GREEN STREET FINANCIAL CORP

                               1996 ANNUAL REPORT

<PAGE>

<TABLE>
<CAPTION>



                                    CONTENTS

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                                                                                                          Page

<S>                                                                                                      <C>
Selected Financial Data                                                                                        1

Report to Stockholders                                                                                         2

Management's Discussion and Analysis                                                                      3 - 13

Independent Auditor's Report                                                                                  14

Consolidated Financial Statements of:

   Financial condition at September 30, 1996 and 1995                                                         15
   Income for years ended September 30, 1996, 1995 and 1994                                                   16
   Stockholders' equity for years ended September 30, 1996, 1995 and 1994                                     17
   Cash flows for the years ended September 30, 1996, 1995 and 1994                                      18 - 19

Notes to the Consolidated Financial Statements                                                           20 - 39

Corporate Information                                                                                         40
Common Stock Information                                                                                      40

</TABLE>

<PAGE>


SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                   September 30,
                                           -----------------------------------------------------------
                                                1996        1995        1994        1993        1992
                                           -----------------------------------------------------------
Financial Condition Data:                             (In Thousands, Except per Share Amounts)
<S>                                        <C>         <C>         <C>         <C>         <C>        
   Total assets                            $   176,217 $   151,028 $   150,077 $   163,069 $&$ 160,429
   Investments securities (1)                   51,403      32,174      43,605      51,749      40,777
   Loans receivable, net                       123,148     117,201     105,094     109,499     117,647
   Savings deposits                            111,385     127,483     128,334     143,220     142,361
   Stockholders' equity (2)                     62,180      22,230      20,453      18,643      16,818
   Book value per share                          14.47         -           -           -           -  
</TABLE>

<TABLE>
<CAPTION>
                                                             Years Ended September 30,
                                            -----------------------------------------------------------
                                                 1996        1995        1994        1993        1992
                                            -----------------------------------------------------------
Operating Data:                                  (Dollars in Thousands, Except Per Share Amounts)
<S>                                        <C>         <C>         <C>         <C>         <C>        
   Interest and dividend income            $    12,583 $    11,124 $    10,325 $    11,351 $    12,785
   Interest expense                              6,232       6,119       5,489       6,557       8,375
                                           ------------------------------------------------------------
   Net interest income                           6,351       5,005       4,836       4,794       4,410
   Provision for loan losses                        10           -          19          52         113
   Noninterest income                              128         106         145         133         166
   Noninterest expense (3)                       3,300       2,344       2,117       2,020       2,001
                                           ------------------------------------------------------------
   Income before income taxes                    3,169       2,767       2,845       2,855       2,462
   Income tax expense                            1,099         990       1,035       1,030         893
                                           ------------------------------------------------------------
   Net income                              $     2,070       1,777       1,810       1,825       1,569
                                           ============================================================
   Earnings per share (2) (4)              $      0.28 $       -   $       -   $       -   $       -
   Dividends per share (5)                        0.35         -           -           -           -

Selected Other Data:

   Return on average assets                       1.22%       1.21%       1.16%       1.12%        .98%
   Return on average equity                       4.93%       8.29%       9.23%      10.24%       9.77%
   Interest rate spread                           2.50%       2.66%       2.58%       2.48%       2.19%
   Net interest margin                            3.78%       3.42%       3.11%       2.99%       2.79%
   Dividend payout ratio                          1.25%          -           -           -           -

   Average equity to average assets              24.76%      14.57%      12.52%      10.98%      10.04%
   Nonperforming loans to total loans (6)          .25%        .27%        .39%        .35%        .51%
</TABLE>

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

                                       1
<PAGE>


                     

                             Report to Stockholders

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

As part of the conversion,  Green Street  Financial Corp issued 4,298,125 shares
of common  stock,  including  shares  purchased by the  Association's  ESOP,  to
approximately 1,200  stockholders,  all of whom were depositors of Home Federal.
The offering was significantly  oversubscribed and the vote of confidence by the
investing community was extremely rewarding.

This first annual report of Green Street  Financial  Corp reflects the financial
results of the Holding Company and Home Federal on a consolidated  basis for the
year ended  September  30,  1996.  However,  the  investment  of the  conversion
proceeds and other Holding  Company's  operations are reflected only for periods
subsequent  to its inception on April 3, 1996.  The  financial  amounts for 1995
represent only the results of Home Federal. Consolidated assets at September 30,
1996 were $176.2 million, an increase of $25.2 million over September 30, 1995.

Earnings for the year ending September 30, 1996 were $2,069,646 and represent an
increase of $292,640  over 1995.  Earnings in 1996 were  negatively  impacted by
federal  legislation  to  recapitalize  the Savings  Association  Insurance Fund
(SAIF) signed into law on September  30, 1996. As a result of this  legislation,
Home Federal was assessed a one time charge of $792,868, or $517,985 on an after
tax basis.  By recording this SAIF  assessment in the fourth quarter of the 1996
fiscal  year,  future  earnings of the  Corporation  should be  enhanced  due to
expected lower deposit insurance premiums.  Green Street Financial Corp declared
dividends of  $1,417,244,  or $0.35 per share in the year ending  September  30,
1996.

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

Sincerely,



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

                                       2
<PAGE>


                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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






                                     General

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

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

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

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

The  following  discussion  and  analysis  is  intended  to  assist  readers  in
understanding  the results of operations in 1996,  1995 and 1994, and changes in
financial   position  for  the  years  ended   September   30,  1996  and  1995,
respectively.

                                       3
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

        Comparison of Financial Condition at September 30, 1996 and 1995

Total  consolidated  assets  increased by $25.2 million during 1996, from $151.0
million at  September  30, 1995 to $176.2  million at September  30,  1996.  The
increase   resulted   primarily   from  the  net  proceeds   received  from  the
Corporation's  stock  offering  which  closed on April 3, 1996 and resulted in a
$39.1 million increase in capital.  Of the proceeds  received in the Conversion,
approximately $9.5 million was withdrawn from existing deposit accounts.

Investments, including short term interest-earning deposits, federal funds sold,
and U.S. Treasury and agency obligations  increased by $19.2 million,  primarily
as a result of investing the proceeds  received from the stock  offering.  Funds
generated from operations also provided a source for additional investments.

Loans receivable  increased by approximately  $5.9 million during 1996 to $123.1
million at September  30, 1996.  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 dependent on
the large military installations situated in the Association's lending markets.

Savings  deposits  decreased  by  approximately  $16.1  million  during 1996 and
totaled $111.4 million at September 30, 1996.  Approximately $9.5 million of the
decrease is  attributable  to the  withdrawal of deposits by account  holders to
purchase shares of common stock of the Corporation in the Conversion. Due to its
liquidity, as evidenced by the substantial amount of short-term interest earning
deposits  invested  throughout 1996, the Association  elected not to agressively
price  certain  higher cost  certificates  of deposit  accounts and allowed such
deposits to leave the Association upon renewal. As a result, the Association was
able to lower its cost of funds from  5.48% at  September  30,  1995 to 4.95% at
September 30, 1996.

The Corporation had no outstanding  borrowings during 1996 or 1995. However, the
Association  has  borrowing  capacity  through  the  Federal  Home  Loan Bank of
Atlanta.

The  Corporation's  return on average assets was 1.22% and 1.21%, and its return
on  average  equity was 4.93% and 8.29%,  for 1996 and 1995,  respectively.  The
return on average assets in 1996 would have been 1.55% had the  Association  not
been required to expense the special SAIF assessment during 1996. The decline in
the return on average equity from 1995 to 1996 was due primarily to the proceeds
received  from the stock  offering and  resulting  increase in equity,  and to a
lesser extent,  the special SAIF assessment that the Association was required to
expense  during 1996. The passage of the "Deposit  Insurance  Funds Act of 1996"
was undertaken to recapitalize  the SAIF insurance fund of the FDIC and required
a one time  assessment to the Association of 65.7 basis points of its assessable
deposit  base as of March  31,  1995.  The  expense  recorded  for this  special
assessment  amounted  to  $792,868  (See  Note 7 to the  consolidated  financial
statements).

The Association is required to meet certain capital  requirements as established
by the OTS. At September 30, 1996, the  Association's  capital was significantly
in excess of regulatory  capital  requirements  (See Note 14 to the consolidated
financial statements).

                                       4
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

--------------------------------------------------------------------------------
 
             Comparison of Operating Results for 1996, 1995 and 1994

Net Income

Net  income  for the years  ended  September  30,  1996,  1995 and 1994 was $2.1
million, $1.8 million and $1.8 million,  respectively.  Net income in 1996 would
have been  approximately  $500,000 higher than the earnings reported without the
expense  associated with the special assessment that occurred as a result of the
Federal  legislation  to  recapitalize  the Savings  Association  Insurance Fund
(SAIF).  Earnings  on the  invested  proceeds  from  the  stock  offering  had a
significant positive impact on net interest income and net income during 1996.

Net Interest Income

Net interest  income  represents  the  difference  between  income  derived from
interest-earning  assets  and  interest  expense  incurred  on  interest-bearing
liabilities.  Net interest income is affected by both (i) the difference between
the rates of interest  earned on  interest-earning  assets and the rates paid on
interest-bearing  liabilities  ("interest  rate  spread")  and (ii) the relative
amounts of interest-earning assets and interest-bearing  liabilities outstanding
during the period.  See the table on page 9 which details the average  balances,
yields and costs of interest earning assets and interest bearing liabilities and
the rate/volume  table on page 10 which explains the changes in interest income,
interest expense,  and net interest income attributable to changes in volume and
interest rates during 1996, 1995 and 1994.

Net interest income  increased by $1,345,722 or 26.9% to $6,350,730 for the year
ended September 30, 1996 from  $5,005,008  reported in 1995. Net interest income
amounted to $4,835,827 in 1994. The increase in net interest  income during 1996
was  attributable  to an  increase in the  average  balance of interest  earning
assets due to the proceeds received from the stock offering. The average balance
of interest earning assets increased by approximately $21.7 million from 1995 to
1996. The increase in interest  earning  assets  allowed net interest  income to
increase  even though the  Association's  net  interest  rate  spread  decreased
slightly from 2.66% in 1995 to 2.50% in 1996. Net interest  income  increased by
$169,181  from 1994 to 1995  primarily  due to a $2.2  million  increase  in the
average balance of net interest earning assets. During 1994, net interest income
increased  by  approximately   $42,000   primarily  due  to  a  decline  in  the
Association's cost of funds on deposits,  which more than offset declines in the
yield and average balance of the loans outstanding.

Interest Income

Total  interest  income  increased to $12,582,992  for 1996 from  $11,123,601 in
1995, an increase of $1,459,391 or 13.1%. The increase in interest income during
1996 was  attributable  to a $21.7  million  increase in the average  balance of
interest  earning assets due to the proceeds  received from the stock  offering.
The  Association's  overall yield on interest  earning assets declined  slightly
during 1996, from 7.59% in 1995 to 7.48% in 1996.  During 1995,  interest income
increased by approximately  $799,000.  Short term market rates,  which increased
from 3.62% in 1994 to 5.72% in 1995, had a far greater impact on the increase in
interest  income  during the period  than did  changes in the volume of interest
earning  assets.   Interest  income   decreased  during  1994  by  approximately
$1,026,000  and was impacted by both  decreases in yields on loans and a decline
in the average balance of loans outstanding.

                                       5
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Interest Expense

Total interest expense  increased to $6,232,262 in 1996 from $6,118,593 in 1995,
an increase of  $113,669 or 1.9%.  The  increase in cost of funds on longer term
certificate of deposits more than offset declines in the  Association's  cost of
funds on passbook  and  transaction  accounts  during  1996.  The  Association's
average balance of deposits increased slightly during 1996 and had an immaterial
impact on the increase in interest  expense.  Home  Federal's  cost of funds was
4.98%  in 1996 as  compared  to 4.93% in 1995.  During  1995,  interest  expense
increased  by   approximately   $630,000  due  primarily  to  increases  in  the
Association's  cost of funds,  which  increased  from  4.06% in 1994 to 4.93% in
1995. Interest expense declined by approximately $1,068,000 during 1994 due to a
both a decrease in the balance of average outstanding  deposits and a decline in
cost of funds.

Provision For Loan Losses

The  Association's  provision  for loan losses  amounted  to  $10,073,  $-0- and
$18,601 for the years ended September 30, 1996, 1995 and 1994, respectively. The
provision,  which  is  charged  to  operations,  and  the  resulting  loan  loss
allowances  are amounts Home Federal's  management  believes will be adequate to
absorb  losses  on  existing  loans  that may  become  uncollectible.  Loans are
charged-off  against the allowance when management  believes that collectibility
is unlikely. An evaluation to increase the provision and resulting allowances is
based  on  factors,  such as  changes  in the  nature  and  volume  of the  loan
portfolio, overall portfolio quality, and current economic conditions.

The  Association's  level of nonperforming  loans,  defined as loans past due 90
days or  more,  are  relatively  insignificant  as  percentage  of  total  loans
outstanding  and amounted to .25%, .27% and .39% at September 30, 1996, 1995 and
1994, respectively.  Home Federal had no loans charged-off during the three year
period ended September 30, 1996.

Noninterest Income

Noninterest income amounted to $127,943, $105,906 and $145,434 in 1996, 1995 and
1994, 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
$3,300,001,  $2,343,505  and  $2,117,283 in 1996,  1995 and 1994,  respectively.
During  1996,  the  Association  accrued  and  expensed  $792,868  for a special
assessment  required to  recapitalize  the Savings  Association  Insurance  Fund
("SAIF") of the FDIC.  Without such charge,  noninterest  expense for 1996 would
have been $2,507,133, or approximately 7.0% higher than in 1995.

                                       6
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Noninterest Expense (Continued)

Compensation  and  employee  benefits  increased  by  $94,303  during  1996 from
$1,364,132 in 1995 to $1,458,435 in 1996. The primary cause for the increase was
the expense  associated  with  forming the ESOP during  1996.  Compensation  and
employee  benefits  increased by $226,647  during 1995 from  $1,137,485  in 1994
primarily  as a result of  discretionary  bonuses  approved by the Board  during
1995.  Deposit insurance,  excluding the special assessment in 1996,  fluctuates
with  the  level  of  deposits   outstanding  during  the  periods.   Occupancy,
advertising and data processing charges did not change  significantly during the
three  year  period  ended  September  30,  1996.  Increases  in  other  general
administrative expense during 1996 were attributable to various costs associated
with operating as a public company. It is expected that noninterest expense will
remain above  pre-conversion  levels as a result of additional benefit plans and
other costs associated with operating as a public company.  Expected  reductions
in deposit  insurance  premiums are  anticipated to only partially  offset these
expected higher costs.

For the first three  quarters of calendar year 1996,  SAIF-insured  institutions
paid deposit insurance  assessment rates of $0.23 to $0.31 per $100 of deposits.
In contrast,  institutions insured by the FDIC's Bank Insurance Fund (the "BIF")
that were well capitalized and without any significant supervisory concerns paid
the minimum annual assessment of $2,000, and all other BIF-insured  institutions
paid deposit insurance  assessment rates of $0.03 to $0.27 per $100 of deposits.
In response to the SAIF/BIF  assessment  disparity,  the Deposit Funds Insurance
Act of 1996 (the "Funds Act") was enacted into law on September 30, 1996.

The  Funds  Act  authorized  the FDIC to  impose  a  special  assessment  on all
institutions   with   SAIF-assessable   deposits  in  the  amount  necessary  to
recapitalize   the  SAIF.  As  implemented  by  the  FDIC,   institutions   with
SAIF-assessable  deposits will pay a special assessment,  subject to adjustment,
of 65.7 basis points per $100 of the SAIF-assessable  deposits held at March 31,
1995.  Based on the foregoing,  the Corporation  charged $792,868 against pretax
earnings for the quarter ended  September 30, 1996. The assessment is deductible
in the taxable year paid.

Due to the recapitalization of the SAIF, the FDIC proposed on October 8, 1996 to
reduce the assessment rate for SAIF-assessable deposits for periods beginning on
October 1, 1996. The proposed  assessment  rates would range from 18 to 27 basis
points  per $100 of  deposits  for the last  calendar  quarter of 1996 and would
range from -0- to 27 basis points per $100 of deposits for subsequent assessment
periods.  However,  the  Funds Act also  provides  that the FDIC  cannot  assess
regular insurance  assessments for an insurance fund unless required to maintain
or achieve the  designated  reserve ratio of 1.25% per $100 of deposits,  except
for  institutions  that are not  classified as "well  capitalized"  or that have
moderately  severe  or  unsatisfactory  financial,  operational,  or  compliance
weaknesses  as  determined  by  the  FDIC.  The  Association  has  not  been  so
classified.

Accordingly,  assuming the  designated  reserve  ratio is maintained by the SAIF
after   collection  of  the  special   assessment,   the  Association  will  pay
substantially  lower  regular  SAIF  assessments  compared  to those paid by the
Association  in recent  years,  as long as it maintains  its current  regulatory
status.  Beginning January 1, 1997, the rate of deposit  insurance  assessed the
Association is expected to decline by approximately 70%.

                                       7
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Noninterest Expense (Continued)

In  addition,  the Funds Act  expanded  the  assessment  base for the payment of
interest  on FICO bonds,  which were issued in the late 1980's by the  Financing
Corporation to  recapitalize  the now defunct Federal Savings and Loan Insurance
Corporation,  to include the deposits of both BIF and SAIF insured  institutions
beginning  January 1, 1997.  Until December 31, 1999, or until such earlier date
on which the last savings  association  ceases to exist,  the rate of assessment
for  BIF  insured   deposits   will  be   one-fifth   of  the  rate  imposed  on
SAIF-assessable  deposits.  The current  estimate of the assessment rate for the
payment  of  the  FICO   interest  is   approximately   1.3  basis   points  for
BIF-assessable deposits and 6.4 basis points for SAIF-assessable deposits.

The Funds Act also  provides  for the  merger of the BIF and SAIF on  January 1,
1999, assuming the prior elimination of the thrift charter. The Secretary of the
Treasury  is  required  to  conduct  a study  of the  relevant  factors  for the
development of a common charter for banks and thrifts and report conclusions and
findings to Congress on or before March 31, 1997.

Income Taxes

The  Corporation's  effective  income tax rate was 34.68%,  35.79% and 36.38% in
1996, 1995 and 1994  respectively.  The differences in rates were due to changes
in the components of permanent tax differences.

                     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 FASB has issued SFAS No. 123, Accounting for Stock-Based  Compensation which
the  Corporation  has not been required to adopt as of September  30, 1996.  The
Statement,  which will be in effect for the  Corporation's  fiscal  year  ending
September  30, 1997,  will require an  accounting  for stock based  compensation
plans using a fair value based method which  measures  compensation  cost at the
grant date based upon the value of the award,  which is then recognized over the
service period,  usually the vesting period. The accounting  requirements of the
Statement  apply to grants or awards  entered  into in fiscal  years  that begin
after December 15, 1995. The Statement allows the Corporation to continue to use
APB Opinion No. 25 to measure compensation cost, but requires that the pro forma
effects  on net income  and  earnings  per share be  disclosed  to  reflect  the
difference  between the compensation cost, if any, from applying APB Opinion No.
25 and the  related  cost  measured  by the fair  value  method  defined  in the
Statement.  The  Statement  will  not  change  the  reporting  required  for the
restricted  stock plan,  and does not apply to the ESOP plan.  In addition,  the
Statement  is not  expected  to  have a  material  effect  on the  Corporation's
consolidated  financial  statements  because  management is expected to elect to
continue to use the accounting and reporting  permitted by APB Opinion No. 25 as
it relates to the stock option plan.

                                       8
<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  indicated.  Such yields and costs are derived by dividing income or
     expense by the average balance of assets or liabilities,  respectively, for
     t from  month-end  balances.  Management  does not believe  that the use of
     month-end balances instead of daily average balances has caused a material
<TABLE>
<CAPTION>


                                                                           Year Ended September 30,
                                             ---------------------------------------------------------------------------------------
                       At September 30, 1996             1996                          1995                          1994
                       --------------------- ---------------------------- ---------------------------  -----------------------------
                                                                  Average                     Average                       Average
                         Actual   Average    Average              Yield/  Average             Yield/    Average             Yield/
                        Balance   Yield/Cost Balance    Interest   Cost   Balance    Interest  Cost     Balance    Interest  Cost
                        -------   ---------- -------    --------   ----   -------    --------  ----     -------    --------  ----
                                                                 (Dollars in Thousands)
<S>                     <C>        <C>     <C>        <C>        <C>     <C>        <C>          <C>   <C>        <C>          <C>  
 Assets:               
  Interest 
  earning assets:  
    Interest-
      bearing 
      deposits          $  35,233    5.79% $  40,508  $   2,206    5.45% $  30,850  $   1,766    5.72% $  49,968  $   1,808    3.62%
    Investments, 
      at cost              16,170    7.07%     6,656        480    7.21%     3,416        249    7.29%     1,171         62    5.29%
    Loans receivable      123,148    7.90%   121,024      9,897    8.18%   112,201      9,109    8.12%   104,528      8,455    8.09%
                          -------            -------      -----            -------      -----            -------      -----         
  Total interest-
    earning assets        174,551    7.40%   168,188  $  12,583    7.48%   146,467  $  11,124    7.59%   155,667  $  10,325    6.64%
                                                         ------                        ------                        ------      
  Non-interest-
    earning assets          1,666              1,322                           701                           858
                          -------            -------                       -------                       -------
         Total          $ 176,217          $ 169,510                     $ 147,168                     $ 156,525
                        =========          =========                     =========                     =========
                        
  Liabilities and 
    retained earnings:
  Interest-bearing 
    liabilities:
    Passbook accounts   $  14,680    2.75% $  20,068  $     548    2.73% $  15,870  $     576    3.63% $  16,974  $     499    2.94%
    MMDA accounts          13,423    3.98%    14,344        583    4.06%    14,845        622    4.19%    18,088        553    3.06%
    Certificates of 
      deposit              83,251    5.36%    90,779      5,101    5.62%    93,281      4,921    5.28%   100,298      4,437    4.42%
                          -------            -------      -----            -------      -----            -------      -----         
  Total interest-
    bearing liab11ities   111,354    4.95%   125,191  $   6,232    4.98%   123,996  $   6,119    4.93%   135,360  $   5,489    4.06%
                                                         ------                        ------                        ------      
  Non-interest-bearing 
    liabilities             2,683              2,354                         1,727                         1,563
  Stockholders' Equity     62,180             41,965                        21,445                        19,602
                           ------             ------                        ------                        ------
         Total          $ 176,217          $ 169,510                     $ 147,168                     $ 156,525              
                        =========          =========                     =========                     =========              
  Net interest income 
    and interest
    rate spread (1)                  2.45%            $   6,351    2.50%            $   5,005    2.66%            $   4,836    2.58%
                                                          =====                         =====                         ===== 
  Net yield on 
    interest-earning   
    assets (2)                       4.24%                         3.78%                         3.42%                         3.11%
  Ratio of interest-
    earning assets
    to interest-
    bearing 
    liabilities                    156.75%                       134.35%                       118.12%                       115.00%
</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.

                                       9
<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 (i)
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,
                                           1996 vs. 1995                                        1995 vs. 1994
                              -----------------------------------------            -----------------------------------------
                                 Increase (Decrease) Attributable to                  Increase (Decrease) Attributable to
                              -----------------------------------------            -----------------------------------------
                                                       Rate/                                                Rate/
                              Volume       Rate       Volume        Net            Volume       Rate       Volume        Net
                              ------       ----       ------        ---            ------       ----       ------        ---
                                                                  (Dollars in Thousands)
 Interest income on:          
<S>                          <C>        <C>         <C>         <C>              <C>         <C>         <C>         <C>      
 Interest earning deposits   $   553    $    (86)   $    (27)   $    440         $   (692)   $  1,052    $   (402)   $    (42)
 Investments,  at cost           236          (3)         (2)        231              119          23          45         187
 Loans receivable                716          66           6         788              621          31           2         654
                             -------    --------    --------    --------         --------    --------    --------    --------
    Total interest income on
      interest-earning assets  1,505         (23)        (23)      1,459               48       1,106        (355)        799
                             -------    --------    --------    --------         --------    --------    --------    --------
                              
 Interest expense on:         
 Passbook accounts               152        (143)        (37)        (28)             (32)        117          (8)         77
 MMDA accounts                   (21)        (19)          1         (39)             (99)        205         (37)         69
 Certificates of deposit        (132)        321          (9)        180             (310)        854         (60)        484
                             -------    --------    --------    --------         --------    --------    --------    --------
    Total interest expense on
      interest-bearing 
      liabilities                 (1)        159         (45)        113             (441)      1,176        (105)        630
                             -------    --------    --------    --------         --------    --------    --------    --------
 
 Increase (decrease) in net
      interest income        $ 1,506    $   (182)   $     22    $  1,346         $    489    $    (70)   $   (250)   $    169
                             =======    ========    ========    ========         ========    ========    ========    ========
                             
</TABLE>
                                       10
<PAGE>

                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

                         Capital Resources and Liquidity

During 1996,  Green Street Financial Corp paid a regular  quarterly  dividend of
$.10 a share on July 19,  1996 and  declared a regular  quarterly  and a special
dividend of $.10 and $.15 a share,  respectively,  on August 28, 1996 to be paid
on October 25, 1996 to stockholders  of record as of October 11, 1996.  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 sale or maturity of
investments, or the ability to raise equity capital.

During  the  year  ended  September  30,  1996,  cash and  cash  equivalents,  a
significant source of liquidity,  increased by approximately $6.8 million.  Cash
and cash equivalents decreased by $14.2 million during 1995. Cash flow resulting
from internal operating  activities  provided increases of $2.5 million and $1.8
million  in  cash  during  the  years  ended   September   30,  1996  and  1995,
respectively.  Also,  financing  activities  have provided  sources of funds for
asset growth and  liquidity.  For the year ended  September  30, 1996,  deposits
decreased by $16.1  million but  proceeds  from the stock  offering  provided an
additional $39.1 million of cash. The proceeds from the stock offering were used
primarily to fund  investment and loan growth as well as enable the  Association
to fund deposit outflows.  Deposits  decreased by approximately  $851,000 during
1995.  The  Association's  ability to generate  deposits has  historically  been
sufficient  to fund its loan demand and provide for adequate  liquidity  without
the need to access other forms of credit availability. The recent stock offering
will also enhance the  Association's  ability to grow, and lessen to some extent
its reliance on its deposit base for financing its operations.  In addition, the
Association  has a readily  available  source of credit  through  its  borrowing
capacity at the Federal Home Loan Bank of Atlanta.

Cash  provided by operating  and  financing  activities is used to originate new
loans to customers, to maintain liquid investment portfolios,  and to meet short
term liquidity  requirements.  During 1996 and 1995, loans outstanding increased
by $6.2  million and $12.1  million,  respectively.  During  1996 and 1995,  the
Corporation  purchased  investment securites amounting to $12.0 million and $3.0
million,  respectively.  There were no other investment securities activities in
1996 or 1995.

As a federally chartered savings association, Home Federal must maintain a daily
average balance of liquid assets equal to at least 5% of  withdrawable  deposits
and short-term  borrowings.  The Association's  liquidity ratio at September 30,
1996, as computed  under OTS  regulations,  was  considerable  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.

                                       11
<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,  1996,  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 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.

                                       12
<PAGE>
                   GREEN STREET FINANCIAL CORP AND SUBSIDIARY

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

                     Asset/Liability Management (Continued)
<TABLE>
<CAPTION>

                                 Net Portfolio Value                    NPV as a % of PV of Assets
                     ------------------------------------------------- ------------------------------
Change in Rates       $ Amount      $ Change (1)     % Change (2)       NPV Ratio (3)   Change (4)
-------------------  ------------------------------------------------- ------------------------------
<S>                    <C>           <C>                 <C>             <C>             <C>   
+400 bp                33,846        (12,747)           -27%              23.28%          -590 bp
+300 bp                37,083         (9,511)           -20%              24.89%          -429 bp
+200 bp                40,370         (6,223)           -13%              26.44%          -274 bp
+100 bp                43,595         (2,999)            -6%              27.89%          -129 bp
0 bp                   46,593              -              -               29.18%             -
-100 bp                49,046          2,452             +5%              30.19%          +100 bp
-200 bp                50,565          3,972             +9%              30.76%          +158 bp
-300 bp                52,033          5,439            +12%              31.31%          +212 bp
-400 bp                53,865          7,272            +16%              31.99%          +281 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, 1996, a change in interest rates of a positive 200 basis points
would have resulted in a 274 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, 1996 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, 1996 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.

                                       13
<PAGE>




          




                          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, 1996 and 1995,
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, 1996.
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,  1996  and  1995,  and the  results  of  their
operations  and their cash flows for each of the years in the three year  period
ended  September 30, 1996,  in conformity  with  generally  accepted  accounting
principles.

As discussed in Note 2 to the consolidated financial statements, the Corporation
changed its method of accounting for certain  investments  during the year ended
September 30, 1995.

                                             


                                             /s/McGladrey & Pullen, LLP

Raleigh, North Carolina
October 14, 1996, except for Note 18,
   as to which the date is October 17, 1996

                                       14
<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and 1995

ASSETS
<TABLE>
<CAPTION>

                                                                                   1996             1995
------------------------------------------------------------------------------------------------------------
Cash and short-term cash investments:
<S>                                                                        <C>             <C>             
   Interest-bearing                                                        $    33,107,849 $     27,472,071
   Noninterest-bearing                                                             249,345          638,210
Federal funds sold                                                               2,124,712          537,769
Investment securities:  (Note 3)
   Held to maturity; market value, $15,038,913; $3,060,000 in 1995              14,999,179        2,993,438
   Nonmarketable equity securities                                               1,170,889        1,170,889
Loans receivable, net (Note 4)                                                 123,147,779      117,201,293
Accrued interest receivable, investments                                           255,566          116,911
Real estate acquired in settlement of loans                                         34,425                -
Property and equipment, net (Note 5)                                               330,260          352,252
Prepaid expenses and other assets (Note 11)                                        675,084          533,051
Refundable income taxes                                                                  -           12,000
Deferred tax assets (Note 13)                                                      122,000                -
                                                                           ---------------------------------
           Total assets                                                    $   176,217,088 $    151,027,884
                                                                           =================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits (Note 6)                                                       $   111,385,386 $    127,482,945
   Advance payments by borrowers for taxes and insurance                           179,444          636,529
   Accrued expenses and other liabilities                                          174,607          139,004
   Special SAIF assessment (Note 7)                                                792,868                -
   Dividends payable                                                             1,074,531                -
   Deferred compensation (Note 8)                                                  405,233          411,015
   Deferred income taxes (Note 13)                                                       -          128,000
   Income taxes payable                                                             25,000                -
                                                                           ---------------------------------
           Total liabilities                                                   114,037,069      128,797,493
                                                                           ---------------------------------
Commitments and contingencies (Note 15) 
Stockholders' Equity (Note 14 ):
   Preferred stock,  authorized  1,000,000 shares;  none issued                          -                -
   Common stock, no par value, authorized 10,000,000 shares;
      issued and outstanding 4,298,125 in 1996                                           -                -
   Additional paid-in capital                                                   41,767,226                -
   Note receivable, ESOP (Note 10)                                              (2,470,000)               - 
   Retained earnings, substantially restricted (Notes  13 and 14)               22,882,793       22,230,391
                                                                           ---------------------------------
                                                                                62,180,019       22,230,391
                                                                           ---------------------------------
                                                                           $   176,217,088 $    151,027,884
                                                                           ================================
</TABLE>

See Notes to Consolidated  Financial Statements.

                                       15
<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                            
                                                                  1996            1995           1994
---------------------------------------------------------------------------------------------------------
Interest and dividend income:
<S>                                                       <C>             <C>             <C>           
   Loans                                                  $     9,897,134 $     9,108,701 $    8,455,419
   Short-term cash investments                                  2,206,230       1,766,248      1,807,749
   Investment securities                                          479,628         248,652         61,623
                                                          -----------------------------------------------
              Total interest income                            12,582,992      11,123,601     10,324,791
Interest on deposits (Note 6)                                   6,232,262       6,118,593      5,488,964
                                                          -----------------------------------------------
              Net interest income                               6,350,730       5,005,008      4,835,827
Provision for loan losses (Note 4)                                 10,073               -         18,601
                                                          -----------------------------------------------
              Net interest income after
                  provision for loan losses                     6,340,657       5,005,008      4,817,226
                                                          -----------------------------------------------
Noninterest income:
   Service charges and fees                                        52,595          43,119         78,551
   Other                                                           75,348          62,787         66,883
                                                          -----------------------------------------------
                                                                  127,943         105,906        145,434
                                                          -----------------------------------------------
Noninterest expense:
   Compensation and benefits (Notes 8, 9,10 and 11)             1,458,435       1,364,132      1,137,485
   Deposit insurance                                              334,329         336,479        369,505
   Special SAIF assessment (Note 7)                               792,868               -              -
   Occupancy expenses                                             161,807         155,249        148,279
   Advertising                                                    137,558         159,632        130,096
   Data processing expense                                         97,384          93,235         95,130
   Other                                                          317,620         234,778        236,788
                                                          -----------------------------------------------
                                                                3,300,001       2,343,505      2,117,283
                                                          -----------------------------------------------
              Income before income taxes                        3,168,599       2,767,409      2,845,377
                                                          -----------------------------------------------
Income taxes (credits) (Note 13):
   Current                                                      1,348,953         971,403        939,069
   Deferred                                                      (250,000)         19,000         96,000
                                                          -----------------------------------------------
                                                                1,098,953         990,403      1,035,069
                                                          -----------------------------------------------
              Net income                                  $     2,069,646 $     1,777,006 $    1,810,308
                                                          -----------------------------------------------

Earnings per share (Note 1)                               $          0.28 $             - $            -
                                                          -----------------------------------------------
Cash dividends per share                                  $          0.35 $             - $            -
                                                          -----------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       16
<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1996, 1995 and 1994

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

<S>                                  <C>              <C>             <C>              <C>             
Balance at  September 30, 1993       $              - $             - $     18,643,077 $     18,643,077
   Net income                                                                1,810,308        1,810,308
                                     -------------------------------------------------------------------
Balance at  September 30, 1994                      -               -       20,453,385       20,453,385
   Net income                                       -               -        1,777,006        1,777,006
                                     -------------------------------------------------------------------
Balance at  September 30, 1995                      -               -       22,230,391       22,230,391
   Net income                                       -               -        2,069,646        2,069,646
   Net proceeds from issuance of
   common stock (Note )
      of common stock (Note 14)            39,126,861               -                -       39,126,861
   Purchase of common stock
      by the ESOP (Note 10)                 2,600,000      (2,600,000)               -                -
   Repayment of ESOP note                           -         130,000                -          130,000
   ESOP contribution (Note 10)                 40,365               -                -           40,365
   Cash dividends (Note 10)                         -               -       (1,417,244)      (1,417,244)
                                     -------------------------------------------------------------------
Balance at  September 30, 1996       $     41,767,226 $   (2,470,000) $     22,882,793 $     62,180,019
                                     ===================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       17
<PAGE>


GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                              

                                                                   1996            1995          1994
---------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S>                                                       <C>             <C>             <C>           
   Net income                                             $     2,069,646 $     1,777,006 $    1,810,308
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation                                                 42,428          42,137         41,499
      Accretion of investment discounts                            (5,741)              -              -
      Net (gain) on disposal of real estate
        acquired in settlement of loans                           (22,104)         (1,220)        (1,247)
      Provision for loan losses                                    10,073               -         18,601
      Provision for loss on real estate acquired
        in settlement of loans                                          -               -         10,000
      ESOP contribution expense credited to
        additional paid-in capital                                 40,365               -              - 
      Increase (decrease) in reserve for
        uncollected interest                                        2,529         (16,975)         1,881
      Increase (decrease) in deferred income taxes               (250,000)         19,000         96,000
      Increase (decrease) in deferred compensation                 (5,782)         14,222         14,473
      Changes in assets and liabilities:
        (Increase) decrease in:
           Prepaid expenses and other assets                      (80,283)        (60,427)       (87,803)
           Refundable income taxes                                 12,000         (12,000)             - 
           Accrued interest receivable                           (138,655)        (56,911)       (18,400)
        Increase (decrease) in:
           Accrued expenses and other liabilities                  35,603         100,674         10,978
           Accrued special SAIF assessment                        792,868               -              -
           Income taxes payable                                    25,000         (12,500)         7,500
                                                          -----------------------------------------------
      Net cash provided by operating activities                 2,527,947       1,793,006      1,903,790
                                                          -----------------------------------------------

Cash Flows From Investing Activities
   Purchase of held to maturity investment securities         (12,000,000)     (2,993,438)             -
   Net (increase) decrease in  loans receivable                (6,174,422)    (12,130,078)     4,297,013
   Proceeds from sale of real estate acquired
      in settlement of loans                                      203,013          79,158        134,580
   Purchase of property and equipment                             (20,436)        (15,709)        (9,593)
                                                          -----------------------------------------------
      Net cash provided by (used in)
        investing activities                                  (17,991,845)    (15,060,067)     4,422,000
                                                          -----------------------------------------------
</TABLE>

                                       18
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>

                                                                           

                                                                 1996            1995           1994
---------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
<S>                                                       <C>             <C>             <C>           
   Net decrease  in deposits                              $  (16,097,559) $     (850,916) $ (14,885,843)
   Decrease in advance payments by borrowers
       for taxes and insurance                                  (457,085)        (96,688)       (44,867)
   Net proceeds received from issuance of
      common stock                                            39,126,861               -              -
   Principal repayments received on ESOP note                    130,000               -              -
   Cash dividends paid                                          (404,463)              -              -
                                                          ----------------------------------------------
      Net cash provided by (used in)
          financing activities                                22,297,754        (947,604)   (14,930,710)
                                                          ----------------------------------------------
      Net  increase (decrease) in cash
           and cash equivalents                                6,833,856     (14,214,665)    (8,604,920)
Cash and cash equivalents:
   Beginning                                                  28,648,050      42,862,715     51,467,635
                                                          ----------------------------------------------
   Ending                                                 $   35,481,906  $   28,648,050  $  42,862,715
                                                          ==============================================

Cash and cash equivalents:
   Cash and short-term investments:
      Interest-bearing                                    $   33,107,849  $   27,472,071  $  41,424,379
      Noninterest-bearing                                        249,345         638,210        428,336
      Federal funds sold                                       2,124,712         537,769      1,010,000
                                                          ----------------------------------------------
                                                          $   35,481,906  $   28,648,050  $  42,862,715
                                                          ==============================================
Supplemental Disclosure of Cash Flow Information
   Cash payments for:
      Interest                                            $    6,239,628  $    6,144,260  $   5,053,465
                                                          ==============================================
      Income taxes                                        $    1,147,800  $      997,000  $     937,000
                                                          ==============================================

Supplemental Disclosure of Noncash Investing
  and Financing Activities:
   Transfer from loans to real estate
      acquired in settlement of loans                     $      215,334  $       40,190  $       86,886
                                                          ===============================================
   Dividends declared and accrued                         $    1,012,781  $            -  $            -
                                                          ===============================================
   Stock issued in exchange for note receivable
      from ESOP                                           $    2,600,000  $            -  $            -
                                                          ===============================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       19

<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  primary
regulator is the Office of Thrift Supervision (OTS) and its deposits are insured
by the Savings Association Insurance Fund ("SAIF") of the FDIC.

Basis of financial statement presentation: The accounting and reporting policies
of the  Corporation  conform to generally  accepted  accounting  principles  and
general  practices  within the  financial  services  industry.  In preparing the
consolidated financial statements,  management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance  sheet and  revenues  and  expenses  for the period.  Actual
results could differ from those estimates.

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

Principles of consolidation:  The consolidated financial statements for the year
ended September 30, 1996 include the accounts of Green Street Financial Corp and
its wholly-owned  subsidiary,  Home Federal Savings and Loan Association.  Green
Street  Financial  Corp  was  capitalized  on  April  3,  1996;  therefore,  the
consolidated  financial statements include the operations of the Corporation for
periods  subsequent  to April 3, 1996.  The financial  statements  for the years
ended  September  30, 1995 and 1994 present only the accounts and  operations of
Home Federal. All significant  intercompany  accounts and transactions have been
eliminated in consolidation.

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

Investment securities: The Corporation adopted Statement of Financial Accounting
Standards  (SFAS) No. 115 Accounting for Certain  Investments in Debt and Equity
Securities as of October 1, 1994. At the date of adoption,  the Association held
no debt securities.  Equity securities, which are nonmarketable,  do not require
classification under SFAS No. 115 and continue to be carried at cost. Subsequent
to the adoption of SFAS No. 115, the Association carries its investments in debt
securities at amortized cost pursuant to its  classification of such securities.
See Note 2 for a further  explanation of the effects of the adoption of SFAS No.
115 on  the  Corporation's  financial  statements.  Gain  or  loss  on  sale  of
securities   is    recognized    when   realized   and   is   based   upon   the
specific-identification method.

                                       20
<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,  nonresidential
property and land.

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

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

The Association adopted SFAS No. 114 Accounting by Creditors for Impairment of a
Loan which was subsequently  amended by SFAS No. 118 Accounting by Creditors for
Impairment of a Loan- Income  Recognition and Disclosures  during 1996. SFAS No.
114 requires that the  Association  establish  specific loan loss  allowances on
impaired  loans if it is doubtful  that all principal and interest due according
to the loan terms will be  collected.  The adoption of SFAS No. 114 did not have
an  effect  on  the  Association's   reporting  for  impaired  loans  since  the
Association  had no loans  outstanding  during the year ended September 30, 1996
which it considers to be impaired.  Therefore, there is no specific SFAS No. 114
allowance for impaired loans at September 30, 1996.

Interest income: The Association adopted SFAS No. 118 during 1996 which requires
the disclosure of the Association's  method of accounting for interest income on
impaired loans.  The Association does not record interest on loans delinquent 90
days or more, as it establishes reserves for uncollected interest. Such interest
when  ultimately  collected  is credited to income in the period  received.  The
Association anticipates that it will account for interest on impaired loans in a
similar fashion in the future if and when it has impaired loans.

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.

                                       21

<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1.   Nature of Business and Significant Accounting Policies (Continued)

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

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

Retirement  plans:  The  Association has a defined benefit pension plan covering
substantially all of its employees.  The Association's funding policy is to make
annual contributions that are allowable for income tax purposes. The Association
also has an ESOP which covers substantially all of its employees.  Contributions
to the plan are based on amounts necessary to fund the amortization requirements
of the ESOP's debt to the Corporation,  subject to compensation limitations, and
are  expensed  based on the  AICPA's  Statement  of  Position  93-6,  Employers'
Accounting for Employee Stock Ownership Plans.

Earnings per share: The earnings per share  computation for 1996 is based on net
income  earned  from  the date of  Conversion,  April 3,  1996,  divided  by the
weighted average number of shares outstanding from the date of Conversion to the
end of the 1996 fiscal year. In addition,  the ESOP purchased  260,000 shares in
the Conversion with funds borrowed from the Corporation.  In accordance with the
AICPA's SOP 93-6,  247,000 of the ESOP's shares which are presently  unallocated
were deducted from  outstanding  shares used in the  computation of earnings per
share.

Off-balance-sheet  risk and credit risk: The Association is a party to financial
instruments  with  off-balance-sheet  risk such as commitments to extend credit.
Management  assesses the risk related to these  instruments  for potential loss.
The  Association  lends  primarily  on  one-to-four   family  residential  loans
throughout its primary  lending area.  This area  encompasses the Cumberland and
Robeson counties of North Carolina.

                                       22
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1.   Nature of Business and Significant Accounting Policies (Continued)

Fair value of financial  instruments:  The estimated fair values  required under
SFAS No. 107, Disclosures About Fair Value of Financial  Instruments,  have been
determined  using  available  market   information  and  appropriate   valuation
methodologies.  However,  considerable  judgment  is  required  to  develop  the
estimates. Accordingly, the estimates presented in Note 12 for the fair value of
the Corporation's  financial  instruments are not necessarily  indicative of the
amounts the Corporation  could realize in a current market exchange.  The use of
different  market  assumptions or estimation  methodologies  may have a material
effect on the estimated fair value amounts.

The fair  value  estimates  are  based on  pertinent  information  available  to
management as of September 30, 1996 and 1995, respectively.  Although management
is not aware of any factors that would  significantly  affect the estimated fair
value amounts, such amounts have not been comprehensively  revalued for purposes
of  these  financial  statements  since  those  dates,  and  therefore,  current
estimates  of fair value may differ  significantly  from the  amounts  presented
herein.  The following  methods and assumptions  were used by the Corporation in
estimating its fair value disclosures for financial instruments:

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

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

      Loans  receivable:  The fair  value for all loans  has been  estimated  by
      discounting  the  projected  future cash flows at  September  30, 1996 and
      1995,  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, 1996 and 1995.
      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, 1996 and 1995 for  deposits of
      similar remaining maturities.

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

                                       23
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2.   Change in Accounting Method

On October 1, 1994, the Association  adopted SFAS No. 115 Accounting for Certain
Investments in Debt and Equity  Securities.  Upon adoption,  the Association was
required  to report the  balances  of  available  for sale  securities  at their
estimated  market  values.  At  October  1,  1994,  none  of  the  Association's
investment securities were subject to classification under the standard.  All of
the Association's  debt instruments which have been purchased  subsequent to the
adoption  SFAS No.  115  have  been  classified  by the  Corporation  as held to
maturity  because the  Corporation  has the ability and the intent to do so. The
classification  of securities  as required by SFAS No 115 and the  Corporation's
accounting policies as a result of its adoption are as follows:

Securities held to maturity: Securities classified as held to maturity are those
debt  securities the  Corporation has both the intent and the ability to hold to
maturity regardless of changes in market conditions,  liquidity needs or changes
in general  economic  conditions.  These securities are carried at cost adjusted
for  amortization  of premiums or accretion of  discounts,  computed by a method
which approximates the interest method over their contractual lives.

Securities available for sale:  Securities  classified as available for sale are
those debt  securities  that the  Corporation  intends to hold for an indefinite
period of time but not necessarily to maturity and marketable  equity securities
not classified as held for trading.  Any decision to sell a security  classified
as available for sale would be based on various factors,  including  significant
movements in interest  rates,  changes in the  maturity  mix of its  securities,
liquidity  needs and other similar  factors.  Securities  available for sale are
carried at fair value.  Unrealized  gains and losses are  reported as a separate
component of equity,  net of related tax effects.  Realized gains and losses are
included in earnings.  The  Corporation  currently has no  securities  which are
classified as available for sale.

Securities  held for trading:  Trading  securities are held in  anticipation  of
short-term market gains. Such securities are carried at fair value with realized
and unrealized gains and losses included in earnings.  The Corporation currently
has no securities which are classified as trading.

                                       24
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 3.   Investment Securities

The amortized  cost and estimated  market value of investment  securities are as
follows at September 30, 1996 and 1995:

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

<TABLE>
<CAPTION>
                                               ----------------------------------------------------------
                                                                           1995
                                                                      Gross       Gross        Estimated
                                                  Amortized        Unrealized    Unrealized      Market
Held to maturity:                                   Costs             Gains       Losses         Value
                                               ----------------------------------------------------------
   Debt securities:
<S>                                            <C>           <C>            <C>            <C>             
      US Treasury obligations                  $   2,993,438 $       66,562 $            - $   3,060,000
                                               ----------------------------------------------------------
Nonmarketable equity securities:
   Federal Home Loan Bank Stock                    1,126,400              -              -     1,126,400
   Central Service Corporation Stock                  44,489              -              -        44,489
                                               ----------------------------------------------------------
                                                   1,170,889              -              -     1,170,889
                                               ----------------------------------------------------------
                                               $   4,164,327 $       66,562 $            - $   4,230,889  
                                               ==========================================================
</TABLE>

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

                                       25
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

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

Note 3.  Investment Securities (Continued)

The amortized cost and estimated  fair value of debt  securities in the "held to
maturity"  category at September 30, 1996 by  contractual  maturity are as shown
below. The Corporation has no debt securities classified as "available for sale"
at September 30, 1996.

<TABLE>
<CAPTION>

                                                                                          1996
                                                                                -----------------------------
                                                                                                 Estimated
                                                                                   Amortized       Market
                                                                                -----------------------------
Held to maturity:
<S>                                                                             <C>            <C>          
   Due in less than one year                                                    $    2,999,179 $   3,015,939
   Due in one year through five years                                               12,000,000    12,022,974
                                                                                -----------------------------
                                                                                $   14,999,179 $  15,038,913
                                                                                =============================
</TABLE>

There were no sales of investment securities during 1996, 1995 or 1994.

Note 4.   Loans Receivable

Loans receivable consist of the following:
<TABLE>
<CAPTION>


                                                                                     1996             1995
                                                                            ----------------------------------
Mortgage loans:
<S>                                                                         <C>              <C>             
   Residential one-to-four family                                           $    102,011,126 $     94,668,769
   Residential multi-family                                                        5,578,541        5,576,825
   Nonresidential real estate                                                     15,544,319       16,662,767
   Residential construction                                                        2,947,667        2,218,030
Share loans                                                                          141,868          229,049
                                                                            ----------------------------------
                                                                                 126,223,521      119,355,440
                                                                            ----------------------------------
Less:
   Allowance for loan losses                                                         234,763          224,690
   Unamortized loan fees                                                             930,788          899,812
   Undisbursed portion of loans in process                                         1,910,191        1,029,645
                                                                            ----------------------------------
                                                                                   3,075,742        2,154,147
                                                                            ----------------------------------
                                                                            $    123,147,779 $    117,201,293
                                                                            ==================================
</TABLE>


                                       26

<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

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

Note 4.   Loans Receivable (Continued)

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

<TABLE>
<CAPTION>

                                                                         

                                                                   1996             1995             1994   
                                                         --------------------------------------------------
<S>                                                      <C>              <C>              <C>             
Balance, beginning                                       $        224,690 $        224,690 $        206,089
   Provisions charged to income                                    10,073                            18,601
   Charge-offs                                                          -                -                -
                                                         ---------------------------------------------------
Balance, ending                                          $        234,763 $        224,690 $        224,690
                                                         ===================================================
</TABLE>

The Association  places loans on nonaccrual  status when a loan is contractually
more than 90 days delinquent by establishing  reserves for uncollected interest.
When uncollected interest is subsequently  received,  the reserve is reduced and
the interest is recorded as income.  At September 30, 1996,  1995,  and 1994 the
Association had loans totaling $309,666,  $318,737, and $405,032,  respectively,
which were  contractually  delinquent 90 days or more.  Interest income on these
loans,  which would have been  recognized had the loans  amortized as scheduled,
has been  decreased  by  $13,626,  $11,098,  and  $28,073  for the  years  ended
September 30, 1996, 1995 and 1994.

The Association adopted SFAS No. 114 Accounting by Creditors for Impairment of a
Loan  during  1996  which  requires  that  the  Association  establish  specific
allowances on impaired loans.  The Association had no loans  outstanding  during
the year ended September 30, 1996 which it considers to be impaired.  Therefore,
there is no specific SFAS No. 114 allowance for impaired  loans at September 30,
1996.

During 1996,  the  Association  adopted SFAS No. 118 Accounting by Creditors for
Impairment  of  a  Loan-Income   Recognition  and  Disclosures   which  requires
disclosure  of the  Association's  method of accounting  for interest  income on
impaired loans. (See Note 1)

Note 5.   Property and Equipment

Property and equipment are summarized as follows:
<TABLE>
<CAPTION>

                                                                                     1996             1995
                                                                            ---------------------------------
<S>                                                                         <C>              <C>             
Land                                                                        $        150,972 $        150,972
Buildings                                                                            717,851          700,763
Furniture and equipment                                                              279,560          319,220
                                                                            ----------------------------------
                                                                                   1,148,383        1,170,955

Accumulated depreciation                                                            (818,123)        (818,703)
                                                                            ----------------------------------
                                                                            $        330,260 $        352,252
                                                                            ==================================
</TABLE>

                                       27

<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

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

Note 6.   Deposits

Deposits consist of the following:
<TABLE>
<CAPTION>
                                                                                      1996            1995
                                                                              ---------------------------------
<S>                                                                           <C>             <C>              
Passbook accounts, 2.75% (4.00% in 1995)                                      $    14,679,647 $      15,024,712
NOW accounts, 2.50% (3.75% in 1995)                                                   132,220           182,876
Super NOW accounts, 4.00% (4.50% in 1995)                                             127,806           229,160
Money market accounts,4.00% (4.50% in 1995)                                        13,163,166        13,751,713
                                                                              ----------------------------------
                                                                                   28,102,839        29,188,461
                                                                              ----------------------------------
Certificates:
   3.00% and below                                                                  1,462,652         2,624,115
   3.01% - 5.00%                                                                   29,080,510        11,888,492
   5.01% - 7.00%                                                                   52,301,109        83,350,033
   7.01% and above                                                                    406,865           393,067
                                                                              ----------------------------------
                                                                                   83,251,136        98,255,707
                                                                              ----------------------------------
Accrued interest on deposits                                                           31,411            38,777
                                                                              ----------------------------------
                                                                              $   111,385,386 $     127,482,945
                                                                              ==================================
Weighted average cost of funds                                                      4.95%            5.48%
                                                                              ==================================

</TABLE>


Certificate  accounts  are  summarized  by  maturity  at  September  30, 1996 as
follows:

<TABLE>
<CAPTION>

                                    1997           1998           1999       Thereafter         Total
                             -----------------------------------------------------------------------------
<C>                          <C>            <C>                   <C>                   <C>                 
3.00% and below              $      784,392 $      543,315        134,945             - $       1,462,652 
3.01% - 5.00%                    26,739,881      2,340,629              -             -        29,080,510
5.01% - 7.00%                    39,889,692      5,564,099      4,221,014     2,626,304        52,301,109
7.01% and above                      37,717         75,132         56,055       237,961           406,865
                             -----------------------------------------------------------------------------
                             $   67,451,682 $    8,523,175 $    4,412,014 $   2,864,265 $      83,251,136
                             =============================================================================
</TABLE>

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

Maturity                                                                        Amount
-------------------------------------------------------------------------------------------
<S>       <C>                                                            <C>             
Less than 3 months                                                       $      2,010,414
4 to 12 months                                                                  5,069,320
More than 12 months                                                             2,030,736
                                                                         ------------------
                                                                         $      9,110,470
                                                                         ==================
</TABLE>

                                       28

<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 6.   Deposits (Continued)

Interest  expense on deposits for the years ended  September 30 1996,  1995, and
1994 is summarized below:

<TABLE>
<CAPTION>
                                            1996               1995            1994
                                    ---------------------------------------------------
<S>                                 <C>              <C>              <C>             
NOW and money market accounts       $        583,368 $        621,667 $        552,992
Passbook accounts                            547,924          576,057          498,489
Certificate accounts                       5,100,970        4,920,869        4,437,483
                                    ---------------------------------------------------
                                    $      6,232,262 $      6,118,593 $      5,488,964
                                    ===================================================
</TABLE>

Note 7.   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 it  statutory  goal of  1.25%  of  insured  deposits.  The
assessment is equal to  approximately  65.7 basis points of the SAIF  assessable
deposit base as of March 31, 1995.  Although the assessment  will be paid during
the three month period ended December 31, 1996, the  Association was required to
accrue and  expense  such cost as of  September  30,  1996.  In  addition,  this
assessment can not be deducted for tax purposes until paid. The expense recorded
for the special assessment amounted to $792,868.

Note 8.   Deferred Compensation

The Association has a deferred  compensation  plan for its directors  whereby in
return for deferring  directors fees for five years,  the directors will be paid
specified  amounts during a five or ten year period  following the date that the
director  becomes 65 years of age. The  Association has purchased life insurance
policies with the Association  named as beneficiary to fund the benefits.  Total
expense related to the Plan was approximately  $64,000,  $43,000 and $55,000 for
1996, 1995 and 1994, respectively.

Note 9.   Employment Agreements

During 1996, the Association  entered into employment  agreements with three 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 will automatically  extend so that the remaining term shall always be
three  years  unless  the  Board  of  Directors  expressly  acts  to  limit  the
extensions.  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.

                                       29
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 10.  Employee Stock Ownership Plan

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

The  Corporation's  note  receivable  is to be repaid  based upon one  principal
installment of $65,000 on June 30, 1996, nine principal installments of $260,000
on June 30th of each year through June 2005, and one final principal installment
of $195,000  on March 31,  2006.  Interest  is based upon  prime,  which will be
adjusted and paid  quarterly.  The note may be prepaid without  penalty.  During
September  1996,  the  ESOP  made  a  principal   curtailment  of  $65,000.  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, 1996, the outstanding balance of
the  note   receivable  is  $2,470,000  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 $170,365  during 1996 has been incurred in connection  with the ESOP.
The expense includes, in addition to the cash contribution necessary to fund the
ESOP, $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.  The  Association  has  credited  this
amount to paid-in  capital in accordance  with the provisions of AICPA Statement
of Position 93-6.

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

                                       30
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 11.  Pension Plan

The Association has a defined benefit pension plan covering substantially all of
its employees who qualify under length of service and other requirements.  Under
the  plan,  retirement  benefits  are  based  on years of  service  and  average
earnings.  The  policy is to fund an amount  allowable  for  federal  income tax
purposes.  The plan assets consist  primarily of savings deposits  maintained at
the  Association and common stock of the  Corporation.  The following table sets
forth the plan's  funded  status at September  30, 1996 and 1995 and the amounts
recognized in the consolidated statement of financial condition at September 30,
1996 and 1995:
<TABLE>
<CAPTION>

                                                                                     1996             1995
                                                                            ---------------------------------- 
Actuarial present value of benefit obligation:
<S>                                                                         <C>               <C>             
   Vested                                                                   $       (768,452) $      (959,135)
   Nonvested                                                                          (1,259)          (6,412)
                                                                            ----------------------------------
Accumulated benefit obligation                                                      (769,711)        (965,547)
Effect of projected future compensation levels                                      (418,626)        (517,111)
                                                                            ----------------------------------
Projected benefit obligation                                                      (1,188,337)      (1,482,658)
Market value of plan assets                                                        1,032,524        1,183,520
                                                                            ----------------------------------
Projected benefit obligation in excess of plan assets                               (155,813)        (299,138)
Unrecognized net transition assets                                                   (20,301)         (22,838)
Unrecognized prior service cost                                                      (65,239)               -
Unrecognized loss                                                                    386,509          443,235
                                                                            ----------------------------------
Prepaid pension asset included in other assets                              $        145,156  $       121,259
                                                                            ==================================

</TABLE>

The  components  of pension  costs  charged to expense  for 1996,  1995 and 1994
consisted of the following:

<TABLE>
<CAPTION>


                                                                  1996             1995             1994
                                                         --------------------------------------------------
<S>                                                      <C>              <C>              <C>            
Service cost for benefits earned during period           $         53,280 $         68,270 $        54,805
Interest cost on projected benefit obligation                      86,620           92,539          74,430
Return on plan assets                                             (69,639)         (67,936)        (55,912)
Net amortization and deferral                                      13,754           19,669          12,669
                                                         --------------------------------------------------
Net periodic pension cost                                $         84,015 $        112,542 $        85,992
                                                         ==================================================
</TABLE>

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

                                       31
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 12.  Fair Value of Financial Instruments

The following  table presents the carrying  amounts and estimated fair values of
the Corporation's financial instruments at September 30, 1996 and 1995. See Note
1 for a description of the Corporation's accounting policies and the limitations
of its disclosures in reporting on the fair value of its financial instruments.

<TABLE>
<CAPTION>
                                                        1996                             1995   
                                       -----------------------------------------------------------------
                                           Carrying             Fair           Carrying         Fair
                                           Amount               Value           Amount          Value
                                       -----------------------------------------------------------------
Financial assets:
   Cash and short-term cash
<S>                                    <C>              <C>             <C>              <C>            
      investments                      $     33,357,194 $    33,357,194 $     28,110,281 $    28,110,281
   Federal funds sold                         2,124,712       2,124,712          537,769         537,769
   Investment securities held to
      maturity                               14,999,179      15,038,913        2,993,438       3,060,000
   Nonmarketable equity securities            1,170,889       1,170,889        1,170,889       1,170,889
   Loans receivable                         123,147,779     123,927,553      117,201,293     119,022,000
   Accrued interest receivable                  255,566         255,566          116,911         116,911
Financial liabilities:
   Deposits                                 111,385,386     111,598,386      127,482,945     127,929,238
</TABLE>


Note 13.  Income Taxes

Under the Internal  Revenue Code, the  Association is allowed a special bad debt
deduction  related to additions  to tax bad debt  reserves  established  for the
purpose of absorbing losses.  Through 1996, the provisions of the Code permitted
the  Association  to deduct from taxable income an allowance for bad debts based
on 8% of taxable  income before such  deduction or actual loss  experience.  The
Association  was unable to take a bad debt deduction in 1996,  1995 and 1994 due
to  limitations  imposed by the Code.  In addition,  legislation  passed in 1996
eliminates  the  percentage of taxable  income method as an option for computing
bad debt deductions in all future years. The Association will still be permitted
to  take  deductions  for bad  debts,  but  will be  required  to  compute  such
deductions using an experience method.

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

                                       32
<PAGE>

GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 13.  Income Taxes (Continued)

Deferred taxes have been provided for certain increases in tax bad debt reserves
subsequent  to December  31, 1987 which are in excess of  additions  to recorded
loan loss allowances.  At September 30, 1996,  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>

                                                                                     1996             1995
                                                                            ----------------------------------
Deferred tax assets:
<S>                                                                         <C>              <C>             
   Deferred loan fees                                                       $        119,000 $        152,000
   Deferred compensation                                                             159,000          161,000
   Allowance for loan losses                                                          88,000           74,000
   SAIF Assessment                                                                   310,000                -
                                                                            ----------------------------------
        Total deferred tax assets                                                    676,000          387,000
                                                                            ----------------------------------

Deferred tax liabilities:
   Excess accumulated tax depreciation                                                27,000           29,000
   Federal Home Loan Bank stock basis                                                 96,000           97,000
   Excess pension plan contribution                                                   43,000            9,000
   Tax bad debt reserves                                                             388,000          380,000
                                                                            ----------------------------------
        Total deferred tax liabilities                                               554,000          515,000
                                                                            ----------------------------------
           Net deferred tax assets (liabilities)                            $        122,000 $       (128,000)
                                                                            ==================================
</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,
1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                                1996             1995             1994
                                                         ---------------------------------------------------
<S>                                                              <C>              <C>              <C>    
Income tax at the federal statutory rate                         34.00 %          34.00 %          34.00 %
State income taxes, net of federal benefit                        2.15             1.63             1.66
Other                                                            (1.47)            0.16             0.72
                                                         ---------------------------------------------------
                                                                 34.68 %          35.79 %          36.38 %
                                                         ===================================================

</TABLE>

                                       33
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 14.  Stockholders' Equity

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

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

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

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

Green Street Financial Corp paid a regular quarterly dividend of $.10 a share on
July 19,  1996 to  stockholders  of record as of July 8,  1996,  and  declared a
regular quarterly and a special dividend of $.10 and $.15 a share, respectively,
on August 28, 1996 to be paid on October 25, 1996 to  stockholders  of record as
of October 11, 1996.

The  Corporation's  Board of Directors has approved a stock  repurchase  program
which will  allow the  Corporation  to  repurchase  up to 5% of its  outstanding
common stock through April 3, 1997.

                                       34
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 14.  Stockholders' Equity (Continued)

The Office of Thrift Supervision  promulgates  capital regulations which require
the Association to meet three separate capital standards; tangible capital of at
least 1.5% of total assets,  core capital of at least 3.0% of total assets and a
risk-based capital requirement currently set at 8.0% of risk-weighted assets. At
September  30,  1996  the  Association  met  and  exceeded  all of  the  capital
requirements as shown below:

<TABLE>
<CAPTION>
                                                               September 30, 1996
                                                      --------------------------------------------------
                                                           Tangible         Core            Risk-Based
                                                           Capital          Capital           Capital
                                                         Requirement      Requirement       Requirement
                                                      --------------------------------------------------
<S>                                                   <C>              <C>              <C>            
Stockholders' equity (GAAP)                           $    62,180,019  $    62,180,019 $    62,180,019
Equity of Green Street Financial Corp                     (17,950,944)     (17,950,944)    (17,950,944)
General loan loss allowance                                                                     234,763
                                                      --------------------------------------------------
Regulatory capital                                          44,229,075       44,229,075      44,463,838
Minimum capital requirement                                  2,358,079        4,716,157       6,012,720
                                                      --------------------------------------------------
Excess regulatory capital                             $     41,870,996 $     39,512,918 $    38,451,118
                                                      ==================================================

Home Federal 's assets at September 30, 1996          $    157,205,240 $    157,205,240

Risk-weighted assets at September 30, 1996                                              $    75,159,000

Capital as a percentage of assets:

   Actual                                                      28.13 %          28.13 %         59.16 %

   Required                                                     1.50 %           3.00 %          8.00 %
                                                      --------------------------------------------------
   Excess                                                      26.63 %          25.13 %         51.16 %
                                                      ==================================================
</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 15.  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.

                                       35
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 15.  Concentration of Credit Risk and Off-Balance-Sheet Risk (Continued):

The Association is a party to financial instruments with  off-balance-sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These financial instruments include commitments to extend credit, which involve,
to varying  degrees,  elements of credit and interest rate risk in excess of the
amount  recognized  in  the  balance  sheet.  The  contractual  amounts  of  the
instruments  reflect  the  extent  of  involvement  the  Association  has in the
particular class of financial instruments.

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

In addition to the undisbursed portion of loans in process,  the Association had
outstanding  loan  origination  commitments  of  $1,613,900  and  $3,501,750  at
September  30, 1996 and 1995,  respectively,  primarily for the  origination  of
fixed rate loans.

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

Note 16.  Future Reporting Requirements

The Financial Accounting Standards Board has issued SFAS No. 123, Accounting for
Stock-Based Compensation which the Corporation has not been required to adopt as
of September 30, 1996.

The Statement,  which will be in effect for the Corporation's fiscal year ending
September 30, 1997,  will require that the  Corporation  account for stock based
compensation  plans using a fair value based method which measures  compensation
cost at the  grant  date  based  upon  the  value  of the  award,  which is then
recognized over the service period,  usually the vesting period.  The accounting
requirements  of the Statement  apply to grants or awards entered into in fiscal
years that begin after  December  15, 1995.  The  Statement  allows  entities to
continue to use APB Opinion No. 25 to measure  compensation  cost,  but requires
that the  proforma  effects on net income and earnings per share be disclosed to
reflect the difference  between the compensation cost, if any, from applying APB
Opinion No. 25 and the related cost measured by the fair value method defined in
the  Statement.  The Statement is not expected to have a material  impact on the
Corporation's  accounting for stock compensation plans because (i) the Statement
does not apply to the ESOP plan nor will it change the  accounting  requirements
of the  proposed  restricted  stock plan,  and (ii) the  Corporation  expects to
account for proposed stock option plans using the accounting treatment permitted
under APB Opinion No. 25. 

                                       36
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 17.  Parent Corporation Financial Data

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

                             Condensed Balance Sheet
                               September 30, 1996
<TABLE>
<CAPTION>

Assets:
<S>                                                                                            <C>            
   Cash and short-term cash investments                                                        $    15,912,643
   Accounts receivable, other                                                                           87,100
   Accrued interest receivable                                                                          25,732
   Investment securities; held to maturity, at cost                                                  3,000,000
   Investment in Home Federal                                                                       44,229,075
                                                                                                ---------------
                                                                                               $    63,254,550
                                                                                                ===============
Liabilities and Stockholders' Equity:
   Liabilities:
      Dividends Payable                                                                        $     1,074,531
                                                                                                ---------------
   Stockholders' equity:
      Common stock, no par value, 10,000,000 shares authorized, issued
        and outstanding 4,298,125 shares                                                                     -
      Additional paid-in capital                                                                    64,924,878
      Note Receivable - ESOP                                                                        (2,470,000)
      Retained earnings (deficit)                                                                     (274,859)
                                                                                                ---------------
                                                                                                    62,180,019
                                                                                               ---------------
                                                                                               $    63,254,550
                                                                                                ===============
</TABLE>

                                Condensed Statement of Income
                   For the Period From April 3, 1996 to September 30, 1996
<TABLE>
<CAPTION>

<S>                                                                                            <C>            
Interest income                                                                                $       575,914
Equity in earnings of Home Federal                                                                     797,447
Administrative expense                                                                                 (47,376)
Income tax expense                                                                                    (183,600)
                                                                                                ---------------
        Net income                                                                             $     1,142,385
                                                                                                ---------------
</TABLE>

                                       37


<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 17.      Parent Corporation Financial Data (Continued)


                              Condensed Statement of Cash Flows
                   For the Period From April 3, 1996 to September 30, 1996
<TABLE>
<CAPTION>

Cash Flows from Operating Activities:
<S>                                                                                            <C>            
   Net income                                                                                  $     1,142,385
   Noncash income items:
      Equity  in  earnings  of Home  Federal                                                          (797,447)  
   Change  in  assets  and liabilities:
      Increase in accrued interest receivable                                                          (25,732)
      Increase in accounts receivable, other                                                           (25,350)
                                                                                                ---------------
        Net cash provided by operating activities                                                      293,856
                                                                                                ---------------

Cash Flows from Investing Activities:
   Purchase of investments                                                                          (3,000,000)
   Upstream dividend from Home Federal                                                                 629,819
   Initial investment in Home Federal                                                              (20,863,430)
                                                                                                ---------------
        Net cash used in investing activities                                                      (23,233,611)
                                                                                                ---------------

Cash Flows from Financing  Activities:
   Payments received on note receivable from ESOP                                                      130,000
   Proceeds received from common stock offering                                                     39,126,861
   Payment of dividends                                                                               (404,463)
                                                                                                ---------------
        Net cash provided by financing activities                                                   38,852,398
                                                                                                ---------------
Net increase in cash                                                                                15,912,643
   Cash - beginning                                                                                          -
                                                                                                ---------------
   Cash - ending                                                                               $    15,912,643
                                                                                                ===============
Supplemental Disclosure of Noncash Financing Activities:
   Dividends declared and accrued                                                              $     1,012,781
                                                                                                ===============
</TABLE>

                                       38

<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 18.  Subsequent Event

At a special meeting of stockholders  held on October 17, 1996, the stockholders
voted  to  approve  the  Corporation's   proposed  stock  option  plan  and  the
Association's  restricted  stock  plan.  The stock  option plan  authorizes  the
issuance of up to 429,812 stock options to officers, directors and key employees
either in the form of incentive  stock options or  non-incentive  stock options.
The  exercise  price of the stock  options  may not be less than the fair market
value of the  Corporation's  common stock at date of grant. The restricted stock
plan authorizes up to an additional  171,925 shares of common stock to officers,
directors and key  employees.  At the present time, the  Association  intends to
acquire common stock in open market purchases to fund the restricted stock plan.
The stock options and the  restricted  common stock under the  restricted  stock
plan  vest at the rate of 20%  annually,  beginning  one  year  from the date of
grant. The plans have been sent to the OTS for non-objection.

                                       39
<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                                                        Allen Lloyd
       Vice President/Treasurer                                                      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           Executive Officer         Co-owner, Cape Fear Building Supply

             Henry Hutaff                        Henry Holt                     Robert G. Ray, Esq.
  Executive, Coca Cola Bottling Co.        President, Holt Oil Co.         Partner, Rose, Ray & O'Connor
</TABLE>

<TABLE>
<CAPTION>

<S>                                                                   <C>
                Stock Transfer Agent                                                    Annual Meeting
         American  Stock  Transfer  &  Trust  Co                      The  1997  annual  meeting  of stockholders of
             40 Wall Street 46th Floor                                Green  Street  Financial Corp will be held at 5:15 pm
              New York, New York 10005                                on January 29, 1997  at  the  Corporation's corporate
                                                                      office at 241 Green Street, Fayetteville, N.C.
               Special Legal Counsel
        Malizia, Spidi, Sloane & Fisch, P.C.
                  1301 K Street NW                                                     Form 10-K
                Washington, DC  20005                                 A copy of Form 10-K as  filed  with the Securities and
                                                                      Exchange Commission will be furnished without
                Local Legal Counsel                                   charge to the Corporation's stockholders upon written
                Rose, Ray & O'Connor                                  request to Green Street Financial Corp, PO Box 1540,
                  214 Mason Street                                    Fayetteville, N.C. 28302
              Fayetteville, N.C. 28301

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

                            Common Stock Information

The  Corporation's  stock began  trading on April 4, 1996.  There are  4,298,125
shares of common stock  outstanding which were held by approximately 780 holders
of record on September 30, 1996.  After  including  persons or entities who hold
stock in "street" name,  the  Corporation  estimates  that it has  approximately
1,700 holders.  The Corporation's  common stock is quoted on the Nasdaq National
Market  under the symbol  "GSFC." The high and low bids for the common stock for
the quarter ended June 30, 1996 were $13 1/8 and $12, respectively;  and for the
quarter ended September 30, 1996, $15 5/8 and $12 3/8, respectively.

On July 19, 1996, the Corporation  paid a regular  quarterly  dividend of $.10 a
share to  stockholders  of  record  on July 8,  1996.  In  addition,  a  regular
quarterly  dividend  of $.10 a share and a special  dividend of $.15 a share was
declared on August 28, 1996 to  stockholders of record as of October 11, 1996 to
be paid on October 25, 1996.

                                       40