UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                         ---------------------------

                                  FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                 ACT OF 1934

                  For the fiscal year ended June 30, 1998 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                       Commission File Number: 0-22445

                        FIRSTSPARTAN FINANCIAL CORP.
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            (Exact name of registrant as specified in its charter)

                  Delaware                                   56-2015272
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  (State or other jurisdiction of incorporation            (I.R.S. Employer
                or organization)                          Identification No.)

        380 E. Main Street, Spartanburg, South Carolina         29302
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           (Address of principal executive offices)           (Zip Code)

     Registrant's telephone number, including area code: (864) 582-2391
                                                        ----------------
    Securities registered pursuant to Section 12(b) of the Act:   None
                                                                -------
        Securities registered pursuant to Section 12(g) of the Act:
                 Common Stock, par value $0.01 per share
                 ---------------------------------------
                             (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
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 by check mark whether disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
other information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K.

     As of September 14, 1998, there were issued and outstanding 4,208,856
shares of the registrant's Common Stock, which are listed on the Nasdaq
National Market System under the symbol "FSPT." Based on the average of the
bid and asked prices for the Common Stock on September 14, 1998, the aggregate
value of the Common Stock outstanding held by nonaffiliates of the registrant
was $117,743,373 (3,622,873 shares at $32.50 per share). For purposes of this
calculation, Common Stock held by officers and directors of the registrant and
the First Federal Savings and Loan Association of Spartanburg Employee Stock
Ownership Plan and Trust are considered nonaffiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

     1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1998 ("Annual Report") (Parts I and II).

     2. Portions of Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders (Part III).

<PAGE>
<PAGE>
                                    PART I

ITEM 1.   DESCRIPTION OF BUSINESS
---------------------------------

GENERAL

      FirstSpartan Financial Corp. ("FirstSpartan" or the "Corporation"), a
Delaware corporation, was incorporated on February 4, 1997 for the purpose of
becoming the holding company for First Federal Savings and Loan Association of
Spartanburg (the "Association") (collectively referred to as the "Company")
upon the Association's conversion from a federally chartered mutual savings
and loan association to a federally chartered stock savings and loan
association ("Conversion"). The Conversion was completed on July 8, 1997
through the sale and issuance of 4,430,375 shares of common stock by the
Corporation. In January 1998, First Federal changed its name to First Federal
Bank ("First Federal" or the "Bank"). At June 30, 1998, the Company had total
assets of $517.4 million, total deposits of $369.8 million and total equity of
$125.7 million. FirstSpartan's business activities generally are limited to
passive investment activities and oversight of its investment in First
Federal. Therefore, substantially all of the Company's operations are
conducted through the Bank.

      All of the Bank's operations are located in South Carolina. The Bank
conducts its business from its main office and three branch offices located in
the city of Spartanburg; three other Spartanburg County offices located in
Boiling Springs, Inman, and Duncan; and a branch office located in a Wal-Mart
Supercenter in Greenville (Greenville County). The Inman and Duncan offices
opened in June 1997. The Greenville office opened in February 1998. In 1998,
the Bank announced plans to open three additional offices: a traditional
branch in Greer (Greenville County), a branch in a Wal-Mart Supercenter in
Greer (Spartanburg County) and a traditional branch in Chesnee (Spartanburg
County). The deposits of the Bank are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC").

      The Bank is a community oriented financial institution whose business
historically has been focused principally on the origination and servicing of
residential mortgage loans and attracting retail deposits (principally
certificates of deposit and savings accounts) from the general public. In
recent years, the Bank has diversified its products and now offers a full
range of consumer and commercial products and services.

MARKET AREA

      The Bank considers Spartanburg County and adjacent counties in northwest
South Carolina to be its primary market area. The City of Spartanburg, the
county seat of Spartanburg County, is located on Interstate 85 approximately
75 miles southwest of Charlotte, North Carolina, and 35 miles northeast of
Greenville, South Carolina.

      Spartanburg County and the City of Spartanburg had a 1990 population of
approximately 227,000 and 43,000, respectively, according to the Spartanburg
Area Chamber of Commerce. The Spartanburg County economy is diverse and
generally stable. According to the Spartanburg Area Chamber of Commerce, the
Spartanburg County unemployment rate was 3.4% for June 1998. According to the
Spartanburg Area Chamber of Commerce, major employers include Milliken &
Company, Michelin Tire Corp., Spartan Mills, Hoechst Celanese Corp.,
Spartanburg Regional Medical Center and BMW Manufacturing Co.

LENDING ACTIVITIES

      GENERAL. At June 30, 1998, the Bank's total loans receivable portfolio
amounted to $441.4 million, or 85% of total assets at that date. The Bank has
traditionally concentrated its lending activities on conventional first
mortgage loans secured by one- to four-family properties, with such loans
amounting to $313.0 million, or 71% of the total loans receivable portfolio at
June 30, 1998. In addition, the Bank originates construction loans, commercial
real estate loans, land development loans, consumer loans, and commercial
business loans. A substantial portion of the Bank's loan portfolio is secured
by real estate, either as primary or secondary collateral, located in its
primary market area.

                                       1
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<PAGE>
<TABLE>

     LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of the Bank's loan portfolio
(excluding loans held-for-sale) at the dates indicated. The Bank had no concentration of loans exceeding
10% of total gross loans other than as disclosed below.

                                                      At June 30,
                -----------------------------------------------------------------------------------------
                     1998              1997              1996               1995              1994
                ----------------  ----------------  ----------------  ----------------  -----------------
                Amount   Percent  Amount   Percent  Amount   Percent  Amount   Percent  Amount    Percent
                ------   -------  ------   -------  ------   -------  ------   -------  ------    -------
                                                    (Dollars in thousands)
<S>             <C>        <C>    <C>        <C>    <C>       <C>     <C>       <C>     <C>        <C>
Mortgage loans:
  One- to four-
   family...... $312,981   70.9%  $285,969   75.1%  $257,938   77.3%  $219,552   77.9%  $212,869    80.8%
  Construction.   37,241    8.4     35,061    9.2     32,393    9.8     32,145   11.4     27,469    10.4
  Land.........   20,577    4.7     12,376    3.2      5,683    1.8      1,670    0.6      2,250     0.9
  Commercial and
   other.......   10,613    2.4      3,773    1.0      3,262    1.0      3,372    1.2      2,990     1.1
                --------  -----   --------  -----   --------  -----   --------  -----   --------   -----
   Total
    mortgage
    loans......  381,412   86.4    337,179   88.5    299,276   89.9    256,739   91.1    245,578    93.2
                --------  -----   --------  -----   --------  -----   --------  -----   --------   -----
Consumer and
 other loans:
  Home equity..   43,950   10.0     35,366    9.3     26,584    8.0     19,282    6.8     13,831    5.2
  Commercial...    6,987    1.6      1,984    0.5        433    0.1        513    0.2        352    0.1
  Other........    9,058    2.0      6,301    1.7      6,510    2.0      5,302    1.9      3,853    1.5
                --------  -----   --------  -----   --------  -----   --------  -----   --------   -----
   Total
    consumer
    and other
    loans......   59,995   13.6     43,651   11.5     33,527   10.1     25,097    8.9     18,036     6.8
                --------  -----   --------  -----   --------  -----   --------  -----   --------   -----
Total loans
 receivable....  441,407  100.0%   380,830  100.0%   332,803  100.0%   281,836  100.0%   263,614   100.0%
                          =====             =====             =====             =====              =====
Less:
  Undisbursed 
   portion of
   loans in
   process.....   21,923            15,311            15,839            12,761            14,587
  Net deferred
   loan fees...      843               995             1,028             1,082             1,232
  Allowance for
   loan losses.    2,179             1,796             1,000               600               600
                --------          --------          --------          --------          --------
Total loans
 receivable,
 net........... $416,462          $362,728          $314,936          $267,393          $247,195
                ========          ========          ========          ========          ========

                                                        2
</TABLE>
<PAGE>
<PAGE>
     ONE- TO FOUR-FAMILY REAL ESTATE LENDING. At June 30, 1998, $313 million,
or 71% of the Bank's total loan portfolio, consisted of one- to four-family
residential mortgage loans. The Bank originated $95.8 million, $50.9 million
and $59.3 million of one- to four-family residential mortgage loans during the
years ended June 30, 1998, 1997 and 1996, respectively.

     The Bank participates in the FHA Direct Endorsement Program, which allows
the Bank's in-house, FHA-approved, direct endorsement underwriters to approve
or reject FHA-insured one- to four-family mortgage loans up to maximum amounts
established by the FHA. The Bank is also a VA "automatic approved lender,"
which enables designated Bank personnel to approve or reject VA-insured, one-
to four-family mortgage loans on behalf of the Bank. The Bank generally sells
all FHA and VA loan originations, servicing released.

     Generally, the Bank's fixed-rate one- to four-family mortgage loans have
maturities ranging from ten to 30 years and are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Generally, they are originated under terms, conditions
and documentation which permit them to be sold to U.S. Government sponsored
agencies such as Federal National Mortgage Association ("Fannie Mae"). The
Bank's fixed-rate loans customarily include "due on sale" clauses, which give
the Bank the right to declare a loan immediately due and payable in the event
the borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not paid.

     The Bank offers adjustable-rate mortgage ("ARM") loans at rates and terms
competitive with market conditions. At June 30, 1998, $98.0 million of one- to
four-family mortgage loans, or 31% of total one- to four-family mortgage
loans, were subject to periodic interest rate adjustments. Substantially all
of the Bank's ARM loan originations meet the underwriting standards of Fannie
Mae even though the Bank originates ARM loans primarily for its own portfolio.
The Bank originates for its portfolio ARM loans which provide for an interest
rate which adjusts every year or which is fixed for five or ten years and then
adjusts every year after the initial period. Most of the Bank's one-year and
ten-year ARMs adjust every year after the initial period based on the one-year
Treasury constant maturity index while the interest rate adjustment for its
five-year ARMs after the initial fixed period is based on the ten-year U.S.
Treasury securities rate. The Bank's ARMs typically are based on a 30-year
amortization schedule. The Bank qualifies the borrowers on its ARM loans based
on the initial rate. The one-year ARM loan generally may be converted to a
fixed-rate loan within five years of origination. The ten-year ARM provides a
conversion option after seven years have elapsed. The Bank does not offer deep
discount or "teaser" rates. The Bank's current ARM loans do not provide for
negative amortization. At June 30, 1998, however, 21 loans aggregating
$820,000 provide for negative amortization at the borrowers' option. These
loans were originated more than ten years ago. The Bank's ARM loans generally
provide for annual and lifetime interest rate adjustment limits of 1% to 2%
and 4% to 6%, respectively.

     Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.

     The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs
due to changed rates to be paid by the customer. It is possible that during
periods of rising interest rates the risk of default on ARM loans may increase
as a result of repricing and the increased payments required by the borrower.
In addition, although ARM loans allow the Bank to increase the sensitivity of
its asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations, the Bank has no assurance that yields
on ARM loans will be sufficient to offset increases in the Bank's cost of
funds. The Bank believes these risks, which have not had a material adverse
effect on the Bank to date, generally are less than the risks associated with
holding fixed-rate loans in portfolio during a rising interest rate
environment.

                                       3
<PAGE>
<PAGE>
     The Bank generally requires title insurance insuring the status of its
lien or an acceptable attorney's opinion on all loans where real estate is the
primary source of security. The Bank also requires that fire and casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least equal to the outstanding loan balance.

     The Bank's one- to four-family residential mortgage loans typically do
not exceed 80% of the appraised value of the security property. Pursuant to
underwriting guidelines adopted by the Bank's Board of Directors, the Bank can
lend up to 95% of the appraised value of the property securing a one- to
four-family residential loan provided that the borrower purchases private
mortgage insurance for the benefit of the Bank. The private mortgage insurance
purchased generally provides coverage of the principal amount that exceeds 65%
to 70% of the appraised value of the security property. At June 30, 1998, the
Bank had twelve one- to four-family mortgage loans totaling $395,000 with
principal balances in excess of 80% of the appraised value of the real estate
collateral and with no private mortgage insurance. These loans are part of the
Spartanburg Residential Development Program, an affordable housing program.

     CONSTRUCTION LENDING. The Bank originates residential construction loans
to local home builders, generally with whom it has established relationships.
The Bank also originates such loans to individuals who have a contract with a
builder for the construction of their residence. In addition, the Bank
originates construction loans through the mortgage banking company in which
the Bank's service corporation owns a one-third equity interest and to a
lesser extent, through closely monitored unaffiliated correspondent mortgage
banking relationships. At June 30, 1998, construction loans amounted to $37.2
million ($11.1 million not directly originated by the Bank), or 8% of the
Bank's total loan portfolio.

     The Bank's construction loans generally have fixed interest rates and are
for a term of nine to 12 months. Construction loans to builders typically are
made with a maximum loan to value ratio of 80%. Construction loans to
individuals typically are made in connection with the granting of the
permanent financing on the property. Such loans convert to a fully amortizing
adjustable- or fixed-rate loan at the end of the construction term. The Bank
typically requires that permanent financing with the Bank or some other lender
be in place prior to closing any construction loan to an individual.

     The Bank's construction loans to builders are made on either a pre-sold
or speculative (unsold) basis. However, the Bank generally limits the number
of outstanding loans on unsold homes under construction to individual
builders, with the amount dependent on the financial strength of the builder,
the present exposure of the builder, the location of the property and prior
sales of homes in the development. At June 30, 1998, speculative construction
loans amounted to $20.5 million. At June 30, 1998, the largest amount of
construction loans outstanding to one builder was $2.9 million, all of which
was for speculative construction.

     Prior to making a commitment to fund a construction loan, the Bank
requires an appraisal of the property by an independent state-licensed and
qualified appraiser approved by the Board of Directors. The Bank's staff also
reviews and inspects each project prior to disbursement of funds during the
term of the construction loan. Loan proceeds are disbursed after inspection of
the project based on a percentage of completion. With respect to construction
loans originated since September 1996, the Bank has enforced the contractual
requirement that monthly interest payments be made during the construction
term. With respect to loans originated prior to that time, monthly payment of
accrued interest was at the borrower's option, with all accrued interest
collected at maturity. In periods prior to discontinuance of this practice,
this contributed, in part, to the high level of accruing construction loans
contractually past due 90 days or more. See "-- Nonperforming Assets and
Delinquencies."

     Construction loans originated through all mortgage banking relationships 
are subject to approval by the Bank. Appraisal policies of the mortgage
bankers are similar to the Bank's policies. The mortgage bankers generally use
outside appraisers to conduct inspections prior to disbursement of funds.

     Construction lending affords the Bank the opportunity to charge higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, generally is
considered

                                       4
<PAGE>
<PAGE>
to involve a higher degree of risk than single-family permanent mortgage
lending because of the inherent difficulty in estimating both a property's
value at completion of the project and the estimated cost of the project. The
nature of these loans is such that they generally are more difficult to
evaluate and monitor. If the estimate of construction cost proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted at
or prior to the maturity of the loan with a project the value of which is
insufficient to assure full repayment. Projects also may be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no
purchaser has been identified carry more risk because the payoff for the loan
is dependent on the builder's ability to sell the property prior to the time
that the construction loan is due. Construction loans originated through
mortgage bankers involve additional risks due to third parties' involvement in
inspection and monitoring the loans and due to some of the loans being outside
the Bank's primary market area.

     The Bank has attempted to minimize the foregoing risks by, among other
things, limiting its construction lending primarily to residential properties.
It is also the Bank's general policy to obtain personal guarantees from the
principals of its corporate borrowers. In the case of speculative construction
loans, the Bank has begun limiting the number of unsold homes to larger
borrowers and, on loans originated since September 1996, enforcing contractual
clauses requiring the payment of interest monthly (rather than at the earlier
of loan maturity or sale of the home) and assessing monetary penalties on
delinquent balances. The monthly interest payment requirement provides an
earlier indication of potential delinquency. The Bank also attempts to
minimize the risk of construction loans originated through mortgage bankers by
approving all loans and selectively inspecting properties. The Bank originated
$20.4 million of speculative construction loans during the year ended June 30,
1998, compared to $21.1 million during the year ended June 30, 1997.

     COMMERCIAL REAL ESTATE LENDING. The Bank originates mortgage loans for
the acquisition and refinancing of commercial real estate properties. At June
30, 1998, $10.6 million, or 2% of the Bank's total loan portfolio, consisted
of loans secured by commercial real estate properties. The majority of the
Bank's commercial real estate loans are secured by office buildings, retail
shops and manufacturing facilities, all of which are located in the Bank's
primary market area.

     The Bank requires appraisals of all properties securing commercial real
estate loans. Appraisals are performed by independent appraisers designated by
the Bank, all of which are reviewed by management. In underwriting commercial
loans, the Bank categorizes loans as either real estate dependent or owner
occupied properties. Real estate dependent loans are dependent on cash flow
generated from the operation of the security property for loan repayment.
Therefore, a property's cash flow is given the highest weight in underwriting.
Also considered are the property's appraised value and the financial strength
of the borrower. On owner occupied properties, the underwriter considers the
business as a going concern and places the most emphasis on the cash flows of
the business as a whole. As with real estate dependent loans, the value of the
collateral and the overall creditworthiness of the borrower also are
considered.

     Loan to value ratios on the Bank's commercial real estate loans generally
are limited to 75%. As part of the criteria for underwriting commercial real
estate loans, the Bank generally imposes a debt coverage ratio (the ratio of
net cash from operations before payment of debt service to debt service) of
not less than 1.2. It is also the Bank's policy to obtain personal guarantees
from the principals of its corporate borrowers on its commercial real estate
loans.

                                       5
<PAGE>
<PAGE>
     Commercial real estate lending affords the Bank an opportunity to receive
interest at rates higher than those generally available from one- to
four-family residential lending. However, loans secured by such properties
usually are greater in amount, more difficult to evaluate and monitor and,
therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial properties often are dependent on the successful operation and
management of the properties, repayment of such loans may be affected by
adverse conditions in the real estate market or the economy. The Bank seeks to
minimize these risks by limiting the maximum loan-to-value ratio to 75% and
strictly scrutinizing the financial condition of the borrower, the quality of
the collateral and the management of the property securing the loan. The Bank
also obtains loan guarantees from financially capable parties based on a
review of personal financial statements.

     LAND DEVELOPMENT LENDING. The Bank originates land development loans to
local developers for the purpose of developing the land (i.e., installing
roads, sewers, water and other utilities) for sale. At June 30, 1998, land
development loans amounted to $20.1 million, or 5% of the Bank's total loan
portfolio. Land development loans are secured by a lien on the property,
generally are limited to 75% of the developed value of the secured property
and are made for a period of three years with an interest rate that adjusts
with the prime rate. The Bank requires monthly interest payments during the
term of the loan. The Bank's land development loans are structured so that the
Bank is repaid in full upon the sale by the borrower of approximately 75% of
the available lots. All of the Bank's land development loans are secured by
property located in its primary market area. In addition, the Bank obtains
personal guarantees from the principals of its corporate borrowers. At June
30, 1998, the Bank had no nonaccruing land development loans.

     Loans secured by undeveloped land or improved lots involve greater risks
than one- to four-family residential mortgage loans because such loans are
more difficult to evaluate. If the estimate of value proves to be inaccurate,
in the event of default and foreclosure the Bank may be confronted with a
property the value of which is insufficient to assure full repayment. The Bank
attempts to minimize this risk by generally limiting the maximum loan-to-value
ratio on land development loans to 75%.

     CONSUMER AND OTHER LENDING. The Bank originates a variety of consumer
loans, the majority of which are on a secured basis. Consumer loans include
second mortgage loans, home equity lines of credit, savings account loans,
automobile loans, boat loans, loans secured by marketable equity securities,
VISA credit card loans and unsecured loans. Consumer loans are made with both
fixed and variable interest rates and with varying terms. At June 30, 1998,
consumer loans amounted to $53.0 million, or 12% of the total loan portfolio.

     At June 30, 1998, the largest component of the consumer loan portfolio
consisted of second mortgage loans and home equity lines of credit, which
totaled $44.0 million, or 10% of the total loan portfolio.  At June 30, 1998,
unused commitments to extend credit under home equity lines of credit totaled
$38.7 million. Home equity lines of credit and second mortgage loans are made
for purposes such as the improvement of residential properties, debt
consolidation and education expenses, among others.  The majority of these
loans are made to existing customers and are secured by a first or second
mortgage on residential property.  The Bank actively solicits these loans by
contacting its customers directly.  The loan-to-value ratio is typically 90%
or less, when taking into account both the first and second mortgage loans.
Second mortgage loans typically carry fixed interest rates with a fixed
payment over a term between five and 15 years. Home equity lines of credit
generally are for 15-year terms and the interest rate is tied to The Wall
Street Journal prime lending rate.

     At June 30, 1998, automobile loans amounted to $4.0 million. The Bank
originates automobile loans for both new and used automobiles for terms
generally not exceeding 60 months. The Bank does not engage in indirect
automobile lending.

                                       6
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<PAGE>
     Since June 1995, the Bank has issued VISA credit cards to customers
within its primary market area. At June 30, 1998, there were 988 credit card
accounts with aggregate outstanding balances of $878,000. At June 30, 1998,
total approved lines of credit were $3.7 million. The Bank does not engage in
direct mailings of pre-approved credit cards.

     The Bank views consumer lending as an important part of its business
because consumer loans generally have shorter terms and higher yields, thus
reducing exposure to changes in interest rates. In addition, the Bank believes
that offering consumer loans helps to expand and create stronger ties to its
customer base. Subject to market conditions, the Bank intends to continue
emphasizing consumer lending, particularly home equity lines of credit and
automobile loans.

     Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and are more likely to be affected adversely by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount that can be recovered on such loans. The Bank
believes that these risks are not as prevalent in the case of the Bank's
consumer loan portfolio because a large percentage of the portfolio consists
of second mortgage loans and home equity lines of credit that are underwritten
in a manner such that they result in credit risk that is substantially similar
to residential first mortgage loans. Nevertheless, second mortgage loans and
home equity lines of credit have greater credit risk than residential first
mortgage loans because they are secured by mortgages subordinated to the
existing first mortgage on the property, which may or may not be held by the
Bank. At June 30, 1998, $160,000 of consumer loans were delinquent in excess
of 90 days.

     The Bank employs strict underwriting procedures for consumer loans. These
procedures include an assessment of the applicant's credit history and the
ability to meet existing and proposed debt obligations. Although the
applicant's creditworthiness is the primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, to
the proposed loan amount. The Bank generally underwrites and originates its
consumer loans internally, which the Bank believes limits its exposure to
credit risks associated with loans underwritten or purchased from brokers and
other external sources.

     The Bank also engages in limited amounts of commercial business lending.
At June 30, 1998, the Bank had $7.0 million of commercial business loans which
represented 2% of the total loan portfolio. Commercial business loans
generally are secured by business equipment. Of the total commercial business
loans at June 30, 1998, loans amounting to $1.2 million were unsecured. The
Bank generally requires annual financial statements from its corporate
borrowers and personal guarantees from the corporate principals.

     Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Although
commercial business loans often are collateralized by equipment, inventory,
accounts receivable or other business assets, the liquidation of collateral in
the event of a borrower default is often an insufficient source of repayment
because accounts receivable may be uncollectible and inventories and equipment
may be obsolete or of limited use, among other things. Accordingly, the
repayment of a commercial business loan depends primarily on the
creditworthiness of the borrower (and any guarantors), while liquidation of
collateral is a secondary and often insufficient source of repayment.

                                       7
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<PAGE>
     MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at June 30, 1998 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as becoming due within one year. Loan balances do not include
undisbursed loan proceeds, unearned discounts, unearned income and allowance
for loan losses.

                             After     After    After
                            One Year  3 Years  5 Years
                  Within    Through   Through  Through     Beyond
                  One Year  3 Years   5 Years  10 Years   10 Years     Total
                  --------  -------   -------  --------   --------     -----
                                         (In thousands)
Mortgage loans:
 One- to four-
  family......    $    45   $ 2,353   $ 5,860   $48,620   $256,103   $312,981
 Construction.     19,612       662        --       168     16,799     37,241
 Land develop-
  ment........      5,125    10,305     3,853       936        358     20,577
 Commercial and
  other.......      1,645        45     4,639     2,552      1,732     10,613
Consumer and
 other loans....    6,133     5,877     8,618     8,397     30,970     59,995
                  -------   -------   -------   -------   --------   --------
    Total.......  $32,560   $19,242   $22,970   $60,673   $305,962   $441,407
                  =======   =======   =======   =======   ========   ========

      The following table sets forth the dollar amount of all loans due after
June 30, 1999, which have fixed interest rates and have floating or adjustable
interest rates.

                                        Fixed-       Floating- or
                                        Rates      Adjustable-Rates   Total
                                        -----      ----------------   -----
                                                    (In thousands)
Mortgage loans:
  One- to four-family...............   $214,987        $ 97,949      $312,936
  Construction......................     17,629              --        17,629
  Land development..................      7,105           8,347        15,452
  Commercial and other..............      3,194           5,774         8,968
Consumer and other loans............     27,929          25,933        53,862
                                       --------        --------      --------
    Total...........................   $270,844        $138,003      $408,847
                                       ========        ========      ========

                                       8
<PAGE>
<PAGE>
     Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Bank the right to declare loans
immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market
rates. Furthermore, management believes that a significant number of the
Bank's residential mortgage loans are outstanding for a period less than their
contractual terms because of the transitory nature of many of the borrowers
who reside in its primary market area.

     LOAN SOLICITATION AND PROCESSING. The Bank's lending activities are
subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. A business development program has been implemented where
loan officers and sales personnel make sales calls on building contractors and
realtors. The Bank also advertises its loan products by radio and newspaper.

     The Bank uses professional fee appraisers for most residential real
estate loans and construction loans and on all commercial real estate and land
development loans. The Bank requires hazard, title and, to the extent
applicable, flood insurance on all security property.

     Residential mortgage loan applications are initiated by loan officers and
are required to be approved by the Bank's Loan Committee, consisting of the
Bank's President, Executive Vice President, two Senior Vice Presidents and two
Vice Presidents. All residential loans in excess of $300,000 but below
$400,000 also must be approved by the Executive Board Loan Committee
consisting of Director Painter and two other directors rotating among all
directors. Additionally, residential loans in excess of $400,000 must be
approved by the Bank's Board of Directors.

     All commercial real estate loans less than $1.0 million must be approved
by the Bank's President, Executive Vice President of Lending and Vice
President of Commercial Lending. Commercial loans in excess of $1.0 million
must be approved by the Bank's Commercial Loan Committee consisting of the
Bank's President, Executive Vice President of Lending, Vice President of
Commercial Lending, Chief Financial Officer, the Senior Vice President of
Lending and one director rotating among all directors. Commercial loans in
excess of $1.5 million must be approved by the Bank's Board of Directors.

     LOAN ORIGINATIONS, SALES AND PURCHASES. While the Bank originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of
loan depends upon relative customer demand for loans in its primary market
area and the rates and terms offered by the Bank relative to those offered by
competitors.

     The Bank periodically sells conventional one- to four-family loans (i.e.,
non-FHA/VA loans) with servicing retained and without recourse. However,
several pools of loans were sold with recourse in 1983 and had an aggregate
outstanding balance of $2.3 million at June 30, 1998. The Bank does not expect
any material losses on these loans due to their seasoned nature. Recent loan
sales have been to Fannie Mae and primarily consisted of 30-year, fixed-rate
residential real estate loans. These sales reduce the Bank's interest rate
risk and the proceeds of sale are used to fund continuing operations. The Bank
sold $13.2 million of conventional loans during fiscal 1998. Management
intends to sell loans in the future as necessary to manage interest rate risk
and fund continuing operations.

                                       9
<PAGE>
<PAGE>
     When conventional loans are sold, the Bank retains the responsibility for
servicing the loans, including collecting and remitting mortgage loan
payments, accounting for principal and interest and holding and disbursing
escrow or impounded funds for real estate taxes and insurance premiums. The
Bank receives a servicing fee for performing these services for others. The
Bank's servicing portfolio amounted to $56.4 million at June 30, 1998. The
Bank generally is paid a fee equal to 0.25% of the outstanding principal
balance for servicing sold loans. Loan servicing income totaled $178,000,
$196,000 and $226,000 for the years ended June 30, 1998, 1997 and 1996,
respectively. The Bank earns late charges collected from delinquent customers
whose loans are serviced by the Bank.

     The Bank invests escrow impounds (funds collected from mortgage customers
for the payment of property taxes and insurance premiums on mortgaged real
estate) until they are disbursed on behalf of mortgage customers, but is not
required to pay interest on these funds. At June 30, 1998, borrowers' escrow
funds amounted to $1.1 million.

     The Bank sells all loans originated under FHA and VA programs, servicing
released, to private investors and the South Carolina State Housing Authority.

     Historically, the Bank has not been an active purchaser of loans or
participation interests in loans. However, in September 1996 the Bank began
purchasing one- to four-family mortgage loans and residential construction
loans from a start-up mortgage banking company located in Greenville, South
Carolina, in which the Bank made an equity investment through its service
corporation subsidiary. During the fiscal year ended June 30, 1998, the Bank
purchased 175 loans with aggregate principal balances of $23.8 million, $9.5
million of which were residential construction loans. In addition, at June 30,
1998, the Bank had committed to fund $4.7 million of undisbursed construction
loan proceeds. Currently, substantially all of the loans purchased through
this mortgage banking company are secured by properties located in the Bank's
primary market area. Such purchases are expected to continue and increase in
volume as that company's operations expand, and are likely to include
purchases of loans, including commercial real estate loans and home equity
loans, secured by properties inside and outside of the Bank's primary market
area. Out-of-market lending generally is considered to involve greater risk
than in-market lending because of the lender's unfamiliarity with the other
market. However, the Bank believes this risk is mitigated in the case of any
out-of-market loan purchases from the mortgage banking company primarily
because of (i) the Bank's ability to refuse to purchase any loans not meeting
its underwriting criteria and (ii) the Bank's input in formulating policies
and procedures for the mortgage banking company though its representation on
its board of directors. See "-- Subsidiary Activities."

     Additionally, in the year ended June 30, 1998, the Bank had established
relationships with other unaffiliated mortgage banking companies. The Bank
purchased both one- to four-family and construction loans from these
unaffiliated entities. The amounts purchased were not substantial as of June
30, 1998. However, the Bank intends to increase such loan purchases in the
future in order to increase the yield on its loan portfolio. The one- to
four-family loans purchased generally are nonconforming to secondary marketing
standards. However, in the Bank's opinion, the higher yields justify the
slightly increased risk in these loans. The construction lending through these
relationships involves customers outside the Bank's primary market area. These
loans are subject to the risks mentioned in the preceding paragraph. The Bank
mitigates this risk by approving all such construction loans and selectively
inspecting collateral.

                                       10
<PAGE>
<PAGE>
     The following table sets forth total loans originated, purchased, sold
and repaid during the periods indicated.

                                           Year Ended June 30,
                                    --------------------------------
                                      1998        1997        1996
                                      ----        ----        ----
                                          (Dollars in thousands)
Loans originated:
 Mortgage loans:
  One- to four-family.............  $  95,754   $ 50,886    $ 59,296
  Construction....................     38,860     36,770      42,212
  Land development................     12,676      6,924       3,814
  Commercial and other............      9,133      1,770         316
 Consumer and other...............     56,888     29,734      27,181
                                    ---------   --------    --------
   Total loans originated.........    213,311    126,084     132,819

Loans purchased:
 One- to four-family..............     14,309      9,091          --
 Construction.....................      9,537      5,820          --
                                    ---------   --------    --------
    Total loans purchased.........     23,846     14,911          --

Whole loans sold:
 Conventional.....................    (13,211)    (2,824)         --
 Government.......................     (6,329)    (7,223)     (7,704)
                                    ---------   --------    --------
    Total whole loans sold........    (19,540)   (10,047)     (7,704)

Loan principal repayments.........   (148,697)   (84,423)    (87,446)

Net (decrease) increase in other
 items............................    (15,186)     1,267      (3,539)
                                    ---------   --------    --------
Net increase in loans receivable,
 net..............................  $  53,734   $ 47,792    $ 34,130
                                    =========   ========    ========

     LOAN COMMITMENTS. The Bank issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made
in writing on specified terms and conditions and are honored for up to 20 days
from approval, depending on the type of transaction. At June 30, 1998, the
Bank had loan commitments (excluding undisbursed portions of interim
construction loans of $21.9 million) of $4.5 million and unused lines of
credit of $51.6 million. See Note 10 of Notes to Consolidated Financial
Statements.

     LOAN FEES. In addition to interest earned on loans, the Bank receives
income from fees in connection with loan originations, loan modifications,
late payments and for miscellaneous services related to its loans. Income from
these activities varies from period to period depending upon the volume and
type of loans made and competitive conditions.

     The Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees and discount points in excess of loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. Discounts and premiums on
loans purchased are accreted and amortized in the same manner. The Bank
recognized $219,000, $157,000 and $202,000 of deferred loan fees during the
years ended June 30, 1998, 1997 and 1996, respectively, in connection with
loan refinancings, payoffs, sales and ongoing amortization of outstanding
loans.

     NONPERFORMING ASSETS AND DELINQUENCIES. When a borrower fails to make a
required payment on a loan, the Bank attempts to cure the deficiency by
contacting the borrower and seeking the payment. Contacts generally are made
15 days after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency continues, additional contact is made either
through a notice or other means and the Bank will attempt to work out a
payment

                                       11
<PAGE>
<PAGE>
schedule. While the Bank generally prefers to work with borrowers to resolve
such problems, the Bank will institute foreclosure or other proceedings, as
necessary, to minimize any potential loss.

     Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely to continue in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more (except in the case of construction loans
originated before September 1996 as discussed under "-- Construction
Lending"). Interest accrued but not collected at the date the loan is placed
on nonaccrual status is charged against income at the time the loan is placed
on nonaccrual status. Loans may be reinstated to accrual status when payments
are under 90 days past due and, in the opinion of management, collection of
the remaining past due balances can reasonably be expected.

     In certain cases, the Bank grants extensions on construction loans that
may have become delinquent in excess of 90 days. These extensions are granted
based upon management's judgment of the creditworthiness of the borrower and
other factors such as a sales contract pending on the property held as
collateral. In the case of extended loans, interest continues to accrue and
the loans are reported as accruing but contractually past due 90 days or more.

     The Bank's Board of Directors is informed monthly of the status of all
loans delinquent more than 60 days, all loans in foreclosure and all 
foreclosed and repossessed property owned by the Bank.

                                       12
<PAGE>
<PAGE>
     The following table sets forth information with respect to the Bank's
nonperforming assets and restructured loans within the meaning of Statement of
Financial Accounting Standards ("SFAS") No. 15 at the dates indicated.

                                                 At June 30,
                                --------------------------------------------
                                 1998      1997      1996     1995     1994
                                 ----      ----      ----     ----     ----
                                            (Dollars in thousands)
Loans accounted for on
 a nonaccrual basis:
 Mortgage loans:
  One- to four-family.....     $  266   $  271    $  719   $  348   $  754
  Construction............        787      273     1,130      471      457
  Commercial and other....          4       --        --       48       --
 Consumer and other loans.        153       74        60       20       53
                               ------   ------    ------   ------   ------
      Total nonaccrual loans    1,210      618     1,909      887    1,264
                               ------   ------    ------   ------   ------
Accruing loans contractually
 past due 90 days or more:
 Mortgage loans:
  Construction............        145    1,401     3,965    3,906    1,117
 Consumer and other loans.          8       12        --       --       --
                               ------   ------    ------   ------   ------
    Total accruing loans 90
     days or more past due        153    1,413     3,965    3,906    1,117
                               ------   ------    ------   ------   ------
Total of nonaccrual loans
 and accruing loans 90 days
 or more past due.........      1,363    2,031     5,874    4,793    2,381

Real estate acquired in
 settlement of loans......         36       36        58       34       18
                               ------   ------    ------   ------   ------
    Total nonperforming
     assets...............     $1,399   $2,067    $5,932   $4,827   $2,399
                               ======   ======    ======   ======   ======

Restructured loans........    $   594  $   863    $1,247   $1,049   $1,029
                              =======  =======    ======   ======   ======

Nonaccrual loans and accruing
 loans 90 days or more past due
 as a percentage of loans
 receivable, net..........       0.33%    0.56%     1.87%    1.79%    0.96%

Nonaccrual loans and accruing
 loans 90 days or more past due
 as a percentage of total
 assets...................       0.26%    0.31%     1.65%    1.49%    0.77%

Nonperforming assets as a
 percentage of total assets      0.27%    0.31%     1.66%    1.50%    0.77%


                                       13
<PAGE>
<PAGE>
     Interest income that would have been recorded for the year ended June 30,
1998 if nonaccruing loans had been current in accordance with their original
terms amounted to $58,000. The amount of interest included in interest income
on such loans for such periods amounted to $48,000. Interest income that would
have been recorded for the year ended June 30, 1998 if restructured loans had
been current in accordance with their original terms, and the amount of
interest included in interest income on such loans for such periods, were, in
both cases, immaterial.

     REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. Real estate acquired by the
Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate acquired in settlement of loans until sold. Pursuant
to Statement of Position ("SOP") 92-3 issued by the American Institute of
Certified Public Accountants, which provides guidance on determining the
balance sheet treatment of foreclosed assets in annual financial statements
for periods ended on or after December 15, 1992, there is a rebuttable
presumption that foreclosed assets are held for sale and such assets are
recommended to be carried at fair value minus estimated costs to sell the
property. After the date of acquisition, all costs incurred in maintaining the
property are expensed and costs incurred for the improvement or development of
such property are capitalized up to the extent of their net realizable value.
The Bank's accounting for its real estate acquired in settlement of loans
complies with SOP 92-3. At June 30, 1998, the Bank had $36,000 of real estate
acquired in settlement of loans, which consisted of a one- to four-family
residence.

     RESTRUCTURED LOANS. Under generally accepted accounting principles
("GAAP"), the Bank is required to account for certain loan modifications or
restructuring as a "troubled debt restructuring." In general, the modification
or restructuring of a debt constitutes a troubled debt restructuring if the
Bank for economic or legal reasons related to the borrower's financial
difficulties grants a concession to the borrowers that the Bank would not
otherwise consider. Debt restructurings or loan modifications for a borrower
do not necessarily always constitute troubled debt restructurings, however,
and troubled debt restructurings do not necessarily result in nonaccrual
loans. The Bank had $594,000 of restructured loans as of June 30, 1998, which
consisted of 15 one- to four-family mortgage loans.

     ASSET CLASSIFICATION. The Office of Thrift Supervision ("OTS") has
adopted various regulations regarding problem assets of savings institutions.
The regulations require that each insured institution review and classify its
assets on a regular basis. In addition, in connection with examinations of
insured institutions, OTS examiners have authority to identify problem assets
and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss.
Substandard assets have one or more defined weaknesses and are characterized
by the distinct possibility that the insured institution will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible
and of such little value that continuance as an asset of the institution is
not warranted. If an asset or portion thereof is classified as loss, the
insured institution establishes specific allowances for loan losses for the
full amount of the portion of the asset classified as loss. All or a portion
of general loan loss allowances established to cover possible losses related
to assets classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
expose the insured institution to sufficient risk to warrant classification in
one of the aforementioned categories currently but possess weaknesses are
designated "special mention" and monitored by the Bank.

                                       14
<PAGE>
<PAGE>
     The aggregate amounts of the Bank's classified and special mention
assets, and of the Bank's general and specific loss allowances at the dates
indicated, were as follows:

                                 At June 30,
                             -----------------
                               1998      1997
                               ----      ----
                               (In thousands)

Classified assets:
 Loss.....................   $    22   $    40
 Doubtful.................        20         5
 Substandard assets.......     2,016     2,359
 Special mention..........     1,495     1,540

Loan loss allowances:
 General loss allowances..     2,157     1,756
 Specific loss allowances.        22        40

     At June 30, 1998, substandard assets consisted of twelve one- to four-
family mortgage loans totaling $467,000, ten construction loans totaling $1.3
million, twenty other loans totaling $260,000, and a one- to four-family
property acquired through foreclosure totaling $36,000.

     At June 30, 1998, special mention assets consisted of twelve one- to
four-family mortgage loans totaling approximately $395,000 and nine
construction loans totaling approximately $1.1 million.

     ALLOWANCE FOR LOAN LOSSES. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans.

     In originating loans, the Bank recognizes that losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. The Bank increases its allowance for loan losses by
charging provisions for loan losses against the Bank's income.

     The general valuation allowance is maintained to cover losses inherent in
the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions. Specific valuation allowances are established to
absorb losses on loans for which full collectibility cannot reasonably be
assured. The amount of the allowance generally is based on the estimated value
of the collateral securing the loan and other analyses pertinent to each
situation. Generally, a provision for loan losses is charged against income
monthly to maintain the allowances for loan losses at the amounts determined
by management.

     At June 30, 1998, the Bank had an allowance for loan losses of $2.2
million. Management believes that the amount maintained in the allowance at
June 30, 1998 will be adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to
make such determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be affected significantly and
adversely if circumstances differ substantially from the assumptions used in
making the determinations. Furthermore, while the Bank believes it has
established its existing allowance for loan losses in accordance with GAAP,
there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request the Bank to increase significantly its allowance
for loan losses. In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that substantial
increases will not be necessary should the quality of any loans deteriorate as
a result of the factors discussed above. Any material increase in the
allowance for loan losses may affect adversely the Bank's financial condition
and results of operations.

                                       15
<PAGE>
<PAGE>
     The following table sets forth an analysis of the Bank's allowance for
loan losses.

                                               Year Ended June 30,
                                   ----------------------------------------
                                   1998     1997     1996     1995     1994
                                   ----     ----     ----     ----     ----
                                            (Dollars in thousands)
Total loans outstanding at end
 of period.....................  $441,407 $380,830 $332,803 $281,836 $263,614
                                 ======== ======== ======== ======== ========
Average loans outstanding
 during period.................  $395,465 $336,476 $298,865 $273,778 $260,135
                                 ======== ======== ======== ======== ========
Allowance balance at beginning
 of period.....................  $  1,796 $  1,000 $    600 $    600 $    600
 Provision for loan losses.....       460      825      419        9       --
 Charge-offs:
  Mortgage loans:
   One- to four-family.........         1       15       --       --       --
  Consumer and other...........        79       24       23        9       --
                                 -------- -------- -------- -------- --------
    Total charge-offs..........        80       39       23        9       --
                                 -------- -------- -------- -------- --------
 Recoveries:
  Mortgage loans:
   One- to four-family.........         2        9       --       --       --
  Consumer and other...........         1        1        4       --       --
                                 -------- -------- -------- -------- --------
    Total recoveries...........         3       10        4       --       --
                                 -------- -------- -------- -------- --------
Allowance balance at end of
 period........................  $  2,179 $  1,796 $  1,000 $    600 $    600
                                 ======== ======== ======== ======== ========
Allowance for loan losses as
 a percentage of total loans
 receivable at end of period...      0.49%    0.47%    0.30%    0.21%    0.23%
                                 ======== ======== ======== ======== ========
Net charge-offs as a percentage
 of average loans outstanding
 during the period.............      0.02%    0.01%    0.01%      --       --
                                 ======== ======== ======== ======== ========
Ratio of allowance for loan
 losses to total nonperforming
 loans at end of period........      1.60x    0.88x    0.17x    0.13x    0.25x
                                 ======== ======== ======== ======== ========

     The fluctuation in the ratio of allowance for loan losses to
nonperforming loans at end of period set forth in the above table results
primarily from the Bank giving greater weight to the level of classified
assets than to the level of nonperforming assets (nonaccrual loans, accruing
loans contractually past due 90 days or more, and real estate acquired in
settlement of loans) when determining the adequacy of the allowance for loan
losses. Greater weight is given to classified assets because they include not
only nonperforming assets but also performing assets that otherwise exhibit,
in management's judgment, potential credit weaknesses. See "-- Nonperforming
Assets and Delinquencies" and "-- Asset Classification."

                                       16
<PAGE>
<PAGE>
<TABLE>

     The following table sets forth the breakdown of the allowance for loan losses by loan category at
the dates indicated. Management believes that the allowance can be allocated by category only on an
approximate basis. The allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in any other category.

                                                             At June 30,
                        --------------------------------------------------------------------------------
                               1998            1997             1996           1995            1994
                        ----------------  --------------- ----------------- -------------- -------------
                                 Percent         Percent          Percent         Percent       Percent
                                 of Loans        of Loans         of Loans        of Loans      of Loans
                                 in              in               in              in            in
                                 Category        Category         Category        Category      Category
                                 to              to               to              to            to
                                 Total           Total            Total           Total         Total
                        Amount   Loans   Amount  Loans   Amount   Loans   Amount  Loans  Amount Loans
                        ------   -----   ------  -----   ------   -----   ------  -----  ------ -----
                                                     (Dollars in thousands)
<S>                     <C>      <C>     <C>     <C>     <C>       <C>    <C>     <C>     <C>    <C>
Mortgage loans:
 Residential........    $1,194    54.8%  $1,222   83.4%  $  675    86.0%  $400    87.2%   $436   89.3%
 Nonresidential.....       830    38.1      432    4.0       28     3.6     17     3.5      46    3.7
Consumer and other
 loans..............       155     7.1      142   12.6      297    10.4    183     9.3     118    7.0
                        ------   -----   ------  -----   ------   -----   ----   -----    ----  -----
   Total allowance for
     loan losses....    $2,179   100.0%  $1,796  100.0%  $1,000   100.0%  $600   100.0%   $600  100.0%
                        ======   =====   ======  =====   ======   =====   ====   =====    ====  =====

                                                        17
</TABLE>
<PAGE>
<PAGE>
INVESTMENT ACTIVITIES

     The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Atlanta ("FHLB"), certificates of deposit of
federally insured institutions, certain bankers' acceptances and federal
funds. Subject to various restrictions, the Bank also may invest a portion of
its assets in commercial paper and corporate debt securities. Savings
institutions like the Bank also are required to maintain an investment in FHLB
stock. The Bank is required under federal regulations to maintain a minimum
amount of liquid assets. See "REGULATION."

     The Corporation is not subject to any investment restrictions.

     The Bank purchases investment securities with excess liquidity arising
when investable funds exceed loan demand. The Bank's investment securities
purchases have been limited to U.S. Government and agency securities with
contractual maturities of between one and ten years and a mutual fund which
invests in ARM loans. The Corporation's investment activities have been
limited to overnight interest-bearing deposits and thus held no investment
securities during any period presented.
 
     At June 30, 1998, the Bank's management classified all securities in the
Bank's investment portfolio as available-for-sale under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." During the
year ended June 30, 1996, pursuant to special implementation guidance allowed
by the Financial Accounting Standards Board ("FASB") under SFAS No. 115, the
Bank reclassified securities held-to-maturity with a fair value and amortized
cost of approximately $4.0 million as securities available-for-sale. Such
reclassification is disclosed as a noncash transaction in the Consolidated
Statements of Cash Flows included in the Annual Report. See Note 1 of Notes to
Consolidated Financial Statements.

     The Bank's investment policies generally limit investments to U.S.
Government and agency securities, municipal bonds, certificates of deposits,
marketable corporate debt obligations, mortgage-backed securities and certain
types of mutual funds. The Bank's investment policy does not permit engaging
directly in hedging activities or purchasing high risk mortgage derivative
products or non-investment grade corporate bonds; however, mutual funds held
by the Bank periodically may engage in hedging activities and invest in
derivative securities. Investments are made based on certain considerations,
which include the interest rate, yield, settlement date and maturity of the
investment, the Bank's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The
effect that the proposed investment would have on the Bank's credit and
interest rate risk and risk-based capital also is considered.

     At June 30, 1998, the Bank's investment in the Asset Management Fund,
Inc., Adjustable Rate Mortgage Portfolio (which had an aggregate fair value of
$22.1 million and amortized cost of $22.2 million) exceeded 10% of the
Company's equity at that date.

                                       18
<PAGE>
<PAGE>
     The following table sets forth the amortized cost and fair value of the
Bank's securities, by accounting classification and by type of security, at
the dates indicated.
                                                                               
                                            At June 30,
                   ----------------------------------------------------------
                          1998                1997                1996
                   ------------------  ------------------  ------------------
                   Amortized Fair      Amortized Fair      Amortized Fair
                   Cost      Value     Cost      Value     Cost      Value
                   --------- -----     --------- -----     --------- -----
Held-to-maturity:                      (In thousands)
Debt securities:
 U.S. Treasury
  obligations..... $     --  $     --  $     --  $     --  $     --  $     --
 U.S. Government
  Agency
  obligations.....       --        --        --        --        --        --
                   --------  --------  --------  --------  --------  --------
  Total...........       --        --        --        --        --        --
Mortgage-backed
 securities.......       88        90       121       125       195       209
                   --------  --------  --------  --------  --------  --------
  Total held-to-
   maturity.......       88        90       121       125       195       209
                   --------  --------  --------  --------  --------  --------
Available-for-sale:
 Debt securities:
 U.S. Treasury
  obligations.....      497       498     1,492     1,488     1,986     1,975
 U.S. Government
  Agency 
  obligations.....    6,010     6,019     6,499     6,483     6,486     6,400
                   --------  --------  --------  --------  --------  --------
  Total...........    6,507     6,517     7,991     7,971     8,472     8,375

Marketable equity
 securities(1)....   22,225    22,192     2,181     2,230     9,819     9,780
                   --------  --------  --------  --------  --------  --------
  Total available-
   for-sale.......   28,732    28,709    10,172    10,201    18,291    18,155
                   --------  --------  --------  --------  --------  --------
Total............. $ 28,820  $ 28,799  $ 10,293  $ 10,326  $ 18,486  $ 18,364
                   ========  ========  ========  ========  ========  ========

----------------
(1) Consists principally of a mutual fund that invests in adjustable rate
    mortgage-backed securities. At June 30, 1998, the mutual fund yielded
    5.75%.

     The following table sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Bank's debt securities and mortgage-backed securities at June 30, 1998. U.S.
Treasury obligations and certain U.S. Government agency obligations are exempt
from state taxation. Their yields, however, have not been computed on a tax
equivalent basis for purposes of the table.

                     Less Than         After One to          After Five to
                     One Year            Five Years           Ten Years
               --------------------  ------------------  -------------------
               Amor-                 Amor-               Amor-
               tized  Fair           tized Fair          tized  Fair
               Cost   Value   Yield  Cost  Value  Yield  Cost   Value  Yield
               ------ ------  -----  ----  ------ -----  ----   -----  -----
                                  (Dollars in thousands)

U.S. Treasury
 obligations.  $  497 $  498  5.00% $   -- $   --    --% $   -- $   --    --%
U. S. Government
 Agency
 obligations.      --     --    --   5,000  5,003  6.25   1,010  1,016  7.55
Mortgage-backed
 securities..      --     --    --      88     90  8.00      --     --    --
               ------ ------  ----  ------ ------  ----  ------ ------  ----

Total........  $  497 $  498  5.00% $5,088 $5,093  6.28% $1,010 $1,016  7.55%
               ====== ======  ====  ====== ======  ====  ====== ======  ====

                                       19
<PAGE>
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

     GENERAL. Deposits are the major external source of funds for the Bank's
lending and other investment activities. In addition, the Bank also generates
funds internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by general interest rates and money market
conditions. Borrowings from the FHLB are used to compensate for reductions in
the availability of funds from other sources. Presently, the Bank has no other
borrowing arrangements.

     DEPOSIT ACCOUNTS. A substantial number of the Bank's depositors reside in
South Carolina. The Bank's deposit products include a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW")
accounts, demand deposit accounts, money market accounts, regular passbook
savings accounts, statement savings accounts and term certificate accounts.
Deposit account terms vary with the principal difference being the minimum
balance deposit, early withdrawal penalties and the interest rate. The Bank
reviews its deposit mix and pricing weekly. The Bank does not utilize brokered
deposits, nor has it aggressively sought jumbo certificates of deposit.

     The Bank believes it is competitive in the type of accounts and interest
rates it offers on its deposit products. The Bank does not seek to pay the
highest deposit rates but competitive rates. The Bank determines the rates
paid based on a number of conditions, including rates paid by competitors,
rates on U.S. Treasury securities, rates offered on various FHLB lending
programs, and the deposit growth rate the Bank is seeking to achieve.

     The Bank intends to continue to use premiums to attract new checking
accounts, particularly in conjunction with new branch openings. These premium
offers are reflected in the growth in the Bank's advertising and promotion
expense, as well as its cost of funds, in recent periods. The Bank has
introduced a number of new savings products. These include VIP Money Market,
VIP Checking, VIP Passbook Savings and an 18-month "Bump Rate CD," which
allows for a one-time rate change during the term of the CD. The Bank also
plans to seek business checking accounts and to promote individual retirement
accounts ("IRAs") and Self Employment Plan retirement accounts to businesses.

                                       20
<PAGE>
<PAGE>
     The following table sets forth information concerning the Bank's time
deposits and other deposits at June 30, 1998.

Weighted                                                             Per-
Average                                                              centage
Interest                    Checking and Savings   Minimum           of Total
Rate      Term              Deposit Accounts       Amount   Balance  Deposits
----      ----              ----------------       ------   -------  --------
                                                          (In thousands)
  --%     None              NOW - noninterest-
                             bearing               $   100  $ 12,757    3.4%
2.66      None              NOW - interest-bearing     100    42,221   11.5
4.04      None              Money market             2,500    18,133    4.9
3.28      None              Savings                    100    56,740   15.3

          Certificate Accounts
          --------------------
5.49      Within 6 months   Fixed-term, fixed-rate     500   116,609   31.5
5.68      7 - 12 months     Fixed-term, fixed-rate  25-500    81,434   22.0
5.89      13 - 36 months    Fixed-term, fixed-rate  25-500    32,985    8.9
5.55      37 - 60 months    Fixed-term, fixed-rate  25-500     6,661    1.8
5.14      Within 6 months   Fixed-term, adjustable
                             rate                       25     1,378    0.4
5.13      7 - 12 months     Fixed-term, adjustable
                             rate                       25       602    0.2
5.12      13 - 36 months    Fixed-term, adjustable
                             rate                       25       292    0.1
                                                            --------  -----
                                                            $369,812  100.0%
                                                            ========  =====

     The following table indicates the amount of the Bank's jumbo certificate
accounts by time remaining until maturity as of June 30, 1998. Jumbo
certificate accounts have principal balances of $100,000 or more.

      Maturity Period                 Amount
      ---------------                 ------
                                  (In thousands)

Three months or less..............    $13,040
Over three through six months.....     11,367
Over six through twelve months....     17,252
Over twelve months................      7,389
                                      -------
     Total........................    $49,048
                                      =======

                                       21
<PAGE>
<PAGE>
     DEPOSIT FLOW. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Bank between the dates indicated.

                                              At June 30,
              ----------------------------------------------------------------
                        1998                     1997                 1996
              ------------------------- ------------------------ -------------
                       Percent                  Percent                Percent
                        of    Increase           of    Increase          of
              Amount   Total (Decrease) Amount  Total (Decrease) Amount Total
              ------   ----- ---------- ------  -----  --------- ------ -----
                                   (Dollars in thousands)
NOW accounts
 Noninterest-
  bearing...  $ 12,757   3.4% $ 6,188 $  6,569   1.8% $   905 $  5,664   1.8%
 Interest-
  bearing...    42,221  11.5    8,796   33,425   9.5    9,044   24,381   8.0
Savings
 accounts...    56,740  15.3   (7,612)  64,352  18.2   21,408   42,944  14.0
Money market
 accounts...    18,133   4.9    3,825   14,308   4.1   (2,386)  16,694   5.5
Fixed-term
 certificate
 accounts 
(time deposits)
 which mature:
 Within 1
  year......   200,023  54.1   17,730  182,293  51.6   17,992  164,301  53.7
 After 1 year,
  but within 2
  years.....    26,379   7.1   (1,930)  28,309   8.0    4,319   23,990   7.9
 After 2 years,
  but within 3 
  years.....     6,898   1.9   (8,268)  15,166   4.3    7,272    7,894   2.6
 Thereafter.     6,661   1.8   (2,110)   8,771   2.5  (11,192)  19,963   6.5
              -------- -----  ------- -------- -----  ------- -------- -----
   Total....  $369,812 100.0% $16,619 $353,193 100.0% $47,362 $305,831 100.0%
              ======== =====  ======= ======== =====  ======= ======== =====

     TIME DEPOSITS BY RATES. The following table sets forth the amount of time
deposits in the Bank categorized by rates at the dates indicated.

                                   At June 30,
                      -----------------------------------
                         1998          1997         1996
                         ----          ----         ----
                             (Dollars in thousands)

3.00% or less....     $    412      $    325     $  3,329
3.01% - 5.00%....        2,623         2,613        7,656
5.01% - 7.00%....      236,792       231,333      204,734
7.01% - 9.00%....          134           268          429
                      --------      --------     --------
Total............     $239,961      $234,539     $216,148
                      ========      ========     ========

     TIME DEPOSITS BY MATURITIES. The following table sets forth the amount of
time deposits in the Bank categorized by maturities at June 30, 1998.

                                  Amount Due
                 ---------------------------------------------
                 Less Than   1-2      2-3      3-4      After
                 One Year   Years    Years    Years    4 Years   Total
                 --------   -----    -----    -----    -------   -----
                               (Dollars in thousands)

3.00% or less... $    412  $     --  $    --  $    --  $    --  $    412
3.01% - 5.00%...    2,623        --       --       --       --     2,623
5.01% - 7.00%...  196,964    26,351    6,872    3,232    3,373   236,792
7.01% - 9.00%...       24        28       26       25       31       134
                 --------  --------  -------  -------  -------  --------
Total........... $200,023  $ 26,379  $ 6,898  $ 3,257  $ 3,404  $239,961
                 ========  ========  =======  =======  =======  ========

                                       22
<PAGE>
<PAGE>
     DEPOSIT ACTIVITY.  The following table set forth the deposit activity of
the Bank for the periods indicated.

                                                Year Ended June 30,
                                           ------------------------------
                                             1998       1997       1996
                                             ----       ----       ----
                                                   (In thousands)

Beginning balance......................    $353,193   $305,831   $275,915
                                           --------   --------   --------
Net deposits before interest credited..       1,452     33,743     17,240
Interest credited......................      15,167     13,619     12,676
                                           --------   --------   --------
Net increase in deposits...............      16,619     47,362     29,916
                                           --------   --------   --------
Ending balance.............,,,,,,,,,,,,    $369,812   $353,193   $305,831
                                           ========   ========   ========

     BORROWINGS. Deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business purposes. The
Bank has the ability to use advances from the FHLB to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. The FHLB functions
as a central reserve bank providing credit for savings banks and certain other
member financial institutions. As a member of the FHLB, the Bank is required
to own capital stock in the FHLB and is authorized to apply for advances on
the security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit.

     The Bank had advances from the FHLB in the amount of $17.0 million at
June 30, 1998 (none at June 30, 1997 or 1996). These fixed-rate advances had a
weighted average rate of 5.15% and all mature in the fiscal year ending June
30, 2008. Interest is payable quarterly and principal is due at maturity. The
maximum amount of borrowings outstanding at any month end was $17.0 million
and the approximate average borrowings outstanding was $3.0 million during the
year ended June 30, 1998.

     All of the advances are convertible prior to maturity (at the option of
the FHLB) to a variable three-month LIBOR-based rate. Of the advances
outstanding, $10.0 million first becomes convertible in the fiscal year ending
June 30, 1999 and is convertible at any quarterly payment date through
maturity. The FHLB has a one-time conversion option on the remaining $7.0
million of advances. The option may be exercised on the respective advances'
fifth anniversary date in the fiscal year ending June 30, 2003. Should the
conversion option on any advance be exercised by the FHLB, the Bank has the
right to prepay the advance on any quarterly payment date through maturity.
 
     The Bank had an approved credit limit of $40 million with the FHLB at
June 30, 1998 which was subsequently increased to $75.0 million on August 19,
1998. The advances are secured by FHLB stock and a blanket lien on all
qualifying one-to-four family residential first mortgage loans.

                                       23
<PAGE>
<PAGE>
COMPETITION

     The Bank faces intense competition in its primary market area for the
attraction of savings deposits (its primary source of lendable funds) and in
the origination of loans. Its most direct competition for savings deposits
historically has come from commercial banks, credit unions, other thrifts
operating in its market area, and other financial institutions such as
brokerage firms and insurance companies. As of June 30, 1998, there were
numerous large regional state-wide and community banks as well as other
thrifts operating in its primary market area. Particularly in times of high
interest rates, the Bank has faced additional significant competition for
investors' funds from short-term money market securities and other corporate
and government securities. The Bank's competition for loans comes from
commercial banks, thrift institutions, credit unions and mortgage bankers.
Such competition for deposits and the origination of loans may limit the
Bank's growth in the future.

SUBSIDIARY ACTIVITIES

     Under OTS regulations, the Bank generally may invest up to 3% of its
assets in service corporations, provided that any investment in excess of 2%
of assets shall be used primarily for community, inner-city and community
development projects. The Bank's investment in its wholly-owned service
corporation, FirstService Corporation ("FirstService"), which was
approximately $443,000 at June 30, 1998, did not exceed these limits.
 
     FirstService sells alternative investment products such as mutual funds,
deferred annuities and insurance. In addition, in August 1996 it purchased for
$400,000 a one-third equity interest in First Trust Mortgage Corporation,
Greenville, South Carolina ("First Trust"), a start-up mortgage banking
company. The Bank has purchased loans from First Trust in recent periods. See
"-- Lending Activities -- Loan Originations, Sales and Purchases." All loans
are purchased from First Trust subject to the Bank's underwriting standards.
At June 30, 1998, the Bank's financial commitment to First Trust and its
maximum exposure to share in any losses incurred by First Trust were limited
solely to its equity investment through FirstService. The Bank, either
directly or through FirstService, may undertake additional financial
commitments in the future that would increase its loss exposure to First
Trust's operations; however, there are no such agreements, plans or
understandings at present. The Bank recorded income of $181,000 and a loss of
approximately $97,000 for the years ended June 30, 1998 and 1997,
respectively, related to First Trust's operations. Billy L. Painter, the
Bank's President and Chief Executive Officer, and J. Stephen Sinclair, the
Bank's Executive Vice President of Lending, are directors of First Trust.

                                   REGULATION

GENERAL

     The Bank is subject to extensive regulation, examination and supervision
by the OTS as its chartering agency, and the FDIC, as the insurer of its
deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS
and the FDIC to implement these statutes. These laws and regulations delineate
the nature and extent of the activities in which federal savings associations
may engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Bank's
relationship with its depositors and borrowers also is regulated to a great
extent, especially in such matters as the ownership of deposit accounts and
the form and content of the Bank's mortgage documents. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to
review the Bank's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or
Congress, could have a material adverse impact on the Corporation, the Bank
and their operations. The Corporation, as a savings and loan holding company,
is also required to file certain reports with, and otherwise comply with the
rules and regulations of, the OTS.

                                       24
<PAGE>
<PAGE>
FEDERAL REGULATION OF SAVINGS BANKS

     OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings banks and regularly examines these institutions.

     FEDERAL HOME LOAN BANK SYSTEM (THE "SYSTEM"). The System, consisting of
12 Federal Home Loan Banks ("FHLBs"), is under the jurisdiction of the Federal
Housing Finance Board ("FHFB"). The designated duties of the System is to
supervise the FHLBs, to ensure that the FHLBs carry out their housing finance
mission, to ensure that the FHLBs remain adequately capitalized and able to
raise funds in the capital markets and to ensure that the FHLBs operate in a
safe and sound manner. The Bank, as a member of the FHLB, is required to
acquire and hold shares of capital stock in the FHLB in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB. The Bank is in compliance with this requirement with an investment in
FHLB stock of $3.4 million at June 30, 1998. Among other benefits, the FHLB
provides a central credit facility primarily for member institutions. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB.

     FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Bank's
deposits, the FDIC has examination, supervisory and enforcement authority over
the Bank.

     The Bank's deposit accounts are insured by the SAIF to the maximum extent
permitted by law. The Bank pays deposit insurance premiums based on a risk-
based assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -- "well capitalized," "adequately
capitalized" or "undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into three subgroups which reflect
varying levels of supervisory concern, from those which are considered to be
healthy to those which are considered to be of substantial supervisory
concern. The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.

     Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was
enacted on September 30, 1996, the FDIC imposed a special assessment on each
depository institution with SAIF-assessable deposits which resulted in the
SAIF achieving its designated reserve ratio. In connection therewith, the FDIC
reduced the assessment schedule for SAIF members, effective January 1, 1997,
to a range of 0% to 0.27%, with most institutions, including the Bank, paying
0%. This assessment schedule is the same as that for the BIF, which reached
its designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of 0.065% of SAIF-assessable deposits for
the purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately 0.013% until the earlier of December
31, 1999 or the date upon which the last savings bank ceases to exist, after
which time the assessment will be the same for all insured deposits.

                                       25
<PAGE>
<PAGE>
     The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings bank on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings banks. It is not known what form the common charter may take
and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.

     The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is not aware of any existing circumstances that could
result in termination of the deposit insurance of the Bank.

     LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash,
certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 4.0%) of its net withdrawable accounts plus short-term
borrowings. Monetary penalties may be imposed for failure to meet liquidity
requirements. At June 30, 1998, the Bank's liquidity ratio was 5.9%.

     PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions
that it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action.
Under the regulations, an institution shall be deemed to be (i) "well
capitalized" if it has a total risk-based capital ratio of 10.0% or more, has
a Tier I risk-based capital ratio of 6.0% or more, has a leverage ratio of
5.0% or more and is not subject to specified requirements to meet and maintain
a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier I risk-based capital ratio of 4.0% or more, has a leverage ratio of 4.0%
or more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio
that is less than 4.0% or has a leverage ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6.0%, has a Tier I
risk-based capital ratio that is less than 3.0% or has a leverage ratio that
is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.

     A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity. (The
OTS may not, however, reclassify a significantly undercapitalized institution
as critically undercapitalized.)

     An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.

     At June 30, 1998, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the OTS.

                                       26
<PAGE>
<PAGE>
     STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that the
Bank fails to meet any standard prescribed by the Guidelines, the agency may
require the Bank to submit to the agency an acceptable plan to achieve
compliance with the standard. OTS regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.

     QUALIFIED THRIFT LENDER TEST. All savings banks are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the bank may not make any new investment
or engage in activities that would not be permissible for national banks; (ii)
the bank may not establish any new branch office where a national bank located
in the savings institution's home state would not be able to establish a
branch office; (iii) the bank shall be ineligible to obtain new advances from
any FHLB; and (iv) the payment of dividends by the bank shall be subject to
the rules regarding the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings institution ceases to be a QTL, the savings institution
would be prohibited from retaining any investment or engaging in any activity
not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings bank controlled by a company ceases to be a QTL, the company
must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.

     Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code of
1986, as amended ("Code") or that 65% of an institution's "portfolio assets"
(as defined) consist of certain housing and consumer-related assets on a
monthly average basis in nine out of every 12 months. Assets that qualify
without limit for inclusion as part of the 65% requirement are loans made to
purchase, refinance, construct, improve or repair domestic residential housing
and manufactured housing; home equity loans; mortgage-backed securities (where
the mortgages are secured by domestic residential housing or manufactured
housing); FHLB stock; and direct or indirect obligations of the FDIC; and
loans for educational purposes, loans to small businesses and loans made
through credit cards. In addition, the following assets, among others, may be
included in meeting the test subject to an overall limit of 20% of the savings
institution's portfolio assets: 50% of residential mortgage loans originated
and sold within 90 days of origination; 100% of consumer loans; and stock
issued by Federal Home Loan Mortgage Corporation or Fannie Mae. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct
its business, and (iii) liquid assets up to 20% of the institution's total
assets. At June 30, 1998, the Bank was in compliance with the QTL test.

     CAPITAL REQUIREMENTS.  Under OTS regulations a savings bank must satisfy 
three minimum capital requirements:  core capital, tangible capital and
risk-based capital.  Savings  banks must meet all of the standards in order to
comply with the capital requirements.

                                       27
<PAGE>
<PAGE>
     OTS capital regulations establish a 4% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion
of certain assets from capital and to account appropriately for the
investments in and assets of both includable and nonincludable subsidiaries.
Institutions that fail to meet the core capital requirement would be required
to file with the OTS a capital plan that details the steps they will take to
reach compliance. In addition, the OTS's prompt corrective action regulation
provides that a savings institution that has a leverage ratio of less than 4%
(3% for institutions receiving the highest CAMEL examination rating) will be
deemed to be "undercapitalized" and may be subject to certain restrictions.
See "-- Federal Regulation of Savings Banks C Prompt Corrective Action."

     Savings banks also must maintain "tangible capital" not less than 1.5% of
adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.

     Savings banks must maintain total risk-based capital equal to at least 8%
of risk-weighted assets. Total risk-based capital consists of the sum of core
and supplementary capital, provided that supplementary capital cannot exceed
core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.

     The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans that do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighting factor (from
0% to 100%) assigned to that category. These products are then totaled to
arrive at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included in risk-weighted assets.

      The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, a savings bank with "above normal"
interest rate risk exposure would be subject to a deduction from total capital
for purposes of calculating their risk-based capital requirements. A savings
bank's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the bank's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings bank whose measured interest rate risk exposure exceeds 2%
must deduct an interest rate risk component in calculating its total capital
under the risk-based capital rule. The interest rate risk component is an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
bank's assets. That dollar amount is deducted from

                                       28
<PAGE>
<PAGE>
a bank's total capital in calculating compliance with its risk-based capital
requirement. Under the rule, there is a two quarter lag between the reporting
date of an institution's financial data and the effective date for the new
capital requirement based on that data. A savings bank with assets of less
than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. The rule also provides that the Director of the OTS may waive or
defer a bank's interest rate risk component on a case-by-case basis. Under
certain circumstances, a savings bank may request an adjustment to its
interest rate risk component if it believes that the OTS-calculated interest
rate risk component overstates its interest rate risk exposure. In addition,
certain "well-capitalized" institutions may obtain authorization to use their
own interest rate risk model to calculate their interest rate risk component
in lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
 
     The following table presents the Bank's capital levels as of June 30,
1998.
                                              Percent of
                                            Adjusted Total
                                   Amount     Assets(1)
                                   ------     ---------
                                 (Dollars in thousands)

Tangible capital...............   $90,054        18.4%
Minimum required
 tangible capital..............     7,325         1.5
                                  -------       -----
Excess.........................   $82,729        16.9%
                                  =======        ====
Core capital...................   $90,054        18.4%
Minimum required core
 capital.......................    19,532         4.0
                                  -------        ----
Excess.........................   $70,522        14.4%
                                  =======        ====
Risk-based capital(2)..........   $92,211        29.9%
Minimum risk-based
 capital requirement...........    24,654         8.0
                                  -------        ----
Excess.........................   $67,557        21.9%
                                  =======        ====
-------------------
(1)  Based on adjusted total assets of $488.3 million for purposes of the
     tangible and core capital requirements, and risk-weighted assets of
     $308.2 million for purposes of the risk-based capital requirement.
(2)  Percentage represents total core and supplementary capital divided by
     total risk-weighted assets.

     LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings banks to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30
days' advance notice of any proposed declaration of dividends, and the OTS has
the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings Bank's capital
level.

                                       29
<PAGE>
<PAGE>
      A Tier 1 savings bank has capital in excess of its capital requirement
(both before and after the proposed capital distribution). A Tier 1 savings
bank may make (without application but upon prior notice to, and no objection
made by, the OTS) capital distributions during a calendar year up to 100% of
its net income to date during the calendar year plus one-half its surplus
capital ratio (i.e., the amount of capital in excess of its requirement) at
the beginning of the calendar year or the amount authorized for a Tier 2 bank.
Capital distributions in excess of such amount require advance notice to the
OTS. A Tier 2 savings bank has capital equal to or in excess of its minimum
capital requirement but below its requirement (both before and after the
proposed capital distribution). Such an bank may make (without application)
capital distributions up to an amount equal to 75% of its net income during
the previous four quarters depending on how close the bank is to meeting its
capital requirement. Capital distributions exceeding this amount require prior
OTS approval. Tier 3 banks are savings banks with capital below the minimum
capital requirement (either before or after the proposed capital
distribution). Tier 3 banks may not make any capital distributions without
prior approval from the OTS.

     The Bank currently meets the criteria to be designated a Tier 1 bank and,
consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar
year less any distributions previously paid during the year.

     LOANS TO ONE BORROWER. Under the HOLA, savings banks generally are
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings banks meeting certain requirements, including
capital requirements, to extend loans to one borrower in additional amounts
under circumstances limited essentially to loans to develop or complete
residential housing units. At June 30, 1998, the Bank's limit on loans to one
borrower was $13.5 million. At June 30, 1998, the Bank's largest aggregate
amount of loans to one borrower was $4.1 million.

     ACTIVITIES OF BANKS AND THEIR SUBSIDIARIES. A savings bank may establish
operating subsidiaries to engage in any activity that the savings bank may
conduct directly and may establish service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other
activities reasonably related to the activities of financial institutions.
When a savings bank establishes or acquires a subsidiary or elects to conduct
any new activity through a subsidiary that the bank controls, the savings bank
must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings banks also must
conduct the activities of subsidiaries in accordance with existing regulations
and orders.

     The OTS may determine that the continuation by a savings bank of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings bank to divest itself of control of the subsidiary. The FDIC also
may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage
in that activity directly.

     TRANSACTIONS WITH AFFILIATES. Savings banks must comply with Sections 23A
and 23B of the Federal Reserve Act relative to transactions with affiliates in
the same manner and to the same extent as if the savings bank were a Federal
Reserve member bank. A savings and loan holding company, its subsidiaries and
any other company under common control are considered affiliates of the
subsidiary savings bank under the HOLA. Generally, Sections 23A and 23B: (i)
limit the extent to which the insured bank or its subsidiaries may engage in
certain covered transactions with an affiliate to an amount equal to 10% of
such institution's capital and surplus and place an aggregate limit on all
such transactions with affiliates to an amount equal to 20% of such capital
and surplus, and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by the bank to an affiliate must be secured by collateral
in accordance with Section 23A.

                                       30
<PAGE>
<PAGE>
     Three additional rules apply to savings banks: (i) a savings bank may not
make any loan or other extension of credit to an affiliate unless that
affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings bank may not purchase or invest in securities issued
by an affiliate (other than securities of a subsidiary); and (iii) the OTS
may, for reasons of safety and soundness, impose more stringent restrictions
on savings banks but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.

     The Bank's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by such persons, is
governed currently by Sections 22(g) and 22(h) of the Federal Reserve Act, and
Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk
of repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to such persons based, in part, on the
Bank's capital position, and requires certain board approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation
O to savings institutions.

     COMMUNITY REINVESTMENT ACT. Savings banks also are subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings bank, to assess the savings bank's record in meeting
the credit needs of the community serviced by the savings bank, including low
and moderate income neighborhoods. The regulatory agency's assessment of the
savings bank's record is made available to the public. Further, such
assessment is required of any savings bank which has applied, among other
things, to establish a new branch office that will accept deposits, relocate
an existing office or merge or consolidate with, or acquire the assets or
assume the liabilities of, a federally regulated financial institution.

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

     COMPANY ACQUISITIONS. The HOLA and OTS regulations issued thereunder
generally prohibit a savings and loan holding company, without prior OTS
approval, from acquiring more than 5% of the voting stock of any other savings
bank or savings and loan holding company or controlling the assets thereof.
They also prohibit, among other things, any director or officer of a savings
and loan holding company, or any individual who owns or controls more than 25%
of the voting shares of such holding company, from acquiring control of any
savings bank not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.

     COMPANY ACTIVITIES. As a unitary savings and loan holding company, the
Corporation generally is not subject to activity restrictions under the HOLA.
If the Corporation acquires control of another savings bank as a separate
subsidiary other than in a supervisory acquisition, it would become a multiple
savings and loan holding company. There generally are more restrictions on the
activities of a multiple savings and loan holding company than on those of a
unitary savings and loan holding company. The HOLA provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured bank shall commence or continue for more than two
years after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity other than: (i) furnishing or performing
management services for a subsidiary insured institution, (ii) conducting an
insurance agency or escrow business, (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary insured institution, (iv)
holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the
OTS by regulation, prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above also must be
approved by the OTS prior to being engaged in by a multiple savings and loan
holding company.

     QUALIFIED THRIFT LENDER TEST. The HOLA requires any savings and loan
holding company that controls a savings bank that fails the QTL test (as
explained under "-- Federal Regulation of Savings Banks -- Qualified Thrift

                                       31 
<PAGE>
<PAGE>
Lender Test") to, within one year after the date on which the bank ceases to
be a QTL, register as and be deemed a bank holding company subject to all
applicable laws and regulations.

                                   TAXATION

FEDERAL TAXATION

     GENERAL. The Company and the Bank report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Corporation.

     TAX BAD DEBT RESERVES. Historically, savings institutions such as the
Bank which met certain definitional tests primarily related to their assets
and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Bank's
deductions with respect to "qualifying real property loans," which generally
are loans secured by certain interest in real property, were computed using an
amount based on the Bank's actual loss experience, or a percentage equal to 8%
of the Bank's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the non-qualifying reserve. Due to
the Bank's loss experience, the Bank generally recognized a bad debt deduction
equal to 8% of taxable income.

     The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. These rules also require that all institutions recapture
all or a portion of their bad debt reserves added since the base year (last
taxable year beginning before January 1, 1988). For taxable years beginning
after December 31, 1995, the Bank's bad debt deduction must be determined
under the experience method using a formula based on actual bad debt
experience over a period of years or, if the thrift is a "large" thrift
(assets in excess of $500 million) on the basis of net charge-offs during the
taxable year. The unrecaptured base year reserves will not be subject to
recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continues
to be subject to provisions of present law referred to below that require
recapture of the pre-1988 bad debt reserve in the case of certain excess
distributions to shareholders.

     DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to the Corporation, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of
December 31, 1987 (or a lesser amount if the Bank's loan portfolio decreased
since December 31, 1987) and then from the supplemental reserve for losses on
loans ("Excess Distributions"), and an amount based on the Excess
Distributions will be included in the Bank's taxable income. Nondividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out
of the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a
distribution from the Bank's bad debt reserve. The amount of additional
taxable income created from an Excess Distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, the Bank makes a "nondividend distribution," then
approximately one and one-half times the Excess Distribution would be
includable in gross income for federal income tax purposes, assuming a 35%
corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" for limits on the payment of dividends by the Bank. The Bank does
not intend to pay dividends that would result in a recapture of any portion of
its tax bad debt reserve.

     CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income

                                       32
<PAGE>
<PAGE>
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carry-overs.
AMTI is increased by an amount equal to 75% of the amount by which the Bank's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Bank, whether or
not an Alternative Minimum Tax ("AMT") is paid.

     DIVIDENDS-RECEIVED DEDUCTION AND OTHER MATTERS. The Corporation may
exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations. The corporate dividends-received
deduction generally is 70% in the case of dividends received from unaffiliated
corporations with which the Corporation and the Bank will not file a
consolidated tax return, except that if the Corporation or the Bank owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.

     AUDITS. The Bank's Federal income tax returns are in the process of being
audited through June 30, 1997. The Consolidated Financial Statements include
the effects of all probable adjustments related to the audit.

STATE TAXATION

     SOUTH CAROLINA. The provisions of South Carolina tax law mirror the Code,
with certain modifications, as it relates to savings banks. The Bank is
subject to South Carolina income tax at the rate of 6%. This rate of tax is
imposed on savings and loan banks in lieu of the general state business
corporation income tax. The Bank's state income tax returns have not been
audited within the last five years.

     DELAWARE. As a Delaware holding company not earning income in Delaware,
the Corporation is exempt from Delaware corporate income tax, but is required
to file an annual report with and pay an annual franchise tax to the State of
Delaware.

     For additional information regarding taxation, see Note 7 of Notes to
Consolidated Financial Statements contained in the Annual Report.

PERSONNEL

     As of June 30, 1998, the Company had 124 full-time employees and 36
part-time employees. The Company believes that employees play a vital role in
the success of a service company and that the Company's relationship with its
employees is good. The employees are not represented by a collective
bargaining unit.

                                       33
<PAGE>
<PAGE>
ITEM 2.   PROPERTIES
--------------------

     The following table sets forth certain information regarding the
Company's offices as of June 30, 1998.
                                                                       Net
                                          Approximate                  Book
Location                  Year Opened     Square Footage   Deposits    Value
--------                  -----------     --------------   --------    -----
                                                            (In thousands)
MAIN OFFICE:

380 E. Main Street          1974            32,820         $208,191   $1,072
Spartanburg, South Carolina

BRANCH OFFICES:

1488 W.O. Ezell Boulevard   1980             2,453           54,438      636
Spartanburg, South Carolina

280 N. Church Street        1986             1,080           34,949      200
Spartanburg, South Carolina

1585 E. Main Street         1991             2,166           23,536      409
Spartanburg, South Carolina

2701 Boiling Springs Road   1994             3,300           28,647      581
Boiling Springs, South Carolina

1157 Asheville Highway      1997             3,330           11,008      538
Inman, South Carolina

2075 East Main Street       1997             1,680            7,114       91
Duncan, South Carolina

1451 Woodruff Road          1998               540            1,929      219
Greenville, South Carolina


     The Bank uses the services of an outside service bureau for its
significant data processing applications. At June 30, 1998, the Bank had seven
proprietary automated teller machines. At June 30, 1998, the net book value of
the Bank's office properties and the Bank's fixtures, furniture and equipment
was $5.7 million.

ITEM 3.   LEGAL PROCEEDINGS
---------------------------

     In the opinion of management, the Company is not a party to any pending
claims or lawsuits that are expected to have a material effect on the
Company's financial condition or operations. Periodically, there have been
various claims and lawsuits involving the Company mainly as a defendant, such
as claims to enforce liens, condemnation proceedings on properties in which
the Company holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Company's
business. Management, based on advice from legal counsel does not expect the
outcome of any pending legal proceedings to have a material effect on the
financial condition or results of operations of the Company.

                                       34
<PAGE>
<PAGE>
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------

     No matters were submitted to a vote of security holders during the
quarter ended June 30, 1998.

                                    PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
---------------------------------------------------------------------------
          MATTERS
          -------

     The common stock of FirstSpartan is traded on the Nasdaq National Market
under the symbol "FSPT." As of September 14, 1998, there were approximately
1,235 stockholders of record (excluding holders in nominee or street name).

     Declarations or payments of dividends are subject to determination by the
Corporation's Board of Directors, which takes into account the Corporation's
financial condition, results of operations, tax considerations, capital
requirements, industry standards, economic conditions and other factors,
including the regulatory restrictions which affect the payment of dividends by
the Bank to the Corporation. See "REGULATION -- Federal Regulation of Savings
Banks C Limitations on Capital Distributions" and "-- Savings and Loan Holding
Company Regulations -- Dividends."

     The Corporation's common stock was sold in its initial public offering at
$20.00 per share and commenced trading on July 8, 1997. High and low prices
and dividend information are included in the Company's Annual Report to
Shareholders which is incorporated herein by reference.

ITEM 6.   SELECTED FINANCIAL DATA
---------------------------------

     The information under Item 6 of this Report is included in the Company's
Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------------
          RESULTS OF OPERATIONS
          ---------------------

     The information under Item 7 of this Report is included in the Company's
Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

     The information under Item 7A of this Report is included in the Company's
Annual Report to Shareholders and is incorporated herein by reference.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------------

      The information under Item 8 of this Report is included in the Company's
Annual Report to Shareholders and is incorporated herein by reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------------
          FINANCIAL DISCLOSURE
          --------------------

     Not applicable.

                                       35
<PAGE>
<PAGE>
                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

     The information under Item 10 of this Report is included in the Company's
Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.

     Reference is made to the cover page of this report for information
regarding compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act").

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     The information under Item 11 of this Report is included in the Company's
Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     The information under Items 12(a) and 12(b) of this Report is included in
the Company's Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information under Items 13 of this Report is included in the
Company's Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders and is incorporated herein by reference.

                                       36
<PAGE>
<PAGE>
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

     (a)    Exhibits

            (3)(a)  Certificate of Incorporation of the Registrant*
            (3)(b)  Bylaws of the Registrant*
            (10)(a) Employment Agreement with Billy L. Painter**
            (10)(b) Employment Agreement with Hugh H. Brantley**
            (10)(c) Employment Agreement with J. Stephen Sinclair**
            (10)(d) Employment Agreement with R. Lamar Simpson***
            (10)(e) Severance Agreement with Rand Peterson**
            (10)(f) Severance Agreement with Thomas Bridgeman**
            (10)(g) Severance Agreement with Katherine A. Dunleavy***
            (10)(h) Employee Severance Compensation Plan**
            (10)(i) Employee Stock Ownership Plan**
            (10)(j) Registrant's 1997 Stock Option Plan****
            (10)(k) Registrant's Management Recognition and Development
                    Plan****
            (13)    1998 Annual Report to Stockholders
            (21)    Subsidiaries of the Registrant**
            (23)    Consent of Deloitte & Touche LLP
            (27)    Financial Data Schedule

     (b) Reports on Form 8-K:

         No Forms 8-K were filed during the quarter ended June 30, 1998.

---------------
*     Filed as an exhibit to the Registrant's Registration Statement on Form
      S-1 (333-23015) and incorporated herein by reference.
**    Filed as an exhibit to the  registrant's  Annual Report on Form 10-K for
      the fiscal year ended June 30, 1997 and incorporated herein by
      reference.
***   Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1997 and incorporated herein by
      reference.
****  Filed as an exhibit to the Registrant's Annual Meeting Definitive Proxy
      Statement dated December 12, 1997 and incorporated herein by reference.

                                       37
<PAGE>
<PAGE>
                                  SIGNATURES

     Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                       FIRSTSPARTAN FINANCIAL CORP.

Date: September 23, 1998            By:/s/ Billy L.  Painter
                                       -------------------------------------
                                       Billy L. Painter
                                       President and Chief Executive Officer
                                       (Duly Authorized Representative)

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

By: /s/ Billy L. Painter                          September 23, 1998
    ------------------------------------
    Billy L. Painter
    President and Chief Executive Officer
    (Principal Executive Officer)

By: /s/ R. Lamar Simpson                          September 23, 1998
    ------------------------------------
    R. Lamar Simpson
    Treasurer, Secretary and Chief Financial Officer
    (Principal Financial and Accounting Officer)

By: /s/ Robert R. Odom                            September 23, 1998
    ------------------------------------
    Robert R. Odom
    Chairman of the Board

By: /s/ E. Lea Salter                             September 23, 1998
    ------------------------------------
    E. Lea Salter
    Director

By: /s/ David E. Tate                             September 23, 1998
    ------------------------------------
    David E. Tate
    Director

By: /s/ Robert L. Handell                         September 23, 1998
    ------------------------------------
    Robert L. Handell
    Director

By: /s/ E.L. Sanders                              September 23, 1998
    ------------------------------------
    E.L. Sanders
    Director

By: /s/ R. Wesley Hammond                         September 23, 1998
    ------------------------------------
    R. Wesley Hammond
    Director

<PAGE>
<PAGE>
                                                                  Exhibit 13
ANNUAL
REPORT
------
1998

                                [GRAPHIC- FOUR QUARTERS]



                                 FIRST SPARTAN
                           --------------------------
                           F I N A N C I A L C O R P.

<PAGE>
<PAGE>

Table of Contents

Letter to Stockholders                                  1

Financial Summary                                       3

Management's Discussion and
  Analysis                                              4

Independent Auditors' Report                           16

Consolidated Financial Statements                      17

Notes to Consolidated
  Financial Statements                                 22

Corporate and
  Stockholder Information               Inside Back Cover


<PAGE>
<PAGE>
                                                    To Our Stockholders

     Our 1998 fiscal year was very  exciting and  rewarding.  The  excitement
began with our mutual to stock conversion and initial public offering on July
8, 1997 and continued with the  substantial  growth of the Company during the
year. We are pleased to report to you record earnings and a strong financial
condition in this annual  report.  Net income for the year was $7.5 million, 
or $1.85 per share,  for a return on average  assets of 1.51%.  Asset growth
was  substantial during the year.  Total assets at June 30, 1998 were $517.4 
million.  Excluding the impact of the excess  subscription funds held at June
30, 1997 in connection with the conversion, assets grew by $49.8 million.

     We realize  that our  biggest  challenges  are to manage our capital and
increase  shareholder  value. Our average assets to average equity was 25.5%
for the year which contributed significantly to our relatively low return on
average equity of 5.9% for the year.  The capital  level and return on equity 
were,  of course,  anticipated  effects of the conversion  but as regulatory 
restrictions ease  somewhat  in the second  year after  conversion,  capital 
management  and capital leverage will be given a high priority.

     Loans  receivable  increased  $59.4 million or 16%. The increase was the
result of loan originations by First Federal Bank as well as loan purchases
from the mortgage banking affiliate in which the Bank is a one-third equity
owner. As part of our operating strategy, one of our goals is to gradually
restructure the composition of our loan  portfolio to increase the  proportion
of shorter-term, higher-yielding consumer and commercial loans. While this
type of lending should result in higher  yields,  it does  involve  increased 
credit risk which we are striving to manage.  Even with the loan growth, the
loan portfolio is performing well with nonperforming loans at 0.32% of total
loans at June 30, 1998.

     Late last year we hired an experienced banker to head our commercial
lending area.  Our efforts increased our commercial mortgage and commercial
business loans from $5.8 million to $17.6 million, an increase of $11.8
million. The Bank now offers a full array of commercial banking products, 
including a sweep account introduced during the year.

     Our residential mortgage and consumer lending functions also had an
outstanding year.  As part of our growth strategy, we developed a plan to
increase lending in our branch network, with a particular emphasis on consumer
loan originations.  Early in the fiscal year, we appointed a senior vice
president of retail banking who is responsible for management of the delivery
of retail products throughout the Bank. Also, the addition of several
experienced retail banking officers over the past eighteen months has had a
positive impact on loan production.

     Residential mortgage loan balances increased by $27.0 million to $313.0
million at June 30, 1998.  Consumer loan balances (including home equity
loans) increased by $11.3 million to $53.0 million at June 30, 1998.  The
increase in consumer loans and record mortgage loan originations allowed us to
increase our average loans outstanding and at the same time begin to sell
30-year fixed rate loans again on a regular basis.  For the past few years, we
had slowed our secondary market activity, allowing our fixed rate loan
portfolio to grow in order to increase yield and net interest income.  By
selling longer-term fixed rate loans, we are able to lower interest rate risk
and increase noninterest income.

     In the deposit area, we are extremely pleased with the growth in checking
accounts.  We completed our first full year of a sales awareness and training 
program for all retail service personnel and had several successful checking
account promotions during the year. Additionally, the two branches that we
opened in June 1997 and
                                                                              
1
<PAGE>
<PAGE>
the branch that opened in February 1998 contributed significantly to our
deposit growth.  The result was an increase in deposits of $36.6 million after
excluding the impact of $20.0 million of account withdrawals on July 8, 1997
used to fund stock purchases in the conversion.  Checking accounts comprised
$15.0 million of the increase in deposits.

     We continue to add branches to grow our franchise.  In addition to the
two branches opened in late June 1997 in Inman and Duncan,  both of which
became fully operational in the current fiscal year, we established a branch
in the new Wal-Mart Supercenter in Greenville.  We also announced plans for
three new offices:  a traditional branch in Greer (Greenville County), a
Wal-Mart Supercenter branch in Greer (Spartanburg County) and a traditional
branch in Chesnee (Spartanburg County). We expect to open the Greer branches
in September 1998 and have already hired experienced, well qualified staff,
headed by a city executive with 26 years banking experience, which includes
service as a community bank president.  We think the excellent products and 
well qualified
personnel will allow the Bank to become an important part of the  Greer
community. We expect to open the Chesnee office in early calendar year 1999.

     During the year we also restructured FirstService Corporation, the
Bank's service corporation, to offer a broader range of investment products.
With the addition of new products and services and a seasoned investment
representative, our customers now have access to a wide variety of mutual
funds, insurance products, discount brokerage services and other investment
services.

     Much attention is being focused on the Year 2000 computer system
challenge.  In May 1997 we appointed a committee composed of senior management
and various operational personnel to address the issue.  After months of
assessment, planning and development, the Bank will begin testing, along with
its core processing vendor, BISYS, in October 1998 to insure that all of our
computer dependent systems are Year 2000 compliant.

     With all of the excitement surrounding the Company we must remember that
the success of the Company depends on its staff. We are fortunate to have
loyal, dedicated and hardworking staff who are committed to the fundamentals
of
customer service: putting customers first, doing their jobs right the first
time, and providing quality products and services.

     The staff, officers and directors thank you for being a stockholder of
FirstSpartan Financial Corp. We look forward to meeting the challenges ahead
while continuing to build value for our stockholders, customers and the
communities we serve.

Sincerely,

/s/Billy L. Painter

Billy L. Painter
President and
Chief Executive Officer

2
<PAGE>
<PAGE>
<TABLE>
                                                                                                      Financial Summary

                                                                (In thousands, except per share data)
                                                                   At or For the Year Ended June 30,
                                                    1998           1997           1996           1995          1994
                                                  --------       --------       --------       --------       --------
<S>                                               <C>            <C>            <C>            <C>            <C>
Summary of Operations:
Investment income                                 $ 37,414       $ 29,462       $ 26,445       $ 23,835       $ 23,153
Interest expense                                    17,153         15,811         14,669         11,302         10,387
                                                  --------       --------       --------       --------       --------
Net interest income                                 20,261         13,651         11,776         12,533         12,766
Provision for loan losses                              460            825            419              9             --
                                                  --------       --------       --------       --------       --------
Net interest income
 after provision for loan losses                    19,801         12,826         11,357         12,524         12,766
                                                  --------       --------       --------       --------       --------
Noninterest income                                   2,366          1,386          1,238            278             84
Noninterest expense(1)                               9,820          9,903          6,947          6,166          5,671
                                                  --------       --------       --------       --------       --------
Income before income taxes                          12,347          4,309          5,648          6,636          7,179
Provision for income taxes                           4,807          1,587          2,111          2,495          2,707
                                                  --------       --------       --------       --------       --------
Net income                                        $  7,540       $  2,722       $  3,537       $  4,141       $  4,472
                                                  ========       ========       ========       ========       ========
Per Share Data:
Basic earnings per share                            $ 1.85            N/A            N/A            N/A            N/A
Cash dividends declared                               0.45            N/A            N/A            N/A            N/A
Book value                                           29.57            N/A            N/A            N/A            N/A

Balance Sheet Summary:
Total assets                                      $517,433       $665,446       $356,966       $322,735       $309,879
Loans receivable, net                              416,462        362,728        314,936        267,393        247,195
Investment securities                               28,797         10,322         18,350         14,113         23,324
Cash and cash equivalents                           48,968        277,072         10,784         15,967         11,728
Deposits                                           369,812        353,193        305,831        275,915        270,182
Federal Home Loan Bank
 of Atlanta advances                                17,000             --             --             --             --
Stock subscription
 escrow accounts(2)                                     --        259,329             --             --             --
Total equity                                       125,761         46,978         44,154         40,660         36,455

Selected Financial Ratios and
Other Statistical Data:
Return on average assets                              1.51%          0.71%          1.03%          1.32%          1.45%
Return on average equity                              5.92%          5.94%          8.23%         10.74%         12.88%
Interest rate spread(3)                               3.07%          3.22%          3.01%          3.71%          3.94%
Net interest margin(4)                                4.21%          3.69%          3.55%          4.15%          4.30%
Efficiency ratio(5)                                   0.43           0.54           0.54           0.48           0.44
Nonperforming loans to
 loans receivable, net(6)                             0.32%          0.56%          1.87%          1.79%          0.96%
Allowance for losses to
 gross loans receivable                               0.50%          0.47%          0.30%          0.21%          0.23%
Allowance for losses to
 nonperforming loans                                159.87%         88.43%         17.02%         12.52%         25.20%
Total equity to total assets                         24.30%          7.06%         12.37%         12.60%         11.76%
Average equity to average assets                     25.50%         11.88%         12.47%         12.28%         11.24%
Dividend payout ratio(7)                             24.30%           N/A            N/A            N/A            N/A
Number of offices                                        8              7              5              5              4

</TABLE>
<PAGE>
-------------------
(1) Includes  one-time SAIF  assessment of $1.8 million with respect to the
    year ended June 30, 1997.
(2) Represents subscription funds for the common stock of the Company issued
    inconnection with the Conversion.
(3) Difference between weighted average yield on interest-earning assets and
    weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Noninterest expense (excluding the one-time SAIF assessment with respect
    to the year ended June 30, 1997) divided by the sum of net interest income
    and noninterest income.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual basis
    and accruing loans contractually past due 90 days or more.
(7) Dividends declared per share divided by net income per share.

                                                                             3
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations


General

        Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the financial
condition and results of operations of FirstSpartan Financial Corp. The
information contained in this section should be read in conjunction with the
Consolidated  Financial Statements and accompanying Notes thereto. This
discussion and analysis contains certain forward-looking statements within the
meaning of federal  securities laws. These forward-looking statements consist
of estimates with respect to the financial condition and results of operations
of the Company. Such forward-looking statements are not guarantees of future 
performance and are subject to various factors that could cause actual results
to differ materially from these estimates.  These factors include, but are not
limited to, changes in general  economic and market conditions and the
development of an interest rate environment that adversely affects the 
interest rate spread or other income anticipated from the Company's operations
and assets.

The Company's Business and Strategy

        FirstSpartan Financial Corp. ("the Corporation") is the holding
company for First Federal Bank (the "Bank") (collectively referred to as the
"Company") which converted from the mutual to stock form of ownership on July
8, 1997 (see Note 1 to the Consolidated Financial Statements appearing
elsewhere in this Annual Report for further details about the Conversion). 
The Corporation's activities are limited to passive investment activities and
management of its investment in the Bank.  Therefore, substantially all of the
Company's business activities are conducted through the Bank.

        The Bank is a federally chartered savings bank whose primary regulator
is the Office of Thrift Supervision ("OTS").  Historically the Bank's business
has been focused principally on the origination and servicing of residential
mortgage loans and attracting retail deposits (primarily certificates of
deposits and savings accounts) from the general public.  In recent years, the
Bank has diversified its products and now offers a full range of consumer and
commercial products and services typical of a community bank of its size.

        The Bank's operations are concentrated in the Spartanburg County, 
South Carolina geographic area with customers also located in adjacent 
counties.  In 1998 the Bank opened a branch in Greenville County, its first 
retail branch office to be located outside  Spartanburg County. At June 30,
1998, the Bank had eight locations (seven traditional offices and one located 
in a Wal-Mart Supercenter) and had three new offices under construction or
development (two traditional and one to be located in a Wal-Mart Supercenter).

        The Bank's strategy is to operate as a well-capitalized, profitable
and
independent community financial institution.  The Bank believes that local
communities are well-served by community-oriented institutions that emphasize
management involvement with customers and the community, local decision-making
and quality customer service.  Management believes that it can best serve an
important segment of the marketplace and enhance the long-term value of the
Company by operating independently and continuing with and expanding its
community-oriented  approach, especially in light of recent  consolidations of
banks and thrift institutions with large regional commercial banks in the
Bank's market area.

Financial Condition

        Overview

        Total assets were $517.4  million at June 30, 1998 and $665.4 million
at June 30, 1997, a decrease of $148.0  million.  The decrease was 
principally the result of the refund of $197.8 million of subscription escrow
funds, held by the Bank at June 30, 1997 in connection with the Conversion, 
that were in excess of stock available for sale,  offset by an increase in
loans receivable at June 30, 1998 when compared to June 30, 1997.

        Cash and Cash Equivalents

        Cash and cash  equivalents  totaled  $49.0  million at June 30,  1998,
a decrease of $228.1 million. The majority of the decrease was attributable to
the refunding  of  $197.8  million  of  excess  subscription  escrow  funds 
held in connection   with  the  Conversion  at  June  30,  1997.   Other 
major  factors contributing  to the  decrease  were the increase in loans 
receivable  of $59.4 million,  the increase in  investment  securities in the
amount of $18.5 million and the  repurchase  of stock in the amount of $8.1 
million.  Offsetting  these amounts that decreased cash was the increase in
deposits of $36.6 million (after withdrawal  of $20.0 million for which stock
was issued in the  Conversion)  and advances from the Federal Home Loan Bank
of Atlanta ("FHLB") of $17.0 million.

4
<PAGE>
<PAGE>
                                      Management's Discussion and Analysis of
                                Financial Condition and Results of Operations

        Investment Securities

        Investment  securities  increased  $18.5 million as some of the
proceeds from the  Conversion  were moved from  interest-bearing  deposits to 
investment securities.

        Loans Receivable

        Loans receivable increased due to several factors.  First, 
originations of loans  increased  as the result of the  development  of a
sales  training and incentive  program which included the  appointment,  in
the first quarter of the fiscal year ended June 30, 1998,  of a senior vice 
president of retail  banking who  is  responsible  for  setting  and 
monitoring  sales  goals  of  all  loan origination personnel (including
branch managers). Additionally, loan production was impacted favorably by
several experienced banking officers who were hired as branch  managers  in
the latter  part of the fiscal year ended June 30, 1997 and during the fiscal 
year ended June 30, 1998 to assist in meeting the Bank's goal to  increase 
loan  production  in the branch  network.  Also,  originations  of residential 
mortgage and consumer  loans  increased due to the loan activity of two 
branches  opened in June 1997  becoming  fully  operational  in the current
fiscal year. Finally,  originations of residential  mortgage loans increased
due to the impact of lower mortgage  rates during the fiscal year which 
contributed to a  significant  amount of loan  refinancing.  The impact of
loan  refinancing originations  was  offset  somewhat  by  the  impact  of 
loan  payoffs  due  to refinancing  as well  as  sales  of  conventional 
mortgage  loans  by the  Bank (principally 30-year fixed rate conventional
mortgage loans).

        Residential  mortgage  loans  also  increased  due  to the  purchase 
of adjustable  rate mortgage loans from the mortgage  banking  company in
which the Bank's service corporation  subsidiary owns a one-third equity
interest, as well as a  small  amount  of  loan  purchases  through  other 
correspondent  banking relationships.

        Commercial  loans  increased  due  to  the  Bank's  commercial  
lending department  becoming  fully  operational  during the year  ended June
30,  1998. Management of the Bank believes that it now has the proper systems
and qualified personnel to  adequately  evaluate and monitor the higher risk 
associated  with commercial lending.

        One of the Bank's operating  strategies is to increase the proportion
of higher-yielding,  shorter-term  consumer,  construction,  land  development 
and commercial  loans  in  its  portfolio.  Management's  goal  is to 
increase  the originations of these types of loans and to supplement  internal
production with purchases of such loans  through its  mortgage  banking 
affiliate,  and through other closely monitored correspondent banking
relationships.  It should be noted that while the  objective  of this 
strategy  is to  increase  yields and reduce interest rate risk, this strategy 
carries with it increased credit risk and the intended  effect on net income
may not materialize and net income could be lower than if it had not been
implemented.

        The following  table  presents a summary of the loan  portfolio at
June 30, 1998 and 1997 (in thousands of dollars): 

                                                           June 30,
                                                      1998           1997
                                                   ---------      ---------
Real estate mortgage loans:
           Residential (1-4 family)                 $ 312,981      $ 285,969
           Construction                                37,241         35,061
           Land development                            20,577         12,376
           Commercial                                  10,613          3,773
                                                    ---------      ---------
                                                      381,412        337,179
                                                    ---------      ---------
Consumer and commercial loans:
           Home equity                                 43,950         35,366
           Commercial                                   6,987          1,984
           Other                                        9,058          6,301
                                                    ---------      ---------
                                                       59,995         43,651
                                                    ---------      ---------
        Gross loans                                   441,407        380,830
        Less:
           Undisbursed portion of loans in process    (21,923)       (15,311)
           Net deferred loan fees                        (843)          (995)
           Allowance for loan losses                   (2,179)        (1,796)
                                                    ---------      ---------
        Net loans                                   $ 416,462      $ 362,728
                                                    =========      =========

                                                                            5
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

         The following  table presents a summary of the changes in net loans
for the year ended June 30, 1998, 1997 and 1996 (in thousands of dollars): 

                                       1998            1997           1996
                                     ---------      ---------      ---------
Loans originated:
   Real estate mortgage loans:
      Residential (1-4 family)       $  95,754      $  50,886      $  59,296
      Construction                      38,860         36,770         42,212
      Land development                  12,676          6,924          3,814
      Commercial                         9,133          1,770            316
   Consumer and other                   56,888         29,734         27,181
Loans purchased:
   Residential (1-4 family)             14,309          9,091           --
   Construction                          9,537          5,820           --
Loans sold:
   Conventional                        (13,211)        (2,824)          --
   Government (FHA,VA)                  (6,329)        (7,223)        (7,704)
Loan principal repayments             (148,697)       (84,423)       (87,446)

Net (decrease) increase in
  other items                          (15,186)         1,267         (3,539)
                                     ---------      ---------      ---------
Net increase in loans
  receivable, net                    $  53,734      $  47,792      $  34,130
                                     =========      =========      =========

        Asset Quality and Allowance for Loan Losses

        The  allowance  for loan losses  represents  an amount  that 
management believes will be adequate to absorb  estimated  losses  inherent in
the existing total loan  portfolio  which may become  uncollectible.  Factors 
considered  in assessing  the adequacy of the allowance  include  historical 
loss  experience, delinquency   trends,   characteristics  of  specific  loan 
types,  growth  and composition of the loan portfolios,  loans classified
under OTS regulations, and other factors. Management deemed the allowance for
loan losses to be adequate as of June 30, 1998.  Based on the uncertainty in
the estimation  process  however, management's  estimate  of the  allowance 
for loan  losses  may change and such change could occur in the near term. 
Further,  the allowance for loan losses is subject to periodic  evaluation by
various  regulatory  authorities and could be adjusted as a result of their
examinations.

        The accrual of interest is ceased  when,  in the opinion of 
management, principal or interest payments are not likely to continue
according to the terms of the loan  agreement,  or when  principal  or
interest is 90 days past due. In certain cases, extensions are granted on
construction loans that may have become delinquent. These extensions are
granted based upon management's judgment of the creditworthiness  of the 
borrower  and other  factors  such as sales  contracts pending on the 
property  held as  collateral.  In the case of  extended  loans, interest 
continues  to accrue  and the  loans  are  reported  as  accruing  but
contractually  past  due 90 days or  more.  Management  considers  the  total
of nonaccrual  loans and accruing  loans 90 days or more past due as 
nonperforming loans.

6
<PAGE>
<PAGE>
                                      Management's Discussion and Analysis of
                                Financial Condition and Results of Operations

        A summary of  nonperforming  loans as of June 30, 1998 and 1997 
follows (in thousands of dollars):
                                                           1998        1997
                                                          ------      ------
Nonaccrual loans:
   Residential (1-4 family)                               $  266      $  271
   Construction                                              787         273
   Other                                                     157          74
                                                          ------      ------
                                                           1,210         618
Accruing loans contractually past due 90 days or more        153       1,413
                                                          ------      ------
Total nonperforming loans                                 $1,363      $2,031
                                                          ======      ======
Nonperforming loans as a percentage
  of loans receivable, net                                   0.3%        0.6%
                                                          ======      ======
Allowance for loan losses as a percentage
   of nonperforming loans                                  159.9%       88.4%
                                                          ======      ======

         Loans  classified  under OTS regulations  totaled $3.6 million and
$3.9 million at June 30, 1998 and 1997, respectively.

        The changes in the allowance for loan losses is as follows for the
years ended June 30, 1998, 1997, and 1996 (in thousands of dollars):

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

      Allowance, beginning of year     $  1,796      $  1,000       $    600
      Provision                             460           825            419
      Write-offs                            (80)          (39)           (23)
      Recoveries                              3            10              4
                                       --------      --------       --------
      Allowance, end of year           $  2,179      $  1,796       $  1,000
                                       ========      ========       ========

        Deposits

        Deposit  accounts  increased $16.6 million to $369.8 million at June
30, 1998 from $353.2 million at June 30, 1997. This increase is after 
approximately $20.0 million of deposits  withdrawn on July 8, 1997 to purchase
stock issued in the Conversion. Excluding the effect of the withdrawals to
purchase stock, there was an increase in deposit  accounts of $36.6 million. 
The increase in deposits was the result of interest credited to existing
deposit accounts,  the effect of two branch  offices opened in June 1997
becoming  fully  operational  during the fiscal year ended June 30,  1998, 
the effect of a new branch  office  opened in February 1998, various deposit
account  promotions,  and the deposit of funds by account  holders who
purchased stock in the Conversion but sold their stock at a gain after the 
Conversion.  Stock  subscription  escrow  accounts  decreased by $259.3 
million from June 30, 1997 to June 30, 1998 as a result of $61.5 million of
stock  issued in the  Conversion  from funds held in the escrow  accounts and
refunds to subscribers of $197.8 million. The following table presents a
summary of deposits at June 30, 1998 and 1997 (in thousands of dollars):

                                   June 30, 1998            June 30, 1997
                                             Weighted                Weighted
                                             Average                  Average
                               Amount        Rate         Amount       Rate
                               ------        ----         ------       ----
  Demand accounts:
    NOW:
    Noninterest-bearing        $ 12,757         --%     $   6,569        --%
    Interest-bearing             42,221       2.66         33,425      2.79
    Savings                      56,740       3.28         64,352      3.31
    Money market                 18,133       4.04         14,308      3.18
  Certificate accounts          239,961       5.60        234,539      5.66
                               --------                  --------
                               $369,812                  $353,193
                               ========                  ========
                                                                               
                                                                           7
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

        Equity

        Equity increased by $78.8 million from June 30, 1997 to June 30, 1998
as a result of net proceeds received in the Conversion of $79.9 million, net
income of $7.5  million  and  allocation  of shares  under the  Bank's 
Employee  Stock Ownership  Plan  ("ESOP")  with a market  value of $1.3 
million,  offset by the repurchase of $8.1 million of stock, and payment of
dividends of $1.8 million.

Results of Operations

        The  earnings  of the  Company  depend  primarily  on its  level  of
net interest   income,   which  is  the  difference   between   interest 
earned  on interest-earning  assets and the interest paid on interest-bearing 
liabilities. Net  interest  income is a function of the interest  rate 
spread,  which is the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing 
liabilities, as well as a function of the  average  balance of 
interest-earning  assets as  compared  to the  average balance of
interest-bearing liabilities.

        Performance Overview

        Net income  increased  to $7.5  million for the year ended June 30,
1998 from $2.7  million  for the year ended June 30,  1997  primarily  as a
result of increased investment income and increased  noninterest income, 
partially offset by an increase in interest  expense and an increased 
provision for income taxes due to increased income before income taxes.  The
increase in investment  income is principally the result of additional  funds
available for investment from the Conversion  and an increase in average loans 
outstanding  during the year ended June 30, 1998. The increase in interest
expense is due to an increase in average deposit balances during the year
ended June 30, 1998.

        Net income  decreased  23% to $2.7  million  for the year ended June
30, 1997 from $3.5 million for the year ended June 30, 1996 primarily as a
result of increases in the provision for loan losses and noninterest expense.
The increase in noninterest  expense was primarily the result of the 
legislatively-mandated, one-time  assessment  levied  by the FDIC on all 
SAIF-insured  institutions  to recapitalize the SAIF. Without this assessment, 
which amounted to approximately $1.1  million  after tax,  net income  would
have been $3.8 million for the year ended June 30, 1997.

        Net Interest Income

        Net interest  income  increased  48% to $20.3 million for the year
ended June 30, 1998 from $13.7  million for the year ended June 30,  1997. 
Investment income  increased  27% to $37.4  million  for the year ended June
30,  1998 from $29.5 million for the year ended June 30, 1997 as a result of
an increase in the average balance of interest-earning assets to $481.5
million from $369.6 million more than offsetting a decrease in average yield
on  interest-earning  assets to 7.77% from 7.97% for the respective annual
periods.  The decrease in the average yield on  interest-earning  assets  was
due  principally  to stock  subscription escrow funds held prior to the 
consummation  of the Conversion and a portion of the proceeds of the 
Conversion  being  invested  principally  in lower yielding overnight 
interest-bearing  deposits  during the year ended June 30, 1998.  The average
balance of interest-earning  assets increased as a result of the holding of
stock  subscription  escrow funds prior to the consummation of the Conversion 
which were  invested in overnight  interest-bearing  deposits,  the net
proceeds retained  from the  Conversion  and an increase in the average 
balance of loans receivable.  Interest  expense  increased 9% to $17.2 million
for the year ended June 30, 1998 from $15.8 million for the year ended June
30, 1997 as a result of an increase in the average  balance of 
interest-bearing  liabilities  to $364.9 million  from  $333.0  million in the
prior  year.  The  increase in the average balance of  interest-bearing 
liabilities  more than  offset a  decrease  in the average  cost of funds to
4.70% for the year ended June 30,  1998 from 4.75% for the  year  ended  June 
30,  1997.  The  average  balance  of   interest-bearing liabilities  during
the year ended June 30, 1998 includes the average balance of the special
escrow accounts  established to hold subscription  funds received in
connection  with the Conversion.  These accounts  amounted to $259.3 million
and were  outstanding  for  approximately  two weeks  during the year ended
June 30, 1998.  The  decrease  in the  average  cost of funds  resulted  from
the savings account rate of interest (2.5%) being paid on the  subscription 
escrow accounts and an  increase in the amount of  deposits  in lower cost 
negotiable  order of withdrawal  ("NOW") and savings  accounts as a result of 
promotions  of NOW and savings  accounts.  Interest  rate spread  decreased to
3.07% for the year ended June 30, 1998 from 3.22% for the year ended June 30,
1997.

         Net interest  income  increased 16% to $13.7 million for the year
ended June 30, 1997 from $11.8  million for the year ended June 30,  1996. 
Investment income  increased  12% to $29.5  million  for the year ended June
30, 1997 from $26.4 million for the year ended June 30, 1996 as a result of an
increase in the average  balance  of  interest-earning  assets to  $369.6 
million from $331.4 million, more than offsetting a slight decrease in the
average yield on interest-earning assets to

8
<PAGE>
<PAGE>
                                      Management's Discussion and Analysis of
                                Financial Condition and Results of Operations

7.97% from 7.98%. The average yield did not change  significantly  because of
relatively  stable  interest  rates and the  stabilizing  effect that fixed
rate loans in the portfolio  have on the weighted  average  yield.  Interest 
expense increased  7% to $15.8  million  for the year  ended  June 30,  1997
from  $14.7 million  for the year  ended  June 30,  1996 as a result of an 
increase  in the average balance of deposits to $333.0 million from $295.0
million.  The increase in the average  balance of  deposits  more than offset
a decrease in the average cost of  deposits  to 4.75% for the year ended June
30,  1997 from 4.97% for the year ended June 30, 1996. The decrease in the
average cost of deposits  resulted from  a  combination  of a  change  in the 
mix of  deposits  from  higher  cost certificates  of deposit to lower cost
NOW and  savings  accounts as a result of promotions  of  NOW  and  savings  
accounts.   The  weighted  average  cost  of certificates  of deposit  also 
decreased as a result of the Bank's focus on the NOW  and  savings  account  
promotions   rather  than  certificate  of  deposit promotional  rates. 
Interest rate spread  increased to 3.22% for the year ended June 30, 1997 from
3.01% for the year ended June 30, 1996.

 Average Balances, Interest and Average Yields/Costs

        The following table sets forth, for the periods  indicated, 
information regarding average balances of assets and liabilities as well as
the total dollar amounts of interest  income from  average  interest-earning 
assets and interest expense on average  interest-bearing  liabilities  and
average yields and costs. Average  balances  for a period  have been 
calculated  using the daily  average balances. (Dollar amounts in the table
are in thousands.) 
<PAGE>

<TABLE>                                                        Year Ended June 30,
                                     1998                       1997                        1996
                         --------------------------- -------------------------- -------------------------
                                   Interest                   Interest                    Interest
                         Average     and      Yield/ Average    and      Yield/ Average     and    Yield/
                         Balance   Dividends  Cost   Balance  Dividends  Cost   Balance   Dividends Cost
                         -------   ---------  ----   -------  ---------  ----   -------   --------- ----
<S>                      <C>        <C>       <C>    <C>       <C>       <C>    <C>       <C>       <C>  
Interest-earning
 assets:
 Loans receivable,
  net(1)                 $395,465   $32,146   8.13%  $336,476  $27,455   8.16%  $298,865  $24,421   8.17%
 Mortgage-backed
  securities                  106         9   8.49        138        9   6.52        333       29   8.71
 Investment securities     18,831     1,111   5.90     14,055      903   6.42     17,035      997   5.85
 FHLB stock                 3,122       229   7.34      2,865      207   7.23      2,693      196   7.28
 Federal funds sold
  and overnight
  interest-bearing
  deposits                 63,967     3,919   6.13     16,060      888   5.53     12,517      802   6.41
                         --------   -------   ----   --------  -------   ----   --------  -------   ---- 
Total interest-
 earning assets           481,491    37,414   7.77    369,594   29,462   7.97    331,443   26,445   7.98
                                    -------   ----   --------  -------   ----   --------  -------   ----
Noninterest-earning
 assets                    17,544                      15,753                     12,947
                         --------                    --------                   --------
Total assets             $499,035                    $385,347                   $344,390
                         ========                    ========                   ========
Interest-bearing
 liabilities (2):
 Deposit accounts:
  Savings                $ 61,931     2,032   3.28   $ 64,062    2,263   3.53   $ 39,289    1,364   3.47
  Money market             12,733       434   3.41     13,669      422   3.09     17,196      626   3.64
  NOW                      48,389     1,039   2.15     32,517      651   2.00     27,351      542   1.98
  Certificate             238,845    13,498   5.65    222,773   12,475   5.60    211,179   12,137   5.75
                         --------   -------   ----   --------  -------   ----   --------  -------   ----
Total deposit accounts    361,898    17,003   4.70    333,021   15,811   4.75    295,015   14,669   4.97
Advances from FHLB          2,970       150   5.05         --       --     --         --       --     --
Total interest-          --------   -------   ----   --------  -------   ----   --------  -------   ---- 
 bearing liabilities      364,868    17,153   4.70    333,021   15,811   4.75    295,015   14,669   4.97
                                    -------   ----   --------  -------   ----   --------  -------   ----
Noninterest-bearing
 liabilities                6,901                       6,531                      6,422
                         --------                    --------                   --------
Total liabilities         371,769                     339,552                    301,437
Retained earnings         127,266                      45,795                     42,953
                         --------                    --------                   --------
Total liabilities and
 retained earnings       $499,035                    $385,347                   $344,390
                         ========                    ========                   ========
Net interest income                 $20,261                    $13,651                    $11,776
                                    =======                    =======                    =======
Interest rate spread                          3.07%                      3.22%                      3.01%
                                              ====                       ====                       ==== 
Net interest margin                           4.21%                      3.69%                      3.55%
                                              ====                       ====                       ====
Ratio of average 
 interest-earning
 assets to average
 interest-bearing
 liabilities                                  1.32x                      1.11x                      1.12x
                                              ====                       ====                       ==== 
--------------
(1) Includes loans held-for-sale. Excludes interest on nonaccrual loans.
(2) Excludes escrow balances.

                                                                                                      9
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis of 
Financial Condition and Results of Operations

Rate/Volume Analysis

        The following table sets forth the effects of changing rates and
volumes on interest  income and interest  expense.  Information is provided
with respect to: (i) effects  attributable  to changes in rate (changes in
rate multiplied by prior volume);  and (ii) effects  attributable  to changes
in volume (changes in volume  multiplied by prior rate).  The net change 
attributable to the combined impact of rate and volume has been allocated 
proportionately  to the change due to rate and the  change  due to  volume. 
(Dollar  amounts  in the  table are in thousands.)


<PAGE>
<TABLE>
                                       Year Ended June 30, 1998     Year Ended June 30, 1997
                                        Compared to Year Ended       Compared to Year Ended
                                            June 30, 1997                June 30, 1996
                                          Increase (Decrease)          Increase (Decrease)
                                                Due to                       Due to
                                      --------------------------   ---------------------------
                                       Rate      Volume   Total    Rate       Volume     Total
                                       -----     ------   ------   -----      ------     -----
<S>                                    <C>       <C>      <C>      <C>        <C>        <C>
Interest-earning assets:
  Loans receivable, net (1)            $(101)    $4,792   $4,691   $ (35)     $3,069     $3,034
  Mortgage-backed securities              --         --       --      (6)        (14)       (20)
  Investment securities                  (65)       273      208     118        (212)       (94)
  FHLB stock                               3         19       22      (1)         12         11
  Federal funds sold and overnight
    interest-bearing deposits            106      2,925    3,031     (81)        167         86
                                       -----     ------   ------   -----      ------     ------
Total net change in income
  on interest-earning assets             (57)     8,009    7,952      (5)      3,022      3,017
                                       -----     ------   ------   -----      ------     ------
Interest-bearing liabilities:
  Savings accounts                      (157)       (74)    (231)     24         875        899
  Money market accounts                   35        (23)      12     (87)       (117)      (204)
  NOW accounts                            52        336      388       6         103        109
  Certificate accounts                   112        911    1,023    (296)        634        338
  Advances from FHLB                      --        150      150      --          --         --
                                       -----     ------   ------   -----      ------     ------
Total net change in expense
  on interest-bearing liabilities         42      1,300    1,342    (353)      1,495      1,142
                                       -----     ------   ------   -----      ------     ------
Net change in net
  interest income                      $ (99)    $6,709   $6,610   $ 348      $1,527     $1,875
                                       =====     ======   ======   =====      ======     ======
--------------
(1) Excludes interest on nonaccrual loans.

</TABLE>

<PAGE>
        Provision for Loan Losses

        Provisions  for loan  losses are  charges to earnings to bring the
total allowance  for loan losses to a level  considered  by  management as
adequate to provide  for  estimated  loan losses  based on  management's 
evaluation  of the collectibility  of the  loan  portfolio.  The  provision 
for  loan  losses  was $460,000,  $825,000,  and $419,000  for the years ended
June 30, 1998,  1997 and 1996,  respectively.  Management  deemed the increase
in the  provision for loan losses in the year ended June 30, 1997 necessary in
light of the increase in the relative  level of estimated  losses caused by
the growth of the loan  portfolio and a continuing  increase in  classified 
assets from June 30, 1996 to June 30, 1997.

        See "Financial  Condition - Asset Quality and Allowance for Loan
Losses" for more analysis of the allowance for loan losses.

10
<PAGE>
<PAGE>
                                     Management's Discussion and Analysis of
                               Financial Condition and Results of Operations

        Noninterest Income

        Noninterest income increased to $2.4 million for the year ended June
30, 1998 from $1.4  million for the year ended June 30,  1997.  Service 
charges and fees  increased  to $1.4  million  for the year  ended  June 30, 
1998 from $1.1 million  for the year ended June 30,  1997  primarily  as a
result of  increased deposit  account fees,  particularly  on the  increased 
number of NOW accounts. Other  income,  net  increased to $646,000 for the
year ended June 30, 1998 from $270,000 for the year ended June 30, 1997, 
partially  attributable to income of $181,000  in the  current  year  versus a
$97,000  loss for the  previous  year, representing  the Company's share of
net income of the mortgage  banking company in which the Bank's service 
corporation  subsidiary  has an equity  investment. Gain on sale of mortgage
loans  increased to $342,000 during the year ended June 30,  1998  from 
$38,000  for the  year  ended  June 30,  1997 due to  increased conventional
loan sales.

        Noninterest income increased to $1.4 million for the year ended June
30, 1997 from $1.3 million for the year ended June 30, 1996 primarily as a
result of the increase in service  charges and fees offset by a decrease in
other  income. Service  charges and fees  increased to $1.1 million for the
year ended June 30, 1997 from  $843,000  for the year ended June 30, 1996 
primarily  as a result of increased  income  associated  with the origination
and sale of FHA and VA loans and increased deposit account fees,  particularly
on the increased number of NOW accounts.  Other income,  net, decreased to
$270,000 for the year ended June 30, 1997 from  $395,000 for the year ended
June 30, 1996  primarily as a result of a $97,000 loss  representing  the 
Company's  share of the losses  incurred by the mortgage banking company in
which the Bank's service corporation  subsidiary has an equity investment.

        Noninterest Expense

        Noninterest  expense  was $9.8  million for the year ended June 30,
1998 compared to $9.9 million for the same period in 1997.  Federal deposit
insurance premiums  decreased  to  $354,000  for the year  ended  June 30, 
1998 from $2.3 million for the year ended June 30, 1997. This decrease
resulted  primarily from the FDIC special  assessment in the year ended June
30, 1997 on all SAIF-insured institutions to recapitalize  the SAIF. The
Bank's  assessment  amounted to $1.8 million and was accrued  during the
quarter ended  September 30, 1997.  Prior to the SAIF  recapitalization,  the
Bank's total annual deposit insurance  premiums amounted to 0.23% of
assessable  deposits.  Effective  January 1, 1997, the rate decreased to
0.065% of assessable deposits.  Employee compensation and benefits, increased
to $5.0 million for the year ended June 30, 1998 from $4.0 million for the
year ended June 30, 1997 primarily as a result of increased  personnel costs
for the three newest branch offices,  the establishment of a commercial 
lending department,  normal annual salary increases and  implementation of the
ESOP. The increases  in  other  categories  of  other  operating  expenses 
generally  are attributable  to the growth of the Company,  additional  costs 
associated  with operating as a public  company and to inflation.  The Company 
anticipates  that other  operating  expenses will continue to increase in
subsequent  periods as a result  of  the  adoption  of  the  FirstSpartan  
Financial  Corp.   Management Recognition and Development  Plan on July 8,
1998 which will result in increased compensation  of $1.5 million  annually
over a five-year  period.  The three new branch  offices  previously 
mentioned  will  also  continue  to  contribute  to increased  operating 
expenses in future periods as will three additional branch offices that are
expected to open during the fiscal year ending June 30, 1999.

        Noninterest  expense  increased  to $9.9 million for the year ended
June 30,  1997 from $6.9  million  for the year ended June 30,  1996.  This 
increase resulted primarily from the previously mentioned FDIC special
assessment of $1.8 million.  Additionally,  employee  compensation  and
benefits  increased to $4.0 million for the year ended June 30,  1997 from
$3.1  million for the same period in 1996 as a result of the hiring of
additional  operations personnel to service the  increased  number of NOW
accounts,  the hiring of the Bank's  current Chief Financial  Officer in June
1996 and the  adoption of a director  emeritus  plan. Occupancy and equipment 
expense also increased for the year ended June 30, 1997 to $1.0  million as 
compared  to  $731,000  for the year  ended  June 30,  1996 primarily  due to
increased  computer and software  expenses.  The  increases in other
categories of noninterest expense generally are attributable to growth and
inflation.

        Income Taxes

        The  provision for income taxes was $4.8 million for the year ended
June 30, 1998 compared to $1.6 million for the year ended June 30, 1997. The
increase is a result of higher income before income taxes for fiscal 1998.

        The  provision  for income taxes  decreased to $1.6 million for the
year ended June 30,  1997 from $2.1  million  for the year  ended June 30, 
1996 as a result of lower income before taxes.

                                                                           11
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Analysis of Other Financial and Operating Matters

        Year 2000

        The approach of the year 2000 ("Year 2000") presents  significant
issues for many financial,  information,  and operational systems.  Many
systems in use today may not be able to interpret dates after December 31,
1999  appropriately, because such systems  allow only two digits to indicate
the year in a date.  The Year  2000  problem  may  occur  in  computer 
programs,  computer  hardware  or electronic  devices that utilize  computer
chips to process any information that contains  dates.  Therefore,  the  issue
is not  limited  to  dates in  computer programs  but is a complex 
combination  of problems  that may exist in computer programs,  data files, 
computer  hardware  and other  devices  essential to the operation of the
business. Further, companies must consider the potential impact that Year 2000
may have on services provided by third parties.

        Substantially  all of the  Year  2000  risk  is  related  to the 
Bank's activities.  The Bank has a formal  Year 2000 Plan  which  includes  a
Year 2000 Committee.  The Plan has been  reviewed  by senior  management  and
the Board of Directors. Included in the Plan is a listing of all systems
(whether in-house or provided/supported  by third  parties)  which may be
impacted by Year 2000 and a categorization of the systems by their potential
impact on Bank operations.  The Committee has received Year 2000 plans from
third parties  identified during the assessment phase of the Year 2000 Plan.
For systems that have been classified as critical to the operations of the
Bank,  contingency  plans have been developed. Each  contingency  plan was
developed by  operational  personnel who utilize the particular system. 
Contingency plans may include utilization of alternate third party vendors, 
alternate processing methods and software, or manual processing. The plans
have various  activation  dates (e.g., the date on which a third party
processor  fails to meet its Year 2000  compliance  deadline).  In  addition 
to addressing its own Year 2000 issues, the Bank is in the process of
assessing the impact of the Year 2000 on  significant  commercial  borrowers. 
The Bank's Year 2000 readiness is reviewed and monitored by the OTS.

        The Bank's core  processing  systems are  outsourced  through a
contract with The BISYS Group, Inc.  ("BISYS").  BISYS has developed a Year
2000 Plan and provides  the  Bank  with  periodic  updates.  BISYS  also has 
held  Year  2000 workshops,  whose  objectives have been to assist the Bank in
the development of its Year 2000 Plan, to provide updates on the BISYS Year
2000 plan, and training on the use of the BISYS  Year 2000 test  facility, 
whose  function  is to allow BISYS clients to test their systems' 
compatibility with the BISYS system. BISYS expects to complete all program 
maintenance  associated with its Year 2000 plan by October 31, 1998 and
expects a full year of testing prior to January 1, 2000. Like the Bank, BISYS
Year 2000 activities are subject to OTS oversight.

         The  incremental  costs  associated with the Bank's Year 2000
compliance are expected to be less than  $100,000.  The  majority of all
hardware  upgrades required  had been  planned  as a part of an  overall 
project  begun in 1997 to upgrade  the  Bank's  computer  systems to  increase 
efficiency  and  eliminate obsolescence  of some  components  of the system. 
Should the Bank or any of its third party  service  providers  fail to
complete Year 2000 measures in a timely manner it would likely have a material 
adverse  effect,  whose amount cannot be reasonably estimated at this time, on
the Company.

         Market Risk and Interest Rate Sensitivity

        The principal  market risk affecting the Company is risk associated
with interest rate volatility  ("interest  rate risk").  The Company does not
own any trading assets nor does it have any hedging  contracts or 
transactions in place such as interest rate swaps,  caps, floors or collars. 
Further,  the Company is not  subject  to  foreign  currency  exchange  risk 
or  commodity  price  risk. Substantially all of the Company's interest rate
risk is derived from the Bank's lending and  deposit-taking  activities.  This
risk could  result in reduced net interest income, loss in fair values of
assets and/or increase in fair values of liabilities due to upward changes in
interest rates.

        The  Bank's  principal  financial  objective  is  to  achieve 
long-term profitability  while reducing its exposure to fluctuating market
interest rates. The Bank has sought to reduce the  exposure of its earnings to
changes in market interest rates by attempting to manage the mismatch  between
asset and liability maturities and interest rates. The principal element in
achieving this objective is to increase  the  interest-rate  sensitivity  of
the Bank's  interest-earning assets by retaining  for its  portfolio  loans
with  interest  rates  subject to periodic  adjustment to market  conditions
and  periodically  selling fixed rate one- to four-family  mortgage loans. In
addition,  the Bank maintains short-term cash  investments  and an  investment 
portfolio of U.S.  Government  and agency securities with  contractual 
maturities of between one and ten years.  The Bank relies on retail  deposits
as its primary source of funds.  Management  believes retail deposits, 
compared to brokered deposits,  reduce somewhat the effects of interest rate
fluctuations because they generally represent a more stable source of funds. 
As part of its  interest  rate  risk  management  strategy,  the Bank promotes 
transaction accounts and certificates of deposit with terms up to four years.

12
<PAGE>
<PAGE>
                                     Management's Discussion and Analysis of
                               Financial Condition and Results of Operations

        Using  data  compiled  by the FHLB,  the Bank  receives  a report 
which measures  interest  rate risk by  modeling  the  change in Net 
Portfolio  Value ("NPV") over a variety of interest rate scenarios.  This
procedure for measuring interest rate risk was  developed by the OTS to
replace the "gap"  analysis (the difference between interest-earning assets
and interest-bearing liabilities that mature or reprice  within a specific
time  period).  NPV is the present value of expected cash flows from assets, 
liabilities and off-balance  sheet  contracts. The  calculation  is intended
to illustrate the change in NPV that will occur in the event of an immediate 
change in interest  rates with no effect given to any steps that  management 
might take to counter the effect of that  interest  rate movement.

        The following table is provided by the FHLB and sets forth the change
in the Bank's and the  Company's NPV at June 30, 1998,  based on FHLB 
assumptions, that would occur in the event of an immediate change in interest
rates,  with no effect given to any steps that management  might take to
counteract that change. As with any method of measuring  interest rate risk, 
certain  shortcomings  are inherent  in the  method of  analysis  presented 
in the  following  table.  For example,  although certain assets and
liabilities may have similar maturities or periods to repricing,  they may
react in different  degrees to changes in market interest  rates.  Also,  the 
interest  rates on  certain  types of  assets  and liabilities may fluctuate
in advance of changes in market interest rates,  while interest  rates  on 
other  types  may  lag  behind  changes  in  market  rates. Additionally,
certain assets, such as adjustable rate loans, have features which restrict 
changes in interest  rates on a short-term  basis and over the life of the
asset.  Further, in the event of a change in interest rates,  expected rates
of prepayments on loans and early  withdrawals from  certificates  could
deviate significantly  from those assumed in calculating  the table.  (Dollar
amounts in the table are in thousands.)

                  Bank                                    Company
       Basis                                   Basis
       Point                                   Point
       Change     Estimated Change in          Changes   Estimated Change in
       In Rates   Net Portfolio Value          In Rates  Net Portfolio Value
       ------------------------------          ------------------------------
       +400     $(33,360)     (32.5)%          +400     $(31,977)    (25.7)%
       +300      (23,971)     (23.4)           +300      (22,925)    (18.5)
       +200      (14,601)     (14.2)           +200      (13,872)    (11.2)
       +100       (7,301)      (7.1)           +100       (6,936)     (5.6)
          0           --         --               0           --        --
       -100        3,161        3.1            -100        2,741       2.2
       -200        6,322        6.2            -200        5,482       4.4
       -300        6,563        6.4            -300        5,238       4.2
       -400        6,804        6.6            -400        4,993       4.0

         The above table  illustrates,  for example,  that an instantaneous 
200 basis point increase in market  interest rates at June 30, 1998 would
reduce the Bank's NPV by  approximately  $14.6  million at that date.  Certain 
assumptions utilized in assessing  the interest rate risk of savings banks
within its region were utilized in preparing  the preceding  table.  These 
assumptions  relate to interest  rates,  loan  prepayment  rates,  deposit
decay rates,  and the market values of certain assets under differing interest
rate scenarios, among others.

                                                                            13
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

        The  following  table  prepared  with  information  supplied by the
FHLB presents the Company's  financial  instruments  that are sensitive to
changes in interest rates,  categorized by expected  maturity,  and the 
instruments'  fair values at June 30, 1998.  Certain  assumptions  about loan
prepayment  rates and deposit decay rates,  among  others,  were  utilized in
the  preparation  of the table. There are shortcomings inherent in this method
of analysis.  For example, although a financial instrument may have a similar
maturity or remaining term to repricing as another  financial  instrument, 
the two may react  differently  to changes in market  interest  rates.  In the
event of changes in interest  rates, prepayments  and  withdrawals  would 
likely  deviate  significantly  from those assumed in the data  underlying the
table.  (Dollar  amounts in the table are in thousands.)

             Aver-   Within    One       After 3
             age     One       Year to   Years to  Beyond              Fair
             Rate    Year      3 Years   5 Years   5 Years   Total     Value
             ----    ----      --------- --------- -------   -----    --------
Interest-
 sensitive
 assets:
 Loans
  receivable,
  net of
  loans in
  process
  and
  deferred
  loan fees  7.97%   $154,752  $ 87,508  $ 63,265  $113,116  $418,641 $424,357
 Loans held-
  for-sale   6.91       7,294        --        --        --     7,294    7,315 
 Mortgage-
  backed
  securi-
  ties       8.00          --        88        --        --        88       90
 Investment
  securities 5.89      22,628       998     3,005     2,078    28,709   28,709
 FHLB stock  7.50       3,446        --        --        --     3,446    3,446
 Federal
  funds
  sold and
  overnight
  interest-
  bearing
  deposits   6.10      40,518        --        --        --   40,518    40,518
Interest-
 sensitive
 liabilities:
 Savings
  accounts   3.28       9,804    14,892     9,708    22,336   56,740    56,740
 Money market
  accounts   4.04      14,325     1,995       950       863   18,133    18,133
 NOW
  accounts   2.03      20,502    18,766     5,021    10,689   54,978    54,978
 Certificate
  accounts   5.60     200,023    33,277     6,661        --  239,961   240,207
 Advances
  from FHLB  5.15          --        --        --    17,000   17,000    15,817

Off-balance
 sheet items:                                                         
Commitments
 to extend
 credit      7.66       4,512        --        --        --    4,512     4,512
 Unused
  lines of
  credit     9.75      51,587        --        --        --   51,587    51,587
 Loans in
  process    8.67      21,923        --        --        --   21,923    21,923
                                                                               
         Liquidity and Capital Resources

        The Company's primary sources of funds are customer  deposits, 
proceeds from  payments of principal and interest on loans,  the sale of
loans,  maturing securities and FHLB advances.  While  maturities and
scheduled  amortization  of loans are a predictable source of funds,  deposit
flows and mortgage prepayments are influenced greatly by general interest
rates, other economic  conditions and competition.  Regulations  of the OTS 
require  the Bank to maintain an adequate level of liquidity to ensure the 
availability of sufficient  funds to fund loan originations,  deposit 
withdrawals and to satisfy other financial  commitments. Currently,  the  OTS 
regulatory  liquidity  requirement  for  the  Bank  is the maintenance  of an
average  daily  balance of liquid  assets  (cash and eligible investments) 
equal  to  at  least  4% of  the  average  daily  balance  of  net
withdrawable deposits and short-term  borrowings.  This liquidity requirement
is subject  to  periodic  change.  The  Company  and the  Bank  generally 
maintain sufficient cash and short-term  investments to meet short-term 
liquidity needs. At June 30, 1998,  cash and cash  equivalents  totaled $49.0 
million,  or 9% of total assets, and investment securities  classified as 
available-for-sale  with maturities of one year or less totaled $22.6 million.
At June 30, 1998, the Bank also maintained an uncommitted credit facility with
the FHLB, which provides for immediately  available  advances  up to an 
aggregate  amount  of $40.0  million (increased on August 19, 1998 to $75.0 
million) of which $17.0 million had been advanced.

        As of June 30, 1998, the Bank's regulatory  capital was in excess of
all applicable regulatory  requirements.  At June 30, 1998, under regulations
of the OTS, the Bank's actual tangible,  core and risk-based capital ratios
were 18.4%, 18.4%, and 29.9%,  respectively,  compared to regulatory capital
requirements of 1.5%,  4.0%,  and 8.0%,  respectively.  The  Corporation  is
not  subject to any separate regulatory capital requirements.

14
<PAGE>
<PAGE>
                                      Management's Discussion and Analysis of
                                Financial Condition and Results of Operations

        At  June  30,  1998,  the  Company  had  loan   commitments  
(excluding undisbursed  portions  of  interim  construction  loans) of 
approximately  $4.5 million ($3.6 million at fixed rates ranging from 6.75% to
10%). In addition, at June 30, 1998,  the unused  portion of credit 
(principally  variable  rate home equity lines of credit) extended by the
Company was approximately $51.6 million. Furthermore, at June 30. 1998, the
Company had certificates of deposit scheduled to mature in one year or less of
$200.0 million. Based on historical experience, the Company  anticipates that
a majority of such certificates of deposit will be renewed at maturity.

        Recently Issued Accounting Standards

        The  Financial  Accounting  Standards  Board  recently  issued  four
new accounting standards that will affect accounting,  reporting,  and
disclosure of financial  information  by the  Company.  Adoption  of  these 
standards  is not expected  to have a  material  impact  on  financial 
condition  or  results  of operations.  The  following  is a summary of the 
standards  and their  required implementation dates:

        SFAS  No.  130,  "Reporting   Comprehensive  Income"  -  This 
statement establishes  standards for reporting and disclosure of comprehensive 
income and its components (revenues,  expenses,  gains and losses). This
statement requires that all items that are required to be recognized under
accounting  standards as components of comprehensive income (including,  for
example,  unrealized holding gains and losses on  available-for-sale 
securities)  be reported in a financial statement  that is  displayed  with 
the  same  prominence  as  other  financial statements.  The  accumulated 
balance  of other  comprehensive  income  will be disclosed  separately  from
retained income in the equity section of the balance sheet. This statement is
effective for the Company for the fiscal year beginning July 1, 1998.

        SFAS No. 131,  "Disclosure  About  Segments of an Enterprise and
Related Information" - This statement  establishes standards for the way
public business enterprises   report   information  about  operating  segments 
and  establishes standards for related disclosures about products and
services,  geographic areas and major  customers.  Operating  segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating  decision maker
in deciding how to allocate resources and in assessing  performance. 
Information  required to be disclosed  includes segment profit or loss, 
certain  specific revenue and expense items, and segment assets and certain
other  information.  This statement is effective for the Company for financial
statements issued for the fiscal year beginning July 1, 1998.

         SFAS  No.  132,  "Employers'   Disclosures  about  Pensions  and 
other Post-Retirement  Benefits" - This statement  deals  principally  with
employers' disclosures about defined benefit plans and other post-retirement
benefit plans. This  statement is effective for the Company for the fiscal
year  beginning July 1, 1998.

        SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and 
Hedging Activities" - This statement establishes  accounting and reporting
standards for derivative  instruments and for hedging  activities.  It
requires that an entity recognize all  derivatives  as either assets or
liabilities in the balance sheet and measure those  instruments at fair value. 
The accounting for changes in the fair value of a derivative  (that is, gains
and losses)  depends on the intended use of the derivative. The statement is
effective for the Company for the fiscal year beginning July 1, 1999 and may
not be applied retroactively.

Effect of Inflation and Changing Prices

        The  consolidated   financial  statements  and  related  financial 
data presented  herein  have been  prepared in  accordance  with  generally 
accepted accounting  principles,  which require the measurement of financial
position and operating results in terms of historical dollars without 
considering the change in the  relative  purchasing  power of money  over 
time due to  inflation.  The primary  impact of inflation is reflected in the
increased cost of the Company's operations.  Unlike  most  industrial 
companies,  virtually  all the assets and liabilities  of a financial 
institution  are  monetary in nature.  As a result, interest  rates  generally 
have  a  more  significant  impact  on  a  financial institution's performance
than do general levels of inflation. Interest rates do not  necessarily  move
in the same direction or to the same extent as the prices of goods and
services.
                                                                           15
<PAGE>
<PAGE>
Independent Auditors' Report

The Board of Directors
FirstSpartan Financial Corp.
Spartanburg, South Carolina

     We have audited the accompanying  consolidated  balance sheets of
FirstSpartan Financial Corp. and subsidiaries (the "Company") as of June 30,
1998 and 1997,  and the related  consolidated  statements of income, equity, 
and cash flows for each of the three years in the period  ended June  30,  
1998.  These  consolidated   financial   statements  are  the responsibility 
of the Company's  management.  Our  responsibility is to express an opinion on
these consolidated  financial  statements based on our audits.

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

     In our opinion,  such consolidated  financial  statements present fairly,
in all material respects,  the financial position of the Company at June 30, 
1998 and 1997,  and the results of its  operations  and its cash flows for
each of the three years in the period ended June 30, 1998 in conformity with
generally accepted accounting principles.


/s/Deloitte & Touche LLP


July 24, 1998
Greenville, South Carolina

16
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                                  Consolidated Balance Sheets
                                            (In Thousands, Except Share Data)

June 30, 1998 and 1997
                                                    1998             1997
                                                 ---------         --------
Assets
  Cash                                           $   8,450         $  6,688
  Federal funds sold and overnight
   interest-bearing deposits                        40,518          270,384
                                                 ---------         --------
     Total cash and cash equivalents                48,968          277,072
  Investment securities available-for-
   sale - at fair value (amortized cost:
   $28,732 and $10,172 at June 30, 1998
   and June 30, 1997, respectively)                 28,709           10,201
  Mortgage-backed securities held-to-
   maturity - at amortized cost (fair
   value: $90 and $125 at June 30, 1998
   and June 30, 1997, respectively)                     88              121
  Loans receivable, net                            416,462          362,728
  Loans held-for-sale - at lower of cost
   or market (market value: $7,315 and
   $1,617 at June 30, 1998 and June 30,
   1997, respectively)                               7,294            1,617
  Office properties and equipment, net               8,445            6,594
  Federal Home Loan Bank of Atlanta stock
   - at cost                                         3,446            3,011
  Accrued interest receivable                        2,813            2,590
  Real estate acquired in settlement of loans           36               36
  Other assets                                       1,172            1,476
                                                 ---------         --------

     Total Assets                                $ 517,433        $ 665,446
                                                 =========        =========
Liabilities and Equity
 Liabilities:
 Deposit accounts                                $ 369,812        $ 353,193
 Stock subscription escrow accounts                     --          259,329
 Advances from borrowers for taxes 
  and insurance                                      1,063            1,001
 Advances from Federal Home Loan Bank
  of Atlanta                                        17,000               --
 Other liabilities                                   3,797            4,945
                                                 ---------         --------
                 Total liabilities                 391,672          618,468
Equity:                                          ---------         --------
 Preferred stock, $0.01 par value:
 Authorized - 250,000 shares; none issued or
  outstanding at June 30, 1998 and 1997                 --               --
 Common stock, $0.01 par value:
  Authorized - 12,000,000 shares; issued and
   outstanding: 4,253,160 shares at June 30,
   1998 (none issued or outstanding at June
   30, 1997)                                            44               --
  Additional paid-in capital                        87,624               --
  Retained earnings                                 52,662           46,960
  Treasury stock - at cost (177,215 shares
   at June 30, 1998)                                (8,113)              --
  Unallocated ESOP shares                           (6,442)              --
  Unrealized (loss) gain on investment
   securities available-for-sale, net
   of taxes                                            (14)              18
                                                 ---------         --------
     Total equity                                  125,761           46,978
                                                 ---------         --------
     Total Liabilities and Equity                $ 517,433        $ 665,446
                                                 =========        =========

See accompanying notes to consolidated financial statements.

                                                                           17
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Share Data)

Years Ended June 30, 1998, 1997 and 1996
                                                                               
                                         1998           1997           1996
                                     ----------     ----------     ----------
Investment Income:
 Interest on loans                   $   32,146     $   27,455     $   24,421
 Interest and dividends on investment
  securities, mortgage-backed
  securities and other                    5,268          2,007          2,024
                                     ----------     ----------     ----------
     Total investment income             37,414         29,462         26,445
                                     ----------     ----------     ----------
Interest Expense:
 Deposit accounts                        17,003         15,811         14,669
 Federal Home Loan Bank of Atlanta
  advances                                  150             --             --
                                     ----------     ----------     ----------
     Total interest expense              17,153         15,811         14,669
                                     ----------     ----------     ----------
Net Interest Income                      20,261         13,651         11,776
Provision for Loan Losses                   460            825            419
                                     ----------     ----------     ----------
Net Interest Income After
 Provision for Loan Losses               19,801         12,826         11,357
                                     ----------     ----------     ----------
Noninterest Income (Loss):
 Service charges and fees                 1,378          1,090            843
 Gain on sale of mortgage loans             342             38             --
 Loss on sale of investments                 --            (12)            --
 Other, net                                 646            270            395
                                     ----------     ----------     ----------
     Total noninterest income, net        2,366          1,386          1,238
                                     ----------     ----------     ----------
Noninterest Expense:
 Employee compensation and benefits       5,016          4,025          3,131
 Federal deposit insurance premium          354          2,278            737
 Occupancy and equipment expense          1,106          1,006            731
 Computer services                          680            523            449
 Advertising and promotions                 566            463            418
 Office supplies, postage,
  printing, etc.                            626            535            502
 Other                                    1,472          1,073            979
                                     ----------     ----------     ----------
     Total noninterest expense            9,820          9,903          6,947
                                     ----------     ----------     ----------
Income Before Income Taxes               12,347          4,309          5,648

Provision for Income Taxes                4,807          1,587          2,111
                                     ----------     ----------     ----------
Net Income                           $    7,540     $    2,722     $    3,537
                                     ==========     ==========     ==========
Basic earnings per share             $     1.85     $       --     $       --
                                     ==========     ==========     ==========
Weighted average shares outstanding   4,066,692             --             --
                                     ==========     ==========     ==========

See accompanying notes to consolidated financial statements.

18
<PAGE>
<PAGE>

<TABLE>
                               FirstSpartan Financial Corp. and Subsidiaries
                                           Consolidated Statements of Equity
                                           (In Thousands, Except Share Data)

Years Ended June 30, 1998, 1997 and 1996
                                                                                     Net Unreal-
                                                                                     ized Gain
                                          Addi-                            Unallo-   (Loss) on
                                          tional                           cated     Securities
                         Common  Common   Paid-In   Retained     Treasury  ESOP      Available-   Total
                         Shares  Stock    Capital   Earnings      Stock    Shares    for-Sale     Equity
                         ------  -----    -------   --------      -----    ------    --------     ------
<S>                         <C>    <C>     <C>      <C>           <C>        <C>     <C>        <C>    
Balance, June 30, 1995       --    $ --    $   --   $ 40,701      $  --      $  --   $  (41)    $  40,660

Net income                   --      --        --      3,537         --         --       --         3,537
Change in net
  unrealized loss            --      --        --         --         --         --      (43)         (43)
                      ---------   -----   -------    -------   --------   --------   ------      --------

Balance, June 30, 1996       --      --        --     44,238         --         --      (84)       44,154

Net income                   --      --        --      2,722         --         --       --         2,722
Change in net
  unrealized loss            --      --        --         --         --         --      102           102
                      ---------   -----   -------    -------   --------   --------   ------      --------

Balance, June 30, 1997       --      --        --     46,960         --         --       18        46,978

Net income                   --      --        --      7,540         --         --       --         7,540
Change in net
  unrealized gain            --      --        --         --         --         --      (32)         (32)
Issuance of common
  stock               4,430,375      44    86,981         --         --     (7,089)      --        79,936
ESOP shares committed
  for release                --      --       643         --         --        647       --         1,290
Purchase of treasury
  stock                (177,215)     --        --         --     (8,113)        --       --       (8,113)
Dividends ($0.45
  per share)                 --      --        --     (1,838)        --         --       --       (1,838)
                      ---------   -----   -------    -------   --------   --------   ------      --------
Balance, June 30,
 1998                 4,253,160   $  44   $87,624    $52,662   $ (8,113)  $ (6,442)  $  (14)     $125,761
                      =========   =====   =======    =======   ========   ========   ======      ========

See accompanying notes to consolidated financial statements.

                                                                                                      19
</TABLE>
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands of Dollars)

Years Ended June 30, 1998, 1997 and 1996
                                          1998          1997           1996
                                       ---------     ----------      --------
Cash Flows from Operating Activities:
  Net income                          $   7,540     $    2,722       $  3,537
  Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
  Provision for loan losses                 460            825            419
  Deferred income tax (benefit)
   provision                               (829)          (435)           175
  Amortization of deferred income          (219)          (157)         (202)
  Amortization (accretion) of premiums 
   (discounts) on investment and
   mortgage-backed securities                 3            (20)           (3)
  Depreciation                              603            529            311
  Allocation of ESOP shares at fair
   value                                  1,290             --             --
  Decrease (increase) in other assets        81         (1,057)         (133)
  Additions to loans held-for-sale      (25,217)        (9,753)      (15,198)
  Proceeds from sale of loans held-
   for-sale                              19,882         10,085          7,704
  Gain on sale of loans held-for-sale      (342)           (38)            --
  Loss (gain) on disposal of property 
   and equipment                              7             11            (3)
  (Gain) loss on sale of real estate
   acquired in settlement of loans           --            (14)            10
  Loss on sale of investment securities
   available-for-sale                        --             12             --
  (Decrease) increase in other
   liabilities                             (237)          (663)           672
                                      ---------     ----------       --------
   Net cash provided by (used in)
    operating activities                  3,022          2,047        (2,711)
                                      ---------     ----------       --------
Cash Flows from Investing Activities:
   Net loan originations and principal
    collections                         (30,129)       (33,740)      (26,968)
   Purchase of loans                    (23,846)       (14,911)            --
   Purchase of investment securities    (29,063)        (1,374)       (9,992)
   Proceeds from sale of investment
    securities available-for-sale            --          8,000             --
   Proceeds from maturities of
    investment securities
    available-for-sale                   10,500          1,500          5,500
   Principal repayments and proceeds
    from maturities of mortgage-
    backed securities                        33             75            189
   Proceeds from sale of real estate
    acquired in settlement of loans          --            227             81
   Purchase of Federal Home Loan Bank
    of Atlanta stock                       (435)          (205)         (157)
   Purchase of property and equipment    (2,461)        (2,249)       (1,168)
   Purchase of treasury stock            (8,113)            --             --
   Proceeds from sale of property and
    equipment                                --            227            127
                                      ---------     ----------       --------
   Net cash used in investing
    activities                          (83,514)       (42,450)      (32,388)
                                      ---------     ----------       --------
Cash Flows from Financing Activities:
   Net increase in deposits              36,661         47,362         29,916
   Stock subscription proceeds               --        259,329             --
   Stock subscription refunds          (197,851)            --             --
   Stock issuance costs                  (1,584)            --             --
   Advances from Federal Home Loan
    Bank of Atlanta                      17,000             --             --
   Dividends paid                        (1,838)            --             --
                                      ---------     ----------       --------
   Net cash (used in) provided by
    financing activities               (147,612)       306,691         29,916
                                      ---------     ----------       --------
Net (Decrease) Increase in Cash and
 Cash Equivalents                      (228,104)       266,288        (5,183)
Cash and Cash Equivalents at
 Beginning of Year                      277,072         10,784         15,967
                                      ---------     ----------       --------
Cash and Cash Equivalents at End
 of Year                              $  48,968     $  277,072       $ 10,784
                                      =========     ==========       ========

20
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                        Consolidated Statements of Cash Flows
                                                    (In Thousands of Dollars)

Years Ended June 30, 1998, 1997 and 1996
                                          1998           1997          1996
                                        --------       --------      --------
Supplemental Disclosures of Cash Flow
 Information:
 Cash paid during the year for:
  Interest                             $ 17,433       $ 15,715       $ 14,461
                                       ========       ========       ========
  Income taxes                         $  5,358       $  1,870       $  2,274
                                       ========       ========       ========
 Transfers from loans to real
  estate acquired in
  settlement of loans                  $     --       $    191       $    115
                                       ========       ========       ========
 Change in unrealized gain (loss) on
  investment securities available-
  for-sale                             $    (52)      $  (165)       $     70
                                       ========       ========       ========
 Increase (decrease) in deferred
  taxes related to unrealized gain
  (loss) on investment securities
  available-for-sale                   $     20       $    (63)      $     27
                                       ========       ========       ========
 Investment securities transferred
  from held-to-maturity to available-
  for-sale, at fair value              $     --       $     --       $  4,002
                                       ========       ========       ========
 Loans held-for-sale transferred to
  loans held-for-investment at lower
  of cost or market                    $     --             --       $ 20,907
                                       ========       ========       ========
 Sale of common stock funded by 
  subscription escrow accounts         $ 61,478       $     --             --
                                       ========       ========       ========
 Sale of common stock funded by
  deposit accounts                     $ 20,042       $     --       $     --
                                       ========       ========       ========
 Sale of common stock to ESOP          $  7,089       $     --       $     --
                                       ========       ========       ========

     See accompanying notes to consolidated financial statements.
                                                                           21
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30,1998, 1997 and 1996

1.      Organization and Summary of Significant Accounting Policies

        Change in Reporting Entity - On February 3, 1997, the Board of
Directors of First Federal Savings and Loan Association of Spartanburg (the
"Association") adopted a Plan of  Conversion  to  convert  from a  federally 
chartered  mutual savings and loan association to a federally  chartered
capital stock association (the  "Conversion").  The Conversion was 
accomplished  through the formation of FirstSpartan  Financial  Corp.  (the 
"Corporation")  on February  4, 1997,  the adoption of a federal  stock 
charter on June 25,  1997,  the sale of all of the Association's  stock  to
the  Corporation  on July 8,  1997  and the sale of the Corporation's stock to
the public on July 8, 1997.

        A subscription  offering  ("offering")  of the shares of common stock
of the  Corporation  was  conducted  whereby the shares were  offered 
initially to eligible  account  holders,  the First Federal  Employee  Stock 
Ownership  Plan ("ESOP"),  supplemental  eligible  account  holders  and 
other  members  of the Association  (collectively  "subscribers").  During 
the  offering,  subscribers submitted  orders for common  stock  along  with
full  payment  for the order in either cash, by an  authorization to withdraw
funds for payment from an existing deposit account at the  Association  upon
issuance of stock, or a combination of cash and account  withdrawal.  The
offering  began May 14, 1997 and concluded on June 17, 1997.  Subscription
funds received in connection with the offering were placed in special escrow
accounts in the Association. For those orders that were to be funded through 
account  withdrawals,  the  Association  placed "holds" on those accounts, 
restricting the withdrawal of any amount which would reduce the account
balance below the amount of the order. At June 30, 1997, the Association held 
$259.3  million  in  subscription   escrow  accounts  and  had  restricted
withdrawal from deposit accounts in the amount of $26.0 million.

        On July 8, 1997, the Corporation issued approximately 4.4 million
shares of common stock for gross proceeds of approximately $88.6 million. The
aggregate purchase  price of the  Corporation's  stock was  determined  by an 
independent appraisal.  As the  Corporation  received  subscriptions  in 
excess  of  shares available,  shares were  allocated in  accordance  with the
Plan of  Conversion. Sources of gross proceeds were as follows (in thousands
of dollars):

        Subscription escrow accounts                 $ 61,478
        Deposit account withdrawals                    20,042
        Note receivable from ESOP                       7,088
                                                     --------
        Gross proceeds                               $ 88,608
                                                     ========

        All excess  subscription funds were refunded to subscribers and holds
on deposit accounts were released after the stock was issued.

        Conversion expenses totaled approximately $1.6 million and were
deducted from gross proceeds to result in net proceeds of approximately $87.0
million. As of June 30, 1997, Conversion costs were approximately  $716,000
and are included in the balance sheet caption "Other Assets."

        The Association issued all of its  outstanding capital stock to the
Corporation in exchange for one-half of the net proceeds from the sale of the
Corporation's capital stock.  The Corporation accounted for the purchase in a
manner similar to a pooling of interests whereby assets and liabilities of the
Association maintain their historical cost basis in the consolidated 
financial statements of the Company.

        In January 1998, the Association  changed its name to First Federal
Bank (the "Bank").

        Principles of  Consolidation - The  consolidated  financial 
statements include  the  accounts  of the  Corporation,  the  Bank  and  its 
wholly  owned subsidiary, FirstService Corporation ("FirstService")
(collectively  referred to as the "Company"). Since the Corporation was
inactive from incorporation through July 8, 1997, the information  contained
in the financial  statements  prior to that date relates to the Bank and its
subsidiary.

22
<PAGE>
<PAGE>
                                 FirstSpartan Financial Corp. and Subsidiaries
                                    Notes to Consolidated Financial Statements
                                      Years Ended June 30, 1998, 1997 and 1996

        FirstService  Corp.  has a  one-third  ownership  interest in a
mortgage banking  company  (since  August 1996) which is  accounted  for under
the equity method of accounting.  The investment is included in Other Assets
in the balance sheet  and  totaled   $484,000  and  $303,000,   at  June  30, 
1998  and  1997, respectively. Equity in the earnings (losses) of the mortgage
banking company is included in Other Income and totaled  $181,000 and
$(97,000) for the years ended June 30, 1998 and 1997, respectively.

        Significant  intercompany balances and transactions have been
eliminated in consolidation and under the equity method.

        Nature  of  Operations  and  Customer   Concentration  -  The 
Company's principal  business  activities  are  conducted  through  the  Bank, 
which is a federally  chartered  savings bank engaged in the business of
accepting  savings and demand deposits and providing mortgage, consumer and
commercial loans to the general  public  through  its retail  banking 
offices.  The Bank's  business is limited  primarily  to the  Spartanburg  and 
adjacent  county  areas  of  South Carolina.

        Basis of  Accounting  - The  accounting  and  reporting  policies of
the Company  conform to  generally  accepted  accounting  principles  and to
general practices within the banking industry.

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

        Cash and Cash  Equivalents - For purposes of reporting cash flows, 
cash and cash  equivalents  includes  cash on hand and  amounts  due from 
depository institutions, federal funds sold and overnight interest-bearing
deposits.

        Investment Securities - Debt securities that the Company has the
positive intent and ability to hold to  maturity are classified as "held-to-
maturity" securities and reported at amortized cost.  Debt and equity
securities that are bought and held principally for the purpose of selling
them in the near term are classified as "trading" securities and reported at
fair value with unrealized gains and losses included in earnings. Debt and
equity securities not classified as either held-to-maturity securities or
trading securities are classified as "available-for-sale" securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of equity, net of taxes.  No
securities  have been classified by the Company as trading securities during
the reporting periods.

        In November  1995, the Financial Accounting Standards Board ("FASB")
issued a Special Report, "A Guide to Implementation of Statement  No. 115 on
Accounting for Certain Debt and Equity Securities," which included a
transition provision allowing entities that adopted Statement of Financial 
Accounting Standards ("SFAS") No. 115 to reassess the appropriateness of the
classifications of securities  held and account for any resulting
reclassifications at fair value.  Reclassifications from the held-to-maturity
category resulting from this one-time reassessment did not call into question,
or "taint," the intent of the entity to hold other debt securities to maturity
in the future. In accordance with this Special Report, on December 28, 1995,
the Company  transferred  securities  with  a  fair  value  and  amortized 
cost  of approximately $4.0 million from  held-to-maturity  to 
available-for-sale.  This transfer is disclosed as a noncash transaction in
the statement of cash flows.

        Gains and losses on sales of securities  are  determined on the
specific identification  method.  Premiums and  discounts  are amortized to
maturity on a method which approximates the level yield method.

        Loans - Loans are reported at the principal amount outstanding and
reduced by net deferred loan origination fees and the allowance for loan
losses. Loan origination and commitment fees and certain direct loan 
origination costs are deferred and the net amount is accreted as an adjustment 
of the related loan's yield over the contractual life of the loan.  Net
deferred loan fees on loans sold are included in determining the gain or loss
on the sale.  Loans held-for-sale are stated at the lower of cost or 
estimated  market value as determined by outstanding commitments from
investors or current investor market yield requirements calculated on an
aggregate basis. Net unrealized losses are recognized in a valuation allowance
by charges to income.  During the year ended June 30, 1996, the Company
reclassified approximately  $20.9 million of loans from held-for-sale to 
held-for-investment at the lower of cost or market at the time the loans were
reclassified.
 
                                                                            23
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996

        Upon the sale of mortgage loans, the Company receives cash in the
amount of the fair  value of the  loans and gain or loss is  recognized  at
the time of sale for the  difference  between the proceeds and carrying 
value.  On mortgage loans sold for which servicing  rights were retained,  the
carrying value of the loan is adjusted at the time of sale by allocating the
total cost of the loan to the mortgage servicing right and the loan (without
the mortgage servicing right) based  on  their  relative  fair  values.  The
cost  allocated  to the  mortgage servicing  right is recognized as a separate
asset  (included in "Other Assets") and  amortized  in  proportion  to and 
over the  period  of the  estimated  net servicing  income.  Prior to July 1, 
1996,  the  value of  servicing  rights on originated  mortgage  loans  was
not  allowed  to be  recognized  as an asset by generally accepted accounting 
principles but was included in the carrying value of the loans sold in the
determination of gain or loss on sale.

        Interest  on loans is  credited  to  income  as  earned  based  upon
the contractual  interest  rate  of the  loans  applied  to  principal 
outstanding. Interest accrual on impaired and unimpaired loans is ceased if
collection in the near term is  uncertain,  or when  principal or interest is
90 days or more past due. Such interest is accounted for in an allowance for
uncollected  interest by a charge to interest  income equal to all  interest 
previously  accrued.  Loans generally are returned to accrual status when the
loan is brought current and it appears likely that payments will continue to
be received as scheduled.

        Allowance for Loan Losses - The Company  provides for loan losses on
the allowance method. Accordingly,  loans deemed uncollectible are deducted
from the allowance  and  provisions  for  estimated  loan losses and 
recoveries on loans previously  charged off are added to the  allowance.  The
allowance is an amount that management believes will be adequate to absorb
estimated losses inherent in existing loans which may become  uncollectible. 
Factors considered in assessing the adequacy of the allowance  include 
historical loss experience, delinquency trends, characteristics  of specific
loan types,  growth and composition of the loan portfolios, the relationship 
of the allowance for loan losses to outstanding  loans,  local and  regional 
economic  conditions,  evaluations  of impaired loans, and other factors. 
Based on this  assessment,  the allowance is adjusted through a charge to
operations.  Because of the uncertainty inherent in the estimation process, 
management's  estimate of the allowance for loan losses may  change  in the 
near  term.  However,  the  amount  of the  change  that is reasonably
possible cannot be estimated.  Further, the allowance for loan losses is
subject to periodic  evaluation by various regulatory  authorities and may be
subject to adjustment upon their examinations.

        Management   periodically  evaluates  speculative   construction,  
land development,  commercial and  restructured  loans to determine if any
such loans are  impaired.  Loans  are  considered  to be  impaired  when,  in 
management's judgement,  the collection of principal or interest is not
collectible according to  the  contractual   terms  of  the  loan  agreement.  
When  conducting  loan evaluations,  management  considers  various  factors 
such as  historical  loan performance,  the financial condition of the
borrower and adequacy of collateral to determine if a loan is impaired.

        The  measurement  of impaired  loans  generally  is based on the
present value of future cash flows discounted at the historical effective
interest rate, except that  collateral-dependent  loans  generally are
measured for  impairment based on the fair  value of the  collateral.  When 
the  measured  amount  of an impaired loan is less than the recorded 
investment in the loan,  the impairment is recorded as a charge to income and
a valuation allowance which is included as a component of the allowance for
loan losses.

        Office  Properties  and Equipment - Office  properties and equipment
are stated at cost less accumulated depreciation.  Depreciation is computed
over the estimated useful lives of the related assets using the straight-line
method.

        Real Estate  Acquired in Settlement  of Loans - Real estate  acquired
in settlement of loans is recorded  initially at fair value less  estimated
cost of disposal at the date of foreclosure,  establishing a new cost basis.
Any accrued interest  on  the  related  loan  at the  date  of  acquisition 
is  charged  to operations.   After  foreclosure,   valuations  are  performed 
periodically  by management  and the real  estate is  carried  at the lower of
cost or fair value minus estimated costs to sell. Revenues, expenses and
additions to the valuation allowance  related to real estate acquired in
settlement of loans are charged to operations.  Such  amounts  were not 
material in the years ended June 30, 1998, 1997 and 1996 and are included in
Noninterest Expense.

        Advertising - The Company expenses the production cost of advertising
as incurred.

        Income  Taxes - Deferred  tax assets and  liabilities  are  reflected
at currently  enacted  income  tax  rates  applicable  to the  period  in
which the deferred tax assets or  liabilities  are expected to be realized or
settled.  As changes in tax laws or rates are enacted,  deferred  tax assets
and  liabilities are adjusted through the provision for income taxes.


24
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

        Recently Issued Accounting Standards - The FASB has recently issued
four new accounting standards that will affect accounting,  reporting, and
disclosure of  financial  information  by the Company.  Adoption of these 
standards is not expected  to have a  material  impact  on  financial 
condition  or  results  of operations.  The  following  is a summary of the 
standards  and their  required implementation dates:

        SFAS No.  130,  "Reporting  Comprehensive  Income" - This  statement   
         establishes  standards for reporting and disclosure of comprehensive  
          income and its components  (revenues,  expenses,  gains and losses).
        This  statement  requires  that all items  that are  required  to be
        recognized under accounting standards as components of comprehensive
        income (including, for example,  unrealized holding gains and losses
        on  available-for-sale   securities)  be  reported  in  a  financial
        statement  that is  displayed  with  the  same  prominence  as other
        financial statements. The accumulated balance of other comprehensive
        income will be disclosed  separately  from retained  earnings in the
        equity section of the balance sheet. This statement is effective for
        the Company for the fiscal year beginning July 1, 1998.

        SFAS No.  131,  "Disclosures  About  Segments of an  Enterprise  and
        Related Information" - This statement  establishes standards for the
        way public business  enterprises  report information about operating
        segments and  establishes  standards for related  disclosures  about
        products  and  services,   geographic  areas  and  major  customers.
        Operating  segments  are  components  of an  enterprise  about which
        separate  financial  information  is  available  that  is  evaluated
        regularly by the chief  operating  decision maker in deciding how to
        allocate  resources  and  in  assessing   performance.   Information
        required to be disclosed  includes  segment profit or loss,  certain
        specific  revenue and expense items,  and segment assets and certain
        other  information.  This statement is effective for the Company for
        financial  statements  issued for the fiscal year  beginning July 1,
        1998.

        SFAS No. 132, "Employers' Disclosures about Pensions and other Post-
        retirement   Benefits"  -  This  statement  deals  principally  with
        employers'   disclosures  about  defined  benefit  plans  and  other
        post-retirement  benefit  plans.  The statement is effective for the
        Company for the fiscal year beginning July 1, 1998.

        SFAS No. 133,  "Accounting  for Derivative  Instruments  and Hedging
        Activities" - This  statement  establishes  accounting and reporting
        standards for derivative instruments and for hedging activities.  It
        requires that an entity  recognize all  derivatives as either assets
        or liabilities in the balance sheet and measure those instruments at
        fair  value.  The  accounting  for  changes  in the fair  value of a
        derivative  (that is, gains and losses)  depends on the intended use
        of the  derivative.  The  statement is effective for the Company for
        the  fiscal  year  beginning  July 1,  1999  and may not be  applied
        retroactively.

        Reclassifications  - Certain  June 30, 1997 and 1996  amounts  have
been reclassified to conform to the June 30, 1998 presentation.

2.      Investment and Mortgage-Backed Securities

        Investment  securities  available-for-sale at June 30, 1998 and 1997
are summarized as follows (in thousands of dollars):

                                                     June 30, 1998
                                                       Gross  Gross
                                                       Unrea- Unrea-
                                            Amortized  lized  lized    Fair
                                            Cost       Gains  Losses   Value
                                            ----       -----  ------   -----
 Debt securities:
   U.S. Treasury obligations               $    497    $ 1    $ --    $   498
   U.S. Government Agency obligations         6,010     16      (7)     6,019
                                           --------    ---    ----    -------
                                              6,507     17      (7)     6,517
   Marketable equity securities              22,225     --     (33)    22,192
                                           --------    ---    ----    -------
                                           $ 28,732    $17    $(40)   $28,709
                                           ========    ===    ====    =======

                                                                           25
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996

                                                      June 30, 1998
                                                       Gross  Gross
                                                       Unrea- Unrea-
                                            Amortized  lized  lized    Fair
                                            Cost       Gains  Losses   Value
                                            ----       -----  ------   -----
Debt securities:
 U.S. Treasury obligations                 $  1,492    $--    $ (4)   $ 1,488
 U.S. Government Agency obligations           6,499      2     (18)     6,483
                                           --------    ---    ----    -------  
                                              7,991      2     (22)     7,971
 Marketable equity securities                 2,181     49      --      2,230
                                           --------    ---    ----    -------
                                           $ 10,172    $51    $(22)   $10,201
                                           ========    ===    ====    =======

        Gross  realized  gains  and  losses  on sales of  investment 
securities available-for-sale were not material for the years ended June 30,
1998, 1997 and 1996.

        Marketable  equity  securities  at June  30,  1998  and  1997 
consisted principally of a mutual fund that invests in adjustable rate
mortgages.

        Investment  securities  totaling  approximately $3.6 million at June
30, 1998 were pledged as collateral for public deposits.

        The contractual maturities of debt securities available-for-sale (at
amortized cost and estimated fair value) are summarized as follows at June 30,
1998 (in thousands of dollars):

                                                     Amortized      Fair
                                                     Cost           Value
                                                     -------        -------

        Due within one year                          $   497        $   498
        Due after one through five years               5,000          5,003
        Due after five through ten years               1,010          1,016
                                                     -------        -------
                                                     $ 6,507        $ 6,517
                                                     =======        =======

        Mortgage-backed  securities  held-to-maturity  at June 30, 1998 and
1997 consisted of U.S.  Government  Agency  obligations.  Gross  unrealized
gains and losses were not material at June 30, 1998 and 1997. The contractual 
maturity of the entire balance of mortgage-backed  securities at June 30, 1998
is due within five years.

26
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

3.      Loans Receivable

         Loans  receivable at June 30, 1998 and 1997  consisted of the
following (in thousands of dollars):
                                                            June 30,
                                                      1998           1997
                                                   ---------      ---------
Real estate mortgage loans:
   Residential (1-4 family)                        $ 312,981      $ 285,969
   Construction                                       37,241         35,061
   Land development                                   20,577         12,376
   Commercial                                         10,613          3,773
                                                   ---------      ---------
                                                     381,412        337,179
                                                   ---------      ---------
Consumer and commercial loans:
   Home equity                                        43,950         35,366
   Commercial                                          6,987          1,984
   Other                                               9,058          6,301
                                                   ---------      ---------
                                                      59,995         43,651
                                                   ---------      ---------
Gross loans                                          441,407        380,830

Less:
   Undisbursed portion of loans in process           (21,923)       (15,311)
   Net deferred loan fees                               (843)          (995)
   Allowance for loan losses                          (2,179)        (1,796)
                                                   ---------      ---------
Net loans                                          $ 416,462      $ 362,728
                                                   =========      =========

         The changes in the allowance for loan losses consisted of the
following (in thousands of dollars):
                                                     June 30,
                                       1998            1997           1996
                                     -------         -------        -------
   Allowance, beginning of year      $ 1,796         $ 1,000        $   600
   Provision                             460             825            419
   Write-offs                            (80)            (39)           (23)
   Recoveries                              3              10              4
                                     -------         -------        -------
   Allowance, end of year            $ 2,179         $ 1,796        $ 1,000
                                     =======         =======        =======

        At June 30, 1998 and 1997, the Company had loans totaling $1,210,000
and $618,000,  respectively,  which were in nonaccrual status.  Interest
income that would have been  recorded for the years ended June 30,  1998, 
1997 and 1996 had nonaccrual  loans  been  current in  accordance  with  their 
contractual  terms amounted to $58,000, $34,000 and $84,000,  respectively. 
The amount of interest included in interest income on such loans for such
periods  amounted to $48,000, $18,000 and $69,000, respectively.

                                                                           27
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996

        The Company had impaired  loans at June 30, 1998 and 1997 as follows
(in thousands of dollars):
                                                            June 30,
                                                     1998            1997
                                                    ------          ------
Impaired loans:
  No valuation allowance required                   $1,112          $1,091
  Valuation allowance required                         214            --
                                                    ------          ------
                                                    $1,326          $1,091
                                                    ======          ======
Valuation allowance                                 $   15          $   --
                                                    ======          ======

        The average recorded investment in impaired loans was $1.3 million,
$1.5 million  and $1.1  million  for the years  ended June 30,  1998,  1997
and 1996. Interest  income  recognized on impaired  loans was not  significant 
during the years ended June 30, 1998,  1997,  and 1996.  Residential  real
estate loans are presented net of loans serviced for others totaling
approximately $56.4 million, $54.5 million and $59.2 million at June 30, 1998, 
1997 and 1996,  respectively. Servicing loans for others generally  consists
of collecting  mortgage payments, maintaining  escrow accounts,  disbursing 
payments to investors and foreclosure processing. In connection with these
loans serviced for others, the Company held borrowers' escrow balances of
$253,000,  $248,000 and $390,000 at June 30, 1998, 1997 and 1996,
respectively.

        The  Company  originates  loans  to  officers  and  directors  at 
terms substantially  identical  to those  available to other  borrowers. 
Mortgage and consumer  loans  to  officers  and  directors  at June 30,  1998 
and 1997  were approximately $1.1 million and $1.0 million respectively.

4.      Office Properties and Equipment

        Office properties and equipment at June 30, 1998 and 1997 are
summarized as follows (in thousands of dollars):
                                                          June 30,
                                                   1998             1997
                                                --------         --------
Major Classification:
  Land                                          $  2,094         $  1,679
  Office buildings and improvements                6,753            5,488
  Furniture, fixtures and equipment                3,522            2,804
  Automobiles                                         75               51
                                                --------         --------
                                                  12,444           10,022
Less accumulated depreciation                     (3,999)          (3,428)
                                                --------         --------
Office properties and equipment,net             $  8,445         $  6,594
                                                ========         ========
5.      Deposit Accounts

        Deposit accounts at June 30, 1998 and 1997 are summarized as follows
(in thousands of dollars):

28
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

                                     June 30, 1998            June 30, 1997
                                                Weighted              Weighted
                                                Average               Average
                                  Amount        Rate      Amount      Rate
                                  ------        ----      ------      ----

Demand accounts:
 NOW:
  Noninterest-bearing             $ 12,757        --%     $  6,569       --%
  Interest-bearing                  42,221      2.66        33,425     2.79
  Savings                           56,740      3.28        64,352     3.31
  Money market                      18,133      4.04        14,308     3.18
Certificate accounts               239,961      5.60       234,539     5.66
                                  --------                --------
                                  $369,812                $353,193
                                  ========                ========

        Scheduled  maturities  of  certificate  accounts at June 30, 1998 are
as follows (in thousands of dollars):

        Within 1 year                          $200,023
        After 1 but within 2 years               26,379
        After 2 but within 3 years                6,898
        Thereafter                                6,661
                                               --------
                                               $239,961
                                               ========

        The aggregate amount of certificate  accounts with principal  amounts
of $100,000 or more was $49.0  million and $48.5 million at June 30, 1998 and
1997, respectively. Deposits in excess of $100,000 are not federally insured.

        Interest  expense  by type of  deposit  is  summarized  as  follows 
(in thousands of dollars):
                                                  Year Ended June 30,
                                            1998           1997        1996
                                         ---------      --------     --------
 
        Demand accounts:
           Savings                       $   2,032      $  2,263     $  1,364
            NOW                              1,039           651          542
           Money market                        434           422          626
        Certificate accounts                13,498        12,475       12,137
                                         ---------      --------     --------
                                         $  17,003      $ 15,811     $ 14,669
                                         =========      ========     ========

6.      Advances from Federal Home Loan Bank of Atlanta

        The Company had advances from the Federal Home Loan Bank of Atlanta
("FHLB") in the amount of $17.0 million at June 30, 1998 (none at June 30,
1997). These fixed rate advances had a weighted average rate of 5.15% and ll
mature in the fiscal year ending June 30, 2008. Interest is payable quarterly
and principal is due at maturity.

        All of the advances are convertible  prior to maturity (at the option
of the FHLB) to a variable three-month LIBOR-based  rate.  Of the advances
outstanding, $10.0 million first becomes convertible in the fiscal year ending
June 30, 1999 and is convertible at any quarterly payment date through
maturity. The FHLB has a one-time conversion option on the remaining $7.0 
million of advances.  The option may be exercised on the respective advances'
fifth anniversary date in
                                                                          29
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996

the fiscal  year  ending  June 30,  2003.  Should the  conversion  option on
any advance  be  exercised  by the FHLB,  the  Company  has the right to
prepay  the advance on any quarterly payment date through maturity.

        The Company had an approved  credit limit of $40.0 million with the
FHLB as of June 30, 1998.  This limit was raised to $75.0 million on August
19, 1998. The advances are secured by FHLB stock and a blanket lien on all
qualifying one-to four-family residential first mortgage loans.

7.      Income Taxes

        The tax effects of temporary  differences  that give rise to
significant portions  of the  Company's  net  deferred  tax  liability 
(included  in "Other Liabilities"  on the balance  sheet) as of June 30, 1998
and 1997 are as follows (in thousands of dollars):

                                                             June 30,
                                                       1998           1997
                                                     --------       -------
        Deferred tax liabilities:
          Allowance for loan losses                    $   --        $  359
          Federal Home Loan Bank of
            Atlanta stock dividends                       431           431
          Accumulated depreciation                        206           137
          Deferred loan fees and costs, net                --           253
          Unrealized gain on investment securities
            available-for-sale                             --            11
          Other                                           213           159
                                                     --------       -------
                                                          850         1,350
                                                     --------       -------
        Deferred tax assets:
          Deferred loan fees and costs, net               165            --
          Allowance for loan losses                       128            --
          Unrealized loss on investment securities
            available-for-sale                              9            --
          Other                                           222           183
                                                     --------       -------
                                                          524           183
                                                     --------       -------
        Net deferred tax liability                   $    326       $ 1,167
                                                     ========       =======

        No valuation  allowance on deferred tax assets has been  established 
as management  believes that the existing  deductible  temporary  differences 
will reverse during periods in which the Company generates net taxable income.

        In years ended June 30, 1996 and prior,  the Bank was allowed  under
the Internal  Revenue  Code to  deduct,  subject to  certain  conditions,  an
annual addition to a reserve for bad debts  ("reserve  method") in determining 
taxable income. Legislation enacted in August 1996 repealed the reserve method
effective for the Bank in the fiscal year ended June 30, 1997.

        Deferred income taxes have been provided on differences  between the
bad debt reserve for tax purposes  determined under the formerly used reserve
method and the loan loss allowance for financial accounting purposes only to
the extent of differences  arising  subsequent to December 31, 1987.  Under
the legislation previously  mentioned,  the Bank is required to recapture  the
post-1987 tax bad debt reserve of  approximately  $2.8 million into income
over a six-year  period beginning  with the  fiscal  year  ended June 30, 
1997.  Since a  deferred  tax liability  has been  provided on this 
difference,  the  recapture  will have no impact on equity or results of
operations.

30
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

        Retained  earnings  as of June  30,  1998  includes  approximately 
$4.1 million  representing  reserve  method bad debt  reserves  originating 
prior to December  31,  1987 for  which no  deferred  income  taxes  are 
required  to be provided.  These  reserves  may be included  in taxable 
income if the Bank pays dividends in excess of its  accumulated  earnings and
profits (as defined by the Internal  Revenue Code) or in the event of a
distribution in partial or complete liquidation of the Bank.

        The provision for income taxes is summarized as follows (in thousands
of dollars):
                                                 Year Ended June 30,
                                           1998         1997           1996
                                         -------       -------       -------
   Current provision:
      Federal                            $ 4,956       $ 1,763       $ 1,679
      State                                  680           259           257
                                         -------       -------       -------
                                           5,636         2,022         1,936
                                         -------       -------       -------
   Deferred provision:
      Federal                               (700)         (377)          148
      State                                 (129)          (58)           27
                                         -------       -------       -------
                                            (829)         (435)          175
                                         -------       -------       -------
   Total provision for income taxes      $ 4,807       $ 1,587       $ 2,111
                                         =======       =======       =======

        For the  years  ended  June 30,  1998,  1997 and 1996,  a tax 
(benefit) provision of $(20,000), $63,000, and $(27,000),  respectively,  was
allocated to equity  for the tax  effects  of  changes  in  unrealized  gains 
and  losses on investment securities available-for-sale.

        The Company's  effective tax rate is greater than the statutory 
Federal income tax rate for the following reasons (in thousands of dollars):

                                                 Year Ended June 30,
                                           1998         1997           1996
                                         -------       -------       -------
   Tax at statutory Federal income
    tax rate (34%)                       $ 4,198       $ 1,465       $ 1,920
   Increase (decrease) resulting from:
    State income taxes                       364           133           187
    Nondeductible compensation
     under ESOP                              218            --            --
    Other, net                                27           (11)            4
                                         -------       -------       -------
                                         $ 4,807       $ 1,587       $ 2,111
                                         =======       =======       =======
   Effective income tax rate                38.9%        36.8%         37.4%
                                         =======       =======       =======

8.      Employee Benefit Plans

        401(k) Plan - The Company  sponsors a 401(k) plan which is  available
to all  employees  who meet  minimum  eligibility  requirements.  Participants 
may generally  contribute  from  2%-10% of their  compensation  and the 
Company  is allowed to make  discretionary  contributions,  subject to certain 
limitations. Expense  related to Company  discretionary  contributions 
amounted to $105,000, $83,000,  and  $72,000  in the  years  ended  June  30, 
1998,  1997  and  1996, respectively.

                                                                           31
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996


        ESOP - The ESOP is a  noncontributory  retirement  plan  adopted  by
the Company  effective January 1, 1997 which includes all employees who meet
minimum eligibility requirements.  The ESOP acquired 354,430 shares of the
Corporation's common stock in the  Conversion  at a price of $20 per share
with  proceeds of a loan from the Corporation in the amount of approximately
$7.1 million.  The Bank makes periodic cash  contributions  to the ESOP in an
amount  sufficient for the ESOP to make the scheduled payments under the note
payable to the Corporation.

        The note  payable  has a term of 12 years,  bears  interest  at 8.5%
and requires a level  quarterly  payment of principal and interest of 
approximately $237,000.  The note is  collateralized by the shares of common
stock held by the ESOP.

        As the note is repaid,  shares are released from collateral based on
the proportion of the payment in relation to total  payments  required to be
made on the loan. The shares released from collateral are then allocated to
participants based upon compensation.  Compensation  expense is determined by
multiplying the per share  market  price of the  Corporation's  stock at the
time the shares are committed to be released by the number of shares to be
released.  Any difference between  the value of the  released  shares at
market and cost is recorded as an addition or deduction to additional
paid-in-capital.  The Company recognized approximately $1.3 million in
compensation expense in the year ended June 30, 1998  related to the ESOP of
which  approximately  $650,000 reduced the cost of unallocated ESOP shares and
$640,000 increased additional paid-in capital on the balance sheet.

        The cost of the unallocated shares is reflected as a reduction  of
equity. Unallocated shares are considered neither outstanding shares for
computation of basic earnings per share nor potentially dilutive securities
for computation of diluted earnings per share. Dividends on unallocated ESOP
shares are reflected as a reduction in the note payable (and the Bank's 
contribution reduced accordingly).

        Shares  released or committed to be released for  allocation  during
the year ended June 30,  1998  totaled  32,333.  Shares  remaining  not 
released or committed to be released for allocation at June 30, 1998 totaled
322,097 and had a market value of approximately $13.4 million.

9.      Stock Compensation Plans

        Management  Recognition and Development  Plan - On January 21, 1998,
the Corporation's  stockholders approved the FirstSpartan Financial Corp.
Management Recognition  and Development  Plan ("MRDP").  A maximum of 177,215
shares may be awarded  under the MRDP.  The  objective of the MRDP is to
provide an additional ownership interest in the Company as a long-term
incentive and retention program for key employees and  directors.  Shares of
common stock awarded under the MRDP vest in equal  amounts  over a  five-year 
period.  In the  event of a change in control of the  Company,  all shares 
will  become  fully  vested.  Compensation expense is determined by the value
of the stock on the award date, recognized on a straight-line basis over the
vesting period. Upon the granting of shares under the MRDP,  participants 
will be  entitled  to all voting and other stockholder rights related to the
shares,  including unvested shares.  Participants may also receive dividends
and other  distributions with respect to such stock. Also, all such shares
will be included in outstanding shares for the computation of basic earnings
per share.

        At June 30, 1998,  no shares had been awarded under the MRDP. On July
8, 1998, 177,215 shares of stock were awarded and the closing price of the
stock on that date was $42.00 per share. Therefore,  $1.5 million of
compensation will be recognized in each of the years in the five-year  vesting
period ending June 30, 2003.  Shares  awarded  under the MRDP were issued 
from the  177,215  shares of treasury stock held at June 30, 1998. The shares
had been repurchased in 1998 at an average price of $45.78.

        Stock Option Plan - Also on January 21, 1998, the Corporation's
stockholders approved the 1997 FirstSpartan  Financial Corp. Stock Option Plan
("SOP").  The SOP allows the granting to management  and directors the option
to purchase  common stock of the  Corporation  ("options")  aggregating  to
443,038 shares. All employees and non-employee  directors are eligible to
participate in the SOP. Each option will have a term of 10 years and the
exercise price of each option will not be less than the fair market  value of
the shares on the date of grant.  Options will vest in equal installments over
a three-year period. In the event of a change in control of the  Company,  all 
options  will  become  fully vested and immediately exercisable.  If provision
is not made for the assumption of the options in  connection  with the change
of control, the SOP provides for the cash settlement of any outstanding 
options.  No options had been awarded at June 30, 1998. On July 8, 1998,
options to purchase 363,291 shares at $42.00 per share were awarded.

32
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996


        The Company has elected to follow  Accounting  Principles  Board
Opinion No. 25 ("APB  25"),  "Accounting  for Stock  Issued to  Employees" 
and  related interpretations  in accounting for its stock options as permitted
under SFAS No. 123,  "Accounting for Stock-Based  Compensation."  In
accordance with APB 25, no compensation  cost is  recognized  by the Company
when stock options are granted because the exercise  price of the  Company's 
stock  options  equals the market price of the underlying common stock on the
date of grant.

10.     COMMITMENTS AND CONTINGENT LIABILITIES

        Loan Commitments - The Company,  in the normal course of business, is
a party to  financial  instruments  and  commitments  which  involve,  to 
varying degrees,   elements  of  risk  in  excess  of  the  amounts 
recognized  in  the consolidated  financial statements.  These financial
instruments and commitments include unused consumer lines of credit and 
commitments to extend credit.  Loan commitments, excluding undisbursed
portions of interim construction loans, were approximately $4.5 million ($3.6
million at fixed  rates ranging from 6.75%-10.00%) at June 30, 1998. 
Commitments, which are  disbursed subject to certain limitations, extend over
periods of time with the  majority of such commitments disbursed within a
30-day period.  Additionally,  at June 30, 1998, unused lines of credit
extended by the Company (principally  variable-rate consumer lines secured by
real estate) amounted to approximately $51.6 million.

        Loans Sold with Recourse - At June 30, 1998,  approximately $2.3
million of loans serviced for others had been sold with recourse (i.e.,  all
credit risk associated  with these loans was  retained).  Loans sold with
recourse  resulted from the sale of several pools of loans in 1983.  Due to
the seasoned  nature of these loans and their typical low loan-to-value
ratios, management believes that these loans do not present a significant risk
to the Company.

        Financial  Instruments with Off-Balance  Sheet Risk - The Company has
no other additional financial instruments with off-balance sheet risk.

        Concentration  of Credit Risk - The Company's  business  activities 
are principally  with customers  located in South Carolina.  Except for loans
in the Company's market area, there are no other  significant  concentrations
of credit risk.  The  majority of the  Company's  loans are  residential 
mortgage  loans, construction loans, home equity loans and other mortgage
loans. Generally, first mortgage  loans are allowed up to 80% of the value of
the real estate pledged as collateral or up to 95% with private mortgage 
insurance.  Home equity loans are generally  allowed  up to  90% of  the 
value  of the  real  estate  pledged  as collateral.

        Potential Impact of Changes in Interest Rates - The Company's
profitability depends to a large extent on its net interest income, which is
the difference between interest income on loans and investments and interest
expense on deposits and  borrowings.  Like most financial institutions, the
Company's interest income and interest expense are significantly affected by
changes in market  interest  rates and other economic factors beyond its 
control.  The Company's interest-earning assets consist primarily of mortgage 
loans which adjust more slowly to changes in interest rates than its 
interest- bearing savings deposits. Accordingly, the Company's earnings would
be  adversely affected during periods of rising interest rates.

        Litigation - The Company is  involved  in legal  actions in the normal
course of  business.  Management,  based on advice  of legal  counsel,  does
not expect any material losses from any current litigation.

        Employment Agreements - Both the Corporation and the Bank have entered
into employment agreements  with four executive officers  ("executives").  The
employment agreements establish the duties and compensation of the executives
and have been executed in order to ensure a stable and competent management
base. The employment agreements provide for an initial term of three years.
The Bank's Board of Directors may agree after conducting a performance
evaluation of the executive, to extend an employment agreement on each
anniversary date for an additional year so that the remaining term shall be
three years.

        The employment agreements generally provide for the continued payment
of specified compensation and benefits for the remaining term of the 
agreement after the executives are terminated, unless the termination is for
"cause" as defined in the employment agreement. Additionally, the employment 
agreements provide for severance payments if employment is terminated
following a change in control in the amount of 2.99 times the average annual
compensation paid during the five years immediately preceding the change in
control to the  respective executive.

                                                                            33
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996


        Severance  Agreements - The Bank and the  Corporation  have entered
into severance agreements with three senior officers  ("officers") (none of
whom have entered  into  employment  agreements)  with an initial  term of two
years.  The severance  agreements  may be  extended  in the same  manner  as
the  employment agreements.  The  severance  agreements  provide for 
severance  payments in the amount of 2 times annual salary (and  continuation
of insured  employee  welfare benefits  for a  two-year  period)  in 
connection  with  termination  or  other specified actions in the event of a
change in control of the Company.

        Employee Severance Compensation Plan ("Severance Plan") - In general,
all employees (except for executives and officers who have entered into
separate employment or severance agreements) are eligible to participate in
the Severance Plan.  Under the Severance Plan, employees terminated  within 12
months of a change in control are entitled to a severance  benefit of 2 to 52
weeks of their current compensation based upon length of service.  Similarly,
officers covered under the  Severance  Plan would be entitled to a severance
benefit of 6 to 18 months of their current compensation depending on length of
service and position.

11.     Equity

        Liquidation  Account  -  At  the  time  of  the  Conversion,   the 
Bank established a liquidation account for the benefit of eligible account
holders as of December 31, 1996 who continue to maintain  their  accounts at
the Bank after the Conversion.  The liquidation  account will be reduced
annually to the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases  will  not  restore  an  eligible 
account  holder's  interest  in the liquidation  account.  In the event of a
complete  liquidation of the Bank, each eligible  account  holder will be
entitled  to receive a  distribution  from the liquidation  account  in  an 
amount   proportionate  to  the  current  adjusted qualifying  balances for
accounts then held before any  distribution may be made to the Corporation
with respect to the Bank's capital stock.

        Dividends - The Corporation's  sources of income and funds for
dividends to its stockholders are earnings on its investments and dividends
from the Bank. The Corporation is not subject to any regulatory  restrictions
on the payment of dividends to its stockholders. However, the Bank's primary
regulator, the Office of Thrift Supervision  ("OTS"), has regulations that
impose certain restrictions on payment of dividends to the  Corporation.  The 
Corporation  was dependent on dividends from the Bank to support the level of
quarterly  dividends paid by the Corporation during the year ended June 30,
1998. Current  regulations of the OTS allow the Bank (based  upon its current 
capital  level and supervisory status assigned by the OTS) to pay a dividend 
of up to 100% of net income to date during the calendar year plus 50% of its
surplus capital existing at the beginning of the calendar year.  Supervisory
approval is not required, but30 days prior notice to the OTS is required.  Any
capital distribution in excess of this amount would  require supervisory
approval.  Capital distributions are further restricted  should the Bank's
capital level fall below  he fully phased-in  capital  requirements of the
OTS. In no case will the Bank be allowed to make a  capital  distribution in
excess of the balance of the liquidation account. The Bank paid dividends to
the Corporation amounting to $1.0 million in the year ended June 30, 1998.

        Share  Repurchases  - OTS  regulations  also  place  restrictions  for
a three-year  period  after the  Conversion  on the  Corporation  with 
respect to repurchases  of its common stock.  The  Corporation is not allowed
to repurchase stock in the first year after  Conversion.  With  prior  notice
to the OTS,  the Corporation is allowed to repurchase 5% of its outstanding
shares in each of the next two years after  Conversion.  The above 
restrictions are not applicable to repurchases  of stock to fund an  approved 
benefit  plan such as the  Company's MRDP.

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

        Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios.  Under
regulations of the OTS, the Bank must have: (i) core capital equal to 4.0% of
adjusted total assets, (ii) tangible capital equal to 1.5% of adjusted total
assets and (iii) total capital equal to 8.0% of risk-weighted assets.
  
34
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

In measuring  compliance  with all three capital  standards,  institutions 
must deduct from their  capital  (with  several  exceptions  primarily  for 
mortgage banking  subsidiaries and insured  depository  institution 
subsidiaries)  their investments  in,  and  advances  to,  subsidiaries 
engaged  (as  principal)  in activities not permissible for national  banks, 
and certain other  adjustments. Management  believes,  as of June 30,  1998, 
that the Bank  meets  all  capital adequacy requirements to which it is
subject.

        The following is a reconciliation  of the Bank's equity determined
under generally accepted accounting  principles to OTS regulatory capital
requirements (in thousands of dollars):
                                                Tangible   Core     Risk-Based
                                                Capital    Capital   Capital
                                                --------   --------  --------
June 30, 1998
 Total equity as determined under generally
  accepted accounting principles                $ 90,040   $ 90,040  $ 90,040
 General allowance for loan losses                    --         --     2,157
 Unrealized loss on securities
  available-for-sale                                  14         14        14
                                                --------   --------  --------
 Regulatory capital                             $ 90,054   $ 90,054  $ 92,211
                                                ========   ========  ========
June 30, 1997
 Total equity as determined under generally
  accepted accounting principles                $ 46,978   $ 46,978  $ 46,978
 General allowance for loan losses                    --         --     1,756
 Unrealized gain on securities
  available-for-sale                                 (18)       (18)      (18)
                                                --------   --------  --------
 Regulatory capital                             $ 46,960   $ 46,960  $ 48,716
                                                ========   ========  ========

        The Bank's actual and required capital amounts and ratios are
summarized as follows (in thousands of dollars):
                                                             Minimum
                                          Actual           Requirement
                                   Amount       Ratio    Amount     Ratio
                                   ------       -----    ------     ----- 
June 30, 1998
 Tangible capital
  (to total assets)                $ 90,054     18.4%    $  7,325    1.5%
 Core capital
  (to adjusted total assets)       $ 90,054     18.4%    $ 19,532    4.0%
 Risk-based capital
  (to risk-weighted assets)        $ 92,211     29.9%    $ 24,654    8.0%

June 30, 1997
 Tangible capital
  (to total assets)                $ 46,960      7.1%    $  9,979    1.5%
  Core capital
   (to adjusted total assets)      $ 46,960      7.1%    $ 19,958    3.0%
  Risk-based capital
   (to risk-weighted assets)       $ 48,716     16.3%    $ 23,933    8.0%
                                                                            35
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended June 30, 1998, 1997 and 1996
 
         As of June  30,  1998 and June 30,  1997,  the most  recent 
respective notifications  from the OTS  classified the Bank as well 
capitalized  under the regulatory  framework for prompt corrective  action. 
There are no conditions or events since the most recent  notification that
management believes have changed the  Bank's  category.  To be  categorized 
as well  capitalized,  the Bank must maintain minimum ratios of total capital
to risk-weighted  assets,  core capital to  risk-weighted  assets and core
capital to adjusted total assets.  The Bank's actual and minimum  capital 
requirements  to be well  capitalized  under prompt corrective action
provisions are as follows (in thousands of dollars):
                                                              Minimum
                                          Actual           Requirement
                                   Amount       Ratio    Amount     Ratio
                                   ------       -----    ------     ----- 
June 30, 1998
 Tier I capital
  (to adjusted total assets)       $ 90,054     18.4%    $ 24,416    5.0%
 Tier I capital
  (to risk-weighted assets)        $ 90,054     29.2%    $ 18,491    6.0%
 Total capital
  (to risk-weighted assets)        $ 92,211     29.9%    $ 30,818   10.0%

June 30, 1997
 Tier I capital
  (to adjusted total assets)       $ 46,960      7.1%    $ 33,261    5.0%
 Tier I capital
  (to risk-weighted assets)        $ 46,960     15.7%    $ 17,950    6.0%
 Total capital
  (to risk-weighted assets)        $ 48,716     16.3%    $ 29,916   10.0%

        On  September  30, 1996,  legislation  was enacted to  recapitalize 
the Savings  Association  Insurance  Fund.  The  effect of this  legislation 
was to require a one-time  assessment on all federally  insured  savings 
associations' deposits and was levied by the Federal Depository Insurance
Corporation ("FDIC") at 0.675% of  insured  deposits  at March 31,  1995.  The 
amount of the  Bank's assessment  was  approximately  $1.78  million.  The
assessment was accrued as a charge to earnings in the quarter ended  September
30, 1996 and paid on November 27, 1996.

12.     Earnings Per Share

        Earnings  per share  ("EPS")  for the years ended June 30, 1996 and
1995 are not  presented  because no shares were issued or  outstanding  during 
those periods.

        For purposes of EPS  calculations,  shares issued in connection with
the Conversion have been assumed to be outstanding as of July 1, 1997.

        The Company had no potentially  dilutive  securities  outstanding
during the year ended June 30, 1998;  therefore,  diluted EPS is the same as
basic EPS. For the year  ended  June 30,  1998,  4,066,692  weighted  average 
shares  were outstanding.

36
<PAGE>
<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements
                                     Years Ended June 30, 1998, 1997 and 1996

13.     Financial Instruments

        The stated and fair value  amounts of financial  instruments  as of
June 30, 1998 and 1997, are summarized below (in thousands of dollars):

                                    June 30, 1998            June 30, 1997
                                  Stated      Fair         Stated     Fair
                                  Amount      Value        Amount     Value
                                  ------      -----        ------     -----
Financial assets:
  Cash and cash equivalents      $  48,968   $  48,968    $277,072   $277,072
  Investment securities             28,709      28,709      10,201     10,201
  Mortgage-backed securities            88          90         121        125
  Loans receivable, net            416,462     422,178     362,728    365,358
  Loans held-for-sale                7,294       7,315       1,617      1,617
  Federal Home Loan Bank of
   Atlanta stock                     3,446       3,446       3,011      3,011
  Other assets                       2,813       2,813       2,590      2,590
  Retained servicing on
   mortgage loans                      213         555          24        561
                                 ---------   ---------    --------   --------
                                 $ 507,993   $ 514,074    $657,364   $660,535
                                 =========   =========    ========   ========
Financial liabilities:
  Deposit accounts:
   Demand                         $129,851    $129,851    $118,654   $118,654
   Certificate                     239,961     240,207     234,539    234,114
  Stock subscription escrow
   accounts                             --          --     259,329    259,329
  Advances from Federal Home
   Loan Bank of Atlanta             17,000      15,817          --         --
  Other liabilities                  3,068       3,068       3,586      3,586
                                 ---------   ---------    --------   --------
                                 $ 389,880   $ 388,943    $616,108   $615,683
                                 =========   =========    ========   ========

         The Company had off-balance sheet financial commitments,  which
include $56.1  million  and $30.5  million at June 30,  1998 and 1997 
respectively,  of commitments to originate loans and unused consumer lines of
credit.  Since these commitments are based on current rates,  the commitment 
amount is considered to be a reasonable estimate of fair market value.

        The  following  methods  and  assumptions  were used by the  Company 
in estimating its fair value disclosures for financial instruments:

        Cash  and  Cash  Equivalents  - Both  cash  and  cash  equivalents 
have maturities of three months or less, and, accordingly,  the stated amount
of such instruments is deemed to be a reasonable estimate of fair value.

        Investment and  Mortgage-Backed  Securities - Fair values for
investment and  mortgage-backed  securities are based on quoted market prices. 
If a quoted market price is not  available,  fair value is estimated  using
market prices of similar securities.

        Loans - Fair  values  of  loans  held-for-investment  are  estimated 
by segregating the portfolio by type of loan and  discounting  scheduled cash
flows using  interest  rates  currently  being  offered for loans with similar 
terms, reduced by an estimate of credit losses inherent in the portfolio.  A
prepayment assumption  is used as an  estimate  of the portion of loans that
will be repaid prior to their scheduled maturity.

                                                                           37
<PAGE>
<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

        Loans  held-for-sale  are  valued  at the  lower  of cost or  market 
as determined by outstanding  commitments  from investors or current investor
yield requirements calculated on an aggregate basis.

        Federal  Home Loan Bank of Atlanta  Stock - No ready  market  exists
for this stock, and it has no quoted market value. However, redemption of this
stock has historically been at par value. Accordingly,  the stated amount is
deemed to be a reasonable estimate of fair value.

        Retained  Servicing on Mortgage  Loans Sold - The fair value of
retained servicing  on mortgage  loans sold is  calculated  by  discounting 
the expected future cash flows using current rates.

        Deposits - The fair values  disclosed  for demand  deposits are equal
to the  amounts  payable  on demand  at the  reporting  date  (i.e.,  their 
stated amounts). The fair value of certificates of deposit are estimated by
discounting the amounts  payable at the certificate  rate using the rates
currently  offered for deposits of similar remaining maturities.

        Stock  Subscription  Escrow  Accounts  - The  carrying  amount  of
stock subscription escrow accounts is equal to fair value due to their short
duration.

        Other Assets and Other Liabilities - Other assets represent 
principally accrued interest receivable; other liabilities represent advances
from borrowers for taxes and insurance,  outstanding checks and accrued
interest payable. Since these  financial  instruments  will be  typically 
received or paid within three months,  the stated  amounts of such 
instruments  are deemed to be a reasonable estimate of fair value.

        Fair  value  estimates  are made at a specific  point in time,  based
on relevant  market  information and  information  about the financial 
instrument. These  estimates  do not reflect any premium or discount  that
could result from offering  for sale the  Company's  entire  holdings  of a 
particular  financial instrument.  Because no active market  exists for a 
significant  portion of the Company's  financial  instruments,  fair value 
estimates are based on judgments regarding future expected loss experience, 
current economic conditions, current interest rates and prepayment trends,
risk  characteristics of various financial instruments  and other  factors. 
These  estimates are  subjective in nature and involve  uncertainties and
matters of significant  judgment and therefore cannot be  determined  with 
precision.  Changes  in any of these  assumptions  used in calculating fair
value also would affect  significantly the estimates.  Further, the fair value
estimates were  calculated as of June 30, 1998 and 1997.  Changes in market
interest rates and prepayment  assumptions could change  significantly the
fair value.

        Fair value  estimates  are based on existing on- and  off-balance 
sheet financial  instruments  without  attempting to estimate the value of
anticipated future business and the value of assets and liabilities  that are
not considered financial  instruments.  For  example,  the Company has 
significant  assets and liabilities that are not considered  financial  assets
or liabilities  including loan servicing portfolio, real estate, deferred tax
liabilities and premises and equipment.  In addition, the tax ramifications
related to the realization of the unrealized  gains  and  losses  can  have a 
significant  effect  on fair  value estimates and have not been considered in
any of these estimates.

14.     Condensed Parent Company Only Financial Statements

        The  following  table  presents  the  condensed  balance  sheets  of
the Corporation  at June 30, 1998 and the  condensed  statements  of income
and cash flows for the year then ended (the  Corporation  was inactive from
its inception on February 4, 1997  through the  Conversion  on July 8, 1997)
(in  thousands of dollars):

38
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<PAGE>
                                FirstSpartan Financial Corp. and Subsidiaries
                                   Notes to Consolidated Financial Statements

Condensed Balance Sheet
     Assets:
        Cash and cash equivalents                              $  29,260
        Investment in Bank                                        90,040
        Note receivable from Bank                                  6,661
        Other assets                                                 156
                                                               ---------
        Total assets                                           $ 126,117
                                                               =========
     Liabilities and Stockholders' Equity:
        Other liabilities                                      $     356
        Stockholders' equity                                     125,761
                                                               ---------
        Total liabilities and stockholders' equity             $ 126,117
                                                               =========
Condensed Statement of Income
     Investment Income:
        Interest income                                        $   2,474
        Dividends from Bank                                        1,000
                                                               ---------
                                                                   3,474
     Noninterest Expense                                             415
                                                               ---------
     Income Before Income Taxes and Equity
       in Undistributed Earnings of Bank                           3,059
     Provision for Income Taxes                                      745
                                                               ---------
     Net Income Before Equity in Undistributed
       Earnings of Bank                                            2,314
     Equity in Undistributed Earnings of Bank                      5,226
                                                               ---------
     Net Income                                                $   7,540
                                                               =========
Condensed Statement of Cash Flows
 Cash flows from operating activities:
        Net income                                             $   7,540
        Adjustments to reconcile net income to
          net cash provided by operating activities:
            Equity in undistributed earnings of Bank              (5,226)
            Net change in other assets and liabilities               201
                                                               ---------
        Net  cash  provided  by  operating  activities             2,515
 Cash flows from investing activities:
        Investment in Bank                                       (43,516)
        Sale of common stock                                      81,519
        Collections on note receivable from Bank                     277
                                                               ---------
        Net cash provided by investing activities                 38,280
                                                               ---------
  Cash flows from financing activities:
        Purchase of treasury stock                                (8,113)
        Stock issuance costs                                      (1,584)
        Dividends paid                                            (1,838)
                                                               ---------
        Net cash used in financing activities                    (11,535)
                                                               ---------
   Net increase in and ending balance of cash and cash
     equivalents                                               $  29,260
                                                               =========

                                                                           39
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<PAGE>
FirstSpartan Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


15. Quarterly Results of Operations (Unaudited)

        Summarized  unaudited  quarterly  operating  results for the years
ended June 30, 1998 and 1997 are as follows (in thousands, except share data):

                                   First      Second     Third       Fourth
                                   Quarter    Quarter    Quarter     Quarter
                                   --------   --------   --------    --------
June 30, 1998
        Investment income          $  9,411   $  9,215   $  9,276    $  9,512
        Interest expense              4,299      4,292      4,185       4,377
                                   --------   --------   --------    --------
        Net interest income           5,112      4,923      5,091       5,135
        Provision for loan losses        90         90        130         150
                                   --------   --------   --------    --------
        Net interest income after
          provision for loan losses   5,022      4,833      4,961       4,985
        Noninterest income              449        487        651         779
        Noninterest expense           2,211      2,411      2,530       2,668
                                   --------   --------   --------    --------
        Income before income taxes    3,260      2,909      3,082       3,096
        Income taxes                  1,225      1,150      1,205       1,227
                                   --------   --------   --------    --------
        Net income                 $  2,035   $  1,759   $  1,877    $  1,869
                                   ========   ========   ========    ========
        Basic earnings per share   $   0.50   $   0.43   $   0.46    $   0.47
                                   ========   ========   ========    ========
        Weighted average shares
         outstanding              4,077,791  4,087,721  4,098,436   4,003,425
                                  =========  =========  =========   =========
June 30, 1997
        Investment income          $  6,997   $  7,160   $  7,292    $  8,013
        Interest expense              3,740      3,828      3,938       4,305
                                   --------   --------   --------    --------
        Net interest income           3,257      3,332      3,354       3,708
        Provision for loan losses        29        646         75          75
                                   --------   --------   --------    --------
        Net interest income after
          provision for loan losses   3,228      2,686      3,279       3,633
        Noninterest income              308        342        348         388
        Noninterest expense           3,594      1,998      1,956       2,355
                                   --------   --------   --------    --------
        Income before income taxes      (58)     1,030      1,671       1,666
        Income taxes                    (22)       387        625         597
                                   --------   --------   --------    --------
        Net income                 $    (36)  $    643   $  1,046    $  1,069
                                   ========   ========   ========    ========
        Basic earnings per share        N/A        N/A        N/A         N/A
                                   ========   ========   ========    ========
        Weighted average shares
          outstanding                   N/A        N/A        N/A         N/A
                                   ========   ========   ========    ========

40
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<PAGE>
Corporate and Stockholder Information

Corporate Headquarters

380 East Main Street
Spartanburg, South Carolina 29302

Independent Auditors

Deloitte & Touche LLP
Greenville, South Carolina

General Counsel

Odom, Terry, Cantrell and Hammett
Spartanburg, South Carolina

Special Securities Counsel

Breyer & Aguggia LLP
Washington, D.C.

Transfer Agent

For stockholder inquiries concerning dividend checks,
transferring ownership, address changes or lost or stolen
certificates please contact our transfer agent:

Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948

Common Stock

FirstSpartan Financial Corp. common stock is traded on
the NASDAQ National Market under the symbol FSPT.

10-K Information

A copy of Form 10-K  will be  furnished  without  charge  to  stockholders
upon written request to R. Lamar Simpson, Secretary,  FirstSpartan Financial
Corp. at the Corporate Headquarters address

Annual Meeting

The Annual  Meeting of  Stockholders  will be held on October  21, 1998 at
10:00 a.m., Eastern Time, at the Spartanburg County Library,  151 South Church
Street, Spartanburg, South Carolina.

Officers and Directors

Directors of FirstSpartan Financial Corp.
and First Federal Bank

R. Wesley Hammond - President and Chief Operating
   Officer,  Hammond-Brown-Jennings

Robert L. Handell - Retired President, First Federal Bank

Billy L. Painter - President and Chief Executive Officer of
   FirstSpartan Financial Corp. and First Federal Bank

Robert R. Odom - Partner, Odom, Terry, Cantrell
   and Hammett Law Firm

E. Lea Salter - President, Christman & Parsons, Inc.

E. L. Sanders - Retired Owner, Brodie Insurance Agency

David E. Tate - President, Tate Metal Works

Officers of FirstSpartan Financial Corp.

Robert R. Odom - Chairman of the Board

Billy L. Painter - President and Chief Executive Officer

R. Lamar Simpson - Treasurer, Secretary
   and Chief Financial Officer

Senior Officers of First Federal Bank

Robert R. Odom - Chairman of the Board

Billy L. Painter - President and Chief Executive Officer

R. Lamar Simpson - Chief Financial Officer

Hugh H. Brantley - Executive Vice President
   and Chief Operating Officer

J. Stephen  Sinclair - Executive Vice President,  Lending 

Tom Bridgeman - Senior Vice  President,  Operations

Kathy Dunleavy - Senior Vice President, Retail Banking

Rand  Peterson - Senior Vice  President,  Lending

J. Timothy Camp - Vice President, Commercial Lending

Hugh McDowell - Vice President,  Consumer Lending

Clay Shill - Vice  President,  Branch  Operations 

Jill Thrift - Vice President, Operations

Common Stock Market Price and Dividend Information

The table below  contains the range of high and low per share closing  prices
of the Company's common stock as reported by the Nasdaq Stock Market, and per
share dividends declared during each quarter:
 
                               High                 Low            Dividend
                              -------              -------         --------
1998
September 30, 1997            $39.000              $35.000          $  --
December 31, 1997              40.250               35.000           0.15
March 31, 1998                 45.125               38.250           0.15
June 30, 1998                  47.250               41.000           0.15

1997
There were no shares issued or outstanding during the fiscal year ended June
30, 1997.

<PAGE>
<PAGE>
                                 FIRSTSPARTAN
                                --------------
                                FINANCIAL CORP.

                              380 EAST MAIN STREET
                              SPARTANBURG, SC 29302
==============================================================================
=

OFFICE LOCATIONS
                                            Main Office
[GRAPHIC-FOUR QUARTERS]                     380 East Main Street
                                            Spartanburg, SC 29302

                                            Branch Offices
                                            1585 E. Main Street
                                            Spartanburg, SC

                                            1488 W.O. Ezell Blvd.
                                            Spartanburg, SC

                                            280 N. Church Street
                                            Spartanburg, SC

                                            2701 Boiling Springs Road
                                            Boiling Springs, SC

                                            2075 E. Main Street
                                            Duncan, SC

                                            11157 Asheville Hwy.
                                            Inman, SC

                                            1451 Woodruff Road
                                            Greenville, SC(1)

                                            1313 W. Poinsett Street
                                            Greer, SC(2)

                                            14055 E. Wade Hampton Blvd.
                                            Greer, SC(1)(2)

                                            (1)Located in Wal-Mart Supercenter
                                            (2)Opening September 1998

<PAGE>
<PAGE>
                                                                   Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-30589 and Registration Statement No. 333-59781 of FirstSpartan Financial 
Corp. on Forms S-8 of our report dated July 24, 1998, appearing in the Annual
Report of FirstSpartan  Financial Corp. for the year ended June 30, 1998 
incorporated by reference in this Form 10-K.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Greenville, South Carolina
September 23, 1998

<PAGE>