EXHIBIT 13


<PAGE>



                                    CONTENTS

<TABLE>
<CAPTION>

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                                                                                       Page

<S>                                                                                   <C>
Selected Financial Data                                                                     1

Report to Stockholders                                                                      2

Management's Discussion and Analysis                                                   3 - 14

Independent Auditor's Report                                                               15

Consolidated Financial Statements of:
   Financial condition at September 30, 1997 and 1996                                      16
   Income for years ended September 30, 1997, 1996 and 1995                                17
   Stockholders' equity for years ended September 30, 1997, 1996 and 1995                  18
   Cash flows for the years ended September 30, 1997, 1996 and 1995                   19 - 20

Notes to the Consolidated Financial Statements                                        21 - 41

Common Stock Information                                                                   42
Corporate Information                                                                      43

-----------------------------------------------------------------------------------------------
</TABLE>





<PAGE>

                             SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    September 30,
                                           -----------------------------------------------------------
                                               1997         1996        1995        1994        1993
                                           -----------------------------------------------------------
<S>                                        <C>           <C>         <C>         <C>         <C>      
Financial Condition Data:                        (Dollars in Thousands, Except Per Share Amounts)
   Total assets                            $   177,962   $ 176,217   $ 151,028   $ 150,077   $ 163,069
   Investments (1)                              47,203      51,403      32,174      43,605      51,749
   Loans receivable, net                       128,946     123,148     117,201     105,094     109,499
   Savings deposits                            112,642     111,385     127,483     128,334     143,220
   Stockholders' equity (2)                     62,946      62,180      22,230      20,453      18,643
   Book value per share                          14.64       14.47          --          --          --

                                                             Years Ended September 30,
                                           -----------------------------------------------------------
                                                1997         1996       1995        1994        1993
                                           -----------------------------------------------------------

Operating Data:                                    (Dollars in Thousands, Except Per Share Amounts)
   Interest and dividend income            $    13,017   $  12,583   $  11,124   $  10,325   $  11,351
   Interest expense                              5,377       6,232       6,119       5,489       6,557
                                           -----------------------------------------------------------
   Net interest income                           7,640       6,351       5,005       4,836       4,794
   Provision for loan losses                        20          10          --          19          52
   Noninterest income                              104         128         106         145         133
   Noninterest expense (3)                       3,231       3,300       2,344       2,117       2,020
                                           -----------------------------------------------------------
   Income before income taxes                    4,493       3,169       2,767       2,845       2,855
   Income tax expense                            1,716       1,099         990       1,035       1,030
                                           -----------------------------------------------------------
   Net income                              $     2,777   $   2,070   $   1,777   $   1,810   $   1,825
                                           ===========================================================
   Earnings per share (2) (4)              $      0.67   $    0.28   $      --   $      --   $      --
   Dividends per share (5)                        0.57        0.35          --          --          --

Selected Other Data:
   Return on average assets                       1.58%       1.22%       1.21%       1.16%       1.12%
   Return on average equity                       4.41%       4.93%       8.29%       9.23%      10.24%
   Interest rate spread                           2.60%       2.50%       2.66%       2.58%       2.48%
   Net interest margin                            4.40%       3.78%       3.42%       3.11%       2.99%
   Dividend payout ratio                            85%        125%         --          --          --
   Average equity to average assets                 36%      24.76%      14.57%      12.52%      10.98%
   Nonperforming loans to total loans (6)         0.13%        .25%        .27%        .39%        .35%

</TABLE>

(1)   Includes  interest  earning   deposits,   federal  funds,  and  investment
      securities.
(2)   On April 3, 1996, Home Federal Savings and Loan Association converted from
      a federally  chartered mutual savings association to a federally chartered
      stock savings  association  and became a wholly owned  subsidiary of Green
      Street Financial Corp.
(3)   Includes nonrecurring insurance assessment of $792,868 during 1996.
(4)   Earnings  per share is based on earnings  from April 3, 1996 to  September
      30, 1996 divided by the weighted average common stock equivalent number of
      shares  outstanding  during that  period.  See Note 1 to the  consolidated
      financial statements.
(5)   Dividends  per  share is  based on  dividends  paid or  declared  on total
      outstanding shares.
(6)   Nonperforming loans is comprised of loans delinquent 90 days or more.

                                       1

<PAGE>


                             Report to Stockholders


Effective April 3, 1996, Home Federal Savings & Loan ("Home Federal")  converted
from mutual to stock ownership and became the  wholly-owned  subsidiary of Green
Street Financial Corp, a holding company which was formed in connection with the
conversion.

This second annual report of Green Street  Financial Corp reflects the financial
results of the Holding Company and Home Federal on a consolidated  basis for the
year ended  September 30, 1997.  Earnings for the year ended  September 30, 1997
were $2.8 million and  represent an increase of $.7 million over 1996.  Earnings
in 1996 were  negatively  impacted by federal  legislation to  recapitalize  the
Savings  Association  Insurance Fund ("SAIF"),  signed into law on September 30,
1996. Green Street Financial Corp declared  dividends of $2.5 million,  or $0.57
per share in the year ended September 30, 1997.

On behalf of the Board of Directors and employees,  I wish to thank you for your
support  and  confidence.  The trust  that you have  placed in us  through  your
investment is gratifying, and we pledge our efforts to enhance the value of your
stock through the safe and sound operation of the Corporation.

Sincerely,


/s/ H.D. Reaves, Jr.
H. D. Reaves, Jr.
President

                                       2

<PAGE>





GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------


                                     General

Green Street Financial Corp (the  "Corporation") was incorporated under the laws
of the State of North  Carolina for the purpose of becoming the savings and loan
holding  company of Home Federal  Savings and Loan (the  "Association"  or "Home
Federal")  in  connection  with the  Association's  conversion  from a federally
chartered  mutual savings and loan  association to a federally  chartered  stock
savings  and  loan  association,   pursuant  to  its  Plan  of  Conversion.  The
Corporation was organized in December 1995 to acquire all of the common stock of
Home Federal upon its  conversion  to stock form. A  subscription  and community
offering of the Corporation's  shares closed on April 3, 1996, at which time the
Corporation  acquired  all  of  the  shares  of the  Association  and  commenced
operations.

In accordance with the Plan of Conversion,  the Corporation  issued common stock
of  $42,981,250  (including  $2,600,000  in shares  purchased by the ESOP),  and
received  proceeds of  $39,126,861,  net of conversion  costs.  The  Corporation
transferred  $20,863,430 of the net proceeds to Home Federal for the purchase of
all of the capital stock of the Association.

The Corporation has no operations and conducts no business of its own other than
owning Home Federal,  investing its portion of the net proceeds  received in the
Conversion,  and lending funds to the Employee Stock Ownership Plan (the "ESOP")
which was formed in connection  with the Conversion.  The principal  business of
the  Association  is accepting  deposits from the general public and using those
deposits  and other  sources of funds to make loans  secured by real  estate and
other forms of collateral  located in the  Association's  primary market area of
Cumberland and Robeson counties in North Carolina.

Home  Federal's  results of  operations  depend  primarily  on its net  interest
income,  which is the difference  between interest income from  interest-earning
assets and interest expense on interest-bearing  liabilities.  The Association's
operations are also affected by noninterest income, such as miscellaneous income
from loans,  customer  deposit  account  service  charges,  and other sources of
revenue.  The Association's  principal operating  expenses,  aside from interest
expense,  consist of  compensation  and  associated  benefits,  federal  deposit
insurance  premiums,   occupancy  costs,  advertising,  and  other  general  and
administrative expenses.

The  following  discussion  and  analysis  is  intended  to  assist  readers  in
understanding  the results of operations in 1997,  1996 and 1995, and changes in
financial   position  for  the  years  ended   September   30,  1997  and  1996,
respectively.

                                       3
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

        Comparison of Financial Condition at September 30, 1997 and 1996

Total  consolidated  assets  increased by $1.8 million during 1997,  from $176.2
million at  September  30, 1996 to $178.0  million at September  30,  1997.  The
increase resulted primarily from savings growth of $1.3 million.

Loans receivable  increased by approximately  $5.8 million during 1997 to $128.9
million at September  30, 1997.  The markets in which the  Association  operates
have experienced consistent growth in recent years, and although diversification
of  the  economic  base  continues  to  occur,   the  local   economies   remain
substantially  dependent  on the large  military  installations  situated in the
Association's lending markets.

Savings deposits increased by approximately $1.3 million during 1997 and totaled
$112.6 million at September 30, 1997. The Association  increased  interest rates
on savings accounts during the year in order to increase deposits.

The Corporation had no outstanding  borrowings during 1997 or 1996. However, the
Association  has  borrowing  capacity  through  the  Federal  Home  Loan Bank of
Atlanta.

The  Corporation's  return on average assets was 1.58% and 1.22%, and its return
on  average  equity was 4.41% and 4.93%,  for 1997 and 1996,  respectively.  The
return on average assets in 1996 would have been 1.55% had the  Association  not
been required to expense the special SAIF assessment during 1996. The decline in
the  return on  average  equity  for 1996 and 1997 from  8.29% in 1995,  was due
primarily to the  substantial  increase in equity  caused by the infusion of the
stock  offering  proceeds.  The passage of the "Deposit  Insurance  Funds Act of
1996" was  undertaken to  recapitalize  the SAIF  insurance fund of the FDIC and
required a one time  assessment to the  Association  of 65.7 basis points of its
assessable  deposit  base as of March 31,  1995.  The expense  recorded for this
special  assessment  amounted  to  $792,868  (See  Note  6 to  the  consolidated
financial statements).

The Association is required to meet certain capital  requirements as established
by the OTS. At September 30, 1997, the  Association's  capital was significantly
in excess of regulatory  capital  requirements  (See Note 15 to the consolidated
financial statements).

                                       4

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

             Comparison of Operating Results for 1997, 1996 and 1995

Net Income

Net  income  for the years  ended  September  30,  1997,  1996 and 1995 was $2.8
million, $2.1 million and $1.8 million,  respectively.  Net income in 1996 would
have been  approximately  $500,000 higher than the earnings reported without the
expense  associated with the special assessment that occurred as a result of the
Federal  legislation  to  recapitalize  the Savings  Association  Insurance Fund
("SAIF").  Earnings  on the  invested  proceeds  from the stock  offering  had a
significant  positive  impact on net interest  income and net income during 1997
and 1996.

Net Interest Income

Net interest  income  represents  the  difference  between  income  derived from
interest-earning  assets  and  interest  expense  incurred  on  interest-bearing
liabilities.  Net interest income is affected by both (i) the difference between
the rates of interest  earned on  interest-earning  assets and the rates paid on
interest-bearing  liabilities  ("interest  rate  spread")  and (ii) the relative
amounts of interest-earning assets and interest-bearing  liabilities outstanding
during the period.  See the table on page 13 which details the average balances,
yields and costs of interest earning assets and interest bearing liabilities and
the rate/volume  table on page 14 which explains the changes in interest income,
interest expense,  and net interest income attributable to changes in volume and
interest rates during 1997, 1996 and 1995.

Net interest income  increased by $1,289,371 or 20.3% to $7,640,101 for the year
ended September 30, 1997 from  $6,350,730  reported in 1996. Net interest income
amounted to $5,005,008 in 1995. The increase in net interest  income during 1997
was  attributable  to an  increase in the  average  balance of interest  earning
assets and a decline in interest paid on deposits. Net interest income increased
by $1,345,722 from 1995 to 1996 primarily due to a $21.7 million increase in the
average balance of interest earning assets as a result of the stock issuance.

Interest Income

Total  interest  income  increased to $13,017,519  for 1997 from  $12,582,992 in
1996, an increase of $434,527 or 3.5%. The increase during 1997 was attributable
to an  increase  in the  average  balance of  interest  earning  assets over the
previous year. The increase in interest income during 1996 was attributable to a
$21.7 million  increase in the average balance of interest earning assets due to
the proceeds received from the stock issuance.  The Association's  overall yield
on interest earning assets increased slightly during 1997, from 7.48% in 1996 to
7.50% in 1997.  The  Association's  overall  yield on  interest  earning  assets
declined slightly during 1996, from 7.59% in 1995 to 7.48% in 1996.



                                       5

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Interest Expense

Total interest expense  decreased to $5,377,418 in 1997 from $6,232,262 in 1996,
a decrease of $854,844 or 13.7%. The  Association's  average balance of deposits
decreased  substantially  in 1997  from  1996 and had a  material  impact on the
decrease in interest expense.  Home Federal's cost of funds was 4.91% in 1997 as
compared to 4.98% in 1996.

Provision For Loan Losses

The Association's  provision for loan losses amounted to approximately  $20,000,
$10,000  and $-0-  for the  years  ended  September  30,  1997,  1996 and  1995,
respectively.  The provision,  which is charged to operations, and the resulting
loan loss  allowances  are amounts Home  Federal's  management  believes will be
adequate to absorb losses on existing loans that may become uncollectible. Loans
are   charged-off   against  the  allowance   when   management   believes  that
collectibility  is  unlikely.  An  evaluation  to  increase  the  provision  and
resulting  allowances  is based on  factors,  such as  changes in the nature and
volume of the loan portfolio,  overall portfolio  quality,  and current economic
conditions.

The  Association's  level of nonperforming  loans,  defined as loans past due 90
days or more,  is  relatively  insignificant  as a  percentage  of  total  loans
outstanding and amounted to .13%, .25%, and .27% at September 30, 1997, 1996 and
1995, respectively.  Home Federal had no loans charged-off during the three-year
period ended September 30, 1997.

Noninterest Income

Noninterest income amounted to $103,983, $127,943 and $105,906 in 1997, 1996 and
1995, respectively. Noninterest income consists primarily of service charges and
fees  associated  with the  Association's  loan and savings  accounts as well as
income from insurance commissions and rental of office space.

Noninterest Expense

Noninterest  expense consists  primarily of operating  expenses for compensation
and associated  benefits,  occupancy,  federal insurance  premiums and operating
assessments,  advertising costs, and data processing charges as well as expenses
associated  with  general  administration.   Noninterest  expenses  amounted  to
$3,231,172,  $3,300,001  and  $2,343,505 in 1997,  1996 and 1995,  respectively.
During  1996,  the  Association  accrued  and  expensed  $792,868  for a special
assessment  required to recapitalize the SAIF of the FDIC.  Without such charge,
noninterest  expense for 1996 would have been $2,507,133,  or approximately 7.0%
higher than in 1995.

                                       6
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Noninterest Expense (Continued)

Compensation  and  employee  benefits  increased  by  $821,441  during 1997 from
$1,458,435 in 1996 to $2,279,876 in 1997. The primary cause for the increase was
the expense  associated  with forming the  Restricted  Stock Plan ("RSP") during
1997.  Compensation and employee benefits  increased by $94,303 during 1996 from
$1,364,132  in 1995  primarily  as a result of  forming  the ESOP  during  1996.
Deposit insurance, excluding the special assessment in 1996, fluctuates with the
level of deposits  outstanding  during the periods.  Occupancy,  advertising and
data  processing  charges  did not  change  significantly  during the three year
period ended  September  30, 1997.  Increases  in other  general  administrative
expense during 1997 and 1996 were  attributable to various costs associated with
operating as a public  company.  It is expected  that  noninterest  expense will
remain above pre-conversion  levels as a result of benefit plans and other costs
associated  with operating as a public company.  Expected  reductions in deposit
insurance  premiums are  anticipated  to only  partially  offset these  expected
higher costs.

In 1996,  the  FDIC  imposed  a  special  assessment  on all  institutions  with
SAIF-assessable  deposits in the amount  necessary to recapitalize  the SAIF. As
implemented  by the FDIC,  institutions  with  SAIF-assessable  deposits  paid a
special  assessment,  subject to adjustment.  The Corporation  charged  $792,868
against  pretax  earnings  for the  quarter  ended  September  30, 1996 for this
assessment.

Income Taxes

The  Corporation's  effective  income tax rate was 38.20%,  34.68% and 35.79% in
1997, 1996, and 1995, respectively. The differences in rates were due to changes
in the components of permanent tax differences. (See Note 14 to the consolidated
financial statements.)

                     Impact of Inflation and Changing Prices

The  consolidated  financial  statements  and  accompanying  footnotes have been
prepared in accordance with generally accepted accounting  principles  ("GAAP"),
which require the  measurement  of financial  position and operating  results in
terms of historical  dollars without  consideration  for changes in the relative
purchasing power of money over time due to inflation. The assets and liabilities
of the  Corporation  are  primarily  monetary  in nature and changes in interest
rates have a greater impact on the Corporation's performance than do the effects
of inflation.


                                       7
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

                          Future Reporting Requirements

The Financial  Accounting  Standards Board has issued SFAS No. 128, Earnings Per
Share  and  SFAS No.  130,  Reporting  Comprehensive  Income  both of which  the
Association has not been required to adopt as of September 30, 1997.

SFAS No. 128, Earnings Per Share,  which will be in effect for the Association's
quarterly  reporting  beginning  December 31, 1997,  establishes  standards  for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock.  The Statement  simplifies
the standards for computing  earnings per share  previously found in APB Opinion
No. 15,  Earnings per Share,  and makes them  comparable  to  international  EPS
standards.  It replaces the  presentation  of primary EPS with a presentation of
basic EPS. It also  requires dual  presentation  of basic and diluted EPS on the
face of the income  statement for all entities with complex  capital  structures
and requires a  reconciliation  of the numerator and  denominator of the diluted
EPS computation.  It is not expected that this statement will materially  effect
the calculation of the Corporation's earnings per share.

SFAS  No.  130,  Reporting  Comprehensive  Income,   establishes  standards  for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  The  Statement  requires  that all items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements. The Statement does not require a specific format for
that  financial  statement  but requires  that an  enterprise  display an amount
representing  total  comprehensive  income  for the  period  in  that  financial
statement. The Statement requires that an enterprise (a) classify items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  It is not expected  that this  statement  will  materially
effect the presentation of the Corporation's comprehensive income.

                Special Note Regarding Forward-Looking Statements

Statements  herein  regarding  estimated future expense levels and other matters
may constitute  forward-looking  statements  under the federal  securities laws.
Such statements are subject to certain risks and  uncertainties.  Undue reliance
should  not be  placed on this  information.  These  estimates  are based on the
current  expectations  of  management,  which may  change in the future due to a
large number of potential events, including unanticipated future developments.


                                       8
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

                         Capital Resources and Liquidity

During 1997,  Green Street Financial Corp paid a regular  quarterly  dividend of
$.10 a share on  January  22,  1997 and April  23,  1997,  a  regular  quarterly
dividend of $.11 a share on July 23, 1997 and declared a regular quarterly and a
special dividend of $.11 and $.15 a share,  respectively,  on September 30, 1997
to be paid on October 22, 1997 to stockholders of record as of October 10, 1997.
Although  the  Corporation  anticipates  that it will  continue to declare  cash
dividends on a regular basis, the Board of Directors will continue to review its
policy on the payment of dividends on an ongoing basis, and such payment will be
subject  to  future  earnings,   cash  flows,   capital  needs,  and  regulatory
restrictions.

The  objective  of the  Corporation's  liquidity  management  is to  ensure  the
availability of sufficient  cash flows to meet all financial  commitments and to
capitalize on opportunities to enhance  stockholders'  value. More specifically,
liquidity ensures that adequate funds are available to meet deposit withdrawals,
fund loan and capital expenditure  commitments,  maintain reserve  requirements,
pay operating  expenses and dividends to stockholders,  and other  institutional
commitments.  Funds are primarily  provided  through  financial  resources  from
operating   activities,   expansion  of  the  deposit  base,   the  maturity  of
investments, or the ability to raise equity capital.

During  the  year  ended  September  30,  1997,  cash and  cash  equivalents,  a
significant source of liquidity,  decreased by approximately $2.4 million.  Cash
and cash equivalents  increased by $6.8 million during 1996. Cash flow resulting
from internal operating  activities  provided increases of $2.6 million and $2.5
million  in  cash  during  the  years  ended   September   30,  1997  and  1996,
respectively.  Deposits  increased  by  $1.3  million  during  1997.  For  1996,
financing  activities  provided sources of funds for asset growth and liquidity.
For the year ended September 30, 1996,  deposits  decreased by $16.1 million but
proceeds from the stock offering  provided an additional  $39.1 million of cash.
The proceeds from the stock offering were used primarily to fund  investment and
loan growth as well as enable the  Association  to fund  deposit  outflows.  The
Association's  ability to generate  deposits has historically been sufficient to
fund its loan  demand and  provide for  adequate  liquidity  without the need to
access other forms of credit  availability.  The recent stock offering will also
enhance  the  Association's  ability  to grow,  and  lessen to some  extent  its
reliance on its deposit base for  financing  its  operations.  In addition,  the
Association  has a readily  available  source of credit  through  its  borrowing
capacity at the Federal Home Loan Bank of Atlanta.

Cash  provided by operating  and  financing  activities is used to originate new
loans to customers, to maintain liquid investment portfolios,  and to meet short
term liquidity  requirements.  During 1997 and 1996, loans outstanding increased
by $5.8  million  and $6.2  million,  respectively.  During  1997 and 1996,  the
Corporation purchased investment securities amounting to $27.0 million and $12.0
million, respectively.

As a federally chartered savings association, Home Federal must maintain a daily
average balance of liquid assets equal to at least 5% of  withdrawable  deposits
and short-term  borrowings.  The Association's  liquidity ratio at September 30,
1997, as computed  under OTS  regulations,  was  considerably  in excess of such
requirements.  Given its excess  liquidity  and its  ability to borrow  from the
Federal Home Loan Bank, the  Association  believes that it will have  sufficient
funds available to meet anticipated future loan commitments,  unexpected deposit
withdrawals, and other cash requirements.

                                       9

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------


                           Asset/Liability Management

Home Federal's  asset/liability  management,  or its management of interest rate
risk, is focused  primarily on  evaluating  and managing the  Association's  net
interest  income given various risk criteria.  Factors beyond the  Association's
control, such as market interest rates and competition,  may also have an impact
on the  Association's  interest income and interest  expense.  In the absence of
other factors, the Association's  overall yield on interest-earning  assets will
increase  as will its cost of funds  on its  interest-bearing  liabilities  when
market  rates  increase  over  an  extended  period  of  time.  Inversely,   the
Association's  yields and cost of funds will decrease when market rates decline.
The  Association  is able to manage these swings to some extent by attempting to
control the  maturity or rate  adjustments  of its  interest-earning  assets and
interest-bearing liabilities over given periods of time.

In order to encourage  savings  associations to reduce their interest rate risk,
the OTS adopted a rule  incorporating  an interest  rate risk ("IRR")  component
into the risk-based capital rules.  However, this rule is not yet in effect. The
IRR  component is a dollar  amount that will be deducted  from total capital for
the purpose of calculating an institution's  risk-based capital  requirement and
is measured in terms of the  sensitivity  of its net portfolio  value ("NPV") to
changes in interest rates.  NPV is the difference  between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An  institution's  IRR is  measured  as the  change  to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the  estimated  present  value of total  assets
("PV")  will  require  the  institution  to deduct  from its capital 50% of that
excess  change.  The rules provide that the OTS will calculate the IRR component
quarterly for each  institution.  The following table presents the Association's
NPV at  September  30,  1997,  as  calculated  by the OTS,  based  on  quarterly
information  voluntarily  provided  to  the  OTS  by  the  Association.  Certain
assumptions  utilized by the OTS in assessing  the interest rate risk of savings
associations were employed in preparing the table.  These assumptions  relate to
interest  rates,  loan  prepayment  rates,  deposit decay rates,  and the market
values of certain assets under the various interest rate scenarios.  It was also
assumed  that  delinquency  rates  will not  change  as a result of  changes  in
interest  rates  although  there can be no assurance that this will be the case.
Even if  interest  rates  change  in the  designated  amounts,  there  can be no
assurance that the  Association's  assets and  liabilities  would perform as set
forth below.

As a result,  certain  shortcomings  are  inherent  in the  following  NPV table
because the data  reflects  hypothetical  changes in NPV based upon  assumptions
used by the OTS to  evaluate  the  Association  as well as  other  institutions.
However,  based on the data below,  net  interest  income  should  decline  with
instantaneous  increases  in interest  rates while net  interest  income  should
increase with instantaneous declines in interest rates. Generally during periods
of  increasing  interest  rates,  the  Association's   interest  rate  sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the  Association's  interest  rate  spread and  margin.  This would
result  from an increase  in the  Association's  cost of funds that would not be
immediately offset by an increase in its yield on earning assets. An increase in
the cost of funds without an equivalent  increase in the yield on earning assets
would tend to reduce net interest income. In times of decreasing interest rates,
fixed rate assets  could  increase in value and the lag in repricing of interest
rate  sensitive  assets  could be  expected  to have a  positive  effect  on the
Association's net interest income.

                                       10
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

                     Asset/Liability Management (Continued)

<TABLE>
<CAPTION>
                                     Net Portfolio Value                   NPV as a % of PV of Assets
                      ------------------------------------------------  --------------------------------
Change in Rates            $ Amount      $ Change (1)    % Change (2)      NPV Ratio (3)    Change (4)
-------------------   ------------------------------------------------  --------------------------------
<S>                         <C>           <C>                <C>            <C>             <C>   
+400 bp                     35,123        (13,662)           -28 %          23.95 %         -607 bp
                                                                    
+300 bp                     38,653        (10,131)           -21 %          25.65 %         -437 bp
                                                                    
+200 bp                     42,227         (6,558)           -13 %          27.27 %         -275 bp
                                                                    
+100 bp                     45,693         (3,091)            -6 %          28.76 %         -126 bp
   0 bp                     48,784             --             --            30.02 %           --
-100 bp                     50,924          2,140             +4 %          30.82 %         + 80 bp
-200 bp                     52,360          3,576             +7 %          31.30 %         +128 bp
-300 bp                     54,009          5,225            +11 %          31.85 %         +183 bp
-400 bp                     56,125          7,341            +15 %          32.58 %         +256 bp

</TABLE>


(1)   Represents  the excess  (deficiency)  of the  estimated  NPV  assuming the
      indicated  change in interest  rates minus the  estimated  NPV assuming no
      change in interest rates.
(2)   Calculated  as the amount of change in the  estimated  NPV  divided by the
      estimated NPV assuming no change in interest rates.
(3)   Calculated as the estimated NPV divided by present value of total assets.
(4)   Calculated  as the  excess  (deficiency)  of the NPV  ratio  assuming  the
      indicated  change in interest  rates over the estimated NPV ratio assuming
      no change in interest rates.

At September 30, 1997, a change in interest rates of a positive 200 basis points
would have resulted in a 275 basis point  decrease in NPV as a percentage of the
present  value  of  the  Association's  total  assets.  Utilizing  the  OTS  IRR
measurement  described  above, at September 30, 1997 the Association  would have
been  considered by the OTS to have been subject to "above normal" IRR.  However
the Association is  substantially in excess of its required  risk-based  capital
requirement  at September  30, 1997 and would  continue to be so even if the IRR
component rule was implemented by the OTS.

In order to minimize the  potential  effects of adverse  material and  prolonged
increases or decreases in market interest rates on the Association's operations,
management has implemented an  asset/liability  program  designed to improve the
Association's interest rate sensitivity.  The program emphasizes the origination
of adjustable  rate loans,  which are held in the  portfolio,  the investment of
excess cash in short or  intermediate  term  interest  earning  assets,  and the
solicitation  of  passbook  or  transaction  deposit  accounts  which  are  less
sensitive to changes in interest rates and can be repriced rapidly.


                                       11
<PAGE>




GREEN STREET FINANCIAL CORP AND SUBSIDIARY


MARKET RISK ANALYSIS
September 30, 1997

<TABLE>
<CAPTION>
                                                                        Expected Maturity Date
                             ------------------------------------------------------------------------------------------------------
                                                                        Year Ended September 30,
                             ------------------------------------------------------------------------------------------------------
                                1998         1999         2000        2001        2002    Thereafter       Total        Fair Value
-----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>         <C>         <C>         <C>         <C>           <C>            <C>        
Assets:
   Loans - fixed:
      Balance                $   538,865  $  210,586  $  500,189  $  576,298  $1,950,162  $75,656,918   $79,433,018    $79,678,266
      Interest rate                10.34%       9.33%       9.01%       9.75%       8.95%        8.43%         8.70%            --
   Loans - variable:
      Balance                 51,677,634     551,100          --          --          --           --    52,228,734     52,228,734
      Interest rate                 7.24%       7.18%         --          --          --           --          7.20%            --
   Investments (1):
      Balance                 33,087,640          --          --   1,500,000   9,000,000    3,000,000    46,587,640     46,642,956
      Interest rate                 5.65%         --          --        7.20%       6.84%        7.07%         6.02%            --
Liabilities: 
   Deposits (2):
      Balance                 27,249,725          --          --          --          --           --    27,249,725     27,249,725
      Interest rate                 3.52%         --          --          --          --           --          3.52%            --
   Deposits - certificates:
      Balance                 64,154,344   9,818,585   4,312,547   7,039,871      66,821           --    85,392,168     85,439,000
      Interest rate                 5.60%       5.94%       5.98%       6.00%       8.00%          --          5.70%            --


</TABLE>


(1)   Includes  deposits,   federal  funds,  and  held  to  maturity  investment
      securities.
(2)   Includes Passbook Accounts, NOW Accounts, Super NOW Accounts, Money Market
      Funds and accrued interest.


                                       12

<PAGE>

Average Balances, Interest, Yields and Costs  

The following table sets forth certain information relating to the Corporation's
average  balance sheet and reflects the average yield on assets and average cost
of  liabilities  at and for the  periods  indicated.  Such  yields and costs are
derived  by  dividing  income or  expense  by the  average  balance of assets or
liabilities,  respectively,  for the periods  presented.  Average  balances  are
derived from  month-end  balances.  Management  does not believe that the use of
month-end  balances  instead  of daily  average  balances  has caused a material
difference in the information presented.

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,                    
                                            ---------------------------------------------------------------------------------------
                         At September 30, 
                               1997                   1997                            1996                         1995
                         ------------------ -----------------------------  ---------------------------  ----------------------------

                         Actual   Average   Average             Average    Average           Average    Average            Average
                         Balance Yield\Cost Balance  Interest  Yield/Cost  Balance Interest Yield/Cost  Balance  Interest Yield/Cost
                         ------- ---------- -------  --------  ----------  ------- -------- ----------  -------- -------- ----------
                                                                              (Dollars in Thousands)
<S>                     <C>      <C>      <C>        <C>        <C>     <C>       <C>       <C>       <C>       <C>       <C>  
Assets:
Interest earning assets:
  Interest-bearing 
    deposits            $ 32,533   5.65%  $ 33,447   $ 1,838      5.50% $ 40,508  $ 2,206     5.45%   $ 30,850  $ 1,766     5.72%
  Investments, at cost    14,671   6.66%    14,545       977      6.72%    6,656      480     7.21%      3,416      249     7.29%
  Loans receivable       128,946   7.91%   125,520    10,202      8.13%  121,024    9,897     8.18%    112,201    9,109     8.12%
                        --------          --------   -------            -------- -------              --------  -------     
Total interest-earning 
  assets                 176,150   7.39%   173,512   $13,017      7.50%  168,188  $12,583     7.48%    146,467  $11,124     7.59%
                                                     -------                      -------                       -------
Non-interest-earning
  assets                   1,812             1,628                         1,322                           701
                        --------          --------                      --------                      --------
      Total             $177,962          $175,140                      $169,510                      $147,168
                        ========          ========                      ========                      ========

Liabilities and
  retained earnings:
Interest-bearing
 liabilities:
  Passbook accounts     $ 12,991   3.33%  $ 14,237   $   432      3.03% $ 20,068  $   548     2.73%   $ 15,870  $   576     3.63%
  MMDA accounts           14,225   3.99%    14,175       567      4.00%   14,344      583     4.06%     14,845      622     4.19%
  Certificates of 
   deposit                85,392   5.13%    81,205     4,378      5.39%   90,779    5,101     5.62%     93,281    4,921     5.28%
                        --------          --------   -------            --------  -------             --------  -------     
Total interest-bearing 
  liabilities            112,608   4.77%   109,617   $ 5,377      4.91%  125,191  $ 6,232     4.98%    123,996  $ 6,119     4.93%
                                                     -------                      -------                       -------  
Non-interest-bearing 
  liabilities              2,408             2,476                         2,354                         1,727
Stockholders' Equity      62,946            63,047                        41,965                        21,445
                         -------           -------                       -------                       -------
      Total             $177,962          $175,140                      $169,510                      $147,168
                        ========          ========                      ========                      ========

Net interest income and 
  interest rate 
  spread (1)                       2.61%             $  7,640     2.60%           $ 6,351     2.50%             $  5,005    2.66%
                                                     ========                     =======                       ========      
Net yield on interest-
  earning assets (2)               4.34%                          4.40%                       3.78%                         3.42%
Ratio of interest-
  earning assets to 
  interest-bearing 
  liabilities                    156.43%                        158.29%                     134.35%                       118.12%

</TABLE>


(1)   Interest rate spread  represents the difference  between the average yield
      on  interest-earning  assets  and the  average  cost  of  interest-bearing
      liabilities.
(2)   Net  yield on  interest-earning  assets  represents  net  interest  income
      divided by average interest-earning assets.

                                       13

<PAGE>



Rate/Volume Analysis

The following table analyzes the dollar amount of changes in interest income and
interest  expense for major  components of the  Corporation's  interest  earning
assets and interest bearing  liabilities.  The table  distinguishes  between (1)
changes  in net  interest  income  attributable  to  volume  (changes  in volume
multiplied by the prior period's  interest  rate),  (ii) changes in net interest
income  attributable to rate (changes in interest rates  multiplied by the prior
period's  volume),  and (iii) mixed  changes  (changes in volume  multiplied  by
changes in rates).

<TABLE>
<CAPTION>
                                            Year Ended September 30,                   Year Ended September 30,
                                              1997     vs.     1996                      1996     vs.     1995
                                     ---------------------------------------     --------------------------------------
                                       Increase (Decrease) Attributable to         Increase (Decrease) Attributable to
                                     ---------------------------------------     ---------------------------------------
                                                              Rate/                                      Rate/
                                     Volume       Rate       Volume      Net     Volume      Rate       Volume       Net
                                     ------       ----       ------      ---     ------      ----       ------       ---
                                                                    (Dollars in Thousands)
<S>                                 <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>    
Interest income on:
  Interest earning deposits         $   (385)   $    20    $    (3)   $  (368)   $   553    $   (86)   $   (27)   $   440
  Investments, at cost                   569        (33)       (39)       497        236         (3)        (2)       231
  Loan receivable                        368        (60)        (2)       305        716         66          6        788
                                     -------    -------    -------    -------    -------    -------    -------    -------
    Total interest income on 
       interest-earning assets           552        (73)       (45)       434      1,505        (23)       (23)     1,459
                                     -------    -------    -------    -------    -------    -------    -------    -------

Interest expense on:
  Passbook accounts                     (159)        61        (18)      (116)       152       (143)       (37)       (28)
  MMDA accounts                           (7)        (9)         0        (16)       (21)       (19)         1        (39)
  Certificates of deposit               (538)      (207)        22       (723)      (132)       321)        (9)       180
                                     -------    -------    -------    -------    -------    -------    -------    -------
    Total interest expense on
      interest-bearing liabilities      (704)      (155)         4       (855)        (1)       159        (45)       113
                                     -------    -------    -------    -------    -------    -------    -------    -------

Increase (decrease) in net interest
   income                            $ 1,256    $    82    $   (49)   $ 1,289    $ 1,506    $  (182)   $    22    $ 1,346
                                     =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>


                                       14



<PAGE>


                                     [LOGO]

                            MCGLADREY & PULLEN, LLP
                  --------------------------------------------
                  Certified Public Accountants and Consultants



                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Green Street Financial Corp
Fayetteville, North Carolina

We have audited the accompanying  consolidated statements of financial condition
of Green Street Financial Corp and subsidiary as of September 30, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three year period ended  September  30, 1997.
These  financial   statements  are  the   responsibility  of  the  Corporation's
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Green Street Financial Corp and
subsidiary  as of  September  30,  1997  and  1996,  and the  results  of  their
operations  and their cash flows for each of the years in the three year  period
ended  September 30, 1997,  in conformity  with  generally  accepted  accounting
principles.


                                                     /s/ McGladrey & Pullen, LLP



Raleigh, North Carolina
October 23, 1997

                                       15
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and 1996

<TABLE>
<CAPTION>

ASSETS                                                                              1997             1996
------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>          
Cash and short-term cash investments:
   Interest-bearing                                                           $  29,414,597    $  33,107,849
   Noninterest-bearing                                                              555,043          249,345
Federal funds sold                                                                3,118,000        2,124,712
Investment securities:  (Note 2)
   Held to maturity                                                              13,500,000       14,999,179
   Nonmarketable equity securities                                                1,170,889        1,170,889
Loans receivable, net (Note 3)                                                  128,945,951      123,147,779
Accrued interest receivable, investments                                            222,716          255,566
Real estate acquired in settlement of loans                                              --           34,425
Property and equipment, net (Note 4)                                                306,794          330,260
Prepaid expenses and other assets (Note 12)                                         727,688          675,084
Deferred tax assets (Note 14)                                                            --          122,000
                                                                              ------------------------------
           Total assets                                                       $ 177,961,678    $ 176,217,088
                                                                              ==============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits (Note 5)                                                          $ 112,641,893    $ 111,385,386
   Advance payments by borrowers for taxes and insurance                            250,662          179,444
   Accrued expenses and other liabilities                                           348,080          174,607
   Special SAIF assessment (Note 6)                                                      --          792,868
   Dividends payable                                                              1,117,513        1,074,531
   Deferred compensation (Note 7)                                                   387,847          405,233
   Deferred income taxes (Note 14)                                                   27,000               --
   Income taxes payable                                                             243,000           25,000
                                                                              ------------------------------
           Total liabilities                                                    115,015,995      114,037,069
                                                                              ------------------------------
Commitments  and  contingencies  (Notes 8, 10, 11 and 16)
Stockholders'  Equity (Note 15):
   Preferred stock,  authorized  1,000,000 shares;  none issued                          --               --   
   Common stock, no par value, authorized 10,000,000 shares;
    issued and outstanding 4,298,125 shares                                              --               --
   Additional paid-in capital                                                    41,816,239       41,767,226
   Note receivable, ESOP (Note 9)                                                (2,210,000)      (2,470,000)
   Retained earnings, substantially restricted (Note 15)                         23,339,444       22,882,793
                                                                              ------------------------------
                                                                                 62,945,683       62,180,019
                                                                              ------------------------------
                                                                              $ 177,961,678    $ 176,217,088
                                                                              ============================== 
</TABLE>

See Notes to Consolidated  Financial Statements 

                                       16

<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                       1997          1996           1995
--------------------------------------------------------------------------------------------
<S>                                                <C>            <C>            <C>        
Interest and dividend income:
   Loans                                           $10,202,266    $ 9,897,134    $ 9,108,701
   Short-term cash investments                       1,837,998      2,206,230      1,766,248
   Investment securities                               977,255        479,628        248,652
                                                   -----------------------------------------
              Total interest income                 13,017,519     12,582,992     11,123,601
Interest on deposits (Note 5)                        5,377,418      6,232,262      6,118,593
                                                   -----------------------------------------
              Net interest income                    7,640,101      6,350,730      5,005,008
Provision for loan losses (Note 3)                      20,000         10,073             --
                                                   -----------------------------------------
              Net interest income after                                          
              provision for loan losses              7,620,101      6,340,657      5,005,008
                                                   -----------------------------------------
Noninterest income:                                                              
   Service charges and fees                             30,447         52,595         43,119
   Other                                                73,536         75,348         62,787
                                                   -----------------------------------------
                                                       103,983         127,943       105,906
                                                   -----------------------------------------
Noninterest expense:                                                             
   Compensation and benefits (Notes 8, 9,10 and 11)  2,279,876      1,458,435      1,364,132
   Deposit insurance                                   155,132        334,329        336,479
   Special SAIF assessment (Note 6)                         --        792,868             --
   Occupancy expenses                                  146,610        161,807        155,249
   Advertising                                         161,431        137,558        159,632
   Data processing expense                              91,234         97,384         93,235
   Other                                               396,889        317,620        234,778
                                                   -----------------------------------------
                                                     3,231,172       3,300,001     2,343,505
                                                   -----------------------------------------
              Income before income taxes             4,492,912      3,168,599      2,767,409
                                                   -----------------------------------------
Income taxes (credits) (Note 14):                                                
   Current                                           1,567,265      1,348,953        971,403
   Deferred                                            149,000       (250,000)        19,000
                                                   -----------------------------------------
                                                     1,716,265      1,098,953        990,403
                                                   -----------------------------------------
              Net income                           $ 2,776,647    $ 2,069,646    $ 1,777,006
                                                   ========================================= 
                                                                                
Earnings per share (Note 1)                        $      0.67    $      0.28    $        --
                                                   ========================================= 
Weighted average common and common                                               
   equivalent shares outstanding                     4,116,271      4,051,125             --
                                                   ========================================= 
Cash dividends per share                           $      0.57    $      0.35    $        --
                                                   ========================================= 
</TABLE>

See Notes to Consolidated Financial Statements 

                                       17

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                          Additional           Note
                                            Paid-in         Receivable          Retained
                                            Capital            ESOP             Earnings        Total                             
--------------------------------------------------------------------------------------------------------

<S>                                       <C>              <C>              <C>             <C>         
Balance at  September 30, 1994            $         --     $       --       $ 20,453,385    $ 20,453,385
   Net income                                       --             --          1,777,006       1,777,006
                                          --------------------------------------------------------------
Balance at  September 30, 1995                      --             --         22,230,391      22,230,391
   Net income                                       --             --          2,069,646       2,069,646
   Net proceeds from issuance of common
   stock common stock (Note 15)             39,126,861             --                 --      39,126,861
   Purchase of common stock
      by the ESOP (Note 9)                   2,600,000      (2,600,000)               --              --
   Repayment of ESOP note                           --         130,000                --         130,000   
   ESOP contribution (Note 9)                   40,365              --                --          40,365
   Cash dividends                                   --              --        (1,417,244)     (1,417,244)
                                          --------------------------------------------------------------

Balance at  September 30, 1996              41,767,226      (2,470,000)       22,882,793      62,180,019
   Net income                                       --              --         2,776,647       2,776,647
   Repayment of ESOP note                           --         260,000                --         260,000
   ESOP contribution (Note 9)                  182,325              --                --         182,325
   Cash dividends                                   --              --        (2,319,996)     (2,319,996)
   RSP awards in excess of 
      grant price (Note 10 )                  (133,312)             --                --        (133,312)
                                          --------------------------------------------------------------
Balance at September 30, 1997             $ 41,816,239     $(2,210,000)     $ 23,339,444    $ 62,945,683
                                          ===============================================================

</TABLE>

See Notes to Consolidated Financial Statements.

                                       18

<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                                    
                                                             1997           1996           1995
---------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>        
Cash Flows From Operating Activities
   Net income                                             $ 2,776,647    $ 2,069,646    $ 1,777,006
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation                                             36,504         42,428         42,137
      Deferred income taxes                                   149,000       (250,000)        19,000
      Accretion of investment discounts                          (821)        (5,741)            --
      Net gain on disposal of real estate
        acquired in settlement of loans                       (12,354)       (22,104)        (1,220)
      Provision for loan losses                                20,000         10,073             --
      ESOP contribution expense credited to
        additional paid-in capital                            182,325         40,365             --
      Increase (decrease) in reserve for
        uncollected interest                                  (10,850)         2,529        (16,975)
      Increase (decrease) in deferred compensation            (17,386)        (5,782)        14,222
      Changes in assets and liabilities:
        (Increase) decrease in:
           Prepaid expenses and other assets                  (52,604)       (80,283)       (60,427)
           Refundable income taxes                                 --         12,000        (12,000)
           Accrued interest receivable                         32,850       (138,655)       (56,911)
        Increase (decrease) in:
           Accrued expenses and other liabilities              40,161         35,603        100,674
           Accrued special SAIF assessment                   (792,868)       792,868             --
           Income taxes payable                               218,000         25,000        (12,500)
                                                          ------------------------------------------
              Net cash provided by operating activities     2,568,604      2,527,947      1,793,006
                                                          ------------------------------------------

Cash Flows From Investing Activities
   Purchase of held to maturity investment securities     (27,000,000)   (12,000,000)    (2,993,438)
   Proceeds from maturity of held to maturity
      investment securities                                28,500,000             --             --
   Net increase in  loans receivable                       (5,807,322)    (6,174,422)   (12,130,078)
   Proceeds from sale of real estate acquired
      in settlement of loans                                   46,779        203,013         79,158
   Purchase of equipment                                      (13,038)       (20,436)       (15,709)
                                                          ------------------------------------------
              Net cash used in investing activities        (4,273,581)   (17,991,845)   (15,060,067)
                                                          ------------------------------------------
</TABLE>

                          (Continued)

                                       19

<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                                   
                                                        1997           1996             1995
------------------------------------------------------------------------------------------------       
<S>                                                <C>             <C>             <C>          
Cash Flows From Financing Activities
   Net increase (decrease)  in deposits            $  1,256,507    $(16,097,559)   $   (850,916)
   Decrease in advance payments by borrowers
       for taxes and insurance                           71,218        (457,085)        (96,688)
   Net proceeds received from issuance of
      common stock                                           --      39,126,861              --
   Principal repayments received on ESOP note           260,000         130,000              --
   Cash dividends paid                               (2,277,014)       (404,463)             --
                                                   --------------------------------------------
              Net cash provided by (used in)
              financing activities                     (689,289)     22,297,754        (947,604)
                                                   --------------------------------------------
              Net  increase (decrease) in cash
              and cash equivalents                   (2,394,266)      6,833,856     (14,214,665)
Cash and cash equivalents:
   Beginning                                         35,481,906      28,648,050      42,862,715
                                                   --------------------------------------------
   Ending                                          $ 33,087,640    $ 35,481,906    $ 28,648,050
                                                   ============================================

Cash and cash equivalents:
   Cash and short-term investments:
      Interest-bearing                             $ 29,414,597    $ 33,107,849    $ 27,472,071
      Noninterest-bearing                               555,043         249,345         638,210
      Federal funds sold                              3,118,000       2,124,712         537,769
                                                   --------------------------------------------
                                                   $ 33,087,640    $ 35,481,906    $ 28,648,050
                                                   ============================================

Supplemental Disclosure of Cash Flow Information
   Cash payments for:
      Interest                                     $  5,374,888    $  6,239,628    $  6,144,260
                                                   ============================================
      Income taxes                                 $  1,349,265    $  1,147,800    $    997,000
                                                   ============================================

Supplemental Disclosure of Noncash Investing
  and Financing Activities
   Transfer from loans to real estate
      acquired in settlement of loans              $       --      $    215,334    $    40,190
                                                   ============================================
   Dividends declared and accrued                  $1,117,513      $  1,074,531    $        --
                                                   ============================================
   Stock issued in exchange for note receivable
      from ESOP                                    $       --      $  2,600,000    $        --
                                                   ============================================
                                                                                                  
</TABLE>

See Notes to Consolidated Financial Statements.

                                       20
<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 1.  Nature of Business and Significant Accounting Policies

Conversion and organization of holding  corporation:  On April 3, 1996, pursuant
to a Plan of Conversion  which was approved by its members and regulators,  Home
Federal  Savings and Loan  Association  ("Home  Federal"  or the  "Association")
converted from a federally  chartered  mutual savings and loan  association to a
federally   chartered  stock  savings  and  loan   association,   and  became  a
wholly-owned subsidiary of Green Street Financial Corp (the "Corporation").  The
Corporation  was formed in December  1995 to acquire all of the common  stock of
the  Association  upon its  conversion  to stock form.  The  Corporation  has no
operations  and conducts no business of its own other than owning Home  Federal,
investing  its  portion of the net  proceeds  received  in the  Conversion,  and
lending funds to the Employee Stock Ownership Plan (the "ESOP") which was formed
in connection with the Conversion.

Nature of business:  The Association is a federally  chartered operating savings
and loan association primarily engaged in the business of obtaining deposits and
providing mortgage credit to the general public.  The Association's  business is
conducted  primarily in Fayetteville,  North Carolina in Cumberland  County. The
Association's  primary regulator is the Office of Thrift Supervision ("OTS") and
its deposits are insured by the Savings  Association  Insurance Fund ("SAIF") of
the FDIC.

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.

Outlined below are the accounting and reporting policies considered  significant
by the Corporation:

Principles of consolidation: The consolidated financial statements for the years
ended September 30, 1997 and 1996 include the accounts of Green Street Financial
Corp and its wholly-owned subsidiary, Home Federal Savings and Loan Association.
Green Street  Financial Corp was  capitalized on April 3, 1996;  therefore,  the
consolidated  financial statements include the operations of the Corporation for
periods subsequent to April 3, 1996. The financial statements for the year ended
September 30, 1995 present only the accounts and operations of Home Federal. All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Cash and cash equivalents: For purposes of reporting cash flows, the Corporation
considers   cash  on  hand  and  amounts  due  from   depository   institutions,
interest-bearing  deposits,  and federal funds sold to be cash  equivalents.  At
times, the Corporation maintains deposits in correspondent banks in amounts that
may be in excess of the FDIC insurance limit.

                                       21

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 1.     Nature of Business and Significant Accounting Policies (Continued)

Investment   securities:   The  Association  accounts  for  its  investments  in
accordance  with Statement of Financial  Accounting  Standards  ("SFAS") No. 115
Accounting for Certain  Investments in Debt and Equity Securities.  Accordingly,
equity securities, which are nonmarketable,  do not require classification under
SFAS No. 115 and continue to be carried at cost.  Securities  classified as held
to maturity are those debt  securities the  Corporation  has both the intent and
the  ability to hold to  maturity  regardless  of changes in market  conditions,
liquidity needs or changes in general economic conditions.  These securities are
carried at cost adjusted for amortization of premiums or accretion of discounts,
computed  by  a  method  which  approximates  the  interest  method  over  their
contractual  lives.  The  Corporation  currently  has no  securities  which  are
classified as available for sale or trading.  Gain or loss on sale of securities
is  recognized  when  realized  and is based  upon  the  specific-identification
method.

Loans receivable: Loans receivable are stated at unpaid principal balances, less
allowances for loan losses, the undisbursed portion of loans in process, and net
deferred  loan  origination  fees and  discounts.  The loan  portfolio  consists
principally of long-term  conventional  loans  collateralized  by first deeds of
trust on single-family residences, other residential property and nonresidential
property.

Loan fees and  discounts:  The  Association  receives fees for  originating  and
servicing loans. The Association defers all origination fees less certain direct
costs as an adjustment  to yield of the related  loans and  amortizes  such fees
into income,  using the interest  method,  over the economic life of the related
loans, estimated to be twelve years.

Allowance for loan losses:  Provisions for loan losses are charged to operations
based on the Association's evaluation of potential losses in its loan portfolio.
Losses are charged against the allowance when  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 upon evaluations of
the  collectibility  of loans, and prior loan loss  experience.  The evaluations
take into  consideration 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.

The Association  follows SFAS No. 114, Accounting by Creditors for Impairment of
a Loan as amended by SFAS No. 118,  Accounting by Creditors for  Impairment of a
Loan-Income Recognition and Disclosures. SFAS No. 114, as amended, requires that
the Association  establish specific loan loss allowances on impaired loans if it
is doubtful that all principal and interest due according to the loan terms will
be  collected.  The  adoption  of SFAS  No.  114 did not have an  effect  on the
Association's  reporting for impaired loans since the  Association  had no loans
outstanding  during the year ended  September  30, 1997 which it considers to be
impaired.  Therefore,  there is no  specific  allowance  for  impaired  loans at
September 30, 1997.

Interest income:  Interest on loans is recognized over the term of the loans and
is calculated  primarily using the  simple-interest  method on principal amounts
outstanding.  Accrual of interest is generally  stopped when the loan becomes 90
days past due.  Interest on these loans is recognized only when actually paid by
the borrower.

                                       22

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 1.     Nature of Business and Significant Accounting Policies (Continued)

Property, equipment and depreciation: Property and equipment are stated at cost,
less accumulated depreciation.  Depreciation is computed using the straight-line
method over the estimated useful lives of the various classes of assets.

Real estate acquired in settlement of loans:  Real estate acquired in settlement
of  loans  is  initially  recorded  at fair  value  at the  date of  foreclosure
establishing a new cost basis.  After  foreclosure,  valuations are periodically
performed by  management  and the real estate is carried at the lower of cost or
fair value,  minus estimated cost to sell. Costs relating to the development and
improvement of the property are capitalized, while holding costs of the property
are  charged to expense in the period  incurred.  At  September  30,  1997,  the
Association did not hold any such real estate.

Advance payments by borrowers for taxes and insurance:  The Association requires
certain  borrowers  to make  monthly  payments,  in  addition to  principal  and
interest,  in order to accumulate  funds from which the  Association can pay the
borrowers' property taxes and insurance premiums.

Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary  differences and deferred tax
liabilities  are  recognized  for  taxable  temporary   differences.   Temporary
differences  are the  differences  between  the  reported  amounts of assets and
liabilities and their tax bases.  Deferred tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some portion or all of the  deferred  tax assets will not be realized.  Deferred
tax assets and  liabilities  are adjusted for the effects of changes in tax laws
and rates on the date of enactment.

Earnings per share: The earnings per share  computation for 1996 is based on net
income  earned  from  the date of  Conversion,  April 3,  1996,  divided  by the
weighted average number of common and common equivalent shares  outstanding from
the  date  of  Conversion  to the end of the  1996  fiscal  year.  Subsequently,
earnings per share is computed by dividing  net income by the  weighted  average
number of common and common  equivalent  shares  outstanding  for the year.  The
computations  exclude  shares which are  unallocated  under the  employee  stock
ownership plan.

Fair value of financial  instruments:  The estimated fair values  required under
SFAS No. 107, Disclosures About Fair Value of Financial  Instruments,  have been
determined  using  available  market   information  and  appropriate   valuation
methodologies.  However,  considerable  judgment  is  required  to  develop  the
estimates.  Accordingly,  the estimates for the fair value of the  Corporation's
financial  instruments  are  not  necessarily  indicative  of  the  amounts  the
Corporation  could realize in a current  market  exchange.  The use of different
market assumptions or estimation methodologies may have a material effect on the
estimated fair value amounts.

The fair  value  estimates  are  based on  pertinent  information  available  to
management as of September 30, 1997 and 1996, respectively.  Although management
is not aware of any factors that would  significantly  affect the estimated fair
value amounts, such amounts have not been comprehensively  revalued for purposes
of  these  financial  statements  since  those  dates,  and  therefore,  current
estimates  of fair value may differ  significantly  from the  amounts  presented
herein.  The following  methods and assumptions  were used by the Corporation in
estimating its fair value disclosures for financial instruments:

                                       23

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 1. Nature of Business and Significant Accounting Policies (Continued)

   Cash and short term cash  investments / federal funds sold / accrued interest
   receivable:  The  carrying  amounts  reported in the  statement  of financial
   condition for cash and short-term cash  investments,  for federal funds sold,
   and for accrued interest receivable approximates those assets' fair values.

   Investment  securities:  Investment  securities  consists of US Treasury  and
   agency  obligations,  Federal  Home  Loan  Bank  stock  and  Central  Service
   Corporation  stock. The fair values of the US Treasury and agency obligations
   are determined based on quoted market values.  No ready market exists for the
   equity  securities,  and they have no quoted  market  value.  For  disclosure
   purposes,  such securities are assumed to have a fair value which is equal to
   its cost or redemption value.

   Loans receivable: For variable-rate loans that reprice frequently and with no
   significant  change in credit risk, fair values are based on carrying values.
   The fair value for  remaining  loans has been  estimated by  discounting  the
   projected future cash flows at September 30, 1997 and 1996, using the rate on
   those dates at which  similar  loans would be made to borrowers  with similar
   credit ratings and for similar maturities or repricing periods.  The discount
   rate used has been adjusted by an estimated credit risk factor to approximate
   the adjustment that would be applied in the marketplace for any nonperforming
   loans. Certain prepayment  assumptions have also been made depending upon the
   original contractual lives of the loans.

   Deposits:  The fair value of deposits  with no stated  maturities,  including
   transaction  accounts and passbook  savings accounts is estimated to be equal
   to the amount  payable on demand as of September 30, 1997 and 1996.  The fair
   value of certificates of deposit is based upon the discounted value of future
   contractual  cash  flows.  The  discount  rate is  estimated  using the rates
   offered on  September  30, 1997 and 1996 for  deposits  of similar  remaining
   maturities.

   Off-balance-sheet  commitments:  Because the Association's commitments, which
   consist  entirely of loan  commitments,  are either  short-term  in nature or
   subject to  immediate  repricing,  no fair value has been  assigned  to these
   off-balance-sheet items.

Future  Reporting  Requirements:  The Financial  Accounting  Standards Board has
issued  SFAS  No.  128,   Earnings  Per  Share  and  SFAS  No.  130,   Reporting
Comprehensive  Income  both of which the  Association  has not been  required to
adopt as of September 30, 1997.

SFAS No. 128, Earnings per Share,  which will be in effect for the Association's
quarterly  reporting  beginning  December 31, 1997,  establishes  standards  for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock.  The Statement  simplifies
the standards for computing  earnings per share  previously found in APB Opinion
No. 15,  Earnings per Share,  and makes them  comparable  to  international  EPS
standards.  It replaces the  presentation  of primary EPS with a presentation of
basic EPS. It also  requires dual  presentation  of basic and diluted EPS on the
face of the income  statement for all entities with complex  capital  structures
and requires a  reconciliation  of the numerator and  denominator of the diluted
EPS computation.  It is not expected that this statement will materially  effect
the calculation of the Corporation's earnings per share.

                                       24

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 1.     Nature of Business and Significant Accounting Policies (Continued)

SFAS  No.  130,  Reporting  Comprehensive  Income,   establishes  standards  for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  The  Statement  requires  that all items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements. The Statement does not require a specific format for
that  financial  statement  but requires  that an  enterprise  display an amount
representing  total  comprehensive  income  for the  period  in  that  financial
statement. The Statement requires that an enterprise (a) classify items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  It is not expected  that this  statement  will  materially
affect the presentation of the Corporation's comprehensive income.


                                       25

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 2. Investment Securities

The amortized  cost and estimated  market value of investment  securities are as
follows at September 30, 1997 and 1996:

<TABLE>
<CAPTION>          

                                                               1997
                                      -------------------------------------------------------
                                                       Gross         Gross        Estimated
                                      Amortized     Unrealized    Unrealized        Market
                                         Cost          Gains         Losses         Value
                                      -------------------------------------------------------
<S>                                   <C>             <C>          <C>           <C>        
Held to maturity:
   Debt securities:
      US Agency obligations           $ 13,500,000    $ 55,316     $      --     $13,555,316
                                      -------------------------------------------------------
Nonmarketable equity securities:
   Federal Home Loan Bank Stock          1,126,400          --            --       1,126,400
   Central Service Corporation Stock        44,489          --            --          44,489
                                      -------------------------------------------------------
                                         1,170,889          --            --       1,170,889
                                      -------------------------------------------------------
                                      $ 14,670,889    $ 55,316     $      --     $14,726,205
                                      =======================================================
</TABLE>

<TABLE>
<CAPTION>
                                                               1996
                                       -----------------------------------------------------
                                                         Gross        Gross       Estimated
                                        Amortized      Unrealized   Unrealized      Market
                                          Cost           Gains       Losses          Value
                                       -----------------------------------------------------
<S>                                    <C>           <C>           <C>           <C>        
Held to maturity:
   Debt securities:
      US Treasury obligations          $ 2,999,179   $    16,760   $        --   $ 3,015,939
      US Agency obligations             12,000,000        22,974            --    12,022,974
                                       -----------------------------------------------------
                                        14,999,179        39,734            --    15,038,913
                                       -----------------------------------------------------
Nonmarketable equity securities:
   Federal Home Loan Bank Stock          1,126,400            --            --     1,126,400
   Central Service Corporation Stock        44,489            --            --        44,489
                                       -----------------------------------------------------
                                         1,170,889            --            --     1,170,889
                                       -----------------------------------------------------
                                       $16,170,068   $    39,734   $        --   $16,209,802
                                       =====================================================
</TABLE>


The Association,  as a member of the Federal Home Loan Bank system,  is required
to maintain an  investment  in capital stock of the Federal Home Loan Bank in an
amount  equal to the  greater  of one  percent  of its  outstanding  residential
mortgage loans or  one-twentieth  of its outstanding  advances.  No ready market
exists  for  the  stock,  and it has no  quoted  market  value.  For  disclosure
purposes,  such stock is assumed to have a market  value equal to its cost.  The
Central  Service  Corporation  stock  is also of  limited  marketability  and is
assumed to have a market value equal to its cost.

                                       26

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 2. Investment Securities (Continued)

The amortized cost and estimated  fair value of debt  securities in the "held to
maturity"  category at September 30, 1997 by  contractual  maturity are as shown
below. The Corporation has no debt securities classified as "available for sale"
at September 30, 1997.

<TABLE>
<CAPTION>
                                                 1997
                                        -------------------------                                       
                                                       Estimated
                                        Amortized        Market
                                           Cost           Value
                                        -------------------------                                       
<S>                                     <C>           <C>        
Held to maturity:
   Due in one year through five years   $10,500,000   $10,551,566
   Due after five years                   3,000,000     3,003,750
                                        -------------------------                                       
                                        $13,500,000   $13,555,316
                                        -------------------------
</TABLE>
                                  

There were no sales of investment securities during 1997, 1996 or 1995.


Note 3. Loans Receivable

Loans receivable consist of the following:

<TABLE>
<CAPTION>
                                                    1997             1996
                                                -----------------------------
<S>                                             <C>             <C>         
Mortgage loans:
   Residential one-to-four family               $106,083,836    $102,011,126
   Residential multifamily                         7,527,305       5,578,541
   Nonresidential real estate                     14,172,176      15,544,319
   Residential construction                        3,444,852       2,947,667
   Installment loans                                 433,583         141,868
                                                -----------------------------
                                                 131,661,752     126,223,521
                                                -----------------------------
Less:
   Allowance for loan losses                         254,763         234,763
   Unamortized loan fees                             964,726         930,788
   Undisbursed portion of loans in process         1,496,312       1,910,191
                                                -----------------------------
                                                   2,715,801       3,075,742
                                                -----------------------------
                                                $128,945,951    $123,147,779
                                                =============================
   Weighted average yield on loans receivable           8.13%           8.18%
                                                ============================
</TABLE>

                                       27


<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 3. Loans Receivable (Continued)

The following sets forth information  regarding the Association's  allowance for
loan losses:

                                    1997      1996         1995
                                  ------------------------------
Balance, beginning                $234,763   $224,690   $224,690
   Provisions charged to income     20,000         --     10,073
   Charge-offs                          --         --         --
                                  ------------------------------
Balance, ending                   $254,763   $234,763   $224,690
                                  ==============================


The Association  places loans on nonaccrual  status when a loan is contractually
more than 90 days delinquent by establishing  reserves for uncollected interest.
When uncollected interest is subsequently  received,  the reserve is reduced and
the interest is recorded as income.  At September 30, 1997,  1996,  and 1995 the
Association had loans totaling $173,336,  $309,666, and $318,737,  respectively,
which were  contractually  delinquent 90 days or more.  Interest income on these
loans,  which would have been  recognized had the loans  amortized as scheduled,
has been decreased by $2,776, $13,626, and $11,098 for the years ended September
30, 1997, 1996 and 1995.

Officers and directors, including their families and companies of which they are
principal  owners,  are considered to be related parties.  These related parties
were loan customers of, and had other  transactions  with the Association in the
ordinary course of business.

Aggregate loan transactions with related parties were as follows:


                                 September 30,   September 30,
                                     1997            1996
                                  --------------------------
Beginning balance                 $ 146,874        $ 161,253
New loans                           367,000               --
Repayments                          (82,372)         (14,379)
                                  --------------------------
Ending balance                    $ 431,502        $ 146,874
                                  ==========================
                                                  
Maximum balance during the year   $ 442,668        $ 161,253
                                  ==========================


                                       28

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 29. Property and Equipment

Property and equipment are summarized as follows:


                               1997           1996
                           --------------------------
Land                       $   150,972    $   150,972
Buildings                      722,506        717,851
Furniture and equipment        264,266        279,560
                           --------------------------
                             1,137,744      1,148,383
Accumulated depreciation      (830,950)      (818,123)
                           --------------------------
                           $   306,794    $   330,260
                           ==========================


Depreciation  expense  was  $36,504,  $42,428  and  $42,137  for the years ended
September 30, 1997, 1996 and 1995, respectively.


Note 29. Deposits

Deposits consist of the following:


                                                   1997             1996
                                               -----------------------------
Passbook accounts, 3.00% (2.75% in 1996)       $ 12,991,011    $ 14,679,647
NOW accounts, 2.75% (2.50% in 1996)                 132,743         132,220
Super NOW accounts, 4.00% (4.00% in 1996)           107,637         127,806
Money market accounts, 4.00% (4.00% in 1996)     13,984,393      13,163,166
                                               -----------------------------
                                                 27,215,784      28,102,839
                                               -----------------------------
Certificates:
   3.00% and below                                1,507,374       1,462,652
   3.01% - 5.00%                                  2,310,535      29,080,510
   5.01% - 7.00%                                 80,782,589      52,301,109
   7.01% and above                                  791,670         406,865
                                               -----------------------------
                                                 85,392,168      83,251,136
                                               -----------------------------
Accrued interest on deposits                         33,941          31,411
                                               -----------------------------
                                               $112,641,893    $111,385,386
                                               =============================
Weighted average cost of funds                         4.91%           4.98%
                                               =============================



                                       29

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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



Note 5. Deposits (Continued)

Certificate  accounts  are  summarized  by  maturity  at  September  30, 1997 as
follows:

<TABLE>
<CAPTION>

                      1998          1999         2000        Thereafter     Total
                  -------------------------------------------------------------------
<S>               <C>           <C>           <C>           <C>           <C>        
3.00% and below   $ 1,062,192   $   353,819   $    91,363   $        --   $ 1,507,374
3.01% - 5.00%       2,310,535            --            --            --     2,310,535
5.01% - 7.00%      60,528,082     9,205,862     4,041,890     7,006,755    80,782,589
7.01% and above       253,535       258,904       179,294        99,937       791,670
                  -------------------------------------------------------------------
                  $64,154,344   $ 9,818,585   $ 4,312,547   $ 7,106,692   $85,392,168
                  ===================================================================
</TABLE>

The aggregate amount of certificates of deposit included in the table above with
a minimum denomination of $100,000 is shown below:


Maturity                                               Amount
-----------------------------------------------------------------
Less than 3 months                               $      2,350,191
4 to 12 months                                          5,490,170
More than 12 months                                     2,116,545
                                                 ----------------
                                                 $      9,956,906
                                                 ================


Note 6. 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  deposits.  The
assessment was equal to  approximately  65.7 basis points of the SAIF assessable
deposit base as of March 31, 1995.  Although the  assessment was paid during the
three month period ended  December 31,  1996,  the  Association  was required to
accrue and expense such cost as of September 30, 1996. The expense  recorded for
the special assessment amounted to $792,868.


Note 7. Deferred Compensation

The Association has a deferred  compensation  plan for its directors  whereby in
return for deferring  directors fees for five years,  the directors will be paid
specified  amounts during a five or ten year period  following the date that the
director  becomes 65 years of age. The  Association has purchased life insurance
policies with the Association  named as beneficiary to fund the benefits.  Total
expense related to the Plan was approximately $40,000,  $64,000, and $43,000 for
1997, 1996 and 1995, respectively.

                                       30

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 8. Employment Agreements

During 1997 and 1996, the Association  entered into  employment  agreements with
four key executive  officers to ensure a stable and competent  management  base.
The agreements  provide for a three-year  term, but upon each  anniversary,  the
agreements,  upon  approval  by the Board of  Directors,  may extend so that the
remaining  term shall be three  years.  The  agreements  provide for benefits as
spelled out in the contract and cannot be  terminated by the Board of Directors,
except for cause,  without  prejudicing  the officer's  right to receive  vested
rights, including compensation, for the remaining term of the agreements. In the
event of a change in control of the Association and termination of the officers,
as defined in the agreement,  the officers will receive a lump sum equal to 2.99
times their average salary paid during the prior five years.


Note 9. Employee Stock Ownership Plan

The  Association  has  established an employee stock  ownership plan ("ESOP") to
benefit  substantially  all employees.  The ESOP  originally  purchased  260,000
shares of common stock in the Conversion with proceeds received from a loan from
the Corporation.

The  Corporation's  note  receivable  is to be repaid  based upon one  principal
installment of $65,000 on June 30, 1996, nine principal installments of $260,000
on June 30th of each year through June 2005, and one final principal installment
of $195,000  on March 31,  2006.  Interest  is based upon  prime,  which will be
adjusted and paid  quarterly.  The note may be prepaid without  penalty.  During
1997 and 1996 the  ESOP  made  principal  payments  of  $260,000  and  $130,000,
respectively.  The  unallocated  shares of stock held by the ESOP are pledged as
collateral  for the  debt.  The  ESOP is  funded  by  contributions  made by the
Association in amounts  sufficient to retire the debt. At September 30, 1997 and
1996,  the  outstanding  balance  of  the  note  receivable  is  $2,210,000  and
$2,470,000,  respectively,  and is  presented  as a reduction  of  stockholders'
equity.

Shares released as the debt is repaid and earnings from the common stock held by
the ESOP are allocated  among  participants  on the basis of compensation in the
year of  allocation.  Benefits  become 100% vested  after five years of credited
service.  Forfeitures of nonvested  benefits will be reallocated among remaining
participating employees in the same proportion as contributions.

Dividends on unallocated shares may be used by the ESOP to repay the debt to the
Corporation  and are not  reported as  dividends  in the  financial  statements.
Dividends on  allocated or committed to be allocated  shares are credited to the
accounts  of the  participants  and  reported  as  dividends  in  the  financial
statements.

Expense of $442,325 and $170,365  during 1997 and 1996,  respectively,  has been
incurred in connection with the ESOP. The expense  includes,  in addition to the
cash  contribution  necessary  to fund the ESOP,  $182,325  and  $40,365,  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 for 1997 and 1996, respectively. The Association has credited
this amount to paid-in capital.

                                       31

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 9. Employee Stock Ownership Plan (Continued)

At September  30, 1997 and 1996,  39,000 and 13,000 shares held by the ESOP have
been released or committed to be released to the plan's  participants.  The fair
value of the unallocated  shares amounted to approximately $4.5 million and $3.8
million at September 30, 1997 and 1996, respectively.


Note 10. Restricted Stock Plan

The Restricted  Stock Plan ("RSP")  authorizes,  and the Association has granted
171,925 shares of common stock to directors and key  employees,  which will vest
evenly over a 5 year period  commencing  in October,  1997. At the present time,
the Association intends to provide funds to the restricted stock plan trust fund
in order for the trust to acquire  common  stock in open  market  purchases.  At
September 30, 1997,  there were 34,393 shares awarded pursuant to the restricted
stock  plan,  which  were  subsequently  vested,  resulting  in  an  expense  of
approximately $530,000.


Note 11. Stock Option Plan

The Corporation has a Stock Option Plan providing for the grant of 429,812 stock
options to directors and key employees.

A summary of the status of the Stock  Option  Plan at  September  30, 1997 is as
follows:

                                                                 1997
                                                          ---------------------
                                                                      Weighted
                                                                       Average
                                                                       Exercise
Options                                                    Shares        Price
--------------------------------------------------------------------------------
Outstanding at beginning of year                               --     $      --
Granted                                                   429,812         14.94
Exercised                                                      --            --
Forfeited                                                      --            --
                                                          ----------------------
Outstanding at end of year                                429,812     $   14.94
                                                          ======================


The options were granted in October,  1996 and become exercisable at the rate of
20%  annually  for five years  during  such  periods of service as an  employee,
director or Director Emeritus.  The options expire after ten years. The exercise
price is equal to the market value of the stock at the date of the grant.  There
were no exercisable options as of September 30, 1997.


                                       32

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 11. Stock Option Plan (Continued)

Grants  of  options  under  the  plan are  accounted  for  following  Accounting
Principles Board (APB) Opinion No. 25 and related interpretations.  Accordingly,
no  compensation  cost has been  recorded.  In 1995,  the  Financial  Accounting
Standards Board issued Standard No. 123, which requires  disclosures  concerning
the fair value of options  and  encourages  accounting  recognition  for options
using  the  fair  value  method.  The  Association  has  elected  to  apply  the
disclosure-only provisions of the Statement. However, had compensation cost been
recorded  based on the fair value of awards at the grant date ($3.92 per share),
the pro forma impact on the  Association's  net income and net income per common
share would have been approximately $210,000 or $.05 per share for 1997.

The  fair  value  of each  grant  is  estimated  at the  grant  date  using  the
Black-Scholes  option-pricing  model with the  following  assumptions  for 1997:
dividend rate of 3.22%;  risk-free interest rates of 5.88%;  expected lives of 7
years; and price volatility of 19.1%.


Note 12. Pension Plan

The Association has a defined benefit pension plan covering substantially all of
its employees who qualify under length of service and other requirements.  Under
the  plan,  retirement  benefits  are  based  on years of  service  and  average
earnings.  The  policy is to fund an amount  allowable  for  federal  income tax
purposes.  The plan assets consist  primarily of savings deposits  maintained at
the  Association and common stock of the  Corporation.  The following table sets
forth the plan's  funded  status at September  30, 1997 and 1996 and the amounts
recognized in the consolidated statement of financial condition at September 30,
1997 and 1996:

<TABLE>
<CAPTION>
                                                            1997           1996
                                                        ---------------------------
<S>                                                     <C>            <C>         
Actuarial present value of benefit obligation:
   Vested                                               $  (895,418)   $  (768,452)
   Nonvested                                                 (1,877)        (1,259)
                                                        ---------------------------
Accumulated benefit obligation                             (897,295)      (769,711)
Effect of projected future compensation levels             (379,435)      (418,626)
                                                        ---------------------------
Projected benefit obligation                             (1,276,730)    (1,188,337)
Market value of plan assets                               1,211,444      1,032,524
                                                        ---------------------------
Projected benefit obligation in excess of plan assets       (65,286)      (155,813)
Unrecognized net transition assets                          (17,764)       (20,301)
Unrecognized prior service cost                             (60,579)       (65,239)
Unrecognized loss                                           334,889        386,509
                                                        ---------------------------
Prepaid pension asset included in other assets          $   191,260    $   145,156
                                                        ===========================
</TABLE>


                                       33


<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 12. Pension Plan (Continued)

The  components  of pension  costs  charged to expense  for 1997,  1996 and 1995
consisted of the following:

<TABLE>
<CAPTION>
                                                     1997        1996         1995
                                                 ------------------------------------
<S>                                              <C>          <C>          <C>      
Service cost for benefits earned during period   $  57,422    $  53,280    $  68,270
Interest cost on projected benefit obligation       80,243       86,620       92,539
Return on plan assets                              (82,045)     (69,639)     (67,936)
Net amortization and deferral                        9,690       13,754       19,669
                                                 ------------------------------------
Net periodic pension cost                        $  65,310    $  84,015    $ 112,542
                                                 ====================================
</TABLE>

In determining the projected benefit  obligation at September 30, 1997 and 1996,
the weighted average discount rate and expected long-term rate of return on plan
assets was 8%, and 7%,  respectively.  The  assumed  rate of  increase in future
compensation  levels  was 4.0% in 1997 and 4.5% in 1996 and 1995 in  determining
net periodic cost for all periods presented.


Note 13. Fair Value of Financial Instruments

The following  table presents the carrying  amounts and estimated fair values of
the Corporation's financial instruments at September 30, 1997 and 1996. See Note
1 for a description of the Corporation's accounting policies and the limitations
of its disclosures in reporting on the fair value of its financial instruments.

<TABLE>
<CAPTION>
                                                  1997                         1996
                                     ---------------------------------------------------------
                                        Carrying        Fair         Carrying         Fair
                                         Amount         Value         Amount          Value
                                     ---------------------------------------------------------
<S>                                  <C>            <C>            <C>            <C>         
Financial assets:
   Cash and short-term cash
      investments                    $ 29,969,640   $ 29,969,640   $ 33,357,194   $ 33,357,194
   Federal funds sold                   3,118,000      3,118,000      2,124,712      2,124,712
   Investment securities held to
      maturity                         13,500,000     13,555,316     14,999,179     15,038,913
   Nonmarketable equity securities      1,170,889      1,170,889      1,170,889      1,170,889
   Loans receivable                   128,945,951    131,907,000    123,147,779    123,927,553
   Accrued interest receivable            222,716        222,716        255,566        255,566
Financial liabilities:
   Deposits                           112,641,893    112,688,725    111,385,386    111,598,386
</TABLE>



<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 14. Income Taxes

Under the Internal  Revenue Code, the  Association is allowed a special bad debt
deduction  related to additions  to tax bad debt  reserves  established  for the
purpose of absorbing losses.  Through 1996, the provisions of the Code permitted
the  Association  to deduct from taxable income an allowance for bad debts based
on 8% of taxable  income before such  deduction or actual loss  experience.  The
Association  was unable to take a bad debt deduction in 1997,  1996 and 1995 due
to  limitations  imposed by the Code.  In addition,  legislation  passed in 1996
eliminated  the  percentage of taxable  income method as an option for computing
bad debt deductions in all future years. The Association will still be permitted
to  take  deductions  for bad  debts,  but  will be  required  to  compute  such
deductions using an experience method.

The Association will also have to recapture its tax bad debt reserves which have
accumulated  since 1987 amounting to  approximately  $1,078,000  over a six year
period.  The tax  associated  with  the  recaptured  reserves  is  approximately
$388,000.  The recapture was scheduled to begin with the Association's  1997 tax
year, but can be delayed for 1998 if the Association  originates a certain level
of  residential  mortgage loans over the next two years.  Deferred  income taxes
have been previously  established  for the taxes  associated with the recaptured
reserves  and the  ultimate  payment of the taxes will not result in a charge to
earnings.

At September 30, 1997, retained earnings contain certain historical additions to
bad debt  reserves for income tax purposes of  $3,631,000  for which no deferred
taxes have been provided,  because the Association  does not intend to use these
reserves for purposes other than to absorb losses. If amounts which qualified as
bad debt  deductions  are used for purposes other than to absorb bad debt losses
or adjustments arising from the carryback of net operating losses,  income taxes
may  be  imposed  at  the  then  existing  rates.  The  approximate   amount  of
unrecognized  tax  liability  associated  with  these  historical  additions  is
$1,307,000.  In the  future,  if the  Association  does not meet the  income tax
requirements  necessary to permit the  deduction of an allowance  for bad debts,
the  Association's  effective tax rate would be increased to the maximum percent
under existing law.

                                       35

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 14. Income Taxes (Continued)
Deferred income taxes consist of the following:


                                           1997      1996
                                         -------------------
Deferred tax assets:
   Deferred loan fees                    $ 95,000   $119,000
   Deferred compensation                  152,000    159,000
   Deferred RSP compensation              208,000         --
   Allowance for loan losses               88,000     88,000
   SAIF Assessment                             --    310,000
                                         -------------------
Total deferred tax assets                 543,000    676,000
                                         -------------------

Deferred tax liabilities:
   Excess accumulated tax depreciation     25,000     27,000
   Federal Home Loan Bank stock basis      96,000     96,000
   Excess pension plan contribution        61,000     43,000
   Tax bad debt reserves                  388,000    388,000
                                         -------------------
Total deferred tax liabilities            570,000    554,000
                                         -------------------
Net deferred tax assets (liabilities)    $(27,000)  $122,000
                                         ===================


Federal  income tax expense was different  from the amount  computed by applying
the federal  income tax rate of  approximately  34% to income before taxes.  The
reasons for the  differences  were as follows for the years ended  September 30,
1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                 1997          1996       1995
                                                               ---------------------------------
<S>                                                              <C>           <C>       <C>    
Income tax at the federal statutory rate                         34.00 %       34.00 %   34.00 %
State income taxes, net of federal benefit                        1.89          2.15      1.63
Other                                                             2.31         (1.47)     0.16
                                                               ---------------------------------
                                                                 38.20 %       34.68 %   35.79 %
                                                               =================================
</TABLE>


                                       36

<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 15. Stockholders' Equity

On April 3, 1996,  Green Street  Financial  Corp  completed and closed its stock
offering.  Gross  proceeds  from the sale of  4,038,125  shares  (excluding  the
260,000 shares  purchased by the ESOP) amounted to $40,381,250  and were reduced
by conversion costs of $1,254,389.  The Corporation paid $20,863,430 for all the
common stock of the Association, and retained the remaining net proceeds.

Concurrent  with the  Conversion,  the  Association  established  a  liquidation
account in an amount equal to its net worth as reflected in its latest statement
of financial  condition used in its final  offering  circular.  The  liquidation
account will be maintained for the benefit of eligible  deposit  account holders
and supplemental eligible deposit account holders who continue to maintain their
deposit accounts in the Association after the Conversion. Only in the event of a
complete  liquidation  will eligible  deposit account  holders and  supplemental
eligible   deposit   account  holders  be  entitled  to  receive  a  liquidation
distribution  from the  liquidation  account in the  amount of the then  current
adjusted   sub-account  balance  for  deposit  accounts  then  held  before  any
liquidation distribution may be made with respect to common stockholders.

Subject to  applicable  law,  the Board of  Directors  of Home Federal and Green
Street  Financial  Corp may each  provide for the payment of  dividends.  Future
declarations  of cash  dividends,  if any,  by the  Corporation  may depend upon
dividend payments by the Association to the Corporation.  Subject to regulations
promulgated by the Office of Thrift Supervisor ("OTS"), the Association will not
be permitted to pay  dividends on its common stock if its  stockholders'  equity
would be reduced below the amount  required for the  liquidation  account or its
capital requirement.

In addition,  as a Tier I institution,  or an institution  that meets all of its
fully phased-in  capital  requirements,  Home Federal may pay a cash dividend to
Green Street Financial Corp with  notification,  but without prior OTS approval,
during a calendar  year an amount  not to exceed the  greater of (i) 100% of the
Association's  net income to date during the calendar  year plus the amount that
would  reduce by one-half  its surplus  capital  ratio at the  beginning  of the
calendar  year,  or (ii) 75% of its net income over the most recent four quarter
period.  During 1997 and 1996, the  Association  paid $1,718,574 and $629,819 in
dividends to Green Street Financial Corp, respectively.

The  Corporation's  Board of Directors has approved a stock  repurchase  program
which will  allow the  Corporation  to  repurchase  up to 5% of its  outstanding
common stock through April 4, 1998.


                                       37
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 15. Stockholders' Equity (Continued)

The Office of Thrift Supervision  promulgates  capital regulations which require
the Association to meet three separate capital standards; tangible capital of at
least 1.5% of total assets,  core capital of at least 3.0% of total assets and a
risk-based capital requirement currently set at 8.0% of risk-weighted assets. At
September  30,  1997  the  Association  met  and  exceeded  all of  the  capital
requirements as shown below:

<TABLE>
<CAPTION>
                                                             September 30, 1997
                                              --------------------------------------------------
                                                 Tangible          Core             Risk-Based
                                                  Capital         Capital             Capital
                                                Requirement     Requirement         Requirement
                                              --------------------------------------------------
<S>                                           <C>               <C>               <C>          
Stockholders' equity (GAAP)                   $  62,945,683     $  62,945,683     $  62,945,683
Equity of Green Street Financial Corp           (18,297,934)      (18,297,934)      (18,297,934)
General loan loss allowance                              --                --           254,763
                                              --------------------------------------------------
Regulatory capital                               44,647,749        44,647,749        44,902,512
Minimum capital requirement                       2,380,065         4,760,131         6,300,815
                                              --------------------------------------------------
Excess regulatory capital                     $  42,267,684     $  39,887,618     $  38,601,697
                                              =================================================

Home Federal's assets at September 30, 1997   $ 158,671,031     $ 158,671,031     $          --
Risk-weighted assets at September 30, 1997               --                --        78,760,186
Capital as a percentage of assets:
   Actual                                             28.14%            28.14%            57.01%
   Required                                            1.50%             3.00%             8.00%
                                              --------------------------------------------------
   Excess                                             26.64%            25.14%            49.01%
                                              ==================================================
</TABLE>


Under the OTS prompt corrective  action  regulations,  a savings  association is
considered to be well capitalized if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of core capital to risk-weighted  assets is at
least 6.0%,  and its ratio of core capital to total  average  assets is at least
5.0%. The Association  meets all of the above  requirements and is considered to
be well capitalized under the prompt corrective action regulations.


Note 16. Concentration of Credit Risk and Off-Balance-Sheet Risk

The Association originates single-family  residential loans generally within its
primary lending areas of Cumberland and Robeson Counties of North Carolina.  The
Association's  policies  require  such loans to be made at no  greater  than 80%
loan-to-value  unless private mortgage insurance is obtained.  In this instance,
the  loan-to-value  ratio  cannot  exceed  90%.  The  loans are  secured  by the
underlying properties.


<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 16. Concentration of Credit Risk and Off-Balance-Sheet Risk (Continued)

The Association 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 extend credit, which involve,
to varying  degrees,  elements of credit and interest rate risk in excess of the
amount  recognized  in  the  balance  sheet.  The  contractual  amounts  of  the
instruments  reflect  the  extent  of  involvement  the  Association  has in the
particular class of financial instruments.

The Association's  exposure to credit loss in the event of nonperformance by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of those instruments. The Association uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

In addition to the undisbursed portion of loans in process,  the Association had
outstanding  loan  origination  commitments  of  $2,137,000  and  $1,613,900  at
September  30, 1997 and 1996,  respectively,  primarily for the  origination  of
fixed rate loans.

The Association  evaluates each customer's  credit  worthiness on a case-by-case
basis. Commitments to extend credit are agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  The amount of collateral obtained if deemed
necessary by the Association upon extension of credit,  is based on management's
credit  evaluation of the customer.  At a minimum,  the  collateral  held is the
underlying real estate.


                                       39



<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

Note 17. Parent Corporation Financial Data

The following is a summary of the condensed financial statements of Green Street
Financial Corp as of and for the year ended September 30, 1997 and 1996:

Condensed Balance Sheets
September 30, 1997 and 1996

<TABLE>
<CAPTION>

                                                                       1997           1996
                                                                  ----------------------------
<S>                                                               <C>             <C>         
Assets:
   Cash and short-term cash investments                           $ 19,203,612    $ 15,912,643
   Accounts receivable, other                                          217,035          87,100
   Accrued interest receivable                                              --          25,732
   Investment securities; held to maturity, at cost                         --       3,000,000
   Investment in Home Federal                                       44,647,749      44,229,075
                                                                  ----------------------------
                                                                  $ 64,068,396    $ 63,254,550
                                                                  ============================
Liabilities and Stockholders' Equity:
   Liabilities:
      Dividends payable                                           $  1,117,513    $  1,074,531
      Taxes payable                                                      5,200              --
                                                                  ----------------------------
                                                                     1,122,713       1,074,531
                                                                  ----------------------------

   Stockholders' equity:
      Common stock, no par value, 10,000,000 shares authorized,
        issued and outstanding 4,298,125 shares                             --              --
      Additional paid-in capital                                    64,973,891      64,924,878
      Note Receivable - ESOP                                        (2,210,000)     (2,470,000)
      Retained earnings (deficit)                                      181,792        (274,859)
                                                                  ----------------------------
                                                                    62,945,683      62,180,019
                                                                  ----------------------------
                                                                  $ 64,068,396    $ 63,254,550
                                                                  ============================
</TABLE>

Condensed Statements of Income
For the Year Ended September 30, 1997 and the Period
From April 3, 1996 to September 30, 1996

<TABLE>
<CAPTION>

                                                                       1997            1996
                                                                  ----------------------------
<S>                                                               <C>             <C>         
Interest income                                                   $  1,215,158    $    575,914
Equity in earnings of Home Federal                                   2,088,235         797,447
Administrative expense                                                (165,124)        (47,376)
Income tax expense                                                    (361,622)       (183,600)
                                                                  -----------------------------
Net income                                                        $  2,776,647    $  1,142,385
                                                                  =============================
</TABLE>



<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 17. Parent Corporation Financial Data (Continued)

Condensed Statements of Cash Flows
For the Year Ended September 30, 1997 and the Period
From April 3, 1996 to September 30, 1996

<TABLE>
<CAPTION>

                                                                   1997            1996
                                                              -----------------------------
<S>                                                           <C>             <C>         
Cash Flows from Operating Activities:
   Net income                                                 $  2,776,647    $  1,142,385
   Noncash income items:
      Equity in earnings of Home Federal                        (2,088,235)       (797,447)
   Change in assets and liabilities:
      Increase (decrease) in accrued interest receivable            25,732         (25,732)
      Increase in accounts receivable, other                      (129,935)        (25,350)
      Increase in income taxes payable                               5,200              --
                                                              -----------------------------
        Net cash provided by operating activities                  589,409         293,856
                                                              -----------------------------

Cash Flows from Investing Activities:
   Proceeds from maturity of investments                         6,000,000              --
   Purchase of investments                                      (3,000,000)     (3,000,000)
   Upstream dividend from Home Federal                           1,718,574         629,819
   Initial investment in Home Federal                                   --     (20,863,430)
                                                              -----------------------------
        Net cash provided by (used in) investing activities      4,718,574     (23,233,611)
                                                              -----------------------------

Cash Flows from Financing  Activities:
   Payments received on note receivable from ESOP                  260,000         130,000
   Proceeds received from common stock offering                         --      39,126,861
   Payment of dividends                                         (2,277,014)       (404,463)
                                                              -----------------------------
        Net cash provided by (used in) financing activities     (2,017,014)     38,852,398
                                                              -----------------------------
Net increase in cash                                             3,290,969      15,912,643
   Cash, beginning                                              15,912,643              --
                                                              -----------------------------
   Cash, ending                                               $ 19,203,612    $ 15,912,643
                                                              =============================

Supplemental Disclosure of Noncash Financing Activities:
   Dividends declared and accrued                             $  1,117,513    $  1,074,531
                                                              ============================
   
</TABLE>


                                       41

<PAGE>



                            COMMON STOCK INFORMATION

The table below reflects the stock trading and dividend payment frequency of the
Corporation for each quarter  completed in the period April 3, 1996 through June
30, 1997. The Corporation's common stock is quoted on the Nasdaq National Market
under the symbol "GSFC".  For further  information  regarding the  Corporation's
dividend policy, please refer to Note 15 of the Notes to Consolidated  Financial
Statements. Stock price reflects bid prices between broker-dealers, prior to any
markups, markdowns or commissions.

                       Dividends                 Stock Price
                 --------------------     -------------------------
                  Regular     Special        High           Low
                 --------------------------------------------------
1997:
First Quarter    $   0.10     $    --     $   16 1/8     $   14 3/4
Second Quarter       0.10          --             19         15 1/4
Third Quarter        0.11          --         18 1/8             17
Fourth Quarter       0.11        0.15         21 1/4         17 1/8

1996:
Third Quarter    $   0.10     $    --     $   13 1/8             12
Fourth Quarter       0.10        0.15         15 5/8         12 3/8



                         QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               Quarter Ended
                                ----------------------------------------------------------------------
                                   December 31          March 31            June 30       September 30
                                ----------------------------------------------------------------------
<S>                             <C>               <C>               <C>               <C>            
1997:
Interest income                 $     3,255,678   $     3,204,976   $     3,247,834   $     3,309,031
Interest expense                      1,368,773         1,311,896         1,315,246         1,381,503
Net interest income                   1,886,905         1,893,080         1,932,588         1,927,528
Net income                              639,991           685,887           728,044           722,725
Earnings per common share                  0.16              0.17              0.17              0.17

1996:
Interest income                 $     2,960,299   $     3,023,700   $     3,332,159   $     3,266,834
Interest expense                      1,734,447         1,701,529         1,430,706         1,365,580
Net interest income                   1,225,852         1,322,171         1,901,453         1,901,254
Net income                              427,983           499,278           792,401           349,984
Earnings per common
   share (1)                              N/A               N/A                0.19              0.09

</TABLE>


(1) Earnings per share are not  applicable  for periods  prior to April 3, 1996,
    the date of conversion of Home Federal Savings and Loan  Association  from a
    federally  chartered  mutual  savings  and loan  association  to a federally
    chartered  stock  savings  and  loan   association  and  when  it  became  a
    wholly-owned subsidiary of Green Street Financial Corp.

                                       42

<PAGE>

                              CORPORATE INFORMATION

                               EXECUTIVE OFFICERS:

<TABLE>
<CAPTION>


<S>                                             <C>                             <C>

            H.D. Reaves, Jr.                          John C. Pate                        John M. Grantham
               President                         Senior Vice President                  Senior Vice President

           Jerry L. Robertson                    Anthony R. Strickland                       Allen Lloyd
        Vice President/Treasurer                     Vice President                           Secretary

                                                       DIRECTORS:

        R.O. McCoy, Jr. Chairman                    H.D. Reaves, Jr.                        John C. Pate
      Realtor, McLean Real Estate                  Executive Officer                      Executive Officer

         Norwood E. Bryan, Jr.                      John M. Grantham                    Joseph H. Hollinshed
 President, Bryan Pontiac-Cadillac Co.             Executive Officer             Co-owner, Cape Fear Building Supply

              Henry Hutaff                             Henry Holt                        Robert G. Ray, Esq.
   Executive, Coca-Cola Bottling Co.            President, Holt Oil Co.         President, Rose, Ray & O'Connor P.A.


                Stock Transfer Agent                                            Annual Meeting
        American Stock Transfer & Trust Co.                      The  1998 annual meeting  of  stockholders of
             40 Wall Street 46th Floor                           Green Street Financial  Corp will  be held at 5:15 pm
              New York, New York 10005                           on January 28, 1998  at  the  Corporation's corporate
                                                                 office at 241 Green Street, Fayetteville, N.C.
               Special Legal Counsel
        Malizia, Spidi, Sloane & Fisch, P.C.
                  1301 K Street NW              
               Washington, DC 20005                                               Form 10-K
                                                                 A copy of Form 10-K as filed  with the Securities  and
                                                                 Exchange Commission will be furnished without
                Local Legal Counsel                              charge to the Corporation's stockholders upon written
             Rose, Ray & O'Connor P.A.                           request to Green Street Financial Corp, PO Box 1540,
                  214 Mason Street                               Fayetteville, N.C. 28302
              Fayetteville, N.C. 28301

                Independent Auditors                                            Corporate Office
              McGladrey & Pullen, LLP                                           241 Green Street
                2418 Blue Ridge Road                                         Fayetteville, N.C. 28301
                Raleigh, N.C. 27605
</TABLE>




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