Table of Contents
Letter to Stockholders                                  1
Financial Summary                                       3
Management's Discussion and
  Analysis                                              4
Independent Auditors' Report                           17
Consolidated Financial Statements                      18
Notes to Consolidated
  Financial Statements                                 23
Corporate and
  Stockholder Information               Inside Back Cover

<PAGE>
                                                             To Our Stockholders

        We are  pleased  to report  that 1999 was  another  year of  significant
growth in our  franchise  and that we made  significant  process in managing our
excess  capital.  During 1999 we added three new offices,  bringing the total to
eleven, and we halved our capital ratio from 24% to 12%.

        We knew at the  beginning of the year that our biggest  challenge was to
manage our excess capital and capital management was the highest priority in our
business plan for 1999. We repurchased 642,405 shares of our stock, representing
14.5% of the total shares  outstanding.  After  considerable  analysis of growth
projections and regulatory restrictions on future repurchases,  in May our Board
of Directors  determined  that even after prior share  repurchases,  our capital
level was excessive and decided that a special capital distribution was the best
course of action at the time to reduce our capital to a manageable level.

        The capital distribution,  which was $12 per share, was paid on June 25,
1999. The majority of this cash  distribution will be tax free to recipients and
will reduce the cost basis of their stock.  We remain  committed to managing our
capital  and intend to continue  leveraging  it through  growth and  managing it
through economically viable and regulatory permissible activities.

        During 1999 we continued to pursue our strategy of  realigning  the loan
portfolio toward  shorter-term,  higher-yielding  commercial and consumer loans.
Our loans receivable grew by $20.4 million, or 4.8%.

        Residential  mortgage loan balances decreased by $22.8 million primarily
due to the sale of $61.4 million of principally  30-year  fixed-rate  loans.  By
selling  fixed-rate  residential  loans,  we reduce our interest rate  exposure,
generate  noninterest  income  ($1.3  million  in  1999)  and  free up cash  for
reinvestment in shorter-term, higher-yielding commercial and consumer loans.

        Our  commercial  lending area was  successful in 1999.  Commercial  loan
balances grew by $16.7 million or 80.1%. Our commercial  lending department also
grew  during  the  year  with  the  addition  of a  commercial  lender  and  two
assistants.  We are  building the  capacity  necessary to take  advantage of the
opportunities available in our growing local economy.

        Advanced balances of construction loans grew by $19.9 million, or 84.3%,
as we continue to emphasize  originations of construction  loans in our offices.
Also  contributing  to the  increase was the purchase of loans from the mortgage
banking  affiliate  in which the Bank  owns a  one-third  interest,  and from an
unaffiliated  mortgage  banking  company.  All loans  purchased  from  these two
mortgage banking  companies are  underwritten by our personnel  according to our
lending policies and are monitored and  periodically  inspected by our personnel
in  order  to  mitigate  any  increased   risk   associated   with   third-party
originations.

        Consumer loan balances  (including home equity loans)  increased by $4.7
million,  or 9.5%.  While the percentage  increase was  respectable,  the dollar
growth was not; consumer lending will be a top priority in the coming year.
<PAGE>
        Deposit  growth for 1999 was $36.2 million or 9.8%.  Our newer  branches
contributed  significantly  to deposit  growth.  The Inman and  Duncan  offices,
opened in July of 1997, now have nearly $16 million and $10 million in deposits,
respectively,  while  our  Greer  office,  opened  in  September  1998,  now has
approximately $13 million in deposits.


                                                                               1
<PAGE>
To Our Stockholders

        Activities   conducted  through  the  Bank's  wholly  owned  subsidiary,
FirstService Corporation,  continue to be successful.  The volume of non-insured
investment products sold through FirstService  continues to improve. In order to
enhance customer service,  FirstService  recently associated itself with Raymond
James Financial  Services,  Inc.  FirstService  also has an equity interest in a
mortgage  banking  company,  as previously  mentioned,  which had an outstanding
year.  We also plan to  continue  purchasing  construction  and  adjustable-rate
mortgage loans from this mortgage banking company.

        The Year 2000 computer problem  continues to be a newsworthy item. It is
acknowledged  generally  that  the  banking  industry  is/or  will be Year  2000
compliant by year end. We have  declared our system as "Year 2000 Ready" and are
currently in a customer awareness  campaign.  We continue to monitor third-party
vendors and to refine and execute contingency plans.

        We believe that the greatest strength of our organization is our people.
Personnel  will  continue to be added in strategic  areas of the Bank.  Training
programs are being  enhanced to provide skills that will enable our personnel to
better serve our customers and to sell our products. Recent training initiatives
include customer service training for all employees.

        Thank you for being a stockholder.  We are striving to enhance the value
of  your  investment  through  growth,  profitability  improvement  and  capital
management.  We believe  the  Company  has a bright  future and look  forward to
continuing  to  serve  our  customers  and to work  hard  for our  stockholders'
benefit.





Sincerely,




Billy L. Painter
President and
Chief Executive Officer


2
<PAGE>
<TABLE>
<CAPTION>
                                                                                                     Financial Summary
                                                                          (Dollars in thousands, except per share data)

                                                                    At or For the Year Ended June 30,
                                                    1999           1998           1997           1996            1995
                                                  --------       --------       --------       --------       --------
<S>                                               <C>            <C>            <C>            <C>            <C>
Summary of Operations:
Investment income                                 $ 38,625       $ 37,414       $ 29,462       $ 26,445       $ 23,835
Interest expense                                    18,366         17,153         15,811         14,669         11,302
                                                  --------       --------       --------       --------       --------
Net interest income                                 20,259         20,261         13,651         11,776         12,533
Provision for loan losses                              800            460            825            419              9
                                                  --------       --------       --------       --------       --------
Net interest income
after provision for loan losses                     19,459         19,801         12,826         11,357         12,524
                                                  --------       --------       --------       --------       --------
Noninterest income                                   4,098          2,366          1,386          1,238            278
Noninterest expense(1)                              14,980          9,820          9,903          6,947          6,166
                                                  --------       --------       --------       --------       --------
Income before income taxes                           8,577         12,347          4,309          5,648          6,636
Provision for income taxes                           3,602          4,807          1,587          2,111          2,495
                                                  --------       --------       --------       --------       --------
Net income                                        $  4,975       $  7,540      $   2,722      $   3,537        $ 4,141
                                                  ========       ========      =========      =========        =======
Per Share Data:
Basic and diluted earnings                        $   1.36       $   1.85             --             --             --
Cash dividends declared                               0.75           0.45             --             --             --
Cash distribution                                    12.00             --             --             --             --
Book value                                           17.43          29.57             --             --             --

Balance Sheet Summary:
Total assets                                      $545,725       $517,433       $665,446       $356,966       $322,735
Average assets                                     535,283        499,035        385,347        344,390        313,954
Loans receivable, net                              435,181        416,462        362,728        314,936        267,393
Investment securities                               23,398         28,797         10,322         18,350         14,113
Cash and cash equivalents                           58,420         48,968        227,072         10,784         15,967
Deposits                                           406,011        369,812        353,193        305,831        275,915
Other borrowings                                    35,000             --             --             --              -
Federal Home Loan Bank
 of Atlanta advances                                34,000         17,000             --             --             --
Stock subscription escrow accounts(2)                   --             --        259,329             --             --
Total equity                                        66,041        125,761         46,978         44,154         40,660
Average equity                                     113,528        127,266         45,795         42,953         38,547

Selected Financial Ratios and
Other Statistical Data:
Return on average assets                              0.93%          1.51%          0.71%          1.03%          1.32%
Return on average equity                              4.38%          5.92%          5.94%          8.23%         10.74%
Interest rate spread(3)                               3.16%          3.07%          3.22%          3.01%          3.71%
Net interest margin(4)                                3.97%          4.21%          3.69%          3.55%          4.15%
Efficiency ratio(5)                                   0.53           0.43           0.54           0.54           0.48
Nonperforming loans to loans receivable, net(6)       0.35%          0.33%          0.56%          1.87%          1.79%
Allowance for losses to gross loans receivable        0.61%          0.49%          0.47%          0.30%          0.21%
Allowance for losses to nonperforming loans         190.40%        159.87%         88.43%         17.02%         12.52%
Total equity to total assets                         12.10%         24.30%          7.06%         12.37%         12.60%
Average equity to average assets                     21.21%         25.50%         11.88%         12.47%         12.28%
Dividend payout ratio(7)                             55.15%         24.32%            --             --             --
Number of offices                                       11              8              7              5              5
</TABLE>
<PAGE>

(1)  Includes  a  $2.1  million   compensation   charge   related  to  the  cash
     distribution  of $12.00 per share  with  respect to the year ended June 30,
     1999 and a charge of $1.8 million for the  one-time  SAIF  assessment  with
     respect to the year ended June 30, 1997.
(2)  Represents subscription funds for the common stock of the Company issued in
     connection with the Bank's mutual to stock 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 compensation charge related to the cash
     distribution  of $12.00 per share  with  respect to the year ended June 30,
     1999 and 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>
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 the Company. The information  contained in this section
should be read in conjunction  with the  Consolidated  Financial  Statements and
accompanying Notes contained in this Annual Report.

Private Securities Litigation Reform Act Safe Harbor Statement

        This  Annual  Report  contains  forward-looking  statements  within  the
meaning of the federal  securities  laws.  These  statements  are not historical
facts, rather statements based on the Company's current  expectations  regarding
its business  strategies and their intended results and its future  performance.
Forward-looking  statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends," and similar expressions.

        Forward-looking  statements  are not  guarantees of future  performance.
Numerous  risks and  uncertainties  could cause the  Company's  actual  results,
performance, and achievements to be materially different from those expressed or
implied by the forward-looking statements.  Factors that may cause or contribute
to these differences include,  without limitation,  general economic conditions,
including  changes in market  interest  rates and changes in monetary and fiscal
policies of the federal  government;  legislative  and regulatory  changes;  the
Company's  ability to remedy any computer  malfunctions that may result from the
advent  of the Year  2000;  and  other  factors  disclosed  periodically  in the
Company's filings with the Securities and Exchange Commission.

        Because  of the  risks and  uncertainties  inherent  in  forward-looking
statements,  readers are cautioned not to place undue reliance on them,  whether
included in this report or made elsewhere from time to time by the Company or on
its behalf.  The Company  assumes no  obligation  to update any  forward-looking
statements.

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 (the "Conversion") 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  primarily 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.
<PAGE>
        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, 1999, the Bank had
eleven locations (nine traditional offices and two in-store offices).

        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 $545.7  million at June 30, 1999 and $517.4 million at
June 30, 1998, an increase of $28.3 million.  The increase was  principally  the
result of increases in loans  receivable,  net and in cash and cash equivalents,
offset by a decrease in  investment  securities  available-for-sale  at June 30,
1999 when  compared  to June 30,  1998.  Total  liabilities  increased  by $88.0


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

million as the result of increased deposits and borrowings.  Total stockholders'
equity  decreased  by  $59.7  million  principally  as  the  result  of  a  cash
distribution  of  $12.00  per  share  and  share   repurchases  which  decreased
stockholders'   equity  by  approximately   $43.3  million  and  $21.0  million,
respectively.

        Cash and Cash Equivalents

        Cash and cash  equivalents  totaled  $58.4  million at June 30, 1999, an
increase of $9.4  million.  The  majority of the increase  was  attributable  to
increases  in cash from  operations  of $5.1  million  and cash  from  financing
activities of $21.1 offset by cash used to fund investments of $16.9 million.  A
more  detailed  reconciliation  may  be  found  in  the  Company's  Consolidated
Statements of Cash Flows for the year ended June 30, 1999.

        Investment Securities

        Investment securities decreased by $5.4 million to $23.3 million at June
30, 1999 from $28.7 million at June 30, 1998. Investments were reduced primarily
to help fund the cash distribution payment to stockholders.

        Loans Receivable, Net

        Loans receivable,  net, increased  primarily as a result of a net growth
of $7.5  million in  mortgage  loans since June 30,  1998.  Included in the $7.5
million  increase were increases of $19.9 million in  construction  loans,  $9.8
million in commercial mortgage loans and $0.6 million in land development loans,
which  more than  offset a  decrease  of $22.8  million  in one- to  four-family
mortgage  loans.  The primary  factor  contributing  to the  decrease in one- to
four-family  mortgage loans was the sale of $61.4 million of loans  (principally
30-year  fixed-rate  conventional  mortgage  loans)  in  the  secondary  market.
Offsetting  loan sales was the purchase of $65.8 million in mortgage  loans from
the mortgage banking company in which the Bank's service corporation  subsidiary
owns a one-third equity interest, and purchases from other correspondent banking
relationships.  Loans  receivable,  net,  also  increased  due to a $6.9 million
increase in  non-mortgage  commercial  loans,  a $2.9  million  increase in home
equity  loans and a $1.8  million  increase  in other  non-mortgage  loans.  The
increase in loans  receivable,  net, was funded primarily through an increase in
deposits and FHLB advances.

        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.
<PAGE>
        The following table presents a summary of the loan portfolio at June 30,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                                          1999           1998
                                                       ---------      ---------
<S>                                                    <C>            <C>
Real estate mortgage loans:
           Residential (1-4 family)                    $ 290,219      $ 312,981
           Construction                                   72,373         41,089
           Land development                               18,864         16,729
           Commercial                                     23,587         13,817
                                                       ---------      ---------
                                                         405,043        384,616
                                                       ---------      ---------
Consumer and commercial loans:
           Home equity                                    43,623         40,746
           Commercial                                     13,885          6,987
           Other                                          10,894          9,058
                                                       ---------      ---------
                                                          68,402         56,791
                                                       ---------      ---------
        Gross loans                                      473,445        441,407
        Less:
           Undisbursed portion of loans in process       (34,807)       (21,923)
           Net deferred loan fees                           (561)          (843)
           Allowance for loan losses                      (2,896)        (2,179)
                                                       ---------      ---------
        Net loans                                      $ 435,181      $ 416,462
                                                       =========      =========
</TABLE>

                                                                               5
<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, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
                                              1999            1998           1997
                                           ---------      ---------      ---------
<S>                                        <C>            <C>            <C>
Loans originated:
   Real estate mortgage loans:
      Residential (1-4 family)             $  88,500      $  95,754      $  50,886
      Construction                            41,696         38,860         36,770
      Land development                         8,238         12,676          6,924
      Commercial                              11,929          9,133          1,770
   Consumer and other                         49,950         56,888         29,734
Loans purchased:
   Residential (1-4 family)                   16,365         14,309          9,091
   Construction                               49,447          9,537          5,820
Loans sold:
   Conventional                              (61,407)       (13,211)        (2,824)
   Government (FHA,VA)                        (2,818)        (6,329)        (7,223)
Loan principal repayments                   (173,781)      (148,697)       (84,423)

Net (decrease) increase in other items        (9,400)       (15,186)         1,267
                                           ---------      ---------      ---------
Net increase in loans receivable, net      $  18,719      $  53,734      $  47,792
                                           =========      =========      =========
</TABLE>

        Asset Quality and Allowance for Loan Losses

        The  allowance  for loan losses  represents  an amount  that  management
believes  will be  adequate  to  provide  for  estimated  loan  losses  based on
management's  evaluation of the collectibility of the loan portfolio,  including
the nature of the portfolio,  credit  concentrations,  trends in historical loss
experience,  specific impaired loans, and economic  conditions.  Management also
considers the level of problem assets that the Company  classifies in accordance
with regulatory  requirements.  The Company gives 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) because classified assets include not only nonperforming
assets but also  performing  assets  that  otherwise  exhibit,  in  management's
judgment,   potential  credit  weaknesses.  Based  on  the  uncertainty  in  the
estimation  process  however,  management's  estimate of the  allowance for loan
losses may change in the near term.  Further,  the  allowance for loan losses is
subject to periodic  evaluation  by various  regulatory  authorities  and may be
subject to adjustment upon their examination.
<PAGE>
        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 or more 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>
                                         Management's Discussion and Analysis of
                                   Financial Condition and Results of Operations


        A summary of  nonperforming  loans as of June 30, 1999 and 1998  follows
(dollars in thousands):
<TABLE>
<CAPTION>
                                                              1999        1998
                                                             ------      ------
<S>                                                          <C>         <C>
Nonaccrual loans:
   Residential (1-4 family)                                  $  533      $  266
   Construction                                                 310         787
   Other                                                        378         157
                                                             ------      ------
                                                              1,221       1,210
Accruing loans contractually past due 90 days or more           300         153
                                                             ------      ------

Total nonperforming loans                                    $1,521      $1,363
                                                             ======      ======

Nonperforming loans as a percentage
  of loans receivable, net                                      0.3%        0.3%
                                                             ======      ======
Allowance for loan losses as a percentage
   of nonperforming loans                                     190.4%      159.9%
                                                             ======      ======

</TABLE>
        Loans  classified  under OTS  regulations  totaled $4.3 million and $3.6
million at June 30, 1999 and 1998, respectively.

        The changes in the allowance for loan losses is as follows for the years
ended June 30, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
                                            1999           1998           1997
                                          -------        -------        -------
<S>                                       <C>            <C>            <C>
Allowance, beginning of year              $ 2,179        $ 1,796        $ 1,000
Provision                                     800            460            825
Write-offs                                    (85)           (80)           (39)
Recoveries                                      2              3             10
                                          -------        -------        -------
Allowance, end of year                    $ 2,896        $ 2,179        $ 1,796
                                          =======        =======        =======

</TABLE>
        See also  "Results  of  Operations  -  Provision  for Loan  Losses"  for
discussion of the provision for loan losses.
<PAGE>
        Deposits

        Deposit  accounts  increased $36.2 million to $406.0 million at June 30,
1999 from $369.8  million at June 30, 1998.  The  increase in deposits  resulted
primarily  from newly opened branch  offices and, to a lesser  extent,  interest
credited to deposit  accounts during the period.  The following table presents a
summary of deposits at June 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>

                                        1999                       1998
                              -------------------------    ---------------------
                                               Weighted                 Weighted
                                                Average                  Average
                               Amount            Rate       Amount        Rate
                               ------            ----       ------        ----
<S>                           <C>                <C>         <C>           <C>

Demand accounts:
   NOW:
      Noninterest-bearing     $ 19,163                      $ 12,757
      Interest-bearing          46,533           2.29%        42,221       2.66%
   Savings                      56,225           2.75         56,740       3.28
   Money market                 30,099           3.91         18,133       4.04
Certificate accounts           253,991           5.09        239,961       5.60
                              --------                      --------
                              $406,011                      $369,812
                              ========                      ========
</TABLE>

                                                                               7
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Stockholders' Equity
        Stockholders' equity decreased by $59.8 million to $66.0 million at June
30,  1999  from  $125.8   million  at  June  30,  1998.   Items  that  decreased
stockholders'  equity were a cash distribution of $43.3 million, the purchase of
$21.0  million of the  Company's  stock  from the open  market,  and  payment of
dividends of $2.7 million. Offsetting these charges to stockholders' equity were
the allocation of shares under the Bank's Employee Stock Ownership Plan ("ESOP")
and the Management  Recognition and Development Plan ("MRDP") which totaled $2.4
million, and net income of $5.0 million for the year ended June 30, 1999.


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 yield earned on interest-earning assets and the rate paid
on 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  decreased  $2.5  million to $5.0  million for the year ended
June 30, 1999 from $7.5  million for the year ended June 30, 1998 as a result of
increased  noninterest  expense  and the  absence of  earnings  on funds used to
repurchase  stock,  partially  offset  by  increased  noninterest  income  and a
decreased  provision  for income taxes due to lower income  before income taxes.
The  increase in  noninterest  expense was  principally  the result of increased
compensation expense. The increased compensation expense was associated with the
MRDP (particularly  with a compensation  charge related to the cash distribution
on the MRDP shares), and the hiring of additional personnel for the newly opened
branches.

        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 Interest Income

        Net interest  income was $20.3 million for the years ended June 30, 1999
and 1998.  Investment  income  increased 3% to $38.6  million for the year ended
June 30, 1999 from $37.4 million for the year ended June 30, 1998 as a result of
an increase in the average balance of interest-earning  assets to $510.5 million
from $481.5  million more than  offsetting a decrease in the yield to 7.57% from
7.77% for the respective  annual  periods.  The decrease in the average yield on
<PAGE>
interest-earning  assets was due primarily to lower  prevailing  market interest
rates   during  the  year  ended  June  30,   1999.   The  average   balance  of
interest-earning  assets  increased as a result of an increase in average  loans
receivable and investment securities,  partially offset by a decrease in average
overnight  interest-bearing  deposits.  Although  interest-earning  assets  were
higher  during the year ended June 30, 1999 as compared to June 30, 1998,  share
repurchases  of  approximately  $21.0 million since the year ended June 30, 1998
significantly offset asset growth and, accordingly,  investment income. Interest
expense  increased  7% to $18.4  million  for the year ended June 30,  1999 from
$17.2 million for the year ended June 30, 1998 as a result of an increase in the
average  balance of  interest-bearing  liabilities to $416.0 million from $364.9
million more than offsetting a decrease in the cost of funds to 4.41% from 4.70%
for the respective  annual periods.  The average balance increased as the result
of deposits  obtained  through newly opened branch  offices and various  deposit
promotions as well as increased FHLB advances and other borrowings. The decrease
in the average cost is attributable  to the decrease in prevailing  market rates
since June 30, 1998.  Another  factor that affected net interest  income was net
interest earnings of approximately  $300,000 on excess stock  subscription funds
held and refunded in connection  with the  Conversion in the year ended June 30,
1998, which were absent in the year ended June 30, 1999.

         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

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

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 passbook 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  passbook  accounts as a result of  promotions  of NOW and  passbook
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.

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 each period  have been  calculated  using  daily  average
balances. (Dollar amounts in the table are in thousands.)
<PAGE>
<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                                      1999                           1998                           1997
                                         ---------------------------    ---------------------------    ---------------------------
                                                   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)               $441,514   $34,811    7.88%   $395,465    $32,146    8.13%    $336,476   $27,455   8.16%
  Mortgage-backed securities                   68         6    8.82         106          9    8.49          138         9   6.52
  Investment securities                    30,567     1,668    5.46      18,831      1,111    5.90       14,055       903   6.42
  FHLB stock                                3,492       262    7.50       3,122        229    7.34        2,865       207   7.23
  Federal funds sold and overnight
    interest-bearing deposits              34,902     1,878    5.38      63,967      3,919    6.13       16,060       888   5.53
                                         --------   -------    ----    --------    -------    ----     --------   -------   ----

  Total interest-earning assets           510,543    38,625    7.57     481,491     37,414    7.77      369,594    29,462   7.97
                                                    -------    ----                -------    ----                -------   ----
Noninterest-earning assets                 24,740                        17,544                          15,753
                                         --------                      --------                        --------
  Total assets                           $535,283                      $499,035                        $385,347
                                         ========                      ========                        ========
Interest-bearing liabilities(2):
  Savings accounts                       $ 55,485     1,623    2.93    $ 61,931      2,032    3.28     $ 64,062     2,263   3.53
  Money market accounts                    26,656     1,043    3.91      12,733        434    3.41       13,669       422   3.09
  NOW accounts                             60,566     1,034    1.71      48,389      1,039    2.15       32,517       651   2.00
  Certificate accounts                    245,720    13,185    5.37     238,845     13,498    5.65      222,773    12,475   5.60
                                         --------   -------    ----    --------    -------    ----     --------   -------   ----
  Total deposits                          388,427    16,885    4.35     361,898     17,003    4.70      333,021    15,811   4.75
Advances from FHLB of Atlanta              26,836     1,432    5.34       2,970        150    5.05           --        --     --
Other borrowings                              767        49    6.39          --         --      --           --        --     --
                                         --------   -------    ----    --------    -------    ----     --------   -------   ----
  Total interest-bearing liabilities      416,030    18,366    4.41     364,868     17,153    4.70      333,021    15,811   4.75
                                                    -------    ----                -------    ----                -------   ----
Noninterest-bearing liabilities             5,725                         6,901                           6,531
                                         --------                      --------                        --------
  Total liabilities                       421,755                       371,769                         339,552
Stockholders' equity                      113,528                       127,266                          45,795
                                         --------                      --------                        --------
  Total liabilities and
    stockholders' equity                 $535,283                      $499,035                        $385,347
                                         ========                      ========                        ========
Net interest income                                  $20,259                        $20,261                       $13,651
                                                     =======                        =======                       =======
Interest rate spread                                          3.16%                           3.07%                         3.22%
                                                              ====                            ====                          ====
Net interest margin                                           3.97%                           4.21%                         3.69%
                                                              ====                            ====                          ====
Ratio of average interest-earning
 assets to average interest-
 bearing liabilities                                          1.23x                          1.32x                         1.11x
                                                              ====                           ====                          ====
</TABLE>
(1)  Includes  loans  held-for-sale.  Includes  nonaccrual  loans  but  excludes
     interest on nonaccrual loans.
(2)  Excludes escrow balances.


                                                                               9
<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.)
<TABLE>
<CAPTION>
                                                  Year Ended June 30, 1999               Year Ended June 30, 1998
                                            Compared to Year Ended June 30, 1998   Compared to Year Ended June 30, 1997
                                                     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)                   $ (957)       $3,622       $2,665       $(101)       $4,792       $4,691
  Mortgage-backed securities                     --            (3)          (3)         --            --           --
  Investment securities                         (76)          633          557         (65)          273          208
  FHLB stock                                      5            28           33           3            19           22
  Federal funds sold and overnight
    interest-bearing deposits                  (433)       (1,608)      (2,041)        106         2,925        3,031
                                             ------        ------       ------       -----        ------       ------
Total net change in income
  on interest-earning assets                 (1,461)        2,672        1,211         (57)        8,009        7,952
                                             ------        ------       ------       -----        ------       ------

Interest-bearing liabilities:
  Savings accounts                             (208)         (201)        (409)       (157)          (74)        (231)
  Money market accounts                          72           537          609          35           (23)          12
  NOW accounts                                   22           (27)          (5)         52           336          388
  Certificate accounts                         (745)          432         (313)        112           911        1,023
  Advances from FHLB of Atlanta                  10         1,272        1,282          --           150          150
Other borrowings                                 --            49           49          --            --           --
                                             ------        ------       ------       -----        ------       ------
Total net change in expense
  on interest-bearing liabilities              (849)        2,062        1,213          42         1,300        1,342
                                             ------        ------       ------       -----        ------       ------

Net change in net interest income            $ (612)       $  610       $   (2)     $  (99)       $6,709       $6,610
                                             ======        ======       ======      ======        ======       ======
</TABLE>

(1) Excludes interest on nonaccrual loans.
<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,  including the nature of the  portfolio,
credit concentrations,  trends in historical loss experience,  specific impaired
loans, and economic  conditions.  Management also considers the level of problem
assets that the Company  classifies in accordance with regulatory  requirements.
The Company gives 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)
because  classified  assets  include  not  only  nonperforming  assets  but also
performing assets that otherwise exhibit,  in management's  judgment,  potential
credit  weaknesses.  The provision for loan losses was $800,000,  $460,000,  and
$825,000 for the years ended June 30, 1999,  1998, and 1997,  respectively.  The
provision for loan losses for 1999 increased over the past year primarily as the
result of the increase in the amount of construction and commercial loans in the
Company's loan portfolio.  Management  believes that such loans present a higher
risk of  credit  loss  relative  to  one-  to  four-family  mortgage  loans  and
accordingly, a higher allowance for loan losses is warranted.

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

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.

        Noninterest Income

        Noninterest  income  increased  by $1.7  million to $4.1 million for the
year ended June 30,  1999 from $2.4  million  for the year ended June 30,  1998,
primarily  as a result of an increase in gain on sale of mortgage  loans to $1.3
million  for the year ended June 30,  1999 from  $342,000 in the year ended June
30,  1998.  The Bank  periodically  sells loans in  response  to  interest  rate
changes,  liquidity  needs,  and other  factors.  The Bank sold $61.4 million of
mortgage  loans  during  the year ended June 30,  1999  primarily  to reduce the
amount of fixed-rate loans in the loan portfolio.  The amount of fixed-rate loan
originations  were  higher  than  normal for the year ended June 30, 1999 due to
lower  interest  rates which led to a higher than normal level of mortgage  loan
refinancings.  Management cannot predict the level of such gains, if any, in the
future.  Service  charges and fees  increased to $2.2 million for the year ended
June 30, 1999 from $1.4 million for the year ended June 30, 1998  primarily as a
result of increased  deposit account fees,  particularly on the increased number
of NOW accounts.

        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  twelve-month  period versus a $97,000 loss for the same
period in 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 Expense

        Noninterest  expense was $15.0  million for the year ended June 30, 1999
compared  to $9.8  million  for the year  ended  June  30,  1998.  The  increase
consisted  principally  of increased  employee  compensation  and benefits which
increased to $9.3 million for the year ended June 30, 1999 from $5.0 million for
the year  ended  June  30,  1998.  The  increase  in  compensation  expense  was
attributable  primarily  to the  adoption of the MRDP in the year ended June 30,
1999. In addition to  compensation  associated  with the vesting of shares under
the MRDP,  there was a charge  of  approximately  $2.1  million  related  to the
payment  of the cash  distribution  on shares of stock in the  MRDP.  Also,  the
hiring  of  personnel  to  staff  the  newly  opened  branch  offices  increased
compensation. These increases to compensation expense were offset partially by a

<PAGE>
decrease in ESOP  expense due to a lower  average  stock price used to determine
related  compensation  expense.  The  increases  in  other  categories  of other
operating  expenses  generally are attributable to the growth of the Company and
to  inflation.  The  Company  anticipates  that other  operating  expenses  will
continue to increase in  subsequent  periods  until the new  branches  that were
opened in 1999 become fully operational.

        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.


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

        Income Taxes

        The  provision for income taxes was $3.6 million for the year ended June
30, 1999 compared to $4.8 million for the year ended June 30, 1998 primarily due
to lower income before 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 as a result
of higher income before income taxes.


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). 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 has also  provided  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
has completed  all program  maintenance  associated  with its Year 2000 plan and
expects  continued  testing up to January 1, 2000.  The Bank  established a Year
2000 test facility and tested the  processing  system from November 1998 through
January 1999. The test results were satisfactory. Like the Bank, BISYS Year 2000
activities are subject to OTS oversight.
<PAGE>
        In  addition  to  addressing  its own  Year  2000  issues,  the  Bank is
continuing  to assess  the  impact of the Year  2000 on  significant  commercial
borrowers.  To date, based on written  representations from borrowers,  the Bank
has determined that  substantially  all such borrowers have either (a) completed
Year  2000  systems  replacement  or  renovation  or  (b)  developed  Year  2000
remediation  plans.  The Bank continues to monitor those  borrowers  whose plans
have not yet been  completed.  Based upon borrowers'  representations,  the Bank
believes that its significant commercial borrowers will have Year 2000 compliant
systems in place before December 31, 1999. However,  those borrowers cannot give
assurance that their  customers or suppliers will be Year 2000 compliant  before
December 31, 1999.  The Bank is unable to determine the impact upon  collections
on these loans should either the borrowers'  representations prove inaccurate or
their suppliers or customers not be Year 2000 compliant.

        The Bank has recently  organized a Year 2000 liquidity  committee.  This
committee  is in the  process of  estimating  cash needs in the event  there are
unusually  high cash  withdrawals  at or near  December 31, 1999. In addition to
planning for the availability of liquid funds,  this committee will also develop
plans for  distribution  of cash to the  Bank's  offices  and any other  related
plans.

        The  external  costs  associated  with the Bank's  Year 2000  compliance
incurred to date have been less than  $100,000.  Additional  external  costs are
expected to be less than $25,000.  The Bank has not separately  tracked internal
costs associated with Year 2000 compliance. Such costs would consist principally
of personnel costs of employees on various  committees,  a Year 2000 coordinator
and  operational  personnel  involved  in system  testing.  The  majority of all

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

required  hardware  upgrades  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.

        The Bank's  operations  are highly  dependent  on  computer  systems and
computer hardware,  both internal and those provided through third parties.  Due
to such a high level of  dependency  on  computers  and  computer  systems,  the
failure  of systems  due to Year 2000  problems  could  have a material  adverse
financial  impact on the Bank. The following risks are believed by management to
present the most reasonably likely worst-case scenario:

       o BISYS could experience  unforseen  system(s) failure resulting in the
         inability to access customer accounts and process transactions;

       o Loss of utilities could cause major disruptions of business. Should the
         Bank lose  power,  it would  lose the  ability  to  operate  electronic
         equipment to access  customer  accounts.  Should  telephone  service be
         disrupted  the Bank would lose the ability to  communicate  with BISYS,
         which again would prohibit access to customer accounts;

      o  Failures in the payments system could cause a severe  disruption to the
         Bank's  business.  These  failures  could occur in the Federal  Reserve
         Banks,  correspondent  banks, or electronic  payments  clearing houses.
         These  failures  could cause  processing  backlogs and could affect the
         Bank's ability to process customer  deposits and withdrawals as well as
         fund loans;

      o  Failures  of the  Bank's  correspondent  banks  such as the FHLB  could
         impair  the  Bank's  liquidity  and  the  ability  to  process  certain
         payments;

      o  Loss of  customer  confidence  that the Bank or the  banking  system in
         general  will be Year 2000  compliant  could  cause  excessive  deposit
         withdrawals impairing the Bank's liquidity.

        Should  any or a  combination  of any of the  above  scenarios  actually
materialize,  the results  could be loss of  revenue,  increased  costs,  and/or
impaired  liquidity.  It is not possible to estimate the extent of loss that may
occur nor is it possible  to  estimate  the length of time that it would take to
remedy any problems encountered.

        There can be no  assurances  that the  Bank,  BISYS,  other  third-party
processors, government agencies, utility companies,  correspondent banks, or any
other vendor upon which the Bank relies will  effectively  address the Year 2000
problem.  Year 2000 failures by any of the above mentioned parties could cause a
material adverse affect on the Bank and the Company.

        Market Risk and Interest Rate Sensitivity

        Market risk is the risk of loss from  adverse  changes in market  prices
and  interest  rates.  Risk  associated  with market  interest  rate  volatility
("interest  rate  risk")  is  the  Company's  principal  market  risk  exposure.
Substantially all of the Company's interest rate risk is derived from the Bank's

<PAGE>
lending,  investment, 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 Company
does  not own any  trading  assets  nor does it have any  hedging  contracts  or
derivative  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.

        The  Company's  objective  is to  maximize  net  interest  income  while
managing its interest  rate risk.  Interest  rate risk is monitored  and managed
principally  through the Bank's  Asset/Liability  Committee  ("ALCO"),  which is
comprised of four senior officers and a member of the Bank's Board of Directors.
The ALCO  develops  and  reviews  business  strategies  that  further the Bank's
objective of increasing net interest  income while managing  interest rate risk.
The ALCO meets regularly to review the current balance sheet structure,  current
and potential changes in market interest rates, economic outlook, and the impact
of specific business strategies, among other issues. Considered in the review of
the current balance sheet structure are, among other things,  the sensitivity of
assets and liabilities to changes in interest rates, liquidity, loan origination
and sales activity, deposit inflows and outflows, investment portfolio activity,
and borrowings.

        In order to manage its  interest  rate risk,  the  Company has in recent
years  sold  fixed-rate  mortgage  loans  with  terms  in  excess  of 15  years,
originated  and  purchased   adjustable-rate  mortgage  loans,  and  implemented
programs to increase  shorter-term,  variable-rate  loans such as  construction,
commercial,  and consumer loans. In recent years, an emphasis has been placed on
generating  transactional  deposit accounts which have a longer average life and
are less sensitive to changes in interest  rates.  Also,  advances from the FHLB
have  been  obtained,  some of  which  have  longer  terms to  maturity  and /or
repricing than the Company's average certificates of deposit.


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

        The principal method utilized by ALCO to evaluate the Bank's exposure to
changes in interest rates is a sensitivity analysis which measures the change in
the Bank's net  portfolio  value  ("NPV") and net interest  income under various
interest  rate  scenarios.  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
Bank utilizes a sensitivity model developed and maintained by the FHLB.

        The OTS utilizes the NPV methodology to evaluate interest sensitivity in
its regulation and  supervision of the Bank. The OTS utilizes its own model with
data submitted by the Bank on the quarterly Thrift Financial Report. The results
of the  OTS  model  may  differ  from  the  results  of the  FHLB  model  due to
differences in assumptions  about loan prepayment  rates, cash flow reinvestment
rates, and deposit decay rates, among others.

        The  following  table sets forth the change in the Company's NPV at June
30, 1999 and 1998 based on the FHLB  model,  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 ARM 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.)
<TABLE>
<CAPTION>
                                                                        At June 30,
                                                          1999                               1998
                                                   -------------------                -------------------
                    Basis Point                    Estimated Change in                Estimated Change in
                  Change in Rate                   Net Portfolio Value                Net Portfolio Value
                  --------------                   -------------------                -------------------
<S>                    <C>                   <C>                <C>             <C>                <C>
                       +200                   $(15,349)          (16.2)%         $(13,872)          (11.2)%
                       +100                     (7,244)           (7.6)            (6,936)           (5.6)
                          0                         --             --                  --              --
                       -100                      6,404             6.7              2,741             2.2
                       -200                     12,003            12.6              5,482             4.4
</TABLE>
<PAGE>
        The above table  illustrates,  for example,  that an  instantaneous  200
basis point increase in market  interest rates at June 30, 1999 would reduce the
Company's NPV by approximately  $15.3 million at that date. Certain  assumptions
utilized in assessing  the interest rate risk of savings banks within the Bank's
geographic  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. The level of interest rate sensitivity as indicated by
the table above at June 30, 1999 and 1998 are within policy  limits  established
by the Company's Board of Directors.

        While the Company  principally  utilizes  the NPV method to evaluate its
interest rate exposure as previously discussed, the following table presents the
Company's financial instruments that are sensitive to changes in interest rates,
categorized by expected  maturity,  and the instruments'  average rates and fair
values at June 30,  1999.  The table was prepared  based upon the FHLB  interest
sensitivity  model and  certain  assumptions  about  loan  prepayment  rates and
deposit  decay  rates,  among  others,  were  utilized.  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 material 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.)

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

<TABLE>
<CAPTION>

                                          Average      Within One     One Year  After 3 Years      Beyond
                                           Rate          Year        To 3 Years  To 5 Years       5 Years      Total    Fair Value
                                           ----          ----        ----------  ----------       -------      -----    ----------
<S>                                         <C>       <C>            <C>         <C>             <C>         <C>           <C>
Interest-sensitive assets:
  Loan receivable, net of loans in
    process and deferred loan fees          7.72%     $ 120,743      $126,944    $ 80,803        $109,587    $438,077      $436,232
  Loans held-for-sale                       7.35          8,984            --          --              --       8,984         9,089
  Mortgage-backed securities                8.00             --            54          --              --          54            55
  Investment securities                     5.37         18,334         1,479       2,937             594      23,344        23,344
  FHLB stock                                7.38          3,612            --          --              --       3,612         3,612
  Federal funds sold and overnight
    interest-bearing deposits               4.95         43,782            --          --              --      43,782        43,782
                                                      ---------      --------    --------        --------    --------      --------

    Total interest-sensitive assets                     195,455       128,477      83,740         110,181     517,853       516,114
                                                      ---------      --------    --------        --------    --------      --------

Interest-sensitive liabilities:
  Passbook accounts                         2.75          9,665        14,651       9,551          22,358      56,225        56,225
  Money market accounts                     3.91         23,778         3,311       1,577           1,433      30,099        30,099
  NOW accounts                              1.62         24,562        22,466       6,012          12,656      65,696        65,696
  Certificate accounts                      5.09        225,328        22,333       6,330              --     253,991       253,546
  Advances from FHLB                        5.23         17,000            --      17,000              --      34,000        33,266
  Other borrowings                          6.39         35,000            --          --              --      35,000        35,000
                                                      ---------      --------    --------        --------    --------      --------
    Total interest-sensitive liabilities                335,333        62,761      40,470          36,447     475,011       473,832
                                                      ---------      --------    --------        --------    --------      --------

Rate sensitive gap                                    $(139,878) $     65,716    $ 43,270        $ 73,734    $ 42,842     $  42,282
                                                      =========  ============    ========        ========    ========     =========

Cumulative rate sensitive gap                         $(139,878) $    (74,162)   $(30,892)       $ 42,842    $     --     $      --
                                                      =========  ============    ========        ========    ========     =========
Off-balance sheet items:
  Commitments to extend credit              7.32      $   6,462      $     --    $     --        $     --    $  6,462     $   6,462
  Unused lines of credit                    9.13         50,881            --          --              --      50,881        50,881
  Loans in process                          8.36         34,807            --          --              --      34,807        34,807

</TABLE>
<PAGE>
        Liquidity and Capital Resources

        The Company's primary sources of funds are customer  deposits,  proceeds
from  principal  and  interest  payments  from and the sale of  loans,  maturing
securities, FHLB advances, and other borrowings.  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, 1999,  cash and cash  equivalents  totaled $58.4 million,  or 11% of
total assets, and investment securities  classified as  available-for-sale  with
maturities of one year or less totaled $18.3 million. At June 30, 1999, the Bank
also maintained an uncommitted  credit facility with the FHLB of Atlanta,  which
provides for immediately  available  advances up to an aggregate amount of $75.0
million of which $34.0 million had been advanced.

        As of June 30, 1999, the Bank's regulatory  capital was in excess of all
applicable regulatory  requirements.  At June 30, 1999, under regulations of the
OTS, the Bank's actual tangible, core, and risk-based capital ratios were 16.8%,
16.8%,  and 27.2%,  respectively,  compared to requirements  of 1.5%,  3.0%, and
8.0%, respectively.


                                                                              15
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

        At  June  30,  1999,  the  Company  had  loan   commitments   (excluding
undisbursed  portions  of  interim  construction  loans) of  approximately  $6.5
million ($2.6 million at fixed rates ranging from 7.25% to 9%). In addition,  at
June 30, 1999,  the unused  portion of credit  (principally  variable-rate  home
equity lines of credit) extended by the Company was approximately $50.9 million.
Furthermore, at June 30, 1999, the Company had certificates of deposit scheduled
to mature in one year or less of $225.3 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

        See Note 1 to the Consolidated  Financial Statements for a discussion of
recently issued  accounting  standards that affect  accounting,  reporting,  and
disclosure of financial information by the Company.


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 Bank'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.


16
<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, 1999 and 1998,  and the related  consolidated  statements of income,
        equity,  and cash flows for each of the three years in the period  ended
        June  30,  1999.  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,  1999 and 1998,  and the results of its  operations  and its
        cash flows for each of the three years in the period ended June 30, 1999
        in conformity with generally accepted accounting principles.






        /s/Deloitte & Touche LLP

        July 16, 1999
        Greenville, South Carolina


                                                                              17
<PAGE>
Consolidated Balance Sheets
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, 1999 and 1998

                                                                                          1999             1998
                                                                                      -----------      -----------
<S>                                                                                   <C>              <C>
Assets
        Cash                                                                          $    14,638      $     8,450
        Federal funds sold and overnight interest-bearing deposits                         43,782           40,518
                                                                                      -----------      -----------
               Total cash and cash equivalents                                             58,420           48,968
        Investment securities available-for-sale - at fair value (amortized cost:
          $23,489 and $28,732 at June 30, 1999 and 1998, respectively)                     23,344           28,709
        Mortgage-backed securities held-to-maturity - at amortized cost
          (fair value: $55 and $90 at June 30, 1999 and 1998, respectively)                    54               88
        Loans receivable, net                                                             435,181          416,462
        Loans held-for-sale - at lower of cost or market (market value:
          $9,089 and $7,315 at June 30, 1999 and 1998, respectively)                        8,984            7,294
        Office properties and equipment, net                                               10,370            8,445
        Federal Home Loan Bank of Atlanta stock - at cost                                   3,612            3,446
        Accrued interest receivable                                                         3,203            2,813
        Real estate acquired in settlement of loans                                           348               36
        Other assets                                                                        2,209            1,172
                                                                                      -----------      -----------
                Total Assets                                                          $   545,725      $   517,433
                                                                                      ===========      ===========
Liabilities and Stockholders' Equity
  Liabilities:
        Deposit accounts                                                              $   406,011      $   369,812
        Advances from borrowers for taxes and insurance                                     1,004            1,063
        Advances from Federal Home Loan Bank of Atlanta                                    34,000           17,000
        Other borrowings                                                                   35,000             --
        Other liabilities                                                                   3,669            3,797
                                                                                      -----------      -----------
                 Total liabilities                                                        479,684          391,672
                                                                                      -----------      -----------
Stockholders' Equity:
        Preferred stock, $0.01 par value:
          Authorized - 250,000 shares; none issued or
            outstanding at June 30, 1999 and 1998                                            --               --
        Common stock, $0.01 par value:
          Authorized - 12,000,000 shares; issued: 4,430,375 at
            June 30, 1999 and 1998; outstanding: 3,787,970 and
            4,253,160 at June 30, 1999 and 1998, respectively                                  44               44
        Additional paid-in capital                                                         82,289           87,624
        Retained earnings                                                                  15,264           52,662
        Treasury stock - at cost (642,405 and 177,215 shares
          at June 30, 1999 and 1998, respectively)                                        (20,955)          (8,113)
        Unearned restricted stock                                                          (4,660)            --
        Unallocated ESOP stock                                                             (5,851)          (6,442)
        Accumulated other comprehensive loss                                                  (90)             (14)
                                                                                      -----------      -----------
                 Total stockholders' equity                                                66,041          125,761
                                                                                      -----------      -----------
                Total Liabilities and Stockholders' Equity                            $   545,725      $   517,433
                                                                                      ===========      ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
                                               Consolidated Statements of Income
                                               (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Years Ended June 30, 1999, 1998 and 1997
                                                                    1999            1998            1997
                                                                -----------      -----------     -----------
<S>                                                             <C>              <C>             <C>
Investment Income:
     Interest on loans                                          $    34,811      $    32,146     $    27,455
     Interest and dividends on investment securities,
       mortgage-backed securities, and other                          3,814            5,268           2,007
                                                                -----------      -----------     -----------
                 Total investment income                             38,625           37,414          29,462
                                                                -----------      -----------     -----------
Interest Expense:
     Deposit accounts                                                16,885           17,003          15,811
     Advances from Federal Home Loan Bank of Atlanta                  1,432              150
     Other borrowings                                                    49             --              --
                                                                -----------      -----------     -----------
                 Total interest expense                              18,366           17,153          15,811
                                                                -----------      -----------     -----------

Net Interest Income
                                                                     20,259           20,261          13,651
Provision for Loan Losses                                               800              460             825
                                                                -----------      -----------     -----------
Net Interest Income After Provision for Loan Losses                  19,459           19,801          12,826
                                                                -----------      -----------     -----------
Noninterest Income (Loss):
     Service charges and fees                                         2,225            1,378           1,090
     Gain on sale of mortgage loans                                   1,333              342              38
     Loss on sale of investments                                        (53)            --               (12)
     Other, net                                                         593              646             270
                                                                -----------      -----------     -----------
                 Total noninterest income, net                        4,098            2,366           1,386
                                                                -----------      -----------     -----------
Noninterest Expense:
     Employee compensation and benefits                               9,318            5,016           4,025
     Federal deposit insurance premium                                  326              354           2,278
     Occupancy and equipment expense                                  1,504            1,106           1,006
     Computer services                                                  481              680             523
     Advertising and promotions                                         543              566             463
     Office supplies, postage, printing, etc                            751              626             535
     Other                                                            2,057            1,472           1,073
                                                                -----------      -----------     -----------
                 Total noninterest expense                           14,980            9,820           9,903
                                                                -----------      -----------     -----------

Income Before Income Taxes                                            8,577           12,347           4,309
Provision for Income Taxes                                            3,602            4,807           1,587
                                                                -----------      -----------     -----------
Net Income                                                      $     4,975      $     7,540     $     2,722
                                                                ===========      ===========     ===========

Basic and Diluted Earnings Per Share                            $      1.36      $      1.85     $      --
                                                                ===========      ===========     ===========
Weighted Average Shares Outstanding                               3,665,778        4,066,692            --
                                                                ===========      ===========     ===========
</TABLE>
See accompanying notes to consolidated financial statements.
                                                                              19
<PAGE>
Consolidated Statements of Equity
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Years Ended June 30, 1999, 1998 and 1997
                                                                                                                   Other
                                                           Addi-                                         Unallo-  Compre-
                                                           tional                         Unearned       cated    hensive
                                            Common Stock   Paid-In Retained   Treasury   Restricted      ESOP     (Loss)      Total
                                          Shares   Amount  Capital Earnings     Stock       Stock        Stock    Income     Equity
                                          ------   ------  ----------------     -----       -----        -----    ------     ------
<S>                                    <C>        <C>    <C>      <C>        <C>          <C>         <C>          <C>     <C>
Balance, June 30, 1996                        --  $  --  $    --  $ 44,238   $     --     $      --   $     --     $ (84)  $ 44,154
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------

Net income                                    --     --       --     2,722         --            --         --        --      2,722
Unrealized gain on securities
  available-for-sale, net of taxes            --     --       --        --         --            --         --       102        102
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
    Total comprehensive income                --     --       --     2,722         --            --         --       102      2,824
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
Balance, June 30, 1997                        --     --       --    46,960         --            --         --        18     46,978
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------

Net income                                    --     --       --     7,540         --            --         --        --      7,540
Unrealized loss on securities
  available-for-sale, net of taxes            --     --       --        --         --            --         --       (32)       (32)
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
    Total comprehensive income                --     --       --     7,540         --            --         --       (32)     7,508
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
Issuance of common stock               4,430,375     44   86,981        --         --            --     (7,089)       --     79,936
ESOP stock 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
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------

Net income                                    --     --       --     4,975         --            --         --        --      4,975
Unrealized loss on securities
  available-for-sale, net of taxes            --     --       --        --         --            --         --       (76)       (76)
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
    Total comprehensive income                --     --       --     4,975         --            --         --       (76)     4,899
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
Issuance of treasury stock
  to MRDP                                177,215     --     (670)       --      8,113        (7,443)        --        --         --
ESOP stock committed
  for release                                 --     --      356        --         --            --        591        --        947
Purchase of treasury stock              (642,405)    --       --        --    (20,955)           --         --        --    (20,955)
Dividends ($0.75 per share)                   --     --       --    (2,732)        --            --         --        --     (2,732)
Prorata vesting of restricted stock           --     --       --        --         --         1,450         --        --      1,450
Cash distribution
  ($12.00 per share)                          --     --   (5,021)  (39,641)        --         1,333         --        --    (43,329)
                                       ---------  -----  -------   -------   --------     ---------   --------     -----   --------
Balance, June 30, 1999                 3,787,970  $  44  $82,289   $15,264   $(20,955)    $  (4,660)  $ (5,851)    $ (90)  $ 66,041
                                       =========  =====  =======   =======   ========     =========   ========     =====   ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
                                           Consolidated Statements of Cash Flows
                                                                  (In Thousands)
<TABLE>
<CAPTION>

Years Ended June 30, 1999, 1998 and 1997
                                                                                   1999          1998           1997
                                                                               ---------        -------     ----------
<S>                                                                            <C>              <C>         <C>
Cash Flows from Operating Activities:
     Net income                                                                $   4,975        $ 7,540     $    2,722
     Adjustments to reconcile net income to net
       cash provided by operating activities:
       Provision for loan losses                                                     800            460            825
       Deferred income tax benefit                                                   (60)          (829)          (435)
       Amortization of deferred income                                              (632)          (219)          (157)
       Amortization of loan servicing assets                                         127             72             74
       Amortization (accretion) of premiums (discounts)
         on investments and mortgage-backed securities                                 6              3            (20)
       Depreciation                                                                  797            603            529
       Allocation of ESOP stock at fair value                                        947          1,290             --
       Prorata vesting of restricted stock                                         1,450             --             --
       Loss on sale of investment securities available-for-sale                       53             --             12
       Gain on sale of real estate acquired in settlement of loans                    --             --            (14)
       Loss on disposal of property and equipment                                     13              7             11
       (Increase) decrease in loans held-for-sale                                 (1,690)        (5,677)           294
       (Increase) decrease in other assets                                        (1,554)             9         (1,131)
       Decrease in other liabilities                                                 (81)          (237)          (663)
                                                                               ---------        -------     ----------
           Net cash provided by operating activities                               5,151          3,022          2,047
                                                                               ---------        -------     ----------
Cash Flows from Investing Activities:
     Net loan originations and principal collections                              46,613        (30,129)       (33,740)
     Purchase of loans                                                           (65,812)       (23,846)       (14,911)
     Purchase of investment securities available-for-sale                        (17,317)       (29,063)        (1,374)
     Proceeds from sale of investment securities available-for-sale               17,000             --          8,000
     Proceeds from maturities of investment securities
       available-for-sale                                                          5,500         10,500          1,500
     Principal repayments and proceeds from maturities
       of mortgage-backed securities                                                  35             33             75
     Proceeds from sale of real estate acquired
       in settlement of loans                                                         --             --            227
     Purchase of Federal Home Loan Bank of Atlanta stock                            (166)          (435)          (205)
     Purchase of property and equipment                                           (2,738)        (2,461)        (2,249)
     Proceeds from sale of property and equipment                                      3             --            227
                                                                               ---------        -------     ----------
           Net cash used in investing activities                                 (16,882)       (75,401)       (42,450)
                                                                               ---------        -------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                            <C>              <C>         <C>
Cash Flows from Financing Activities:
     Net increase in deposits                                                     36,199         36,661         47,362
     Dividends paid                                                               (2,732)        (1,838)            --
     Cash distribution                                                           (43,329)            --             --
     Advances from Federal Home Loan Bank of Atlanta                              17,000         17,000             --
     Other borrowings                                                             35,000             --             --
     Purchase of treasury stock                                                  (20,955)        (8,113)            --
     Stock subscription proceeds                                                      --             --        259,329
     Stock subscription refunds                                                       --       (197,851)            --
     Stock issuance costs                                                             --         (1,584)            --
                                                                               ---------        -------     ----------
           Net cash provided by (used in) financing activities                    21,183       (155,725)       306,691
                                                                               ---------        -------     ----------
Net Increase (Decrease) in Cash and Cash Equivalents                               9,452       (228,104)       266,288
Cash and Cash Equivalents at Beginning of Year                                    48,968        277,072         10,784
                                                                               ---------        -------     ----------
Cash and Cash Equivalents at End of Year                                        $ 58,420       $ 48,968      $ 277,072
                                                                                ========       ========      =========
</TABLE>


                                                                              21
<PAGE>
Consolidated Statements of Cash Flows (continued)
(In Thousands)
<TABLE>
<CAPTION>
Years Ended June 30, 1999, 1998 and 1997
                                                                                 1999          1998           1997
                                                                              ---------        -------     ----------
<S>                                                                            <C>             <C>          <C>
Supplemental Disclosures of Cash Flow Information:

     Cash paid during the year for:
       Interest                                                                $  17,447       $ 17,433     $   15,715
                                                                               =========       ========     ==========
       Income taxes                                                            $   4,821       $  5,358     $    1,870
                                                                               =========       =======      ==========
Supplemental Disclosures of Non-Cash Transactions:

     Transfers from loans to real estate acquired in
       settlement of loans                                                     $     312       $     --     $      191
                                                                               =========       ========     ==========
     Change in unrealized (loss) gain on investment
       securities available-for-sale                                           $    (122)      $    (52)    $      165
                                                                               =========       ========     ==========
     Change in deferred taxes related to unrealized loss
       (gain) on investment securities available-for-sale                      $      46       $     20     $      (63)
                                                                               =========       ========     ==========
     Transfer of common stock from treasury to MRDP                            $   7,443             --     $       --
                                                                               =========       ========     ==========

     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     $       --
                                                                               =========       ========     ==========

</TABLE>

See accompanying notes to consolidated financial statements.

22
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

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 eligible depositors and the Association's  Employee Stock
Ownership Plan ("ESOP") on July 8, 1997.

        The Corporation issued  approximately 4.4 million shares of common stock
for proceeds of approximately $87.0 million (net of costs of $1.6 million).  The
Association  issued all of its  outstanding  capital stock to the Corporation in
exchange for one-half of the net  proceeds.  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 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 or the Association and its subsidiary.

        FirstService  has a one-third  ownership  interest in a mortgage banking
company  which is  accounted  for using the  equity  method of  accounting.  The
investment is included in Other Assets in the balance sheet and totaled $632,000
and $484,000,  at June 30, 1999 and 1998,  respectively.  Equity in the earnings
(losses) of the  mortgage  banking  company is  included in Other  Income in the
statement of income and totaled  $149,000,  $181,000 and $(97,000) for the years
ended June 30, 1999, 1998 and 1997, respectively.

        Significant  intercompany balances and transactions have been eliminated
in consolidation.

        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
primarily  limited  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.
<PAGE>
        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.

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


                                                                              23
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997

        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.

        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 are 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.   The  carrying  value  of  loan  servicing  rights  and  the
amortization thereon are periodically  evaluated in relation to estimated future
net  servicing  revenues.  The  Company  evaluates  the  carrying  value  of the
servicing portfolio for impairment by estimating the future net servicing income
of the portfolio based on management's best estimate of remaining loan lives and
estimated  prepayment  rates.  Loan type and note rate are the predominant  risk
characteristics  of the underlying loans used to stratify  capitalized  mortgage
servicing rights for purposes of measuring impairment. At June 30, 1999 and 1998
the cost of the mortgage  servicing rights  approximated their fair value. 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
<PAGE>
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 examination.

        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 judgment
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  through a valuation  allowance  which is included as a component of
the allowance for loan losses.


24
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

        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, 1999, 1998 and 1997 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.

        Recently  Issued  Accounting  Standards - The  following is a summary of
recent  Statements  of Financial  Accounting  Standards  ("SFAS")  issued by the
Financial Accounting Standards Board ("FASB") that affect accounting, reporting,
and disclosure of financial information by the Company:

         o   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 is to be disclosed  separately  from retained
             earnings in the equity  section of the balance  sheet.  The Company
             adopted this statement for the fiscal year ended June 30, 1999.

         o   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,  segment  assets,  and certain
             other information.  This statement is effective for the Company for
             financial statements issued for the fiscal year ended June 30,1999.
             Management  has reviewed  this  statement and  determined  that the
             Company has one  qualifying  segment,  and  therefore no additional
             disclosure is required.
<PAGE>
         o   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. SFAS No. 137 delayed the implementation date for
             this  standard and, as a result,  it will become  effective for the
             Company for the fiscal year  beginning July 1, 2000. The Company is
             in the  process  of  evaluating  the  effect of SFAS No. 133 on its
             financial  position  and results of  operations,  and  therefore is
             unable  to  estimate  the  effect  of the  adoption.  It may not be
             applied retroactively.

        Reclassification  - Certain  June 30,  1998 and 1997  amounts  have been
reclassified to conform to the June 30, 1999 presentation.

                                                                              25
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997


2.      Investment and Mortgage-Backed Securities

        Investment  securities  available-for-sale at June 30, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                             June 30, 1999
                                                        Gross         Gross
                                         Amortized    Unrealized   Unrealized      Fair
                                           Cost         Gains        Losses        Value
                                         --------     --------      --------      --------
<S>                                      <C>          <C>           <C>           <C>
Debt securities:
  U.S. Government Agency obligations     $  5,497     $   --        $    (61)     $  5,436
  State and local obligations               1,480         --             (12)        1,468
                                         --------     --------      --------      --------
                                            6,977         --             (73)        6,904
Marketable equity securities               16,512           76          (148)       16,440
                                         --------     --------      --------      --------

                                         $ 23,489     $     76      $   (221)     $ 23,344
                                         ========     ========      ========      ========

<CAPTION>
                                                             June 30, 1998
                                                        Gross         Gross
                                         Amortized    Unrealized    Unrealized      Fair
                                           Cost         Gains         Losses        Value
                                         --------     --------      --------      --------
<S>                                      <C>          <C>           <C>           <C>
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
                                         ========     ========      ========      ========
</TABLE>
<PAGE>
        Gross  realized  gains  and  losses  on sales of  investment  securities
available-for-sale  for the years  ended  June 30,  1999,  1998 and 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
                                                    Year ended June 30,
                                           1999            1998            1997
                                           ----             ---            ----
<S>                                        <C>              <C>            <C>
Gross gains                                $ 10             $--            $  3
Gross losses                                (63)             --             (15)
                                           ----             ---            ----

Net losses                                 $(53)            $--            $(12)
                                           ====             ===            ====

</TABLE>
Marketable equity securities at June 30, 1999 and 1998 consist  principally of a
mutual fund that invests in adjustable-rate mortgages.

        Investment  securities  totaling  approximately $4.8 million at June 30,
1999 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,
1999 (in thousands):


26
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                        Amortized         Fair
                                                           Cost           Value
                                                           ----           -----
<S>                                                       <C>             <C>
Due after one through five years                          $6,460          $6,387
Due after ten years                                          517             517
                                                          ------          ------

                                                          $6,977          $6,904
                                                          ======          ======
</TABLE>
        Mortgage-backed  securities  held-to-maturity  at June 30, 1999 and 1998
consist of U.S. Government Agency obligations. Gross unrealized gains and losses
were not  material at June 30, 1999 and 1998.  The  contractual  maturity of the
entire balance of mortgage-backed securities at June 30, 1999 is due within five
years.

3.      Loans Receivable

        Loans  receivable  at June 30, 1999 and 1998  consisted of the following
(in thousands):
<TABLE>
<CAPTION>
                                                                     June 30,
                                                              1999             1998
                                                            ---------      ---------
<S>                                                         <C>            <C>
        Real estate mortgage loans:

           Residential (1-4 family)                         $ 290,219      $ 312,981
           Construction                                        72,373         41,089
           Land development                                    18,864         16,729
           Commercial                                          23,587         13,817
                                                            ---------      ---------
                                                              405,043        384,616
                                                            ---------      ---------

        Consumer and commercial loans:
           Home equity                                         43,623         40,746
           Commercial                                          13,885          6,987
           Other                                               10,894          9,058
                                                            ---------      ---------
                                                               68,402         56,791
                                                            ---------      ---------
        Gross loans                                           473,445        441,407
                                                            ---------      ---------
        Less:
           Undisbursed portion of loans in process            (34,807)       (21,923)
           Net deferred loan fees                                (561)          (843)
           Allowance for loan losses                           (2,896)        (2,179)
                                                            ---------      ---------
        Net loans                                           $ 435,181      $ 416,462
                                                            =========      =========

</TABLE>
<PAGE>
         The changes in the allowance for loan losses consisted of the following
(in thousands):
<TABLE>
<CAPTION>

                                                            June 30,
                                               1999           1998            1997
                                             -------         -------        -------
<S>                                          <C>             <C>            <C>
        Allowance, beginning of year         $ 2,179         $ 1,796        $ 1,000
        Provision                                800             460            825
        Write-offs                               (85)            (80)           (39)
        Recoveries                                 2               3             10
                                             -------         -------        -------

        Allowance, end of year               $ 2,896         $ 2,179        $ 1,796
                                             =======         =======        =======
</TABLE>
                                                                              27

<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997


         At June 30, 1999 and 1998,  the Company had loans totaling $1.2 million
which were in nonaccrual  status.  Interest income that would have been recorded
for the years  ended  June 30,  1999,  1998 and 1997 had  nonaccrual  loans been
current in accordance with their contractual terms amounted to $52,000,  $58,000
and $34,000, respectively. The amount of interest included in interest income on
such  loans  for  such  periods  amounted  to  $51,000,   $48,000  and  $18,000,
respectively.  The  Company  had  impaired  loans at June  30,  1999 and 1998 as
follows (in thousands):
<TABLE>
<CAPTION>
                                                             June 30,
                                                        1999           1998
                                                        -----        -------
<S>                                                     <C>          <C>
        Impaired loans:
           No valuation allowance required              $ 722        $ 1,112
           Valuation allowance required                    --            214
                                                        -----        -------

                                                        $ 722        $ 1,326
                                                        =====        =======

        Valuation allowance                             $  --        $    15
                                                        =====        =======
</TABLE>

        The average recorded investment in impaired loans was $1.0 million, $1.3
million  and $1.5  million  for the years  ended June 30,  1999,  1998 and 1997,
respectively.  Interest income  recognized on impaired loans was not significant
during the years ended June 30, 1999, 1998 and 1997.

        Residential  real estate loans are presented  net of loans  serviced for
others totaling approximately $102.9 million, $56.4 million and $54.5 million at
June 30, 1999, 1998 and 1997, 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
$438,000, $253,000 and $248,000 at June 30, 1999, 1998 and 1997, respectively.

        The following is an analysis of the changes in mortgage servicing rights
(in thousands):
<TABLE>
<CAPTION>
                                                              June 30,
                                                1999            1998           1997
                                              -------           ----          ----
<S>                                          <C>               <C>              <C>
        Balance, beginning of year           $    213          $  24          $ --
           Capitalization                         907            206            28
           Amortization                           (78)           (17)           (4)
                                              -------           ----          ----

        Balance, end of year                  $ 1,042           $213          $ 24
                                              =======           ====          ====
</TABLE>
<PAGE>

        The  Company  originates  loans  to  officers  and  directors  at  terms
substantially  identical to other  borrowers.  Mortgage  and  consumer  loans to
officers and directors at June 30, 1999 and 1998 were approximately $1.2 million
and $1.1 million, respectively.


28
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997


4.      Office Properties and Equipment

        Office properties and equipment at June 30, 1999 and 1998 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>

                                                               June 30,
                                                          1999           1998
                                                       --------        -------
<S>                                                   <C>              <C>
        Major classification:
           Land                                       $   2,099        $ 2,094
           Office buildings and improvements              8,472          6,753
           Furniture, fixtures, and equipment             4,445          3,522
           Automobiles                                      108             75
                                                       --------        -------

                                                         15,124         12,444
        Less accumulated depreciation                    (4,754)        (3,999)
                                                       --------        -------

        Office properties and equipment, net           $ 10,370        $ 8,445
                                                       ========        =======
</TABLE>
5.      Deposit Accounts

        Deposit  accounts  at June 30, 1999 and 1998 are  summarized  as follows
(dollars in thousands):
<TABLE>
<CAPTION>
                                                    June 30, 1999             June 30, 1998

                                                             Weighted                     Weighted
                                                              Average                      Average
                                               Amount          Rate          Amount         Rate
                                               ------          ----          ------         ----
<S>                                            <C>             <C>         <C>              <C>
        Demand accounts:
           NOW:
              Noninterest-bearing              $ 19,163                    $ 12,757
              Interest-bearing                   46,533        2.29%         42,221         2.66%
           Savings                               56,225        2.75          56,740         3.28
           Money market                          30,099        3.91          18,133         4.04
        Certificate accounts                    253,991        5.09         239,961         5.60
                                               --------                    --------
                                               $406,011                    $369,812
                                               ========                    ========
</TABLE>
<PAGE>
        Scheduled  maturities  of  certificate  accounts at June 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S>                                                              <C>
        Within 1 year                                             $225,328
        After 1 but within 2 years                                  17,481
        After 2 but within 3 years                                   4,852
        Thereafter                                                   6,330
                                                                  --------
                                                                  $253,991
                                                                  ========

</TABLE>
        The aggregate amount of certificate  accounts with principal  amounts of
$100,000 or more was $61.5  million and $49.0 million at June 30, 1999 and 1998,
respectively. Deposits in excess of $100,000 are not federally insured.


                                                                              29
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997


        Interest  expense  by type of  deposit  is  summarized  as  follows  (in
thousands):
<TABLE>
<CAPTION>
                                                Year Ended June 30,
                                         1999          1998          1997
                                       -------       -------        -------
<S>                                    <C>           <C>            <C>

        Demand accounts:
           Savings                     $ 1,623       $ 2,032        $ 2,263
           NOW                           1,034         1,039            651
           Money market                  1,043           434            422
        Certificate accounts            13,185        13,498         12,475
                                       -------       -------        -------

                                       $16,885       $17,003        $15,811
                                       =======       =======        =======
</TABLE>
6.      Advances from Federal Home Loan Bank of Atlanta

        The Company  had  advances  from the  Federal  Home Loan Bank of Atlanta
("FHLB"),  all of which were at a fixed rate with interest payable quarterly and
principal  due at maturity.  Additionally,  all of the advances are  convertible
prior  to  maturity  (at the  option  of the  FHLB)  to a  variable  three-month
LIBOR-based  rate. These advances are either (a) convertible  one-time only at a
future  conversion date or (b)  convertible at any quarterly  payment date on or
after a future  conversion date.  Should the FHLB exercise its conversion option
on any advance, the Company has the right to prepay the advance on any quarterly
payment date through  maturity.  Outstanding  advances at June 30, 1999 and 1998
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                        June 30,
                                                      Earliest                1999                       1998
      Advance Type             Maturity Date       Conversion Date     Amount       Rate          Amount        Rate
      ------------             -------------       ---------------     ------       ----          ------        ----

<S>                           <C>                  <C>                 <C>           <C>           <C>           <C>
One-time convertible          March 26, 2008       March 26, 2003      $ 2,000       5.44%         $ 2,000       5.44%
One-time convertible          June 23, 2008        June 23, 2003         5,000       5.51            5,000       5.51
One-time convertible          August 25, 2008      August 25, 2003      10,000       5.52               --         --
One-time convertible          April 22, 2004       April 22, 2001        4,000       5.01               --         --
One-time convertible          April 22, 2004       April 22, 2001        3,000       4.96               --         --
Continuously convertible
  after conversion date       April 7, 2008        April 7, 1999        10,000       4.91           10,000       4.91
                                                                       -------                     -------
                                                                       $34,000       5.23          $17,000       5.15
                                                                       =======       ====          =======       ====
</TABLE>
<PAGE>
        The maximum  month-end  balance of FHLB advances  outstanding  was $34.0
million  and $17.0  million  during  the years  ending  June 30,  1999 and 1998,
respectively.  Average  balances of FHLB advances  outstanding  during the years
ended June 30, 1999 and 1998 were $26.8 million and $3.0 million,  respectively.
The Company had an approved  credit  limit of $75.0  million with the FHLB as of
June 30, 1999.  The advances are secured by FHLB stock and a blanket lien on all
qualifying one- to four-family residential first mortgage loans.

7.      Short-Term Borrowings

        At June 30,  1999,  the Company had  outstanding  a $35.0  million  note
payable to a commercial bank. The note, dated June 23, 1999, bearing interest at
three-month  LIBOR plus 1.0%, was due on August 15, 1999. All of the outstanding
stock of the Bank was pledged as  collateral  on the loan.  The note was paid in
full on July 22, 1999.


30
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997


8.      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, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>

                                                                    June 30,
                                                               1999         1998
                                                              ------       ------
<S>                                                           <C>           <C>
        Deferred tax liabilities:
           Mortgage servicing rights                          $  396        $  81
           FHLB stock dividends                                  431          431
           Accumulated depreciation                              289          206
           Deferred loan fees and costs, net                      17           --
           Other                                                 201          132
                                                              ------       ------
                                                               1,334          850
                                                              ------       ------

        Deferred tax assets:
           Allowance for loan losses                             599          128
           Management recognition and development plan           308          --
           Unrealized loss on investment securities
             available-for-sale                                   55            9
           Deferred loan fees and costs, net                      --          165
           Other                                                 160          230
                                                              ------       ------

                                                               1,122          532
                                                              ------       ------

        Net deferred tax liability                            $  212       $  318
                                                              ======       ======
</TABLE>
        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.
<PAGE>
        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.

        Retained earnings as of June 30, 1999 include 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.


                                                                              31
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997


        The provision for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                              Year Ended June 30,
                                                      1999          1998           1997
                                                   -------        -------        -------
<S>                                                <C>            <C>            <C>
        Current provision:
           Federal                                 $ 3,180        $ 4,956        $ 1,763
           State                                       482            680            259
                                                   -------        -------        -------

                                                     3,662          5,636          2,022
        Deferred provision:
           Federal                                     (50)          (700)          (377)
           State                                       (10)          (129)           (58)
                                                   -------        -------        -------

                                                       (60)          (829)          (435)
                                                   -------        -------        -------

        Total provision for income taxes           $ 3,602        $ 4,807        $ 1,587
                                                   =======        =======        =======
</TABLE>

        For the  years  ended  June 30,  1999,  1998 and 1997,  a tax  provision
(benefit) of $(46,000),  $(20,000) and $63,000,  respectively,  was allocated to
equity  for the tax  effects  of  unrealized  gains  and  losses  on  securities
available-for-sale.

        The Company's  effective tax rate is greater than the statutory  Federal
income tax rate for the following reasons (dollars in thousands):
<TABLE>
<CAPTION>
                                                                       Year Ended June 30,
                                                               1999          1998           1997
                                                            -------       -------        -------
<S>                                                         <C>           <C>            <C>
        Tax at statutory Federal income tax rate (34%)      $ 2,916       $ 4,198        $ 1,465
        Increase (decrease) resulting from:
           State income taxes                                   304           364            133
           Nondeductible compensation:
              ESOP                                              121           218             --
              MRDP                                              217            --             --
           Other, net                                            44            27            (11)
                                                            -------       -------        -------

                                                            $ 3,602       $ 4,807        $ 1,587
                                                            =======       =======        =======

        Effective income tax rate                              42.0%         38.9%          36.8%
                                                            =======       =======        =======
</TABLE>
<PAGE>
9.      Employee Benefit Plans

        401(k)  Plan - The  Company  sponsors  a 401(k)  plan  which  covers all
employees who meet minimum eligibility requirements.  Participants generally may
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 $125,000,  $105,000 and $83,000
in the years ended June 30, 1999, 1998 and 1997, respectively.

        ESOP - The ESOP is a  noncontributory  retirement  plan  adopted  by the
Company  effective  January 1, 1997 which covers 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.
In  connection  with the cash  distribution  (discussed  in note  12),  the ESOP
received  approximately  $4.3 million on its shares of the Corporation's  common
stock. The ESOP purchased an additional 180,436 shares with the proceeds.


32
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997


        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 secured 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 then are 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  $947,000  and $1.3 million in  compensation  expense in the years
ended  June  30,  1999  and  1998,  respectively,  related  to the ESOP of which
approximately  $590,000 and $650,000 reduced the cost of unallocated ESOP shares
and $360,000 and $640,000  increased  additional  paid-in capital on the balance
sheet in each respective year.

        The cost of the shares not yet committed to be released from  collateral
is reflected  as a reduction of  stockholders'  equity.  Uncommitted  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
years ended June 30,  1999 and 1998  totaled  29,536 and  32,333,  respectively.
Shares remaining not released or committed to be released for allocation at June
30,  1999  and 1998  totaled  441,553  and  322,097  and had a  market  value of
approximately $10.3 and $13.4 million, respectively.

10.     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.
<PAGE>
        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  which  became  the  basis  of   recognizing
compensation  over the  five-year  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. In connection with the $12.00 per share cash distribution on June
25,  1999  (discussed  in note 12), a  compensation  charge of $2.1  million was
recorded  related to the pass through of the cash  distribution on the shares in
the MRDP. Also, as a result of the cash  distribution,  the basis of recognizing
compensation over the vesting period was reduced from $42.00 to $32.67.

        Stock Option Plan - 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 cash
settlement of any outstanding options.


                                                                              33
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997


        The following is an analysis of stock option activity:
<TABLE>
<CAPTION>


                                                                         Weighted
                                           Options                        Average
                                          Available        Options       Exercise
                                          for Grant      Outstanding       Price
                                          --------        -------          ------
<S>                                       <C>              <C>             <C>
        Balance, June 30, 1998                  --             --          $  --
           Plan adopted                    443,038             --             --
           Granted                        (414,793)       414,793           21.73
           Forfeited                         1,000         (1,000)          21.75
                                          --------        -------          ------

        Balance, June 30, 1999              29,245        413,793           21.73
                                          ========        =======          ======
</TABLE>

        Of the 414,793 options granted in the year ended June 30, 1999,  363,291
were  granted at the plan's  inception  on July 9, 1998 at an exercise  price of
$42.00.  On  October  21,  1998,  the  Compensation  Committee  of the  Board of
Directors  determined  that  because  of the  decline  in  market  value  of the
Company's  stock such a short time after the granting of the stock options,  the
desired incentive effect for employee performance was diminished  significantly.
Accordingly, the Committee recommended, and the Board of Directors approved, the
repricing  of all  options  granted on July 9, 1998.  On October 28,  1998,  the
Committee  repriced  the options at the fair market  value of the stock that day
which was  $33.75  per  share.  Since the  repricing  was at  market  value,  no
compensation was recorded as a result of the repricing.

        In connection with the $12.00 per share cash distribution  (discussed in
Note 12), the exercise price of all options was adjusted in accordance with FASB
Emerging  Issues Task Force Issue No.  90-9,  "Changes to Fixed  Employee  Stock
Option  Plans  as a  Result  of  Equity  Restructuring."  The  weighted  average
reduction in exercise price was $12.00 per share.

        The  following  is a summary of stock  options  outstanding  at June 30,
1999:
<TABLE>
<CAPTION>
                                            Average
                                           Remaining
                    Exercise              Contractual               Options                Options
                      Price              Life (Years)             Outstanding            Exercisable
                      -----              ------------             -----------            -----------
<S>                  <C>                      <C>                   <C>                       <C>
                     $21.75                   9.1                   410,793                   --
                      19.39                   9.8                     3,000                   --

                      21.73                   9.1                   413,793                   --
                      =====                   ===                   =======                   ==
</TABLE>
<PAGE>
        The Company  applies  Accounting  Principles  Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees," and related interpretations in
accounting for the plan. No  compensation  cost has been recognized for the plan
because the stock option price is equal to or greater than the fair value at the
grant date. Had compensation cost for the plan been determined based on the fair
value  method  of  SFAS  123  "Accounting  for  Stock-Based  Compensation,"  the
Company's  net income and net income per share for the year ended June 30,  1999
would have  decreased to the pro forma amounts  indicated  below (in  thousands,
except per share data):
<TABLE>
<CAPTION>

                                                                       Amount
                                                                      --------
<S>                                                                   <C>
        Net income:
           As reported                                                $ 4,975
           Pro forma                                                    4,054

        Basic earnings per share:
           As reported                                                   1.36
           Pro forma                                                     1.11

</TABLE>
34
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

        The weighted  average  fair value of options  granted in 1999 was $11.37
per share.  The fair value of the option grant is estimated on the date of grant
using an option pricing model with the following assumptions:
<TABLE>
<CAPTION>
<S>                                                                <C>
        Dividend yield                                                      3%
        Risk-free interest rate                                    5.07%-5.75%
        Expected volatility                                                25%
        Expected life (years)                                               8

</TABLE>

11.     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   $6.5  million   ($2.6   million  at  fixed  rates  ranging  from
7.25%-9.00%)  at June 30,  1999.  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, 1999,
unused  lines of  credit  extended  by the  Company  (principally  variable-rate
consumer lines secured by real estate) amounted to approximately $50.9 million.

        Loans Sold with Recourse - At June 30, 1999,  approximately $1.7 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  activity  is
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
<PAGE>
on deposits and  borrowings.  Like most  financial  institutions,  the Company's
interest income and interest  expense are affected  significantly  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 may be affected adversely
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

                                                                              35
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997

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.

        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 weeks to 18 months of
their current compensation based upon length of service and position.

12.     Stockholders' 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 by the Bank to the  Corporation.  On June 25, 1999,  the
Corporation paid a cash distribution of $12.00 per share to its stockholders.

        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,  but 30 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 the fully phased-in capital requirements of the OTS. In no case
will the Bank be allowed to make a capital  distribution  if it would reduce the
regulatory capital of the Bank below the balance of the liquidation account. The
Bank paid dividends to the Corporation amounting to $600,000 and $1.0 million in
the years ended June 30, 1999 and 1998, respectively. On July 21, 1999, the Bank
paid a dividend of $35.0 million to the Corporation.
<PAGE>
        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.  Generally,  the  Corporation is not allowed to
repurchase  stock  in  the  first  year  after  Conversion,  and is  allowed  to
repurchase  5% of its  outstanding  shares in each of the next two  years  after
Conversion.  However,  in  the  year  ended  June  30,  1999,  the  OTS  allowed
repurchases  in excess of the  regulatory  limits  and the  Company  repurchased
642,405 shares of its common stock.  Restrictions apply, unless the OTS approves
a waiver for benefit plans.

        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.


36
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

        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 3.0% 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.  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,  1999,  that  the  Bank  meets  all  capital  adequacy
requirements to which it is subject.

        The following is a  reconciliation  of the Bank's  stockholder's  equity
determined  under  generally  accepted  accounting  principles to OTS regulatory
capital requirements (in thousands):
<TABLE>
<CAPTION>

                                                                                Tangible         Core       Risk-Based
                                                                                 Capital        Capital       Capital
                                                                                --------      --------       --------
<S>                                                                             <C>           <C>            <C>
June 30, 1999
        Total stockholder's equity as determined under generally
          accepted accounting principles                                        $ 90,959      $ 90,959       $ 90,959
        General allowance for loan losses                                             --            --          2,896
        Unrealized loss on certain available-
          for-sale securities, net of taxes                                           47            47             47
                                                                                --------      --------       --------

        Regulatory capital                                                      $ 91,006      $ 91,006       $ 93,902
                                                                                ========      ========       ========
June 30, 1998
        Total stockholder's 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
                                                                                ========      ========       ========
</TABLE>

                                                                              37
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997

        The Bank's actual and required capital amounts and ratios are summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                       Minimum
                                                                            Actual                   Requirement
                                                                   Amount          Ratio         Amount         Ratio
                                                                   ------          -----         ------         -----
<S>                                                               <C>              <C>          <C>             <C>
June 30, 1999
        Tangible capital
          (to total assets)                                       $ 91,006         16.8%        $  8,131        1.5%
        Core capital
          (to adjusted total assets)                                91,006         16.8           16,264        3.0
        Risk-based capital
          (to risk-weighted assets)                                 93,902         27.2           27,573        8.0
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           14,650        3.0
        Risk-based capital
          (to risk-weighted assets)                                 92,211         29.9           24,654        8.0
</TABLE>
         As of June  30,  1999 and June 30,  1998,  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 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                       Minimum
                                                                            Actual                   Requirement
                                                                   Amount          Ratio         Amount         Ratio
                                                                   ------          -----         ------         -----
<S>                                                               <C>              <C>          <C>             <C>
June 30, 1999
        Tier I capital
          (to adjusted total assets)                              $ 91,006         16.8%        $ 27,107        5.0%
        Tier I capital
          (to risk-weighted assets)                                 91,006         26.4           20,680        6.0
        Total capital
          (to risk-weighted assets)                                 93,902         27.2           34,467       10.0

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
</TABLE>
38
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

13.     Earnings Per Share

        The Company had no dilutive securities outstanding during the year ended
June 30, 1999 and had no potentially dilutive securities  outstanding during the
year ended June 30, 1998;  therefore,  diluted earnings per share ("EPS") is the
same as basic EPS for all periods  presented.  For the years ended June 30, 1999
and 1998,  3,665,778 and 4,066,692 weighted average shares,  respectively,  were
outstanding. For purposes of EPS calculations,  shares issued in connection with
the Conversion have been assumed to be outstanding as of July 1, 1997.

        There were no shares  outstanding prior to the Conversion,  therefore no
earnings per share is presented for the year ended June 30, 1997.

14. Financial Instruments

        The stated and fair value  amounts of financial  instruments  as of June
30, 1999 and 1998, are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                        June 30, 1999               June 30, 1998
                                                                   Stated        Fair          Stated          Fair
                                                                   Amount        Value         Amount          Value
                                                                 ---------     ---------      --------       --------
<S>                                                              <C>           <C>            <C>           <C>
        Financial assets:
          Cash and cash equivalents                              $  58,420     $  58,420      $ 48,968      $  48,968
          Investment securities                                     23,344        23,344        28,709         28,709
          Mortgage-backed securities                                    54            55            88             90
          Loans receivable, net                                    435,181       433,336       416,462        422,178
          Loans held-for-sale                                        8,984         9,089         7,294          7,315
          FHLB stock                                                 3,612         3,612         3,446          3,446
          Other assets                                               3,203         3,203         2,813          2,813
          Mortgage servicing rights                                  1,042           911           213            555
                                                                 ---------     ---------      --------       --------

                                                                 $ 533,840     $ 531,970      $507,993       $514,074
                                                                 =========     =========      ========       ========
        Financial liabilities:
          Deposit accounts:
            Demand                                                $152,020      $152,020      $129,851       $129,851
            Certificate                                            253,991       253,546       239,961        240,207
          Other borrowings                                          35,000        35,000            --             --
          Advances from FHLB                                        34,000        33,276        17,000         15,817
        Other liabilities                                            3,521         3,521         3,068          3,068
                                                                  --------      --------      --------       --------

                                                                  $478,532      $477,363      $389,880       $388,943
                                                                  ========      ========      ========       ========
</TABLE>
<PAGE>

        The Company had off-balance sheet financial  commitments,  which include
$57.4  million  and $56.1  million at June 30, 1999 and 1998,  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.


                                                                              39
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997

        Investment and Mortgage-Backed  Securities - Fair values for investments
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.

        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.

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

        Mortgage  Servicing  Rights - The fair value of  retained  servicing  on
mortgage loans sold is calculated by discounting the expected future cash flows,
which are based on principal balances, remaining terms, and servicing spreads.

        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.

        Other  Borrowings - The stated  amount is a reasonable  estimate of fair
value.

        Advances  from the FHLB - The fair value of these  advances is estimated
by  discounting  the future cash flows of these advances using the current rates
at which similar advances could be obtained.

        Other Assets and Other Liabilities - Other assets consist principally of
accrued interest  receivable;  other liabilities consist principally of 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
<PAGE>
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, 1999 and 1998.  Changes
in market interest rates and prepayment  assumptions could change  significantly
the fair value.

        Fair value  estimates  are based on existing  recorded  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.


15. Condensed Parent Company Financial Statements

        The following  presents the condensed  balance sheets of the Corporation
at June 30, 1999 and 1998 and the condensed  statements of income and cash flows
for the years then ended (the  Corporation  was inactive  from its  inception on
February 4, 1997 through the Conversion on July 8, 1997) (in thousands):

40
<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                             June 30,

Condensed Balance Sheet                                                           1999                   1998
                                                                                --------              --------
<S>                                                                             <C>                   <C>
     Assets:
        Cash and cash equivalents                                               $  3,616              $ 29,260
        Investment in Bank                                                        91,046                90,040
        Other investment securities                                                  116                   --
        Note receivable from Bank                                                  6,268                 6,661
        Other assets                                                                 153                   156
                                                                                --------              --------

        Total assets                                                            $101,199              $126,117
                                                                                ========              ========
     Liabilities and Stockholders' Equity:
        Other borrowings                                                        $ 35,000              $     --
        Other liabilities                                                            158                   356
        Stockholders' equity                                                      66,041               125,761
                                                                                --------              --------

        Total liabilities and stockholders' equity                              $101,199              $126,117
                                                                                ========              ========
<CAPTION>
                                                                                      Years Ended June 30,
Condensed Statements of Income                                                    1999                   1998
                                                                                 -------               -------
<S>                                                                              <C>                   <C>
     Investment Income:
        Interest income                                                          $ 1,626               $ 2,474
        Dividends from Bank                                                          600                 1,000
                                                                                 -------               -------

                                                                                   2,226                 3,474
     Interest Expense                                                                 49                    --
                                                                                 -------               -------

     Net Interest Income                                                           2,177                 3,474
     Noninterest Income                                                               10                    --
     Noninterest Expense                                                             663                   415
                                                                                 -------               -------
     Income Before Income Taxes and Equity
       in Undistributed Earnings of Bank                                           1,524                 3,059
     Provision for Income Taxes                                                      315                   745
                                                                                 -------               -------
     Net Income Before Equity in Undistributed
       Earnings of Bank                                                            1,209                 2,314
     Equity in Undistributed Earnings of Bank                                      3,766                 5,226
                                                                                 -------               -------

     Net Income                                                                  $ 4,975               $ 7,540
                                                                                 =======               =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                     Years Ended June 30,
Condensed Statements of Cash Flows                                                1999                   1998
                                                                                -------               -------
<S>                                                                              <C>                   <C>
     Cash Flows from Operating Activities:
        Net income                                                               $ 4,975               $ 7,540
        Adjustments to reconcile net income to net cash
          provided by operating activities:
            Equity in undistributed earnings of Bank                              (3,766)               (5,226)
            Net change in other assets and liabilities                              (195)                  200
            Gain on sale of investment securities                                    (10)                   --
                                                                                 -------               -------

        Net cash provided by operating activities                                $ 1,004               $ 2,514
                                                                                 =======               =======
</TABLE>

                                                                              41
<PAGE>
Notes to Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                      Years Ended June 30,
Condensed Statements of Cash Flows (continued)                                    1999                   1998
                                                                                --------             ---------
<S>                                                                              <C>                 <C>
     Cash Flows from Investing Activities:
        Investment in Bank                                                      $  5,270             $ (43,516)
        Purchase of investment securities                                        (10,116)                   --
        Proceeds from sale of investment securities                               10,000                    --
        Sale of common stock                                                          --                81,519
        Collections on note receivable from Bank                                     214                   278
                                                                                --------             ---------

        Net cash provided by investing activities                                  5,368                38,281
                                                                                --------             ---------
     Cash Flows from Financing Activities:
        Other borrowings                                                          35,000                   --
        Purchase of treasury stock                                               (20,955)               (8,113)
        Stock issuance costs                                                          --                (1,584)
        Dividends paid                                                            (2,732)               (1,838)
        Cash distribution                                                        (43,329)                   --
                                                                                --------             ---------

        Net cash used in financing activities                                    (32,016)              (11,535)
                                                                                --------             ---------
     Net (Decrease) Increase in Cash
        and Cash Equivalents                                                     (25,644)               29,260
     Cash and Cash Equivalents at Beginning of Year                               29,260                    --
                                                                                --------             ---------
     Cash and Cash Equivalents at End of Year                                   $  3,616             $  29,260
                                                                                ========             =========
</TABLE>
<PAGE>
16. Quarterly Results of Operations (Unaudited)

        Summarized  unaudited  quarterly  operating  results for the years ended
June 30, 1999 and 1998 are as follows (in thousands, except share data):
<TABLE>
<CAPTION>

                                                                   First        Second         Third         Fourth
                                                                  Quarter       Quarter       Quarter        Quarter
                                                                ----------    ----------    ----------     ----------
<S>                                                             <C>          <C>           <C>             <C>
June 30, 1999
        Investment income                                       $    9,628    $    9,684    $    9,547     $    9,766
        Interest expense                                             4,597         4,638         4,495          4,636
                                                                ----------    ----------    ----------     ----------
        Net interest income                                          5,031         5,046         5,052          5,130
        Provision for loan losses                                      200           200           200            200
                                                                ----------    ----------    ----------     ----------
        Net interest income after provision
          for loan losses                                            4,831         4,846         4,852          4,930
        Noninterest income                                             904           970         1,084          1,140
        Noninterest expense                                          2,993         3,090         3,208          5,689
                                                                ----------    ----------    ----------     ----------
        Income before income taxes                                   2,742         2,726         2,728            381
        Income taxes                                                 1,056         1,130         1,117            299
                                                                ----------    ----------    ----------     ----------
        Net income                                              $    1,686    $    1,596    $    1,611     $       82
                                                                ==========    ==========    ==========     ==========

        Basic and diluted earnings per share                    $     0.42    $     0.44    $     0.46     $     0.02
                                                                ==========    ==========    ==========     ==========

        Weighted average shares outstanding                      4,040,738     3,622,344     3,484,336      3,491,720
                                                                ==========    ==========    ==========     ==========
</TABLE>
42

<PAGE>
                                      Notes to Consolidated Financial Statements
                                        Years Ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                   First        Second         Third         Fourth
                                                                  Quarter       Quarter       Quarter        Quarter
                                                                ----------   -----------   -----------     ----------
<S>                                                             <C>          <C>           <C>             <C>
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 and diluted 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
                                                                ==========    ==========    ==========     ==========
</TABLE>
                                                                              43
<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
Muldoon,  Murphy & Faucette 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.  As of August 3, 1999,  there were 1,188  record
holders of the common stock, excluding holders in "street name."

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  20, 1999 at 10:00
a.m., Eastern Time, at the Spartanburg County Library,  151 South Church Street,
Spartanburg, South Carolina.

<PAGE>
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 - Retired 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
<PAGE>
Common Stock Market Price and Dividend Information

The table below  contains  the range of high and low per share bid prices of the
Company's  common  stock as reported by the Nasdaq Stock  Market,  and per share
dividends  declared  during  each  quarter  (as  restated  to  give  retroactive
recognition to the $12.00 per share capital distribution paid on June 25, 1999).
<TABLE>
<CAPTION>

                                    High                   Low            Dividend
                                    ----                   ---            --------
<S>                                <C>                  <C>                 <C>
1999
September 30, 1998                 $30.125              $16.125             $ 0.15
December 31, 1998                   24.000               10.375               0.20
March 31, 1999                      18.750               17.000               0.20
June 30, 1999                       23.563               16.000               0.20

<CAPTION>
                                    High                   Low            Dividend
                                    ----                   ---            --------
<S>                                <C>                  <C>                 <C>
1998
September 30, 1997                 $26.875              $22.875              $  --
December 31, 1997                   28.000               22.875               0.15
March 31, 1998                      32.625               25.750               0.15
June 30, 1998                       35.000               28.750               0.15
</TABLE>