                         1998         1997          1996
                                         ----         ----          ----
                                                 (In thousands)

  Dividends from subsidiary         $        -    $     900    $       1,100
  Equity in undistributed
    net income of subsidiary             3,887        2,256              889
  Other income                             485          285               35
                                    ----------    ---------    -------------
      Total income                       4,372        3,441            2,024
  Expenses                                 194          111               12
                                    ----------    ---------    -------------
      Net income                    $    4,178    $   3,330    $       2,012
                                    ==========    =========    =============

                                                                     (Continued)

                                       41
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements

                                             Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                               Years ended September 30,       
                                                                  ----------------------------------------------
                                                                        1998              1997             1996
                                                                        ----              ----             ----
Cash flows from operating activities:                                                  (In thousands)
<S>                                                               <C>               <C>               <C>
   Net income                                                     $    4,178        $    3,330        $    2,012
   Adjustments to reconcile net income to net cash
     provided  by  operating
     activities:
       Gain on sale of available-for-sale securities                    (485)             (254)                -
       Equity in undistributed net income of subsidiary               (3,887)           (2,256)             (889)
       Increase (decrease) in taxes payable/receivable                  (103)               94                 -
                                                                   ---------    --------------     -------------
   Net cash provided by operating activities                            (297)              914             1,123
                                                                   ---------    --------------     -------------
Cash flows from investing activities:
   Proceeds from sale of available-for-sale securities                  907                426                 -
                                                                  ---------     --------------     -------------
   Net cash provided by investing activities                            907                426               -0-
                                                                  ---------     --------------     -------------
Cash flows from financing activities:
   Purchase of common stock                                              -                  -               (4)
   Sale of common stock                                                  -                600                -
   Increase in due to bank                                             275                  -                -
   Dividends paid to stockholders                                   (1,559)            (1,316)          (1,108)
                                                                 ---------      -------------    -------------
   Net cash used in financing activities                            (1,284)              (716)          (1,112)
                                                                 ---------      -------------    -------------

Net increase (decrease) in cash and cash equivalents                  (674)               624               11
Cash and cash equivalents at beginning of year                         920                296              285
                                                                 ---------      -------------    -------------
Cash and cash equivalents at end of year                         $     246      $         920    $         296
                                                                 =========      =============    =============

Supplemental schedule of noncash financing activities:
       Decrease in unrealized gain on available-for-sale
         securities of subsidiary                                $       -    $          (18)   $           -

       Increase (decrease) on unrealized gain on
         available-for-sale securities of parent company              (305)               33              (37)
</TABLE>
(19)   Commitments and Contingencies

       First Palmetto is involved in various claims and legal actions arising in
       the  ordinary  course of  business.  In the  opinion of  management,  the
       ultimate  disposition  of the matters will not have a material  effect on
       First Palmetto's financial position, results of operations or liquidity.

       The average Federal Reserve balance  requirement as of September 30, 1998
was $1,076,000.

                                       42
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

The Board of Directors
First Palmetto Financial Corporation
Camden, South Carolina

We have audited the accompanying  consolidated statements of financial condition
of First Palmetto  Financial  Corporation and subsidiary  (First Palmetto) as of
September 30, 1998 and 1997, and the related consolidated  statements of income,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended September 30, 1998. These consolidated financial statements are the
responsibility of First Palmetto's management.  Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of First  Palmetto
Financial  Corporation  and  subsidiary at September 30, 1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  September  30, 1998,  in  conformity  with  generally
accepted accounting principles.

                                                      /s/ KPMG Peat Marwick, LLP

Greenville, South Carolina                                KPMG Peat Marwick, LLP

November 23, 1998

                                       43
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                    BOARD of DIRECTORS and EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
DIRECTORS                                        EXECUTIVE OFFICERS

<S>                                             <C>
H. Davis Green, Jr.                             H. Davis Green, Jr.
Chairman of the Board,                          Chairman of the Board
First Palmetto Financial Corporation
H. Davis Green, Jr. Appraisals
Camden, South Carolina

Samuel R. Small                                 Samuel R. Small
Chief Executive Officer,                        President and Chief Executive Officer
First Palmetto Financial Corporation
Camden, South Carolina

Steve G. Williams, Jr.                          Steve G. Williams, Jr.
Senior Vice President and Treasurer,            Senior Vice-President and Treasurer
First Palmetto Financial Corporation
Camden, South Carolina

Pierce W. Cantey, Jr.                           Darlene H. Love
Managing Partner,                               Secretary
Carswell, Cantey, Burch and Associates, LLP
Camden, South Carolina                          DIRECTORS EMERITUS

William R. Clyburn                              H. B. Marshall, Jr.
President, Bill Clyburn Realty, Inc.            Agent, New York Life Insurance Company
Kershaw, South Carolina                         Camden, South Carolina

Frank Goodale Austin M. Sheheen, Sr.
Merchant, F.D. Goodale, Jeweler                 Business Executive (Retired), Sheheen Texaco
Camden, South Carolina                          Camden, South Carolina

Donald H. Holland                               William F. Tripp, Jr.
Attorney                                        Plant Manager (Retired), E.I. DuPont
Camden, South Carolina                          Camden, South Carolina

Charlie E. Nash
President, Charlie E. Nash Insurance Agency, Inc.
Camden, South Carolina

Glenn G. Tucker
President, Tucker Down East Resources, Inc.
Camden, South Carolina
</TABLE>

                                       44
<PAGE>
                      FIRST PALMETTO FINANCIAL CORPORATION

                              CORPORATE INFORMATION

CORPORATE HEADQUARTERS
First Palmetto Financial Corporation
407 DeKalb Street
Camden, South Carolina  29020
Telephone (803) 432-1416

STOCK TRANSFER AGENT
First Palmetto Savings Bank, F.S.B.
407 DeKalb Street
Camden, South Carolina  29020

INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick
Suite 600

One Insignia Financial Plaza
Greenville, South Carolina  29603

LEGAL COUNSEL
DuBose and Cushman
935 Broad Street
Camden, South Carolina  29020

Savage, Royall and Sheheen
1111 Church Street
Camden, South Carolina  29020

BRANCH OFFICES
104 East Church Street, Bishopville, South Carolina 29010
2310 North Broad Street, Camden, South Carolina 29020
3932 Forest Drive, Columbia, South Carolina 29206
9221 Two Notch Road, Columbia, South Carolina 29223
266 Cashua Street, Darlington, South Carolina 29532
Highway #1, Elgin, South Carolina 29045
10540 Two Notch Road, Elgin, South Carolina 29045
7327 St. Andrews Road, Irmo, South Carolina 29063
301 Hampton Street, Kershaw, South Carolina 29067
977 North Main Street, Lancaster, South Carolina 29721
5321 Sunset Boulevard, Lexington, South Carolina 29072
Highway #1, Lugoff, South Carolina 29078
111 North Brooks Street, Manning, South Carolina 29102
10207 North Kings Highway, Myrtle Beach, South Carolina 29572
210 North Pearl Street, Pageland, South Carolina 29728

SUBSIDIARY
First Palmetto Savings Bank, F.S.B.
407 DeKalb Street
Camden, South Carolina  29020

EMPLOYEES
At September 30, 1998 First Palmetto employed 123 persons.

                                       45
<PAGE>
COMMON STOCK INFORMATION

     At September 30, 1998,  First  Palmetto had 708,010  shares of common stock
outstanding held by approximately 392 shareholders.

       At the present time,  there is no  established  public  trading market in
which shares of First  Palmetto's  common stock are  regularly  traded,  nor are
there any uniformly  quoted  prices for such shares.  The following is the known
range of high and low sales  prices for the common stock for the two most recent
years.

                                 October 1, 1997 to         October 1, 1996 to
Stock Data-Per Share             September 30, 1998          September 30,1997
--------------------             ------------------          -----------------
Sales Price (Estimated)
   High       $51.00                  $40.00
   Low        $40.00                  $33.00
Book Value at September 30            $35.55                     $32.28
Annual Cash Dividend                  $ 2.20                     $ 1.90

FORM 10-K INFORMATION

       A copy of Form 10-K,  including  financial  statements and schedules,  as
filed with the  Securities  and Exchange  Commission  will be furnished  without
charge to  stockholders as of the record date upon written request made to First
Palmetto's corporate headquarters, attention Darlene Love, Secretary.

                                       46