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 September 30, 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 November 10, 1998
 -------------------------------------         --------------------------------
    (Common stock, no par value)                           6,487,148


<PAGE>





                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES



                                      INDEX



                                                                    PAGE NO.

Part I - Financial Information

Item 1 - Financial Statements (Unaudited)

          Consolidated Balance Sheet - September 30, 1998
          and December 31, 1997                                        1

          Consolidated Statement of Income - Three months and
          Nine months ended September 30, 1998 and 1997                2

          Consolidated Statement of Changes in Stockholders' Equity
          and Comprehensive Income - Nine months ended
          September 30, 1998 and 1997                                  3

          Consolidated Statement of Cash Flows -
          Nine months ended September 30, 1998 and 1997                4

          Notes to Consolidated Financial Statements                   5-9

Item 2 - Management's Discussion and Analysis of
          Financial Condition and Results of Operations                10-17

Item 3 - Quantitative and Qualitative Disclosures about Market Risk    17


Part II - Other Information

Item 1 - Legal Proceedings                                             18
Item 2 - Changes in Securities                                         18
Item 3 - Defaults Upon Senior Securities                               18
Item 4 - Submission of Matters to a Vote of Security-Holders           18
Item 5 - Other Information                                             19
Item 6 - Exhibits and Reports on Form 8-K                              19



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


                                                                                 September 30,                December 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                                                     1998                         1997
--------------------------------------------------------------------------------------------------------------------------------
                                                                                  (Unaudited)                       *
ASSETS
  <S>                                                                     <C>                        <C>
  Cash and due from banks                                                 $            40,107,904    $               42,468,726
  Interest-bearing balances due from banks                                              2,717,662                     2,484,148
  Federal funds sold                                                                    8,960,000                     6,820,000
  Investment securities:
    Held-to-maturity, at amortized cost (fair value of $20,982,470
      in 1998 and $32,064,460 in 1997)                                                 20,747,334                    31,900,798
    Available-for-sale, at fair value (amortized cost of $204,670,556
      in 1998 and  $162,708,263 in 1997)                                              207,386,045                   163,715,485
--------------------------------------------------------------------------------------------------------------------------------
  Total investment securities                                                         228,133,379                   195,616,283
--------------------------------------------------------------------------------------------------------------------------------

  Loans                                                                               703,170,491                   665,721,738
    Less - unearned income                                                               (141,997)                     (118,632)
         - allowance for loan losses                                                   (8,244,573)                   (7,321,491)
--------------------------------------------------------------------------------------------------------------------------------
  Net loans                                                                           694,783,921                   658,281,615
--------------------------------------------------------------------------------------------------------------------------------

  Premises and equipment                                                               21,471,467                    22,541,857
  Other assets                                                                         15,737,993                    17,493,276
--------------------------------------------------------------------------------------------------------------------------------

Total assets                                                              $         1,011,912,326    $              945,705,905
================================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
    Deposits:
      Demand deposits                                                     $           160,057,787    $              143,634,657
      NOW and money market accounts                                                   358,130,041                   340,748,137
      Time deposits $100,000 and over                                                  91,197,412                   119,760,142
      Other time and savings deposits                                                 260,375,328                   202,719,297
--------------------------------------------------------------------------------------------------------------------------------
    Total deposits                                                                    869,760,568                   806,862,233
    Federal funds purchased and securities 
     sold under agreements to repurchase                                               16,547,664                    15,008,480
    Other short-term borrowings                                                         2,080,478                     7,168,079
    Long-term debt                                                                     32,500,000                    33,000,000
    Subordinated notes                                                                 11,000,000                    11,000,000
    Other liabilities                                                                   8,358,566                     6,467,057
--------------------------------------------------------------------------------------------------------------------------------
  Total liabilities                                                                   940,247,276                   879,505,849
--------------------------------------------------------------------------------------------------------------------------------

  Stockholders' Equity:
    Common stock, no par value; 50,000,000 shares
      authorized; shares issued and outstanding - 6,477,008
      in 1998 and 6,430,694 in 1997                                                    46,762,292                    45,894,798
    Retained earnings                                                                  23,550,057                    19,918,423
    Accumulated other comprehensive income, net of tax                                  1,772,701                       913,460
    Unearned ESOP shares                                                                 (420,000)                     (526,625)
--------------------------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                           71,665,050                    66,200,056
--------------------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                $         1,011,912,326    $              945,705,905
================================================================================================================================
<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 September 30,         Nine months ended September 30,
------------------------------------------------------------------------------------------------------------------------------
                                                             1998               1997               1998                1997
------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
  <S>                                              <C>                 <C>                 <C>                <C>
  Interest and fees on loans                       $       16,279,215  $      15,000,318   $    48,679,090    $     42,420,632
  Interest on investment securities:
    Taxable                                                 3,456,010          2,849,563         9,417,670           8,260,653
    Non-taxable                                               117,364            118,988           358,898             368,413
  Other interest income                                       448,747             72,733         1,235,490             344,460
-------------------------------------------------------------------------------------------------------------------------------
                Total interest income                      20,301,336         18,041,602        59,691,148          51,394,158
-------------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
  Interest on deposits                                      8,364,544          7,238,402        24,608,170          20,354,181
  Interest on short-term borrowings                           172,045            197,887           539,214             724,359
  Interest on long-term borrowings                            553,014            432,523         1,709,237           1,240,205
  Interest on subordinated notes                              234,041            234,041           696,906             696,906
-------------------------------------------------------------------------------------------------------------------------------
                Total interest expense                      9,323,644          8,102,853        27,553,527          23,015,651
-------------------------------------------------------------------------------------------------------------------------------

Net interest income                                        10,977,692          9,938,749        32,137,621          28,378,507
Provision for loan losses                                   1,409,000            469,000         2,372,000           1,192,000
-------------------------------------------------------------------------------------------------------------------------------

Net interest income after provision for loan losses         9,568,692          9,469,749        29,765,621          27,186,507
-------------------------------------------------------------------------------------------------------------------------------

NONINTEREST INCOME:
  Service charges on deposit accounts                         920,771            994,287         2,777,126           2,682,989
  Commissions and fees                                        640,712            527,163         1,541,166           1,320,652
  Trust income                                                 99,539             63,172           311,860             208,520
  Gains on sales of mortgage loans                            380,444            195,183         1,124,083             545,938
  Gains on sales of securities                                 19,852              4,013            19,852               4,013
  Other operating income                                      175,624             87,389           585,051             591,535
-------------------------------------------------------------------------------------------------------------------------------
                Total noninterest income                    2,236,942          1,871,207         6,359,138           5,353,647
-------------------------------------------------------------------------------------------------------------------------------

NONINTEREST EXPENSE:
  Salaries and employee benefits                            5,779,034          4,084,072        14,794,541          11,781,623
  Net occupancy expense                                       608,528            575,575         1,732,787           1,592,151
  Equipment expense                                           622,888            692,203         1,662,431           1,720,098
  Other operating expense                                   4,236,719          2,078,819         8,901,935           6,572,940
-------------------------------------------------------------------------------------------------------------------------------
                Total noninterest expense                  11,247,169          7,430,669        27,091,694          21,666,812
-------------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                    558,465          3,910,287         9,033,065          10,873,342
Provision for income taxes                                    683,777          1,386,791         3,705,065           3,860,470
-------------------------------------------------------------------------------------------------------------------------------

Net (loss) income                                  $         (125,312) $       2,523,496   $     5,328,000    $      7,012,872
===============================================================================================================================

Net (loss) income per share - basic                $            (0.02) $            0.40   $          0.83    $           1.11
===============================================================================================================================
Net (loss) income per share - diluted              $            (0.02) $            0.38   $          0.79    $           1.05
===============================================================================================================================

Weighted average common shares outstanding - basic          6,422,605          6,316,075         6,410,995           6,311,584
===============================================================================================================================  
Weighted average common shares outstanding - diluted        6,422,605          6,694,799         6,734,681           6,661,653
=============================================================================================================================== 

</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
Nine Months ended September 30, 1998 and September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>

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

<S>                                        <C>        <C>          <C>                  <C>         <C>             <C>        
Balance at December 31, 1996               6,379,811  $44,830,639  $12,222,045          $235,470     ($633,250)     $56,654,904
Comprehensive Income
  Net income                                                         7,012,872                                        7,012,872
  Other comprehensive income, net of tax
    Unrealized gains on investment securities                                            303,537                        303,537
                                                                                                               -----------------
Total Comprehensive Income                                                                                            7,316,409
                                                                                                               -----------------
Common stock issued pursuant to:
  Dividend Reinvestment Plan                   5,451      134,233      (10,902)                                         123,331
  Stock Option Plan                           11,361       86,081       (3,999)                                          82,082
Fractional shares paid in stock split            (21)        (123)        (782)                                            (905)
Change in unearned ESOP shares                             84,540       19,958                         (27,000)          77,498
Cash dividends ($0.28 per share)                                    (1,557,805)                                      (1,557,805)
                                          --------------------------------------------------------------------------------------
Balance at September 30, 1997              6,396,602  $45,135,370  $17,681,387          $539,007     ($660,250)     $62,695,514
                                          ======================================================================================


Balance at December 31, 1997               6,430,694  $45,894,798  $19,918,423          $913,460     ($526,625)     $66,200,056
Comprehensive Income
  Net income                                                         5,328,000                                        5,328,000
  Other comprehensive income, net of tax
    Unrealized gains on investment securities                                            859,241                        859,241
                                                                                                               -----------------
Total Comprehensive Income                                                                                            6,187,241
                                                                                                               -----------------
Common stock issued pursuant to:
  Dividend Reinvestment Plan                   7,483      295,067                                                       295,067
  Stock Option Plan                           39,258      294,705                                                       294,705
Fractional shares paid in acquistions           (427)                  (15,718)                                         (15,718)
Change in unearned ESOP shares                            277,722       20,947                        106,625           405,294
Cash dividends ($0.36 per share)                                    (1,701,595)                                      (1,701,595)
                                          --------------------------------------------------------------------------------------
Balance at September 30, 1998              6,477,008  $46,762,292  $23,550,057        $1,772,701    ($420,000)      $71,665,050
                                          ======================================================================================











</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>

-------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nine Months ended September 30,
-------------------------------------------------------------------------------------------------------------------------------
                                                                                            1998                  1997
-------------------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
  <S>                                                                                <C>                 <C>                  
  Net income                                                                         $      5,328,000    $           7,069,294
  Adjustments to reconcile net income to net cash provided by operating activities:
    Accretion and amortization of investment securities                                      (226,095)                 (51,231)
    Depreciation of premises and equipment                                                  1,557,111                1,541,053
    Amortization of intangible assets                                                         417,908                  264,293
    Provision for loan losses                                                               2,372,000                1,192,000
    Gains on sales of investment securities                                                   (19,852)                 (60,434)
    Gains on sales of mortgage loans                                                       (1,085,684)                (181,698)
    Losses (gains) on sales of premises and equipment                                           8,814                  (13,873)
    Change in interest receivable                                                             256,122                  (20,909)
    Change in interest payable                                                               (289,943)                  82,311
    Change in accrued expenses                                                              2,181,452                1,380,703
    Change in other assets                                                                  1,194,412                 (634,810)
    Origination of mortgage loans held for sale                                           (25,984,360)              (7,829,894)
    Proceeds from sales of mortgage loans held for sale                                    25,969,911                9,102,292
    Net change in unearned ESOP shares                                                        405,294                   77,499
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                  12,085,090               11,916,596
-------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Purchase of investment securities held-to-maturity                                                0               (6,963,544)
  Proceeds from maturities of investment securities held-to maturity                       11,153,464                8,153,485
  Purchase of investment securities available-for-sale                                    (95,245,666)             (43,884,870)
  Proceeds from sales of investment securities available-for-sale                           3,843,205                9,011,902
  Proceeds from maturities of investment securities available-for-sale                     47,731,901               19,393,512
  Net change in loans                                                                     (36,778,883)             (96,764,787)
  Capital expenditures                                                                     (1,024,159)              (2,530,963)
  Proceeds from the sale of premises and equipment                                            528,624                   15,200
-------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                                    (69,791,514)            (113,570,065)
-------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Net change in deposits                                                                   62,898,335              109,147,449
  Net change in federal funds purchased and securities
    sold under agreements to repurchase                                                     1,539,184               (8,957,994)
  Net change in other short-term borrowings                                                (3,898,434)               1,011,916
  Proceeds from issuance of long-term debt                                                          0               10,000,000
  Repayment of long-term debt                                                              (1,689,167)                       0
  Proceeds from issuance of stock in accordance with:
    Stock Option Plan                                                                         291,806                  123,331
    Dividend Reinvestment Plan                                                                294,705                   81,745
  Cash dividends paid                                                                      (1,701,595)              (1,557,805)
  Fractional shares paid                                                                      (15,718)                    (567)
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                  57,719,116              109,848,075
-------------------------------------------------------------------------------------------------------------------------------

Net change in cash and cash equivalents                                                        12,692                8,194,606
Cash and cash equivalents at January 1                                                     51,772,874               47,519,033
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at September 30                                            $     51,785,566    $          55,713,639
===============================================================================================================================
</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.  Amounts  for all  periods  presented  have been
                restated to reflect  the  acquisitions  of ComSouth  Bankshares,
                Inc.   ("ComSouth")   and  M&M   Financial   Corporation   ("M&M
                Financial") under the pooling of interests method of accounting.

                The results of  operations  for the three and nine month periods
                ended September 30, 1998 are not  necessarily  indicative of the
                results to be expected for the full year.


NOTE 2:         ACQUISITIONS

                On August 31,  1998,  The  Corporation  completed  mergers  with
                ComSouth  and M&M  Financial.  The  acquisition  of ComSouth was
                accounted  for as a pooling  of  interests  and  provided  for a
                tax-free exchange of 0.75 shares of Anchor common stock for each
                outstanding  share of ComSouth common stock.  The acquisition of
                M&M Financial  was also  accounted for as a pooling of interests
                and  provided  for a tax-free  exchange of 0.87 shares of Anchor
                common stock for each outstanding  share of M&M Financial common
                stock.

                As a result of the mergers,  Anchor  Financial became the parent
                company of the Bank of Charleston, NA, the Bank of Columbia, NA,
                and First  National  South.  On October  16,  1998,  the Bank of
                Charleston,  NA, and the Bank of Columbia,  NA, were merged with
                The Anchor Bank. On November 20, 1998, First National South will
                be merged into The Anchor Bank.

                Separate results of operations of M&M Financial and ComSouth for
                the periods  prior to the  consolidation  are  presented  in the
                following table:

                                       5
<PAGE>


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


<TABLE>
<CAPTION>

                                                          M&M (3)         ComSouth         Anchor        Combined
       ---------------------------------------------------------------------------------------------------------------
       Three months ended September 30, 1998
       (unaudited)
            <S>                                             <C>             <C>            <C>            <C>        
            Net interest income (1)                         $1,130,776      $1,692,323     $8,154,593     $10,977,692
            Net income (1)                                      16,356        (244,962)       103,294        (125,312)

       Three months ended September 30, 1997
       (unaudited)
            Net interest income                             $1,093,317      $1,516,500     $7,328,932      $9,938,749
            Net income                                         220,988         384,485      1,918,023       2,523,496

       Nine months ended September 30, 1998
       (unaudited)
            Net interest income (2)                         $4,624,453      $6,477,635    $21,035,533     $32,137,621
            Net income (2)                                     836,028       1,177,764      3,314,208       5,328,000

       Nine months ended September 30, 1997
       (unaudited)
            Net interest income                             $4,170,568      $5,673,059    $18,534,880     $28,378,507
            Net income                                         816,097       1,429,659      4,767,116       7,012,872
       ---------------------------------------------------------------------------------------------------------------

                <FN>
                (1)  Net  interest  income and net income for the quarter  ended
                     September 30, 1998 for M&M  Financial and ComSouth  include
                     two  months  of  earnings  due to the  consummation  of the
                     mergers on August 31, 1998.
                </FN>

                <FN>
                (2)  Net  interest  income and net  income  for the nine  months
                     ended  September  30, 1998 for M&M  Financial  and ComSouth
                     include eight months of earnings due to the consummation of
                     the mergers on August 31, 1998.
                </FN>

                <FN>
                (3)  For the  nine  months  ended  September  30,  1998 and 1997
                     eliminations   were   made  for   $212,392   and   $56,422,
                     respectively  for the gains M&M  Financial  realized on the
                     sale of Anchor common stock.
                </FN>
</TABLE>


                On  September  24,  1998,   Anchor  Financial   entered  into  a
                definitive  agreement to acquire  Bailey  Financial  Corporation
                ("Bailey  Financial"),  parent  company  of M.S.  Bailey  & Son,
                Bankers and The Saluda County Bank in Clinton,  South  Carolina.
                The  merger is  expected  to be  accounted  for as a pooling  of
                interests  and provides for a tax-free  exchange of 16.32 shares
                of Anchor Financial  common stock for each outstanding  share of
                Bailey  Financial  common stock.  The  acquisition is subject to
                approval  of  shareholders of Bailey Financial and  regulatory
                approvals.

                                       6
<PAGE>

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


                The transaction is expected to be completed in the first quarter
                of 1999. After consummation of the  merger,  The Saluda  County 
                Bank will be merged  into M.S. Bailey & Son, Bankers, which will
                operate as a subsidiary of the Corporation.


NOTE 3:         RESERVE FOR LOAN LOSSES

                Activity  in the  reserve  for loan  losses for the nine  months
                ended September 30, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
                                                                              1998              1997
                                                                       -------------------------------------
                 <S>                                                         <C>               <C>      
                 Balance, beginning of year                                  $7,321,491        $6,630,958
                 Provision charged to operations                              2,372,000         1,192,000
                 Recoveries of charged off loans                                517,135           274,568
                 Loans charged off                                           (1,966,053)         (385,560)
                                                                       -------------------------------------
                                                                                          
                 Balance, end of period                                      $8,244,573        $7,711,966
                                                                       =====================================
</TABLE>


NOTE 4:        NONPERFORMING ASSETS

               The following is a summary of  nonperforming  assets at September
               30, 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>

                                                                           9/30/98           12/31/97
                                                                      -------------------------------------
                <S>                                                           <C>               <C>     
                Nonaccrual loans                                                $817,270          $789,766
                Loans past due ninety days or more                               124,526            77,673
                Other real estate owned                                          535,196           187,000
                                                                      -------------------------------------
                Total nonperforming assets                                    $1,476,992        $1,054,439
                                                                      =====================================
</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 September  30,  1998,  impaired  loans had a related  specific
               allowance for loan losses totaling $6,000. There were no material
               commitments to lend additional funds to customers whose loans
               were classified as impaired at September 30, 1998.

                                       7
<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>

                                                                                          9/30/98           12/31/97
                                                                                   -------------------------------------
                Parent Company:
                  <S>                                                                       <C>              <C>     
                  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:
                  5.70% Federal Home Loan Bank advance due in 1998                          $         0       $5,000,000
                  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
                  6.19% Federal Home Loan Bank advance due in 2002                            4,500,000        5,000,000
                  7.21% Federal Home Loan Bank advance due in 2005                            5,000,000        5,000,000
                  5.51% Federal Home Loan Bank advance due in 2008                            5,000,000                0
                                                                                    -------------------------------------
                     Total                                                                   32,500,000       33,000,000
                                                                                    -------------------------------------
                  Total long-term debt and subordinated notes                               $43,500,000      $44,000,000
                                                                                    =====================================

               <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  September  30,  1998 is
               $5,000,000  in  1998,  $3,000,000  in 1999,  $5,000,000  in 2000,
               $9,500,000 in 2002,  $5,000,000 in 2003,  and  $16,000,000  there
               after.


NOTE 6:        EARNINGS PER SHARE DATA

               Earnings  per share - basic is computed by dividing net income by
               the weighted average number of shares  outstanding.  Earnings 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

                                       8
<PAGE>


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



               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.

               In  accordance  with SFAS No.  128,  "Earnings  Per  Share,"  the
               calculation of net income (loss) per share - basic and net income
               (loss) per share - diluted,  including the effect of nonrecurring
               charges,  for the three and nine  months  ended  September  30 is
               presented below:

<TABLE>
<CAPTION>
                                                                  Three months ended               Nine months ended
                                                                    September 30,                    September 30,
                                                             -----------------------------    ----------------------------
                                                                  1998          1997              1998          1997
                                                             -----------------------------    ----------------------------
     Net income per share - basic computation
          <S>                                                    <C>           <C>               <C>           <C>       
          Net (loss) income                                       ($125,312)   $2,523,496        $5,328,000    $7,012,872
          Income available to common shareholders                 ($125,312)   $2,523,496        $5,328,000    $7,012,872
                                                             =============================    ============================
          Average common shares outstanding                       6,473,940     6,379,322         6,462,330     6,374,831
            Unallocated ESOP Shares                                 (51,335)      (63,247)          (51,335)      (63,247)
                                                             -----------------------------    ----------------------------
          Average common shares outstanding - basic               6,422,605     6,316,075         6,410,995     6,311,584
                                                             =============================    ============================
          Net (loss) income per share - basic                        ($0.02)        $0.40             $0.83         $1.11
                                                             =============================    ============================

     Net income per share - diluted computation
          Income available to common shareholders                 ($125,312)   $2,523,496        $5,328,000    $7,012,872
                                                             =============================    ============================
          Average common shares outstanding - basic               6,422,605     6,316,075         6,410,995     6,311,584
          Incremental shares from assumed conversions:
            Stock Options                                                 0       378,724           323,686       350,069
                                                             -----------------------------    ----------------------------
          Average common shares outstanding - diluted             6,422,605     6,694,799         6,734,681     6,661,653
                                                             =============================    ============================
          Net (loss) income per share - diluted                      ($0.02)        $0.38             $0.79         $1.05
                                                             =============================    ============================
</TABLE>


NOTE 7:        OTHER MATTERS

               At September  30,  1998,  outstanding  standby  letters of credit
               totaled $7,820,418.

               For the nine  months  ended  September  30,  1998 and  1997,  the
               Corporation   paid  interest  of  $27,843,469   and   $22,945,033
               respectively.  The  Corporation  paid  $4,461,251 in income taxes
               during the nine months ended  September  30, 1998 and  $3,760,615
               during the same period in 1997.

                                       9
<PAGE>

ITEM 2.   Management's Discussion and Analysis


         Certain    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 the Corporation's  credit culture into acquired
operations;  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 third quarter of 1998 totaled  $2,797,224,  or $0.41
per diluted share, before pretax charges of $3,914,259  ($2,922,536 after taxes)
associated  with the  acquisitions  of  ComSouth  and M&M  Financial.  Excluding
these nonrecurring charges,  net income and earnings per diluted share for the
quarter ended September 30, 1998,  increased 10.9% and 9.0%  respectively,  from
the third  quarter of 1997.  Including  the effect of the nonrecurring charges,
the Corporation incurred a net loss of $125,312, or $0.02 per diluted share, for
the quarter ended September 30, 1998, compared to net income of $2,523,495, or 
$0.38 per diluted share earned in the same period of 1997.

         The primary factors  affecting the increase in net income, before 
nonrecurring charges, for the third quarter of 1998 were an increase of  
$1,038,943 in net interest  income,  and an increase in noninterest income of 
$365,735.  These positive factors were partially offset by increases in 
noninterest expense of $702,241,  the provision for income taxes of $288,706,  
and the provision for loan losses of $140,000.

         Net income for the nine months ended  September 30, 1998 was $8,507,641
or $1.33  per diluted  share, before pretax  nonrecurring charges of $4,174,964.
Excluding  these nonrecurring charges,  net income and  earnings per diluted
share for the first nine months of 1998 increased 21.3% and 19.4%, respectively,
from the same period in 1997.  Including the effect of the nonrecurring 
charges,  net income totaled $5,328,000, or $0.83 per diluted share, for the 
first nine months of 1998,  compared to $7,012,872,  or $1.05 per diluted share 
earned in the same period of 1997.

                                       10
<PAGE>


         The primary factors  affecting the increase in net income for the first
nine months of 1998 were  increases of  $3,759,114  in net  interest  income and
$1,005,491 in noninterest  income.  These positive factors were partially offset
by increases in  noninterest  expense of  $2,049,918,  the  provision for income
taxes  of  $839,918,  and  provision  for loan  losses  of  $380,000.

         For the quarter ended September 30, 1998,  return on average assets and
return on average equity, excluding nonrecurring charges, were 1.09% and
15.52%, respectively, compared to prior year ratios of 1.13% and 16.17%. For the
nine months ended  September  30, 1998,  return on average  assets and return on
average equity,  excluding nonrecurring charges,  were 1.14% and 16.09%,
respectively, compared to prior year ratios of 1.11% and 15.65%, respectively.

         During the nine  months  ended  September  30,  1998,  the  Corporation
incurred  $1,410,179,  before tax effect,  in legal,  accounting,  and financial
advisory fees arising from the mergers with ComSouth and M&M Financial (See Note
2 to the unaudited interim  consolidated  financial  statements).  Restructuring
charges,   which  include,  but  are  not  limited  to,  employment  agreements,
involuntary  separation  benefits,  system  conversions  and other  software and
equipment costs, and training totaled $2,764,785, before tax effect.


Net Interest Income

         Net  interest  income,  the major  component of the  Corporation's  net
income, was $10,977,692 for the third quarter of 1998, an increase of $1,038,943
or 10.5% from the $9,938,749 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 4.86% in 1997 to
4.62% in 1998.  The increased  volume of earning assets was primarily the result
of continued  quality loan demand and strong  deposit  growth during the period.
The  decrease in the net yield on earning  assets was  primarily  due to a lower
yield on earning assets during the period.

         Interest  income  was up  $2,259,734  or 12.5%  for the  quarter  ended
September 30, 1998  compared with the same period in 1997.  The increase was due
to growth in the volume of  earning  assets  since the yield on  earning  assets
decreased from 8.78% in 1997 to 8.50% in 1998.  Average  interest earning assets
for the third quarter of 1998  increased  $133.6 million or 16.3% from the third
quarter of 1997.  Average  loans  increased  $69.4  million or 11.1% and average
investment  securities increased $37.4 million or 19.7% for the third quarter of
1998  compared with the same period in 1997.  Average  interest  earning  assets
represented  93.3% of average  total  assets  during  the third  quarter of 1998
compared with 92.6% in 1997. The yield on earning assets  decreased  because the
yield on loans  decreased  from  9.16%  in 1997 to  9.04%  in  1998.  Also,  the
composition of earning assets was less favorable during 1998. The composition of
average  interest-earning  assets changed  slightly as the percentage of average
loans to average  interest-earning  assets decreased from 76.3% in 1997 to 72.9%
in 1998.


                                       11
<PAGE>


         Interest  expense  increased  $1,220,791 or 15.1% for the quarter ended
September  30,  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  since the rate paid on  average  interest-bearing
liabilities  decreased  slightly from 4.76% for the three months ended September
30,  1997 to  4.75%  for the  same  period  in  1998.  Average  interest-bearing
liabilities  increased  $102.3  million  or 15.1% for the third  quarter of 1998
compared  with the same  period in 1997.  Average  interest-bearing  liabilities
represented  81.7% of funding  sources during the third quarter of 1998 compared
with 82.5% in 1997.

         For the nine months  ended  September  30, 1998,  net  interest  income
increased  $3,759,114 or 13.3% from the same period in 1997.  The primary reason
for this increase was the increased  volume of earning  assets during the period
since the tax equivalent  net yield on earning  assets  decreased from 4.88% for
the  first  nine  months  of 1997 to 4.63%  for the  same  period  in 1998.  The
increased  volume of earning  assets was  primarily  the result of quality  loan
demand  during the period.  The decrease in the net yield on earning  assets was
primarily  due to a lower  yield on earning  assets  and a higher  cost of funds
during the period.

         Interest income increased $8,296,990 or 16.1% for the nine months ended
September  30,  1998  compared  with the same period in 1997.  Higher  volume of
average  interest-earning  assets,  offset by a decrease in the yield of earning
assets  accounted for this  increase.  Average  interest-earning  assets for the
first nine months of 1998  increased  $148.9  million or 19.0% compared with the
same period in 1997. Average loans increased $100.5 million or 17.0% and average
investment securities increased $25.7 million or 13.9% for the nine months ended
September   30,  1998   compared   with  the  same   period  in  1997.   Average
interest-earning  assets  represented  93.4% of average  total assets during the
nine months ended  September 30, 1998 versus 92.4% in 1997. The yield of earning
assets for the first  nine  months of the year  decreased  from 8.81% in 1997 to
8.59% in 1998.  Average loan yield for the nine months ended  September 30, 1998
declined 10 basis points,  which,  along with a less  favorable  composition  of
earning  assets  accounted  for most of the  decrease  in the  yield of  earning
assets. The composition of average  interest-earning  assets changed slightly as
the  percentage of average loans to average  interest-earning  assets  decreased
from 75.5% in 1997 to 74.2% in 1998.

         Interest  expense  increased  $4,537,876  or 19.7% for the nine  months
ended  September 30, 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 a higher rate paid on these funds  during the
period. Average  interest-bearing  liabilities increased $115.1 million or 17.7%
for the nine months ended  September  30, 1998  compared with the same period in
1997.  Growth in average  prime money market  deposits and average time deposits
accounted for most of this increase.  The rate paid on average  interest-bearing
liabilities increased from 4.72% for the nine months ended September 30, 1997 to
4.80% in 1998. Average interest-bearing liabilities represented 82.2% of funding
sources  during the nine months ended  September 30, 1998 compared with 83.2% in
1997.

                                       12
<PAGE>

Provision for Loan Losses

         A $609,000 provision for loan losses,  excluding $800,000 of additional
provision  for loan losses  necessitated  by third  quarter  charge-offs  at the
acquired  banks in a similar  amount,  was made during the third quarter of 1998
compared  with a  provision  of  $469,000  in  1997.  Excluding  the  additional
provision  for loan losses of $800,000,  the  provision  for loan losses for the
nine months ended  September 30, 1998 was $1,572,000  versus  $1,192,000 for the
same period in 1997. The increase in the provision for loan losses for the third
quarter and the nine months ended  September  30, 1998 was primarily due to loan
growth  resulting  from quality loan demand and expansion  into new market areas
and a higher level of net charge-offs.

         At September 30, 1998 and 1997 the ratio of annualized net  charge-offs
to average loans was 0.28% and 0.02%  respectively.  The Corporation charged off
approximately  $800,000 in the third quarter of 1998 as a result of factors 
affecting the acquried banks' loans portfolios.

         Nonperforming  assets at September 30, 1998 totaled $1,476,992 compared
with  $2,478,091  reported  at  the  same  time  last  year.  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 0.21% at
September  30, 1998  compared with 0.39% at September 30, 1997. 

         The reserve for loan losses at September 30, 1998 and December 31, 1997
represented 1.17% and 1.21%  respectively of total loans  outstanding.  Based on
the current evaluation of the loan portfolio, management believes the reserve at
September 30, 1998 is adequate to cover potential losses in the portfolio.


Noninterest Income

         Noninterest  income for the third  quarter of 1998 was up  $365,735  or
19.6% from the same period in 1997.  The primary  factors  contributing  to this
increase  were  increases  in  mortgage  banking  income of  $185,261  or 94.9%,
commissions and fees of $113,549 or 21.5%,  other operating income of $88,235 or
101.0%, and trust income of $36,367 or 57.6%. These positive factors were offset
by a decrease in service charges on deposit accounts of $73,516 or 7.4%,

         Noninterest  income  for the  nine  months  ended  September  30,  1998
increased  $1,005,491 or 18.8% from the same period in 1997. The primary factors
contributing  to this  increase  were  increases in mortgage  banking  income of
$578,145 or 105.9%,  commissions and fees of $220,514 or 16.7%,  trust income of
$103,340 or 50.0%,  and service charges on deposit  accounts of $94,137 or 3.5%.
These increases were offset by a slight decline in other operating income.

                                       13

<PAGE>



         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 Corporation has
taken  aggressive  steps to expand its marketing tools in the  residential  real
estate market.  Trust revenue  continues to benefit from increased sales efforts
and favorable  conditions in the Corporation's  expanding markets. The growth in
commissions  and fees resulted  primarily  from ATM terminal fees and investment
fee income.  Service  charges on deposit  account  revenues  for the nine months
ended  September  30, 1998  increased  primarily  due to growth in the number of
deposit accounts.


Noninterest Expense

         Noninterest expense, excluding pretax nonrecurring charges of 
$3,114,259,  for the third  quarter of 1998  increased  $702,241  or 9.5% from 
the same period in 1997.  The primary  factors  contributing  to this  increase
were  increases in salaries and employee benefits of $502,241 or 12.3%,  other 
operating expense of $236,362 or 11.4%, and net occupancy expense of $32,953 or
5.7%. These increases were offset by a decrease in equipment expense of $69,315 
or 15.5%.

         For the nine months  ended  September  30, 1998,  noninterest  expense,
exclusive of nonrecurring  charges,  increased  $2,049,918 or 9.5% from the same
period in 1997. The primary factors contributing to this increase were increases
in salaries and employee  benefits of $1,820,197 or 15.5%, net occupancy expense
of $140,636 or 8.8%, and a slight  increase in other  operating  expense.  These
increases were offset by a slight decrease in equipment expense.

         New personnel and salary  increases  for existing  staff  accounted for
most of the growth in salaries and employee  benefits.  The additional  staffing
cost  increases  were  largely due to expansion  of  sales-related  positions in
growing market areas.

         Net  occupancy   expense  increased  largely  due  to  higher  building
depreciation and rent expense. The Corporation purchased a new operations center
in Conway,  South  Carolina  during the third quarter of 1997.  The lease on the
branch office opened on Meeting Street in Charleston,  South Carolina  accounted
for most of the growth in rent expense.


Income Taxes

         The provision  for income taxes,  excluding the tax benefit of $991,723
associated with tax deductible nonrecurring charges, for the third quarter of 
1998 increased  $288,709 or 20.8% from the same period in 1997.  For the nine
months ended September 30, 1998,  excluding the tax benefit of $995,323 
associated with nonrecurring charges,  the provision increased $839,918 or 21.7%
from the same period in 1997.  The  provision for income taxes

                                       14
<PAGE>

increased in 1998 primarily due to higher  income before taxes since tax rates 
remained approximately the same as 1997.


Financial Position

         For the nine months  ended  September  30, 1998,  average  total assets
increased  17.8%  while  average  loans  increased  17.0% and  average  deposits
increased 18.1% from the same period in 1997.

         Because  the  economy of the  Corporation's  primary  market  areas are
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  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  $32,500,000 at September
30, 1998 compared with $33,000,000 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 September  30, 1998 and December 31, 1997 being 7.1%.  At September  30, 1998
and December 31, 1997, the total  risk-based  capital ratio was 12.0% and 11.9%,
respectively, and the leverage ratio was 6.8% and 6.9%, respectively.


Year 2000

         The  Corporation  recognizes the need to ensure its operations will not
be  adversely  impacted  by Year 2000  software  failures.  This  issue  affects
computer  systems  that  have  time-sensitive  programs  that  may not  properly
recognize the Year 2000.  Potential  software  failures due to processing errors
arising  from  calculations  using  the Year  2000  date are a known  risk.  The
Corporation  completed its Year 2000  assessment at December 31, 1997.  The
Corporation is currently in the testing phase of Year 2000 compliance and 
expects to complete the testing and implementation phases by December 31, 1998.
Internal Year 2000 issues have been addressed by the Corporation  with  
modifications  to existing programs and conversions to new programs. The 
Corporation  communicated with software vendors and other service providers 
with whom it 


                                       15
<PAGE>
conducts business to help it identify and resolve Year 2000  issues.  The  
Corporation  anticipates that all mission  critical  systems will be Year 2000 
compliant by December 31, 1998.  In the event that a system is not Year 2000  
compliant at that time,  the Corporation  will develop  contingency  plans. The 
current year costs associated with Year 2000 testing total  approximately 
$12,550.  The total cost associated with the  required modifications  and
conversions  is not  expected  to exceed $250,000.  These costs are not expected
to be  material  to the  Corporation's financial position and are being expensed
as incurred.


Accounting and Regulatory Matters

         On January 1, 1998,  the  Corporation  adopted  Statement  of Financial
Accounting  Standards  No. 130,  "Reporting  Comprehensive  Income,"  ("SFAS No.
130").  SFAS No. 130  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.

         In June 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards No. 131 "Disclosure about Segments
of an Enterprise and Related  Information," ("SFAS No. 131"), which establishes
new  standards  for business  segment  reporting.  Requirements  of SFAS No. 131
include reporting of (a) financial and descriptive  information about reportable
operating  segments,  (b) a measure of segment profit or loss,  certain specific
revenue  and  expense  items and  segment  assets  with  reconciliations  to the
Corporation's  financial  statements,  and (c)  information  regarding  revenues
derived from the  Corporation's  products and services,  information about major
customers and  information  related to geographic  areas.  The  Corporation  has
adopted SFAS No. 131 effective January 1, 1998. Provisions of SFAS No. 131 state
that segmented  information need not be applied to interim financial statements;
therefore, the Corporation's statements do not reflect segmented reporting.

         In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post-retirement Benefits," ("SFAS No. 132"), an 
amendment of SFAS Nos. 87, 88, and 106.  SFAS No. 132 revises employer's 
disclosures about pensions and other post-retirement benefit plans.  It does not
change the measurement or recognition of those plans.  The Corporation has 
adopted SFAS No. 132 effective January 1, 1998.

         On June  15,  1998,  the FASB  issued  SFAS No.  133,  "Accounting  for
Derivative  Instruments and Hedging  Activities," ("SFAS No. 133"). SFAS No. 133
is effective for all fiscal  quarters of all fiscal years  beginning  after June
15, 1999 (January 1, 2000 for the  


                                       16
<PAGE>

Corporation).  SFAS No. 133 requires that all derivative  instruments  be
recorded  on the balance sheet at their fair value.  Changes in the fair value
of  derivatives  are recorded  each period in current earnings or other 
comprehensive  income, depending on whether a derivative  is designated  as
part of a hedge transaction  and,  if it is,  the  type of hedge transaction. 
Management of the Corporation anticipates that, due to its limited use of 
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Corporation's  results of operations or its financial position.



         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.

                                       17
<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  August  25,  1998,  the   Corporation   held  a  Special   Meeting
         of Shareholders.  The following is a brief  description of matters 
         voted upon at the Special  Meeting and the number of votes cast for and
         withheld,  as well as, the number of abstentions.

         Proposal to ratify and approve the Agreement and Plan of Merger,  dated
         as of  April  14,  1998  (the  "ComSouth  Agreement"),  by  and  
         between  the Corporation and ComSouth Bankshares,  Inc.  ("ComSouth") 
         pursuant to which ComSouth  will  merge  with  and into the 
         Corporation  and each  share of ComSouth's   common  stock (except for 
         certain   shares  held  by  the Corporation) will be converted into .75
         of a share of Anchor common stock, and such  other terms and conditions
         as are set  forth in the  ComSouth Agreement.

         For - 2,872,888           Withheld - 1,883           Abstain - 11,354

         Proposal to ratify and approve the Agreement and Plan of Merger, dated
         as of May 15, 1998 (the "M&M Agreement"),  by and between the 
         Corporation and M&M Financial  Corporation  ("M&M")  pursuant to which
         M&M will merge with and into the  Corporation  and each  share of M&M's
         common  stock will be converted into .87 of a share of Anchor common 
         stock, and such other terms and conditions as are set forth in the M&M
         Agreement.

         For - 2,876,702           Withheld - 6,595           Abstain - 11,828

         Proposal to amend the Corporation's  Articles of Incorporation to 
         increase the authorized shares of common stock to 50,000,000.

         For - 3,133,175           Withheld - 19,778          Abstain - 27,622


                                       18

<PAGE>



ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   10.1  Restricted Stock Agreement with Stephen L. Chryst dated 
                     October 22, 1998

               10.2  Restricted Stock Agreement with Tommy E. Looper dated 
                     October 22, 1998

               10.3  Restricted Stock Loan Agreement with Stephen L. Chryst 
                     dated October 22, 1998

               10.4  Restricted Stock Loan Agreement with Tommy E. Looper dated 
                     October 22, 1998

               10.5  Employment Agreement with Chester A. Duke dated August 31, 
                     1998

               27    Financial Data Schedule (for SEC purposes only)

         (b)        A report on Form 8-K dated September 4, 1998 was filed with 
                    the Securities and Exchange Commission on September 10, 
                    1998. On September 4, 1998, Anchor Financial Corporation 
                    ("Anchor Financial") and Bailey Financial Corporation 
                    ("Bailey Financial"), parent company of M.S. Bailey & Son, 
                    Bankers and The Saluda County Bank in Clinton, 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 16.32 shares of Anchor Financial common stock 
                    for each outstanding share of Bailey Financial common stock.
                    Based on Anchor Financial's September 3rd closing stock 
                    price of $36.00 and Bailey Financial's approximately 95,140
                    outstanding shares of common stock, the proposed transaction
                    would have a total value of  $55.9 million.  After 
                    consummation of the proposed merger, The Saluda County Bank
                    will be merged into M.S. Bailey & Son, Bankers, which will 
                    operate as a subsidiary of Anchor Financial.





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<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:  November 10, 1998



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