FORM 10-Q



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549



                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


  For the quarter ended March 31, 1998         Commission file number 0-13759
                        --------------                                -------



                          ANCHOR FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)



          South Carolina                                      57-0778015
 (State or other jurisdiction of                           (I.R.S. Employer
  incorporation or organization)                        Identification number)



  2002 Oak St., Myrtle Beach, S. C.                              29577
(Address of principal executive offices)                      (Zip Code)



Registrant's telephone number, including area code  (843) 448-1411


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

Yes  X     No


         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.


                   Class                           Outstanding at May 6, 1998
---------------------------------------------      --------------------------
       (Common stock, no par value)                          3,890,948


<PAGE>





                 ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES



                                      INDEX



                                                                    PAGE NO.

Part I - Financial Information

Item 1 - Financial Statements (Unaudited)

          Consolidated Balance Sheet - March 31, 1998
          and December 31, 1997                                         1

          Consolidated Statement of Income - Three months
          ended March 31, 1998 and 1997                                 2

          Consolidated Statement of Changes in Stockholders' Equity
          and Comprehensive Income - Three months ended
          March 31, 1998 and 1997                                       3

          Consolidated Statement of Cash Flows -
          Three months ended March 31, 1998 and 1997                    4

          Notes to Consolidated Financial Statements                    5-8

Item 2 - Management's Discussion and Analysis of
         Financial Condition and Results of Operations                  9-12

Item 3 - Quantitative and Qualitative Disclosures about Market Risk     12


Part II - Other Information

Item 1 - Legal Proceedings                                              13
Item 2 - Changes in Securities                                          13
Item 3 - Defaults Upon Senior Securities                                13
Item 4 - Submission of Matters to a Vote
           of Security-Holders                                          13-14
Item 5 - Other Information                                              14
Item 6 - Exhibits and Reports on Form 8-K                               14




<PAGE>



Anchor Financial Corporation and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                                                            March 31,              December 31,
                                                                              1998                     1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                     <C>

                                                                                                         *
                                                                           (Unaudited)                   
ASSETS
  Cash and due from banks                                              $      24,066,796       $        25,313,707
  Interest-bearing balances due from banks                                     3,493,834                   664,228
  Federal funds sold                                                          18,600,000                         0
  Investment securities:
    Held-to-maturity, at amortized cost (fair value of $8,735,944
      in 1998 and $10,474,569 in 1997)                                         8,680,913                10,428,605
    Available-for-sale, at fair value (amortized cost of $105,967,552
      in 1998 and $108,707,284 in 1997)                                      108,998,268               111,033,032
-------------------------------------------------------------------------------------------------------------------
  Total investment securities                                                117,679,181               121,461,637
-------------------------------------------------------------------------------------------------------------------

  Loans                                                                      438,080,258               415,737,360
    Less - unearned income                                                       (35,746)                  (38,120)
         - allowance for loan losses                                          (4,774,879)               (4,588,996)
-------------------------------------------------------------------------------------------------------------------
  Net loans                                                                  433,269,633               411,110,244
-------------------------------------------------------------------------------------------------------------------

  Premises and equipment                                                      17,061,994                16,875,259
  Other assets                                                                10,500,487                 9,971,550
-------------------------------------------------------------------------------------------------------------------

Total assets                                                           $     624,671,925       $       585,396,625
===================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
    Deposits:
      Demand deposits                                                  $      98,761,598       $        83,393,250
      NOW and money market accounts                                          260,205,317               237,839,188
      Time deposits $100,000 and over                                         56,436,562                69,102,035
      Other time and savings deposits                                        108,593,255               103,373,032
-------------------------------------------------------------------------------------------------------------------
    Total deposits                                                           523,996,732               493,707,505
    Federal funds purchased and securities
      sold under agreements to repurchase                                      4,818,110                11,912,314
    Other short-term borrowings                                                1,580,915                 2,187,366
    Long-term debt                                                            36,000,000                23,000,000
    Subordinated notes                                                        11,000,000                11,000,000
    Other liabilities                                                          5,781,183                 4,061,001
-------------------------------------------------------------------------------------------------------------------

  Total liabilities                                                          583,176,940               545,868,186
-------------------------------------------------------------------------------------------------------------------

  Stockholders' Equity:
    Common stock, $6.00 par value; 7,000,000 shares
      authorized; shares issued and outstanding -
      3,890,323 in 1998 and 3,876,047 in 1997                                 23,341,938                23,256,282
    Surplus                                                                    1,837,875                 1,616,607
    Retained earnings                                                         14,875,978                13,691,474
    Accumulated other comprehensive income, net of tax                         1,938,819                 1,490,701
    Unearned ESOP shares                                                        (499,625)                 (526,625)
-------------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                  41,494,985                39,528,439
-------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                             $     624,671,925       $       585,396,625
===================================================================================================================
<FN>
*  Obtained from audited financial statements.
</FN>

</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.

                                       1
<PAGE>



Anchor Financial Corporation and Subsidiaries
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>


                                                                                     Three months ended March 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                                   1998                       1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                       <C>    

INTEREST INCOME:
  Interest and fees on loans                                              $           9,830,930     $            8,265,305
  Interest on investment securities:
    Taxable                                                                           1,800,882                  1,543,330
    Non-taxable                                                                          79,391                     65,390
  Other interest income                                                                  47,070                     38,601
---------------------------------------------------------------------------------------------------------------------------
                Total interest income                                                11,758,273                  9,912,626
---------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
  Interest on deposits                                                                4,717,711                  3,924,013
  Interest on short-term borrowings                                                      96,919                     58,676
  Interest on long-term borrowings                                                      426,880                    274,784
  Interest on subordinated notes                                                        230,324                    230,324
---------------------------------------------------------------------------------------------------------------------------
                Total interest expense                                                5,471,834                  4,487,797
---------------------------------------------------------------------------------------------------------------------------

Net interest income                                                                   6,286,439                  5,424,829
Provision for loan losses                                                               210,000                    200,000
---------------------------------------------------------------------------------------------------------------------------

Net interest income after provision for loan losses                                   6,076,439                  5,224,829
---------------------------------------------------------------------------------------------------------------------------

NONINTEREST INCOME:
  Service charges on deposit accounts                                                   515,903                    480,434
  Commissions and fees                                                                  312,144                    266,588
  Trust income                                                                           78,131                     53,861
  Gains on sales of mortgage loans                                                       93,924                     76,700
  Other operating income                                                                103,292                    171,151
---------------------------------------------------------------------------------------------------------------------------
                Total noninterest income                                              1,103,394                  1,048,734
---------------------------------------------------------------------------------------------------------------------------

NONINTEREST EXPENSE:
  Salaries and employee benefits                                                      2,656,719                  2,301,851
  Net occupancy expense                                                                 348,323                    321,534
  Equipment expense                                                                     346,234                    322,076
  Other operating expense                                                             1,247,911                  1,234,534
---------------------------------------------------------------------------------------------------------------------------
                Total noninterest expense                                             4,599,187                  4,179,995
---------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                                            2,580,646                  2,093,568
Provision for income taxes                                                              938,000                    758,909
---------------------------------------------------------------------------------------------------------------------------

Net income                                                                $           1,642,646     $            1,334,659
===========================================================================================================================

Net income per share - basic                                              $                0.43     $                 0.35
===========================================================================================================================

Net income per share - diluted                                            $                0.40     $                 0.33
===========================================================================================================================

Weighted average common shares outstanding - basic                                    3,830,637                  3,776,135
===========================================================================================================================

Weighted average common shares outstanding - diluted                                  4,076,268                  4,027,302
===========================================================================================================================
</TABLE>

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

                                       2

<PAGE>



Anchor Financial Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Income
Three Months ended March 31, 1998 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Accumulated
                                                                                                other      Unearned        Total
                                                Common Stock                      Retained  comprehensive    ESOP      stockholders'
                                        -----------------------------
                                          Shares         Amount       Surplus     earnings   income(loss)   shares        equity
                                        --------------------------------------------------------------------------------------------

<S>                                      <C>          <C>            <C>         <C>         <C>          <C>           <C>        
Balance at December 31, 1996             3,839,010    $23,034,060    $1,070,326  $ 9,006,968 $  497,301   ($633,250)    $32,975,405

Comprehensive Income
  Net income                                                                       1,334,659                              1,334,659
  Other comprehensive income, 
    net of tax                   
    Unrealized losses on investment  
     securities                                                                                (442,390)                   (442,390)
                                                                                                                        ------------
Comprehensive Income                                                                                                        892,269
                                                                                                                        ------------
Change in unearned                                                       30,197        6,377                 27,000          63,574
ESOP shares
Cash dividends ($0.09 per share)                                                    (358,307)                              (358,307)
                                        --------------------------------------------------------------------------------------------
Balance at March 31, 1997                3,839,010    $23,034,060    $1,100,523  $ 9,989,697 $   54,911   ($606,250)    $33,572,941
                                        ============================================================================================


Balance at December 31, 1997             3,876,047    $23,256,282    $1,616,607  $13,691,474 $1,490,701   ($526,625)    $39,528,439
Comprehensive Income
  Net income                                                                       1,642,646                              1,642,646
  Other comprehensive income, 
    net of tax                                   
    Unrealized gains on investment 
     securities                                
                                                                                                448,118                     448,118
                                                                                                                        ------------
Comprehensive Income                                                                                                      2,090,764
                                                                                                                        ------------
Common stock issued pursuant to:
  Dividend Reinvestment Plan                 4,313         25,878       134,464                                             160,342
  Stock Option Plan                          9,963         59,778         2,133                                              61,911
Change in unearned ESOP shares                                           84,671        6,982                 27,000         118,653
Cash dividends ($0.12 per share)                                                    (465,124)                              (465,124)
                                        --------------------------------------------------------------------------------------------
Balance at March 31, 1998                3,890,323    $23,341,938    $1,837,875  $14,875,978 $1,938,819   ($499,625)    $41,494,985
                                        ============================================================================================
















</TABLE>


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


                                       3

<PAGE>



Anchor Financial Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
                                                                                      Three Months ended March 31,
                                                                                      1998                   1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                    <C>  

Cash flows from operating activities:
  Net income                                                                  $         1,642,646    $         1,334,659
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Accretion and amortization of investment securities                                   (84,203)               (28,783)
    Depreciation of premises and equipment                                                334,770                305,122
    Amortization of intangible assets                                                     109,981                100,891
    Provision for loan losses                                                             210,000                200,000
    Gains on sales of mortgage loans                                                      (93,924)               (76,700)
    Gains on sales of premises and equipment                                                  192                (13,873)
    Change in interest receivable                                                        (368,447)              (673,481)
    Change in prepaid expenses                                                           (268,370)                25,801
    Change in income taxes payable                                                      1,236,411                771,739
    Change in deferred taxes                                                              (41,740)              (253,765)
    Change in interest payable                                                            522,052                524,953
    Change in accrued expenses                                                            (38,281)            (1,038,902)
    Origination of mortgage loans held for sale                                        (6,234,825)            (2,305,094)
    Proceeds from sales of mortgage loans held for sale                                 5,399,839              3,248,144
    Net change in unearned ESOP shares                                                    118,653                 63,573
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                               2,444,754              2,184,284
-------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Proceeds from maturities of investment securities held-to maturity                    1,748,871              3,526,948
  Purchase of investment securities available-for-sale                                 (8,379,295)           (17,365,250)
  Proceeds from sales of investment securities available-for-sale                       1,563,100                984,600
  Proceeds from maturities of investment securities available-for-sale                  9,638,950              5,384,724
  Net change in loans                                                                 (21,440,479)           (21,496,213)
  Capital expenditures                                                                   (521,947)              (349,029)
  Proceeds from the sale of premises and equipment                                            250                 15,200
  Other, net                                                                             (217,211)             1,358,508
-------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                                (17,607,761)           (27,940,512)
-------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Net change in deposits                                                               30,289,227             29,133,969
  Net change in federal funds purchased and securities sold under agreements          
     to repurchase                                                                     (7,094,204)            (4,441,765)
  Net change in other short-term borrowings                                              (606,450)               381,069
  Proceeds from issuance of long-term debt                                             13,000,000                      0
  Proceeds from issuance of stock in accordance with:
    Stock Option Plan                                                                      61,911                      0
    Dividend Reinvestment Plan                                                            160,342                      0
  Cash dividends paid                                                                    (465,124)              (358,307)
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                              35,345,702             24,714,966
-------------------------------------------------------------------------------------------------------------------------

Net change in cash and cash equivalents                                                20,182,695             (1,041,262)
Cash and cash equivalents at January 1                                                 25,977,935             25,663,652
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31                                         $        46,160,630    $        24,622,390
=========================================================================================================================
</TABLE>

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

                                       4
<PAGE>


                                                        
                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


  NOTE 1:       BASIS OF PRESENTATION

                The   accompanying   consolidated   financial   statements   are
                unaudited;  however,  such information  reflects all adjustments
                (consisting  solely of normal recurring  adjustments) which are,
                in the opinion of management,  necessary for a fair statement of
                the financial position and operating results of Anchor Financial
                Corporation  (the  "Corporation")  and its  subsidiaries for the
                periods  presented.  A summary of the Corporation's  significant
                accounting  policies is set forth in Note 1 to the  Consolidated
                Financial  Statements in the Corporation's Annual Report on Form
                10-K for 1997.

                The results of operations for the three-month period ended March
                31,  1998 are not  necessarily  indicative  of the results to be
                expected for the full year.


NOTE 2:         PENDING ACQUISITIONS

                On May 1, 1998, the  Corporation  and M&M Financial  Corporation
                ("M&M  Financial"),  parent  company of First National South and
                headquartered in Marion,  South Carolina,  announced the signing
                of a letter of intent to merge.  Based on Anchor's closing stock
                price of $40.50  on April 28,  1998,  the  proposed  transaction
                would  have a value of $35.5  million.  The  proposed  merger is
                expected  to be  accounted  for as a pooling  of  interests  and
                provides for a tax-free exchange of 0.87 shares of Anchor common
                stock for each outstanding  share of M&M Financial common stock.
                The proposed transaction is subject to due diligence,  execution
                of a definitive  agreement by May 15, 1998, and approval of such
                agreement by the boards of directors  and  shareholders  of both
                companies and approval by appropriate  regulatory agencies.  The
                proposed merger is expected to be completed in the third quarter
                of 1998.  M&M  Financial  had total assets of  $167,878,860  and
                $156,270,694   at  March  31,  1998  and   December   31,  1997,
                respectively.  M&M  Financial  reported net income for the first
                quarter of 1998 of $294,294, compared with $362,830 for the same
                period in 1997.

                On April 14,  1998,  the  Corporation  entered into a definitive
                agreement to acquire ComSouth  Bankshares,  Inc. with operations
                in Charleston and Columbia,  South Carolina ("ComSouth").  Based
                on Anchor's  closing stock price of $41.00 on April 9, 1998, the
                proposed  transaction  is  valued  at  $71.3  million.  ComSouth
                shareholders  will receive .75 shares of Anchor common stock for
                each share of ComSouth common stock held. The acquisition, which
                is to be accounted for as a pooling of interests,  is subject to
                approval  of  shareholders  of  both  companies  and  regulatory
                approvals.  The  transaction  is expected to be completed in the
                third quarter of 1998. ComSouth had total assets of $217,375,427
                and $205,571,538 at March 31, 1998 and  December 31,  1997, 
                respectively.  ComSouth reported net income for the first 
                quarter of 1998 of $675,372, compared with $520,160 for the
                same period in 1997.

                                       5
<PAGE>


                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 3:         RESERVE FOR LOAN LOSSES

                Activity in the  reserve  for loan  losses for the three  months
                ended March 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>

                                                                              1998              1997
                                                                       -------------------------------------
                 <S>                                                           <C>               <C>       
                 Balance, beginning of year                                    $4,588,996        $3,801,201
                 Provision charged to operations                                  210,000           200,000
                 Recoveries of charged off loans                                   11,067            61,781
                 Loans charged off                                                (35,184)          (26,449)
                                                                       -------------------------------------
                 Balance, end of period                                        $4,774,879        $4,036,533
                                                                       =====================================
</TABLE>


NOTE 4:        NONPERFORMING ASSETS

               The following is a summary of  nonperforming  assets at March 31,
               1998 and  December  31,  1997.  The  income  effect  of  interest
               foregone on these assets is not material. The Corporation did not
               have any loans with reduced  interest  rates  because of troubled
               debt restructuring,  foreign loans, or loans for highly leveraged
               transactions.  Management  is not aware of any  situation,  other
               than those included in the summary below, where known information
               about a borrower would require  disclosure as a potential problem
               loan.
<TABLE>
<CAPTION>

                                                                         3/31/98         12/31/97
                                                                      ------------------------------
                <S>                                                    <C>               <C>     
                Nonaccrual loans                                       $269,308          $228,674
                Loans past due ninety days or more                        1,229                 0
                Other real estate owned                                 187,100           187,000
                                                                      ==============================
                Total nonperforming assets                             $457,637          $415,674
                                                                     ===============================
</TABLE>

               Impaired  loans  are  loans  for  which it is  probable  that all
               amounts,  including principal and interest, will not be collected
               in accordance with the  contractual  terms of the loan agreement.
               At  March  31,  1998,  impaired  loans  had  a  related  specific
               allowance  for  loan  losses  totaling  $27,000.  There  were  no
               material  commitments to lend additional funds to customers whose
               loans were classified as impaired at March 31, 1998.


                                       6

<PAGE>



                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 5:        LONG-TERM DEBT AND SUBORDINATED NOTES

               Long-term debt and subordinated notes are summarized as follows:
<TABLE>
<CAPTION>


                                                                                         3/31/98          12/31/97
                                                                                    -----------------------------------
                <S>                                                                       <C>              <C>    
                Parent Company:
                  8.60% subordinated notes due in 2003 (a)                                $ 5,000,000      $ 5,000,000
                  7.89% subordinated notes due in 2006 (a)                                  6,000,000        6,000,000
                                                                                    -----------------------------------
                     Total                                                                $11,000,000      $11,000,000
                                                                                    -----------------------------------

                Subsidiaries:
                  5.71% Federal Home Loan Bank advance due in 1998                          5,000,000        5,000,000
                  5.48% Federal Home Loan Bank advance due in 1999                          3,000,000        3,000,000
                  6.08% Federal Home Loan Bank advance due in 2000                          5,000,000        5,000,000
                  5.66% Federal Home Loan Bank advance due in 2002                          5,000,000        5,000,000
                  7.21% Federal Home Loan Bank advance due in 2005                          5,000,000        5,000,000
                  4.59% Federal Home Loan Bank advance due in 2008                          8,000,000                0
                  5.51% Federal Home Loan Bank advance due in 2008                          5,000,000                0
                                                                                    -----------------------------------
                     Total                                                                 36,000,000       23,000,000
                                                                                    -----------------------------------
                Total long-term debt and subordinated notes                               $47,000,000      $34,000,000
                                                                                    ===================================
               <FN>            
               (a)   Debt qualifies for inclusion in the  determination of total
                     capital under the Risk- Based Capital Guidelines.
               </FN>

</TABLE>

               The principal  maturity of long-term debt and subordinated  notes
               for  the  next  five  years  subsequent  to  March  31,  1998  is
               $5,000,000  in  1998,  $3,000,000  in 1999,  $5,000,000  in 2000,
               $5,000,000 in 2002,  $5,000,000 in 2003,  and  $24,000,000  there
               after.


NOTE 6:        PER SHARE DATA

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

                                       7

<PAGE>


                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


               In accordance  with SFAS No. 128, the  calculation  of net income
               per share - basic and net  income per share - diluted at March 31
               is presented below:

<TABLE>
<CAPTION>
                                                                                        1998                1997
              
                                                                              ---------------------------------------
                <S>                                                                    <C>                <C>   
                Net income per share - basic computation
                     Net income                                                        $1,642,646         $1,334,659
                     Income available to common shareholders                           $1,642,646         $1,334,659
                                                                              =======================================
                     Average common shares outstanding                                  3,881,972          3,839,010
                     Unallocated ESOP Shares                                              (51,335)           (62,876)
                                                                              ---------------------------------------
                     Average common shares outstanding - basic                          3,830,637          3,776,135
                                                                              ---------------------------------------
                     Net income per share - basic                                           $0.43              $0.35
                                                                              =======================================

                Net income per share - diluted computation
                     Income available to common shareholders                           $1,642,646         $1,334,659
                                                                              =======================================
                     Average common shares outstanding - basic                          3,830,637          3,776,135
                     Incremental shares from assumed conversions:
                       Stock Options                                                      245,631            251,168
                                                                              ---------------------------------------
                     Average common shares outstanding - diluted                        4,076,268          4,027,302
                                                                              ---------------------------------------
                     Net income per share - diluted                                         $0.40              $0.33
                                                                              =======================================
</TABLE>


NOTE 7:  OTHER MATTERS

               At March 31, 1998,  outstanding standby letters of credit totaled
               $2,514,362.

               For  the  three  months  ended  March  31,  1998  and  1997,  the
               Corporation   paid   interest  of   $4,949,782   and   $3,962,844
               respectively.  The  Corporation  paid no income  taxes during the
               three  months  ended March 31,  1998 and $37,500  during the same
               period in 1997.

                                       8
<PAGE>


ITEM 2.   Management's Discussion and Analysis


         Certain  of  the  information  included  in  this  discussion  contains
forward-looking  statements with respect to the financial condition,  results of
operations and business of the  Corporation,  based on  management's  belief and
information currently available to management.  Such forward-looking  statements
are subject to risks,  uncertainties  and  assumptions.  Actual results may vary
materially from those anticipated,  estimated, projected, or expected. Among the
factors  that may cause  variations  from such  forward-looking  statements  are
fluctuations  in the economy,  especially  in the  Corporation's  market  areas;
changes in the interest rate environment;  the Corporation's  ability to realize
anticipated cost savings  relating to pending  acquisitions;  the  Corporation's
success  in  assimilating  acquired  operations  in the  Corporation's  culture,
including  its  ability  to  instill   Anchor's  credit  culture  into  acquired
operation;  the  continued  growth  of the  markets  in  which  the  Corporation
operates; and the enactment of legislation impacting the Corporation.


Net Income

         Net income for the first quarter of 1998 was $1,642,646, an increase of
$307,987 or 23.1% from the  $1,334,659  for the same period in 1997.  Net income
per share - diluted for the first quarter  increased 21.6% from $0.33 in 1997 to
$0.40 in 1998.

         The  primary  factors  affecting  this  increase  were an  increase  of
$861,610  in net  interest  income  and an  increase  in  noninterest  income of
$54,660.   These  positive   factors  were  partially  offset  by  increases  in
noninterest expense of $419,192, the provision for income taxes of $179,091, and
the provision for loan losses of $10,000.

         Annualized return on average total assets for the first quarter of 1998
was  1.13%   compared  with  1.08%  in  1997.   Annualized   return  on  average
stockholders'  equity for the first  quarter of 1998 was  16.94%  compared  with
16.08% in 1997.

         The  Corporation  will incur charges  arising from merger  transactions
(Note 2 to the unaudited interim  consolidated  financial  statements),  and the
Corporation will incur costs related to the integration of the acquired entities
into the Corporation.  Anticipated  charges would normally  include,  but not be
limited to, legal and accounting fees, financial advisory fees, early retirement
and involuntary  separation benefits,  cancellation of vendor contracts,  system
conversions and other software costs, training, and other similar costs.


Net Interest Income

         Net  interest  income,  the major  component of the  Corporation's  net
income, was $6,286,439 for the first quarter of 1998, an increase of $861,610 or
15.9% from the  $5,424,829  reported for the same period in 1997.  This increase
was attributed to the increased volume of earning assets during the period since
the tax equivalent  net yield on earning assets  decreased from 4.80% in 1997 to
4.69% in 1998.  The increased  volume of earning assets was primarily the result
of quality loan demand and strong deposit growth during the period.


                                       9

<PAGE>


         Interest  income  increased  $1,845,647  or 18.6% for the three  months
ended March 31, 1998 compared with the same period in 1997. The increase was due
to an increase in the volume of earning assets since the yield on earning assets
remained the same.  The yield on earning  assets was 8.76% for the first quarter
of 1997 and 1998.  Average  loans  increased  $72.5 million or 20.5% and average
investment  securities increased $11.8 million or 11.4% for the first quarter of
1998  compared with the same period in 1997.  Average  interest  earning  assets
represented  92.5% of average  total  assets  during  the first  quarter of 1998
compared with 91.6% in 1997. The composition of average  interest-earning assets
changed slightly as the percentage of average loans to average  interest-earning
assets increased from 76.9% in 1997 to 78.2% in 1998.

         Interest expense increased $984,037 or 21.9% for the three months ended
March 31, 1998 compared  with the same period in 1997.  The increase in interest
expense  was  due to an  increase  in the  volume  of  average  interest-bearing
liabilities  and the rate paid on average  interest-bearing  liabilities,  which
increased  from 4.66% for the three months ended March 31, 1997 to 4.83% for the
same  period  in 1998.  Average  interest-bearing  liabilities  increased  $68.8
million or 17.6% for the first  quarter of 1998 compared with the same period in
1997. Average interest-bearing  liabilities represented 84.3% of funding sources
during the first quarter of 1998 compared with 84.9% in 1997.


Provision for Loan Losses

         A $210,000  provision for loan losses was made during the first quarter
of 1998  compared  with a provision of $200,000 in 1997.  The provision for loan
losses  increased  during the first quarter of 1998 primarily due to loan growth
resulting from quality loan demand and expansion into new market areas.

         Nonperforming assets at March 31, 1998 totaled $457,637,  compared with
$127,339  reported  at the same time last year.  Although  nonperforming  assets
rose,  the  increase  and  balance  remain  nominal  relative to the size of the
Corporation  and its  portfolio.  The  Corporation's  nonperforming  assets have
historically remained relatively low as the result of conservative  underwriting
policies and favorable market conditions.  The ratio of nonperforming  assets to
total  loans and other real estate  owned was 0.10% at March 31,  1998  compared
with 0.03% at March 31, 1997. At March 31, 1998 and 1997 the ratio of annualized
net   charge-offs   (recoveries)   to  average   loans  was  0.02%  and  (0.04)%
respectively.

         The reserve for loan  losses at March 31,  1998 and  December  31, 1997
represented 1.09% and 1.10%  respectively of total loans  outstanding.  Based on
the current evaluation of the loan portfolio, management believes the reserve at
March 31, 1998 is adequate to cover potential losses in the portfolio.


Noninterest Income

         Noninterest  income for the first quarter of 1998 increased  $54,660 or
5.2% from the same  period in 1997.  The  primary  factors  attributing  to this
increase were  increases in  commissions  and fees of $45,556 or 17.1%,  service
charges on deposit  accounts  of  $35,469  or 7.4%,  trust  income of $24,270 or
45.1%,  and  mortgage  banking  income of $17,224  or 22.5%.  These positive 
changes were offset by a 39.7% decrease in other operating income.


                                       10

<PAGE>


         The growth in  commissions  and fees resulted  primarily from increased
revenue generated by credit card-related  services and safe deposit box rentals.
Trust revenue rose largely due to increased  sales  efforts  primarily in Hilton
Head Island,  South  Carolina  and  favorable  market  conditions  overall.  The
increase in mortgage  banking  income  resulted  from  increased  volume of loan
originations   due  to  the  favorable   interest  rate   environment   and  the
Corporation's  expansion of its mortgage  origination  program.  The decrease in
other  operating  income  was  primarily  due  to  non-recurring  recoveries  of
previously charged-off assets during the first quarter of 1997.


Noninterest Expense

         Noninterest expense for the first quarter of 1997 increased $419,192 or
10.0% from the same period in 1997.  The primary  factors  contributing  to this
increase were increases in salaries and employee benefits,  and slight increases
in net occupancy expense,  equipment expense, and other operating expense due to
the Corporation's continued strong growth.

         Salaries and employee  benefits for the first quarter of 1998 increased
$354,868  or  15.4%  from  the  same  period  in  1997,  primarily  due  to  the
Corporation's  investment in new  personnel.  The staffing cost  increases  were
largely due to the opening of a new branch office in Charleston,  South Carolina
during the second quarter of 1997, and expansion of  sales-related  positions in
growing market areas.

         Net occupancy  expense for the first quarter of 1998 increased  $26,789
or  8.3%  from  the  same  period  in  1997,  largely  due  to  higher  building
depreciation. The Corporation purchased a new operations center in Conway, South
Carolina  during the third quarter of 1997.  Equipment  expense  increased 7.5%,
primarily  due  to  higher   maintenance   costs  and  furniture  and  equipment
depreciation.


Income Taxes

         The provision for income taxes for the first quarter of 1998  increased
$179,091 or 23.6% from the same period in 1997.  The  provision for income taxes
increased in 1998  primarily  due to higher  income before taxes since tax rates
remained approximately the same as 1997.


Financial Position

         For the first  quarter of 1998,  average  total assets  increased  9.1%
while average loans  increased  11.3% and average  deposits  increased 6.7% from
December 31, 1997.

         Because  the  economy  of the  Corporation's  primary  market  area  is
seasonal in nature,  deposit  growth is strong during the summer months and loan
demand usually  reaches its peak during the winter months.  This  seasonality is
caused by the  economic  impact of a large number of tourists  visiting  coastal
South  Carolina  and  North  Carolina  during  the  summer  months.   Thus,  the
Corporation  historically  has a more favorable  liquidity  position  during the
summer.  To meet loan demand and liquidity  needs during the winter months,  the
Corporation  typically  invests sizable amounts of its deposit growth during the
summer months in temporary investments and short-term securities maturing in the
winter months. Additionally, the Corporation has access to other funding sources
including  federal funds  purchased from  correspondent  banks, a line of credit
with the  Federal  Home  Loan Bank  ("FHLB"),  as well as a  

                                       11
<PAGE>

seasonal  borrowing privilege from the Federal  Reserve Bank to meet its 
liquidity  needs during the winter months.

         The Corporation  utilizes  long-term  advances from the FHLB as part of
its funding strategy.  FHLB long-term advances totaled  $36,000,000 at March 31,
1998 compared with $23,000,000 at December 31, 1997.

         The Corporation continues to have a strong capital position by industry
standards with the ratio of average stockholders' equity to average total assets
at March 31, 1998 being 6.7%  compared  with 6.6% at December 31, 1997. At March
31, 1998,  the total  risk-based  capital ratio was 12.3% compared with 12.4% at
December 31, 1997.  The leverage  ratio at March 31, 1998 was 6.7% compared with
6.6% at December 31, 1997.


Accounting and Regulatory Matters

         On January 1, 1998,  the  Corporation  adopted  Statement  of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income." This statement
establishes  standards for reporting the components of comprehensive  income and
requires  that all items that are  required to be  recognized  under  accounting
standards  as  components  of  comprehensive  income be  included in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  Comprehensive  income  includes net income as well as certain items
that are reported directly within a separate  component of stockholders'  equity
and  bypass net  income.  The  adoption  of SFAS No. 130 did not have a material
impact on the Corporation's financial condition or results of operations. All of
the Corporation's other comprehensive  income relates to net unrealized gains on
investment securities available for sale.



ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk


         There have been no  material  changes  in market  risk  exposures  that
affect the quantitative or qualitative disclosures presented as of the preceding
fiscal year end in the Corporation's Annual Report on Form 10-K.




                                       12
<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         There are no material legal proceedings.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         On April 30,  1998,  the  Corporation  held its 1998 Annual  Meeting of
         Shareholders.  At the 1998 Annual Meeting, the following  individuals 
         were elected as Directors with the votes indicated.
<TABLE>
<CAPTION>

         Director                                          For                      Withheld
         --------------------------------------      -----------------             ----------
         <S>                                               <C>                      <C>    
         James E. Burroughs                                2,699,979                109,604
         Stephen L. Chryst                                 2,780,813                 28,770
         J. Bryan Floyd                                    2,780,913                 28,670
         Ruppert L. Piver                                  2,746,131                 63,452
         Albert A. Springs, III                            2,780,857                 28,726

</TABLE>

         C. Jason Ammons, Jr., Howell V. Bellamy, Jr., W. Cecil Brandon, Jr., C.
         Donald Cameron, Admah Lanier, Jr., Tommy E. Looper, W. Gairy Nichols, 
         III, Thomas J. Rogers, J. Roddy Swaim, Harry A. Thomas, and Zeb M. 
         Thomas, Sr. continued in their terms of office as directors of the 
         Corporation.

         The following is a brief description of other matters voted upon at the
         1998 Annual Meeting and the number of votes cast for and withheld, as 
         well as, the number of abstentions.

         Proposal  to  consider and  vote upon amendments to the  Corporation's
         Articles of Incorporation:

         (i)  to increase the authorized shares of common stock to 10,000,000 
              shares:

              For - 2,754,967        Withheld - 25,283          Abstain - 29,333

         (ii) to change the par value of the common stock to no par:

              For - 2,696,960        Withheld - 48,529          Abstain - 64,094


                                       13

<PAGE>


         Proposal to ratify the selection of Price Waterhouse LLP as independent
         public accountants for the Corporation for the year ending December 31,
         1998.
               For - 2,798,940       Withheld - 1,342           Abstain - 9,301

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a) 27     Financial Data Schedule (for SEC purposes only)

      (b) No reports on Form 8-K have been filed during the quarter  ended March
          31, 1998.

          A report on Form 8-K dated May 1, 1998 was filed  with the  Securities
          and  Exchange  Commission  on May 5,  1998.  On  May  1,  1998  Anchor
          Financial   Corporation   (the   "Corporation")   and  M&M   Financial
          Corporation ("M&M Financial"),  parent company of First National South
          and headquartered in Marion, South Carolina,  announced the signing of
          a letter of intent to merge.  The  proposed  merger is  expected to be
          accounted  for as a pooling of  interests  and provides for a tax-free
          exchange of 0.87 shares of Anchor Financial  Corporation  common stock
          for each outstanding share of M&M Financial common stock. The proposed
          merger  is  subject  to  due  diligence,  execution  of  a  definitive
          agreement  by May 15,  1998,  and  approval of such  agreement  by the
          boards of directors and shareholders of both companies and approval by
          appropriate regulatory agencies. The proposed merger is expected to be
          completed in the third quarter of 1998.

          A  report  on Form  8-K  dated  April  14,  1998  was  filed  with the
          Securities  and Exchange  Commission  on April 17, 1998.  On April 14,
          1998, Anchor Financial Corporation (the "Corporation")  announced that
          it executed a definitive  Agreement  and Plan of Merger with  ComSouth
          Bankshares,  Inc. ("ComSouth"),  Columbia, South Carolina, dated April
          14, 1998 (the "Agreement").  The Agreement was unanimously approved by
          the boards of directors of both companies. The Agreement provides that
          the  proposed  transaction  is to be  accounted  for as a  pooling  of
          interests  and is to be a tax-free  exchange  of 0.75 shares of Anchor
          Financial  Corporation  common  stock  for each  outstanding  share of
          ComSouth common stock.  The transaction is expected to be completed in
          the third quarter of 1998 subject to the approval of  shareholders  of
          both companies and appropriate regulatory agencies.


                                       14
            
<PAGE>



                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                           /s/ Stephen L. Chryst
                                           Stephen L. Chryst, President and
                                             Chief Executive Officer



                                           /s/ Tommy E. Looper
                                           Tommy E. Looper, Executive Vice
                                             President and Chief Financial
                                             Officer



                                           /s/ John J. Moran
                                           John J. Moran, Senior Vice President
                                             and Comptroller




Date:  May 6, 1998









                                       15