<PAGE>
                                                                      EXHIBIT 13

                          SOUTH STREET FINANCIAL CORP.
                            ALBEMARLE, NORTH CAROLINA

                               2001 ANNUAL REPORT
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
--------------------------------------------------------------------------------

<TABLE>
<S>                                                                              <C>
SELECTED CONSOLIDATED FINANCIAL DATA............................................  1 -  2

MANAGEMENT'S DISCUSSION AND ANALYSIS...........................................   3 - 10

INDEPENDENT AUDITORS' REPORT....................................................      11

CONSOLIDATED FINANCIAL STATEMENTS

  Statements of financial condition at December 31, 2001 and 2000..............       12

  Statements of income and comprehensive income for the
    years ended December 31, 2001 and 2000.....................................  13 - 14

  Statements of stockholders' equity for the years ended
    December 31, 2001 and 2000.................................................       15

  Statements of cash flows for the years ended
    December 31, 2001 and 2000.................................................  16 - 17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................................  18 - 44

CORPORATE INFORMATION..........................................................  45 - 46
</TABLE>

This Annual Report to Stockholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of South Street Financial Corp. that are subject
to various factors which could cause actual results to differ materially from
those estimates. Factors that could influence the estimates include changes in
the national, regional and local market conditions, a slowing economy, layoffs,
legislative and regulatory conditions, and an adverse interest rate environment.
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  December 31,                              September 30,
                                                 ------------------------------------------         --------------------------
                                                   2001             2000             1999             1999              1998
                                                 --------         --------         --------         --------         ---------
                                                                   (In Thousands, Except Per Share Amounts)
<S>                                              <C>              <C>              <C>              <C>              <C>
FINANCIAL CONDITION DATA:
Total assets                                     $212,368         $198,343         $185,667         $174,545         $ 201,945
Investment securities (1)                          31,510           37,784           41,956           41,490            84,110
Loans receivable, net (2)                         173,132          152,514          133,785          125,493           110,550
Deposits                                          167,590          155,035          148,314          144,272           148,444
Advances from Federal Home Loan Bank               17,000           16,000            8,000               --                --
Note payable                                           --               --               --               --            18,000
Stockholders' equity                               23,889           23,809           25,940           26,674            31,555
Book value per share                                 7.68             7.50             7.10             7.07              7.25
</TABLE>

<TABLE>
<CAPTION>
                                                                                    Three
                                                                                 Months Ended
                                                  Years Ended December 31,       December 31,        Years Ended September 30,
                                                 --------------------------      ------------       ---------------------------
                                                   2001             2000             1999             1999              1998
                                                 --------         --------         --------         --------         ---------
                                                                   (In Thousands, Except Per Share Amounts)
<S>                                              <C>              <C>              <C>              <C>              <C>
OPERATING DATA:

Interest income                                  $ 14,659         $ 13,791         $  3,129         $ 12,523         $  15,661
Interest expense                                    8,945            8,181            1,715            6,944             9,319
                                                 --------         --------         --------         --------         ---------
Net interest income                                 5,714            5,610            1,414            5,579             6,342
Provision for loan losses                              --               --               --               --                --
                                                 --------         --------         --------         --------         ---------
Net interest income after provision
   for loan losses                                  5,714            5,610            1,414            5,579             6,342
                                                 --------         --------         --------         --------         ---------
Noninterest income                                    357              196              289              220               353
                                                 --------         --------         --------         --------         ---------
Noninterest expense:
   Compensation and employee                        3,111            3,337              877            3,644             4,349
   Other                                            1,462            1,319              357            1,378             1,271
                                                 --------         --------         --------         --------         ---------
Total noninterest expense                           4,573            4,656            1,234            5,022             5,620
                                                 --------         --------         --------         --------         ---------
Income before income taxes                          1,498            1,150              469              777             1,075
Income tax expense                                    525              409              129              499               312
Minority interest                                      --               10              130               --                --
                                                 --------         --------         --------         --------         ---------
Net income                                       $    973         $    731         $    210         $    278         $     763
                                                 ========         ========         ========         ========         =========


SELECTED OTHER DATA:

Basic earnings per share                         $   0.35         $   0.24         $   0.06         $   0.08         $    0.19
Diluted earnings per share                           0.35             0.24             0.06             0.08              0.19
Dividends per share                                  0.40             0.40             0.10             0.40              0.40
Return of capital dividends per share                  --               --               --               --              6.00
Dividend payout ratio (6)                          114.29%          166.67%          166.67%          500.00%         3,368.42%
</TABLE>


                                       1
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    Three
                                                                                 Months Ended
                                                  Years Ended December 31,       December 31,        Years Ended September 30,
                                                 --------------------------      ------------       ---------------------------
                                                   2001             2000             1999             1999              1998
                                                 --------         --------         --------         --------         ---------
                                                                   (In Thousands, Except Per Share Amounts)
<S>                                              <C>              <C>              <C>              <C>              <C>
SELECTED OTHER DATA (CONTINUED):
Return on average assets (7)                         0.47%            0.39%            0.47%            0.15%            0.35%
Return on average equity (7)                         4.22%            2.94%            3.19%            0.96%            1.89%
Average equity to average assets                    11.24%           13.12%           14.61%           16.12%           18.43%
Stockholders' equity to end-of-period
   assets                                           11.25%           12.00%           13.97%           15.28%           15.63%
Interest rate spread for period (3)                  2.39%            2.39%            2.69%            2.48%            1.97%
Average interest-earning assets to
   average interest-bearing liabilities            110.92%          115.11%          115.33%          118.68%          123.10%
Net interest margin (4)                              2.88%            3.07%            3.30%            3.24%            2.98%
Nonperforming assets to total assets
   at period end (5)                                 0.36%            0.23%            0.19%            0.11%            0.16%
Nonperforming loans to total loans
   at period end                                     0.43%            0.28%            0.23%            0.13%            0.22%
Allowance for loan losses to non-
   performing loans at period end                   57.16%           97.72%          129.61%          245.14%          172.98%
Net interest income, after provision for
   loan losses to non-interest expense (7)         124.95%          120.49%          114.59%          111.09%          112.85%
Noninterest expense to average assets (7)            2.23%            2.46%            2.74%            2.80%            2.56%
   Deposit accounts                                12,366           12,498           12,796           12,908           13,218
   Loan accounts                                    3,348            3,232            3,100            3,082            3,011
Number of full service banking offices                  2                2                2                2                2
</TABLE>

(1)  Includes interest-bearing deposits, federal funds sold, Federal Home Loan
     Bank stock, and investment securities.

(2)  Loans receivable, net, represents gross loans less net deferred loan fees
     and allowance for loan losses.

(3)  The interest rate spread represents the difference between the
     weighted-average yield on interest-earning assets and the weighted-average
     cost of interest-bearing liabilities.

(4)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.

(5)  Nonperforming assets include mortgage loans and consumer loans 90 days or
     more delinquent and real estate acquired in the settlement of loans.

(6)  The dividend payout ratio represents dividends per share as a percent of
     basic earnings per share.

(7)  Annualized for the three months ended December 31, 1999.


                                       2
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

The following discussion and analysis is intended to assist readers in
understanding the results of operations in 2001 and 2000 and changes in
financial position at December 31, 2001. This discussion and analysis is
intended to complement and should be read in conjunction with the audited
financial statements of the Company and related notes appearing elsewhere in
this annual report to stockholders.

DESCRIPTION OF BUSINESS

South Street Financial Corp. (the Company) was incorporated under laws of the
State of North Carolina for the purpose of becoming the bank holding company of
Home Savings Bank of Albemarle, Inc., SSB (the Bank, Home Savings or Home) in
connection with the Bank's conversion from a state chartered mutual savings bank
to a state chartered stock savings bank (the Conversion), pursuant to its Plan
of Conversion. A subscription and community offering of the Company's shares
closed on October 2, 1996, at which time the Company acquired all of the shares
of the Bank and commenced operations.

In accordance with the Plan of Conversion, the Company issued 4,496,500 shares
of common stock at the price of $10 per share which resulted in proceeds of
$43,645,000, net of conversion costs. The Company transferred $19,558,000 of the
net proceeds to Home Savings for the purchase of all of the capital stock of the
Bank.

The Company has no operations and conducts no business of its own other than
owning Home Savings, 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 Bank 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 Bank's primary market area of Stanly County, North
Carolina.

Home Savings' 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 Bank'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
Bank's principal operating expenses, aside from interest expense, consist of
compensation and associated benefits, federal deposit insurance premiums,
occupancy costs, and other general and administrative expenses.

During 1998, the Bank formed a wholly owned subsidiary, South Street Development
Corporation (SSDC) with a $1.8 million cash investment. SSDC then invested
$10,000 for a 50% interest in Park Ridge Associates, LLC (Park Ridge). The other
50% interest in Park Ridge was owned by an outside individual until 2000, when
SSDC purchased the remaining interest and Park Ridge became a 100% subsidiary of
SSDC. In June 1998, Park Ridge acquired 25.6 acres of prime real estate located
within the city limits of Albemarle, North Carolina. The joint venture was
created to acquire and develop the property into a premier residential
subdivision. As of December 2001, the project was 100% completed and 15 of the
30 lots to be sold had been committed to buyers.

In December 1998, the Bank started a new consumer and commercial loan department
and began offering a full range of consumer and commercial products and
services. To oversee the new department, the Bank hired a commercial banker with
over 21 years of experience in the local market. In addition, the Bank hired
another loan officer in August 1999 to assist in the growth of this line of
service. Management of the Bank believes that introducing consumer and
commercial lending to the Bank's existing line of products and services will
enhance the Bank's net interest margin while reducing the Bank's overall
exposure to interest rate risk. Management also feels that the addition of these
products will help the Bank grow while creating stronger ties to its existing
customer base. As of December 31, 2001, consumer and commercial loans, including
those commercial loans secured by real estate, totaled approximately $21.2
million.


                                       3
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

In December 1998, the Bank joined the HONOR Network (which merged into the STAR
Network in 1999) and CIRRUS network for ATMs and Point of Sale (POS) terminals,
allowing the Bank's cardholders to enjoy the convenience and accessibility of
approximately 324,000 ATMs in 162 countries and over 400,000 POS terminals
worldwide.

The following discussion and analysis contains the consolidated financial
results for the Company, Home Savings, SSDC and Park Ridge for the years ended
December 31, 2001 and 2000. Because the Company has no operations and conducts
no business other than as described above and SSDC and Park Ridge assets are
primarily real estate held for investment and their operations have not
significantly impacted the consolidated financial statements for the years ended
December 31, 2001 and 2000, the discussion contained in this Management's
Discussion and Analysis concerns primarily the business of the Bank. However,
for ease of reading and because the financial statements are presented on a
consolidated basis, the Company and the Bank and its subsidiaries are
collectively referred to herein as the Company unless otherwise noted.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2001 AND 2000

Consolidated total assets increased by $14.1 million, or 7.1%, during the
current year from $198.3 million at December 31, 2000 to $212.4 million at
December 31, 2001. This increase in total assets resulted primarily from the net
growth in loans receivable, primarily loans secured by real estate, during 2001.
Loans increased $20.6 million from $152.5 million at December 31, 2000 to $173.1
million at December 31, 2001. This increase in loans was funded by a net
decrease in investment securities combined with an increase in customer deposits
and borrowings. Investment securities decreased $10.4 million during 2001, as
the result of maturities and calls. Customer deposits increased by $12.6 million
during 2001 to $167.6 at December 31, 2001 compared with $155.0 million at the
beginning of the year, with approximately 53% of the increase occurring in
certificates of deposit and 47% attributable to an increase in demand deposits.
Borrowings, consisting of advances from the Federal Home Loan Bank, increased
$1.0 million during 2001 to $17.0 million at the end of the year. The portion of
the decrease in investment securities and the increase in customer deposits that
was not utilized to fund the aforementioned loan growth contributed to the net
increase in cash and cash equivalents during the year of $4.5 million.

Stockholders' equity increased by $80,000 during 2001. This net increase was the
result of several factors. Items which increased stockholders equity were: net
income of $973,000, principal payments received on the note receivable from the
ESOP of $554,000, amortization of the return of capital dividends paid on
unvested ESOP shares of $228,000, and unrealized gains on available for sale
investment securities of $198,000. These increases were offset by the following
items which decreased stockholders' equity; the repurchase of 64,400 shares of
the Company's common stock for $462,000, the payment of quarterly cash dividends
totaling $1.1 million, or $.40 per share, and the ESOP contribution of $293,000.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

NET INCOME

The Company earned net income of $973,000 or $.35 per share for 2001, as
compared with net income of $731,000 or $.24 per share in 2000. This improvement
of $242,000 or $.11 per share in net operating results is principally
attributable to increases in net interest and noninterest income combined with a
decrease in noninterest expenses. All of these components, which positively
impacted our net income in 2001, are analyzed in the discussion that follows.


                                       4
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

NET INTEREST INCOME

Like most financial institutions, the primary component of earnings for the Bank
is net interest income. Net interest income is the difference between interest
income, principally from loan and investment securities portfolios, and interest
expense, principally on customer deposits and borrowings. Changes in net
interest income result from changes in volume, spread and margin. For this
purpose, volume refers to the average dollar level of interest-earning assets
and interest-bearing liabilities, spread refers to the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities, and margin refers to net interest income divided
by average interest-earning assets. Margin is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities, as
well as by levels of noninterest-bearing liabilities and capital.

Net interest income increased slightly to $5.7 million for the year ended
December 31, 2001, compared to the $5.6 million earned in 2000. Total interest
income benefited from strong growth in the level of average earning assets,
which offset lower asset yields caused by the dramatic trend of declining
interest rates throughout the year. The ratio of average interest-earning assets
to average interest-bearing liabilities decreased from 115.11% in 2000 to
110.92% in 2001. Even though our net yield on average interest-earning assets
decreased from 3.07% in 2000 to 2.88% in 2001, we were able to maintain our net
interest rate spread at 2.39% for both years.

The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate); (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume); and (iii) mixed changes (changes in volume multiplied by
changes in rate), with any rate/volume variances allocated based on their
absolute values.

<TABLE>
<CAPTION>
                                                         Year Ended December 30, 2001 vs. 2000
                                                        ----------------------------------------
                                                               Increase (Decrease) Due To
                                                        ----------------------------------------
                                                         Volume           Rate            Total
                                                        --------        --------        --------
                                                                 (Dollars in thousands)
         <S>                                            <C>             <C>             <C>
         Interest income:
            Interest-bearing deposits                   $   264         $  (175)        $    89
            Investments                                    (522)            (81)           (603)
            Loans receivable, net                         1,453             (71)          1,382
                                                        -------         -------         -------
                    Total interest income                 1,195            (327)            868
                                                        -------         -------         -------
         Interest expense:
            Deposits
              Passbook savings                               62             (48)             14
              NOW and money market                           56             (73)            (17)
              Certificates of deposit                       516              70             586
            Borrowings                                      310            (129)            181
                                                        -------         -------         -------
                    Total interest expense                  944            (180)            764
                                                        -------         -------         -------
         Net interest income increase (decrease)        $   251         $  (147)        $   104
                                                        =======         =======         =======
</TABLE>


                                       5
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

The table on this page provides additional information concerning the Company's
yields on interest-earning assets and cost of funds on interest-bearing
liabilities for the years ended December 31, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                    ----------------------------------------------------------------------------
                                                                    2001                                     2000
                                                    ---------------------------------        -----------------------------------
                                                     Average                   Average       Average                     Average
                                                     Balance      Interest       Rate        Balance       Interest        Rate
                                                    ---------     --------     -------      ---------      --------      -------
                                                                              (Dollars in Thousands)
<S>                                                 <C>           <C>          <C>          <C>            <C>           <C>
Interest earning assets:
  Interest-bearing deposits                         $ 11,574       $   410       3.54%       $  5,780       $   321       5.55%
  Investments (1)                                     25,207         1,491       5.92%         33,834         2,094       6.19%
  Loans receivable, net (4)                          161,682        12,758       7.89%        143,320        11,376       7.94%
                                                    --------       -------       ----        --------       -------       ----
   Total interest-earning assets                     198,463        14,659       7.39%        182,934        13,791       7.54%
                                                                   -------       ----                       -------       ----
Non interest-earning assets                            6,497                                    6,418
                                                    --------                                 --------
     Total assets                                   $204,960                                 $189,352
                                                    ========                                 ========
Interest-bearing liabilities:
  Deposits
    Passbook savings                                $ 21,598           566       2.62%       $ 19,333           552       2.86%
    NOW and money market                              16,043           189       1.18%         12,140           206       1.70%
    Certificates of deposit                          124,582         7,197       5.78%        115,600         6,611       5.72%
  Borrowings                                          16,699           993       5.95%         11,850           812       6.85%
                                                    --------       -------       ----        --------       -------       ----
   Total interest-bearing liabilities                178,922         8,945       5.00%        158,923         8,181       5.15%
                                                                   -------       ----                       -------       ----
Non-interest-bearing liabilities                       3,003                                    5,594
Stockholders' equity                                  23,035                                   24,835
                                                    --------                                 --------
     Total liabilities and
       stockholders' equity                         $204,960                                 $189,352
                                                    ========                                 ========
Net interest income and interest
  rate spread (2)                                                 $  5,714       2.39%                      $ 5,610       2.39%
                                                                  ========       ====                       =======       ====
Net yield on average
  interest-earning assets (3)                                                    2.88%                                    3.07%
                                                                                 ====                                     ====
Ratio of average interest-earning assets
  to average interest-bearing liabilities             110.92%                                  115.11%
                                                    ========                                 ========
</TABLE>

(1)  Includes investment securities and FHLB of Atlanta common stock.
(2)  Interest rate spread represents the difference between the average yield on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
(3)  Net yield on interest-earning assets represents net interest income divided
     by average interest-earning assets.
(4)  Loans placed on nonperforming status have been included in the computation
     of average balances.


                                       6
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

No provisions for loan losses were made in 2001 or 2000. No provisions were
considered necessary in either year due to the low level of non-performing
assets noted below, and the Bank's favorable loss experience in each year. There
were no net charge-offs in 2000 and only nominal net charge-offs in 2001. The
allowance for loan losses is maintained at a level deemed adequate to absorb
losses inherent in the loan portfolio and results from management's
consideration of such factors as the financial condition of the borrower, past
and expected loss experience, and other factors management feels deserve
recognition in establishing an appropriate reserve. Although management attempts
to maintain the allowance at a level deemed adequate, future additions to the
allowance may be necessary based upon changes in market conditions. In addition,
various regulatory agencies periodically review our allowance for loan losses.
These agencies may require us to make additional provisions based upon their
judgments about information available to them at the time of their examination.

The level of non-performing assets, defined as loans past due 90 days or more,
has historically been low as a percentage of total loans outstanding. Loans
outstanding that were delinquent more than 90 days were approximately $747,000
and $439,000 at December 31, 2001 and 2000, respectively. Real estate acquired
in the settlement of loans amounted to $18,000 at December 31, 2001 and 2000.
The Bank has adopted policies which it believes provides for prudent and
adequate levels of loan loss allowances. At December 31, 2001, the allowance for
loan losses amounted to $427,000, which management believes is adequate to
absorb losses inherent in its loan portfolio.

NONINTEREST INCOME

Noninterest income amounted to $357,000 and $196,000 for the years ended
December 31, 2001 and 2000, respectively. This increase resulted from an
increase in the service charges and fees associated with the Bank's checking
accounts of $30,000, a decrease in losses arising from the disposition of
investment securities of $73,000, and an increase in other noninterest income of
$66,000. This last category, other noninterest income, is comprised of insurance
commissions and various sources of miscellaneous operating income.

NONINTEREST EXPENSE

Noninterest expense amounted to $4.6 million and $4.7 million for the years
ended December 31, 2001 and 2000, respectively, a decrease of $83,000. The
primary factor responsible for this decrease was a decrease in compensation and
benefits expense of $226,000 in 2001 compared to 2000. The Company's Management
Recognition Plan became fully vested in 2000 resulting in compensation expense
of $599,000 in that year. There was no expense recognized in 2001 related to
this Plan, resulting in the decrease in overall compensation and benefits
expense. This decrease, combined with a decrease in professional fees expense of
$48,000, was partially offset by an increase in other noninterest expenses,
which was attributable to the Company's continued growth and development.

INCOME TAXES

The provision for income taxes, as a percentage of income before income taxes,
was 35.0% and 35.9% for the years ended December 31, 2001 and 2000,
respectively.


                                       7
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

CAPITAL RESOURCES AND LIQUIDITY

The Company paid regular quarterly cash dividends of $.40 per share in the
aggregate during 2001 and 2000. Although the Company 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 payments will be subject to future earnings, cash flows, capital
needs and regulatory restrictions.

The objective of Home's liquidity management is to ensure the availability of
sufficient cash flows to meet all of its financial commitments. Liquidity
management addresses Home's ability to meet deposit withdrawals either on demand
or at contractual maturity, to repay borrowings, if any, as they mature and to
originate new loans and make investments as opportunities arise.

Significant liquidity sources for Home are cash provided by new savings
deposits, operating activities, sale or maturity of investment and the ability
to raise equity capital. Cash flows from investing activities typically are
dependent on the level of loan demand and the amount of new savings deposits
that the Bank is able to generate. During the year ended December 31, 2001, cash
inflow was provided by proceeds from maturities, calls and principal repayments
on securities of $12.7 million, cash provided by operating activities of $1.4
million and an increase in deposits and borrowings of 13.6 million. Significant
cash outflows during 2001 included repurchase of common stock for $462,000,
purchases of securities available for sale of $2.0 million, and net loan
originations of $20.1 million.

Levels of deposit accounts are impacted primarily by overall market rates and
the pricing policies that Home sets to attract or maintain its deposits, which
are affected by Home's demand for loans and its other liquidity needs.
Approximately 74% of Home's certificates of deposit outstanding at December 31,
2001 are scheduled to mature within the next year. Management believes that
substantially all of these deposits will be renewed and intends to price such
deposits at competitive rates in order to ensure that these deposits are
renewed. Home does not hold brokered deposits or significant levels of public
deposits which are less likely to renew if a higher rate of interest can be
obtained elsewhere. Liquidity levels and Home's operations would be
significantly hindered should a sizable portion of these deposits not be
renewed.

Cash provided by operating and financing activities has historically been used
by the Company to make new loans to its customers. Excess cash will be used in
the future to make new loans as demand warrants and to maintain the Company's
liquid investment portfolios by offsetting maturities, which are timed to
provide needed cash flows to meet anticipated short term liquidity requirements.

As a state chartered savings bank, Home must meet certain liquidity requirements
which are established by the Administrator of the North Carolina Savings
Institutions Division. Home's liquidity ratio at December 31, 2001, as computed
under such regulations, was in excess of such requirements. Given its excess
liquidity and its ability to borrow from the FHLB of Atlanta, Home believes that
it will have sufficient funds available to meet anticipated future loan
commitments, unexpected deposit withdrawals, or other cash requirements.


                                       8
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

ASSET/LIABILITY MANAGEMENT

Home's asset/liability management, or interest rate risk management, is focused
primarily on evaluating and managing Home's net interest income given various
risk criteria. Factors beyond Home's control, such as the effects of changes in
market interest rates and competition, may also have an impact on the management
of interest rate risk.

In the absence of other factors, Home'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, Home's yields
and cost of funds will decrease when market rates decline. Home 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. Home's gap is typically described as the difference
between the amounts of such assets and liabilities which reprice within a period
of time. In a declining interest rate environment, a negative gap, or a
situation where Home's interest-bearing liabilities subject to repricing exceed
the level of interest-earning assets which will mature or reprice, will have a
favorable impact on Home's net interest income. At December 31, 2001, Home had a
one-year sensitivity gap of negative 50.27%. Conversely, an increase in general
market rates over a sustained period of time will tend to affect Home's net
interest income adversely.

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

In addition to shortening the average repricing period of its assets, Home has
sought to lengthen the average maturity of its liabilities by adopting a tiered
pricing program for its certificates of deposit, which provides higher rates of
interest on its longer term certificates in order to encourage depositors to
invest in certificates with longer maturities.

Although Home's asset/liability management program has generally helped to
decrease the exposure of its earnings to interest rate increases, Home continues
to have a negative gap position which will be adversely impacted during
prolonged periods of rising interest rates and positively affected during
prolonged periods of interest rate declines. The Bank's interest-earning assets
less interest-bearing liabilities maturing or repricing within five years as a
percentage of total interest-earning assets was a negative 66.37%.

The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2001, which are
projected to reprice or mature in each of the future time periods shown. The
computations were made without using assumptions for loan prepayments or deposit
decline. Except as stated below, the amounts of assets and liabilities shown
which reprice or mature within a given period were determined in accordance with
contractual terms of the assets or liabilities. In making the computations, all
adjustable rate loans were considered to be due at the end of the next upcoming
adjustment period. Fixed rate loans are reflected at their contractual
maturities with consideration given to scheduled payments. Marketable equity
securities and savings accounts with no stated maturities are subject to
immediate repricing and availability and have been classified in the earliest
category. FHLB of Atlanta stock must be maintained at certain regulatory levels
and is classified in the more than ten category. The interest rate sensitivity
of Home's assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by such assumptions.


                                       9
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            At December 31, 2001
                                                    --------------------------------------------------------------
                                                                      More Than          More Than
                                                      1 Year          1 Year to         5 Years to
                                                     or Less           5 Years           10 Years          Total
                                                    ---------         ---------         ----------       ---------
                                                                          (Dollars in thousands)
<S>                                                 <C>               <C>               <C>              <C>
Interest-earning assets:
   Interest-bearing deposits                        $   5,865         $      --         $      --        $   5,865
   Federal funds sold                                   2,628                --                --            2,628
   Securities held to maturity                             --               164             4,533            4,697
   Securities available for sale                        7,102             2,041             7,829           16,972
   FHLB stock, at cost                                     --                --             1,348            1,348
   Loans, net                                          19,316             9,122           144,694          173,132
                                                    ---------         ---------         ---------        ---------
       Total interest-earning assets                $  34,911         $  11,327         $ 158,404        $ 204,642
                                                    =========         =========         =========        =========

Interest-bearing liabilities:
   Passbook savings                                 $  24,660         $      --         $      --        $  24,660
   NOW accounts                                         8,459                --                --            8,459
   Money market                                         5,966                --                --            5,966
   Certificates of deposit                             92,701            33,263                --          125,964
   Borrowings                                           6,000            11,000                --           17,000
                                                    ---------         ---------         ---------        ---------
                                                    $ 137,786         $  44,263         $      --        $ 182,049
                                                    =========         =========         =========        =========

INTEREST SENSITIVITY GAP
   PER PERIOD                                       $(102,875)        $ (32,936)        $ 158,404        $  22,593

CUMULATIVE INTEREST
   SENSITIVITY GAP                                  $(102,875)        $(135,811)        $  22,593        $  22,593

CUMULATIVE INTEREST SENSITIVITY
   GAP AS A PERCENTAGE OF TOTAL
   INTEREST-SENSITIVE ASSETS                           (50.27)%          (66.37)%           11.04%           11.04%

CUMULATIVE RATIO OF
   INTEREST-SENSITIVE ASSETS TO
   INTEREST-BEARING SENSITIVE LIABILITIES               25.34%            25.40%           112.41%          112.41%
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

The 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
Company are primarily monetary in nature and changes in market interest rates
have a greater impact on its performance than do the effects of inflation.


                                       10
<PAGE>

                             [DIXON ODOM PLLC LOGO]

                                DIXON ODOM PLLC
                  Certified Public Accountants and Consultants

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
South Street Financial Corp.
Albemarle, North Carolina

We have audited the accompanying consolidated statement of financial condition
of South Street Financial Corp. and subsidiary as of December 31, 2001, and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of South
Street Financial Corp. as of December 31, 2000 were audited by other auditors
whose report dated February 1, 2001 expressed an unqualified opinion on those
statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of South Street
Financial Corp. and subsidiary as of December 31, 2001, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.



/s/ DIXON ODOM PLLC

Charlotte, North Carolina
February 1, 2002


                                       11
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2001              2000
                                                                             ----------        ----------
                                                                                (Dollars in thousands)
<S>                                                                          <C>               <C>
ASSETS
Cash and cash equivalents:
   Noninterest-bearing deposits                                              $   3,486         $   2,978
   Interest-bearing deposits                                                     5,865             2,935
   Federal funds sold                                                            2,628             1,570
Securities held to maturity, fair value December 31, 2001
   $4,468,000; December 31, 2000 $6,426,000 (Note 2)                             4,697             6,762
Securities available for sale (Note 2)                                          16,972            25,288
Loans receivable, net (Note 3)                                                 173,132           152,514
Real estate acquired in settlement of loans                                         18                18
Real estate held for investment                                                  1,026             1,284
Accrued interest receivable (Note 4)                                             1,058             1,088
Property and equipment, net (Note 5)                                             1,427             1,504
Federal Home Loan Bank stock, at cost                                            1,348             1,229
Other assets (Notes 6 and 11)                                                      711             1,173
                                                                             ---------         ---------

       Total assets                                                          $ 212,368         $ 198,343
                                                                             =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Deposits (Note 7)                                                         $ 167,590         $ 155,035
   Federal Home Loan Bank advances (Note 8)                                     17,000            16,000
   Advance payments by borrowers for taxes and insurance                           165               232
   Accounts payable and other liabilities                                        2,631             2,718
   Checks outstanding on disbursement account                                    1,093               549
                                                                             ---------         ---------

       Total liabilities                                                       188,479           174,534
                                                                             ---------         ---------

Commitments (Notes 6, 9 and 14)

Stockholders' Equity: (Notes 12 and 13)
   Common stock, no par value, authorized
    20,000,000 shares; issued 3,111,867 shares in December
    2001; issued 3,176,267 shares in December 2000                               8,296             9,051
   Accumulated other comprehensive income (loss) (Note 2)                           35              (163)
   Unearned ESOP (Note 13)                                                      (2,439)           (2,993)
   Unearned compensation (Note 13)                                              (1,437)           (1,665)
   Retained earnings, substantially restricted (Notes 11 and 12)                19,434            19,579
                                                                             ---------         ---------

       Total stockholders' equity                                               23,889            23,809
                                                                             ---------         ---------

       Total liabilities and stockholders' equity                            $ 212,368         $ 198,343
                                                                             =========         =========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       12
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2001              2000
                                                                             ----------        ----------
                                                                                (Dollars in thousands)
<S>                                                                          <C>               <C>
INTEREST INCOME:
   Loans                                                                     $  12,758         $  11,376
   Mortgage-backed securities                                                      821             1,082
   Other securities                                                                670             1,012
   Other interest-bearing deposits                                                 410               321
                                                                             ---------         ---------
     Total interest income                                                      14,659            13,791
                                                                             ---------         ---------

INTEREST EXPENSE:
   Deposits (Note 7)                                                             7,952             7,369
   FHLB advances (Note 8)                                                          993               812
                                                                             ---------         ---------
     Total interest expense                                                      8,945             8,181
                                                                             ---------         ---------

     Net interest income                                                         5,714             5,610

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

     Net interest income after
       provision for loan losses                                                 5,714             5,610
                                                                             ---------         ---------

NONINTEREST INCOME:
   Service charges and fees                                                        150               120
   Loss on sale or call of investment securities                                   (11)              (84)
   Gain on sale of real estate held for investment                                  20                28
   Other                                                                           198               132
                                                                             ---------         ---------
       Total noninterest income                                                    357               196
                                                                             ---------         ---------

NONINTEREST EXPENSES:
   Compensation and benefits (Notes 6, 9, 10 and 13)                             3,111             3,337
   Net occupancy                                                                   343               341
   Federal insurance premium expenses                                               30                31
   Data processing                                                                 272               248
   Professional fees                                                                94               142
   Other                                                                           723               557
                                                                             ---------         ---------
       Total noninterest expenses                                                4,573             4,656
                                                                             ---------         ---------

       Income before income taxes                                                1,498             1,150

Income taxes (Note 11)                                                             525               409
                                                                             ---------         ---------

       Income before minority interest in
          net income of consolidated subsidiary                                    973               741

Less minority interest in net income of
   consolidated subsidiary                                                          --                10
                                                                             ---------         ---------

       Net income                                                                  973               731
                                                                             ---------         ---------
</TABLE>

                                       13
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001 AND 2000 (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              2001            2000
                                                             ------          ------
                                                             (Dollars in thousands)
<S>                                                          <C>             <C>
Other comprehensive income, net of tax:
   Unrealized holding gains arising during
     the year, net of tax - December 2001 $123,000;
     December 2000 $280,000                                  $  191          $  438
   Plus reclassification adjustment for
     realized losses included in income,
     net of tax - December 2001 $4,000;
     December 2000 $33,000                                        7              51
                                                             ------          ------

   Other comprehensive income                                   198             489
                                                             ------          ------

     Comprehensive income                                    $1,171          $1,220
                                                             ======          ======

Basic earnings per share (Note 15)                           $ 0.35          $ 0.24
                                                             ======          ======

Diluted earnings per share (Note 15)                         $ 0.35          $ 0.24
                                                             ======          ======

Regular dividends declared per share                         $ 0.40          $ 0.40
                                                             ======          ======
</TABLE>



























See Notes to Consolidated Financial Statements.


                                       14
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                        Accumu-
                                                                         lated              Deferred
                                                                         Other               Manage-
                                                  Shares                 Compre-              ment                            Total
                                                    of        Common    hensive              Recog-   Unearned              Stock-
                                                  Common      Stock     Income/  Unearned    nition    Compen-   Retained   holders'
                                                  Stock       Amount    (Loss)     ESOP       Plan     sation    Earnings    Equity
                                                ---------    --------   -------- --------   --------  --------   --------   --------
                                                                             (D ollars in thousands)
<S>                                             <C>          <C>        <C>      <C>        <C>       <C>        <C>        <C>
BALANCE AT DECEMBER 31, 1999                    3,652,652    $ 12,410    $(652)   $(3,403)   $(599)   $(1,810)   $19,994    $25,940
   Principal payment on note receivable
     from the ESOP                                     --          --       --        410       --         --         --        410
   ESOP contribution                                   --        (248)      --         --       --         --         --       (248)
   Retirement of common stock repurchased        (476,385)     (3,111)      --         --       --         --         --     (3,111)
   Vesting of management recognition plan              --          --       --         --      599         --         --        599
   Cash dividends                                      --          --       --         --       --         --     (1,146)    (1,146)
   Net change in unrealized gain (loss) on
     securities available for sale, net                --          --      489         --       --         --         --        489
   Amortization of return of capital dividend          --          --       --         --       --        145         --        145
   Net income                                          --          --       --         --       --         --        731        731
                                                ---------    --------    -----    -------    -----    -------    -------    -------

BALANCE AT DECEMBER 31, 2000                    3,176,267       9,051     (163)    (2,993)      --     (1,665)    19,579     23,809

   Principal payment on note receivable
     from the ESOP                                     --          --       --        554       --         --         --        554
   ESOP contribution                                   --        (293)      --         --       --         --         --       (293)
   Retirement of common stock repurchased         (64,400)       (462)      --         --       --         --         --       (462)
   Cash dividends                                                  --       --         --       --         --     (1,118)    (1,118)
   Net change in unrealized gain (loss) on
     securities available for sale, net                --          --      198         --       --         --         --        198
   Amortization of return of capital dividend          --          --       --         --       --        228         --        228
   Net income                                          --          --       --         --       --         --        973        973
                                                ---------    --------    -----    -------    -----    -------    -------    -------

BALANCE AT DECEMBER 31, 2001                    3,111,867    $  8,296    $  35    $(2,439)   $  --    $(1,437)   $19,434    $23,889
                                                =========    ========    =====    =======    =====    =======    =======    =======
</TABLE>

See Notes to Consolidated Financial Statements.


                                       15
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                  2001               2000
                                                                                --------           --------
                                                                                  (Dollars in thousands)
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Income before minority interest                                              $    973           $    741
   Adjustments to reconcile income before minority
     interest to net cash provided by operating activities:
       Net accretion of premiums and discounts on securities                          72                 73
       Amortization of deferred loan fees                                           (544)              (335)
       Provision for depreciation                                                    159                154
       Deferred income taxes                                                         (78)               (40)
       Loss on sale or call of investments available for sale                         --                 84
       Loss from call of investments held to maturity                                 11                 --
       Gain on sale of real estate held for investment                               (20)               (28)
       ESOP contribution                                                            (293)              (248)
       Vesting of management recognition plan                                         --                599
       Amortization of unearned compensation                                         228                145
       (Increase) decrease in assets:
          Accrued interest receivable                                                 30                (70)
          Other assets                                                               462               (257)
       Increase (decrease) in liabilities:
          Accounts payable and other liabilities                                    (128)               122
          Checks outstanding on disbursement account                                 544                 44
                                                                                --------           --------

   NET CASH PROVIDED BY OPERATING ACTIVITIES                                       1,416                984
                                                                                --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of securities available for sale                                     (2,004)              (300)
   Proceeds from sales of securities available for sale                               --              1,469
   Proceeds from maturities and calls of
     securities available for sale                                                10,631              2,644
   Principal collected on securities held to maturity                              1,781              1,576
   Proceeds from call of security held to maturity                                   215                 --
   Loan originations and principal payments on loans, net                        (20,074)           (18,394)
   Purchase of property and equipment                                                (82)              (310)
   Draw by minority interest in LLC                                                   --                (46)
   Purchase of minority interest in LLC                                               --               (154)
   Purchase of real estate held for investment                                      (327)              (457)
   Investment in real estate held for investment                                     (70)                --
   Proceeds from sale of real estate held for investment                             675                 80
   Purchase of FHLB stock                                                           (119)               (76)
                                                                                --------           --------

     NET CASH USED IN INVESTING ACTIVITIES                                        (9,374)           (13,968)
                                                                                --------           --------
</TABLE>


                                       16
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000 (CONTINUED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                         2001                 2000
                                                                      ----------           ----------
                                                                           (Dollars in thousands)
<S>                                                                   <C>                  <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in deposits                                           $   12,555           $    6,875
   Payment of dividends                                                   (1,126)              (1,240)
   Retirement of stock repurchased                                          (462)              (3,111)
   Proceeds from FHLB borrowings                                          20,000               24,000
   Repayments on FHLB borrowings                                         (19,000)             (16,000)
   Principal payment received on ESOP note                                   554                  410
   Net decrease in advance payments
     by borrowers for taxes and insurance                                    (67)                  --
                                                                      ----------           ----------

     NET CASH PROVIDED BY FINANCING ACTIVITIES                            12,454               10,934
                                                                      ----------           ----------

     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      4,496               (2,050)

Cash and cash equivalents:
   Beginning                                                               7,483                9,533
                                                                      ----------           ----------
   Ending                                                             $   11,979           $    7,483
                                                                      ==========           ==========

Supplemental Schedule of Cash and Cash Equivalents:
   Noninterest-bearing deposits                                       $    3,486           $    2,978
   Interest-bearing deposits                                               5,865                2,935
   Federal funds sold                                                      2,628                1,570
                                                                      ----------           ----------
                                                                      $   11,979           $    7,483
                                                                      ==========           ==========

Supplemental Disclosures of Cash Flow Information:
   Cash payments for:
     Interest                                                         $    8,972           $    8,270
     Income taxes                                                            337                  744

Supplemental Disclosures of Noncash Transactions:
   Net change in unrealized gain (loss) on securities
     available for sale, net of deferred taxes (credits)                     198                  489
   Change in dividends accrued                                                 8                   94
   Net income of minority interest                                            --                   10
</TABLE>








See Notes to Consolidated Financial Statements.


                                       17
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

South Street Financial Corp., a North Carolina corporation, (the Company) is a
bank holding company registered with the Board of Governors of the Federal
Reserve System (the Federal Reserve) under the Bank Holding Company Act of 1956,
as amended (the BHCA) and the savings bank holding company laws of North
Carolina. The Company serves as a holding company for Home Savings Bank of
Albemarle, Inc., SSB. (Home Savings or the Bank). The Company's activities
consist of managing its investment portfolio, holding the indebtedness
outstanding from the Home Savings Bank of Albemarle, Inc., SSB Employee Stock
Ownership Plan (the ESOP) and owning the Bank. The Company's principal sources
of income are earnings on its investments and interest payments received from
the ESOP with respect to the ESOP loan. In addition, the Company will receive
any dividends which are declared and paid by the Bank on its capital stock.

NATURE OF BUSINESS

Home Savings is primarily engaged in the business of obtaining savings deposits
and originating single-family residential loans within its primary lending area
of Stanly County, North Carolina. The Bank's underwriting polices require such
loans to be made with a loan-to-value ratio of at least 80% based upon appraised
values unless private mortgage insurance is obtained. These loans are secured by
the underlying properties. The Bank's primary regulators are the Federal Deposit
Insurance Company (FDIC) and the Administrator of the North Carolina Savings
Institutions Division (the NC Administrator). The Bank's deposits are insured by
the Savings Association Insurance Fund (SAIF) of the FDIC.

During 1998, the Bank formed a wholly owned subsidiary, South Street Development
Corporation (SSDC) with a $1.8 million cash investment. SSDC then invested
$10,000 for a 50% interest in Park Ridge Associates, LLC (Park Ridge). The other
50% interest in Park Ridge was purchased by SSDC in 2000.

CHANGE IN FISCAL YEAR

On December 28, 1999, the Board of Directors approved a change in the Company's
fiscal year end from September 30 to December 31.

The following is a description of the significant accounting policies used in
the preparation of the accompanying financial statements:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of South Street
Financial Corp. and its wholly owned subsidiary, Home Savings Bank of Albemarle,
SSB., the Bank's wholly owned subsidiary, South Street Development Corporation,
and SSDC's wholly owned subsidiary, Park Ridge Associates, LLC. All significant
intercompany transactions and balances have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans.


                                       18
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

CASH, CASH EQUIVALENTS AND CASH FLOWS

For purposes of reporting the statements of cash flows, the Company includes
cash on hand, demand deposits at other financial institutions and federal funds
sold as cash equivalents. From time to time, the Company maintains deposits with
financial institutions which are in excess of the federally-insured amounts. The
Company has not experienced any losses with regard to concentration. Cash flows
from loans and deposits are reported net.

INVESTMENT SECURITIES

The Company has investments in debt and equity securities which consist
primarily of obligations of the U.S. Government and federal agencies,
mortgage-backed securities and common stock. Management classifies all
securities as trading, available for sale, or held to maturity on the date of
purchase and the appropriateness of such classification is reassessed at each
statement of financial condition date. Since the Company does not buy investment
securities in anticipation of short-term fluctuations in market prices, none of
the investment securities are classified as trading in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115. All securities have been
classified as either available for sale or held to maturity.

SECURITIES AVAILABLE FOR SALE

Securities classified as available for sale are those securities that the
Company intends to hold for an indefinite period of time but not necessarily to
maturity. 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 the Company's assets and liabilities, liquidity
needs, regulatory capital consideration, and other similar factors. Securities
available for sale are carried at fair value. Premiums and discounts are
amortized using the interest method over the securities' contractual lives.
Unrealized gains or losses are reported as increases or decreases in other
comprehensive income, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in income. Declines in the fair value of individual securities
classified as either available for sale or held to maturity below their
amortized cost that are determined to be other than temporary result in
write-downs of the individual securities to their fair value with the resulting
write-downs included in current earnings as realized losses.

SECURITIES HELD TO MATURITY

Securities classified as held to maturity are those securities the Company has
both the intent and 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 premium and
accretion of discount, computed by the interest method over their contractual
lives. Based on the Company's financial position and liquidity, management
believes the Company has the ability to hold these securities to maturity.

INVESTMENT IN FEDERAL HOME LOAN BANK STOCK

The Bank, as a member of the Federal Home Loan Bank system (FHLB), is required
to maintain an investment in capital stock of the FHLB in an amount equal to the
greater of 1% of its outstanding home loans or 5% of advances from the FHLB. No
ready market exists for the FHLB stock, and it has no quoted market value. For
presentation purposes, such stock is assumed to have a market value which is
equal to cost.


                                       19
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

LOANS RECEIVABLE

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses, the undisbursed portion of construction loans, and net deferred
loan origination fees. The Bank's loan portfolio consists principally of
mortgage loans collateralized by first trust deeds on single family residences,
other residential property, commercial property and land.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). The allowance is an amount that management
believes will be adequate to absorb losses inherent in the loan portfolio.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to pay, the estimated
value of any underlying collateral, and current economic conditions. The loan
portfolio is further analyzed by each loan type and delinquency status to
determine the risk category for each loan that is used in calculating the
allowance for loan losses. Loans delinquent greater than 90 days are evaluated
individually for loss exposure, while other loans are evaluated aggregately by
type. Allocated and unallocated portions are determined in the same manner.
While management uses the best information to make evaluations, future
adjustments may be necessary if economic or other conditions differ
substantially from the assumptions used.

IMPAIRED LOANS

The Bank assesses loans delinquent greater than 90 days for impairment. SFAS No.
114 requires that the Bank 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. An allowance on an impaired loan is required if
the present value of the future cash flows discounted using the loan's effective
interest rate is less than the carrying value of the loan. An impaired loan can
also be valued based upon its fair value in the market place or on the basis of
its underlying collateral if the loan is collateral dependent. If foreclosure is
imminent, and the loan is collateral dependent, the loan must be valued based
upon the fair value of the underlying collateral.

INTEREST INCOME

The Bank recognizes interest income on loans using the interest method over the
contractual life of the loan. The Bank continues to accrue interest on loans,
including loans delinquent 90 days or more, when the collection of interest is
not in doubt. At the time a loan becomes nonperforming, the loan is placed on
nonaccrual status by establishing an allowance for uncollected interest. If and
when management determines that the collectibility of principal and interest is
no longer in doubt, the loan is returned to performing status and the reserve
for uncollected interest is reversed. The Bank anticipates that it will account
for interest on impaired loans in a similar fashion in the future if and when it
has impaired loans.

LOAN ORIGINATION FEES AND RELATED COSTS

Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for actual prepayments.


                                       20
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

Real estate acquired in settlement of loans is initially recorded at estimated
fair value at the date of foreclosure, establishing a new cost basis. Based on
periodic evaluations by management, the carrying values are reduced where they
exceed fair value minus estimated costs 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.

REAL ESTATE HELD FOR INVESTMENT

Real estate held for investment is stated at the lower of cost or market value.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost less accumulated depreciation which is
computed principally by the straight-line method over the assets' estimated
useful lives.

BENEFIT PLANS

The Bank provides a noncontributory pension plan covering substantially all of
the Bank's employees who are eligible as to age and length of service. The
Bank's funding policy is to make the maximum annual contribution that is
deductible for income tax purposes.

The Bank has deferred compensation, supplemental income and retirement plan
agreements for the benefit of certain officers of the Company and members of the
Board of Directors. The plans are funded in part through life insurance policies
held by the Bank, and the liabilities are being accrued over the terms indicated
in the plan agreements. The Bank also has an ESOP which covers substantially all
of its employees. Contributions to the plan are based upon the amortization
requirements of the ESOP's debt to the Company, subject to compensation
limitations, and are expensed in accordance with the AICPA's Statement of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.

Additionally, the Company has implemented a qualified stock option plan
authorizing the grant of up to 449,650 stock options to certain directors,
officers and employees, either in the form of incentive stock options or
non-incentive stock options. The Company has also implemented a management
recognition plan by acquiring in trust 179,860 shares of stock for issuance to
certain directors, officers and employees.

ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE

Certain borrowers make monthly payments, in addition to principal and interest,
in order to accumulate funds from which the Bank can pay the borrowers' property
taxes and insurance premiums.

INCOME TAXES

Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards 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.


                                       21
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

EARNINGS PER SHARE

SFAS No. 128 requires the presentation of earnings per share by all entities
that have common stock or potential common stock, such as options, warrants and
convertible securities, outstanding that trade in a public market. Those
entities that have only common stock outstanding are required to present basic
earnings per-share amounts. Basic per-share amounts are computed by dividing net
income (the numerator) by the weighted-average number of common shares
outstanding (the denominator). All other entities are required to present basic
and diluted per-share amounts. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless the effect
is to reduce the loss or increase the income per common share from continuing
operations. For both computations, the number of shares of common stock
purchased by the Bank's employee stock ownership plan, which have not been
allocated to participant accounts, are not assumed to be outstanding.

COMPREHENSIVE INCOME

SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.

OFF-STATEMENT OF FINANCIAL CONDITION RISK

The Bank is a party to financial instruments with off-statement of financial
condition risk such as commitments to extend credit and lines of credit.
Management assesses the risk related to these instruments for potential losses
on an ongoing basis.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values required under SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to develop the estimates of fair value.
Accordingly, the estimates presented for the fair value of the Company's
financial instruments are not necessarily indicative of the amounts the Company
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 market value amounts.

The fair value estimates presented are based on pertinent information available
to management as of the dates presented. 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 these dates and, therefore, current estimates of fair value may
differ significantly from the amounts presented in these financial statements.


                                       22
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

RECLASSIFICATIONS

Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation. The reclassifications had no effect on net
income or stockholders' equity as previously reported.

DERIVATIVE FINANCIAL INSTRUMENTS

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Company has no derivative financial
instruments and does not engage in any hedging activities; accordingly, the
adoption of the statement did not affect the Company's financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for using the
purchase method. SFAS No. 142 changes the accounting for goodwill and certain
other intangible assets from an amortization method to an impairment only
approach. Since the Company does not have goodwill or other intangible assets,
the adoption of SFAS Nos. 141 and 142 on January 1, 2002 is not expected to
significantly affect the Company's financial statements.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, and in July 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

SFAS No. 143 requires that obligations associated with the retirement of
tangible long-lived assets be recorded as a liability when those obligations are
incurred, with the amount of liability initially measured at fair value. SFAS
No. 143 will be effective for financial statements for fiscal years beginning
after June 15, 2002, though early adoption is encouraged. The application of
this statement is not expected to have a material impact on the Company's
financial statements.

SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144
applies to all long-lived assets including discontinued operations, and amends
Accounting Principle Board Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book or fair value less cost to sell. SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001, and its provisions are generally expected to be applied prospectively. The
application of this statement is not expected to have a material impact on the
Company's financial statements.


                                       23
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2. SECURITIES

Amortized cost and fair values of securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                               2001
                                                 ------------------------------------------------------------
                                                                   Gross            Gross           Estimated
                                                 Amortized       Unrealized       Unrealized         Market
                                                   Cost            Gains            Losses            Value
                                                 ---------       ----------       ----------        ---------
                                                                    (Dollars in thousands)
<S>                                              <C>             <C>              <C>               <C>
Securities available for sale:
   U.S. Government and federal
     agencies obligations                         $ 9,003          $ 140           $     --           $ 9,143
   Mortgage-backed securities                       7,312             11                (94)            7,229
   Other securities                                   600             --                 --               600
                                                  -------          -----           --------           -------
                                                  $16,915          $ 151           $    (94)          $16,972
                                                  =======          =====           ========           =======
Securities held to maturity:
   Mortgage-backed securities
     and related securities                       $ 4,697          $  73           $   (302)          $ 4,468
                                                  =======          =====           ========           =======

Other investments:
   Interest-earning deposits                      $ 5,865          $  --           $     --           $ 5,865
   Federal funds sold                               2,628             --                 --             2,628
   Federal Home Loan Bank stock                     1,348             --                 --             1,348
                                                  -------          -----           --------           -------
                                                  $ 9,841          $  --           $     --           $ 9,841
                                                  =======          =====           ========           =======
</TABLE>


<TABLE>
<CAPTION>
                                                                               2000
                                                 ------------------------------------------------------------
                                                                   Gross            Gross           Estimated
                                                 Amortized      Unrealized        Unrealized         Market
                                                   Cost            Gains            Losses            Value
                                                 ---------      ----------        ----------        ---------
                                                                    (Dollars in thousands)
<S>                                              <C>            <C>               <C>               <C>
Securities available for sale:
   U.S. Government and federal
     agencies obligations                         $15,498          $  15           $    (39)          $15,474
   Mortgage-backed securities                       9,457             --               (243)            9,214
   Other securities                                   600             --                 --               600
                                                  -------          -----           --------           -------
                                                  $25,555          $  15           $   (282)          $25,288
                                                  =======          =====           ========           =======
Securities held to maturity:
   Mortgage-backed securities
     and related securities                       $ 6,762          $  46           $   (382)          $ 6,426
                                                  =======          =====           ========           =======

Other investments:
   Interest-earning deposits                      $ 2,935          $  --           $     --           $ 2,935
   Federal funds sold                               1,570             --                 --             1,570
   Federal Home Loan Bank stock                     1,229             --                 --             1,229
                                                  -------          -----           --------           -------
                                                  $ 5,734          $  --           $     --           $ 5,734
                                                  =======          =====           ========           =======
</TABLE>


                                       24
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2. SECURITIES (CONTINUED)

The amortized cost and fair values of securities as of December 31, 2001 by
contractual maturity are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or repaid without any penalties.

<TABLE>
<CAPTION>
                                                                     Amortized          Fair
                                                                        Cost            Value
                                                                     ---------         -------
                                                                       (Dollars in thousands)
<S>                                                                  <C>               <C>
Securities available for sale:
   Due in one year or less                                            $ 7,000          $ 7,102
   Due after one year through five years                                2,003            2,041
   Due after ten years                                                  7,312            7,229
   Equity security                                                        600              600
                                                                      -------          -------
                                                                      $16,915          $16,972
                                                                      =======          =======

Securities held to maturity:
   Due after one year through five years                              $   164          $   162
   Due after five years through ten years                                 355              382
   Due after ten years                                                  4,178            3,924
                                                                      -------          -------
                                                                      $ 4,697          $ 4,468
                                                                      =======          =======
</TABLE>

Proceeds from the sales of securities available for sale for the years ended
December 31, 2001 and 2000 were $-0- and $1,469,000, respectively. Gross
proceeds from maturities and calls of securities available for sale for the
years ended December 31, 2001 and 2000 were $10,631,000 and $2,644,000,
respectively. Gross realized gains from sales, maturities, and calls of
securities available for sale for the years ended December 31, 2001 and 2000
were $-0- and $57,000, respectively. Gross realized losses from sales,
maturities, and calls of securities available for sale for the years ended
December 31, 2001 and 2000 were $-0- and $141,000, respectively. Gross proceeds
from calls of securities held to maturity were $215,000 and $-0- during the
years ended December 31, 2001 and 2000, respectively. Gross losses from calls of
securities held to maturity were $11,000 in 2001.

The change in accumulated other comprehensive income, which consists of
unrealized gains and losses, for the years ended December 31, 2001 and 2000 is
as shown below:

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                             -------------------------
                                                              2001              2000
                                                             ------           -------
                                                              (Dollars in thousands)
<S>                                                          <C>              <C>
Balance, beginning                                           $ (163)          $ (652)
   Changes in unrealized gains (losses)                         325              802
   Changes in deferred income taxes                            (127)            (313)
                                                             ------           ------
Balance, ending                                              $   35           $ (163)
                                                             ======           ======
</TABLE>


                                       25
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2. SECURITIES (CONTINUED)

The following table sets forth certain information regarding the carrying value
and contractual maturities of the Company's investment portfolio at December 31,
2001:

<TABLE>
<CAPTION>
                                                                                      Carrying Value
                                                        -------------------------------------------------------------------------
                                                                       After 1          After 5
                                                                     Year Through    Years Through       After
                                                        1 Year         5 Years         10 Years         10 Years           Total
                                                       -------       ------------    -------------      --------          -------
                                                                                 (Dollars in thousands)
<S>                                                    <C>           <C>             <C>                <C>               <C>
Securities available for sale:
  U.S. Government and federal
   agencies obligations                                $ 7,102          $2,041          $    --          $    --          $ 9,143
  Mortgage-backed securities                                --              --               --            7,229            7,229
  Equity security                                          600              --               --               --              600
Securities held to maturity:
  Mortgage-backed securities                                --             164              355            4,178            4,697
Other investments:
  Interest-earning deposits                              5,865              --               --               --            5,865
  Federal funds sold                                     2,628              --               --               --            2,628
  Federal Home Loan Bank stock                              --              --               --            1,348            1,348
                                                       -------          ------          -------          -------          -------
                                                       $16,195          $2,205          $   355          $12,755          $31,510
                                                       =======          ======          =======          =======          =======
</TABLE>


The following table sets forth the weighted average yield by maturity of the
Company's investment portfolio at December 31, 2001:

<TABLE>
<CAPTION>
                                                                    After 1            After 5
                                                                  Year Through      Years Through        After
                                                 1 Year             5 Years           10 Years         10 Years           Total
                                                 -------          ------------      -------------      --------          -------
<S>                                              <C>              <C>               <C>                <C>               <C>
 Securities available for sale:
  U.S. Government and federal
   agencies obligations                              5.65%            4.95%               --                --              5.49%
  Mortgage-backed securities                           --               --                --              6.09%             6.09%
  Equity security                                      --               --                --                --                --
Securities held to maturity:
  Mortgage-backed securities                           --             8.01%             8.52%             7.39%             7.49%
Other investments:
  Interest-earning deposits                          3.82%              --                --                --              3.82%
  Federal funds sold                                 3.70%              --                --                --              3.70%
  Federal Home Loan Bank stock                         --               --                --              6.25%             6.25%
                                                  -------           ------           -------           -------           -------
                                                     4.46%            5.18%             8.52%             6.53%             5.39%
                                                  =======           ======           =======           =======           =======
</TABLE>


                                       26
<PAGE>


SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3. LOANS RECEIVABLE

Loans receivable are summarized below:

<TABLE>
<CAPTION>
                                                           December 31, 2001                    December 31, 2000
                                                       -------------------------            --------------------------
                                                                          % of                                  % of
                                                        Amount            Total              Amount             Total
                                                       --------          --------           --------          --------
                                                                            (Dollars in thousands)
<S>                                                    <C>               <C>                <C>               <C>
Real estate loans:
   Residential 1-4 family                              $134,213             77.52%          $116,410             76.33%
   Residential multi-family                                 979              0.57%               566              0.37%
   Nonresidential real estate                            15,952              9.21%            17,343             11.37%
   Residential construction                               5,529              3.19%             7,929              5.20%
   Land                                                   7,887              4.56%             5,467              3.58%
   Line of credit                                         6,293              3.63%             4,267              2.80%
                                                       --------          --------           --------          --------
     Total real estate loans                            170,853             98.68%           151,982             99.65%
                                                       --------          --------           --------          --------

Commercial/consumer loans:
   Commercial                                             3,182              1.84%             1,893              1.24%
   Share and other                                        1,926              1.11%             3,577              2.35%
   Credit reserve                                            99              0.06%                98              0.06%
                                                       --------          --------           --------          --------
   Total commercial/consumer loans                        5,207              3.01%             5,568              3.65%
                                                       --------          --------           --------          --------

Less:
   Net deferred loan fees                                   501              0.29%               490              0.32%
   Loans in process                                       2,000              1.16%             4,117              2.70%
   Allowance for loan losses                                427              0.25%               429              0.28%
                                                       --------          --------           --------          --------
   Total reductions                                       2,928              1.69%             5,036              3.30%
                                                       --------          --------           --------          --------

   Total loans receivable, net                         $173,132            100.00%          $152,514            100.00%
                                                       ========          ========           ========          ========
</TABLE>

The following table sets forth the time to contractual maturity of the Bank's
loan portfolio at December 31, 2001. Demand loans, loans having no stated
maturity and overdrafts are reported as due in one year or less. The table does
not include prepayments. Amounts in the table are net of loans in process,
unamortized loan fees, and the allowance for loan losses.

<TABLE>
<CAPTION>

                                                                        At December 31, 2001
                                                  ----------------------------------------------------------------
                                                                    More than          Greater
                                                   1 Year           1 Year to           Than
                                                   or Less           5 Years           5 Years             Total
                                                  --------          ---------          --------          ---------
                                                                       (Dollars in thousands)
<S>                                               <C>               <C>                <C>               <C>
Residential 1-4 family                            $  5,304           $  4,165          $124,744          $ 134,213
Other loans                                         14,940              4,957            19,950             39,847
Net deferred loan fees                                (501)                --                --               (501)
Allowance for loan losses                             (427)                --                --               (427)
                                                  --------           --------          --------          ---------
        Totals                                    $ 19,316           $  9,122          $144,694          $ 173,132
                                                  ========           ========          ========          =========
</TABLE>


                                       27
<PAGE>


SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3. LOANS RECEIVABLE (CONTINUED)

The following table sets forth the dollar amount at December 31, 2001 of all
loans maturing or repricing on or after December 31, 2002 which have fixed or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                                             Adjustable
                                                            Fixed Rates         Rates
                                                            -----------      ----------
                                                               (Dollars in thousands)
<S>                                                         <C>              <C>
Construction                                                 $  5,529          $   --
Commercial                                                        847             490
Other                                                         138,374           8,576
                                                             --------          ------
                                                             $144,750          $9,066
                                                             ========          ======
</TABLE>

The following is an analysis of the allowance for loan losses:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                             ---------------------------
                                                               2001               2000
                                                             --------           --------
                                                               (Dollars in thousands)
<S>                                                          <C>                <C>
Balance, beginning of period                                 $    429           $    429

Provision for loan losses                                          --                 --

Charge-offs:
   Consumer                                                         2                 --
                                                             --------           --------

Balance, end of period                                       $    427           $    429
                                                             ========           ========

Net charge-offs (recoveries) as a
   percent of average loans                                      .001%                --

Allowance at period end as a
   percent of nonperforming loans                               57.16%             97.72%

Allowance at period end as a percent
   of nonperforming assets                                      55.82%             93.87%

Allowance at period end as a
   percent of total gross loans                                  0.24%              0.27%
</TABLE>


                                       28
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3. LOANS RECEIVABLE (CONTINUED)

The allocation of the allowance for loan losses applicable to each category of
loans is as follows:

<TABLE>
<CAPTION>
                                                    December 31, 2001                                December 31, 2000
                                        -------------------------------------------     --------------------------------------------
                                                        Percent of                                       Percent of
                                                        Allowance       Percent of                       Allowance        Percent of
                                        Amount of       to Total          Loans to      Amount of        to Total         Loans to
                                        Allowance       Allowance       Total Loans     Allowance        Allowance       Total Loans
                                        ---------       ---------       -----------     ---------        ----------      -----------
                                                                          (Dollars in thousands)
<S>                                     <C>             <C>             <C>             <C>              <C>             <C>
Real estate loans:
  One-to-four family residential          $179            41.92%           76.23%          $153            35.66%           73.89%
  Multi-family residential                   1             0.23%            0.56%             1             0.23%            0.36%
  Nonresidential real estate                 2             0.47%            9.06%             2             0.47%           11.01%
  Residential construction                  --               --%            3.14%            --               --             5.03%
  Land                                       5             1.17%            4.48%             5             1.17%            3.47%
  Home equity                               10             2.34%            3.57%            10             2.33%            2.71%
                                          ----           ------           ------           ----           ------           ------
    Total real estate loans                197            55.50%           97.04%           171            48.95%           97.67%
                                          ----           ------           ------           ----           ------           ------

Commercial/consumer loans:
  Commercial loans                          40             9.37%            1.81%            39             9.09%            1.20%
  Share and other loans                      3             0.70%            1.09%             4             0.93%            2.27%
  Credit reserve                             1             0.23%            0.06%            --               --             0.06%
                                          ----           ------           ------           ----           ------           ------

    Total commercial/
      consumer loans                        44             0.94%            2.96%            43             0.93%            2.33%
                                          ----           ------           ------           ----           ------           ------

Unallocated                                186            43.56%              --%           215            50.12%              --
                                          ----           ------           ------           ----           ------           ------
                                          $427           100.00%          100.00%          $429           100.00%          100.00%
                                          ====           ======           ======           ====           ======           ======
</TABLE>

SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures, requires that the Bank establish a specific
allowance on impaired loans and disclosure of the Bank's method of accounting
for interest income on impaired loans. The Bank assesses loans delinquent more
than 90 days past due for impairment. Such loans are on nonaccrual status and
amounted to $747,000 and $439,000 at December 31, 2001 and 2000, respectively.
These loans had an average outstanding balance of $594,000 and $282,000 for the
years ended December 31, 2001 and 2000, respectively. These loans are primarily
collateral dependent, and management has determined that the underlying
collateral value is in excess of the carrying amounts. As a result, the Bank has
determined that specific allowances on these loans are not required.

The differences between interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized totaled
$33,000 and $20,000 for the years ended December 31, 2001 and 2000,
respectively.


                                       29
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3. LOANS RECEIVABLE (CONTINUED)

The following table sets forth information with respect to nonperforming assets
identified by the Bank, including nonaccrual loans.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                             ---------------------------
                                                               2001               2000
                                                             --------           --------
                                                                (Dollars in thousands)
<S>                                                          <C>                <C>
Nonaccrual loans                                             $    747           $    439
Foreclosed real estate                                             18                 18
                                                             --------           --------
Total non-performing assets                                  $    765           $    457
                                                             ========           ========

Non-performing loans to total gross loans                        0.43%              0.28%
                                                             ========           ========

Non-performing assets to total assets                            0.36%              0.23%
                                                             ========           ========

Total assets                                                 $212,368           $198,343

Total gross loans                                            $176,060           $157,550
</TABLE>

Officers and directors of the Company were indebted to the Bank for loans made
in the ordinary course of business. The following is an analysis of the loans to
officers and directors:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                             -------------------------
                                                               2001              2000
                                                             -------           -------
                                                                (Dollars in thousands)
<S>                                                          <C>               <C>
Balance, beginning                                           $ 3,217           $ 2,742
   Originations                                                1,992               801
   Payments received                                          (1,046)             (326)
                                                             -------           -------
Balance, ending                                              $ 4,163           $ 3,217
                                                             =======           =======
</TABLE>

NOTE 4. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                             -------------------------
                                                               2001             2000
                                                             --------        ---------
                                                             (Dollars in thousands)
<S>                                                          <C>             <C>
Securities                                                   $  124          $  182
Mortgage-backed securities                                       63             112
Loans receivable                                                871             794
                                                             ------          ------
                                                             $1,058          $1,088
                                                             ======          ======
</TABLE>


                                       30
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                            ------------------------
                                                              2001             2000
                                                            -------          -------
                                                             (Dollars in thousands)
<S>                                                         <C>              <C>
Land                                                         $  411          $  402
Buildings and improvements                                    1,498           1,499
Furniture and equipment                                         990             916
                                                             ------          ------
                                                              2,899           2,817
Less accumulated depreciation                                 1,472           1,313
                                                             ------          ------
                                                             $1,427          $1,504
                                                             ======          ======
</TABLE>

NOTE 6. EMPLOYEE PENSION PLAN

The Bank has a defined benefit plan covering substantially all employees. The
benefits are based on years of service and the employee's expected compensation
during five consecutive plan years within the last ten plan years that produce
the highest average. Total pension expense was $146,000 and $180,000 for the
years ended December 31, 2001 and 2000, respectively, and is included in
compensation and benefits in the accompanying statements of income.

The most recent actuarial valuation of the plan was completed as of and for the
fiscal year ended September 30, 2001. Management believes that there have been
no significant changes in the assumptions or plan activity through December 31,
2001 that would cause a material change in the balances presented below. The
following table sets forth the Plan's funded status:

<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                                             -------------------------
                                                               2001               2000
                                                             -------           -------
                                                              (Dollars in thousands)
<S>                                                          <C>               <C>
Change in benefit obligation:
   Benefit obligation, beginning                             $ 1,690           $ 1,521
   Service cost                                                   87                68
   Interest cost                                                 135               120
   Actuarial (gain) loss                                         132               (19)
   Benefits paid                                                 (70)               --
                                                             -------           -------
   Benefit obligation, ending                                  1,974             1,690
                                                             -------           -------

Change in plan assets:
   Fair value of plan assets, beginning                        1,004               784
   Actual return on plan assets                                   73                56
   Employer contribution                                         212               164
   Benefits paid                                                 (70)               --
                                                             -------           -------
   Fair value of plan assets, ending                           1,219             1,004
                                                             -------           -------

Funded status                                                   (755)             (686)
Unrecognized net actuarial loss                                  525               405
Unrecognized prior service cost                                  269               304
                                                             -------           -------
Prepaid benefit cost                                         $    39           $    23
                                                             =======           =======
</TABLE>


                                       31
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 6. EMPLOYEE PENSION PLAN (CONTINUED)

The components of net periodic benefit cost are as follows:

<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                       --------------------------------------------
                                                                             2001                       2000
                                                                       ---------------            -----------------
                                                                                   (Dollars in thousands)
<S>                                                                    <C>                         <C>
Service cost                                                           $             87            $             68
Interest cost                                                                       135                         120
Expected return on plan assets                                                      (83)                        (72)
Amortization of prior service cost                                                   34                          34
Recognized net actuarial loss                                                        22                          17
                                                                       ----------------            ----------------
     Net periodic benefit cost                                         $            195            $            167
                                                                       ================            ================
</TABLE>

Weighted-average assumptions used to develop the net periodic pension cost are
as follows:

<TABLE>
<CAPTION>
                                                               Year Ended September 30,
                                                               ------------------------
                                                                2001              2000
                                                               ------            ------
<S>                                                            <C>               <C>
Discount rate                                                   7.5%             8.0%
Expected rate of return on plan assets                          8.0%             8.0%
Rate of compensation increase                                   5.0%             5.0%
</TABLE>

NOTE 7. DEPOSITS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                    December 31, 2001                                  December 31, 2000
                                          ----------------------------------------          ---------------------------------------
                                                           Average          % of                             Average         % of
                                           Amount           Rate          Deposits           Amount           Rate         Deposits
                                          --------         -------        --------          --------         -------       --------
                                                                           (Dollars in thousands)
<S>                                       <C>              <C>            <C>               <C>              <C>           <C>
Demand accounts:
  Passbook savings                        $ 24,660          2.63%           14.71%          $ 20,559          3.17%           13.26%
  NOW accounts                               8,459          0.63%            5.05%             8,473          1.00%            5.47%
  Money market                               5,966          2.49%            3.56%             4,833          2.72%            3.12%
  Noninterest bearing
    accounts                                 2,540            --%            1.52%             1,976            --             1.27%
                                          --------          ----           ------           --------          ----           ------

      Total demand deposits                 41,625          2.14%           24.84%            35,841          2.42%           23.12%

Certificates of deposit                    125,964          5.81%           75.16%           119,192          6.11%           76.88%

Accrued interest payable                         1            --%              --%                 2                             --
                                          --------          ----           ------           --------          ----           ------

      Total deposits                      $167,590          4.90%          100.00%          $155,035          5.26%          100.00%
                                          ========          ====           ======           ========          ====           ======
</TABLE>


                                       32
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 7. DEPOSITS (CONTINUED)

At December 31, 2001, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,                                                                             Amount
------------------------                                                                    ----------------------
                                                                                            (Dollars in thousands)
<S>                                                                                         <C>
          2002                                                                                $           92,701
          2003                                                                                            27,398
          2004                                                                                             2,952
          2005                                                                                             2,799
          2006                                                                                               114
                                                                                              ------------------
                                                                                              $          125,964
                                                                                              ==================
</TABLE>

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $27,161,000 and $22,700,000 at
December 31, 2001 and 2000, respectively.

The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 is as follows:

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                                     2001
                                                                                            ----------------------
                                                                                            (Dollars in thousands)
<S>                                                                                         <C>
Maturity period:
   Within 3 months or less                                                                    $            6,615
   Over 3 months through 6 months                                                                          7,188
   Over 6 months through 12 months                                                                         8,031
   Over 12 months                                                                                          5,327
                                                                                              ------------------
                                                                                              $           27,161
                                                                                              ==================
</TABLE>

Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                       --------------------------------------------
                                                                               2001                      2000
                                                                       ----------------            ----------------
                                                                                   (Dollars in thousands)
<S>                                                                    <C>                         <C>
Passbook savings                                                       $             189           $            552
NOW and money market                                                                 566                        206
Certificates of deposit                                                            7,197                      6,611
                                                                       -----------------           ----------------
                                                                       $           7,952           $          7,369
                                                                       =================           ================
</TABLE>

The Bank has pledged securities with an amortized cost of $3,000,000 as
collateral for public deposits and pledged securities with an amortized cost of
$502,000 as collateral on treasury tax and loan accounts at December 31, 2001.

Eligible savings accounts are insured to $100,000 by the SAIF which is
administered by the FDIC.


NOTE 8. ADVANCES FROM FEDERAL HOME LOAN BANK

The Bank has FHLB advances totaling $17,000,000 and $16,000,000 at December 31,
2001 and 2000, respectively. The weighted average interest rate of the advances
was 3.41% and 6.56% at December 31, 2001 and 2000, respectively.


                                       33
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 8. ADVANCES FROM FEDERAL HOME LOAN BANK (CONTINUED)

The average amount of FHLB advances outstanding was approximately $16,699,000
and $11,185,000, and had a weighted average interest rate of 5.95% and 6.85%
during the years ended December 31, 2001 and 2000, respectively. The maximum
amount of borrowings outstanding amounted to $21,000,000 and $16,000,000 during
the years ended December 31, 2001 and 2000, respectively. Interest expense on
FHLB advances totaled $993,000 and $812,000 for the years ended December 31,
2001 and 2000, respectively.

NOTE 9. DEFERRED COMPENSATION AGREEMENTS

The Bank has entered into unfunded deferred compensation agreements providing
retirement and death benefits for seven directors and supplemental income
agreements for two executive officers. Vested benefits under these agreements
are payable in monthly installments over 10 and 15 year periods. The present
value of the liability for the benefits is being accrued over the service life
per the underlying agreements, which amounted to $2,263,000 and $2,159,000 at
December 31, 2001 and 2000, respectively. The total expense for the deferred
compensation agreements and supplemental income agreements amounted to $125,000
and $219,000 for the years ended December 31, 2001 and 2000, respectively.

NOTE 10. MANAGEMENT RECOGNITION PLAN AND STOCK OPTION PLAN

The Company's stockholders approved the Company's Stock Option Plan and the
Bank's Management Recognition Plan and Trust (the MRP) on October 15, 1997. The
Stock Option Plan reserves for issuance up to 449,650 stock options to certain
officers, directors, and 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 value of the Company's common stock at date of grant. The
options granted to employees, which vest at the rate of 25% annually beginning
at the date of grant, were all granted in 1998 and expire in 2008. Options
granted to non-employee directors vested immediately on the date of grant. All
options were fully vested as of December 31, 2001. The weighted average fair
value of the options on the grant date was $3.49 per share. As permitted under
generally accepted accounting principles, grants under the plan are being
accounted for following the provisions of APB Opinion No. 25 and its related
interpretations. Accordingly, no compensation cost has been recognized for
grants made to date. Had compensation cost been determined based on the fair
value method prescribed in SFAS No. 123, the pro forma effect on reported net
income and earnings per share would be as follows:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                             -----------------------
                                                               2001           2000
                                                             -------        --------
                                                             (Dollars in thousands)
<S>                                                          <C>            <C>
Net income
   As reported                                               $ 973          $ 731
   Pro forma                                                   737            417
Earnings per share
   As reported
     Basic                                                   $0.35          $0.24
     Diluted                                                  0.35           0.24
   Pro forma
     Basic                                                     .26           0.14
     Diluted                                                   .26           0.14
</TABLE>


                                       34
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 10. MANAGEMENT RECOGNITION PLAN AND STOCK OPTION PLAN (CONTINUED)

In determining the fair value of the option grant as prescribed in SFAS No. 123,
the Black-Scholes option pricing model was used with the following assumptions:
a risk-free interest rate of 5.00%, expected lives of 10 years, expected
volatility of 29.55% and expected dividends of $0.40 per year.

At December 31, 2001, all of the 449,650 options have been granted at an
exercise price of $12.00 and are currently exercisable. No options have been
exercised to date and all options granted are outstanding at December 31, 2001.

The MRP reserved for issuance 179,860 shares of common stock to certain
officers, directors and employees. The Company issued shares to fund the MRP on
October 15, 1997. The restricted common stock under the MRP was fully vested in
2000. The expense related to the vesting of the MRP totaled $599,000 for the
year ended December 31, 2000.

NOTE 11. INCOME TAX MATTERS

Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purposes of absorbing losses. Through 1996, the provisions of the Code permitted
the Bank to deduct from taxable income an allowance for bad debts based on 8% of
taxable income before such deduction or actual loss experience. Legislation
passed in 1996 eliminated the percentage of taxable income method as an option
for computing bad debt deductions in all future years. The Bank is still
permitted to take deductions for bad debts, but is required to compute such
deductions using an experience method.

The Bank must also recapture over a six year period its tax bad debt reserves
which accumulated from 1987 through 1996 and amount to approximately $1,023,000.
The tax associated with the recaptured reserve is approximately $350,000. The
recapture was scheduled to begin with the Bank's 1997 year but was delayed two
years because the Bank originated a required minimum level of mortgage loans
over this period. 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. During the years ended December
31, 2001 and 2000, the Bank annually recaptured $171,000 of this reserve.

Deferred taxes have been provided for certain increases in the Bank's tax bad
debt reserves subsequent to 1987 which are in excess of recorded book loan loss
allowances. At December 31, 2001, retained earnings contain certain historical
additions to bad debt reserves for income tax purposes of approximately
$2,870,000, the balance at September 30, 1988, for which no deferred taxes have
been provided because the Bank does not intend to use these reserves for
purposes other than to absorb loan losses. If amounts which qualified as bad
debt deductions are used for purposes other than to absorb losses or adjustments
arising from the carryback of net operating losses, income taxes may be imposed
at the then existing rates. The unrecorded deferred income tax liability on the
above amount was approximately $1,125,000 as of December 31, 2001.


                                       35
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 11. INCOME TAX MATTERS (CONTINUED)

The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax asset (classified with other assets in the Statement of
Financial Condition) are as follows:

Deferred income taxes consist of the following:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                           -----------------------
                                                                            2001             2000
                                                                           ------          -------
                                                                            (Dollars in thousands)
<S>                                                                        <C>             <C>
Deferred tax assets:
   Unrealized loss on securities available for sale                        $   --          $  104
   Deferred compensation and supplemental income                              856             841
   Allowance for loan losses                                                  165             166
   Other                                                                       67               8
                                                                           ------          ------
     Total deferred tax assets                                              1,088           1,119
                                                                           ------          ------

Deferred tax liabilities:
   Unrealized gain on securities available for sale                            23              --
   Net deferred loan fees and costs                                           199             142
   FHLB dividends                                                             228             229
   Reserve for bad debts                                                      182             248
   Property and equipment                                                      76              71
                                                                           ------          ------
     Total deferred tax liabilities                                           708             690
                                                                           ------          ------

     Net deferred tax assets                                               $  380          $  429
                                                                           ======          ======
</TABLE>

Allocation of income tax expense between current and deferred portions is as
follows:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                             -----------------------
                                                              2001             2000
                                                             ------           ------
                                                              (Dollars in thousands)
<S>                                                          <C>              <C>
Current tax expense                                          $  603           $  449
Deferred tax benefit                                            (78)             (40)
                                                             ------           ------
                                                             $  525           $  409
                                                             ======           ======
</TABLE>

Income tax expense is reconciled to the amount computed by applying the federal
statutory tax rate of 34% to income before income taxes as follows:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                             -----------------------
                                                              2001             2000
                                                             ------          -------
<S>                                                          <C>             <C>
Statutory federal income tax rate                              34.0%           34.0%
Increase (decrease) in taxes resulting from:
   State income taxes, net of federal benefit                   0.1%            2.0%
   Other, net                                                   0.9%           (0.1)%
                                                             ------          ------
                                                               35.0%           35.9%
                                                             ======          ======
</TABLE>

                                       36
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 12. STOCKHOLDERS' EQUITY

On October 2, 1996, South Street Financial Corp. completed and closed its stock
offering. Gross proceeds from the sale of 4,496,500 shares amounted to
$44,965,000, which includes $4,528,000 in proceeds from shares purchased by the
ESOP, and reduced by conversion costs of $1,320,000. The Company transferred
$19,558,000 of the net proceeds to Home Savings for the purchase of all of the
common stock of the Bank and retained the remaining net proceeds.

Concurrent with the Conversion, the Bank established a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition contained in the definitive prospectus used in connection with the
Company's initial public offering. 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
Bank 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. Dividends paid by the Bank subsequent to the
Conversion cannot be paid from this liquidation account.

Subject to applicable law, the Board of Directors of the Company or Home Savings
may each provide for the payment of dividends. Future declarations of cash
dividends, if any, by the Company may depend upon dividend payments by the Bank
to the Company. Subject to regulations promulgated by the NC Administrator, the
Bank 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.

For a period of five years after its conversion from mutual to stock form, Home
Savings must obtain written approval from the NC Administrator before declaring
or paying a cash dividend to the Company on its capital stock in an amount in
excess of one-half of the greater of (i) the Bank's net income for the most
recent fiscal year end or (ii) the average of the Bank's net income after
dividends for the most recent fiscal year-end and not more than two of the
immediately preceding fiscal year ends. During the years ended December 31, 2001
and 2000, the Bank paid $1,257,028 and $4,234,000, respectively, in dividends to
the Company.

The Company paid cash dividends totaling $.40 per share during each of the years
ended December 31, 2001 and 2000, respectively.

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative regulatory accounting practices. The Company's and the
Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors. Prompt corrective action provisions are not applicable to bank holding
companies.


                                       37
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)

The FDIC requires the Company and the Bank to have a minimum leverage ratio of
Tier I Capital (principally consisting of retained earnings and any future
common stockholders' equity, less any intangible assets) to all assets of at
least 3%, provided that it receives the highest rating during the examination
process. For institutions that receive less than the highest rating, the Tier I
capital requirement is 1% to 2% above the stated minimum. The FDIC also requires
the Company and the Bank to have a ratio of total capital to risk-weighted
assets of 8%, of which at least 4% must be in the form of Tier I capital. As of
December 31, 2001, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes have changed the Bank's category. The Company and the Bank
complied with all of the capital requirements at December 31, 2001 and 2000, as
presented in the following table.

<TABLE>
<CAPTION>
                                                                                                      Minimum To Be Well
                                                                          Minimum                      Capitalized Under
                                                                          Capital                      Prompt Corrective
                                           Actual                       Requirement                    Action Provisions
                                  -----------------------          ----------------------          ------------------------
                                  Amount            Ratio           Amount          Ratio          Amount             Ratio
                                  -------           -----           ------          -----          -------            -----
                                                                    (Dollars in Thousands)
<S>                               <C>               <C>             <C>             <C>            <C>                <C>
DECEMBER 31, 2001:
Total Capital to Risk
   Weighted Assets:
     Consolidated                 $24,233           20.58%          $9,418           8.0%          $    --              --%
     Bank                          21,520           18.30%           9,407           8.0%           11,759            10.0%

Tier 1 Capital to Risk
   Weighted Assets:
     Consolidated                  23,889           20.29%           4,709           4.0%               --              --%
     Bank                          21,176           18.01%           4,704           4.0%            7,055             6.0%

Tier 1 Capital to Assets:
   Consolidated                   $23,889           11.38%          $6,298           3.0%          $    --              --%
   Bank                            21,176           10.09%           6,296           3.0%           10,496             5.0%

DECEMBER 31, 2000:
Total Capital to Risk
   Weighted Assets:
     Consolidated                 $24,401            23.1%          $8,449           8.0%          $    --              --
     Bank                          22,757            21.6%           8,449           8.0%           10,561            10.0%

Tier 1 Capital to Risk
   Weighted Assets:
     Consolidated                  23,972            22.7%           4,224           4.0%               --              --
     Bank                          22,328            21.1%           4,224           4.0%           11,815             6.0%

Tier 1 Capital to Assets:
   Consolidated                   $23,972            12.1%          $5,950           3.0%          $    --              --
   Bank                            22,328            11.3%           5,908           3.0%            9,846             5.0%
</TABLE>


                                       38
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN

The Bank has established an ESOP to benefit all qualified employees. The ESOP
purchased 359,720 shares of common stock in the open market subsequent to the
Conversion with proceeds received from a loan from the Company. The ESOP
purchased 168,448 additional shares with proceeds received from the return of
capital dividend paid by the Company in 1998.

The Company's note receivable is to be repaid based upon 15 annual installments
of principal and interest on September 30 of each year through September 30,
2011. Interest is based upon prime which will be adjusted and paid annually. The
note may be prepaid without penalty. 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 Bank in amounts sufficient to retire the debt. At December 31, 2001,
the outstanding balance of the note receivable is $2,439,000, and is presented
as a reduction of stockholders' equity.

Shares are released as the debt is repaid and dividends 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
Company and are not reported as dividends but as additional compensation expense
in the financial statements. Dividends on allocated or committed to be allocated
shares may also be used to repay the debt to the Company and are reported as
dividends in the financial statements. Special return of capital dividends paid
on 331,742 unallocated ESOP shares totaled $1,990,000 on September 30, 1998 and
are being amortized as compensation expense in subsequent periods as ESOP shares
are released to the participants. During the years ended December 31, 2001 and
2000, $228,000 and $145,000 was amortized as compensation expense.

Net expenses of $293,000 and $248,000 have been recorded during the years ended
December 31, 2001 and 2000, respectively, in connection with the ESOP. The
expenses include, in addition to the cash contribution necessary to fund the
ESOP, $(293,000) and $(248,000) for the years ended December 31, 2001 and 2000,
respectively, which represents the difference between the fair value of the
shares which have been released or committed to be released to participants and
the cost of these shares to the ESOP (net of tax, if negative). The Bank has
credited (debited) this amount to paid-in capital in accordance with the
provisions of AICPA Statement of Position 93-6.

At December 31, 2001, 256,829 shares held by the ESOP have been released or
committed to be released to the plan's participants for purposes of computing
earnings per share.

The ESOP has a put option which requires the Company to repurchase its common
stock from participants in the ESOP who are eligible to receive benefits under
the terms of the plan and elect to receive cash in exchange for their common
stock. The potential commitment for the put option at December 31, 2001, based
on a fair value of the ESOP shares released or committed to be released is
$1,746,000. The fair value of the unallocated shares is $1,845,000 at December
31, 2001. This commitment will fluctuate based on the fair value of the shares.

                                       39
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-STATEMENT OF FINANCIAL CONDITION RISK
         AND COMMITMENTS

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

The Bank'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 or notional amount of these instruments. The Bank
uses the same credit polices in making commitments and conditional obligations
as it does for on-statement of financial condition instruments.

<TABLE>
<CAPTION>
                                                                            December 31, 2001
                                                                           --------------------
                                                                          (Dollars in thousands)
<S>                                                                       <C>
Financial instruments whose contract
  amounts represent credit risk:
     Commitments to extend credit                                            $          2,218
     Undisbursed lines of credit                                                       15,670
                                                                             ----------------
                                                                             $         17,888
                                                                             ================
</TABLE>

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 many
require payment of a fee. The total commitment amounts do not necessarily
represent future requirements since some may expire without being drawn upon.
The Bank evaluates each customer's credit worthiness on a case-by-case basis.

The Bank entered into employment agreements with two executive officers to
provide for their continued employment. The agreements provide for an initial
term of three years and can be extended an additional year annually.


NOTE 15. EARNINGS PER SHARE

Earnings per share has been calculated in accordance with SFAS No. 128, Earnings
Per Share, and Statement of Position 93-6, Employers' Accounting for Employee
Stock Ownership Plans. For purposes of this computation, the number of shares of
common stock purchased by the Bank's employee stock ownership plan which have
not been allocated to participant accounts are not assumed to be outstanding.
Stock-based compensation grants have not been included in the diluted earnings
per share as they are antidilutive. The following are reconciliations of the
amounts used in the per share calculations:

<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31, 2001
                                                              -----------------------------------------------------
                                                                 Income             Shares             Per Share
                                                               (Numerator)       (Denominator)          Amount
                                                              --------------     --------------      --------------
                                                                               (Dollars in thousands)
<S>                                                           <C>                <C>                 <C>
Basic and Diluted EPS                                         $          973           2,820,050     $         0.35
                                                              ==============     ===============     ==============
</TABLE>

                                       40
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 15. EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
                                                                       For the Year Ended December 31, 2000
                                                              -----------------------------------------------------
                                                                  Income             Shares           Per Share
                                                                (Numerator)       (Denominator)        Amount
                                                              --------------     --------------     ---------------
                                                                           (Dollars in thousands)

<S>                                                           <C>                <C>                 <C>
Basic and Diluted EPS                                         $          731           3,004,706     $         0.24
                                                              ==============     ===============     ==============
</TABLE>


NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's cash and cash equivalents is estimated to be
equal to its recorded amount. For securities held to maturity and securities
available for sale, the fair value is estimated using quoted market values
obtained from independent pricing services. For FHLB stock, the fair value is
the same as the recorded book value since the stock can be redeemed at face
value.

The fair value for all fixed rate loans has been estimated by discounting the
projected future cash flows using the rate at which similar loans would be made
to borrowers with similar credit ratings and for similar maturities. 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. The fair value for
all adjustable rate loans has been estimated to be equal to their carrying
amounts because the repricing periods are relatively short-term in nature.

The fair value of deposits with no stated maturities, including checking
accounts and statement savings accounts, is estimated to be equal to the amount
payable on demand. The fair value of certificates of deposit is based upon the
discounted value of the contractual cash flows. The discount rates used in these
calculations approximate the current rates offered for deposits of similar
remaining maturities.

The fair values of checks outstanding on disbursement accounts, accrued interest
receivable, accrued interest payable and advance payments to borrowers for taxes
and insurance are presumed to be their recorded book values.

The fair value of the FHLB advances is equal to the recorded book value due to
the market rates of interest and short-term nature of the notes.

The estimated fair value of commitments to extend credit is estimated using fees
currently charged for similar arrangements adjusted for changes in interest
rates and credit risk that has occurred subsequent to origination. Because the
Bank believes that the credit risk associated with available but undisbursed
commitments would essentially offset fees that could be recognized under similar
arrangements, and because the commitments are either short-term in nature or
subject to immediate repricing, no fair value has been assigned to these
off-statement of financial condition commitments.


                                       41
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The recorded book value and estimated fair value of the Company's financial
assets and liabilities are summarized below:

<TABLE>
<CAPTION>
                                                      December 31, 2001                   December 31, 2000
                                                ------------------------------       ----------------------------
                                                 Recorded           Estimated         Recorded         Estimated
                                                Book Value          Fair Value       Book Value        Fair Value
                                                -----------         ----------       ----------        ----------
                                                                     (Dollars in thousands)
<S>                                             <C>                 <C>              <C>               <C>
Financial Assets:
   Interest-earning deposits                      $  8,493          $  8,493          $  4,505          $  4,505
   Securities held to maturity                       4,697             4,468             6,762             6,426
   Securities available for sale                    16,972            16,972            25,288            25,288
   Federal Home Loan Bank stock                      1,348             1,348             1,229             1,229
   Loans receivable, net                           173,132           173,485           152,514           150,331
   Accrued interest receivable                       1,058             1,058             1,088             1,088
Financial Liabilities:
   Interest-bearing deposits with
     no stated maturities                           41,625            41,625            35,841            35,841
   Interest-bearing deposits
     with stated maturities                        125,964           125,931           119,192           119,102
   Checks outstanding on
     disbursement account                            1,093             1,093               549               549
   Accrued interest payable                              1                 1                 2                 2
   Advance payments by borrowers
     for taxes and insurance                           165               165               232               232
   Federal Home Loan Bank advances                  17,000            17,000            16,000            16,000
</TABLE>

NOTE 17. PARENT COMPANY FINANCIAL DATA

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                               ---------------------------
                                                                                 2001               2000
                                                                               --------           --------
                                                                                 (Dollars in thousands)
<S>                                                                             <C>               <C>
Assets:
   Cash                                                                         $      2           $     13
   Federal funds sold                                                              1,925              1,570
   Securities available for sale                                                     300                300
   Accrued interest receivable                                                        51                 61
   Prepaid expenses and other assets                                                  28                 36
   Investment in Home Savings Bank                                                21,975             22,165
                                                                                --------           --------
                                                                                $ 24,281           $ 24,145
                                                                                ========           ========
Liabilities and Stockholders' Equity:
   Liabilities:
      Other liabilities                                                         $    392           $    336
                                                                                --------           --------
   Stockholders' Equity:
      Common stock                                                                 8,296              9,051
      Accumulated other comprehensive income (loss)                                   35               (163)
      Unearned ESOP                                                               (2,439)            (2,993)
      Unearned compensation                                                       (1,437)            (1,665)
      Retained earnings                                                           19,434             19,579
                                                                                --------           --------
                                                                                  23,889             23,809
                                                                                --------           --------
                                                                                $ 24,281           $ 24,145
                                                                                ========           ========
</TABLE>


                                       42
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 17. PARENT COMPANY FINANCIAL DATA (CONTINUED)

                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                 ----------------------------------
                                                                                      2001               2000
                                                                                 --------------     ---------------
                                                                                       (Dollars in thousands)

<S>                                                                              <C>                <C>
Interest income                                                                  $          296     $           379
Interest expense                                                                              -                   -
Equity in earnings of Home Savings Bank                                                     799                 601
Net gain (loss) on sale of investments
   available for sale                                                                         -                (141)
Other expense                                                                               (13)                (25)
Income tax (expense) benefit                                                               (109)                (83)
                                                                                 --------------     ---------------
      Net income                                                                 $          973     $           731
                                                                                 ==============     ===============
</TABLE>

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                 ----------------------------------
                                                                                      2001               2000
                                                                                 --------------     ---------------
                                                                                       (Dollars in thousands)
<S>                                                                              <C>                <C>
Cash Flows from Operating Activities:
   Net income                                                                    $          973     $           731
   Adjustments to reconcile net income to net cash provided
      by operating activities:
        Loss on sale of investments available for sale                                        -                 141
        Change in assets and liabilities:
            Equity in earnings of Home Savings                                             (799)               (601)
            (Increase) decrease in accrued interest
              receivable and other assets                                                    18                  83
            Decrease in other liabilities                                                   (71)               (178)
                                                                                 --------------     ---------------

        Net cash provided by operating activities                                           121                 176
                                                                                 --------------     ---------------

Cash Flows from Investing Activities:
   Purchase of securities available for sale                                                  -                (300)
   Proceeds from sales and repayments of
      securities available for sale                                                           -               1,398
   Upstream dividend from Home Savings Bank                                               1,257               4,234
                                                                                 --------------     ---------------

        Net cash provided by investing activities                                         1,257               5,332
                                                                                 --------------     ---------------

Cash Flows from Financing Activities:
   Retirement of stock purchased                                                           (462)             (3,111)
   Payment of dividends                                                                  (1,126)             (1,240)
   Principal payment received on note receivable from ESOP                                  554                 410
                                                                                 --------------     ---------------

        Net cash used in financing activities                                            (1,034)             (3,941)
                                                                                 --------------     ---------------
</TABLE>

                                       43
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 17. PARENT COMPANY FINANCIAL DATA (CONTINUED)

                 CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             ----------------------
                                                              2001            2000
                                                             ------          ------
                                                             (Dollars in thousands)
<S>                                                          <C>             <C>
        Net increase (decrease) in
            cash and cash equivalents                        $  344          $1,567
Cash and cash equivalents:
   Beginning                                                  1,583              16
                                                             ------          ------
   Ending                                                    $1,927          $1,583
                                                             ======          ======

Supplemental Disclosures of Cash Flow Information
      Cash payments for income taxes                         $   43          $   45

Supplemental Disclosures of Noncash
   Investing and Financing
      Change in unrealized gain (loss) on
        securities available for sale, net                      198             489
      Change in dividends accrued                                 8              94
</TABLE>


                                       44
<PAGE>

                   SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
                              CORPORATE INFORMATION
--------------------------------------------------------------------------------


                               EXECUTIVE OFFICERS

<TABLE>
<S>                                      <C>                                     <C>

         Carl M. Hill                         R. Ronald Swanner                    Christopher F. Cranford
  CEO and Chairman of Board                   President and COO                       CFO and Treasurer


                                                    DIRECTORS

         Carl M. Hill                         R. Ronald Swanner                       Greg E. Underwood
   CEO & Chairman of Board                    President and COO                  Certified Public Accountant
       of Home Savings                         of Home Savings                         Private Practice


      Joel A. Huneycutt                   Caldwell A. Holbrook, Jr.                   Douglas D. Stokes
      President, Locust                     Partner, D.A. Holbrook                   Owner and President,
        Lumber Company                     & Sons Construction Co.               Stokes Construction Company

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

      STOCK TRANSFER AGENT                     INDEPENDENT AUDITORS                      SPECIAL LEGAL COUNSEL
 Registrar and Transfer Company                  Dixon Odom PLLC                       Brooks, Pierce, McLendon,
        10 Commerce Drive                6525 Morrison Boulevard, Suite 516             Humphrey & Leonard, LLP
       Cranford, NJ 07016                    Charlotte, NC  28211-3563                  2000 Renaissance Plaza
                                                                                         230 North Elm Street
                                                                                         Greensboro, NC 27420
</TABLE>

                                CORPORATE OFFICE
                              155 West South Street
                                  P.O. Box 489
                            Albemarle, NC 28002-0489


FORM 10-KSB

A copy of Form 10-KSB as filed with the Securities and Exchange Commission will
be furnished without charge to the Company's stockholders upon written request
to South Street Financial Corp., 155 West South Street, P.O. Box 489, Albemarle,
NC 28002.


ANNUAL MEETING

The 2001 annual meeting of stockholders of South Street Financial Corp. will be
held at 4 p.m. on May 27, 2002 at the Company's corporate office at 155 West
South Street, Albemarle, NC.


                                       45
<PAGE>

                   SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY
                            COMMON STOCK INFORMATION
--------------------------------------------------------------------------------


The Company's common stock is listed on the NASDAQ National Market under the
symbol SSFC and began trading on October 3, 1996. At December 31, 2001, there
were approximately 636 shareholders of record, not including the number of
persons or entities where stock is held in nominee or street name through
various brokerage firms or banks. The following table reflects the stock trading
and dividend payment frequency of the Company.

                                        Dividends             Stock Price
                                        ---------       -----------------------
                                         Regular         High             Low
                                        --------        ------          -------
2001:
First Quarter                           $ 0.10          $6.500          $6.380
Second Quarter                            0.10           7.790           6.260
Third Quarter                             0.10           8.000           6.010
Fourth Quarter                            0.10           7.000           6.650


2000:
First Quarter                           $ 0.10          $7.000          $6.375
Second Quarter                            0.10           7.000           6.625
Third Quarter                             0.10           6.875           6.313
Fourth Quarter                            0.10           6.734           6.250

                                       46