<PAGE>

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

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ______________________

                                   FORM 10-K

(Mark One)

[ X ]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934
       For the fiscal year ended  June 30, 1999
                                 ---------------

                                      OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the fiscal year ended _______________


                     Commission file number    0-27098
                                             -----------

                        FIRST SAVINGS BANCORP, INC.
                       -----------------------------
            (Exact name of registrant as specified in its charter)

            North Carolina                              56-1842701
    -------------------------------         ------------------------------------
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

 205 S.E. Broad Street, P.O. Box 1657
   Southern Pines, North Carolina                             28388
---------------------------------------                     ----------
(Address of principal executive office)                     (Zip Code)

      Registrant's telephone number, including area code  (910) 692-6222
                                                         ----------------

      Securities Registered Pursuant to Section 12(b) of the Act:   None
                                                                  --------

      Securities Registered Pursuant to Section 12(g) of the Act:


                          Common Stock, no par value
                      -----------------------------------
                               (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.       Yes    X              No  _____
                                              -----

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    [  ]

State the aggregate market value of the voting and non-voting stock held by non-
affiliates of the registrant.  The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days prior to the date of
filing.  $69,646,540 common stock, no par value, based on the closing price of
        -----------------------------------------------------------------------
such common stock on August 31, 1999.
------------------------------------

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
3,482,327 shares of common stock, no par value, outstanding at August 31, 1999.
--------------------------------------------------------------------------------


                      DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>

Portions of the Annual Report of First Savings Bancorp, Inc. for the year ended
June 30, 1999, are incorporated by reference into Part I, Part II and Part IV.

Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders of
First Savings Bancorp, Inc. to be held on October 28, 1999, are incorporated by
reference into Part III.

                                       2
<PAGE>

                                    PART I


ITEM 1.  BUSINESS

General

     First Savings Bancorp, Inc. (the "Holding Company") is a savings bank
holding company registered with the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), and the savings bank holding company laws of North
Carolina.  The Holding Company's office is located at 205 S.E. Broad Street,
Southern Pines, North Carolina.  The Holding Company's activities consist of the
ownership of First Savings Bank of Moore County, Inc., SSB (the "Bank").  The
Holding Company's principal sources of income are earnings on its investments.
In addition, the Holding Company receives any dividends which are declared and
paid by the Bank on its capital stock.

     The Bank was originally chartered in 1922.  It is a member of the Federal
Home Loan Bank ("FHLB") system and its accounts are federally insured up to
allowable limits.  The Bank is primarily engaged in soliciting deposit accounts
from the general public, making loans primarily secured by residential real
estate and making limited types of consumer loans.

     The operations of the Bank and depository institutions in general are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of depository institution regulatory agencies, including the
Federal Reserve, the Federal Deposit Insurance Corporation (the "FDIC") and the
North Carolina Administrator, Savings Institutions Division, North Carolina
Department of Commerce (the "Administrator").  Deposit flows and cost of funds
are influenced by interest rates on competing investments and general market
rates of interest.  Lending activities are affected by the demand for financing
of real estate and other types of loans, which in turn are affected by the
interest rates at which such financing may be offered and other factors
affecting local demand and availability of funds.

     The Bank conducts its business through six offices in Southern Pines,
Pinehurst, Carthage and West End, North Carolina.

     The Holding Company and the Bank are collectively referred to herein as
"First Savings."

Market Area

     First Savings' primary market area consists of Moore County, North
Carolina.  Moore County is home to many retirement communities and, with its
many renowned golf courses in Pinehurst and Southern Pines, has an active
tourist and convention business.  As a result, the economy of Moore County is
primarily service oriented.  However, there is also employment in manufacturing,
agricultural and governmental activities.  Major employers of First Savings'
market area include Resorts of Pinehurst, Firsthealth Moore Regional Hospital,
Gulstan Carpets, Perdue, Inc. and Stanly Furniture Company.

Lending Activities

     First Savings' primary source of revenue is interest and fee income from
its real estate lending activities, consisting primarily of mortgage loans for
the purchase, refinancing or construction of one-to-four family residential real
property located in its primary market area.  First Savings also makes loans
secured by multi-family residential and non-residential real estate, home equity
and home improvement loans, savings account loans, installment loans and credit
card loans.  As a result, over 98% of First Savings' loan portfolio is secured
by real estate.  As of June 30, 1999, over 98% of the net amount of First
Savings' real estate loan portfolio was secured by properties in North Carolina.
On June 30, 1999, the largest amount First Savings had outstanding to any one
borrower and its affiliates was approximately $2,357,000.  This loan was
performing in accordance with its original terms as of that date.  In addition
to interest earned

                                       3
<PAGE>

on loans, First Savings receives fees in connection with loan originations, loan
modifications, late payments, loan assumptions and other miscellaneous services.

     First Savings does not originate its loans with the intention that they
will be sold in the secondary market.  Loans generally are not originated in
conformity with purchase requirements of the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA").  First
Savings originates loans which satisfy its underwriting requirements which are
tailored for its local community.  As a result, many of such loans do not
satisfy various requirements imposed by the FHLMC or the FNMA.  Accordingly,
such loans are not readily saleable in the secondary market.  Such loans could
be sold only after incurring certain costs, such as costs for surveys and title
insurance and/or discounting the purchase price.

     First Savings purchased loan participations totaling $65,000, $95,000, and
$145,000 during the years ended June 30, 1999, 1998 and 1997, respectively.  All
such loan participations are secured by real property located in North Carolina.

     First Savings' ratio of loan loss allowances to nonperforming assets at
June 30, 1999, 1998 and 1997, was 188.01%, 109.36%, and 241.60%, respectively.

Investments and Mortgage-Backed Securities

     Interest income from mortgage-backed securities and investment securities
generally provides the second largest source of income to First Savings after
interest on loans.  In addition, First Savings receives interest income from
interest-bearing deposits in other financial institutions.

     On June 30, 1999, First Savings' investment securities portfolio consisted
of U.S. government and U.S. agency obligations, North Carolina and municipal
obligations and FHLB of Atlanta stock.

     As of June 30, 1999, $6.0 million of investment securities were pledged as
collateral for individual and public deposits.

     As a member of the FHLB of Atlanta, First Savings is required to maintain
an investment in stock of the FHLB of Atlanta equal to the greater of 1% of
First Savings' outstanding home loans or 5% of its outstanding advances from the
FHLB of Atlanta.  No ready market exists for such stock, which is carried at
cost.  As of June 30, 1999, First Savings' investment in stock of the FHLB of
Atlanta was approximately $1.9 million.

     North Carolina regulations require First Savings to maintain a minimum
amount of liquid assets which may be invested in specified short-term
securities.  See "SUPERVISION AND REGULATION - Liquidity."  As is described
above, First Savings is also permitted to make certain other securities
investments.  First Savings has adopted an investment policy which is
implemented by First Savings' investment committee, which meets at least
monthly.  First Savings' investment strategy is intended, among other things, to
(i) provide and maintain liquidity, (ii) maintain a balance of high quality,
diversified investments to minimize risk, (iii) provide collateral for pledging
requirements, (iv) serve as a countercyclical balance to earnings from lending
operations, (v) maximize returns, and (vi) manage interest rate risk.  In terms
of priorities, safety is considered more important than liquidity or return on
investment.  First Savings does not engage in hedging activities.

                                       4
<PAGE>

     The following table sets forth certain information regarding First Savings'
cash investments and the carrying and market values of First Savings' mortgage-
backed securities and investment portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                                                  At June 30,
                                                 -------------------------------------------------------------------------
                                                            1999                       1998                   1997
                                                  -----------------------     -------------------     --------------------
                                                  Amortized       Market      Amortized    Market     Amortized     Market
                                                    Cost           Value         Cost       Value        Cost        Value
                                                  ---------       -------     ---------   -------     ---------    -------
                                                                              (In Thousands)
<S>                                               <C>             <C>         <C>         <C>         <C>          <C>
  Interest-bearing deposits in other
    financial institutions.................       $   3,085       $ 3,085     $   3,991   $ 3,991     $   6,301    $ 6,301
                                                  =========       =======     =========   =======     =========    =======
Securities available-for-sale/1/:
  U.S. government and agency
    securities.............................       $  54,036       $53,437     $ 71,164    $71,695     $  78,881    $79,282
  Obligations of states and political
    subdivisions...........................           1,335         1,359          950        987           950        975
  Federal Home Loan Bank stock.............           1,929         1,929        1,930      1,930         1,930      1,930
  Other....................................              50            50           50         50
                                                  ---------       -------     ---------   -------     ---------    -------

Total securities available-for-sale........       $  57,350       $56,775     $  74,094   $74,662     $  81,760    $87,187
                                                  =========       =======     =========   =======     =========    =======
Securities held-to-maturity/1/:
  U.S. government and agency
    securities.............................       $  13,015       $13,000     $           $           $            $
  Obligations of states and political
    subdivisions...........................              --            --
  Federal Home Loan Bank stock.............
  Mortgage-backed securities...............          23,693        23,154                                 6,572      6,672
                                                  ---------       -------     ---------   -------     ---------    -------

Total securities held-to-maturity..........       $  36,708       $36,154     $           $           $   6,572    $ 6,672
                                                  =========       =======     =========   =======     =========    =======
</TABLE>

______________________
/1/  The Financial Accounting Standards Board has issued Statement of Financial
     Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
     Investments in Debt and Equity Securities" which addresses the accounting
     and reporting for investments in equity securities that have readily
     determinable fair values and for all investments in debt securities. These
     investments are to be classified in three categories and accounted for as
     follows: (i) debt securities that the entity has the positive intent and
     ability to hold to maturity are classified as held-to-maturity and reported
     at amortized cost; (ii) debt and equity securities that are bought and held
     principally for the purpose of selling them in the near term are classified
     as trading securities and reported at fair value, with net unrealized gains
     and losses included in earnings; and (iii) debt and equity securities not
     classified as either held-to-maturity or trading securities are classified
     as securities available-for-sale and reported at fair value, with
     unrealized gains and losses excluded from earnings and reported as a
     separate component of equity. First Savings has no trading securities.
     First Savings adopted SFAS 115 on July 1, 1994.

     Information regarding the interest rate sensitivity of First Savings'
mortgage-backed and investment securities as of June 30, 1999 is set forth on
page 5 of the First Savings' 1999 Annual Report which is incorporated herein by
reference.

Deposits and Borrowings

     Deposits.  Deposits are the primary source of First Savings' funds for
lending and other investment purposes.  On June 30, 1999, 1998 and 1997, First
Savings' savings deposits totaled $226.7 million, $211.9 million, and $204.3
million, respectively.  In addition to deposits, First Savings derives funds
from loan principal repayments, interest payments, interest income from
mortgage-backed securities, investment income, interest from its own interest-
bearing deposits, and otherwise from its operations. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows may be
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources.  They may also be used on a longer
term basis for general business purposes.

                                       5
<PAGE>

     First Savings attracts both short-term and long-term deposits from the
general public by offering a variety of accounts and rates.  First Savings
offers passbook savings accounts, checking accounts, money market accounts and
fixed interest rate certificates with varying maturities.  All deposit flows are
greatly influenced by economic conditions, the general level of interest rates,
competition and other factors, including the restructuring of the thrift
industry.  First Savings' deposits traditionally have been obtained primarily
from its market area.  First Savings utilizes traditional marketing methods to
attract new customers and savings deposits, including print media advertising
and direct mailings.  First Savings does not advertise for deposits outside of
its local market area and it has no brokered deposits.

     As of June 30, 1999, the aggregate amount outstanding of certificates of
deposit in amounts of $100,000 or more was approximately $31.2 million.  Some of
these deposits were deposits of state and local governments which are subject to
rebidding from time to time and to securitization requirements.  The scheduled
maturities of certificates of deposit with balances of $100,000 or more are set
out on page 30 of First Savings' 1999 Annual Report which is incorporated herein
by reference.

     Borrowings.  First Savings is a member of the FHLB of Atlanta, and the
FHLB system functions in a reserve credit capacity for savings institutions.  As
a member, First Savings is required to own capital stock in the FHLB of Atlanta
and is authorized to apply for advances from the FHLB of Atlanta on the security
of that stock and a floating lien on certain of its real estate secured loans
and other assets.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's net worth or on the FHLB
of Atlanta's assessment of the institution's creditworthiness.   As of June 30,
1999, First Savings had $20.0 million in borrowings outstanding to the FHLB of
Atlanta.

     Upon First Savings' conversion to the stock form of ownership, 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 from an
independent third party lender and First Savings contributed $72,000 to the
ESOP.  This $720,000 was used to purchase 72,000 shares of common stock issued
in the conversion.  The note was assumed by the Holding Company in January 1997.
The note payable is collateralized by the common shares purchased by the ESOP
with the proceeds.  The note will be repaid principally from First Savings'
discretionary contributions to the ESOP over a period not to exceed ten years.
Dividends paid on shares held by the ESOP may also be used to reduce the note.
The note is not guaranteed by First Savings.  Unearned compensation related to
the ESOP note payable is amortized on a straight-line basis over ten years.

Subsidiaries

     The Bank has one wholly-owned subsidiary, Moore Service Corporation ("Moore
Service").  Moore Service, a North Carolina corporation, serves as the trustee
in deeds of trust securing loans made by First Savings.  The financial
statements of Moore Service are consolidated with those of First Savings.  Moore
Service has the same Board of Directors as the Bank, and John F. Burns is its
Chief Executive Officer.

Competition

     First Savings faces strong competition both in attracting deposits and
making real estate and other loans.  Its most direct competition for deposits
has historically come from other savings institutions, credit unions and
commercial banks located in its primary market area, including large financial
institutions which have greater financial and marketing resources available to
them.  First Savings has also faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities.  The ability of First Savings to attract and retain
savings deposits depends on its ability to generally provide a rate of return,
liquidity and risk comparable to that offered by competing investment
opportunities.  As of June 30, 1999, there were at least twelve other financial
institutions with offices in Moore County, North Carolina.  Based upon
comparative data as of June 30, 1999, First Savings had the second largest share
of deposits in Moore County, totaling approximately 21% of all deposits in the
county.

                                       6
<PAGE>

Employees

     As of June 30, 1999, First Savings had 48 full-time employees and two part-
time employees. First Savings provides its employees with a comprehensive
benefits program, including basic and major medical insurance, life and
disability insurance, sick leave, education cost sharing, and payment of certain
civic club dues. In addition, First Savings maintains an employee profit sharing
plan covering all eligible employees. Under this plan, First Savings annually
contributes an amount equal to at least 5% of participants' salaries. During the
fiscal years ended June 30, 1999, 1998 and 1997, contributions to this plan were
$121,987, $112,910, and $97,539, respectively. In addition, First Savings pays
discretionary bonuses to all of its employees based upon its after-tax earnings.
In recent years, these bonuses have equalled 4% of after-tax earnings. In
addition, First Savings has an ESOP, a stock based management recognition plan,
and stock option plans. Employees are not represented by any union or collective
bargaining group, and First Savings considers its employee relations to be good.

Federal Income Taxation

     General. Savings institutions such as First Savings are subject to the
taxing provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
for corporations, as modified by certain provisions specifically applicable for
financial or thrift institutions. Income is reported using the accrual method of
accounting. The maximum corporate federal income tax rate is 35%.

     Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Code were permitted certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. A reserve could be established for bad debts on qualifying real
property loans (generally loans secured by interests in real property improved
or to be improved) under (i) a method based on a percentage of the institution's
taxable income, as adjusted (the "percentage of taxable income method") or (ii)
a method based on actual loss experience (the "experience method"). The reserve
for nonqualifying loans was computed using the experience method.

     The percentage of taxable income method was limited to 8% of taxable
income. In order to qualify for the percentage of income method, an institution
had to have at least 60% of its assets as "qualifying assets" which generally
included, cash, obligations of the United States government or an agency or
instrumentality thereof or of a state or political subdivision, residential real
estate-related loans, or loans secured by savings accounts and property used in
the conduct of its business. In addition, it had to meet certain other
supervisory tests and operate principally for the purpose of acquiring savings
and investing in loans. Institutions which became ineligible to use the
percentage of income method had to change to either the reserve method or the
specific charge-off method that applied to banks.

     In August 1996, provisions repealing the thrift bad debt rules were passed
by Congress as part of "The Small Business Job Protection Act of 1996." The new
rules eliminated the 8% of taxable income method for deducting additions to the
tax bad debt reserves for all thrifts for tax years beginning after December 31,
1995. For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction is based on the experience method. These rules also require that all
thrift institutions recapture all or a portion of their bad debt reserves added
since the last taxable year beginning before January 1, 1988. The new rules
allow an institution to suspend the bad debt reserve recapture for the 1996 and
1997 tax years if the institution's lending activity for those years is equal to
or greater than the institution's average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only home
purchase and home improvement loans are included and the institution can elect
to have the tax years with the highest and lowest lending activity removed form
the average calculation. If an institution is permitted to postpone the reserve
recapture, it must begin its six year recapture no later than the 1998 tax year.
The Bank has previously recorded a deferred tax liability equal to the bad debt
recapture applicable to the post-1987 additions to its bad debt reserve. As a
result, this recapture requirement applicable to 1987 additions to bad debt
reserves will have no material impact on the Bank's net income or federal income
tax expense.

     Taxable Distributions and Recapture. Prior to the 1996 legislation, bad
debt reserves created prior to the 1988 tax year were subject to recapture into
taxable income should the thrift institution fail to meet certain thrift asset

                                       7
<PAGE>

and definitional tests. New federal legislation eliminated these thrift-related
recapture rules. The Bank is not required to provide a deferred tax liability
for the tax effect of additions to the tax bad debt reserve through 1987.

     Retained income at June 30, 1999, includes approximately $5.3 million 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.

     Alternative Minimum Tax. First Savings may also be subject to the corporate
alternative minimum tax ("AMT"). This tax is applicable only to the extent it
exceeds the regular corporate income tax. The AMT is imposed at the rate of 20%
of the corporation's alternative minimum taxable income ("AMTI") subject to
applicable statutory exemptions. AMTI is calculated by adding certain tax
preference items and making certain adjustments to the corporation's regular
taxable income. Preference items and adjustments generally applicable to
financial institutions include, but are not limited to, the following:

 .    the excess of the bad debt deduction over the amount that would have been
     allowable on the basis of actual experience;

 .    interest on certain tax-exempt bonds issued after August 7, 1986; and

 .    75% of the excess, if any, of a corporation's adjusted earnings and profits
     over its AMTI (as otherwise determined with certain adjustments).

Net operating loss carryovers, subject to certain adjustments, may be utilized
to offset up to 90% of the AMTI. Credit for AMT paid may be available in future
years to reduce future regular federal income tax liability. First Savings has
not been subject to the AMT in recent years.

     First Savings' federal income tax returns have not been audited in the last
ten tax years.

State and Local Taxation

     Under North Carolina law, the corporate income tax rate for the 1996, 1997
and 1998 tax years was 7.75%, 7.5% and 7.25%, respectively, of federal taxable
income as computed under the Code, subject to certain prescribed adjustments. An
annual state franchise tax is imposed at a rate of 0.15% applied to the greatest
of the institution's (i) capital stock, surplus and undivided profits, (ii)
investment in tangible property in North Carolina or (iii) appraised valuation
of property in North Carolina.

     The North Carolina corporate tax rate is 7% in 1999 and, under current
legislation, will drop to 6.90% thereafter.

                          SUPERVISION AND REGULATION

Regulation of the Holding Company

     Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.

                                       8
<PAGE>

     General. The Holding Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank. As a savings bank holding company
subject to the Bank Holding Company Act of 1956, as amended ("BHCA"), the
Holding Company is subject to certain regulations of the Federal Reserve. Under
the BHCA, the Holding Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. The BHCA prohibits the
Holding Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or
savings bank or merging or consolidating with another bank holding company or
savings bank holding company without prior approval of the Federal Reserve.

     Additionally, the BHCA prohibits the Holding Company from engaging in, or
acquiring ownership or control of, more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto. The BHCA generally does not place territorial
restrictions on the activities of such nonbanking related activities.

     Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Holding Company.
Control is conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the Holding Company or
controls in any manner the election of a majority of the directors of the
Holding Company. Control is presumed to exist if a person acquires more than 10%
of any class of voting stock and the stock is registered under Section 12 of the
Exchange Act or the acquiror will be the largest shareholder after the
acquisition.

     Capital Maintenance. There are a number of obligations and restrictions
imposed on bank holding companies and their depository institution subsidiaries
by law and regulatory policy that are designed to minimize potential loss to the
depositors of such depository institutions and the FDIC insurance funds in the
event the depository institution becomes in danger of default or in default. For
example, to avoid receivership of an insured depository institution subsidiary,
a bank holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all acceptable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such policy. The Federal Reserve under the BHCA also has the
authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.

     In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the Savings
Association Insurance Fund (the "SAIF") or the Bank Insurance Fund (the "BIF")
as a result of the default of a commonly controlled insured depository
institution and for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.

     In connection with the Administrator's approval of the Holding Company's
application to acquire control of the Bank, the Holding Company was required to
execute a Capital Maintenance Agreement whereby it has agreed to maintain the
Bank's capital in an amount sufficient to enable the Bank to satisfy all
regulatory capital requirements.

                                       9
<PAGE>

     Capital Adequacy Guidelines for Holding Companies. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more.

     Bank holding companies subject to the Federal Reserve's capital adequacy
guidelines are required to comply with the Federal Reserve's risk-based capital
regulations. Under these regulations, the minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half of the total capital is required
to be "Tier I capital," principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve has adopted a minimum Tier I (leverage)
capital ratio, under which a bank holding company must maintain a minimum level
of Tier I capital to average total consolidated assets of at least 3% in the
case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a Tier I (leverage) capital ratio of
at least 1% to 2% above the stated minimum.

     Dividend and Repurchase Limitations. The Company must obtain Federal
Reserve approval in order to use more than 10% of its net worth to make stock
repurchases during any twelve-month period unless the Company (i) both before
and after the redemption satisfies capital requirements for "well capitalized"
state member banks; (ii) received a one or two rating in its last examination;
and (iii) is not the subject of any unresolved supervisory issues. 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. Although the payment of dividends and repurchase of stock by
the Company are subject to the requirements and limitations of North Carolina
corporate law, except as set forth in this paragraph, neither the Administrator
nor the FDIC have promulgated any regulations specifically limiting the right of
the Company to pay dividends and repurchase shares. However, the ability of the
Company to pay dividends or repurchase shares may be dependent upon the
Company's receipt of dividends from the Bank. The Bank's ability to pay
dividends is limited. See "Regulation of the Bank -- Restrictions on Dividends
and Other Capital Distributions."

     Federal Securities Law. The Company has registered its Common Stock with
the Securities Exchange Commission pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result of such
registration, the proxy and tender offer rules, insider trading reporting
requirements, annual and periodic reporting and other requirements of the
Exchange Act are applicable to the Company.

     The registration under the Securities Act of 1933, as amended (the
"Securities Act") of the Common Stock does not cover the resale of such shares.
Shares of the Common Stock purchased by persons who are not affiliates of the
Company may be resold without registration. Shares purchased by an affiliate of
the Company are subject to the resale provisions of Rule 144 under the
Securities Act. So long as the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Company
who complies with the other conditions of Rule 144 (including those that require
the affiliate's sale to be aggregated with those of certain other persons) will
be able to sell in the public market, without registration, a number of shares
not to exceed, in any three-month period, the greater of (i) 1% of the
outstanding shares of the Company or (ii) the average weekly volume of trading
in such shares during the preceding four calendar weeks. Provision may be made
in the future by the Company to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances. There
are currently no demand registration rights outstanding. However, in the event
the Company at some future time determines to issue additional shares from its
authorized but unissued shares, the Company might offer registration rights to
certain of its affiliates who want to sell their shares.

                                       10
<PAGE>

Regulation of the Bank

     General. Federal and state legislation and regulation significantly affect
the operations of federally insured savings institutions and other federally
regulated financial institutions. The operation of regulated depository
institutions, including the Bank, is subject to changes in applicable statutes
and regulations from time to time. Such changes may or may not be favorable to
the Bank.

     The Bank is a North Carolina-chartered savings bank, is a member of the
Federal Home Loan Bank ("FHLB") system, and its deposits are insured by the FDIC
through the Savings Association Insurance Fund ("SAIF"). It is subject to
examination and regulation by the FDIC and the Administrator and to regulations
governing such matters as capital standards, mergers, establishment of branch
offices, subsidiary investments and activities, and general investment
authority. Generally, North Carolina-chartered savings banks whose deposits are
insured by the SAIF are subject to restrictions with respect to activities and
investments, transactions with affiliates and loans-to-one-borrower similar to
those applicable to federally-chartered SAIF-insured savings associations. Such
examination and regulation is intended primarily for the protection of
depositors and the federal deposit insurance funds.

     The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As holders of loans secured by real property and as owners
of real property, financial institutions, including the Bank, may be subject to
potential liability under various statutes and regulations applicable to
property owners generally, including statutes and regulations relating to the
environmental condition of real property.

     The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including the Bank. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.

     The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.

     Transactions with Affiliates. Under current federal law, transactions
between savings institutions and any affiliate are governed by Sections 23A and
23B of the Federal Reserve Act. An affiliate of a savings institution is any
company or entity that controls, is controlled by or is under common control
with the savings institution. In a holding company context, the parent holding
company of a savings institution and any companies which are controlled by such
parent holding company are affiliates of the savings institution. Generally,
Sections 23A and 23 B (i) establish certain collateral requirements for loans to
affiliates; (ii) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such savings institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus and (iii) require that all
such transactions be on terms substantially the same, or at least as favorable
to the savings institution or the subsidiary, as those provided to a
nonaffiliate. The term "covered transaction" includes the making of loans or
other extensions of credit to an affiliate, the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an affiliate,
the acceptance of securities of an affiliate as collateral for a loan or
extension of credit to any person, or issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.

     Further, current federal law has extended to savings institutions the
restrictions contained in Section 22(h) of the Federal Reserve Act with respect
to loans to directors, executive officers and principal stockholders. Under
Section 22(h), loans to directors, executive officers and stockholders who own,
directly or indirectly, more than 10% of any class

                                       11
<PAGE>

of voting securities of a savings institution and certain affiliated entities of
any of the foregoing, may not exceed, together with all other outstanding loans
to such person and affiliated entities, the savings institution's loans-to-one
borrower limit as established by federal law (as discussed below), and all loans
to such persons may not exceed the institution's unimpaired capital and
unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings institution, and their
respective affiliates, unless such loan is approved in advance by a majority of
the board of directors of the savings institution. Any "interested" director may
not participate in the voting. The Federal Reserve has prescribed the loan
amount (which includes all other outstanding loans to such person), as to which
such prior board of director approval is required, as being the greater of
$25,000 or 5% of unimpaired capital and unimpaired surplus (up to $500,000).
Further, pursuant to Section 22(h) the Federal Reserve requires that loans to
directors, executive officers, and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
and not involve more than the normal risk of repayment or present other
unfavorable features. Section 22(h) also generally prohibits a depository
institution from paying the overdrafts of any of its executive officers or
directors.

     Deposit Insurance. The FDIC administers two separate deposit insurance
funds. The SAIF maintains a fund to insure the deposits of most savings
institutions and the BIF maintains a fund to insure the deposits of most
commercial banks. The Bank is a member of the SAIF of the FDIC.

     The Bank is required to pay assessments to the FDIC based on a percentage
of its insured deposits. Under the FDIC's risk-based deposit assessment system,
the assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to regulators for the date closest to the last day of the
seventh month preceding the semi-annual assessment period, institutions are
assigned to one of three capital groups - well capitalized, adequately
capitalized or undercapitalized - using the same percentage criteria as in the
prompt correct action regulations. See "-- Prompt Corrective Regulatory Action."

     Within each capital group, institutions are assigned to one of three
subgroups on the basis of supervisory evaluations by the institution's primary
supervisory authority and such other information as the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance fund. Subgroup A consists of financially sound institutions
with only a few minor weaknesses. Subgroup B consists of institutions that
demonstrate weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk of loss to the deposit
insurance fund. Subgroup C consists of institutions that pose a substantial
probability of loss to the deposit insurance fund unless effective corrective
action is taken.

     The assessment rate for SAIF members had ranged from 0.23% of deposits for
well capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C while assessments for over 90% of
the BIF members had been the statutory minimum of $2,000. However, recently
enacted legislation provided for a one-time assessment equal to 65.7 basis
points times insured deposits as of March 31, 1995. This assessment fully
capitalized the SAIF. Accordingly, although the special assessment resulted in a
$1.2 million pre-tax (or a $700,000 net of tax) one-time charge to the Bank
during its fiscal year ended December 31, 1996, the recapitalization of the SAIF
had the effect of reducing the Bank's future deposit insurance premiums to the
SAIF. Under the recently enacted legislation, most BIF members will be assessed
approximately 1.3 basis points while the rate for most SAIF members will be
approximately 6.4 basis points until January 1, 2000. At that time, BIF and SAIF
members will begin pro rata sharing of the payment at an expected rate of 2.43
basis points.

     The Bank's deposit accounts are insured by the FDIC under the SAIF to the
maximum extent permitted by law. The Bank pays deposit insurance premiums to the
FDIC based on a risk-based assessment system established by the FDIC for all
SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups that are based solely on the level of an
institution's capital ("well capitalized," "adequately capitalized" or
"undercapitalized"), which are defined in the same manner as the regulations
establishing the prompt corrective action system discussed below. The matrix so
created results in nine assessment risk classifications, with rates that, until
September 30, 1996, ranged from 0.23% for well capitalized, financially sound
institutions with only a few minor

                                       12
<PAGE>

weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk to the SAIF unless effective corrective action is taken.

     Community Reinvestment Act. The Bank, like other financial institutions, is
subject to the Community Reinvestment Act, as amended ("CRA"). A purpose of the
CRA is to encourage financial institutions to help meet the credit needs of its
entire community, including the needs of low- and moderate-income neighborhoods.
Financial institutions' compliance with the CRA is regularly evaluated by their
regulatory agencies.

     Under recently adopted regulations, institutions are first evaluated and
rated under three categories: a lending test, an investment test and a service
test. For each of these three tests, the savings bank will be given a rating of
either "outstanding," "high satisfactory," "low satisfactory," "needs to
improve" or "substantial non-compliance." If an institution disagrees with a
particular rating, the institution has the burden of rebutting the presumption
by clearly establishing that the quantitative measures do not accurately present
its actual performance, or that demographics, competitive conditions or economic
or legal limitations peculiar to its service area should be considered. The
ratings received under the three tests will be used to determine the overall
composite CRA rating. The composite ratings will be the same as those that are
currently given: "outstanding," "satisfactory," "needs to improve" or
"substantial non-compliance."

     During the Bank's last compliance examination, which was performed by the
FDIC on December 29, 1998, the Bank received a "outstanding" rating with respect
to CRA compliance. The Bank's rating with respect to CRA compliance would be a
factor to be considered by the Federal Reserve and FDIC in considering
applications submitted by the Bank to acquire branches or to acquire or combine
with other financial institutions and, if such rating was less than
"satisfactory," could result in the denial of such applications.

     Capital Requirements. The FDIC requires the Bank to have a minimum leverage
ratio of Tier I capital (principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock and minority interests in consolidated
subsidiaries, less certain intangibles goodwill items, identified losses and
investments in securities subsidiaries), to total assets of at least 3%;
provided, however that all institutions, other than those (i) receiving the
highest rating during the examination process and (ii) not anticipating or
experiencing any significant growth, are required to maintain a ratio of 1% or
2% above the stated minimum, with an absolute minimum leverage ratio of not less
than 4%. The FDIC also requires the Bank to have a ratio of total capital to
risk-weighted assets, including certain off-balance sheet activities, such as
standby letters of credit, of at least 8%. At least half of the total capital is
required to be Tier I capital. The remainder (Tier II capital) may consist of a
limited amount of subordinated debt, certain hybrid capital instruments, other
debt securities, certain types of preferred stock and a limited amount of
general loan loss allowance.

     An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
institution may be deemed to be operating in an unsafe or unsound condition,
allowing the FDIC to take various enforcement actions, including possible
termination of insurance or placement of the institution in receivership.

     The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.

     At June 30, 1999, the Bank complied with each of the capital requirements
of the FDIC and the Administrator. For a description of the Bank's required and
actual capital levels on June 30, 1999, see Note 11 captioned "Regulatory
Restriction" on pages 32 and 33 of the 1999 Annual Report.

     Each federal banking agency is required to establish risk-based capital
standards to take adequate account of interest rate risk, concentration of
credit risk, and the risk of nontraditional activities, as well as reflect the
actual performance and expected risk of loss on multi-family mortgages.

                                       13
<PAGE>

     On August 2, 1995, the federal banking agencies issued a joint notice of
adoption of final risk-based capital rules to take account of interest rate
risk. The final regulation required an assessment of the need for additional
capital on a case-by-case basis, considering both the level of measured exposure
and qualitative risk factors. The final rule also stated an intent to, in the
future, establish an explicit minimum capital charge for interest rate risk
based on the level of a bank's measured interest rate risk exposure.

     Effective June 26, 1996, the federal banking agencies issued a joint policy
statement announcing the agencies' election not to adopt a standardized measure
and explicit capital charge for interest rate risk at that time. Rather, the
policy statement (i) identifies the main elements of sound interest rate risk
management, (ii) describes prudent principles and practices for each of those
elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy.

     Loans to One Borrower. The Bank is subject to the Administrator's loans-to-
one-borrower limits. Under these limits, no loans and extensions of credit to
any borrower outstanding at one time and not fully secured by readily marketable
collateral shall exceed 15% of the net worth of the savings bank. Loans and
extensions of credit fully secured by readily marketable collateral may comprise
an additional 10% of net worth. Notwithstanding the limits just described,
savings banks may make loans to one borrower, for any purpose, in an amount not
to exceed $500,000. A savings institution also is authorized to make loans to
one borrower to develop domestic residential housing units, not to exceed the
lesser of $30 million, or 30% of the savings institution's net worth, provided
that

 .    the purchase price of each single-family dwelling in the development does
     not exceed $500,000;

 .    the savings institution is in compliance with its fully phased-in capital
     requirements;

 .    the loans comply with applicable loan-to-value requirements;

 .    the aggregate amount of loans made under this authority does not exceed
     150% of net worth; and

 .    the institution's regulator issues an order permitting the savings
     institution to use this higher limit.

These limits also authorize a savings bank to make loans-to-one borrower to
finance the sale of real property acquired in satisfaction of debts in an amount
up to 50% of net worth.

     As of June 30, 1999, the largest aggregate amount of loans which the Bank
had to any one borrower was $2.4 million; these loans were performing in
accordance with their original terms as of June 30, 1999. The Bank had no loans
outstanding which management believes violate the applicable loans-to-one
borrower limits.

     Limitations on Rates Paid for Deposits. Regulations promulgated by the FDIC
place limitations on the ability of insured depository institutions to accept,
renew or roll over deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on deposits offered
by other insured depository institutions having the same type of charter in such
depository institution's normal market area. Under these regulations, "well
capitalized" depository institutions may accept, renew or roll such deposits
over without restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC (subject to
certain restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The definitions
of "well capitalized," "adequately capitalized" and "undercapitalized" are the
same definitions adopted by the FDIC to implement the corrective action
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991.
See "-- Prompt Corrective Regulatory Action." As of June 30, 1999, the Bank was
considered to be "well capitalized" and, thus, was not subject to the
limitations on rates payable on its deposits.

     Federal Home Loan Bank System. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, the Bank
is required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding

                                       14
<PAGE>

advances (borrowings) from the FHLB of Atlanta. On June 30, 1999, the Bank was
in compliance with this requirement with an investment in FHLB of Atlanta stock
of $1.9 million.

     Federal Reserve System. Regulation D, promulgated by the Federal Reserve,
imposes reserve requirements on all depository institutions, including savings
banks and savings institutions, which maintain transaction accounts or non-
personal time deposits. Checking accounts, NOW accounts and certain other types
of accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits (including certain money
market deposit accounts) at a savings institution. For 1998, a depository
institution must maintain average daily reserves equal to 3% of the first $47.8
million of net transaction accounts, plus 10% of that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances are exempt from the reserve requirements. These
percentages and threshold limits are subject to adjustment by the Federal
Reserve.

     Restrictions on Acquisitions. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of an insured institution, such as the Bank, without giving at
least 60 days' written notice to the FDIC and providing the FDIC an opportunity
to disapprove the proposed acquisition. Pursuant to regulations governing
acquisitions of control, control of an insured institution is conclusively
deemed to have been acquired, among other things, upon the acquisition of more
than 25% of any class of voting stock. In addition, control is presumed to have
been acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock. Such acquisitions of control may be disapproved if it is
determined, among other things, that

 .    the acquisition would substantially lessen competition;

 .    the financial condition of the acquiring person might jeopardize the
     financial stability of the savings bank or prejudice the interests of its
     depositors; or

 .    the competency, experience or integrity of the acquiring person or the
     proposed management personnel indicates that it would not be in the
     interest of the depositors or the public to permit the acquisition of
     control by such person.

     Liquidity. The Bank is subject to the Administrator's requirement that the
ratio of liquid assets to total assets equal at least 10%. The computation of
liquidity under North Carolina regulation allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily marketable value, including investments with maturities in excess
of five years. At June 30, 1999, the Bank's liquidity ratio, calculated in
accordance with North Carolina regulations, was approximately 30.1%.

     Prompt Corrective Regulatory Action. The Federal Deposit Insurance
Corporation Act of 1991 provided the federal banking agencies with broad powers
to take corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the FDIC regulations applicable to the Bank, an
institution is considered "well capitalized" if it has

 .    a total risk-based capital ratio of 10% or greater,

 .    a Tier I risk-based capital ratio of 6% or greater,

 .    a leverage ratio of 5% or greater and

 .    is not subject to any order or written directive to meet and maintain a
     specific capital level for any capital measure.

                                       15
<PAGE>

An "adequately capitalized" institution is defined as one that has

 .    a total risk-based capital ratio of 8% or greater,

 .    a Tier I risk-based capital ratio of 4% or greater and

 .    a leverage ratio of 4% or greater (or 3% or greater in the case of an
     institution with the highest examination rating and which is not
     experiencing or anticipating significant growth).

An institution is considered "undercapitalized" if it has

 .    a total risk-based capital ratio of less than 8%,

 .    a Tier I risk-based capital ratio of less than 4% or

 .    a leverage ratio of less than 4% (or 3% in the case of an institution with
     the highest examination rating and which is not experiencing or
     anticipating significant growth).

An institution is considered "significantly undercapitalized" if the institution
has

 .    a total risk-based capital ratio of less than 6%, or

 .    a Tier I risk-based capital ratio of less than 3% or

 .    a leverage ratio of less than 3%.

An institution is considered "critically undercapitalized" if the institution
has a ratio of tangible equity to total assets equal to or less than 2%.  The
Bank is considered to be "well capitalized" under the rules set forth above.

     Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state.

     Such interstate acquisitions are subject to certain restrictions.  States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.

     The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time.  Unlike interstate acquisitions, a state may
deny interstate branching if it specifically elects to do so by June 1, 1997.
States may choose to allow interstate branching prior to June 1, 1997 by opting-
in to a group of states that permits these transactions.  These states generally
allow interstate branching via a merger of an out-of-state bank with an in-state
bank, or on a de novo basis.  North Carolina has enacted legislation permitting
branching transactions.

     Restrictions on Dividends and Other Capital Distributions.  A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations.  In
fiscal 2000, the amount of dividends that can be paid by the Bank without prior
approval from regulators is approximately $2.5 million.  These funds should be
adequate to cover the Holding Company's needs.

                                       16
<PAGE>

     Under FDIC regulations, stock repurchases may be made by the Bank only
after receipt of FDIC approval.  In addition, the Bank is not permitted to
declare or pay a cash dividend or repurchase any of its capital stock if the
effect thereof would be to cause its net worth to be reduced below the amount
required for the liquidation account established in connection with the Bank's
conversion from mutual to stock ownership.

     Additional Federal Limitations on Activities.  Recent FDIC law and
regulations generally provide that the Bank may not engage as principal in any
type of activity, or in any activity in an amount, not permitted for national
banks, or directly acquire or retain any equity investment of a type or in an
amount not permitted for national banks. The FDIC has authority to grant
exceptions from these prohibitions (other than with respect to non-service
corporation equity investments) if it determines no significant risk to the
insurance fund is posed by the amount of the investment or the activity to be
engaged in and if the Bank is and continues to be in compliance with fully
phased-in capital standards. National banks are generally not permitted to hold
equity investments other than shares of service corporations and certain federal
agency securities. Moreover, the activities in which service corporations for
savings banks are permitted to engage are limited to those of service
corporations for national banks.

     Savings banks are also required to notify the FDIC at least 30 days prior
to the establishment or acquisition of any subsidiary, or at least 30 days prior
to conducting any such new activity. Any such activities must be conducted in
accordance with the regulations and orders of the FDIC and the Administrator.
Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds").

     Other North Carolina Regulation.  As a North Carolina-chartered savings
bank, the Bank derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to: the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that the Bank maintain federal deposit insurance as a condition of
doing business.

     The Administrator conducts regular examinations of North Carolina-chartered
savings banks. The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors. The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.

     A North Carolina-chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above. Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.

     Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans.  In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to

                                       17
<PAGE>

 .    obligations of the United States, or those guaranteed by it;

 .    obligations of the State of North Carolina;

 .    bank demand or time deposits;

 .    stock or obligations of the federal deposit insurance fund or a FHLB;

 .    savings accounts of any savings institution as approved by the board of
     directors; and

 .    stock or obligations of any agency of the State of North Carolina or of the
     United States or of any corporation doing business in North Carolina whose
     principal business is to make education loans.

     North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.

     Future Requirements.  Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions.  It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.

                                       18
<PAGE>

ITEM 2.  PROPERTIES

     At June 30, 1999, First Savings conducted its business from the
headquarters office in Southern Pines, North Carolina, and its five branch
offices in Southern Pines, Pinehurst, Carthage and West End, North Carolina.
The following table sets forth certain information regarding First Savings'
properties as of June 30, 1999.  All properties are owned by First Savings, with
the exception of the Pinehurst Office which has been leased for a term of 15
years with an expiration date of 2003 and the Belle Meade Office for which there
is currently no lease agreement.  Rentals paid by First Savings under that lease
totaled $10,200 for the fiscal year ended June 30, 1999.


                                                                       Net Book
                                                                       Value of
          Address                                                      Property
          -------                                                      --------

Headquarters Office                                                    $521,711
  205 S.E. Broad Street
  Southern Pines, North Carolina 28387

Pinecrest Plaza Office                                                  983,077
  46 Pinecrest Plaza
  Southern Pines, North Carolina 28387

Pinehurst Office                                                         27,012
  10 Chinquapin Road
  Pinehurst, North Carolina 28374

Carthage Office                                                         103,727
  109 Monroe Street
  Carthage, North Carolina 28327

Seven Lakes Office                                                      127,050
  200 Grant Street
  Seven Lakes Shopping Center
  West End, North Carolina 27376

Belle Meade Office                                                        4,466
 100 Waters Drive
 Belle Meade Retirement Resort
 Southern Pines, North Carolina 28387


The total net book value of First Savings' furniture, fixtures and equipment on
June 30, 1999 was $532,168.  The properties are considered by First Savings'
management to be in good condition.

ITEM 3.  LEGAL PROCEEDINGS

     In the opinion of management, First Savings is not involved in any pending
legal proceedings other than routine, non-material proceedings occurring in the
ordinary course of business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of the Holding Company's stockholders
during the quarter ended June 30, 1999.

                                       19
<PAGE>

                                    PART II

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

     The information required by this Item is set forth under the section
captioned "Capital Stock" on page 40 of First Savings' 1999 Annual Report which
is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA

     The information required by this Item is set forth in the table captioned
"Five Year Summary" on the inside cover of First Savings' 1999 Annual Report
which is incorporated herein by reference.

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

     See the information set forth under Item 1 above and the information set
forth under the sections captioned "Financial Highlights" on page 1 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" on pages 4 through 16 in First Savings' 1999 Annual Report, which
sections are incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required by this Item is set forth under the caption
"Market Risk" on page 5 of "Management's Discussion and Analysis" in First
Savings' 1999 Annual Report, which section is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of First Savings and supplementary
data set forth on pages 18 through 38 of First Savings' 1999 Annual Report are
incorporated herein by reference.

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

     There were no changes in or disagreements with accountants on accounting
and financial disclosures during the fiscal year ended June 30, 1999 and the
interim subsequent period. See the information set forth under the section
captioned "Proposal 2 -- Ratification of Selection of Independent Auditor" on
page 13 of the Proxy Statement for the 1999 Annual Meeting of Shareholders of
First Savings Bancorp, Inc. to be held on October 28, 1999 (the "Proxy
Statement").

                                       20
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is set forth in the tables on pages 5
and 8 under the section captioned "Proposal 1 - Election of Directors" of the
Proxy Statement and the section captioned "Compliance with Section 16(a) of the
Exchange Act" on page 4 of the Proxy Statement, which sections are incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION AND TRANSACTIONS

     The information required by this Item is set forth under the sections
captioned "Proposal 1 - Election of Directors - Directors' Compensation" and
"-- Management Compensation" on pages 6 through 7 and 8 through 10,
respectively, of the Proxy Statement, which sections are incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is set forth under the section
captioned "Security Ownership of Certain Beneficial owners" on pages 2 through 4
of the Proxy Statement, which section is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     There have been no reportable transactions during the two most recent
fiscal years nor are any reportable transactions proposed as of the date of this
Form 10-K.  See also the section captioned "Proposal 1 - Election of Directors -
Certain Indebtedness and Transactions of Management" on page 13 of the Proxy
Statement, which section is incorporated herein by reference.

                                       21
<PAGE>

                                    PART IV

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

14(a)1.   Consolidated Financial Statements (contained in First Savings' 1999
          Annual Report attached hereto as Exhibit (13) and incorporated herein
          by reference)

          (a)  Independent Auditors' Report

          (b)  Consolidated Statements of Financial Condition as of June 30,
               1999 and 1998

          (c)  Consolidated Statements of Income for the Years Ended June 30,
               1999, 1998 and 1997

          (d)  Consolidated Statements of Shareholders' Equity for the Years
               Ended June 30, 1999, 1998 and 1997

          (e)  Consolidated Statements of Cash Flows for the Years Ended June
               30, 1999, 1998 and 1997

          (f)  Notes to Consolidated Financial Statements

14(a)2.   Financial Statement Schedules

          All schedules have been omitted as the required information is either
          inapplicable or included in the Notes to Consolidated Financial
          Statements.

14(a)3.   Exhibits

          Exhibit (3)(i)         Certificate of Incorporation, incorporated
                                 herein by reference to Exhibit (2), Appendix C,
                                 to the Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (3)(ii)        Bylaws, incorporated herein by reference to
                                 Exhibit (2), Appendix D, to the Registration
                                 Statement on Form 8-A, Registration No. 0-27-
                                 098, dated October 26, 1995

          Exhibit (4)            Specimen Stock Certificate, incorporated herein
                                 by reference to Exhibit (5) to the Registration
                                 Statement on Form 8-A, Registration No. 0-27-
                                 098, dated October 26, 1995

          Exhibit (10)(i)        First Savings Bank of Moore County, Inc., SSB
                                 Pinehurst Office Lease, incorporated herein by
                                 reference to Exhibit (10)(i) to the
                                 Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (10)(ii)(a)    Employee Stock Option Plan of First Savings
                                 Bank of Moore County, Inc., SSB, incorporated
                                 herein by reference to Exhibit (10)(ii)(a) to
                                 the Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (10)(ii)(b)    Director Stock Option Plan of First Savings
                                 Bank of Moore County, Inc., SSB, incorporated
                                 herein by reference to Exhibit (10)(ii)(b) to
                                 the Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

                                       22
<PAGE>

          Exhibit (10)(ii)(c)    Management Recognition Plan of First Savings
                                 Bank of Moore County, Inc., SSB, incorporated
                                 herein by reference to Exhibit (10)(ii)(c) to
                                 the Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (10)(ii)(d)    Bonus Compensation Plan of First Savings Bank
                                 of Moore County, Inc., SSB, incorporated herein
                                 by reference to Exhibit (10)(ii)(d) to the
                                 Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (10)(ii)(e)    Employment Agreement between First Savings Bank
                                 of Moore County, Inc., SSB and William E.
                                 Samuels, Jr., incorporated herein by reference
                                 to Exhibit (10)(ii)(e) to the Registration
                                 Statement on Form 8-A, Registration No. 0-27-
                                 098, dated October 26, 1995

          Exhibit (10)(ii)(f)    Employment Agreement between First Savings Bank
                                 of Moore County, Inc., SSB and John F. Burns,
                                 incorporated herein by reference to Exhibit
                                 (10)(ii)(f) to the Registration Statement on
                                 Form 8-A, Registration No. 0-27-098, dated
                                 October 26, 1995

          Exhibit (10)(ii)(g)    First Savings Bancorp, Inc. Second Nonqualified
                                 Stock Option Plan for Directors, dated June 30,
                                 1999

          Exhibit (11)           Statement Regarding Computation of Per Share
                                 Earnings

          Exhibit (12)           Statement Regarding Computation of Ratios

          Exhibit (13)           1999 Annual Report to Security Holders

          Exhibit (21)           Subsidiaries of the Registrant, incorporated
                                 herein by reference to Exhibit (21) to the
                                 Registration Statement on Form 8-A,
                                 Registration No. 0-27-098, dated October 26,
                                 1995

          Exhibit (27)           Financial Data Schedule

14(b)     First Savings filed no reports on Form 8-K during the last quarter of
          the fiscal year ended June 30, 1999.

                                       23
<PAGE>

                                  SIGNATURES

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

                                        FIRST SAVINGS BANCORP, INC.


Date: September 9, 1999            By:  /s/ John F. Burns
                                        ----------------------------------------
                                        John F. Burns
                                        President and Chief Executive Officer


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

<TABLE>
<CAPTION>
Signature                                              Title                                     Date
---------                                              -----                                     ----
<S>                                          <C>                                          <C>

/s/ John F. Burns                            President, Chief Executive                   September 9, 1999
--------------------------------------
John F. Burns                                Officer and Director

/s/ William E. Samuels, Jr.                  Chairman of the Board of Directors of        September 9, 1999
--------------------------------------
William E. Samuels, Jr.                      the Company and Senior Vice President
                                             of the Bank

/s/ Timothy S. Maples                        Vice President, Chief Financial Officer      September 9, 1999
--------------------------------------
Timothy S. Maples                            and Treasurer

/s/ Virginia C. Brandt                       Director                                     September 9, 1999
--------------------------------------
Virginia C. Brandt

/s/ H. David Bruton                          Director                                     September 9, 1999
--------------------------------------
H. David Bruton

/s/ Felton J. Capel                          Director                                     September 9, 1999
--------------------------------------
Felton J. Capel

/s/ J. E. Causey                             Director                                     September 9, 1999
--------------------------------------
J. E. Causey

/s/ Henry A. Clayton                         Director                                     September 9, 1999
--------------------------------------
Henry A. Clayton

/s/ Frank G. Hardister                       Director                                     September 9, 1999
--------------------------------------
Frank G. Hardister

/s/ W. Harrell Johnson                       Director                                     September 9, 1999
--------------------------------------
W. Harrell Johnson

/s/ Joe Montesanti, Jr.                      Director                                     September 9, 1999
--------------------------------------
Joe Montesanti, Jr.

/s/ Thomas F. Phillips                       Director                                     September 9, 1999
--------------------------------------
Thomas F. Phillips
</TABLE>

                                       24
<PAGE>

                               INDEX TO EXHIBITS



Exhibit No.                        Description
-----------                        -----------

(10)(ii)(g)    First Savings Bancorp, Inc. Second Nonqualified Stock Option Plan
               for Directors, dated June 30, 1999

(11)           Statement Regarding Computation of Per Share Earnings

(12)           Statement Regarding Computation of Ratios

(13)           1999 Annual Report to Security Holders

(27)           Financial Data Schedule

                                       25