<PAGE>

-------------------------------FIVE YEAR SUMMARY--------------------------------

<TABLE>
<CAPTION>
                                                              At June 30,
                                                 ------------------------------------------------
                                                   1999      1998      1997      1996      1995
                                                 --------  --------  --------  --------  --------
                                                              (Dollars in thousands)
<S>                                              <C>       <C>       <C>       <C>       <C>
Financial Condition Data:
Balance of:
 Assets                                          $313,233  $304,168  $294,217  $256,986  $251,787
 Loans receivable, net                            208,678   208,094   192,238   177,431   159,777
 Investment securities held-to-maturity            36,708     9,737     6,572     2,965     4,484
 Investment securities available-for-sale          54,846    72,732    80,257    66,069    76,374
 Deposits                                         226,651   211,925   204,317   187,424   183,080
 Borrowed funds                                    20,000    20,000    20,000       422       543
 Shareholders' equity                              64,228    69,521    67,195    66,811    65,511


                                                           For the Years Ended June 30,
                                                 ------------------------------------------------
                                                     1999      1998      1997      1996      1995
                                                 --------  --------  --------  --------  --------
                                                  (Dollars in thousands, except per share data)
Operating Data:
 Interest and dividend income                    $ 21,765  $ 22,543  $ 20,058  $ 18,550  $ 17,438
 Interest expense                                  10,274    11,083     9,782     9,215     8,140
                                                 --------  --------  --------  --------  --------
 Net interest income                               11,491    11,460    10,276     9,335     9,298
 Provision for loan losses                              -         -         -         -         -
                                                 --------  --------  --------  --------  --------
 Net interest income after provision for
  loan losses                                      11,491    11,460    10,276     9,335     9,298
 Non-interest income                                  721       616       425       364         7
 General and administrative expenses                4,066     3,758     4,637     3,693     3,584
                                                 --------  --------  --------  --------  --------
 Income before income taxes                         8,146     8,318     6,064     6,006     5,721
 Income tax expense                                 2,985     3,060     2,155     2,085     1,948
                                                 --------  --------  --------  --------  --------
 Net income                                      $  5,161  $  5,258  $  3,909  $  3,921  $  3,773
                                                 ========  ========  ========  ========  ========
Per common share data:
 Net income, basic                                  $1.42     $1.42     $1.05     $1.05  $   1.01
                                                 ========  ========  ========  ========  ========
 Net income, diluted                                $1.32     $1.30     $0.98     $0.98  $   0.95
                                                 ========  ========  ========  ========  ========
 Cash dividends                                     $1.01     $0.94     $0.74     $0.64  $   0.60
                                                 ========  ========  ========  ========  ========
</TABLE>

---------------------------------GROWING WITH-----------------------------------
                                 MOORE COUNTY

                                                  About our cover...

            Photo
<PAGE>

-----------------------------FINANCIAL HIGHLIGHTS-------------------------------

<TABLE>
<CAPTION>
                                            At or for the Twelve Months Ended
                                                        June 30,
                                          -------------------------------------
SELECTED FINANCIAL DATA                      1999         1998         1997
                                          -----------  -----------  -----------
Net income                                $5,160,975   $5,258,467   $3,908,653
<S>                                       <C>          <C>          <C>
PER COMMON SHARE DATA

Net income
 Basic                                    $     1.42   $     1.42   $     1.05
 Diluted                                  $     1.32   $     1.30   $     0.98
Book value                                $    18.33   $    18.73   $    18.26
Tangible book value                       $    18.33   $    18.73   $    18.26
Number of common shares outstanding        3,503,763    3,710,820    3,679,185

AT YEAR END (THOUSANDS)

Assets                                    $  313,233   $  304,168   $  294,217
Deposits                                     226,651      211,925      204,317
Loans receivable, net                        208,678      208,094      192,238
Shareholders' equity                          64,228       69,521       67,195

RATIOS

Return on average assets                        1.73%        1.76%        1.45%
Return on average assets *                       N/A          N/A         1.71%
Return on average equity                        7.61%        7.68%        5.85%
Return on average equity *                       N/A          N/A         6.90%
Equity to total assets (year end)              20.50%       22.86%       22.84%
Nonperforming assets to total assets            0.10%        0.18%        0.08%
Allowance for loan losses to net loans          0.29%        0.29%        0.31%
Dividends declared/earnings per share          76.52%       71.76%       75.51%
</TABLE>

* Excludes the nonrecurring charge associated with the special SAIF assessment
in 1997.

<TABLE>
<CAPTION>

-------------------------------TABLE OF CONTENTS--------------------------------

<S>                                                <C>
Chief Executive Officer's Message................      2

Management's Discussion & Analysis...............   4-16

Report of Independent Auditors...................     17

Consolidated Statements of Financial Condition...     18

Consolidated Statements of Income................     19

Consolidated Statements of Shareholders' Equity..     20

Consolidated Statements of Cash Flows............  21-22

Notes to Consolidated Financial Statements.......  23-38

Directors, Officers and Office Locations.........     39

Corporate Information............................     40
</TABLE>

---------------------------------------1----------------------------------------
<PAGE>

---------------------------CHIEF EXECUTIVE OFFICER'S---------------------------
                                    MESSAGE

September 24, 1999

Dear Shareholders:

By almost any standard, this past year was a stellar one for your Corporation.
So much so that First Savings was ranked by U.S. BANKER Magazine as the best
performer among U.S. community banks in three of six primary criteria. The
publication based its evaluations on the Top 200 largest community banks in the
U.S. with less than $432 million in assets. First Savings ranked 25th in the
country overall and first in three categories: efficiency, leverage and tier one
                    -----
capital ratios.

Fiscal 1999 was a noteworthy year for First Savings. Total assets and deposits
grew $9.1 million, or 3.0% and $14.7 million, or 6.9%, respectively, from fiscal
1998. Although net loans have increased slightly, secondary loan originations
increased significantly, evidenced by the 103.8% increase in related fee income.

In a year of falling bank stock prices, First Savings aggressively exercised its
strategy to repurchase shares of First Savings common stock. During fiscal 1999,
First Savings repurchased 311,400 shares of its common stock on the open market.
Although the lost earnings associated with the cost of the stock repurchased
negatively impacted net income, basic net income per share was unchanged and
diluted net income per share increased as a result of fewer shares outstanding.

Highlights for the year ended June 30, 1999 included:

 .  Opening of new office at Belle Meade - First Savings established its sixth
   office in June, launching a full-service branch in the elegant clubhouse of
   the Belle Meade Retirement Resort located near Pinehurst and Southern Pines.
   Initial response from incoming residents has exceeded our most optimistic
   projections.

 .  Capital Improvements - For added customer convenience, we replaced our old
   ATMs at the Southern Pines, Pinecrest Plaza and Seven Lakes offices with
   state-of-the-art machines and added an ATM at our Carthage office. We also
   completed the installation of a Wide Area Network (WAN), providing for the
   total integration of all offices on a centralized computer system. Any office
   can now easily access extensive account information instantly for any
   customer.

 .  Long Term Health Care Insurance - The first of several new services
   introduced this past year, this comprehensive product provides, with
   qualification, significant assistance through insurance should one ever need
   long-term care.

 .  Alternative Investments - Another new service, this program offers one-stop
   shopping to satisfy virtually all of an investor's needs. Available products
   include annuities, discount brokerage services, mutual funds and many others.

 .  Degree Account - Still another new product, this offers checking account
   services to students, part of our overall effort to attract younger customers
   to the Bank.

First Savings Bank has been Moore County's community bank for over 77 years and
we look forward to continuing to serve the growing financial needs of county
residents. New services that will be introduced to our customers in the near
future include VISA debit cards and telephone banking. As we grow, we must
continue to have the right executives functioning as effectively as possible
within the appropriate organizational structure. Toward this end, I have
appointed the following senior management team: William A. Roberts, Vice
President, Compliance and Human Resources; Timothy S. Maples, Vice President and
CFO; Michael F. McMillan, Vice President and Senior Loan Officer; S. Allan Beck,
Vice President and Senior Loan Officer; and Sherry B. Yow, Vice President,
Operations.

As to the readiness of our computer systems when the calendar turns to 2000, we
assure you that our plans are in complete compliance with all four of the FDIC's
recommended action steps and we will continue to test all systems right up to
the new year. Contingency planning has also been completed with testing
scheduled for this fall. An outside consulting firm has been quite helpful to us
throughout our preparation period, which now exceeds two years. Greater detail
about our Y2K planning can be found in the Management's Discussion and Analysis
section of this report.

---------------------------------------2----------------------------------------
<PAGE>

---------------------------CHIEF EXECUTIVE OFFICER'S----------------------------
                                    MESSAGE

I would like to thank the Board of Directors, our Staff and particularly Bill
Samuels for their support and patience since I have assumed the responsibilities
of President and CEO. I am genuinely excited about the future of our bank and I
can assure you that your Board of Directors and the Staff will continue to look
for every opportunity to increase shareholder value.

Sincerely yours,



John F. Burns
President and Chief Executive Officer

---------------------------------------3----------------------------------------

<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS


---------------------------------INTRODUCTION-----------------------------------

First Savings Bancorp, Inc. (First Savings Bancorp, Inc., and its subsidiary,
First Savings Bank of Moore County, Inc., SSB, are collectively referred to as
"First Savings") is a bank holding company organized under the laws of the state
of North Carolina. First Savings Bank of Moore County, Inc., SSB (the "Bank") is
a North Carolina chartered savings bank and its deposits are insured by the
Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC"). First Savings converted from a federally
chartered savings bank to a North Carolina chartered savings bank on June 22,
1993, and effective January 6, 1994 converted to a capital stock institution.

First Savings' primary market area is Moore County, North Carolina. Moore County
is home to several nationally recognized golf courses and is a popular tourist
and convention destination. The famed Pinehurst Resort is located approximately
three miles from Southern Pines. The Pinehurst Resort, founded in 1895, boasts
eight championship golf courses, including Pinehurst No. 2 which was host to the
1999 U.S. Open. In addition, Moore County is a popular retirement community. As
a result, the economy of Moore County is primarily service oriented. On June 30,
1999, First Savings had total assets of approximately $313.2 million, net loans
of $208.7 million, deposits of approximately $226.7 million and shareholders'
equity of $64.2 million.

First Savings is principally engaged in the business of attracting deposits from
the general public and using such deposits and other funds to make real estate,
consumer and commercial loans. On June 30, 1999, approximately 85.1% of First
Savings' net loan portfolio was composed of one-to-four family residential real
estate loans. Revenues of First Savings are derived primarily from interest on
loans. First Savings also receives interest income from its investment
securities, mortgage-backed securities and interest-bearing deposit balances.
The major expenses of First Savings are interest on deposits and general and
administrative expenses such as salaries, employee benefits, and branch
occupancy and related expenses.

------------------------------FINANCIAL CONDITION-------------------------------

This annual report to shareholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of First Savings that are subject to various
factors which could cause actual results to differ materially from those
estimates. Factors which could influence the estimates include changes in
national, regional and local market conditions, legislative and regulatory
conditions, and the interest rate environment.

The following management's discussion and analysis is presented to assist in
understanding the financial condition and results of operations. This discussion
should be read in conjunction with the audited consolidated financial statements
and related footnotes presented in this report.

                           Asset/Liability Management

A principal operating strategy of First Savings has been the development of a
better match between the repricing of interest-earning assets and interest-
bearing liabilities in order to reduce the Bank's exposure to adverse changes in
interest rates.

Principal among First Savings' asset/liability management strategies has been
(1) the origination of adjustable-rate, single-family mortgage loans; (2) the
origination of adjustable-rate home equity line of credit loans; (3) maintaining
a short-term investment portfolio; and (4) attempting to lengthen deposit
maturities. During fiscal year 1999, the Bank originated 625 mortgage loans
totaling $61.6 million, of which $39.6 million were one, three or five-year
adjustable-rate mortgages or home equity loans. At June 30, 1999, $176.0 million
or 84.3% of the Bank's $208.7 million in total net loans had adjustable interest
rates. Although earnings could still be affected negatively by a rapid and
sustained increase in the level of interest rates, management believes assets
and liabilities are structured to preserve net income during interest rate
changes.

---------------------------------------4----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS

                                  Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
First Savings' market risk primarily stems from interest rate risk, the
potential economic loss due to future changes in interest rates, which is
inherent in lending and deposit gathering activities. First Savings' objective
is to manage the mix of interest-sensitive assets and liabilities to moderate
interest rate risk and stabilize the net interest margin while enhancing
profitability.

The following table provides information about First Savings' financial
instruments that are sensitive to changes in interest rates. All dollar amounts
in the table are expressed in thousands.

<TABLE>
<CAPTION>
                                                    Expected Maturity Date
                                    -------------------------------------------------------------
                                                More Than      Over       More Than
                                     1 Year      1 Year       3 Years      5 Years     More Than               Fair
                                     or Less   to 3 Years   to 5 Years   to 10 Years    10 Years    Total     Value
                                    ---------  -----------  -----------  ------------  ----------  --------  --------
<S>                                 <C>        <C>          <C>          <C>           <C>         <C>       <C>
Loans Receivable (A)
 Fixed Rate                         $  1,438   $    1,261   $    3,151   $    12,917   $  15,713   $ 34,480  $ 35,514
  Average interest rate                 8.75%        8.96%        8.21%         7.95%       8.41%

 Variable rate                      $ 44,768   $   55,633   $   24,643   $    46,965   $   2,785   $174,794  $176,152
  Average interest rate                 7.75%        7.35%        7.54%         7.81%       7.71%

Investment Securities (B)
 Interest-earning deposits          $  3,085   $        -   $        -   $         -   $       -   $  3,085  $  3,085
  Average interest rate                 5.75%           -%           -%            -%          -%

 Securities available for sale      $  9,680   $   14,817   $   17,187   $    13,162   $       -   $ 54,846  $ 54,846
  Average interest rate                 7.38%        6.45%        5.78%         6.21%          -%

 Securities held to maturity        $  4,199   $      114   $       84   $    13,111   $  19,200   $ 36,708  $ 36,154
  Average interest rate                 6.91%        9.37%        9.65%         6.05%       6.37%

 Nonmarketable equity securities    $      -   $        -   $        -   $         -   $   1,930   $  1,930  $  1,930
  Average interest rate                    -%           -%           -%            -%       7.50%

Debt Obligations (C)
 Interest-bearing deposits          $176,014   $   40,980   $    5,922   $         -   $       -   $222,916  $225,487
  Average interest rate                 4.08%        5.25%        5.85%            -%          -%

 Borrowings                         $ 10,000        5,000        5,000             -           -   $ 20,000  $ 20,226
  Average interest rate                 5.46%        5.01%        5.26%            -%          -%
</TABLE>

(A) For loans receivable, the table presents principal cash flows by fixed and
    adjustable rate. The table includes contractual maturities for fixed rate
    loans and adjustable rate loans are assumed to reprice at contractual
    repricing intervals. The table presents fair values at June 30, 1999 and
    weighted average interest rates by maturity dates.
(B) For investment securities, including securities available for sale,
    securities held to maturity, and nonmarketable equity securities, the table
    presents contractual maturities. Interest-earning deposits are due on demand
    financial instruments and are presented in the due in one year category.
    Nonmarketable equity securities, which consists of Federal Home Loan Bank
    stock, have no contractual maturity and are placed in the longest expected
    maturity date. The table presents fair values at June 30, 1999 and weighted
    average interest rates by maturity dates.
(C) For interest-bearing deposits and borrowings, the table presents principal
    cash flows and weighted average interest rates by expected maturity dates
    and fair values at June 30, 1999.

---------------------------------------5----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS


                                 Gap Analysis

First Savings' asset/liability management may be analyzed by examining the
extent to which its assets and liabilities are "interest rate sensitive" and by
monitoring its interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it matures or
reprices during that period. The interest rate sensitivity gap is defined as the
excess of interest-earning assets maturing or repricing within a specific time
period over interest-bearing liabilities maturing or repricing within that same
time period. Gap is considered positive when the amount of interest rate
sensitive assets repricing or maturing within a period exceeds the amount of
interest rate sensitive liabilities repricing or maturing during that same
period. Gap is considered negative when the amount of interest rate sensitive
liabilities repricing or maturing within a period exceeds the amount of interest
rate sensitive assets repricing or maturing during that same period. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income.

The following Gap Analysis table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at June 30, 1999, which are
expected to reprice or mature in each of the future time periods shown. The
assets or liabilities shown, which reprice or mature during a particular period,
were determined in accordance with the contractual terms of the asset or
liability. Adjustable-rate loans are assumed to reprice at contractual repricing
intervals.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                              Terms to Repricing at June 30, 1999
                             ---------------------------------------------------------------------------------------------------
                                                     More Than           More Than        More Than
                                  1 Year               1 Year             3 Years          5 Years         More Than
GAP ANALYSIS                      or Less            to 3 Years         to 5 Years       to 10 Years        10 Years       Total
                             -------------    --------------    ---------------   --------------   --------------   ------------
                                                                      (Dollars in thousands)
<S>                          <C>              <C>               <C>               <C>              <C>              <C>
INTEREST-EARNING ASSETS:
Mortgage loans:
 Adjustable rate
  residential 1-4 family     $      25,920    $       48,710    $        19,042   $       42,584   $        2,746   $    139,002
 Fixed rate 1-4 family                  20               679              1,765           10,604           12,877         25,945
 Adjustable rate
  non-residential                    6,149             6,923              5,601            4,381               39         23,093
 Fixed rate non-residential             26               151                460            1,421            2,790          4,848
 Home equity and property
  improvement                       12,699                 -                  -                -                -         12,699
Other loans                          1,392               431                926              892               46          3,687
Investments                         14,743            14,817             17,187           26,127                -         72,874
Mortgage-backed securities           4,199               114                 84               96           19,200         23,693
                             -------------    --------------    ---------------   --------------   --------------   ------------

Total interest-earning
 assets                      $      65,148    $       71,825    $        45,065   $       86,105   $       37,698   $    305,841
                             =============    ==============    ===============   ==============   ==============   ============

INTEREST-BEARING
 LIABILITIES:
Deposits:
 Certificates of deposit     $      88,087    $       40,980    $         5,922   $            -   $            -   $    134,989
 Interest-bearing checking          22,737                 -                  -                -                -         22,737
 Money market deposit
  accounts                          50,435                 -                  -                -                -         50,435
 Passbook savings                   14,755                 -                  -                -                -         14,755
Borrowed funds                      10,000             5,000              5,000                -                -         20,000
                             -------------    --------------    ---------------   --------------   --------------   ------------

Total interest-bearing
 liabilities                 $     186,014    $       45,980    $        10,922   $            -   $            -   $    242,916
                             =============    ==============    ===============   ==============   ==============   ============

INTEREST SENSITIVITY GAP
 PER PERIOD                  $    (120,866)   $       25,845    $        34,143   $      $86,105   $       37,698   $     62,925

CUMULATIVE INTEREST
 SENSITIVITY GAP             $    (120,866)   $      (95,021)   $       (60,878)  $       25,227   $       62,925   $     62,925

CUMULATIVE GAP AS A
 PERCENTAGE OF
 TOTAL INTEREST-EARNING
 ASSETS                             (39.52%)          (31.07%)           (19.91)%           8.25%           20.57%         20.57%

CUMULATIVE
 INTEREST-EARNING ASSETS
 AS A PERCENTAGE OF
 INTEREST-BEARING
 LIABILITIES                         35.02%            59.04%            (74.94)%         110.39%          125.90%        125.90%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

---------------------------------------6----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS


Passbook accounts, money market deposit accounts and negotiable order of
withdrawal or other transaction accounts are assumed to be subject to immediate
repricing and depositor availability and have been placed in the shortest
period. No prepayment assumptions have been made for any interest-earning assets
or interest-bearing liabilities. In addition, the table does not reflect
scheduled principal payments which will be received throughout the lives of the
loans. The interest sensitivity of First Savings' assets and liabilities
illustrated in the table would vary substantially if different assumptions were
used or if actual experience differs from that indicated by such assumptions.

The Gap Analysis table does not necessarily indicate the impact of general
interest rate movements on the Bank's net interest yield because the repricing
of various categories of assets and liabilities is discretionary and is subject
to competitive and other pressures. As a result, various assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times and at different rate levels.

                                 Liquidity

Maintaining adequate liquidity while managing interest rate risk is the primary
goal of First Savings' asset and liability management strategy. Liquidity is the
ability to fund the needs of the Bank's borrowers and depositors, pay operating
expenses, and meet regulatory liquidity requirements. Maturing investments, loan
and mortgage-backed security principal repayments, deposits and income from
operations are the main sources of liquidity. The Bank's primary uses of
liquidity are to fund loans and to make investments.

As of June 30, 1999, liquid assets (cash and cash equivalents and marketable
investment securities) were approximately $100.3 million, which represents 44.2%
of deposits. As a North Carolina chartered savings bank, First Savings is
required to maintain liquid assets equal to at least 10.0% of its total assets.
For purposes of this requirement, liquid assets consist of cash and readily
marketable investments and mortgage-backed securities. At June 30, 1999, this
liquidity ratio, based on North Carolina regulations, was 30.1%. Management
considers current liquidity levels to be adequate to meet First Savings'
foreseeable needs.

At June 30, 1999, outstanding loan commitments and available lines of credit
balances were $28.1 million, and the undisbursed portion of construction loans
was $7.8 million. Funding for these commitments is expected to be provided from
deposits, loan and mortgage-backed securities principal repayments, maturing
investments and income generated from operations.

                              Capital Resources

Under federal capital regulations, First Savings must satisfy certain minimum
leverage ratio requirements and risk-based capital requirements. Failure to meet
such requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on First Savings' financial statements. At June 30, 1999 and
1998, First Savings exceeded all such requirements.

First Savings is subject to restrictions on stock repurchases and must obtain
Federal Reserve and FDIC approvals before making certain stock repurchases.
First Savings is also subject to limits on dividend payments. First Savings is
prohibited, under the North Carolina Business Corporation Act, from paying a
dividend if such payment would (i) cause First Savings to be unable to pay its
debts as they become due in the ordinary course of business or (ii) reduce First
Savings' total assets below the sum of First Savings' total liabilities plus any
amounts which would be needed, if First Savings were to be dissolved at the time
of distribution, to satisfy the preferential rights that are superior to holders
of the Common Stock. Moreover, the ability of First Savings to pay dividends or
repurchase shares may be dependent upon the receipt of dividends from the Bank
subsidiary.

Payment of dividends by the Bank subsidiary to the holding company is subject to
various restrictions. Under applicable banking regulations, the Bank may not
declare a cash dividend if the effect thereof would be to reduce its net worth
to an amount less than the minimum required by federal and state banking
regulations, including the amount required for the liquidation account
established in connection with the Bank's conversion from mutual to stock
ownership. A source of First Savings' funds are dividends received from the
Bank. In fiscal 2000, the amount of dividends that can be paid without prior
approval from regulators is approximately $2.5 million. These funds should be
adequate to cover First Savings' needs.


---------------------------------------7----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS

                              Regulatory Matters

Management is not aware of any known trends, events, uncertainties or current
recommendations by regulatory authorities that will have or that are reasonably
likely to have a material effect on First Savings' liquidity, capital resources,
or other operations.

                          Average Yield/Cost Analysis

The following table contains information relating to First Savings' average
balance sheet and reflects the average yields on assets and average costs of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the periods presented.

<TABLE>
<CAPTION>
                                                                           Years Ended June 30,
                                        -------------------------------------------------------------------------------------------
                                                     1999                           1998                           1997
                                        -----------------------------  -----------------------------  -----------------------------
                                                             Average                        Average                        Average
                                         Average              Yield/    Average              Yield/    Average              Yield/
                                         Balance   Interest    Cost     Balance   Interest    Cost     Balance   Interest    Cost
                                        ---------  --------  --------  ---------  --------  --------  ---------  --------  --------
                                                                          (Dollars in thousands)
<S>                                     <C>        <C>       <C>       <C>        <C>       <C>       <C>        <C>       <C>
Interest-earning assets:
 Interest-earning deposits              $  6,867    $   377     5.49%  $  6,167    $   391     6.34%  $  7,623    $   449     5.89%
 Investments, net, at cost                57,553      3,727     6.48%    77,009      5,222     6.78%    67,269      4,317     6.42%
 Mortgage-backed securities               16,888      1,085     6.43%     9,143        668     7.31%     4,537        338     7.45%
 Loans receivable, net                   208,384     16,576     7.95%   199,776     16,262     8.14%   185,120     14,954     8.08%
                                        --------    -------            --------    -------            --------    -------
  Total interest-earning assets          289,692     21,765     7.51%   292,095     22,543     7.72%   264,549     20,058     7.58%
                                                    -------                        -------                        -------
Non-interest-earning assets                9,367                          6,680                          5,734
                                        --------                       --------                       --------

  Total assets                          $299,059                       $298,775                       $270,283
                                        ========                       ========                       ========

Interest-bearing liabilities:
 Passbooks savings                      $ 14,561        459     3.15%  $ 13,723        428     3.12%  $ 10,994        297     2.70%
 NOW and money market accounts            71,019      2,178     3.07%    66,100      2,166     3.28%    63,199      2,108     3.34%
 Certificates of deposit                 133,062      7,205     5.41%   129,698      7,371     5.68%   122,761      7,091     5.78%
 Borrowed funds                            7,555        432     5.72%    17,786      1,118     6.29%     4,694        286     6.09%
                                        --------    -------            --------    -------            --------    -------
  Total interest-bearing liabilities     226,197     10,274     4.54%   227,307     11,083     4.88%   201,648      9,782     4.85%
                                                    -------                        -------                        -------
Non-interest-bearing liabilities           5,078                          2,672                          1,789
                                        --------                       --------                       --------
  Total liabilities                      231,275                        229,979                        203,437
Shareholders' equity                      67,784                         68,796                         66,846
                                        --------                       --------                       --------

Total liabilities and shareholders'
 equity                                 $299,059                       $298,775                       $270,283
                                        ========                       ========                       ========

Net interest income and interest rate
 spread                                             $11,491     2.97%              $11,460     2.84%              $10,276     2.73%
                                                    =======                        =======                        =======

Net interest-earning assets and net
 interest margin                        $ 58,417                3.97%  $ 64,788                3.92%  $ 62,901                3.88%

Percentage of average interest-earning
 assets to average interest-bearing
 liabilities                              125.26%                        128.50%                        131.19%
</TABLE>

---------------------------------------8----------------------------------------

<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSIS

                              Rate Volume Analysis

The table below provides information regarding changes in interest income and
interest expense for the periods indicated. For each category of interest-
earning asset and interest-bearing liability, information is provided on changes
attributable to (i) changes in volume (changes in volume multiplied by the prior
period's rate); (ii) changes in rates (change in rate multiplied by the prior
period's volume); (iii) changes in rate-volume (changes in rate multiplied by
changes in volume); and (iv) net change (the sum of previous columns.)

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                             ------------------------------------------------------------------------------------------------------
                                                 1999 vs. 1998                                       1998 vs. 1997
                                              Increase (Decrease)                                 Increase (Decrease)
                                                    Due to                                              Due to
                             -----------------------------------------------------  -----------------------------------------------
                                                           Rate/                                                   Rate/
                                Volume        Rate         Volume        Total         Volume        Rate        Volume      Total
                             ------------  -----------  ------------  ------------  ------------  ----------  ------------  -------
                                                                     (Dollars in thousands)
<S>                          <C>           <C>          <C>           <C>           <C>           <C>         <C>           <C>
Interest income:
 Interest-earning deposits       $    44     $    (52)     $     (6)     $    (14)     $    (86)    $    34       $    (6)  $  (58)
 Investments (1)                  (1,319)        (235)           59        (1,495)          625         245            35      905
 Mortgage-backed securities          566          (80)          (68)          418           343          (6)           (7)     330
 Loan portfolio                      701         (371)          (16)          314         1,184         115             9    1,308
                             ------------  -----------  ------------  ------------  ------------  ----------  ------------  -------
  Total interest income               (8)        (738)          (31)         (777)        2,066         388            31    2,485
                             ------------  -----------  ------------  ------------  ------------  ----------  ------------  -------

Interest expense:
 Passbooks savings                    26            5             -            31            74          46            11      131
 NOW and money market                161         (139)          (10)           12            97         (37)           (2)      58
  accounts
 Certificates of deposit             191         (348)           (9)         (166)          400        (114)           (6)     280
 Borrowed funds                     (643)        (101)           58          (686)          798           9            25      832
                             ------------  -----------  ------------  ------------  ------------  ----------  ------------  -------
  Total interest expense            (265)        (583)           39          (809)        1,369         (96)           28    1,301
                             ------------  -----------  ------------  ------------  ------------  ----------  ------------  -------

Net interest income
 (expense)                       $   257     $   (155)     $    (70)     $     32      $    697     $   484       $     3   $1,184
                             ============  ===========  ============  ============  ============  ==========  ============  =======
</TABLE>

(1) Includes investment securities and FHLB stock.

---------------------------------------9----------------------------------------
<PAGE>

---------------------------------MANGEMENT'S------------------------------------
                             DISCUSSION & ANALYSIS

                          Loan Portfolio Composition

First Savings' consolidated net loan portfolio totaled approximately $208.7
million at June 30, 1999, representing 66.6% of First Savings' total assets. At
June 30, 1999, approximately 84.3% of First Savings' net loan portfolio was
composed of adjustable rate loans, and approximately 15.7% of First Savings' net
loan portfolio was composed of fixed rate loans. At June 30, 1999, approximately
$161.8 million, or 77.5%, of First Savings' net loan portfolio was composed of
one-to-four family residential real estate loans. On such date, approximately
$52.1 million, or 25.0%, of First Savings' net loan portfolio was composed of
multi-family residential, commercial and other real estate loans.


The following table sets forth the composition of First Savings' loan portfolio
by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                            June 30,
                             ------------------------------------------------------------------------------------------------------
                                    1999                 1998                 1997                 1996                 1995
                             -------------------  -------------------  -------------------  -------------------  ------------------
                                          % of                 % of                 % of                 % of                % of
                              Amount     Total     Amount     Total     Amount     Total     Amount     Total     Amount     Total
                             ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  -------
                                                                     (Dollars in thousands)
<S>                          <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Real estate loans:
 Residential 1-4 family       $161,785    77.53%   $172,915    83.09%   $162,620    84.59%   $151,934    85.63%   $137,855   86.28%
 Multi-family (5 or more         3,264     1.56%      2,969     1.43%      2,601     1.35%      3,070     1.73%      2,272    1.42%
  units)
 Construction                   16,082     7.71%     10,592     5.09%     10,969     5.71%      8,123     4.58%      7,951    4.98%
 Commercial real estate
  and other properties          20,229     9.69%     16,568     7.96%     13,285     6.91%     12,028     6.78%     11,844    7.41%
 Home equity and property
 improvement                    12,549     6.01%      8,970     4.31%      8,449     4.40%      5,607     3.16%      4,066    2.55%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------

 Total real estate loans       213,909   102.50%    212,014   101.88%    197,924   102.96%    180,762   101.88%    163,988  102.64%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------

Other:
 Savings account loans             901     0.43%        900     0.43%        909     0.47%        875     0.49%        703    0.44%
 Installment loans               1,606     0.77%        797     0.38%        621     0.32%        351     0.20%        111    0.07%
 Credit card loans               1,182     0.57%      1,157     0.56%        951     0.50%        520     0.29%          -       -%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------
 Total other loans               3,689     1.77%      2,854     1.37%      2,481     1.29%      1,746     0.98%        814    0.51%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------

Less:
 Unearned fees and                 498     0.24%        547     0.26%        555     0.29%        509     0.29%        458    0.29%
  discounts
 Loans in process                7,826     3.75%      5,631     2.71%      7,008     3.65%      3,959     2.23%      3,958    2.48%
 Allowance for loan losses         596     0.28%        596     0.28%        604     0.31%        609     0.34%        609    0.38%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------
 Total reductions                8,920     4.27%      6,774     3.25%      8,167     4.25%      5,077     2.86%      5,025    3.15%
                              --------   ------    --------   ------    --------   ------    --------   ------    --------  ------

Total loans receivable, net   $208,678   100.00%   $208,094   100.00%   $192,238   100.00%   $177,431   100.00%   $159,777  100.00%
                              ========   ======    ========   ======    ========   ======    ========   ======    ========  ======
</TABLE>

--------------------------------------10----------------------------------------
<PAGE>

---------------------------------MANGEMENT'S------------------------------------
                             DISCUSSION & ANALYSIS


                             Nonperforming Assets

The Bank's general policy is to place a loan on nonaccrual status when the loan
becomes 90 days delinquent. Interest on loans that are contractually 90 days or
more past due is reserved through an allowance account. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent cash payments
are received, and in management's judgment, the borrower's ability to make
periodic interest and principal payments is back to normal, in which case the
loan is returned to accrual status.


The following table sets forth information with respect to nonperforming assets
identified by the Bank, including nonaccrual loans and foreclosed real estate,
at the dates indicated.  During the periods shown, First Savings had no
"restructured loans" as defined by Statement of Financial Accounting Standards
No. 15.

<TABLE>
<CAPTION>
                                                                 June 30,
                                                 --------------------------------------
                                                  1999    1998    1997    1996    1995
                                                 ------  ------  ------  ------  ------
                                                         (Dollars in thousands)
<S>                                              <C>     <C>     <C>     <C>     <C>
   Loans accounted for on a nonaccrual basis:
    Real estate:
     Residential                                 $ 317   $ 545   $ 250   $ 134   $ 139
     Commercial                                      -       -       -       -     133
    Consumer                                         -       -       -       -       -
                                                 -----   -----   -----   -----   -----
     Total                                         317     545     250     134     272
                                                 -----   -----   -----   -----   -----

   Accruing loans which are contractually
   past due 90 days or more:
    Real estate:
     Residential                                     -       -       -       -       -
     Commercial                                      -       -       -       -       -
    Consumer                                         -       -       -       -       -
                                                 -----   -----   -----   -----   -----
     Total                                           -       -       -       -       -
                                                 -----   -----   -----   -----   -----

   Total of nonaccrual and 90 days past due
   loans                                           317     545     250     134     272
   Foreclosed real estate                            -       -       -       -       -
   Other nonperforming assets                        -       -       -       -       -
                                                 -----   -----   -----   -----   -----

     Total nonperforming assets                  $ 317   $ 545   $ 250   $ 134   $ 272
                                                 =====   =====   =====   =====   =====

   Total loans delinquent 90 days or more to
   net loans                                      0.16%   0.26%   0.13%   0.08%   0.17%
   Total loans delinquent 90 days or more to
   total assets                                   0.10%   0.18%   0.08%   0.05%   0.11%
   Total nonperforming assets to total assets     0.10%   0.18%   0.08%   0.05%   0.11%
</TABLE>

--------------------------------------11----------------------------------------
<PAGE>

---------------------------------MANGEMENT'S------------------------------------
                             DISCUSSION & ANALYSIS



                           Allowance for Loan Losses

In originating loans, the Bank recognizes that credit losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a secured loan, the quality of the security for the loan, as well
as general economic conditions.

It is management's policy to maintain an adequate allowance for loan losses
based on, among other things, the Bank's historical loan loss experience,
evaluation of economic conditions and regular review of delinquencies and loan
portfolio quality.  Specific allowances are provided for individual loans when
ultimate collection is considered questionable by management after reviewing the
current status of loans which are contractually past due and considering the net
realizable value of the security for the loans.

After reviewing general economic conditions, industry standards and allowances
of comparable institutions in its peer group, the Bank did not increase the
allowance during fiscal 1998.  Management continues to actively monitor First
Savings' asset quality, to charge off loans against the allowance for loan
losses when appropriate and to provide specific loss reserves when necessary.

Although management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the economic
conditions in the assumptions used in making the initial determinations.


The following table describes the activity related to the Bank's allowance for
loan losses for the dates indicated.

<TABLE>
<CAPTION>
                                                                                                    June 30,
                                                                        ---------------------------------------------------------
                                                                           1999         1998         1997         1996      1995
                                                                        -----------  -----------  -----------  ----------  ------
                                                                                         (Dollars in thousands)
<S>                                                                     <C>          <C>          <C>          <C>         <C>
Balance beginning of period                                               $    596       $  604      $   609       $ 609   $ 609
Provision for loan losses and losses on foreclosed real estate                   -            -            -           -       -
                                                                          --------       ------      -------       -----   -----
Charge-offs:
 Residential 1-4 family                                                          -            -            -           -      (4)
 Commercial real estate and other properties                                     -            -            -           -       -
 Home equity and property improvements                                           -            -            -           -       -
 Construction                                                                    -            -            -           -       -
 Savings accounts                                                                -            -            -           -       -
 Other consumer                                                                  -           (8)          (5)          -       -
 Commercial                                                                      -            -            -           -       -
                                                                          --------       ------      -------       -----   -----
                                                                                 -           (8)          (5)          -      (4)
                                                                          --------       ------      -------       -----   -----
Recoveries:
 Residential 1-4 family                                                          -            -            -           -       4
 Commercial real estate and other properties                                     -            -            -           -       -
 Construction                                                                    -            -            -           -       -
 Savings accounts                                                                -            -            -           -       -
 Other consumer                                                                  -            -            -           -       -
 Commercial                                                                      -            -            -           -       -
                                                                          --------       ------      -------       -----   -----
                                                                                 -            -            -           -       4
                                                                          --------       ------      -------       -----   -----
Balance at end of period                                                  $    596       $  596      $   604       $ 609   $ 609
                                                                          ========       ======      =======       =====   =====
Ratio of net charge-offs during the period to average loans
 outstanding during the period                                                0.00%        0.00%        0.00%       0.00%   0.00%
                                                                          ========       ======      =======       =====   =====
</TABLE>

--------------------------------------12----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSYS

The following table sets forth the composition of the allowance for loan losses
by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                                 June 30,
                                               -----------------------------------------------------------------------------
                                                         1999                       1998                      1997
                                               -------------------------  -------------------------  -----------------------
                                                             Amount of                  Amount of                 Amount of
                                               Amount of     Loans to     Amount of     Loans to     Amount of    Loans to
                                               Allowance    Gross Loans   Allowance    Gross Loans   Allowance  Gross Loans
                                               ---------    -----------   ---------    -----------   ---------  -----------
                                                                          (Dollars in thousands)
<S>                                            <C>          <C>           <C>          <C>           <C>        <C>
Real estate loans:
 Residential 1-4 family                        $     459         77.01%   $     463         77.68%   $    400        66.23%
 Commercial real estate and other property            67         11.24%          64         10.74%         73        12.08%
Home equity and property improvement                  36          6.04%          16          2.68%         21         3.48%
Construction                                          24          4.03%           9          1.52%          7         1.16%
                                               ---------        ------        -----        ------       -----       ------
   Total real estate loans                           586         98.32%         552         92.62%        501        82.95%
Savings account loans                                  -             -%           -             -%          -            -%
Other consumer loans                                  10          1.68%          44          7.38%        103        17.05%
                                               ---------        ------    ---------        ------    --------       ------
   Total allowance for loan losses             $     596        100.00%   $     596        100.00%   $    604       100.00%
                                               =========        ======    =========        ======    ========       ======
</TABLE>

                           RESULTS OF OPERATIONS FOR
                            THE FISCAL YEARS ENDED
                                 JUNE 30, 1999
                                      AND
                                 JUNE 30, 1998

General

First Savings recorded net income of $5.2 million for the year ended June 30,
1999, compared to $5.3 million earned for the year ended June 30, 1998. Basic
and fully diluted earnings per share were $1.42 and $1.32, respectively, for the
year ended June 30, 1999 compared to $1.42 and $1.30, respectively, for the year
ended June 30, 1998.

Nonperforming assets (loans 90 days or more delinquent and foreclosed real
estate owned) were $317,000 or 0.10% of total assets at June 30, 1999, compared
to $545,000 or 0.18% at June 30, 1998. First Savings did not have any real
estate owned at June 30, 1999 or June 30, 1998.

Net Interest Income

Net interest income for the year ended June 30, 1999 and 1998, was $11.5
million. The average yield on interest-earning assets decreased by 21 basis
points, and the average cost of interest-bearing liabilities decreased by 34
basis points for the year ended June 30, 1999, increasing the Bank's interest
rate spread to 2.97% compared to 2.84% for the year ended June 30, 1998. The
average balance of interest-earning assets and interest-bearing liabilities
during the fiscal year ended June 30, 1999 was $289.7 million and $226.2
million, respectively, compared to $292.1 million and $227.3 million,
respectively, during the fiscal year ended June 30, 1998. The Average Yield/Cost
Analysis table reflects the average yields on assets and average cost of
liabilities for the years ended June 30, 1999, 1998, and 1997. Such average
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the period presented.

Interest and Dividend Income

First Savings' total interest and dividend income for the fiscal year ended June
30, 1999 was $21.8 million as compared to $22.5 million for fiscal year 1998, a
decrease of $700,000 or 3.1%. This decrease was due primarily to decreases in
average interest-earning assets.

Interest Expense

Total interest expense for the year ended June 30, 1999 decreased by $809,000 or
7.3% when compared to the prior year. The Bank's cost of funds decreased from
4.88% in 1998 to 4.54% in 1999; and, average interest-bearing liabilities
decreased from $227.3 million at June 30, 1998 to $226.2 million at June 30,
1999.

--------------------------------------13----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSYS


Interest expense on borrowed funds decreased $686,000 from $1,118,000 in 1998 to
$432,000 in 1999. This decrease is the result of maturing advances from the
Federal Home Loan Bank (FHLB) in 1999. The decrease in average borrowings was a
result of principal payments, funded primarily by maturing investment
securities. Average borrowings for the years ended June 30, 1999 and 1998 were
$7.6 million and $17.8 million, respectively.

Allowance for Loan Losses

At June 30, 1998, the allowance for loan losses was $596,000. During fiscal year
1999, First Savings did not add to this reserve. With no charge-offs during the
current year, the allowance for loan losses at June 30, 1999 remained unchanged.
Management considers this level to be appropriate based on lending volume, the
current level of delinquencies, other nonperforming assets and the overall
economic conditions.

Non-Interest Income

Total non-interest income for the fiscal year ended June 30, 1999 was $721,000
as compared to $616,000 for the fiscal year ended June 30, 1998. The 17.0%
increase is primarily attributable to increased levels of fees and service
charges during the year ended June 30, 1999.

General and Administrative Expenses

General and administrative expenses for fiscal year ended June 30, 1999 were
$4.1 million compared to $3.8 million for the fiscal year ended June 30, 1998.

Income Taxes

Income tax expense decreased for the fiscal year ended June 30, 1999 to $3.0
million, as compared to $3.1 million for the same period in 1998. The decrease
in income taxes was attributed to the lower level of pre-tax income.

                           RESULTS OF OPERATIONS FOR
                            THE FISCAL YEARS ENDED
                                 JUNE 30, 1998
                                      AND
                                 JUNE 30, 1997

General

First Savings recorded net income of $5.3 million for the year ended June 30,
1998, an increase of 35.9% over the $3.9 million earned for the year ended June
30, 1997. Basic and fully diluted earnings per share were $1.42 and $1.30,
respectively, for the year ended June 30, 1998 compared to $1.05 and $0.98,
respectively, for the year ended June 30, 1997. During fiscal 1997, First
Savings paid a nonrecurring deposit insurance assessment to the Savings
Association Insurance Fund ("SAIF") of approximately $1.2 million. Net of income
taxes, this special assessment had the effect of reducing net income for the
year by approximately $700,000. Net income excluding this nonrecurring charge
was $4.6 million. Basic and fully diluted earnings per share for fiscal year
1997, excluding the nonrecurring SAIF assessment, were $1.24 and $1.16,
respectively. The primary factor contributing to First Savings core earnings
growth was a 12% increase in the Bank's net interest margin. Non-interest income
was higher in 1998 primarily due to increases in fees and service charges.

Nonperforming assets (loans 90 days or more delinquent and foreclosed real
estate owned) were $545,000 or 0.18% of total assets at June 30, 1998, compared
to $250,000 or .08% at June 30, 1997. First Savings did not have any real estate
owned at June 30, 1998 or June 30, 1997.

Net Interest Income

Net interest income for the years ended June 30, 1998 and 1997, was $11.5
million and $10.3 million, respectively. The primary reason for the increase in
net interest income during the fiscal year ended June 30, 1998 was due to a
higher interest rate spread. The average yield on interest-earning assets
increased by 14 basis points, and the average cost of interest-bearing
liabilities increased by 3 basis points for the year ended June 30, 1998,
increasing the Bank's interest rate spread to 2.84% compared to 2.73% for the
year ended June 30, 1997. The average balance of interest-earning assets and
interest-bearing liabilities during the fiscal year ended June 30, 1998 was
$292.1 million and $227.3 million, respectively, compared to $264.5 million and
$201.6 million, respectively, during the fiscal year ended June 30, 1997. The
Average Yield/Cost Analysis table reflects the average yields on assets and
average cost of liabilities for the years ended June 30, 1998, 1997, and 1996.
Such average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the period presented.

--------------------------------------14----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSYS


Interest and Dividend Income

First Savings' total interest and dividend income for the fiscal year ended June
30, 1998 was $22.5 million as compared to $20.1 million for fiscal year 1997, an
increase of $2.4 million or 11.9%. This increase was due primarily to increases
in average interest-earning assets and their related yields.

Interest Expense

Total interest expense for the year ended June 30, 1998 increased by $1.3
million or 13.3% when compared to the prior year. The Bank's cost of funds
increased from 4.85% in 1997 to 4.88% in 1998; and, average interest-bearing
liabilities increased 12.7% from $201.6 million at June 30, 1997 to $227.3
million at June 30, 1998.

Interest expense on borrowed funds increased $832,000 from $286,000 in 1997 to
$1,118,000 in 1998. This increase is the result of advances from the Federal
Home Loan Bank (FHLB) in 1998. The increase in borrowings was a result of
investment strategies implemented during the fourth quarter of fiscal 1997.
Average borrowings for the years ended June 30, 1998 and 1997 were $17.8 million
and $4.7 million, respectively.

Allowance for Loan Losses

At June 30, 1997, the allowance for loan losses was $604,000. During fiscal year
1998, First Savings did not add to this reserve. With only $8,000 in charge-offs
during the current year, the allowance for loan losses at June 30, 1998
decreased slightly to $596,000. Management considers this level to be
appropriate based on lending volume, the current level of delinquencies, other
nonperforming assets and the overall economic conditions.

Non-Interest Income

Total non-interest income for the fiscal year ended June 30, 1998 was $616,000
as compared to $425,000 for the fiscal year ended June 30, 1997. The 44.9%
increase is primarily attributable to high levels of fees and service charges
during the year ended June 30, 1998.

General and Administrative Expenses

General and administrative expenses for fiscal year ended June 30, 1998 were
$3.8 million compared to $4.6 million for the fiscal year ended June 30, 1997.
Excluding the nonrecurring SAIF assessment in fiscal 1997, general and
administrative expense would have been $3.5 million.

Income Taxes

Income tax expense increased for the fiscal year ended June 30, 1998 to $3.1
million, as compared to $2.2 million for the same period in 1997. The increase
in income taxes was attributed to the higher level of pre-tax income and to
increased state income taxes as a larger portion of the Bank's income was
subject to such taxes.

                    Impact of Inflation and Changing Prices

The financial statements and notes thereto 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 and due to inflation. The impact of inflation is reflected in the
increased cost of First Savings' operations. Unlike most industrial companies,
nearly all First Savings' assets and liabilities are monetary in nature. As a
result, interest rates have a greater impact on First Savings' performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.

                        Recent Accounting Pronouncements

FASB Statement on Accounting for Derivative Instruments and Hedging Activities.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, this Statement was amended by
SFAS No. 137 to defer the effective date to fiscal years beginning after June
15, 2000. This Statement establishes accounting and reporting standards for
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and requires that an entity recognize
all derivatives as assets or liabilities in the statement of financial condition
and measure them at fair value. If certain conditions are met, an entity may
elect to designate a derivative as follows: (a) a hedge of exposure to changes
in the fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of an unrecognized
firm commitment, an available-for-sale security, a foreign currency denominated
forecasted transaction, or a net investment in a foreign operation. The
Statement generally provides for matching the timing of the recognition of the
gain or loss

--------------------------------------15----------------------------------------
<PAGE>

---------------------------------MANAGEMENT'S-----------------------------------
                             DISCUSSION & ANALYSYS

on derivatives designated as hedging instruments with the recognition of the
 changes in the fair value of the item being hedged. Depending on the type of
 hedge, such recognition will be in either net income or other comprehensive
 income. For a derivative not designated as a hedging instrument, changes in
 fair value will be recognized in net income in the period of change. Management
 anticipates that the statement will have no effect on its consolidated
 financial statements.

                             Year 2000 Compliance

The "Year 2000" issue confronting First Savings and its suppliers, customers,
customers' suppliers and competitors centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending new millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, First Savings and its operations may be
significantly affected by the Year 2000 issue due to its dependence on computer
generated information. Software, hardware, and equipment both within and outside
First Savings' direct control and with whom First Savings electronically or
operationally interfaces (e.g. third party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information) are likely to be affected. Furthermore, if computer systems
are not adequately changed to identify the Year 2000, many computer applications
could fail or create erroneous results. As a result, many calculations which
rely on date field information, such as interest, payment or due dates and other
operating functions, could generate results which are significantly misstated,
and First Savings could experience a temporary inability to process
transactions, prepare statements or engage in similar normal business
activities. In addition, under certain circumstances, failure to adequately
address the Year 2000 issue could adversely affect the viability of First
Savings' suppliers and creditors and the creditworthiness of its borrowers.
Thus, if not adequately addressed, the Year 2000 matter could result in a
significant adverse impact on products, services and the competitive condition
of First Savings.

Financial institution regulators have increased their focus upon Year 2000
compliance issues, issuing guidance concerning the responsibilities of senior
management and directors. The Federal Financial Institutions Examination Council
("FFIEC") has issued several interagency statements on Year 2000 Project
Management Awareness. These statements require financial institutions to, among
other things, examine the Year 2000 implications of reliance on vendors, data
exchange and potential impact on customers, suppliers and borrowers. These
statements also require each federally regulated financial institution to survey
its exposure, measure its risk and prepare a plan in order to solve the Year
2000 issue. In addition, the federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any Year 2000 problems. The federal banking
agencies have asserted that Year 2000 testing and certification is a key safety
and soundness issue in conjunction with regulatory exams, and thus an
institution's failure to address appropriately the Year 2000 issue could result
in supervisory action, including such enforcement actions as the reduction of
the institution's supervisory ratings, the denial of applications for approval
of a merger or acquisition, or the imposition of civil money penalties.

In order to address the Year 2000 issue and to minimize its potential adverse
impact, management is engaged in a process to identify areas that will be
affected by the Year 2000, assess their potential impact on operations, monitor
the progress of third party software vendors in addressing the matter, test
changes provided by these vendors, and develop contingency plans for any
critical systems which are not effectively reprogrammed. The plan is divided
into the five phases: (1) awareness, (2) assessment, (3) renovations, (4)
validation, and (5) implementation.

First Savings has substantially completed the five phases of the plan. First
Savings outsources its item processing operations to a service provider. First
Savings' Year 2000 compliance is being closely coordinated with that of the
service provider.

First Savings does not currently expect that the cost of its Year 2000
compliance program will be material to its financial condition or results of
operations, and expects that it will satisfy such compliance program without
material disruption of its operations. In the event that First Savings'
significant suppliers do not successfully and timely achieve Year 2000
compliance, First Savings' business, results of operations or financial
condition could be adversely affected.

--------------------------------------16----------------------------------------
<PAGE>

                                   REPORT OF
                                  INDEPENDENT
-----------------------------------AUDITORS-------------------------------------

Board of Directors and Shareholders
First Savings Bancorp, Inc.
Southern Pines, North Carolina


We have audited the consolidated statements of financial condition of First
Savings Bancorp, Inc. and subsidiary ("First Savings") as of June 30, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 1999.
These financial statements are the responsibility of First Savings' management.
Our responsibility is to express an opinion on these 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 audits 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Savings
Bancorp, Inc. and subsidiary at June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles.



Sanford, North Carolina
July 23, 1999

--------------------------------------17----------------------------------------
<PAGE>

----------------------------CONSOLIDATED STATEMENTS-----------------------------
                            OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                                                                 June 30,
                                                                                                       ----------------------------
                                                                                                           1999           1998
                                                                                                       -------------  -------------
<S>                                                                                                    <C>            <C>
ASSETS
 Cash and due from banks                                                                               $  3,752,962   $  3,825,590
 Interest-earning deposits with banks                                                                     3,084,729      3,990,718
 Investment securities available for sale, at fair value (amortized cost
  of $55,420,488 and $72,163,962 at June 30, 1999 and 1998,
  respectively) (Note 2)                                                                                 54,845,928     72,731,962
 Investment securities held to maturity, at amortized cost (fair value
  of $36,154,008 and $9,821,460 at June 30, 1999 and 1998,
  respectively) (Note 2)                                                                                 36,707,787      9,737,212
 Loans receivable, net (Note 3)                                                                         208,677,915    208,094,461
 Accrued interest receivable (Note 4)                                                                     1,729,739      1,748,809
 Premises and equipment, net (Note 5)                                                                     2,340,161      1,935,927
 Stock in the Federal Home Loan Bank of Atlanta, at cost                                                  1,928,800      1,929,600
 Prepaid expenses and other assets                                                                          164,537        173,950
                                                                                                       ------------   ------------

       TOTAL                                                                                           $313,232,558   $304,168,229
                                                                                                       ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
 Deposits (Note 6)                                                                                     $226,651,010   $211,924,932
 Borrowed funds (Note 7)                                                                                 20,000,000     20,000,000
 Advances from borrowers for taxes and insurance                                                             77,551         90,217
 Accrued interest payable on deposits                                                                       159,000        141,564
 Accrued expenses and other liabilities                                                                   1,671,399      1,623,593
 Federal and state income taxes:
   Currently payable                                                                                         26,680         38,102
   Deferred, net (Note 10)                                                                                  419,146        828,616
                                                                                                       ------------   ------------

       Total liabilities                                                                                249,004,786    234,647,024
                                                                                                       ------------   ------------
COMMITMENTS (Notes 3, 13 and 14)

SHAREHOLDERS' EQUITY (Notes 10 and 11):
 Preferred stock, no par value, 5,000,000 shares authorized, none
  issued and outstanding                                                                                          -              -
 Common stock, no par value, 20,000,000 shares authorized;
  3,503,763 and 3,710,820 shares issued and outstanding at June 30,
  1999 and 1998, respectively                                                                            33,018,336     35,536,799
 Unearned compensation related to ESOP note payable (Note 12)                                               (15,852)      (158,302)
 Retained earnings                                                                                       31,604,498     33,767,828
 Accumulated other comprehensive income (loss)                                                             (379,210)       374,880
                                                                                                       ------------   ------------

       Total shareholders' equity                                                                        64,227,772     69,521,205
                                                                                                       ------------   ------------

       TOTAL                                                                                           $313,232,558   $304,168,229
                                                                                                       ============   ============
</TABLE>

See notes to consolidated financial statements.

--------------------------------------18----------------------------------------
<PAGE>

----------------------------CONSOLIDATED STATEMENTS-----------------------------
                                   OF INCOME

<TABLE>
<CAPTION>
                                                                                     Years Ended June 30,
                                                                         -----------------------------------------
                                                                             1999           1998            1997
                                                                         -----------    -----------    -----------
<S>                                                                      <C>            <C>            <C>
INTEREST AND DIVIDEND INCOME:
 Interest on loans receivable                                            $16,575,738    $16,262,488    $14,954,452
 Interest on investment securities available for sale                      3,579,557      5,077,872      4,177,307
 Interest on investment securities held to maturity                        1,085,529        668,469        337,717
 Dividends on equity securities                                              147,334        143,199        139,703
 Other                                                                       376,888        391,465        449,184
                                                                         -----------    -----------    -----------

     Total interest and dividend income                                   21,765,046     22,543,493     20,058,363
                                                                         -----------    -----------    -----------
INTEREST EXPENSE:
 Deposits (Note 6)                                                         9,841,843      9,965,356      9,496,129
 Borrowed funds (Note 7)                                                     432,259      1,118,002        286,280
                                                                         -----------    -----------    -----------

     Total interest expense                                               10,274,102     11,083,358      9,782,409
                                                                         -----------    -----------    -----------

 Net interest income                                                      11,490,944     11,460,135     10,275,954

 Provision for loan losses (Note 3)                                                -              -              -
                                                                         -----------    -----------    -----------

     Net interest income after provision for loan losses                  11,490,944     11,460,135     10,275,954
                                                                         -----------    -----------    -----------
NON-INTEREST INCOME:
 Fees and service charges                                                    656,636        542,206        370,795
 Income from real estate operations                                            7,813          7,514          7,964
 Rent on safe deposit boxes                                                   45,151         33,648         33,450
 Other, net                                                                   11,105         32,531         12,949
                                                                         -----------    -----------    -----------

     Total non-interest income, net                                          720,705        615,899        425,158
                                                                         -----------    -----------    -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
 Compensation and fringe benefits (Note 12)                                2,195,249      2,102,433      2,002,924
 Occupancy and building (Note 13)                                            261,089        210,623        207,089
 Premiums and assessments                                                    128,255        131,512      1,326,809
 Computer services                                                           482,339        355,216        300,905
 Other                                                                       998,742        957,783        799,732
                                                                         -----------    -----------    -----------

     Total general and administrative expenses                             4,065,674      3,757,567      4,637,459
                                                                         -----------    -----------    -----------

INCOME BEFORE INCOME TAXES                                                 8,145,975      8,318,467      6,063,653

INCOME TAX EXPENSE (Note 10)                                               2,985,000      3,060,000      2,155,000
                                                                         -----------    -----------    -----------
NET INCOME                                                               $ 5,160,975    $ 5,258,467    $ 3,908,653
                                                                         ===========    ===========    ===========
NET INCOME PER COMMON SHARE
 Basic                                                                   $      1.42    $      1.42    $      1.05
                                                                         ===========    ===========    ===========
 Diluted                                                                 $      1.32    $      1.30    $      0.98
                                                                         ===========    ===========    ===========
AVERAGE COMMON SHARES
 OUTSTANDING
 Basic                                                                     3,641,708      3,698,197      3,706,704
 Diluted                                                                   3,915,207      4,021,954      3,970,306
</TABLE>

See notes to consolidated financial statements.

--------------------------------------19----------------------------------------
<PAGE>

----------------------------CONSOLIDATED STATEMENTS-----------------------------
                           OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                                                                                        Other           Total
                                                 Common Stock             Unearned      Retained     Comprehensive    Shareholders'
                                         ---------------------------
                                            Shares          Amount       Compensation    Earnings     Income (Loss)      Equity
                                         ------------    -----------     ------------  ------------  ---------------  -------------
<S>                                      <C>             <C>             <C>           <C>           <C>              <C>
BALANCE AT JUNE 30, 1996                 3,744,000       $36,451,561     $  (421,952)  $ 30,781,853  $        (76)    $  66,811,386

Comprehensive income:
 Net income                                      -                 -               -      3,908,653             -         3,908,653
 Change in net unrealized gain (loss)
 on securities available for sale, net
 of reclassification adjustment and
 income taxes of $144,979                        -                 -               -              -       281,434           281,434
                                                                                                                      -------------
     Total comprehensive income                                                                                           4,190,087
                                                                                                                      -------------

Proceeds from exercise of stock options     11,685            65,019               -              -             -            65,019

Earned ESOP compensation                         -           115,925         128,450              -             -           244,375

Stock repurchase                           (76,500)       (1,395,532)              -              -             -        (1,395,532)

Cash dividends declared ($.74 per share)         -                 -               -     (2,720,403)            -        (2,720,403)
                                         ---------       -----------    ------------    -----------  ------------     -------------

BALANCE AT JUNE 30, 1997                 3,679,185        35,236,973        (293,502)    31,970,103       281,358        67,194,932

Comprehensive income:
 Net income                                      -                 -               -      5,258,467             -         5,258,467
 Change in net unrealized gain (loss)
 on securities available for sale, net
 of reclassification adjustment and
 income taxes of $48,178                         -                 -               -              -        93,522            93,522
                                                                                                                      -------------
     Total comprehensive income                                                                                           5,351,989
                                                                                                                      -------------

Proceeds from exercise of stock options     31,635           120,424               -              -             -           120,424

Earned ESOP compensation                         -           179,402         135,200              -             -           314,602

Cash dividends declared ($.94 per share)         -                 -               -     (3,460,742)            -        (3,460,742)
                                         ---------       -----------    ------------    -----------  ------------     -------------

BALANCE AT JUNE 30, 1998                 3,710,820        35,536,799        (158,302)    33,767,828       374,880        69,521,205

Comprehensive income:
 Net income                                      -                 -               -      5,160,975             -         5,160,975
 Change in net unrealized gain (loss)
 on securities available for sale,
 net of reclassification adjustment
 and income taxes of $388,471                    -                 -               -              -      (754,090)         (754,090)
                                                                                                                      -------------
     Total comprehensive income                                                                                           4,406,885
                                                                                                                      -------------

Proceeds from exercise of stock options    104,343           425,684               -              -             -           425,684

Earned ESOP compensation                         -           170,308         142,450              -             -           312,758

Stock repurchase                          (311,400)       (3,114,455)              -     (3,669,936)            -        (6,784,391)

Cash dividends declared ($1.01 per share)        -                 -               -     (3,654,369)            -        (3,654,369)
                                         ---------       -----------    ------------    -----------  ------------     -------------

BALANCE AT JUNE 30, 1999                 3,503,763       $33,018,336    $   (15,852)    $31,604,498  $   (379,210)    $  64,227,772
                                         =========       ===========    ===========     ===========  ============     =============
</TABLE>

See notes to consolidated financial statements.

--------------------------------------20----------------------------------------
<PAGE>

----------------------------CONSOLIDATED STATEMENTS-----------------------------
                                 OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           Years Ended June 30,
                                                            ----------------------------------------------------
                                                                1999               1998               1997
                                                            -------------    -----------------     -------------
<S>                                                         <C>              <C>                   <C>
OPERATING ACTIVITIES:
 Net income                                                 $   5,160,975    $     5,258,467       $   3,908,653
 Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation of premises and equipment                          122,090             97,115             94,055
  Release of ESOP shares                                          312,758            314,602            244,375
  Net amortization on investments                                 172,849            125,638            512,067
  Deferred income taxes                                           (21,000)            12,000             (7,000)
  Loan origination fees and costs deferred, net of
   current amortization                                           (49,077)            (8,381)            46,139
  Gain on sale of real estate                                           -            (21,065)            (8,531)
  Gain on sale of premises and equipment                                -             (7,045)                 -
 Changes in:
  Accrued interest receivable                                      19,070             87,660           (214,430)
  Prepaid expenses and other assets                                 9,413              9,375            (81,231)
  Accrued interest payable on deposits                             17,436             37,967             (9,554)
  Accrued expenses and other liabilities                           70,966             95,708            194,613
  Taxes payable                                                   (11,422)          (333,516)           242,040
                                                            -------------    ---------------       ------------

       Net cash provided by operating activities                5,804,058          5,668,525          4,921,196
                                                            -------------    ---------------       ------------

INVESTING ACTIVITIES:
 Proceeds from maturities of certificates of deposit                    -                  -          7,000,000
 Purchases of certificates of deposit                                   -                  -         (7,000,000)
 Purchases of:
  Available for sale investment securities                    (37,380,000)       (24,050,075)       (31,251,432)
  Held to maturity investment securities                      (30,001,190)        (4,801,336)                 -
 Proceeds from maturities and calls of:
  Available for sale investment securities                     54,000,800         31,500,000         11,700,000
  Held to maturity investment securities                        2,981,240          1,727,505          1,670,878
 Proceeds from sale of real estate                                      -            188,073            102,000
 Proceeds from sale of premises and equipment                           -             13,011                  -
 Loan originations, net of repayments and net fees               (534,377)       (15,848,471)       (14,940,293)
 Purchases of premises and equipment                             (526,324)           (71,318)           (43,014)
 Improvement costs on real estate                                       -            (36,378)            (6,196)
                                                            -------------    ---------------       ------------

       Net cash used in investing activities                  (11,459,851)       (11,378,989)       (32,768,057)
                                                            -------------    ---------------       ------------
</TABLE>

See notes to consolidated financial statements.

--------------------------------------21----------------------------------------
<PAGE>

----------------------------CONSOLIDATED STATEMENTS-----------------------------
                                 OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Years Ended June 30,
                                                               --------------------------------------------
                                                                   1999             1998           1997
                                                               ------------     ------------   ------------
<S>                                                            <C>              <C>            <C>
FINANCING ACTIVITIES:
  Net increase in deposits                                     $14,726,078      $ 7,608,158    $16,892,550
  Increase (decrease) in advances from borrowers
   for taxes and insurance                                         (12,666)         (11,549)        17,210
  Net increase in borrowed funds                                         -                -     19,578,048
  Net proceeds from exercise of stock options                      425,684          120,424         65,019
  Repurchases of common stock                                   (6,784,391)               -     (1,395,532)
  Cash dividends paid                                           (3,677,529)      (3,292,480)    (2,926,437)
                                                               -----------      -----------    -----------

               Net cash provided by financing activities         4,677,176        4,424,553     32,230,858
                                                               -----------      -----------    -----------

INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                             (978,617)      (1,285,911)     4,383,997

CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                                               7,816,308        9,102,219      4,718,222
                                                               -----------      -----------    -----------

CASH AND CASH EQUIVALENTS,
 END OF YEAR                                                   $ 6,837,691      $ 7,816,308    $ 9,102,219
                                                               ===========      ===========    ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION
  Cash paid for:
     Interest on deposits                                      $ 9,824,407      $ 9,927,389    $ 9,505,683
     Interest on borrowed funds                                    373,860        1,145,718        208,888
     Income taxes                                                3,008,099        2,685,000      1,963,036

SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES
  Loans receivable transferred to foreclosed real estate       $         -      $         -    $    87,273

  Unrealized gain (loss) on investment securities available
   for sale, net of deferred income taxes                         (754,090)          93,522        281,434

  Declared but unpaid dividends                                    910,978          927,705        740,137
</TABLE>

See notes to consolidated financial statements.

--------------------------------------22----------------------------------------
<PAGE>

------------------------------NOTES TO CONSOLIDATED-----------------------------
                               FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION AND ACCOUNTING POLICIES

    Basis of Presentation - The accompanying consolidated financial statements
    include the accounts of First Savings Bancorp, Inc. and its wholly-owned
    subsidiary, First Savings Bank of Moore County, Inc., SSB (the "Bank"),
    together referred to as "First Savings." All significant intercompany
    balances and transactions have been eliminated in consolidation.

    Significant Accounting Policies - The significant accounting policies of
    First Savings are summarized below:

    a. Cash and Cash Equivalents - For the purpose of presentation in the
       consolidated statements of cash flows, cash and cash equivalents are
       defined as those amounts included in the statement of financial condition
       captions "cash and due from banks" and "interest earning deposits with
       banks."

    b. Investments in Securities - First Savings' investments in securities are
       classified in two categories and accounted for as follows:

       .  Securities to be Held to Maturity - Bonds, notes and debentures for
          which First Savings has the positive intent and ability to hold to
          maturity are reported at cost, adjusted for premiums and discounts
          that are recognized in interest income using the interest method over
          the period to maturity.

       .  Securities Available for Sale - Securities available for sale are
          carried at fair value and consist of bonds, notes, debentures, and
          certain equity securities not classified as trading securities or as
          securities to be held to maturity.

       Declines in the fair value of individual held-to-maturity and available-
       for-sale securities below their cost that are considered to be other than
       temporary would result in write-downs of the individual securities to
       their fair value. The related write-downs would be included in earnings
       as realized losses.

       Unrealized holding gains and losses, net of tax, on securities available
       for sale are reported in other comprehensive income.

       Gains and losses on the sale of securities available for sale are
       determined using the specific-identification method.

    c. Loans Receivable - Loans receivable that management has the intent and
       ability to hold for the foreseeable future or until maturity or payoff
       are reported at their outstanding principal balances, less the allowance
       for loan losses and net deferred loan-origination fees and discounts.

       Interest on loans is recorded as borrowers' monthly payments become due.
       Accrual of interest on past due loans is discontinued after 90 days.

       The Bank defers loan origination fees net of certain direct loan
       origination costs. Such net fees and costs are recognized as an
       adjustment to yield over the lives of the related loans.

       The allowance for loan losses is established through a provision for loan
       losses charged to operations. Loans are charged off against the allowance
       when management believes that collectibility is unlikely. The allowance
       is an amount that management believes will be adequate to absorb losses
       on existing loans that may become uncollectible based on evaluations of
       the collectibility of loans and prior loan loss experience. The
       evaluations take into account such factors as changes in the nature and
       volume of the loan portfolio, overall portfolio quality, review of
       specific problem loans and current economic conditions that may affect
       the borrowers' ability to pay. While management uses the best information
       available to make evaluations, future adjustments may be necessary if
       economic or other conditions differ substantially from the assumptions
       used.

--------------------------------------23----------------------------------------
<PAGE>

------------------------------NOTES TO CONSOLIDATED-----------------------------
                               FINANCIAL STATEMENTS

       Effective July 1, 1995, the Bank follows Statement of Financial
       Accounting Standards (SFAS) No. 114, Accounting by Creditors for
       Impairment of a Loan ("SFAS 114"), and Statement of Financial Accounting
       Standards No. 118, Accounting by Creditors for Impairment of a Loan -
       Income Recognition and Disclosures ("SFAS 118"). SFAS 114 requires that
       the carrying value of an impaired loan be based on the present value of
       expected future cash flows discounted at the loan's effective interest
       rate or, as a practical expedient, at the loan's observable market price
       or the fair value of the collateral, if the loan is collateral dependent.
       Under SFAS 114, a loan is considered impaired when, based on current
       information, it is probable that the borrower will be unable to pay
       contractual interest or principal payments as scheduled in the loan
       agreement. SFAS 114 applies to all loans except one-to-four family
       residential mortgage loans and small balance homogeneous consumer loans
       that are collectively evaluated for impairment. The Bank does not
       currently have any loans which are considered to be impaired.

    d. Foreclosed Real Estate - Foreclosed real estate is recorded initially at
       the lower of the loan balance plus unpaid accrued interest or the
       estimated fair value of the property at the date of foreclosure, and
       subsequently reduced by additional allowances which are charged to
       earnings if the estimated fair value of the property declines below its
       initial value. Costs related to the improvement of the property are
       capitalized, whereas those related to holding the property are expensed.
       Such properties are held for sale and, accordingly, no depreciation or
       amortization expense is recognized.

    e. Premises and Equipment - Premises and equipment are stated at cost.
       Depreciation is computed by the straight-line method over the estimated
       useful lives of the various classes of assets. The cost of leasehold
       improvements is amortized by the straight-line method over the lesser of
       the lives of the improvements or the terms of the lease. Estimated useful
       lives are as follows:

                Office buildings and improvements    8 to 50 years
                Furniture, fixtures and equipment    3 to 10 years
                Motor vehicles                             4 years

    f. Investment in Federal Home Loan Bank Stock - As a requirement for
       membership, the Bank invests in stock of the Federal Home Loan Bank of
       Atlanta ("FHLB"). This investment is carried at cost.

    g. Deferred Income Taxes - Deferred income taxes (benefits) are provided on
       temporary differences between the financial statement carrying values and
       the tax bases of assets and liabilities.

    h. Insurance of Accounts - Eligible savings accounts are insured up to
       $100,000 by the Savings Association Insurance Fund ("SAIF"), which is
       administered by the Federal Deposit Insurance Corporation ("FDIC").

    i. Earnings Per Common Share - Basic earnings per share represent income
       available to common shareholders divided by the weighted-average number
       of common shares outstanding during the period. Diluted earnings per
       share reflect additional common shares that would have been outstanding
       if dilutive potential common shares had been issued, as well as any
       adjustment to income that would have resulted from the assumed issuance.
       Potential common shares that may be issued by First Savings relate solely
       to outstanding stock options and are determined using the treasury stock
       method.

       Earnings per common share have been computed based on the following:

<TABLE>
<CAPTION>
                                                                                Years ended June 30,
                                                                         ----------------------------------
                                                                            1999        1998        1997
                                                                         ----------  ----------  ----------
          <S>                                                            <C>         <C>         <C>
          Average number of common shares outstanding used to
           calculate basic earnings per common share                      3,641,708   3,698,197   3,706,704

          Effect of dilutive options                                        273,499     323,757     263,602
                                                                         ----------  ----------  ----------

          Average number of common shares outstanding
           used to calculate diluted earnings per common
           share                                                          3,915,207   4,021,954   3,970,306
                                                                         ==========  ==========  ==========
</TABLE>

--------------------------------------24----------------------------------------
<PAGE>

------------------------------NOTES TO CONSOLIDATED-----------------------------
                               FINANCIAL STATEMENTS

    j. Stock Compensation Plans - Statement of Financial Accounting Standards
       (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all
       entities to adopt a fair value based method of accounting for employee
       stock compensation plans, whereby compensation cost is measured at the
       grant date based on the value of the award and is recognized over the
       service period, which is usually the vesting period. However, it also
       allows an entity to continue to measure compensation cost for those plans
       using the intrinsic value based method of accounting prescribed by
       Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
       to Employees, whereby compensation cost is the excess, if any, of the
       quoted market price of the stock at the grant date (or other measurement
       date) over the amount an employee must pay to acquire the stock. Stock
       options issued under the Company's stock option plan have no intrinsic
       value at the grant date, and, under Opinion No. 25, no compensation cost
       is recognized for them. The Company has elected to continue with the
       accounting methodology in Opinion No. 25 and, as a result, has provided
       pro forma disclosures of net income and earnings per share and other
       disclosures, as if the fair value based method of accounting had been
       applied. The pro forma disclosures include the effects of all awards
       granted on or after January 1, 1995.

    k. Cash Dividends - On June 11, 1999, First Savings declared a $0.26 per
       share cash dividend to shareholders of record on June 30, 1999, payable
       on July 22, 1999.

    l. 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 amounts 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.

       Material estimates that are particularly sensitive to significant change
       relate to the determination of the allowance for losses on loans and the
       valuation of real estate acquired in connection with foreclosures or in
       satisfaction of loans. In connection with the determination of the
       allowances for losses on loans and foreclosed real estate, management
       obtains independent appraisals for significant properties.

       A majority of the Bank's loan portfolio consists of single-family
       residential loans in its market area. The regional economy is currently
       stable and consists of various types of industry. Real estate prices in
       this market are also stable; however, the ultimate collectibility of a
       substantial portion of the Bank's loan portfolio is susceptible to
       changes in local market conditions.

       While management uses available information to recognize losses on loans
       and foreclosed real estate, future additions to the allowances may be
       necessary based on changes in local economic conditions. In addition,
       regulatory agencies, as an integral part of their examination process,
       periodically review the Bank's allowances for losses on loans and
       foreclosed real estate. Such agencies may require the Bank to recognize
       additions to the allowances based on their judgments about information
       available to them at the time of their examination. Because of these
       factors, it is reasonably possible that the allowances for losses on
       loans and foreclosed real estate may change materially in the near term.

    m. Reclassifications - Certain consolidated financial statement amounts for
       1998 and 1997 have been reclassified to conform to the 1999 presentation.

    n. Comprehensive Income - First Savings adopted SFAS No. 130, Reporting
       Comprehensive Income, as of July 1, 1998 and has reclassified its
       consolidated financial statements for the years ended June 30, 1998 and
       1997 to reflect its provisions. Accounting principles generally require
       that recognized revenue, expenses, gains and losses be included in net
       income. Although certain changes in assets and liabilities, such as
       unrealized gains and losses on available-for-sale securities, are
       reported as a separate component of the equity section of the statement
       of financial condition, such items, along with net income, are components
       of comprehensive income. The Adoption of SFAS No. 130 had no effect on
       First Savings' net income or shareholders' equity.

--------------------------------------25----------------------------------------
<PAGE>

------------------------------NOTES TO CONSOLIDATED-----------------------------
                               FINANCIAL STATEMENTS

    o. Recent Accounting Pronouncements

       FASB Statement on Accounting for Derivative Instruments and Hedging
       Activities. In June 1998, the FASB issued Statement No. 133, Accounting
       for Derivative Instruments and Hedging Activities. In June 1999, this
       Statement was amended by SFAS No. 137 to defer the effective date to
       fiscal years beginning after June 15, 2000. This Statement establishes
       accounting and reporting standards for derivative instruments and hedging
       activities, including certain derivative instruments embedded in other
       contracts, and requires that an entity recognize all derivatives as
       assets or liabilities in the statement of financial condition and measure
       them at fair value. If certain conditions are met, an entity may elect to
       designate a derivative as follows: (a) a hedge of exposure to changes in
       the fair value of a recognized asset or liability or an unrecognized firm
       commitment, (b) a hedge of the exposure to variable cash flows of a
       forecasted transaction, or (c) a hedge of the foreign currency exposure
       of an unrecognized firm commitment, an available-for-sale security, a
       foreign currency denominated forecasted transaction, or a net investment
       in a foreign operation. The Statement generally provides for matching the
       timing of the recognition of the gain or loss on derivatives designated
       as hedging instruments with the recognition of the changes in the fair
       value of the item being hedged. Depending on the type of hedge, such
       recognition will be in either net income or other comprehensive income.
       For a derivative not designated as a hedging instrument, changes in fair
       value will be recognized in net income in the period of change.
       Management anticipates that the statement will have no effect on First
       Savings' consolidated financial statements.

2.  SECURITIES

    The carrying amounts and fair values of First Savings' securities at June 30
    are summarized as follows:

<TABLE>
<CAPTION>
                                                              Gross       Gross
                                                Amortized   Unrealized  Unrealized     Fair
                                                  Cost        Gains       Losses       Value
                                               -----------  ----------  ----------  -----------
    <S>                                        <C>          <C>         <C>         <C>
    Available for sale:
     June 30, 1999:
      U.S. government and agency securities    $54,035,552    $183,070    $781,892  $53,436,730
      N.C. state and municipal obligations       1,334,862      25,368       1,106    1,359,124
      The Bankers Bank stock                        50,074           -           -       50,074
                                               -----------    --------    --------  -----------
          Total                                $55,420,488    $208,438    $782,998  $54,845,928
                                               ===========    ========    ========  ===========
    To be held to maturity:
     June 30, 1999:
      Mortgage-backed securities               $23,692,823    $207,562    $746,377  $23,154,008
      U.S. Government and agency securities     13,014,964           -      14,964   13,000,000
                                               -----------    --------    --------  -----------

          Total                                $36,707,787    $207,562    $761,341  $36,154,008
                                               ===========    ========    ========  ===========

    Available for sale:
     June 30, 1998:
      U.S. government and agency securities    $71,163,888    $556,735    $ 25,243  $71,695,380
      N.C. state and municipal obligations         950,000      36,508           -      986,508
      The Bankers Bank stock                        50,074           -           -       50,074
                                               -----------    --------    --------  -----------
          Total                                $72,163,962    $593,243    $ 25,243  $72,731,962
                                               ===========    ========    ========  ===========
    To be held to maturity:
     June 30, 1998:
         Mortgage-backed securities            $ 9,737,212    $ 95,709    $ 11,461  $ 9,821,460
                                               ===========    ========    ========  ===========
 </TABLE>

--------------------------------------26----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

    The scheduled maturities of securities at June 30, 1999 are summarized as
    follows:

<TABLE>
<CAPTION>
                                                     Securities             Securities to be
                                                 Available for Sale         Held to Maturity
                                              ------------------------  ------------------------
                                               Amortized      Fair       Amortized      Fair
                                                 Cost         Value        Cost         Value
                                              -----------  -----------  -----------  -----------
    <S>                                       <C>          <C>          <C>          <C>
    Due in one year or less                   $ 9,615,813  $ 9,679,359  $         -  $         -
    Due after one year through five years      32,291,447   32,004,327            -            -
    Due after five years through ten years     13,513,228   13,162,242   13,014,964   13,000,000
    Mortgage-backed securities                          -            -   23,692,823   23,154,008
                                              -----------  -----------  -----------  -----------

    Total                                     $55,420,488  $54,845,928  $36,707,787  $36,154,008
                                              ===========  ===========  ===========  ===========
</TABLE>

    Expected maturities of mortgage-backed securities will differ from
    contractual maturities because borrowers may have the right to call or
    prepay obligations with or without call or prepayment penalties.

    Available for sale securities with carrying and fair values of $740,072 and
    $755,008 at June 30, 1999 and 1998, respectively, were pledged to secure
    public monies on deposit as required by law.


3.  LOANS RECEIVABLE

    The loan portfolio at June 30 consists of the various types of loans made
    principally to borrowers located in Moore County, North Carolina, and are
    classified by major type as follows:

<TABLE>
<CAPTION>
                                                    1999          1998
                                                ------------  ------------
         <S>                                    <C>           <C>
         Mortgage loans:
          First mortgage loans                  $199,998,508  $201,000,679
          First mortgage loan participations       1,361,174     2,043,873
          Equity line loans                       12,549,121     8,969,553
                                                ------------  ------------
                                                 213,908,803   212,014,105
         Less:
          Loans in process                         7,825,845     5,630,585
          Net deferred loan fees                     497,690       546,767
                                                ------------  ------------

         Total mortgage loans                    205,585,268   205,836,753

         Savings account loans                       900,569       899,699
         Installment loans                         1,606,327       797,138
         Credit card loans                         1,181,566     1,156,686
                                                ------------  ------------

         Total mortgage and other loans          209,273,730   208,690,276

         Less allowance for loan losses              595,815       595,815
                                                ------------  ------------

         Loans receivable, net                  $208,677,915  $208,094,461
                                                ============  ============
</TABLE>

--------------------------------------27----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

    At June 30, 1999, the Bank had mortgage loan commitments of approximately
    $6,904,000 and pre-approved but unused lines of credit totaling $21,168,000.
    In management's opinion, these commitments, and undisbursed proceeds on
    construction loans in process above, represent no more than normal lending
    risk to the Bank and will be funded from normal sources of liquidity.

    At June 30, 1999, the composition of loans by fixed and adjustable rates was
    as follows:

<TABLE>
<CAPTION>
                             Fixed Rate                             Adjustable Rate
                -----------------------------------         -------------------------------
                    Term to            Book Value               Term to        Book Value
                    Maturity         (in thousands)           Adjustment     (in thousands)
                ---------------      --------------         ---------------  --------------
                <S>                  <C>                    <C>              <C>
                1 mo. - 1 yr.              $ 1,438           1 mo. - 1 yr.        $ 44,768
                1 yr. - 3 yr.                1,261           1 yr. - 3 yr.          55,633
                3 yr. - 5 yr.                3,151           3 yr. - 5 yr.          24,643
                5 yr. - 10 yr.              12,917          5 yr. - 10 yr.          46,965
                10 yr. and over             15,713          10 yr. and over          2,785
                                           -------                                --------

                Total                      $34,480               Total            $174,794
                                           =======                                ========
</TABLE>

    The adjustable rate mortgage loans have interest rate adjustment limitations
    and are generally indexed to the weekly average yield on United States
    Treasury securities adjusted to a constant maturity one-year, three-year, or
    five-year as made available by the Federal Reserve Board.  Future market
    factors may affect the correlation of the interest rate adjustment with the
    rates the Bank pays on the short-term deposits that primarily have been
    utilized to fund these loans.

    The Bank, through its normal lending activity, originates and maintains
    loans which are substantially concentrated in Moore County, North Carolina.

    At June 30, 1999 and 1998, loans to directors and officers were
    approximately $776,000 and $801,000, respectively. Such loans are made on
    the same terms as those offered to other customers.

    The Bank's lending policy calls for collateral or other forms of repayment
    assurance to be received from the borrower at the time of loan origination.
    Such collateral or other form of repayment assurance is subject to changes
    in economic value due to various factors beyond the control of the Bank and
    such changes could be significant.

    The Bank is subject to numerous lending-related regulations.  For example,
    the Bank may not make real estate loans to one borrower in excess of 15% of
    its unimpaired capital and surplus. This 15% limitation results in a dollar
    limitation of approximately $9,634,000 at June 30, 1999.  The Bank was in
    compliance with the limitation as of June 30, 1999.

    Changes in the allowance for loan losses for the years ended June 30 are
    summarized as follows:

<TABLE>
<CAPTION>
                                           1999      1998       1997
                                         --------  ---------  ---------
         <S>                             <C>       <C>        <C>
         Balance at beginning of year    $595,815  $604,187   $608,739
         Provision for loan losses              -         -          -
         Charge-offs                            -    (8,372)    (4,552)
         Recoveries                             -         -          -
                                         --------  --------   --------

         Balance at end of year          $595,815  $595,815   $604,187
                                         ========  ========   ========
</TABLE>

    In conformity with SFAS 114, as amended by SFAS 118, none of the Bank's
    loans are considered to be impaired.

--------------------------------------28----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

4.  ACCRUED INTEREST RECEIVABLE

    Accrued interest receivable at June 30 is summarized as follows:

<TABLE>
<CAPTION>
                                                 1999        1998
                                              ----------  ----------
         <S>                                  <C>         <C>
         Loans receivable                     $  572,240  $  410,978
         Mortgage-backed securities              165,633      76,316
         Securities                              955,796   1,225,434
         Other                                    36,070      36,081
                                              ----------  ----------

         Total                                $1,729,739  $1,748,809
                                              ==========  ==========
</TABLE>

5.  PREMISES AND EQUIPMENT

    Premises and equipment at June 30, which are stated at cost, are summarized
    as follows:

<TABLE>
<CAPTION>
                                                 1999        1998
                                              ----------  ----------
         <S>                                  <C>         <C>
         Land                                 $  379,306  $  379,306
         Office buildings and improvements     2,325,201   2,269,486
         Furniture, fixtures and equipment     1,106,063     660,643
         Motor vehicles                           63,045      37,856
                                              ----------  ----------

         Total                                 3,873,615   3,347,291

         Less allowance for depreciation       1,533,454   1,411,364
                                              ----------  ----------

         Premises and equipment, net          $2,340,161  $1,935,927
                                              ==========  ==========
</TABLE>

6.  DEPOSITS

    Deposits at June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                  1999          1998
                                              ------------  ------------
<S>                                           <C>           <C>

         NOW accounts                         $ 26,472,319  $ 23,429,916
         Money market deposits                  50,435,217    42,567,590
         Passbook savings                       14,754,727    14,035,680
         Certificates of deposit               134,988,747   131,891,746
                                              ------------  ------------

         Total                                $226,651,010  $211,924,932
                                              ============  ============
</TABLE>

    The aggregate amounts of certificates of deposit with a minimum denomination
    of $100,000 were approximately $31,168,000 and $28,915,000 at June 30, 1999
    and 1998, respectively.

--------------------------------------29----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

     At June 30, 1999, $88.1 million of the total certificates of deposit are
     scheduled to mature in one year or less, $41.0 million are scheduled to
     mature in more than one year to three years, and $5.9 million are scheduled
     to mature in more than three years to five years.

     The scheduled maturities of certificates of deposit with balances of
     $100,000 or more at June 30, 1999 are as follows:

                                                          Total
                                                      --------------
                                                      (In thousands)

              Three months or less                    $       7,623
              Over three months through six months            4,008
              Over six  months through 12 months              9,516
              Over 12 months                                 10,021
                                                      -------------
              Total certificate accounts              $      31,168
                                                      =============

     Included in deposits are non-interest-bearing balances totaling $3,734,861
     and $4,028,120 as of June 30, 1999 and 1998, respectively.


7.   BORROWED FUNDS

     Borrowed funds at June 30, 1999 and 1998 consist of advances from the
     Federal Home Loan Bank (FHLB). These advances, with weighted average rates,
     are as follows:

              6.00% no contractual maturity           $  5,000,000
              5.01% due on or before April 22, 2004      5,000,000
              4.92% due on or before May 14, 2004        5,000,000
              5.26% due on or before April 21, 2009      5,000,000
                                                      ------------
               Total                                  $ 20,000,000
                                                      ============

     The above advances have been made against a $62.0 million line of credit
     secured by a blanket floating lien on the Bank's one-to-four family
     residential mortgage loans.


8.   INTEREST RATE RISK

     First Savings is engaged principally in providing first mortgage loans to
     individuals and commercial enterprises. At June 30, 1999, First Savings'
     interest-earning assets consisted of assets that earn interest at both
     fixed and adjustable rates. Those assets were funded primarily with short-
     term liabilities that have interest rates that vary with market rates over
     time.

     At June 30, 1999, First Savings had interest-earning assets of $305,840,974
     having a weighted-average effective yield of 7.26% and interest-bearing
     liabilities of $242,916,149 having a weighted-average effective interest
     rate of 4.37%.


9.   SPECIAL SAIF ASSESSMENT

     On September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed
     into law. The legislation included a special assessment to recapitalize the
     SAIF insurance fund up to its statutory goal of 1.25% of insured funds. The
     assessment required the Bank to pay an amount equal to 65.7 basis points of
     its SAIF-assessable deposit base as of March 31, 1995, which resulted in a
     charge to income during the year ended June 30, 1997 of $1.2 million.


10.  INCOME TAXES

     First Savings uses the asset and liability method to account for income
     taxes. Under the asset and liability method, deferred income taxes are
     recognized for the tax consequences of "temporary differences," by applying
     enacted statutory tax rates applicable to future years to differences
     between the financial statement carrying amounts and the tax bases of
     existing assets and liabilities.

--------------------------------------30----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

     The components of income tax expense for the years ended June 30 are
     summarized as follows:

                                      1999         1998        1997
                                   ----------   ----------  ----------

         Current tax provision     $3,006,000   $3,048,000  $2,162,000
         Deferred tax provision       (21,000)      12,000      (7,000)
                                   ----------   ----------  ----------

         Total                     $2,985,000   $3,060,000  $2,155,000
                                   ==========   ==========  ==========

     A reconciliation of income taxes computed for the years ended June 30 at
     the statutory federal income tax rate (34%) to the provision for income
     taxes is as follows:

<TABLE>
<CAPTION>
                                                             1999         1998         1997
                                                          ----------   ----------   ----------
<S>                                                       <C>          <C>          <C>
         Income taxes at the statutory federal rate       $2,769,631   $2,828,279   $2,061,642
         Increases (decreases) resulting from:
           Tax exempt interest - net                         (17,836)     (15,036)     (10,833)
           State income taxes - net of federal benefit       217,306      235,702      101,319
         Other, net                                           15,899       11,055        2,872
                                                          ----------   ----------   ----------

         Income tax expense                               $2,985,000   $3,060,000   $2,155,000
                                                          ==========   ==========   ==========
</TABLE>

     Deferred taxes arising from each type of temporary difference at June 30
     are summarized as follows:

<TABLE>
<CAPTION>
                                                                        1999         1998
                                                                     ----------   ----------
<S>                                                                  <C>          <C>
         Deferred tax assets:
           Loan fees and costs                                       $  193,029   $  213,870
           Unrealized loss on securities available-for-sale             195,350            -
                                                                     ----------   ----------
                                                                        388,379      213,870
                                                                     ----------   ----------

         Deferred tax liabilities:
          Federal Home Loan Bank stock dividends                        329,029      329,029
          Depreciation                                                  188,516      230,357
          Bad debt reserve                                              289,980      289,980
          Unrealized gain on securities available for sale                    -      193,120
                                                                     ----------   ----------

         Total                                                          807,525    1,042,486
                                                                     ----------   ----------

         Net deferred tax liability                                  $  419,146   $  828,616
                                                                     ==========   ==========
</TABLE>

     Retained earnings at June 30, 1999 includes approximately $5,300,000 for
     which no deferred income tax liability has been recognized. This amount
     represents an allocation of income to bad debt deductions for income tax
     purposes only. Reductions of the amount so allocated for purposes other
     than tax bad debt losses or adjustments arising from carryback of net
     operating losses would create income for tax purposes only, which would be
     subject to the then current corporate income tax rate.

     During 1996, Congress enacted certain tax legislation that exempted thrift
     institutions from being taxed on these pre-1987 bad debt reserves. The Bank
     is recapturing, over a six-year period, $1,300,000 of its tax bad debt
     reserve created subsequent to 1986 by using the percentage of taxable
     income method, requiring payment of additional income taxes of
     approximately $500,000. Deferred income taxes have been previously provided
     for the taxes arising from the reserve recapture, and thus the ultimate
     payment of the taxes will not result in a charge to earnings.

--------------------------------------31----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

11.  REGULATORY RESTRICTIONS

     Federal banking regulations require that bank holding companies and their
     bank subsidiaries meet various regulatory capital requirements administered
     by the federal banking 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 First Savings' financial statements. Under
     capital adequacy guidelines and the regulatory framework for prompt
     corrective action, First Savings must meet specific capital guidelines that
     involve quantitative measures of First Savings' assets, liabilities, and
     certain off-balance sheet items as calculated under regulatory accounting
     practices. First Savings' capital amounts and classification are also
     subject to qualitative judgments by the regulators about components, risk
     weightings, and other factors.

     Quantitative measures established by regulation to ensure capital adequacy
     require First Savings to maintain minimum amounts and ratios of total and
     Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average
     assets.

     As of December 31, 1997, the most recent notification from the FDIC
     categorized the Bank as well capitalized under the regulatory framework for
     prompt corrective action. To be categorized as well capitalized, the Bank
     must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
     leverage ratios as set forth in the following table. There are no
     conditions or events since that notification that management believes have
     changed the category.

     Regulatory capital amounts and ratios for First Savings and the Bank are
     presented in the table below:

<TABLE>
<CAPTION>
                                                                                                         To Be Well
                                                                                                      Capitalized Under
                                                                                  For Capital         Prompt Corrective
                                                            Actual             Adequacy Purposes      Action Provisions
                                                     --------------------    --------------------    --------------------
                                                        Amount     Ratio        Amount      Ratio       Amount     Ratio
                                                     ------------  ------    ------------   -----    -----------   ------
<S>                                                  <C>           <C>       <C>            <C>      <C>           <C>
     As of June 30, 1999:

      Total Capital (to Risk Weighted Assets):
       Consolidated                                  $ 65,202,797  41.73%    $ 12,501,360   >8.0%                    N/A
                                                                                            -
       First Savings Bank of Moore Co., Inc., SSB    $ 60,245,919  38.51%    $ 12,516,560   >8.0%    $15,645,700   >10.0%
                                                                                            -                      -

      Tier 1 Capital (to Risk Weighted Assets):
       Consolidated                                  $ 64,606,982  41.34%    $  6,250,680   >4.0%                    N/A
                                                                                            -
       First Savings Bank of Moore Co., Inc., SSB    $ 59,650,104  38.13%    $  6,258,280   >4.0%    $ 9,387,420   >6.0%
                                                                                            -                      -

      Tier 1 Capital (to Average Assets):
       Consolidated                                  $ 64,606,982  20.86%    $ 12,385,840   >4.0%                    N/A
                                                                                            -
       First Savings Bank of Moore Co., Inc., SSB    $ 59,650,104  19.04%    $ 12,350,040   >4.0%    $15,437,550   >5.0%
                                                                                            -                      -

     As of June 30, 1998:

      Total Capital (to Risk Weighted Assets):
       Consolidated                                  $ 69,742,140  48.67%    $ 11,464,080   >4.0%            N/A     N/A
                                                                                            -
       First Savings Bank of Moore Co., Inc., SSB    $ 54,933,352  38.34%    $ 11,461,920   >8.0%    $14,327,400   >10.0%
                                                                                            -                      -

      Tier 1 Capital (to Risk Weighted Assets):
       Consolidated                                  $ 69,146,325  48.25%    $  5,732,040   >4.0%            N/A     N/A
                                                                                            -
       First Savings Bank of Moore Co., Inc., SSB    $ 54,337,537  37.93%    $  5,730,960   >4.0%    $ 8,596,440   >6.0%
                                                                                            -                      -

      Tier 1 Capital (to Average Assets):
       Consolidated                                  $ 69,146,325  23.05%    $ 11,997,160   >4.0%            N/A     N/A
                                                                                             -
       First Savings Bank of Moore Co., Inc., SSB    $ 54,337,537  18.67%    $ 11,641,120   >4.0%    $14,551,400   >5.0%
                                                                                            -                      -
</TABLE>

     In addition to federal regulatory requirements, the Bank is subject to a
     North Carolina savings bank capital requirement of at least 5% of total
     assets. At June 30, 1999 and 1998, the Bank's capital ratio under the North
     Carolina requirement was 19.19% and 18.74%, respectively.

     At June 30, 1999 and 1998, First Savings and the Bank exceeded all capital
     requirements.

--------------------------------------32----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

     First Savings is also subject to limits on dividend payments. First Savings
     is prohibited, under the North Carolina Business Corporation Act, from
     paying a dividend if such payment would (i) cause First Savings to be
     unable to pay its debts as they become due in the ordinary course of
     business or (ii) reduce First Savings' total assets below the sum of First
     Savings' total liabilities plus any amounts which would be needed, if First
     Savings were to be dissolved at the time of distribution, to satisfy the
     preferential rights that are superior to holders of the Common Stock.

     Payment of dividends by the Bank subsidiary to the holding company is
     subject to various restrictions. Under applicable banking regulations, the
     Bank may not declare a cash dividend if the effect thereof would be to
     reduce its net worth to an amount less than the minimum required by federal
     and state banking regulations.

     During the year ended June 30, 1999, First Savings repurchased and retired
     311,400 shares of its common stock in accordance with a stock repurchase
     plan. At June 30, 1999, First Savings' Board has authorized the purchase of
     additional shares under the plan.


12.  COMPENSATION PLANS

     First Savings maintains an employee profit sharing plan covering all
     eligible employees. Contributions to the plan for the years ended June 30,
     1999, 1998 and 1997 were $121,987, $112,910, and $97,539, respectively.

     Upon the Bank's conversion to stock form, the First Savings Bank of Moore
     County, Inc., SSB Employee Stock Ownership Plan ("ESOP") became effective.
     As part of the conversion, the ESOP borrowed $648,000 and the Bank
     contributed $72,000 in order to purchase 72,000 shares at $10 per share of
     common stock issued in the conversion. The ESOP note payable is to be paid
     over a period not to exceed ten years, principally from the Bank's
     discretionary contributions to the ESOP. Dividends paid on shares held by
     the ESOP may also be used to reduce the note. ESOP expense of $312,758;
     $314,602, and $244,375, has been incurred during the years ended June 30,
     1999, 1998 and 1997, respectively, including $170,308, $179,402, and
     $115,925, respectively, which represents the difference between the fair
     market value of the shares which have been released or committed to be
     released to participants and the cost of these shares to the ESOP. These
     amounts have been credited to common stock and charged to compensation
     expense in accordance with the provisions of AICPA Statement of Position
     93-6.

     First Savings has an Employee Stock Option Plan ("Employee Plan") for
     officers and two Nonqualified Stock Option Plans for Directors (the
     "Directors Plans") for nonemployee directors. The options have an original
     term of ten years. The option exercise price is the market price of the
     common stock on the date the option is granted. During the year ended June
     30, 1994, 270,000 and 360,000 options were granted under the Employee Plan
     and one of the two Directors Plans, respectively, at an exercise price of
     $10 per share. No options were granted under either plan during the fiscal
     years ended June 30, 1995, 1996, 1997, or 1998. During the year ended June
     30, 1999, options for 10,000 shares were granted under both the second
     Directors Plan and second Employee Plan at an exercise price of $20.00 and
     $21.50, respectively. Under the plans, participants may exercise options by
     exchanging, at fair value, shares of common stock which they already own.
     At June 30, 1999, options for 70,000 shares of common stock were reserved
     for future issuance for the Employee Plan. As of June 30, 1999, options for
     124,614 common shares have been exercised under the Employee Plan and
     options for 99,050 common shares have been exercised under the Directors
     Plans.

--------------------------------------33----------------------------------------
<PAGE>

----------------------------NOTES TO CONSOLIDATED-------------------------------
                             FINANCIAL STATEMENTS


    First Savings applies APB Opinion 25 and related interpretations in
    accounting for the stock option plans.  Accordingly, no compensation cost
    has been recognized.  Had compensation cost for First Savings' stock option
    plans been determined based on the fair value at the grant dates for awards
    under the plans, consistent with the method prescribed by FASB Statement No.
    123, First Savings' net income and earnings per share for the year ended
    June 30, 1999 (the only year subsequent to July 1, 1995 in which options
    were granted) would have been adjusted to the pro forma amounts indicated
    below:

                                                               Year ended
                                                             June 30, 1999
                                                         ----------------------
                                                         (in thousands, except
                                                            per share data)
        Net Income
          As reported                                             $   5,161
          Pro forma                                                   5,091

       Net income per common share - basic
          As reported                                                  1.42
          Pro forma                                                    1.40

       Net income per common share - diluted
          As reported                                                  1.32
          Pro forma                                                    1.30


    The fair value of each option granted in the year ended June 30, 1999 is
    estimated on the date of the grant using the Black-Scholes option-pricing
    model with the following weighted-average assumptions:

       Dividend yield:            4.87%
       Expected life:          7 years
       Expected volatility:      21.00%
       Risk-free interest rate:   5.50%

    A summary of the status of the First Savings' stock option plan is presented
    below:

<TABLE>
<CAPTION>
                                                                        Year ended
                                                   ----------------------------------------------------
                                                      1999                1998                  1997
                                                   ----------          -----------            ---------
<S>                                                <C>         <C>     <C>          <C>       <C>        <C>
                                                              Weighted              Weighted             Weighted
                                                               Average               Average              Average
                                                              Exercise              Exercise             Exercise
                                                     Shares    Price     Shares      Price     Shares     Price
                                                   ----------  ------  -----------  --------  ---------  --------
       Options outstanding at beginning of year      568,286   $10.00     613,189     $10.00   630,000     $10.00

       Granted                                        20,000    20.75           -          -         -          -

       Exercised                                    (153,900)   10.00     (44,903)     10.00   (16,811)     10.00

       Forfeited                                           -        -           -          -         -          -
                                                   ---------           ----------             --------

       Options outstanding at end of year            434,386              568,286              613,189
                                                   =========           ==========             ========

       Options exercisable at year-end               356,586              478,686              487,389
                                                   =========           ==========             ========

       Weighted-average fair value of options
         granted during the year                      $20.75             $      -             $      -
                                                   =========           ==========             ========
</TABLE>

--------------------------------------34----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

13. LEASES

    Rentals under a long-term operating lease for First Savings' branch office
    building in Pinehurst totaled $10,200 for the year ended June 30, 1999 and
    $9,000 for each of the years ended June 30, 1998 and 1997.  The lease, which
    has a term of 15 years, contains an escalation provision for a $100 per
    month increase at the end of five and ten years.

    At June 30, 1999, the minimum rental commitments required under this
    noncancelable lease are as follows:

   Year Ending
        2000               $10,200
        2001                10,200
        2002                10,200
        2003                 7,650
                           -------

        Total              $38,250
                           =======

14. CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK

    The Bank generally originates single-family residential loans within its
    primary lending area of Moore County.  The Bank's underwriting policies
    require such loans to be made at no greater than 80% loan-to-value based
    upon appraised values unless private mortgage insurance is obtained.  These
    loans are secured by the underlying properties.

    The Bank is a party to financial instruments with off-balance sheet risk in
    the normal course of business to meet the financing needs of its customers.
    These financial instruments include commitments to fund loans, standby
    letters of credit and lines of credit.  Those instruments involve, to
    varying degrees, elements of credit and interest rate risk in excess of the
    amount recognized in the statements of financial condition.  The contract or
    notional amounts of those instruments reflect the extent of involvement the
    Bank has in particular classes of financial instruments.

    A summary of the approximate contract amount of the Bank's exposure to off-
    balance sheet risk as of June 30, 1999 is as follows:

         Financial instruments whose contract amounts represent credit risk:
          Commitments to extend credit, mortgage loans    $ 6,904,000
          Undisbursed construction loans                    7,826,000
          Undisbursed lines of credit                      21,168,000


15. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The following disclosure of the estimated fair value of financial
    instruments is made in accordance with the requirements of SFAS No. 107,
    Disclosures About Fair Value of Financial Instruments.  The estimated fair
    value amounts have been determined by First Savings using available market
    information and appropriate valuation methodologies.  However, considerable
    judgment is required to interpret market data to develop the estimates of
    fair value.  Accordingly, the estimates presented herein are not necessarily
    indicative of the amounts First Savings could realize in a current market
    exchange.  The use of different market assumptions and/or estimation
    methodologies may have a material effect on the estimated fair value
    amounts.

    The following methods and assumptions were used to estimate the fair value
    of each class of financial instruments for which it is practical to estimate
    that value.

    Cash and Due From Banks and Interest-Earning Deposits With Banks
    ----------------------------------------------------------------

    The carrying amounts for cash and due from banks and interest-earning
    deposits with banks approximate fair value because of the short maturities
    of those instruments.

--------------------------------------35----------------------------------------
<PAGE>

----------------------------NOTES TO CONSOLIDATED-------------------------------
                             FINANCIAL STATEMENTS


    Securities and Mortgage-Backed Securities
    -----------------------------------------

    For securities held as investments, fair value equals quoted market price,
    if available.  If a quoted market price is not available, fair value is
    estimated using quoted market prices for similar securities.

    Loans Receivable
    ----------------

    For mortgage loans receivable, fair value is estimated using the quoted
    market prices for securities backed by similar loans, adjusted for
    differences in loan characteristics.  The fair value of other types of loans
    is estimated by discounting the future cash flows using the current rates at
    which similar loans would be made to borrowers with similar credit ratings
    and for the same remaining maturities.

    Deposits
    --------

    The fair value of NOW accounts, savings accounts, and money market deposits
    is the amount payable on demand at the reporting date.  The fair value of
    fixed-maturity certificates of deposit is estimated using the rates
    currently offered for deposits of similar remaining maturities.

    Borrowed Funds
    --------------

    The fair value of borrowed funds is based upon the discounted value using
    current rates at which borrowings of similar maturity could be obtained.

    The estimated fair values of the Bank's financial instruments at June 30 are
    as follows:

<TABLE>
<CAPTION>
                                                1999                       1998
                                    --------------------------  --------------------------
                                      Carrying        Fair        Carrying        Fair
                                       Amount        Value         Amount        Value
                                    ------------  ------------  ------------  ------------
<S>                                 <C>           <C>           <C>           <C>
    Financial assets:
     Cash and due from banks and    $  6,837,691  $  6,837,691  $  7,816,308  $  7,816,308
      interest-earning deposits
     Securities                       93,482,515    92,928,736    84,398,774    84,483,022
     Loans receivable                208,677,915   211,666,054   208,094,461   209,610,186
                                    ------------  ------------  ------------  ------------
                                    $308,998,121  $311,432,481  $300,309,543  $301,909,516
                                    ============  ============  ============  ============

    Financial liabilities:
     Deposits                       $226,651,010  $225,486,925  $211,924,932  $210,824,998
     Borrowed funds                   20,000,000    20,226,033    20,000,000    19,975,856
                                    ------------  ------------  ------------  ------------

                                    $246,651,010  $245,712,958  $231,924,932  $230,800,854
                                    ============  ============  ============  ============
</TABLE>

    The fair value estimates presented herein are based on pertinent information
    available to management at June 30, 1999 and 1998, respectively.  Although
    management is not aware of any factors that would significantly affect the
    estimated fair value amounts, such amounts have not been significantly
    revalued for purposes of these financial statements since that date and,
    therefore, current estimates of fair value may differ significantly from the
    amounts presented herein.

--------------------------------------36----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Quarterly operating data for the years ended June 30 is summarized as
     follows:

<TABLE>
<CAPTION>
                                                 First       Second      Third       Fourth
                                                Quarter     Quarter     Quarter     Quarter
                                               ----------  ----------  ----------  ----------
                                                      (In thousands, except per share)
<S>                                            <C>         <C>         <C>         <C>
    1999
    Total interest and dividend income         $    5,579  $    5,407  $    5,256  $    5,523
    Total interest expense                          2,710       2,530       2,414       2,620
                                               ----------  ----------  ----------  ----------
    Net interest income                             2,869       2,877       2,842       2,903
    Provision for loan losses                           -           -           -           -
                                               ----------  ----------  ----------  ----------
    Net interest income after provision for
    loan losses                                     2,869       2,877       2,842       2,903
    Other expense, net                                823         801         847         874
                                               ----------  ----------  ----------  ----------
    Income before income taxes                      2,046       2,076       1,995       2,029
    Income tax expense                                752         763         734         736
                                               ----------  ----------  ----------  ----------
    Net income                                 $    1,294  $    1,313  $    1,261  $    1,293
                                               ==========  ==========  ==========  ==========

    Net income per common share
     Basic                                     $     0.35  $     0.35  $     0.35  $     0.37
     Diluted                                   $     0.32  $     0.33  $     0.33  $     0.34

    Average common shares outstanding
     Basic                                      3,718,420   3,711,147   3,613,559   3,530,212
     Diluted                                    4,018,718   3,998,413   3,879,896   3,749,911


    1998
    Total interest and dividend income         $    5,597  $    5,664  $    5,661  $    5,621
    Total interest expense                          2,793       2,817       2,752       2,721
                                               ----------  ----------  ----------  ----------
    Net interest income                             2,804       2,847       2,909       2,900
    Provision for loan losses                           -           -           -           -
                                               ----------  ----------  ----------  ----------
    Net interest income after provision for
    loan losses                                     2,804       2,847       2,909       2,900
    Other expense, net                                784         790         757         811
                                               ----------  ----------  ----------  ----------
    Income before income taxes                      2,020       2,057       2,152       2,089
    Income tax expense                                744         759         798         759
                                               ----------  ----------  ----------  ----------
    Net income                                 $    1,276  $    1,298  $    1,354  $    1,330
                                               ==========  ==========  ==========  ==========

    Net income per common share
     Basic                                     $     0.35  $     0.35  $     0.36  $     0.36
     Diluted                                   $     0.32  $     0.32  $     0.34  $     0.33

    Average common shares outstanding
     Basic                                      3,682,500   3,674,737   3,704,823   3,710,490
     Diluted                                    3,984,737   4,016,668   4,035,403   4,028,537
</TABLE>

--------------------------------------37----------------------------------------
<PAGE>

-----------------------------NOTES TO CONSOLIDATED------------------------------
                             FINANCIAL STATEMENTS

17.  PARENT COMPANY FINANCIAL INFORMATION

     Condensed financial information of First Savings Bancorp, Inc., the parent
     company, at June 30, 1999 and 1998 and for the years ended June 30, 1999
     and 1998 is presented below:

<TABLE>
<CAPTION>
                                                           1999         1998
                                                        -----------  -----------
         <S>                                            <C>          <C>

         Assets
          Cash and due from subsidiary                  $ 5,150,836  $ 3,841,153
          Securities at market value                              -   10,126,516
          Investment in subsidiary                       59,270,894   54,675,457
          Other assets                                      717,432    1,825,074
                                                        -----------  -----------

          Total assets                                  $65,139,162  $70,468,200
                                                        ===========  ===========

         Liabilities and Shareholders' Equity
          Accrued expenses and other liabilities        $   911,390  $   946,995
          Shareholders' equity                           64,227,772   69,521,205
                                                        -----------  -----------

          Total liabilities and shareholders' equity    $65,139,162  $70,468,200
                                                        ===========  ===========

         Condensed Statements of Income
          Interest on securities                        $   385,339  $   670,874
          Earnings of subsidiary                          4,999,808    4,934,659
                                                        -----------  -----------
                                                          5,385,147    5,605,533
          Other expenses                                    140,172      175,066
                                                        -----------  -----------
          Income before income tax                        5,244,975    5,430,467
          Income tax expense                                 84,000      172,000
                                                        -----------  -----------

          Net income                                    $ 5,160,975  $ 5,258,467
                                                        ===========  ===========
</TABLE>

    For the years ended June 30, 1999 and 1998, the Bank subsidiary did not pay
    cash dividends to the parent.

--------------------------------------38----------------------------------------
<PAGE>

--------------------------FIRST SAVINGS BANCORP, INC.---------------------------
                              BOARD OF DIRECTORS

                   William E. Samuels, Chairman of the Board
                      First Savings Bank of Moore County

<TABLE>
<S>                                                       <C>
Virginia C. Brandt                                                                     H. David Bruton, M.D.
Certified Public Accountant                               Secretary of NC Dept. of Health and Human Services
Holden, Brandt, & Longfellow, P.C.
                                                                                             Felton J. Capel
John F. Burns, President                                       Owner of Century Associates of North Carolina
Chief Executive Officer                                       A distributor of cookware and other housewares
First Savings Bank of Moore County
                                                                                          Frank G. Hardister
J. Edwin Causey, Chairman Emeritus                                          President of Powell Funeral Home
Retired Contractor

Henry A. Clayton                                                                         Joe Montesanti, Jr.
Retired Merchant                                                                          Retired Pharmacist

Dr. W. Harrell Johnson                                                                    Thomas F. Phillips
Retired Dentist                                                              Owner of Phillips Motor Company
</TABLE>


---------------------------FIRST SAVINGS BANK STAFF-----------------------------

                           John F. Burns, President

                            Senior Management Team

<TABLE>
<S>                        <C>                   <C>                       <C>                     <C>
S. Allan Beck              Timothy S. Maples     Michael F. McMillan       William A. Roberts      Sherry B. Yow
VP, Sr. Loan Officer           VP, CFO           VP, Sr. Loan Officer        VP, Compliance        VP, Operations
                                                                            Human Resources

        Southern Pines Office                                                             Carthage Office
        Vice Presidents                                                  Stuart F. Fields, Branch Manager
        Donna B. Morgan                  Joel H. Salmon                                   Patsy M. Salmon
                                                                                        Carol M. Williams
        Assistant Vice Presidents
        Carol F. Allred           Margaret V. Hightower                                Seven Lakes Office
        Sandra G. Blake             Caroline M. Lemmond                     Kim Y. Bailey, Vice President
        Wanda M. Ring                                                                  Karen T. Arrington
                                                                                          Sherry S. Blake
        Staff                                                                            Patricia U. Cole
        Tammy O. Barnett              Marian B. Lauffer                                Shirley M. Puckett
        Shelia C. Brown                  Betty K. Lomax
        Dianna B. Bullard          Kimberly H. Matthews                            Pinecrest Plaza Office
        Derinda F. Hobson            Angel J. McKeithan       Charles H. McWilliams, Asst. Vice President
        Susanna C. Hunley               Audra W. McLean           Patsy M. McDonald, Asst. Vice President
        Candice C. Jeffrey            Barbara W. Ussery                                   Kelly M. Fulton
        Betty S. Kramer                  Pamela C. Wase                                  Martha M. Lunday
                                                                                        M. Lucille McLeod
        Pinehurst Office
        Teresa T. Cole, Asst. Vice President                                           Belle Meade Office
        Lynette F. Williams, Vice President                           Patricia W. Jackson, Vice President
        Katherine R. Hill                                                Doris B. Andrews, Vice President
        Nancy L. Howle
        Deborah H. Williams
</TABLE>

--------------------------------------39----------------------------------------
<PAGE>

-----------------------------CORPORATE INFORMATION------------------------------

<TABLE>
     <S>                                                            <C>
                  Corporate Headquarters                                         Independent Accountants
               First Savings Bancorp, Inc.                                           Dixon Odom pllc
        205 SE Broad Street, Post Office Box 1657                                    408 Summit Drive
           Southern Pines, North Carolina 28388                                     Post Office Box 70
                     (910) 692-6222                                            Sanford, North Carolina 27331

                    Special Counsel                                                    Form 10-K
     Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.            Copies of First Savings Bancorp, Inc. Form 10-K
                  230 North Elm Street                              may be obtained by shareholders without charge by
                 Post Office Box 26000                              writing to Margaret V. Hightower at the Corporate
           Greensboro, North Carolina 27420                                       Headquarters address.

                     Transfer Agent                                              Additional Information
            Registrar and Transfer Company                             For additional information, please contact
                   10 Commerce Drive                                     John F. Burns or Timothy S. Maples at
                Cranford, NJ 07016-3572                                            (910) 692-6222.
                    1-800-368-5948

                                                    Annual Meeting
                                       The 1999 Annual Meeting of Shareholders of
                                      First Savings Bancorp, Inc. will be held at the
                                         Holiday Inn, US#1, Southern Pines, NC on
                                              October 28, 1999 at 10:00 a.m.
                                     All shareholders are cordially invited to attend.
</TABLE>

---------------------------------CAPITAL STOCK----------------------------------

First Savings' common stock is traded on the NASDAQ National Market System under
the symbol "SOPN." As of June 30, 1999, there were 3,503,763 shares outstanding
and 1,002 shareholders of record, not including the number of persons or
entities whose stock is held in nominee or street name through various brokerage
firms or banks.  The following table reflects the stock trading and dividend
payment frequency of First Savings for the years ended June 30, 1999 and 1998.


           Quarterly Common Stock Performance and Dividends Declared

<TABLE>
<CAPTION>
                                                                              Dividends
                                                   Stock Price           Declared, Per Share
                                               -------------------   ----------------------------
                                                  High       Low         Regular        Special
                                               ---------  --------   --------------  ------------
   <S>                                         <C>        <C>        <C>             <C>
   For the Year Ended June 30, 1999:
    First Quarter Ending September 30          $   24.88  $  21.00   $         0.25           N/A
    Second Quarter Ending December 31          $   23.75  $  20.88   $         0.25           N/A
    Third Quarter Ending March 31              $   22.50  $  21.50   $         0.25           N/A
    Fourth Quarter Ending June 30              $   22.19  $  19.13   $         0.26           N/A

   For the Year Ended June 30, 1998:
    First Quarter Ending September 30          $   23.88  $  20.00   $         0.22           N/A
    Second Quarter Ending December 31          $   25.50  $  22.00   $         0.22           N/A
    Third Quarter Ending March 31              $   26.00  $  22.19   $         0.25           N/A
    Fourth Quarter Ending June 30              $   25.75  $  22.25   $         0.25           N/A
</TABLE>

This annual report has not been reviewed or confirmed for accuracy or relevance
by the Federal Deposit Insurance Corporation.