EXHIBIT 13
<PAGE>



                          GREEN STREET FINANCIAL CORP





                               1998 ANNUAL REPORT


<PAGE>







                                    CONTENTS



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SELECTED FINANCIAL DATA                                                       1

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REPORT TO STOCKHOLDERS                                                        2

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MANAGEMENT'S DISCUSSION AND ANALYSIS                                     3 - 14

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INDEPENDENT AUDITOR'S REPORT                                                 15

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CONSOLIDATED FINANCIAL STATEMENTS                                       16 - 39

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COMMON STOCK INFORMATION                                                     40

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CORPORATE INFORMATION                                                        41

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                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.

<PAGE>

                             SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                              September 30,
                                            ----------------------------------------------------------
                                                 1998        1997        1996        1995        1994
                                            ----------------------------------------------------------
Financial Condition Data:                        (Dollars in Thousands, Except Per Share Amounts)
<S>                                         <C>         <C>         <C>         <C>         <C>       
   Total assets                             $  172,705  $  177,962  $  176,217  $  151,028  $  150,077
   Investments (1)                              39,436      47,203      51,403      32,174      43,605
   Loans receivable, net                       131,698     128,946     123,148     117,201     105,094
   Savings deposits                            110,460     112,642     111,385     127,483     128,334
   Stockholders' equity (2)                     60,333      62,946      62,180      22,230      20,453
   Book value per share                          14.78       14.64       14.47          --          --
</TABLE>
<TABLE>
<CAPTION>
                                                               Years Ended September 30,
                                            ----------------------------------------------------------
                                                 1998        1997        1996        1995        1994
                                            ----------------------------------------------------------
Operating Data:                                    (Dollars in Thousands, Except Per Share Amounts)
<S>                                        <C>         <C>         <C>         <C>         <C>       
   Interest and dividend income             $   13,101  $   13,017  $   12,583  $   11,124  $   10,325
   Interest expense                              5,609       5,377       6,232       6,119       5,489
                                            ----------------------------------------------------------
   Net interest income                           7,492       7,640       6,351       5,005       4,836
   Provision for loan losses                                    20          10          --          19
   Noninterest income                              132         104         128         106         145
   Noninterest expense (3)                       3,128       3,231       3,300       2,344       2,117
                                            ----------------------------------------------------------
   Income before income taxes                    4,496       4,493       3,169       2,767       2,845
   Income tax expense                            1,689       1,716       1,099         990       1,035
                                            ----------------------------------------------------------
   Net income                               $    2,807  $    2,777  $    2,070  $    1,777  $    1,810
                                            ==========================================================

   Earnings per share, basic (2)            $     0.70  $     0.68  $     0.28  $       --  $       --
   Earnings per share, diluted (2)                0.69        0.67        0.28          --          --
   Dividends per share                            0.61        0.57        0.35          --          --

Selected Other Data:
   Return on average assets (5)                   1.59%       1.58%       1.22%       1.21%       1.16%
   Return on average equity (5)                   4.48%       4.41%       4.93%       8.29%       9.23%
   Interest rate spread (5)                       2.47%       2.60%       2.50%       2.66%       2.58%
   Net interest margin (5)                        4.29%       4.40%       3.78%       3.42%       3.11%
   Dividend payout ratio                         87.00%      85.00%     125.00%         --          --
   Average equity to average assets              35.49%      36.00%      24.76%      14.57%      12.52%
   Nonperforming loans to total loans (4)         0.15%       0.13%        .25%        .27%        .39%

</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.  Earnings per share are not
          presented for periods prior to April 3, 1996.
     (3)  Includes  nonrecurring  insurance  assessment of $792,868 during 1996.
     (4)  Nonperforming  loans is comprised of loans delinquent 90 days or more.
     (5)  Average  balances  are  derived  from  month-end  balances  which  are
          representative of operations.

                                       1
<PAGE>
                          GREEN STREET FINANCIAL CORP
--------------------------------------------------------------------------------
241 Green Street                                        Telephone (910) 483-3681
P.O. Box 1540                                                 FAX (910) 483-5102
Fayetteville, North Carolina 28302




                             REPORT TO STOCKHOLDERS





We are pleased to present our third Annual Report of Green Street Financial Corp
(the "Corporation").  For the fiscal year ended September 30, 1998, our earnings
of $2.8  million  remained  relatively  constant  as compared to our 1997 fiscal
year.  Our asset  quality  continues to remain high and our capital  levels well
exceed the  regulatory  capital  requirements.  Additionally,  cash dividends to
shareholders  increased  5.3% or,  $.04,  to $0.61 per share in fiscal 1998 from
$0.57 per share in fiscal 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.

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 1998,  1997 and 1996, and changes in
financial   position  for  the  years  ended   September   30,  1998  and  1997,
respectively.

                                       3
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


                        Comparison of Financial Condition

Total  consolidated  assets  decreased by $5.3 million during 1998,  from $178.0
million at  September  30, 1997 to $172.7  million at September  30,  1998.  The
decrease  resulted  primarily  from savings  deposit  losses of $2.1 million and
repurchases of common stock of $3.5 million.

Loans receivable  increased by approximately  $2.8 million during 1998 to $131.7
million at September  30, 1998.  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.

The Corporation had no outstanding  borrowings during 1998 or 1997. However, the
Association  has borrowing  capacity of  approximately  $16 million  through the
Federal Home Loan Bank of Atlanta.

The  Corporation's  return of average assets was 1.59% and 1.58%, and its return
on average equity was 4.48% and 4.41% for 1998 and 1997, respectively.

The Association is required to meet certain capital  requirements as established
by the OTS. At September 30, 1998, 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

Net Income

Net  income  for the years  ended  September  30,  1998,  1997 and 1996 was $2.8
million, $2.8 million and $2.1 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").

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 1998, 1997 and 1996.

Net interest  income  decreased by $148,636 or 1.9% for the year ended September
30, 1998 from  $7,640,101  reported in 1997.  Net  interest  income  amounted to
$6,350,730  in  1996.  The  decrease  in net  interest  income  during  1998 was
attributable to an increase in the cost of savings.

Interest Income

Total  interest  income   increased   slightly  to  $13,100,625  for  1998  from
$13,017,519  in 1997, an increase of $83,016 or 0.6%.  The increase  during 1998
was  attributable  to an  increase in the  average  balance of interest  earning
assets over the previous year.  The increase in interest  income during 1997 was
attributable  to a $21.7  million  increase in the  average  balance of interest
earning  assets  due  to  proceeds   received  from  the  stock  issuance.   The
Association's  overall yield on interest  earning assets remained  approximately
the same from 1996 through 1998.

Interest Expense

Total interest expense  increased to $5,609,160 in 1998 from $5,377,418 in 1997,
an increase of $231,742 or 4.3%. Home Federal's  average cost of funds was 5.03%
in 1998 compared to 4.91% in 1997.  Competition for savings  deposits forced the
Association to pay higher rates than in the previous year.

The  Association's  provision  for loan  losses  amounted to  approximately  $0,
$20,000  and  $10,000 for the years ended  September  30,  1998,  1997 and 1996,
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  

                                       5
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


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.  However,  there can be no assurance  that future
losses will not exceed estimated amounts or that additional  provisions for loan
losses will not be required in future periods.

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 .15%, .13% and .25% at September 30, 1998, 1997 and
1996, respectively.  Home Federal had no loans charged off during the three year
period ended September 30, 1998.

Noninterest Income

Noninterest income amounted to $132,400, $103,983 and $127,943 in 1998, 1997 and
1996, 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
$3,128,157,  $3,231,172  and  $3,300,001 in 1998,  1997 and 1996,  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.

Compensation  and  employee  benefits  decreased  by  $36,589  during  1998 from
$2,227,063 in 1997 to $2,190,474 in 1998. Deposit insurance decreased $38,221 in
1998  from  1997  because  of the  reduction  in the rate  charged  by the FDIC.
Occupancy,  advertising and data processing charges did not change significantly
during  the three year  period  ended  September  30,  1998.  There was a slight
decrease in other  general  administrative  expense  during 1998. 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.

Income Taxes

The  Corporation's  effective  income tax rate was 37.56%,  38.20% and 34.68% in
1998, 1997 and 1996, respectively.  The differences in rates were due to changes
in the components of permanent tax differences. (See Note 14 to the consolidated
financial statements.)

Year 2000 Issue

The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format,  as opposed to four digits,  to indicate the year. Such computer systems
will be unable to  interpret  dates  beyond the year

                                       6
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


1999,  which could cause a system failure or other computer  errors,  leading to
disruptions  in the  Association's  operation.  The Year 2000 date  problem is a
reality and the date for  completion  of this  project  cannot be  changed.  The
Association  identifies Year 2000 as a challenge in moving into the next decade.
In 1997, the  Association  developed a three-phase  program for Y2K  information
systems compliance.

         Phase I (Identification)

         In this  Phase,  which was  completed  in early 1998,  the  Association
         identified  those  systems with which the  Association  has its largest
         exposure to Y2K issues.  The Association  performed an inventory of all
         services and computer  products that involved micro processors in their
         operation.  The Association  identified that their third-party  service
         bureau was their major  provider of financial  data  processing and the
         most vulnerable link to the Y2K event.

         Phase II (Development and implementation of action plans)

         In this Phase,  the Association  developed  action plans to insure that
         the  Association  is  compliant  in all areas by late  1998.  Financial
         software  providers have been  contacted and new software  updates have
         been received that are Y2K compliant.
         The Association is currently working in this phase.

         Phase III (Testing)

         The  Association is currently  scheduled to test PC operation  systems,
         financial  software  systems and data processing  services  provider in
         November and December of 1998.  This phase will enable the  Association
         to  identify  those  areas that need  further  research  and testing to
         become Y2K compliant.  In the financial and information  system area, a
         number of applications  have been identified as being Y2K compliant due
         to their recent  implementation.  The Association's  core financial and
         reporting  systems are not Y2K compliant,  but are on schedule to be so
         by the end of December.

The  Association  believes  that its expense will be less than $25,000 in making
its core  service Y2K  compliant  due to its contract  with its outside  service
bureau to provide Y2K compliant services. In addition, the Association is in the
process of updating its computer  systems.  Capital costs  associated  with this
upgrade are  anticipated  to be  approximately  $150,000.  The  Association  has
reviewed   third  party   relationships   and  has   identified  no  significant
relationships  that will  affect  its  operation.  Most  relationships  are with
consumers and small  business  operators who stated that they are or will be Y2K
compliant.  The Association is currently  meeting the time line that the Federal
Financial Institutions  Examination Council has mandated and expects that all of
their systems will be verified  Year 2000  compliant and will be able to process
without  interruption  through the next millennium.  However,  in the event some
unforeseen  circumstances  arise,  the Association has in place a manual posting
system for all of its key financial processing, including loans and deposits.


                                       7
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


No assurance can be given that the Y2K project will be completed successfully by
the Year 2000, in which event the Corporation could incur significant  costs. If
the Association's  third-party service bureau is unable to resolve the potential
problem in time,  the  Corporation  would  likely  experience  significant  data
processing delays, mistakes or failures.

Successful  and timely  completion  of the Y2K project is based on  management's
best estimates derived from various  assumptions of future events. This includes
the  progress  and  results of the  Association's  third-party  service  bureau,
testing plans, and all vendors, suppliers and customers readiness.

                     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.

                          Future Reporting Requirements

The  Financial  Accounting  Standards  Board has issued SFAS No. 130,  Reporting
Comprehensive Income and SFAS No. 132, Employers' Disclosures About Pensions and
Other  Postretirement  Benefits,  both of  which  the  Association  has not been
required to adopt as of September 30, 1998.

SFAS  No.  130,  Reporting  Comprehensive  Income,   established  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.

SFAS No. 132,  Employers'  Disclosures  About Pensions and Other  Postretirement
Benefits,  revises employers' disclosures about pension and other postretirement
benefit plans.  The Statement does not change the  measurement or recognition of
those plans, but standardizes the disclosure requirements for pensions and other
postretirement  benefits,  requires  additional  information  on  changes in the
benefit  obligations  and  fair  values  of plan  assets  that  will  facilitate
financial analysis.  The Statement suggests combined formats for presentation of
pension and other postretirement  benefit  disclosures.  It is not expected that
this statement will materially effect the presentation of existing disclosures.

                                       8
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


                        Capital Resources and Liquidity

During 1998,  Green Street Financial Corp paid a regular  quarterly  dividend of
$.11 a share on January 23,  1998 and April 23,  1998,  and a regular  quarterly
dividend of $.12 a share on July 23, 1998 and declared a regular quarterly and a
special dividend of $.12 and $.15 a share, respectively on September 28, 1998 to
be paid on October 23, 1998 to  stockholders  of record as of October 13,  1998.
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,  1998,  cash and  cash  equivalents,  a
significant source of liquidity,  decreased by approximately $3.6 million.  Cash
and cash equivalents  decreased by $2.4 million during 1997. Cash flow resulting
from internal operating  activities  provided increases of $2.7 million and $2.6
million  in  cash  during  the  years  ended   September   30,  1998  and  1997,
respectively.  Deposits  decreased  by  $2.2  million  during  1998.  For  1998,
financing  activities  provided sources of funds for asset growth and liquidity.
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.  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  loans
to customers,  to maintain liquid investment portfolios,  and to meet short term
liquidity  requirements.  During 1998 and 1997, loans  outstanding  increased by
$2.8  million  and  $5.8  million,  respectively.  During  1998  and  1997,  the
Corporation purchased investment securities amounting to $21.0 million and $27.0
million, respectively.

As a federally chartered savings association, Home Federal must maintain a daily
average balance of liquid assets equal to at least 4% of  withdrawable  deposits
and short-term  borrowings.  The Association's  liquidity ratio at September 30,
1998, 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,  1998,  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
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                         Net Portfolio                             NPV as a % of
                                             Value                                 PV of Assets
                        ------------------------------------------------  --------------------------------
Change in Rates            $ Amount      $ Change (1)    % Change (2)      NPV Ratio (3)    Change (4)
-------------------     ------------------------------------------------  --------------------------------

  <S>                       <C>           <C>                 <C>             <C>             <C>   
    +400 bp                  37,225        (11,611)           -24 %            25.34 %        -505 bp
    +300 bp                  40,535         (8,301)           -17 %            26.89 %        -350 bp
    +200 bp                  43,794         (5,041)           -10 %            28.33 %        -205 bp
    +100 bp                  46,684         (2,152)            -4 %            29.55 %         -84 bp
       0 bp                  48,835            -               -               30.39 %         -
    -100 bp                  50,381          1,546             +3 %            30.94           +55 bp
    -200 bp                  52,060          3,225             +7 %            31.52          +114 bp
    -300 bp                  54,015          5,180            +11 %            32.21          +183 bp
    -400 bp                  56,138          7,302            +15 %            32.95          +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, 1998, a change in interest rates of a positive 200 basis points
would have resulted in a 205 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, 1998 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, 1998 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, 1998

<TABLE>
<CAPTION>
                                                                Expected Maturity Date
                                                                Year Ended September 30,

                          1999           2000        2001         2002         2003       Thereafer       Total       Fair Value   
-----------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>            <C>          <C>          <C>           <C>           <C>          <C>            <C>         
Assets:                                                                                   
   Loans - fixed:                                                                         
      Balance        $   779,402    $   230,803  $   381,274  $ 1,398,392   $ 1,387,075   $80,887,214  $ 85,064,160   $ 87,074,676
      Interest rate        10.26%          8.82%        9.69%        9.33%         8.84%         7.92%          7.99%         -
   Loans - variable:                                                                      
      Balance         49,251,324           -             -            -             -             -       49,251,324    49,251,324
      Interest rate         6.83%          -             -            -             -             -             6.83%         -
   Investments (1):                                                                       
      Balance         29,462,356           -             -      3,000,000     3,000,000     3,000,000     38,462,356    38,504,548
      Interest rate         5.52%          -             -           6.92%         6.37%         6.38%          5.76%         -
Liabilities:                                                                              
   Deposits (2):                                                                          
      Balance         26,219,249           -             -            -             -             -       26,219,249    26,219,249
      Interest rate         3.49%          -             -            -             -             -             3.49%         -
   Deposits -                                                                             
     certificates:                                                                        
      Balance         63,664,757      8,138,135    8,294,930    4,076,922        65,788           -       84,240,531    84,582,000
      Interest rate         5.49%          5.82%        6.01%        6.03%         8.00%          -             5.60%         -
                                                                                          
                                                                                          
</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 sheets 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  believes that the use of  month-
end  balances are representatives of operations.

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,                    
                                            ---------------------------------------------------------------------------------------
                         At September 30, 
                               1998                   1998                            1997                         1996
                         ------------------ -----------------------------  ---------------------------  ----------------------------

                         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            $ 29,291   5.53%  $ 28,704   $ 1,619      5.64%   $ 33,447   $ 1,838      5.50% $ 40,508  $ 2,206     5.45% 
  Investments, at cost    10,145   6.86%    15,277     1,035      6.77%     14,545       977      6.72%    6,656      480     7.21% 
  Loans receivable       131,698   7.60%   130,788    10,447      7.99%    125,520    10,202      8.13%  121,024    9,897     8.18% 
                        --------          --------   -------              --------   -------            -------- -------            
Total interest-earning                                                                                                              
  assets                 171,134   7.66%   174,769   $13,101      7.50%    173,512   $13,017      7.50%  168,188  $12,583     7.48% 
                                                     -------                         -------                      -------           
Non-interest-earning                                                                                                                
  assets                   1,571             1,692                           1,628                         1,322                    
                        --------          --------                        --------                      --------                    
      Total             $172,705          $176,461                        $175,140                      $169,510                    
                        ========          ========                        ========                      ========                    
                                                                                                                                    
Liabilities and                                                                                                                     
  retained earnings:                                                                                                                
Interest-bearing                                                                                                                    
 liabilities:                                                                                                                       
  Passbook accounts     $ 13,124   3.05%  $ 13,254   $   399      3.01%   $ 14,237   $   432      3.03% $ 20,068  $   548     2.73% 
  MMDA accounts           13,095   4.05%    13,699       562      4.10%     14,175       567      4.00%   14,344      583     4.06% 
  Certificates of                                                                                                                   
   deposit                84,241   5.60%    84,572     4,648      5.50%     81,205     4,378      5.39%   90,779    5,101     5.62% 
                        --------          --------   -------              --------   -------            --------  -------           
Total interest-bearing                                                                                                              
  liabilities            110,460   5.11%   111,525   $ 5,609      5.03%    109,617   $ 5,377      4.91%  125,191  $ 6,232     4.98% 
                                                     -------                         -------                      -------           
Non-interest-bearing                                                                                                                
  liabilities              1,912             2,312                           2,476                         2,354                    
Stockholders' Equity      60,333            62,624                          63,047                        41,965                    
                         -------           -------                         -------                       -------                    
      Total             $172,705          $176,461                        $175,140                      $169,510                    
                        ========          ========                        ========                      ========                    
                                                                                                                                    
Net interest income and                                                                                                             
  interest rate                                                                                                                     
  spread (1)                       2.55%             $  7,492     2.47%              $  7,640     2.60%           $ 6,351     2.50% 
                                                     ========                        ========                     =======           
Net yield on interest-                                                                                                              
  earning assets (2)               4.38%                          4.29%                           4.40%                       3.78% 
Ratio of interest-                                                                                                                  
  earning assets to                                                                                                                 
  interest-bearing                                                                                                                  
  liabilities                    154.93%                        156.71%                         158.29%                     134.35% 
                                                                          
</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,
                                                  1998 vs. 1997                              1997 vs. 1996     
                                     ---------------------------------------     --------------------------------------
                                       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         $   (261)   $    49    $    (7)   $  (219)   $   (385)   $    20    $    (3)   $  (368) 
  Investments, at cost                    49         (8)         0         58         569        (33)       (39)       497  
  Loan receivable                        428       (176)        (7)       245         368        (60)        (2)       305  
                                     -------    -------    -------    -------     -------    -------    -------    -------  
    Total interest income on                                                                                                
       interest-earning assets           217       (119)       (14)        84         552        (73)       (45)       434  
                                     -------    -------    -------    -------     -------    -------    -------    -------  
                                                                                                                            
Interest expense on:                                                                                                        
  Passbook accounts                      (30)        (3)         0        (33)       (159)        61        (18)      (116) 
  MMDA accounts                          (19)        15         (0)        (5)         (7)        (9)         0        (16) 
  Certificates of deposit                182         85          4        270        (538)      (207)        22       (723) 
                                     -------    -------    -------    -------     -------    -------    -------    -------  
    Total interest expense on                                                                                               
      interest-bearing liabilities       133         96          3        232        (704)      (155)         4       (855) 
                                     -------    -------    -------    -------     -------    -------    -------    -------  
                                                                                                                            
Increase (decrease) in net interest                                                                                         
   income                            $    84    $  (215)   $   (17)   $  (148)    $ 1,256    $    82    $   (49)   $ 1,289  
                                     =======    =======    =======    =======     =======    =======    =======    =======  
</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, 1998 and 1997
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, 1998.
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,  1998  and  1997,  and the  results  of  their
operations  and their cash flows for each of the years in the three year  period
ended  September 30, 1998,  in conformity  with  generally  accepted  accounting
principles.



                                       /s/McGladrey & Pullen, LLP


Raleigh, North Carolina
October 23, 1998

                                       15
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 and 1997

<TABLE>
<CAPTION>
Assets                                                                            1998            1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>            
Cash and cash equivalents:
   Interest-bearing                                                       $     27,817,856 $    29,414,597
   Non-interest bearing                                                            171,500         555,043
   Federal funds sold                                                            1,473,000       3,118,000
                                                                          ---------------------------------
                                                                                29,462,356      33,087,640
                                                                          ---------------------------------
Investment securities:  (Note 2)
   Held to maturity                                                              9,000,000      13,500,000
   Nonmarketable equity securities                                               1,144,700       1,170,889
Loans receivable, net (Note 3)                                                 131,697,916     128,945,951
Accrued interest receivable, investments                                           180,301         222,716
Real estate acquired in settlement of loans                                         34,521            -
Property and equipment, net (Note 4)                                               349,190         306,794
Prepaid expenses and other assets (Note 12)                                        835,561         727,688
                                                                          ---------------------------------
           Total assets                                                   $    172,704,545 $   177,961,678
                                                                          =================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits (Note 5)                                                      $    110,459,780 $   112,641,893
   Advance payments by borrowers for taxes and insurance                           208,998         250,662
   Accrued expenses and other liabilities                                          600,722       1,005,927
   Dividends payable                                                             1,102,469       1,117,513
                                                                          ---------------------------------
           Total liabilities                                                   112,371,969     115,015,995
                                                                          ---------------------------------
Commitments and contingencies  (Notes 7, 8, 10, 11 and 16) 
Stockholders'  Equity (Notes 14, 15 and 16):
   Preferred stock,  authorized  1,000,000 shares;  none issued                       -               -
   Common stock, no par value, authorized 10,000,000 shares;
      issued and outstanding 4,083,219 shares (4,298,125 in 1997)                     -               -
   Additional paid-in capital                                                   38,550,912      41,816,239
   Unearned ESOP shares (Note 9)                                                (1,950,000)     (2,210,000)
   Retained earnings, substantially restricted (Note  15)                       23,731,664      23,339,444
                                                                          ---------------------------------
                                                                                60,332,576      62,945,683
                                                                          ---------------------------------
                                                                          $    172,704,545 $   177,961,678
                                                                          =================================
</TABLE>

See Notes to Consolidated  Financial Statements.

                                       16
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                   1998          1997           1996
---------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>           
Interest and dividend income:
   Loans                                                     $   10,447,936 $  10,202,266 $    9,897,134
   Short-term cash investments                                    1,701,909     1,837,998      2,206,230
   Investment securities                                            950,780       977,255        479,628
                                                             --------------------------------------------
              Total interest income                              13,100,625    13,017,519     12,582,992
Interest on deposits (Note 5)                                     5,609,160     5,377,418      6,232,262
                                                             --------------------------------------------
              Net interest income                                 7,491,465     7,640,101      6,350,730
Provision for loan losses (Note 3)                                     -           20,000         10,073
                                                             --------------------------------------------
              Net interest income after
              provision for loan losses                           7,491,465     7,620,101      6,340,657
                                                             --------------------------------------------
Noninterest income                                                  132,400       103,983        127,943
                                                             --------------------------------------------

Noninterest expense:
   Compensation and benefits (Notes 8, 9,10 and 11)               2,190,474     2,227,063      1,458,435
   Deposit insurance                                                116,911       155,132        334,329
   Special SAIF assessment (Note 6)                                    -             -           792,868
   Occupancy expenses                                               157,334       146,610        161,807
   Advertising                                                      142,633       161,431        137,558
   Data processing expense                                           89,774        91,234         97,384
   Other                                                            431,031       449,702        317,620
                                                             --------------------------------------------
                                                                  3,128,157     3,231,172      3,300,001
                                                             --------------------------------------------
              Income before income taxes                          4,495,708     4,492,912      3,168,599
                                                             --------------------------------------------
Income taxes (credits) (Note 14):
   Current                                                        1,661,750     1,567,265      1,348,953
   Deferred                                                          27,000       149,000      (250,000)
                                                             --------------------------------------------
                                                                  1,688,750     1,716,265      1,098,953
                                                             --------------------------------------------
              Net income                                     $    2,806,958 $   2,776,647 $    2,069,646
                                                             ============================================

Basic earnings per share (Note 16)                           $         0.70 $        0.68 $         0.28
                                                             ============================================
Diluted earnings per share (Note 16)                         $         0.69 $        0.67 $         0.28
                                                             ============================================
Dividends paid per share                                     $         0.61 $        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, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                 Additional       Unearned
                                                  Paid-in          ESOP              Retained          
                                                  Capital          Shares            Earnings          Total
-----------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>              <C>             <C>             
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 (Note 15)                          39,126,861            -               -           39,126,861
   Purchase of common stock
    by the ESOP (Note 9)                             2,600,000      (2,600,000)           -                 -
   ESOP contribution (Note 9)                           40,365         130,000            -              170,365
   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
   ESOP contribution (Note 9)                          182,325         260,000            -              442,325
   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
   Net income                                             -               -           2,806,958        2,806,958
   ESOP contribution (Note 9)                          174,460          260,000           -              434,460
   Cash dividends                                         -               -          (2,414,738)      (2,414,738)
   RSP awards below
    grant price (Note 10 )                              54,170            -               -               54,170
   Tax benefit from RSP awards                          52,000            -               -               52,000
   Redemption of 214,906 shares of
    outstanding stock at $16.50 per share           (3,545,957)           -               -           (3,545,957)
                                              -------------------------------------------------------------------
Balance at September 30, 1998                 $     38,550,912 $    (1,950,000) $    23,731,664 $     60,332,576
                                              ===================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       18
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMETNS OF CASH FLOWS
Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                       1998               1997              1996
------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>              <C>            
Cash Flows From Operating Activities
   Net income                                                    $     2,806,958 $      2,776,647 $     2,069,646
   Adjustments to reconcile net income to net
    cash provided by operating activities:
      ESOP contribution expense credited to
        additional paid-in capital                                       174,460          182,325          40,365
      Tax benefit from RSP awards                                         52,000               -               - 
      Other                                                               34,497           32,479          27,185
      Changes in assets and liabilities:
        (Increase) decrease in:
           Prepaid expenses and other assets                             (63,384)         (52,604)        (68,283)
           Accrued interest receivable                                    42,415           32,850        (138,655)
        Increase (decrease) in:
           Accrued expenses and other liabilities                       (351,035)         389,775        (195,179)
           Accrued special SAIF assessment                                    -          (792,868)        792,868
                                                                 -------------------------------------------------
              Net cash provided by operating activities                2,695,911        2,568,604       2,527,947
                                                                 -------------------------------------------------

Cash Flows From Investing Activities
   Purchase of held to maturity investment securities                (21,000,000)     (27,000,000)    (12,000,000)
   Purchase of nonmarketable equity securities                           (18,300)              -               - 
   Proceeds from maturity of held to maturity
      investment securities                                           25,500,000       28,500,000              -
   Net increase in  loans receivable                                  (2,805,023)      (5,807,322)     (6,174,422)
   Proceeds from sale of real estate acquired
      in settlement of loans                                              14,920           46,779         203,013
   Purchase of equipment                                                 (73,276)         (13,038)        (20,436)
                                                                 -------------------------------------------------
              Net cash provided by (used in)
               investing activities                                    1,618,321       (4,273,581)    (17,991,845)
                                                                 -------------------------------------------------
</TABLE>


                                   (Continued)

                                       19
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                         1997            1997            1996
----------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>               <C>            
Cash Flows From Financing Activities
   Net increase (decrease)  in deposits                          $   (2,182,113) $      1,256,507  $  (16,097,559)
   Decrease in advance payments by borrowers
       for taxes and insurance                                          (41,664)           71,218        (457,085)
   Net proceeds received from issuance of
      common stock                                                         -                 -         39,126,861
   Redemption of common stock                                        (3,545,957)             -               -
   Principal repayments received on ESOP note                           260,000           260,000         130,000
   Cash dividends paid                                               (2,429,782)       (2,277,014)       (404,463)
                                                                 -------------------------------------------------
              Net cash provided by (used in)
                     financing activities                            (7,939,516)         (689,289)     22,297,754
                                                                 -------------------------------------------------
              Net  increase (decrease) in cash
                   and cash equivalents                              (3,625,284)       (2,394,266)       6,833,856
Cash and cash equivalents:
   Beginning                                                         33,087,640        35,481,906       28,648,050
                                                                 -------------------------------------------------
   Ending                                                        $   29,462,356  $     33,087,640  $    35,481,906
                                                                 =================================================

Supplemental Disclosure of Cash Flow Information
   Cash payments for:
      Interest                                                   $    5,614,261  $      5,374,888  $     6,239,628
                                                                 =================================================
      Income taxes                                               $    1,997,265  $      1,349,265  $     1,147,800
                                                                 =================================================

Supplemental Disclosure of Noncash Investing
  and Financing Activities
   Transfer from loans to real estate
      acquired in settlement of loans                            $       51,749  $           -     $       215,334
                                                                 =================================================
   Dividends declared and accrued                                $    1,102,469  $      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.

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

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.

Principles of consolidation: The consolidated financial statements for the years
ended  September  30,  1998,  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.  All   significant
intercompany accounts and transactions have been eliminated in consolidation.

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

Investment securities:  Securities classified as held to maturity are those debt
securities  the  Corporation  or the  Association  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.
Equity securities,  which are nonmarketable,  do not require  classification and
are carried at cost.  Currently there are 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.


                                       21
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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

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

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  origination  fees: Loan  origination  fees, less certain direct costs, are
deferred as an adjustment  to yield of the related loans and are amortized  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 an evaluation  of potential  losses in the 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.

Specific loan loss  allowances on impaired  loans are recorded if it is doubtful
that  all  principal  and  interest  due  according  to the loan  terms  will be
collected.  There are no loans outstanding  during the years ended September 30,
1998 and 1997 which are considered to be impaired.

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.

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.

Advance  payments by borrowers for taxes and  insurance:  Certain  borrowers are
required to make monthly  payments,  in addition to principal and  interest,  in
order to accumulate funds to pay property taxes and insurance premiums.


                                       22
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


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

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 Corporation  adopted  Statement of Financial  Accounting
Standard  (SFAS) No. 128,  Earnings Per Share.  The  Statement  establishes  new
standards for computing and presenting  earnings per share,  and requires a dual
presentation of basic and diluted  earnings per share.  Basic earnings per share
excludes  dilution  and is  computed  by  dividing  income  available  to common
stockholders  by the  weighted  average  number  of shares  outstanding  for the
period.  Diluted  earnings per share reflects the potential  dilution that could
occur if securities or other contracts to issue common stock were exercised. The
Corporation has presented  diluted earnings per share due to the dilutive effect
of outstanding  stock options.  Earnings per share  presentations  for all prior
periods have been  restated to reflect the adoption of SFAS No. 128. See Note 16
for a computation and reconciliation of basic and diluted earnings per share.

Fair value of  financial  instruments:  The  estimated  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
financial  instruments are not necessarily  indicative of the amounts that could
be  realized  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, 1998 and 1997, 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 in estimating its fair
value disclosures for financial instruments:

   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 and Federal Home Loan Bank 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.

                                       23
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


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

   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, 1998 and 1997, 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, 1998 and 1997.  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, 1998 and 1997 for  deposits  of similar  remaining
   maturities.

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

   Future Reporting Requirements: The Financial Accounting Standards  Board  has
   issued SFAS No.  130,  Reporting  Comprehensive  Income  and  SFAS  No.  132,
   Employers'  Disclosures About Pensions  and  Other  Postretirement  Benefits,
   both of which the Association has not been required to adopt as of  September
   30, 1998.

   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.

   SFAS No. 132, Employers'  Disclosures About Pensions and Other Postretirement
   Benefits,   revises   employers'   disclosures   about   pension   and  other
   postretirement  benefit plans.  The Statement does not change the measurement
   or recognition of those plans, but  standardizes the disclosure  requirements
   for  pensions  and  other   postretirement   benefits,   requires  additional
   information  on changes in the  benefit  obligations  and fair values of plan
   assets  that will  facilitate  financial  analysis.  The  Statement  suggests
   combined formats for presentation of pension and other postretirement benefit
   disclosures.  It is not expected that this statement will  materially  effect
   the presentation of existing disclosures.

                                       24
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 2.  Held to Maturity Investment Securities

Held-to-maturity  investment  securities,   which  consist  of  US  Agency  debt
obligations, are as follows:

<TABLE>
<CAPTION>

                                                                   Gross        Gross        Estimated
                                                  Amortized      Unrealized   Unrealized       Market
                                                     Cost          Gains        Losses         Value
                                               -----------------------------------------------------------
<S>                                           <C>           <C>            <C>            <C>           
September 30, 1998                             $   9,000,000 $       42,192 $         -    $    9,042,192
                                               ===========================================================

September 30, 1997                             $  13,500,000 $       55,316 $         -    $   13,555,316
                                               ===========================================================

</TABLE>

The  amortized  cost and  estimated  fair  value of the  held to  maturity  debt
securities  at September  30, 1998 by  contractual  maturity are as shown below:

<TABLE>
<CAPTION>
                                                                                                  Estimated
                                                                                   Amortized        Market
                                                                                     Cost           Value
                                                                                -----------------------------
<S>                                                                             <C>            <C>          
   Due in one year through five years                                           $    6,000,000 $   6,039,378
   Due after five years                                                              3,000,000     3,002,814
                                                                                -----------------------------
                                                                                $    9,000,000 $   9,042,192
                                                                                =============================
</TABLE>

There were no sales of investment securities during 1998, 1997 or 1996.


Note 3.  Loans Receivable

Loans receivable consist of the following:
<TABLE>
<CAPTION>
                                                                                    1998             1997
                                                                            ---------------------------------
<S>                                                                         <C>              <C>             
Mortgage loans:
   Residential one-to-four family                                           $    108,738,797 $    106,083,836
   Residential multifamily                                                         7,626,892        7,527,305
   Nonresidential real estate                                                     14,455,316       14,172,176
   Residential construction                                                        2,844,570        3,444,852
   Installment loans                                                                 649,909          433,583
                                                                            ----------------------------------
                                                                                 134,315,484      131,661,752
                                                                            ----------------------------------
Less:
   Allowance for loan losses                                                         254,763          254,763
   Unamortized loan fees                                                             937,250          964,726
   Undisbursed portion of loans in process                                         1,425,555        1,496,312
                                                                            ----------------------------------
                                                                                   2,617,568        2,715,801
                                                                            ----------------------------------
                                                                            $    131,697,916 $    128,945,951
                                                                            ==================================
   Weighted average yield for the year                                            7.99%            8.13%
                                                                            ==================================
</TABLE>

                                       25
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 3.     Loans Receivable (Continued)

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


                                               1998         1997        1996
                                          --------------------------------------
Balance, beginning                        $    254,763 $    234,763 $    224,690
   Provisions charged to income                   -          20,000       10,073
                                          --------------------------------------
Balance, ending                           $    254,763 $    254,763 $    234,763
                                          ======================================

Loans are placed on nonaccrual  status when the 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, 1998,  1997,  and 1996 loans
totaling  $195,547,  $173,336,  and $309,666,  respectively,  were contractually
delinquent  90 days or more.  Interest  income on these loans,  which would have
been recognized had the loans been amortized as scheduled, has been decreased by
$4,085,  $2,776 and $13,626 for the years ended  September  30,  1998,  1997 and
1996.

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  in the ordinary  course of
business.

Aggregate loan transactions with related parties for the year ended September 30
were as follows:



                                                   1998             1997
                                            ------------------------------------
Beginning balance                           $        431,502 $        146,874
New loans                                             23,900          367,000
Repayments                                           (28,196)         (82,372)
                                            ------------------------------------
Ending balance                              $        427,206 $        431,502
                                            ------------------------------------

Maximum balance during the year             $        451,996 $        442,668
                                            ====================================

                                       26
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 4. Property and Equipment

Property and equipment are summarized as follows:


                                                    1998             1997
                                            ----------------------------------
Land                                        $        150,972 $        150,972
Buildings                                            736,215          722,506
Furniture and equipment                              323,834          264,266
                                            ----------------------------------
                                                   1,211,021        1,137,744
Accumulated depreciation                            (861,831)        (830,950)
                                            ----------------------------------
                                            $        349,190 $        306,794
                                            ==================================

Depreciation  expense  was  $30,881,  $36,504  and  $42,428  for the years ended
September 30, 1998, 1997 and 1996, respectively.


Note 5. Deposits

Deposits consist of the following:

<TABLE>
<CAPTION>
                                                             1998             1997
                                                      ----------------------------------

<S>                                                  <C>              <C>             
Passbook accounts, 3.00% (3.00% in 1997)              $     13,095,540 $     12,991,011
NOW accounts, 2.75% (2.75% in 1997)                            114,151          132,743
Super NOW accounts, 4.00% (4.00% in 1997)                       52,881          107,637
Money market accounts, 4.00% (4.00% in 1997)                12,927,837       13,984,393
                                                      ----------------------------------
                                                            26,190,409       27,215,784
                                                      ----------------------------------
Certificates:
   3.00% and below                                                  --        1,507,374
   3.01% - 5.00%                                             4,318,545        2,310,535
   5.01% - 7.00%                                            79,496,537       80,782,589
   7.01% and above                                             425,449          791,670
                                                      ----------------------------------
                                                            84,240,531       85,392,168
                                                      ----------------------------------
Accrued interest on deposits                                    28,840           33,941
                                                      ----------------------------------
                                                      $    110,459,780 $    112,641,893
                                                      ----------------------------------
Weighted average cost of funds for the year                      5.03%            4.91%
                                                      ==================================
</TABLE>


                                       27
<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, 1998 as
follows:

<TABLE>
<CAPTION>
                                   1999            2000         2001      Thereafter          Total   
                            ----------------------------------------------------------------------------
<S>                        <C>            <C>           <C>            <C>            <C>             
3.00% and below             $            - $           - $            - $            - $              -  
3.01% - 5.00%                    3,384,780       933,765                                      4,318,545
5.01% - 7.00%                   60,227,283     7,000,882      8,259,410      4,008,962       79,496,537
7.01% and above                     52,694       203,488         35,520        133,747          425,449
                            ----------------------------------------------------------------------------
                            $   63,664,757 $   8,138,135 $    8,294,930 $    4,142,709 $     84,240,531
                            ============================================================================
</TABLE>

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

Maturity                                                           Amount
-------------------------------------------------------------------------------
Less than 3 months                                            $      2,785,520
4 to 12 months                                                       5,346,924
More than 12 months                                                  3,228,381
                                                              -----------------
                                                              $     11,360,825
                                                              =================

Eligible deposits are insured to $100,000 by the Savings  Association  Insurance
Fund (SAIF), which is administered by the Federal Deposit Insurance  Corporation
(FDIC).


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 of $792,868 was equal to approximately  65.7 basis points of the SAIF
assessable deposit base as of March 31, 1995 and was accrued as of September 30,
1996.


Note 7.  Deferred Compensation

A  deferred  compensation  plan  exists  for  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. Life insurance  policies have been purchased,  with the
Association named as beneficiary, to fund the benefits. Total expense related to
the Plan was approximately $38,000, $40,000 and $64,000 for 1998, 1997 and 1996,
respectively.

                                       28
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 8.  Employment Agreements

Employment  agreements exist 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 the proceeds of a loan from the
Corporation.

The Corporation's note receivable is 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 1998 and
1997 the ESOP made principal payments of $260,000, 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, 1998 and 1997, the outstanding  balance of the
note receivable is $1,950,000 and $2,210,000,  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  $434,460,  $442,325  and  $170,365  during  1998,  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,
$174,460, $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 1998,  1997 and
1996, respectively. This amount has been credited to paid-in capital.


                                       29
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 9.     Employee Stock Ownership Plan (Continued)

At September  30, 1998 and 1997,  65,000 and 39,000 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 $2.5 million and $4.5
million at September 30, 1998 and 1997, respectively.


Note 10.  Restricted Stock Plan

Under the  Restricted  Stock Plan  ("RSP"),  171,925  shares of common stock are
authorized  for grant to directors  and key  employees  and vest evenly over a 5
year period,  which commenced in October,  1997.  Management  intends to provide
funds to the restricted  stock plan trust fund in order for the trust to acquire
common stock in open market  purchases.  For the years ended  September 30, 1998
and  1997,  expense  associated  with  the RSP was  approximately  $552,000  and
$530,000, respectively.


Note 11.  Stock Option Plan

Under a stock option for directors and key  employees,  429,812  options with an
exercise  price of $14.94 per share were granted in October,  1996.  The options
will become  exercisable  at the rate of 20% annually for five years during such
periods of service and expire after ten years.  The  exercise  price is equal to
the market value of the stock at the date of the grant.  At September  30, 1998,
85,962 options were  exercisable  under the plan. No options have been exercised
or forfeited.

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.  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 net income  and basic and  diluted  earnings  per share
would have been  approximately  $210,000 or $.05 (basic) and $.05  (diluted) per
share for years ended September 30, 1998 and 1997, respectively.

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


                                       30
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 12.  Pension Plan

A defined benefit pension plan is in effect covering substantially all 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.  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, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                   1998             1997
                                                                            ----------------------------------
<S>                                                                        <C>              <C>             
Actuarial present value of benefit obligation:
   Vested                                                                   $      (854,279) $      (895,418)
   Nonvested                                                                         (2,386)          (1,877)
                                                                            ----------------------------------
Accumulated benefit obligation                                                     (856,665)        (897,295)
Effect of projected future compensation levels                                     (192,911)        (379,435)
                                                                            ----------------------------------
Projected benefit obligation                                                     (1,049,576)      (1,276,730)
Market value of plan assets                                                       1,132,452        1,211,444
                                                                            ----------------------------------
Projected benefit obligation in (over/under) plan assets                             82,876          (65,286)
Unrecognized net transition assets                                                  (15,227)         (17,764)
Unrecognized prior service cost                                                     (55,919)         (60,579)
Unrecognized loss                                                                   189,348          334,889
                                                                            ----------------------------------
Prepaid pension asset included in other assets                              $       201,078  $       191,260
                                                                            ==================================

</TABLE>

The  components  of pension  costs  charged to expense  for 1998,  1997 and 1996
consisted of the following:

<TABLE>
<CAPTION>

                                                                1998              1997           1996
                                                         --------------------------------------------------
<S>                                                      <C>              <C>              <C>            
Service cost for benefits earned during period           $         52,143 $         57,422 $        53,280
Interest cost on projected benefit obligation                      77,624           80,243          86,620
Return on plan assets                                             (88,822)         (82,045)        (69,639)
Net amortization and deferral                                      (2,190)           9,690          13,754
                                                         --------------------------------------------------
Net periodic pension cost                                $         38,755 $         65,310 $        84,015
                                                         ==================================================
</TABLE>

In determining the projected benefit  obligation at September 30, 1998, 1997 and
1996, the weighted  average  discount rate was 7%, 8% and 7%  respectively,  and
expected  long-term  rate  of  return  on  plan  assets  was  7.5%,  8% and  7%,
respectively.  The assumed  rate of increase in future  compensation  levels was
4.0% in 1998, 4.0% in 1997 and 4.5% in 1996 in determining net periodic cost for
all periods presented.


                                       31
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 13.  Fair Value of Financial Instruments

The following  table presents the carrying  amounts and estimated fair values of
financial  instruments  at  September  30,  1998  and  1997.  See  Note  1 for a
description of accounting  policies and the  limitations  of its  disclosures in
reporting on the fair value of its financial instruments.

<TABLE>
<CAPTION>

                                                      1998                             1997
                                       ------------------------------------------------------------------
                                            Carrying           Fair           Carrying         Fair
                                            Amount             Value           Amount          Value     
                                       ------------------------------------------------------------------
<S>                                   <C>              <C>             <C>              <C>            
Financial assets:
   Cash and short-term cash
      investments                      $     27,989,356 $    27,989,356 $     29,969,640 $    29,969,640
   Federal funds sold                         1,473,000       1,473,000        3,118,000       3,118,000
   Investment securities held to
      maturity                                9,000,000       9,042,192       13,500,000      13,555,316
   Nonmarketable equity securities            1,144,700       1,144,700        1,170,889       1,170,889
   Loans receivable                         131,697,916     136,326,000      128,945,951     131,907,000
   Accrued interest receivable                  180,301         180,301          222,716         222,716
Financial liabilities:
   Deposits                                 110,459,780     110,801,249      112,641,893     112,688,725
</TABLE>


Note 14.  Income Taxes

Under the Internal Revenue Code, a special bad debt deduction is allowed related
to additions to tax bad debt reserves  established  for the purpose of absorbing
losses.  Through 1996,  the  provisions of the Code permitted the deduction of a
provision for bad debts based on 8% of taxable  income before such  deduction or
actual loss  experience.  No bad debt deduction was taken in 1998, 1997 and 1996
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.  Future  deductions  will be permitted
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 was delayed until 1999 as a result of the  Association  originating a
certain level of residential  mortgage  loans.  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.


                                       32
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 14.    Income Taxes (Continued)

At September 30, 1998 and 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.

Deferred income taxes consist of the following:

<TABLE>
<CAPTION>
                                                                                   1998              1997
                                                                            ----------------------------------
<S>                                                                        <C>               <C>             
Deferred tax assets:
   Deferred loan fees                                                       $         74,000  $        95,000
   Deferred compensation                                                             148,000          152,000
   Deferred RSP compensation                                                         208,000          208,000
   Allowance for loan losses                                                          88,000           88,000
   Other                                                                               6,000               --
                                                                            ----------------------------------
Total deferred tax assets                                                            524,000          543,000
                                                                            ----------------------------------

Deferred tax liabilities:
   Excess accumulated tax depreciation                                                29,000           25,000
   Federal Home Loan Bank stock basis                                                 96,000           96,000
   Excess pension plan contribution                                                   65,000           61,000
   Tax bad debt reserves                                                             388,000          388,000
                                                                            ----------------------------------
Total deferred tax liabilities                                                       578,000          570,000
                                                                            ----------------------------------
Net deferred tax assets (liabilities)                                       $        (54,000) $       (27,000)
                                                                            ==================================
</TABLE>

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,
1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                 1998             1997             1996
                                                         ---------------------------------------------------
<S>                                                             <C>              <C>              <C>    
Income tax at the federal statutory rate                         34.00 %          34.00 %          34.00 %
State income taxes, net of federal benefit                        2.24             1.89             2.15
Other                                                             1.32             2.31            (1.47)
                                                         ---------------------------------------------------
                                                                 37.56 %          38.20 %          34.68 %
                                                         ===================================================
</TABLE>

                                       33


<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 15.  Stockholders' Equity

On April 3, 1996, the Corporation 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 the  Corporation  and the
Association 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, the Association may pay a cash dividend to
the  Corporation  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 1998, 1997 and 1996, the Association paid $2,082,328,  $1,718,574
and $629,819 in dividends to the Corporation, respectively.



                                       34
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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



Note 15.    Stockholders' Equity (Continued)

The OTS 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 4.0% of total assets and a risk-based  capital
requirement  currently  set at 8.0% of  risk-weighted  assets.  A summary of the
status of the capital requirements at September 30, 1998 is shown below:

<TABLE>
<CAPTION>
                                                              Tangible          Core           Risk-Based
                                                              Capital          Capital          Capital
                                                            Requirement       Requirement     Requirement
                                                          --------------------------------------------------
<S>                                                      <C>             <C>              <C>             
Stockholders' equity (GAAP)                               $    60,332,576 $     60,332,576 $     60,332,576
Equity of Green Street Financial Corp                         (15,071,027)     (15,071,027)     (15,071,027)
General loan loss allowance                                             -                -          254,763
                                                          --------------------------------------------------
Regulatory capital                                             45,261,549       45,261,549       45,516,312
Minimum capital requirement                                     2,347,966        6,261,242        6,346,880
                                                          --------------------------------------------------
Excess regulatory capital                                 $    42,913,583 $     39,000,307 $     39,169,432
                                                          --------------------------------------------------

Home Federal's assets at September 30, 1998               $   156,531,047 $    156,531,047 $              -
Risk-weighted assets at September 30, 1998                              -                -       79,336,000
Capital as a percentage of assets:
   Actual                                                          28.92%           28.92%           57.37%
   Required                                                         1.50%            4.00%            8.00%
                                                          --------------------------------------------------
   Excess                                                          27.42%           24.92%           49.37%
                                                          ==================================================
</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.  Earnings Per Share

As required,  SFAS No. 128 was adopted during the year ended September 30, 1998.
This  statement  requires dual  presentation  of basic and diluted  earnings per
share (EPS) with a  reconciliation  of the numerator and  denominator of the EPS
computations.  Basic per share amounts are based on the weighted  average shares
of common stock  outstanding.  Diluted earnings per share assume the conversion,
exercise or issuance of all potential common stock  instruments such as options,
warrants and  convertible  securities,  unless the effect is to reduce a loss or
increase earnings per share. No adjustments were made to net income  (numerator)
for all periods presented.

                                       35
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 16.     Earnings Per Share (Continued)

Accordingly,  this presentation has been adopted for all periods presented.  The
basic and  diluted  weighted  average  shares  outstanding  for the years  ended
September 30 are as follows:

<TABLE>
<CAPTION>
                                                                  1998            1997            1996
                                                           ------------------------------------------------
<S>                                                             <C>              <C>             <C>      
Weighted average shares outstanding                             4,238,604        4,298,125       4,298,125
Less unallocated ESOP shares                                     (208,000)        (234,000)       (247,000)
                                                           ------------------------------------------------
    Weighted average outstanding shares
       used for basic EPS                                       4,030,604        4,064,125       4,051,125
Plus incremental shares from assumed
   issuance of stock options                                       45,592           52,146              -
                                                           ------------------------------------------------
    Weighted average outstanding shares
       used for diluted EPS                                     4,076,196        4,116,271       4,051,125
                                                           ================================================
</TABLE>


The earnings per share  computation  for 1996 is based on net income earned from
the date of  Conversion,  April 3, 1996, to the end of the fiscal year.


Note 17.  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.

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  $1,852,300  and  $2,137,000  at
September  30, 1998 and 1997,  respectively,  primarily for the  origination  of
fixed rate loans.


                                       36
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 17.    Concentration of Credit Risk and Off-Balance-Sheet Risk (Continued)

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.


Note 18.  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, 1998 and 1997:

Condensed Balance Sheets
September 30, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                   1998            1997
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>            
Assets:
   Cash and short-term cash investments                                     $     16,114,829 $    19,203,612
   Accounts receivable, other                                                        318,667         217,035
   Investment in Home Federal                                                     45,001,549      44,647,749
                                                                            ---------------------------------
                                                                            $     61,435,045 $    64,068,396
                                                                            =================================
Liabilities and Stockholders' Equity:
   Liabilities:
      Dividends payable                                                     $      1,102,469 $     1,117,513
      Taxes payable                                                                        -           5,200
                                                                            ---------------------------------
                                                                                   1,102,469       1,122,713
                                                                            ---------------------------------
   Stockholders' equity:
      Common  stock,  no par value,  10,000,000  shares  authorized,  
        issued and outstanding 4,083,219 shares (4,298,125 in 1997)                        -               -
      Additional paid-in capital                                                  61,708,564      64,973,891
      Unearned ESOP shares                                                        (1,950,000)     (2,210,000)
      Retained earnings                                                              574,012         181,792
                                                                            ---------------------------------
                                                                                  60,332,576      62,945,683
                                                                            ---------------------------------
                                                                            $     61,435,045 $    64,068,396
                                                                            =================================
</TABLE>


                                       37
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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


Note 18.    Parent Corporation Financial Data (Continued)

Condensed Statements of Income
For the Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                  1998             1997             1996
------------------------------------------------------------------------------------------------------------

<S>                                                      <C>              <C>             <C>             
Interest income                                           $      1,176,133 $     1,215,158 $        575,914
Equity in earnings of Home Federal                               2,125,499       2,088,235          797,447
Administrative expense                                           (148,550)       (165,124)         (47,376)
Income tax expense                                               (346,124)       (361,622)        (183,600)
                                                          --------------------------------------------------
Net income                                                $      2,806,958 $     2,776,647 $      1,142,385
                                                          ==================================================

</TABLE>

                                       38
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY


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



Note 18.    Parent Corporation Financial Data (Continued)

Condensed Statements of Cash Flows
For the Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                  1998            1997             1996
------------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>             <C>             
Cash Flows from Operating Activities:
   Net income                                             $      2,806,958 $     2,776,647 $      1,142,385
   Noncash income items:
      Equity in earnings of Home Federal                        (2,125,499)     (2,088,235)        (797,447)
   Change in assets and liabilities:
      Increase in accrued interest receivable                            -          25,732          (25,732)
      (Increase) decrease in accounts receivable other            (131,631)       (129,935)         (25,350)
      Increase (decrease) in income taxes payable                   (5,200)          5,200                -
                                                          --------------------------------------------------
        Net cash provided by operating activities                  544,628         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                           2,082,328       1,718,574          629,819
   Initial investment in Home Federal                                    -               -      (20,863,430)
                                                          --------------------------------------------------
        Net cash provided by (used in)
           investing activities                                  2,082,328       4,718,574      (23,233,611)
                                                          --------------------------------------------------

Cash Flows from Financing  Activities:
   Payments received on note receivable from ESOP                  260,000         260,000          130,000
   Payment of dividends                                         (2,429,782)     (2,277,014)        (404,463)
   Proceeds received from common stock offering                          -              -        39,126,861
   Purchase of common stock                                     (3,545,957)             -                 -
                                                          --------------------------------------------------
        Net cash provided by (used in)
           financing activities                                 (5,715,739)     (2,017,014)      38,852,398
                                                          --------------------------------------------------
Net increase (decrease) in cash                                 (3,088,783)      3,290,969       15,912,643
   Cash, beginning                                              19,203,612      15,912,643                -
                                                          --------------------------------------------------
   Cash, ending                                           $     16,114,829 $    19,203,612 $     15,912,643
                                                          --------------------------------------------------

Supplemental Disclosure of Noncash
  Financing Activities:
   Dividends declared and accrued                         $      1,102,469 $     1,117,513 $      1,074,531
                                                          ==================================================
</TABLE>

                                       39

<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  October 1, 1996 through
September  30,  1998.  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.

<TABLE>
<CAPTION>
                                             Dividends                     Stock Price
                                    ---------------------------  ---------------------------------
                                      Regular        Special          High           Low
                                    ---------------------------  ---------------------------------
1998:
<S>                              <C>               <C>                 <C>               <C>
First Quarter                     $      0.11       $      -     $      21 1/8     $      17 1/4
Second Quarter                           0.11              -               19                17
Third Quarter                            0.12              -           18 3/4            14 1/2
Fourth Quarter                           0.12             0.15             15            11 3/4
                                                    
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
                                                    
</TABLE>                                      

                         QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Quarter Ended
                                ----------------------------------------------------------------------
                                  December 31          March 31         June 30         September 30
                                ----------------------------------------------------------------------
<S>                            <C>               <C>               <C>               <C>            
1998:
Interest income                 $     3,341,542   $     3,294,109   $     3,272,764   $     3,192,210
Interest expense                      1,459,877         1,393,714         1,367,282         1,388,287
Net interest income                   1,881,665         1,900,395         1,905,482         1,803,923
Net income                              689,041           692,409           700,875           724,633
Basic earnings per share                   0.17              0.17              0.17              0.19
Diluted earnings per share                 0.17              0.17              0.17              0.19

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
Basic earnings per share                   0.16              0.17              0.18              0.18
Diluted earnings per share                 0.16              0.17              0.18              0.17

</TABLE>

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<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                    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
   Executive, Coca-Cola Bottling Co.            President, Holt Oil Co.            President, Rose, Ray, O'Connor,
                                                                                       Manning & McCauley, PA


          STOCK TRANSFER AGENT                                                           SPECIAL LEGAL COUNSEL
          --------------------                                                           ---------------------

  American Stock Transfer & Trust Co.                                             Malizia, Spidi, Sloane & Fisch, PC
       40 Wall Street 46th Floor                                                           1301 K Street NW
           New York, NY 10005                                                            Washington, DC 20005


          LOCAL LEGAL COUNSEL                                                            INDEPENDENT AUDITORS
          -------------------                                                            --------------------

          Rose, Ray, O'Connor,                                                          McGladrey & Pullen, LLP
         Manning & McCauley, PA                                                          2418 Blue Ridge Road
            214 Mason Street                                                               Raleigh, NC 27605
         Fayetteville, NC 28301

                                                 CORPORATE OFFICE
                                                  241 Green Street
                                               Fayetteville, NC 28301

</TABLE>

<TABLE>
<CAPTION>
<S>                                                   <C>
                      FORM 10-K                                         ANNUAL MEETING

A copy of Form 10-K as filed  with the  Securities     The 1999 annual meeting of stockholders of Green 
and Exchange  Commission will be furnished             Street Financial Corp will be held at  5:15 pm on  
without charge  to  the  Corporation's stockholders    January 27, 1999 at the Corporation's corporate  
upon written request to Green Street Financial         office at 241 Green Street, Fayetteville, N.C.
Corp P.O. Box 1540, Fayetteville, N.C. 28302.
</TABLE>

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