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 June 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 August 6, 1998
-----------------------------------------       -----------------------------
    (Common stock, no par value)                          3,899,709


<PAGE>





                  ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES



                                      INDEX



                                                                   PAGE NO.

Part I - Financial Information

Item 1 - Financial Statements (Unaudited)

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

          Consolidated Statement of Income - Three months and
          Six months ended June 30, 1998 and 1997                     2

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

          Consolidated Statement of Cash Flows -
          Six months ended June 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               10-16

Item 3 - Quantitative and Qualitative Disclosures about Market Risk   16


Part II - Other Information

Item 1 - Legal Proceedings                                            17
Item 2 - Changes in Securities                                        17
Item 3 - Defaults Upon Senior Securities                              17
Item 4 - Submission of Matters to a Vote
         of Security-Holders                                          17
Item 5 - Other Information                                            17
Item 6 - Exhibits and Reports on Form 8-K                             17



<PAGE>



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

--------------------------------------------------------------------------------------------------------------------------------
                                                                                          June 30,              December 31,  
                                                                                            1998                    1997
--------------------------------------------------------------------------------------------------------------------------------
                                                                                         (Unaudited)                  *
ASSETS
  <S>                                                                             <C>                     <C>                   
  Cash and due from banks                                                         $           26,994,119  $           25,313,707
  Interest-bearing balances due from banks                                                    13,509,057                 664,228
  Federal funds sold                                                                          10,000,000                       0
  Investment securities:
    Held-to-maturity, at amortized cost (fair value of $7,154,081
      in 1998 and $10,474,569 in 1997)                                                         7,100,634              10,428,605
    Available-for-sale, at fair value (amortized cost of $130,973,846
      in 1998 and $108,707,284 in 1997)                                                      134,017,047             111,033,032
---------------------------------------------------------------------------------------------------------------------------------
  Total investment securities                                                                141,117,681             121,461,637
---------------------------------------------------------------------------------------------------------------------------------

  Loans                                                                                      428,854,987             415,737,360
    Less - unearned income                                                                       (33,786)                (38,120)
         - allowance for loan losses                                                          (5,020,784)             (4,588,996)
---------------------------------------------------------------------------------------------------------------------------------
  Net loans                                                                                  423,800,417             411,110,244
---------------------------------------------------------------------------------------------------------------------------------

  Premises and equipment                                                                      16,904,061              16,875,259
  Other assets                                                                                10,898,501               9,971,550
---------------------------------------------------------------------------------------------------------------------------------

Total assets                                                                      $          643,223,836  $          585,396,625
=================================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
    Deposits:
      Demand deposits                                                             $          109,808,007  $           83,393,250
      NOW and money market accounts                                                          282,409,498             237,839,188
      Time deposits $100,000 and over                                                         49,812,169              69,102,035
      Other time and savings deposits                                                        108,191,331             103,373,032
---------------------------------------------------------------------------------------------------------------------------------
    Total deposits                                                                           550,221,005             493,707,505
    Federal funds purchased and securities
      sold under agreements to repurchase                                                      4,441,281              11,912,314
    Other short-term borrowings                                                                1,982,828               2,187,366
    Long-term debt                                                                            28,000,000              23,000,000
    Subordinated notes                                                                        11,000,000              11,000,000
    Other liabilities                                                                          4,447,400               4,061,001
---------------------------------------------------------------------------------------------------------------------------------
  Total liabilities                                                                          600,092,514             545,868,186
---------------------------------------------------------------------------------------------------------------------------------

  Stockholders' Equity:
    Common stock, no par value; 10,000,000 shares
      authorized; shares issued and outstanding - 3,896,118
      in 1998 and 3,876,047 in 1997                                                           25,445,790              24,872,889
    Retained earnings                                                                         16,196,712              13,691,474
    Accumulated other comprehensive income, net of tax                                         1,950,945               1,490,701
    Unearned ESOP shares                                                                        (462,125)               (526,625)
---------------------------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                                  43,131,322              39,528,439
---------------------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                        $          643,223,836  $          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>

                                                                     Six months ended                     Three months ended
                                                                         June 30,                              June 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                                1998                1997               1998               1997
------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S>                                                      <C>                <C>                  <C>               <C>             
  Interest and fees on loans                             $      19,891,164  $       17,182,068   $    10,060,234   $      8,916,763
  Interest on investment securities:
    Taxable                                                      3,698,924           3,164,637         1,898,042          1,621,307
    Non-taxable                                                    159,174             129,780            79,783             64,390
  Other interest income                                            276,160              96,646           229,090             58,045
------------------------------------------------------------------------------------------------------------------------------------
                Total interest income                           24,025,422          20,573,131        12,267,149         10,660,505
------------------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
  Interest on deposits                                           9,653,509           8,171,795         4,935,798          4,247,782
  Interest on short-term borrowings                                167,934             113,647            71,015             54,971
  Interest on long-term borrowings                                 860,173             552,620           433,293            277,836
  Interest on subordinated notes                                   462,865             462,865           232,541            232,541
------------------------------------------------------------------------------------------------------------------------------------
                Total interest expense                          11,144,481           9,300,927         5,672,647          4,813,130
------------------------------------------------------------------------------------------------------------------------------------

Net interest income                                             12,880,941          11,272,204         6,594,502          5,847,375
Provision for loan losses                                          310,000             440,000           100,000            240,000
------------------------------------------------------------------------------------------------------------------------------------

Net interest income after provision for loan losses             12,570,941          10,832,204         6,494,502          5,607,375
------------------------------------------------------------------------------------------------------------------------------------

NONINTEREST INCOME:
  Service charges on deposit accounts                            1,039,605             967,811           523,702            487,377
  Commissions and fees                                             675,584             602,717           363,440            336,129
  Trust income                                                     212,321             145,348           134,190             91,487
  Gains on sales of mortgage loans                                 277,313             119,072           183,389             42,372
  Other operating income                                           321,525             268,035           218,233             96,884
------------------------------------------------------------------------------------------------------------------------------------
                Total noninterest income                         2,526,348           2,102,983         1,422,954          1,054,249
------------------------------------------------------------------------------------------------------------------------------------

NONINTEREST EXPENSE:
  Salaries and employee benefits                                 5,422,181           4,675,955         2,765,462          2,374,104
  Net occupancy expense                                            710,489             652,524           362,166            330,990
  Equipment expense                                                701,955             649,088           355,721            327,012
  Other operating expense                                        2,821,555           2,544,915         1,573,644          1,310,381
------------------------------------------------------------------------------------------------------------------------------------
                Total noninterest expense                        9,656,180           8,522,482         5,056,993          4,342,487
------------------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                       5,441,109           4,412,705         2,860,463          2,319,137
Provision for income taxes                                       2,017,800           1,563,589         1,079,800            804,680
------------------------------------------------------------------------------------------------------------------------------------

Net income                                               $       3,423,309  $        2,849,116   $     1,780,663   $      1,514,457
====================================================================================================================================

Net income per share - basic                             $            0.89  $             0.75   $          0.46   $           0.40
====================================================================================================================================

Net income per share - diluted                           $            0.84  $             0.71   $          0.44   $           0.38
====================================================================================================================================

Weighted average common shares outstanding - basic               3,836,012           3,776,135         3,841,328          3,776,135
====================================================================================================================================

Weighted average common shares outstanding - diluted             4,084,304           4,025,444         4,091,534          4,023,471
====================================================================================================================================
</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
Six Months ended June 30, 1998 and June 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              3,839,010    $24,104,386      $9,006,968         $497,301     ($633,250)     $32,975,405
Comprehensive Income
  Net income                                                             2,849,116                                       2,849,116
  Other comprehensive income, net of tax
    Unrealized gains on investment securities                                                13,344                         13,344
                                                                                                                   ----------------
Comprehensive Income                                                                                                     2,862,460
                                                                                                                   ----------------
Change in unearned ESOP shares                              54,382          13,244                        (23,625)          44,001
Cash dividends ($0.187 per share)                                         (716,614)                                       (716,614)
                                      ---------------------------------------------------------------------------------------------
Balance at June 30, 1997                  3,839,010    $24,158,768     $11,152,714         $510,645     ($656,875)     $35,165,252
                                      =============================================================================================


Balance at December 31, 1997              3,876,047    $24,872,889     $13,691,474       $1,490,701     ($526,625)     $39,528,439
Comprehensive Income
  Net income                                                             3,423,309                                       3,423,309
  Other comprehensive income, net of tax
    Unrealized gains on investment securities                                               460,244                        460,244
                                                                                                                   ----------------
Comprehensive Income                                                                                                     3,883,553
                                                                                                                   ----------------
Common stock issued pursuant to:
  Dividend Reinvestment Plan                  7,483        295,067                                                         295,067
  Stock Option Plan                          12,588         94,995                                                          94,995
Change in unearned ESOP shares                             182,839          13,965                         64,500          261,304
Cash dividends ($0.24 per share)                                          (932,036)                                       (932,036)
                                      ---------------------------------------------------------------------------------------------
Balance at June 30, 1998                  3,896,118    $25,445,790     $16,196,712       $1,950,945     ($462,125)     $43,131,322
                                      =============================================================================================














</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>

----------------------------------------------------------------------------------------------------------------------
                                                                                     Six Months ended June 30,
----------------------------------------------------------------------------------------------------------------------
                                                                                    1998                  1997
----------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
  <S>                                                                       <C>                   <C>                
  Net income                                                                $         3,423,309   $         2,849,116
  Adjustments to reconcile net income to net cash provided by operating activities:
    Accretion and amortization of investment securities                                (103,083)              (27,382)
    Depreciation of premises and equipment                                              674,872               621,706
    Amortization of intangible assets                                                   221,379               205,437
    Provision for loan losses                                                           310,000               440,000
    Gains on sales of mortgage loans                                                   (277,313)             (119,072)
    Gains on sales of premises and equipment                                            (12,570)              (13,873)
    Change in interest receivable                                                      (899,707)             (833,289)
    Change in prepaid expenses                                                         (190,510)               94,081
    Change in income taxes payable                                                      386,289               163,352
    Change in deferred taxes                                                             60,523               (35,164)
    Change in interest payable                                                         (226,860)              285,362
    Change in accrued expenses                                                          678,414                45,032
    Origination of mortgage loans held for sale                                     (18,139,425)           (5,216,644)
    Proceeds from sales of mortgage loans held for sale                              17,355,456             5,712,000
    Net change in unearned ESOP shares                                                  261,304                44,000
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                             3,522,078             4,214,662
----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Proceeds from maturities of investment securities held-to maturity                  3,330,783             5,197,828
  Purchase of investment securities available-for-sale                              (35,783,036)          (26,976,320)
  Proceeds from sales of investment securities available-for-sale                     1,563,100               984,600
  Proceeds from maturities of investment securities available-for-sale               12,053,646             9,119,355
  Net change in loans                                                               (11,938,891)          (38,047,588)
  Capital expenditures                                                                 (717,353)             (709,700)
  Proceeds from the sale of premises and equipment                                       26,250                15,200
  Other, net                                                                           (827,291)              247,630
----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                              (32,292,792)          (50,168,995)
----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Net change in deposits                                                             56,513,501            46,447,681
  Net change in federal funds purchased and securities sold under agreements        
     to repurchase                                                                   (7,471,034)            1,587,714
  Net change in other short-term borrowings                                            (204,538)              279,764
  Proceeds from issuance of long-term debt                                            5,000,000                     0
  Proceeds from issuance of stock in accordance with:
    Stock Option Plan                                                                    94,995                     0
    Dividend Reinvestment Plan                                                          295,067                     0
  Cash dividends paid                                                                  (932,036)             (716,614)
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                            53,295,955            47,598,545
----------------------------------------------------------------------------------------------------------------------

Net change in cash and cash equivalents                                              24,525,241             1,644,212
Cash and cash equivalents at January 1                                               25,977,935            25,663,652
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June 30                                        $        50,503,176   $        27,307,864
======================================================================================================================
</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 and six month  periods
                ended  June  30,  1998  are not  necessarily  indicative  of the
                results to be expected for the full year.


NOTE 2:  PENDING ACQUISITIONS

                On May 15,  1998,  the  Corporation  entered  into a  definitive
                agreement   to   acquire   M&M   Financial   Corporation   ("M&M
                Financial"),   parent   company  of  First  National  South  and
                headquartered  in  Marion,  South  Carolina.  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 acquisition
                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  acquisition is subject to approval of  shareholders of both
                companies and regulatory approvals.  The acquisition is expected
                to be completed in the third quarter of 1998.  M&M Financial had
                total assets of $171,007,976  and  $156,270,694 at June 30, 1998
                and December 31, 1997, respectively.  M&M Financial reported net
                income for the second quarter of 1998 of $525,378, compared with
                $232,278 for the same period in 1997. M&M Financial reported net
                income  for the first six months of 1998 of  $819,672,  compared
                with $595,108 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  would  have a  value  of  $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

                                       5
<PAGE>


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


                of both companies and regulatory approvals.  The  transaction is
                expected  to be  completed  in the  third  quarter  of  1998. 
                ComSouth had total assets of  $221,088,487  and  $205,571,538 at
                June 30, 1998 and  December  31,  1997,  respectively.  ComSouth
                reported net income for the second  quarter of 1998 of $747,351,
                compared  with  $524,992  for the same period in 1997.  ComSouth
                reported  net  income  for  the  first  six  months  of  1998 of
                $1,422,723,  compared  with  $1,045,152  for the same  period in
                1997.


NOTE 3:         RESERVE FOR LOAN LOSSES

                Activity in the reserve for loan losses for the six months ended
                June 30, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>

                                                                                  1998              1997
                                                                       -------------------------------------
                 <S>                                                           <C>               <C>       
                 Balance, beginning of year                                    $4,588,996        $3,801,201
                 Provision charged to operations                                  310,000           440,000
                 Recoveries of charged off loans                                  305,935            85,996
                 Loans charged off                                               (184,147)         (137,834)
                                                                       -------------------------------------
                 Balance, end of period                                        $5,020,784        $4,189,363
                                                                       =====================================
</TABLE>


NOTE 4:        NONPERFORMING ASSETS

               The  following is a summary of  nonperforming  assets at June 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>

                                                                                6/30/98           12/31/97
                                                                      -------------------------------------
                <S>                                                           <C>                 <C>     
                Nonaccrual loans                                                $835,220          $228,674
                Loans past due ninety days or more                                19,961                 0
                Other real estate owned                                          202,000           187,000
                                                                      -------------------------------------
                Total nonperforming assets                                    $1,057,181          $415,674
                                                                      =====================================
</TABLE>


                                       6
<PAGE>


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


               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 June 30, 1998, impaired loans had a related specific allowance
               for loan losses totaling  $56,000.  Non-accrual loans at June 30,
               1998 include a loan for $272,068, which is expected to be paid in
               full by December 31, 1998 from an estate  settlement.  There were
               no material  commitments  to lend  additional  funds to customers
               whose loans were classified as impaired at June 30, 1998.


NOTE 5:        LONG-TERM DEBT AND SUBORDINATED NOTES

               Long-term debt and subordinated notes are summarized as follows:

<TABLE>
<CAPTION>

                                                                                              6/30/98           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:
                  5.71% 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
                  5.51% Federal Home Loan Bank advance due in 2008                                5,000,000                 0
                                                                                         -------------------------------------
                     Total                                                                       28,000,000        23,000,000
                                                                                         -------------------------------------
                Total long-term debt and subordinated notes                                     $39,000,000       $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 June 30, 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 $16,000,000 there after.

                                       7


<PAGE>


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


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.

               In accordance  with SFAS No. 128, the  calculation  of net income
               per share - basic and net  income  per share - diluted at June 30
               is presented below:
<TABLE>
<CAPTION>
               
                                                                                     1998                1997
                                                                              ---------------------------------------
                Net income per share - basic computation
                     <S>                                                               <C>                <C>       
                     Net income                                                        $3,423,309         $2,849,116
                     Income available to common shareholders                           $3,423,309         $2,849,116
                                                                              =======================================
                     Average common shares outstanding                                  3,887,347          3,839,010
                       Unallocated ESOP Shares                                            (51,335)           (62,875)
                                                                              ---------------------------------------
                     Average common shares outstanding - basic                          3,836,012          3,776,135
                                                                              =======================================
                     Net income per share - basic                                           $0.89              $0.75
                                                                              =======================================

                Net income per share - diluted computation
                     Income available to common shareholders                           $3,423,309         $2,849,116
                                                                              =======================================
                     Average common shares outstanding - basic                          3,836,012          3,776,135
                     Incremental shares from assumed conversions:
                       Stock Options                                                      248,292            249,309
                                                                              ---------------------------------------
                     Average common shares outstanding - diluted                        4,084,304          4,025,444
                                                                              ---------------------------------------
                     Net income per share - diluted                                         $0.84              $0.71
                                                                              =======================================

</TABLE>

                                       8

<PAGE>


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



NOTE 7:  OTHER MATTERS

               At June 30, 1998,  outstanding  standby letters of credit totaled
               $5,779,258.

               For the six months ended June 30, 1998 and 1997, the  Corporation
               paid interest of  $11,371,341  and $9,015,565  respectively.  The
               Corporation paid $1,828,018 in income taxes during the six months
               ended June 30,  1998 and  $1,426,027  during  the same  period in
               1997.





                                       9

<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
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 second quarter of 1998 totaled $1,948,716,  or $0.48
per diluted  share,  before pretax  charges of $171,652  ($168,053  after taxes)
associated  with  the  acquisition  of  ComSouth  and M&M  Financial.  Excluding
nonrecurring merger expenses,  net income and earnings per diluted share for the
quarter ended June 30, 1998, increased 28.7% and 26.5%,  respectively,  from the
second quarter of 1997. Including the effect of the merger expenses,  net income
totaled  $1,780,663,  or $0.44 per diluted share, for the quarter ended June 30,
1998,  compared to  $1,514,457,  or $0.38 per diluted  share  earned in the same
period of 1997.  Remaining  integration  charges of $3.8  million,  pretax,  are
expected to be taken later in 1998, primarily in the third quarter of the year.

         The primary factors affecting the increase in net income for the second
quarter of 1998 were an increase of $747,127 in net interest income, an increase
in  noninterest  income of $368,705,  and a decrease in the  provision  for loan
losses of $140,000. These positive factors were partially offset by increases in
noninterest  expense of $542,854 and the provision for income taxes of $278,719,
excluding nonrecurring merger related expenses and tax effect.

         Net income for the six months  ended June 30,  1998 was  $3,591,362  or
$0.88 per diluted  share,  before pretax merger  charges of $171,652.  Excluding
nonrecurring merger expenses,  net income and earnings per diluted share for the
first six months of 1998, increased 26.1% and 24.2%, respectively, from the same
period in 1997. Including the effect of the merger expenses,  net income totaled
$3,423,309,  or $0.84 per  diluted  share,  for the  first  six  months of 1998,
compared to $2,849,116,  or $0.71 per diluted share earned in the same period of
1997.

                                      10
<PAGE>


         The primary factors  affecting the increase in net income for the first
six months of 1998 were increases of $1,608,737 in net interest income, $423,365
in  noninterest  income,  and a decrease  in the  provision  for loan  losses of
$130,000.   These  positive  factors  were  partially  offset  by  increases  in
noninterest  expense of $962,046 and the provision for income taxes of $457,810,
excluding nonrecurring merger related expenses and tax effect.

         For the  quarter  ended June 30,  1998,  return on  average  assets and
return on average equity, excluding nonrecurring merger expenses, were 1.26% and
19.12%, respectively, compared to prior year ratios of 1.15% and 17.49%. For the
six months ended June 30, 1998,  return on average  assets and return on average
equity,   excluding  nonrecurring  merger  expenses,   were  1.20%  and  18.06%,
respectively, compared to prior year ratios of 1.11% and 16.80%.

         The  Corporation  will  continue to 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  $6,594,502 for the second quarter of 1998, an increase of $747,127
or 12.8% from the $5,847,375 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.

         Interest  income was up  $1,606,644 or 15.1% for the quarter ended June
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
8.83% in 1997 to 8.57% in 1998.  Average  interest earning assets for the second
quarter of 1998  increased  $90.1  million  or 18.6% from the second  quarter of
1997.  Average loans  increased  $59.2  million or 15.8% and average  investment
securities  increased  $19.5  million  or 18.0% for the  second  quarter of 1998
compared  with  the  same  period  in  1997.  Average  interest  earning  assets
represented  92.6% of average  total  assets  during the second  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 decreased from 76.9% in 1997 to 75.2% in 1998.

                                       11
<PAGE>

         Interest expense increased $859,517 or 17.9% for the quarter ended June
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 average interest-bearing liabilities, which increased from
4.74% for the three  months  ended June 30, 1997 to 4.80% for the same period in
1998. Average interest-bearing  liabilities increased $66.6 million or 16.4% for
the  second  quarter  of 1998  compared  with the same  period in 1997.  Average
interest-bearing  liabilities  represented  82.3% of funding  sources during the
second quarter of 1998 compared with 83.8% in 1997.

         For the six months ended June 30, 1998, net interest  income  increased
$1,608,737  or 14.3% 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 4.83% for the first
six months of 1997 to 4.66% for the same period in 1998. The increased volume of
earning  assets  was  primarily  the result of quality  loan  demand  during the
period.

         Interest income increased  $3,452,291 or 16.8% for the six months ended
June 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 six
months of 1998 increased $87.5 million or 18.5% compared with the same period in
1997. The yield of earning assets for the first six months of the year decreased
from 8.79% in 1997 to 8.66% in 1998. The yield on average investment  securities
improved 15 basis points from a year earlier, but was offset by a 19 basis point
decline in average loan yield,  which  accounted for most of the decrease in the
yield of earning  assets.  Average  loans  increased  $65.8 million or 18.1% and
average  investment  securities  increased  $16.0  million  or 15.1% for the six
months  ended  June 30,  1998  compared  with the same  period in 1997.  Average
interest-earning assets represented 92.6% of average total assets during the six
months  ended June 30, 1998 versus  91.6% in 1997.  The  composition  of average
interest-earning  assets changed  slightly as the percentage of average loans to
average interest-earning assets decreased from 76.9% in 1997 to 76.6% in 1998.

         Interest expense increased $1,843,554 or 19.8% for the six months ended
June 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 $67.7 million or 17.0% for the six months
ended June 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
4.70%  for the six  months  ended  June  30,  1997 to  4.82%  in  1998.  Average
interest-bearing liabilities represented 83.2% of funding sources during the six
months ended June 30, 1998 compared with 84.3% in 1997.


                                       12

<PAGE>


Provision for Loan Losses

         A $100,000 provision for loan losses was made during the second quarter
of 1998  compared  with a provision of $240,000 in 1997.  The provision for loan
losses for the six months ended June 30, 1998 was $310,000  versus  $440,000 for
the same period in 1997.  The decrease in the  provision for loan losses for the
second  quarter and the six months ended June 30, 1998 was  primarily due to the
recovery of a debt  previously  charged off of $409,902  and  softening  of loan
demand during the second quarter.

         Nonperforming assets at June 30, 1998 totaled $1,057,181, compared with
$378,570 reported at the same time last year. Although nonperforming loans rose,
management  believes the Corporation  remains  adequately secured in these loans
and does not anticipate  any  significant  losses from them.  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 0.25% at
June 30, 1998  compared  with 0.10% at June 30, 1997.  At June 30, 1998 and 1997
the ratio of  annualized  net  charge-offs  (recoveries)  to  average  loans was
(0.06)% and 0.03% respectively.

         The  reserve for loan  losses at June 30,  1998 and  December  31, 1997
represented 1.18% and 1.10%  respectively of total loans  outstanding.  Based on
the current evaluation of the loan portfolio, management believes the reserve at
June 30, 1998 is adequate to cover potential losses in the portfolio.


Noninterest Income

         Noninterest  income for the second  quarter of 1998 was up  $368,705 or
35.0% from the same period in 1997.  The  primary  factors  attributing  to this
increase were increases in mortgage banking income of $141,017 or 332.8%,  other
operating  income of  $121,349  or  125.3%,  trust  income of  $42,703 or 46.7%,
service charges on deposit accounts of $36,325 or 7.5%, and commissions and fees
of $27,311 or 8.1%.

         Noninterest  income for the six months  ended June 30,  1998  increased
$423,365 or 20.1% from the same period in 1997. The primary factors  attributing
to this  increase  were  increases  in  mortgage  banking  income of $158,241 or
132.9%,  trust income of $66,973 or 46.1%,  other operating income of $53,490 or
20.0%,  commissions and fees of $72,867 or 12.1%, and service charges on deposit
accounts of $71,794 or 7.4%.

         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.  Trust  revenue
continues to benefit from  increased  sales efforts and favorable  conditions in
the Corporation's  expanding markets.  Other operating income rose primarily due
to the recovery of fees associated with a troubled loan that was 

                                       13
<PAGE>

recovered.  The growth in  commissions and fees  resulted  primarily from credit
card-related revenues and investment fee income.  Service charges on deposit 
account revenues increased primarily due to growth in insufficient funds 
charges.


Noninterest Expense

         Noninterest expense, excluding pretax merger costs of $171,652, for the
second quarter of 1998 increased $542,854 or 12.5% from the same period in 1997.
The primary factors contributing to this increase were increases in salaries and
employee  benefits  of $391,358 or 16.5%,  net  occupancy  expense of $31,176 or
9.4%,  equipment  expense  of $28,709 or 8.8%,  and a slight  increase  in other
operating expense.

         For the six months ended June 30, 1998, noninterest expense,  excluding
pretax  merger  costs of  $171,652,  increased  $962,046  or 11.3% from the same
period in 1997. The primary factors contributing to this increase were increases
in salaries and employee benefits of $746,226 or 16.0%, net occupancy expense of
$57,965 or 8.9%,  equipment expense of $52,867 or 8.1%, and a slight increase in
other operating expense.

         New  personnel  and  growth  in  retirement  savings  benefits  expense
accounted for most of the growth in salaries and employee benefits. 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  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 in  Charleston,  South  Carolina  accounted for most of the
growth in rent  expense.  Equipment  expense  increased  primarily due to higher
maintenance costs and furniture and equipment depreciation.


Income Taxes

         The  provision  for income  taxes,  excluding the tax expense of $3,599
associated with  nonrecurring  merger-related  costs,  for the second quarter of
1998  increased  $278,719  or 34.6%  from the same  period in 1997.  For the six
months ended June 30, 1998,  the  provision,  excluding the  aforementioned  tax
effect,  increased $457,810 or 29.3% 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.


                                       14

<PAGE>


Financial Position

         For the six months ended June 30, 1998,  average total assets increased
17.2% while average loans increased 18.1% and average  deposits  increased 15.0%
from the same period in 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  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  $28,000,000 at June 30,
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 June 30, 1998 and December 31, 1997 being 6.6%. At June 30, 1998 and December
31, 1997, the total  risk-based  capital ratio was 12.4%, and the leverage ratio
was 6.6%.


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.

         On June 15, 1998,  the Financial  Accounting  Standards  Board ("FASB")
issued  Statement of Financial  Accounting  Standards  No. 133,  Accounting  for
Derivative  Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective
for all  fiscal  quarters  of all fiscal  years  beginning  after June 15,  1999
(January 1, 2000 for the  Corporation).  FAS 133  requires  that all  derivative

                                       15
<PAGE>

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 FAS 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.

                                       16
<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

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

      (b)         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.

                  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  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.

                                       17
<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:  August 6, 1998
                                       18