<PAGE>

                           Table of Contents

                                                                         Page
--------------------------------------------------------------------------------

Selected Consolidated Financial Data                                     1 - 2
Management's Discussion and Analysis                                     4 -18
Independent Auditor's Report                                                19
Consolidated Financial Statements:
  Statements of financial condition at December 31, 2000 and 1999
  and September 30, 1999                                               20 - 21
  Statements of income and comprehensive income for the years
   ended December 31, 2000, September 30, 1999 and 1998, and three
   months ended December 31, 1999                                      22 - 23
  Statements of stockholders' equity for the year ended
   December 31, 2000, three months ended December 31, 1999, and
   years ended September 30, 1999 and 1998                             24 - 25
  Statements of cash flows for the years ended December 31,
   2000, September 30, 1999 and 1998, and three months ended
   December 31, 1999                                                   26 - 28
Notes to Consolidated Financial Statements                             29 - 64
Corporate Information                                                  65 - 66

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>
                                                     At December 31,                              At September 30,
                                                 -------------------------   -------------------------------------------------------
                                                   2000           1999           1999           1998           1997           1996
                                                 -------------------------   -------------------------------------------------------
                                                                   (Dollars in Thousands, except per share amount)
<S>                                              <C>            <C>            <C>            <C>            <C>            <C>
Financial Condition Data:
Total assets                                     $198,343       $185,667       $174,545       $201,945       $241,061       $217,954
Investment securities (1)                          37,784         41,956         41,490         84,110        122,984        100,974
Loans receivable, net (2)                         152,514        133,785        125,493        110,550        111,990        109,858
Deposits                                          155,035        148,314        144,272        148,444        141,755        146,398
Deposits, stock offering                               --             --             --             --             --         46,601
Advances from Federal Home Loan                    16,000          8,000             --             --         35,000             --
Note payable                                           --             --             --         18,000             --             --
Stockholders' equity (3)                           23,809         25,940         26,674         31,555         61,694         20,867
Book value per share (3)                             7.50           7.10           7.07           7.25          13.72             --
</TABLE>

<TABLE>
<CAPTION>
                                                               Three Months
                                                  Year Ended      Ended                          Year Ended September 30,
                                                 December 31,   December 31,   -----------------------------------------------------
                                                     2000          1999           1999           1998           1997           1996
                                                 ---------------------------   -----------------------------------------------------
                                                                   (Dollars in Thousands, except per share amount)
<S>                                              <C>            <C>            <C>            <C>            <C>            <C>
Operating Data:
Interest income                                  $ 13,791       $  3,129       $ 12,523       $ 15,661       $ 16,712       $ 12,869
Interest expense                                    8,181          1,715          6,944          9,319          8,846          7,775
                                                 ---------------------------   -----------------------------------------------------
Net interest income                                 5,610          1,414          5,579          6,342          7,866          5,094
Provision for loan losses                              --             --             --             --             --            300
                                                 ---------------------------   -----------------------------------------------------
Net interest income after provision
  for loan losses                                   5,610          1,414          5,579          6,342          7,866          4,794
                                                 ---------------------------   -----------------------------------------------------
Noninterest income                                    196            289            220            353            169            126
                                                 ---------------------------   -----------------------------------------------------
Noninterest expense:
  Compensation and employee                         3,337            877          3,644          4,349          2,384          1,905
  Other                                             1,319            357          1,378          1,271          1,167          2,341
                                                 ---------------------------   -----------------------------------------------------
Total noninterest expense                           4,656          1,234          5,022          5,620          3,551          4,246
                                                 ---------------------------   -----------------------------------------------------
Income before income taxes                          1,150            469            777          1,075          4,484            674
Income tax expense                                    409            129            499            312          1,616            164
Minority interest                                      10            130             --             --             --             --
                                                 ---------------------------   -----------------------------------------------------
Net income                                       $    731       $    210       $    278       $    763       $  2,868       $    510
                                                 ===========================   =====================================================
Basic earnings per share (3)                     $   0.24       $   0.06       $   0.08       $   0.19       $   0.69       $     --
Diluted earnings per share (3)                       0.24           0.06           0.08           0.19           0.69             --
Dividends per share (3)                              0.40           0.10           0.40           0.40           0.38             --
Return of capital dividends per share                  --             --             --           6.00             --             --
Dividend payout ratio (8)                          166.67%        166.67%        500.00%       3368.42%         55.07%            --
</TABLE>


                                  1
<PAGE>

<TABLE>
<CAPTION>
                                                              At or For the
                                               At or For the    the Three
                                                Year Ended     Months Ended                At or For Year Ended September 30,
                                                December 31,   December 31,     ----------------------------------------------------
Selected Other Data: (4)                            2000           1999           1999           1998           1997           1996
                                               -------------------------------------------------------------------------------------
<S>                                            <C>            <C>               <C>            <C>            <C>            <C>
Return on average assets (9)                        0.39%          0.47%          0.15%          0.35%          1.24%          0.30%
Return on average equity (9)                        2.94%          3.19%          0.96%          1.89%          4.70%          2.45%
Average equity to average assets                   13.12%         14.61%         16.12%         18.43%         26.40%         12.23%
Stockholders' equity to end-of-period
    assets                                         12.00%         13.97%         15.28%         15.63%         25.59%          9.59%
Interest rate spread for period (5)                 2.39%          2.69%          2.48%          1.97%          2.02%          2.52%
Average interest-earning assets to
    average interest-bearing liabilities          115.11%        115.33%        118.68%        123.10%        136.08%        112.00%
Net interest margin (6)                             3.07%          3.30%          3.24%          2.98%          3.46%          3.09%
Nonperforming assets to total assets
    at period end (7)                               0.23%          0.19%          0.11%          0.16%          0.22%          0.31%
Nonperforming loans to total loans
    at period end                                   0.28%          0.23%          0.13%          0.22%          0.43%          0.58%
Allowance for loan losses to non-
    performing loans at period end                 97.72%        129.61%        245.14%        172.98%         84.12%         65.44%
Net interest income, after provision for
    loan losses to non-interest expense           120.49%        114.59%        111.09%        112.85%        221.52%        112.91%
Noninterest expense to average assets               2.46%          2.74%          2.80%          2.56%          1.53%          2.49%
  Deposit accounts                                12,498         12,796         12,908         13,218         14,037         16,486
  Loan accounts                                    3,232          3,100          3,082          3,011          3,204          3,283
Number of full service banking offices                 2              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)   South Street Financial Corp. completed it's stock offering on October 2,
      1996 and then acquired all of the common stock of Home Savings of
      Albemarle, S.S.B. Earnings per share has been calculated in accordance
      with Statement of Financial Accounting Standards No. 128, "Earnings Per
      Share," and is based on net income for the year, divided by the weighted
      average number of shares outstanding for the year. In accordance with the
      AICPA's SOP 93-6, unallocated ESOP shares were deducted from outstanding
      shares used in the computation of earnings per share. Diluted earnings per
      share includes the effect of dilutive common stock equivalents in the
      weighted average number of shares outstanding.
(4)   Ratios other than period-end ratios are based on monthly balances.
      Management does not believe the use of month-end balances has caused a
      material difference in the information provided.
(5)   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.
(6)   The net interest margin represents net interest income as a percent of
      average interest-earning assets.
(7)   Nonperforming assets include mortgage loans and consumer loans 90 days or
      more delinquent and real estate acquired in the settlement of loans.
(8)   The dividend payout ratio represents dividends per share as a percent of
      basic earnings per share.
(9)   Annualized for the three months ended December 31, 1999.


                                       2
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND OPERATING RESULTS

The following discussion and analysis is intended to assist readers in
understanding the results of operations in 2000, 1999 and 1998, and changes in
financial position at December 31, 2000 and 1999, and September 30, 1999,
respectively. This discussion and analysis is intended to compliment, 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., S.S.B. (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 2000, the project was 100% completed and
14 of the 30 lots to be sold had been committed to buyers.


                                       4
<PAGE>

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, 2000, consumer and commercial loans totaled
approximately $20.6 million.

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.

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 discussion and analysis contains the consolidated financial
results for the Company, Home Savings, SSDC and Park Ridge for the years ended
December 31, 2000, September 30, 1999 and September 30, 1998. The operations of
Company for three months ended December 31, 1999 are not discussed here as there
were no significant changes during that period as compared to the periods
presented. 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, 2000,
September 30, 1999 and 1998, 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.

Market Risk

The tables following provide information about the Company's financial
instruments that are sensitive to changes in interest rates.

(A)   For loans receivable, the table presents principal cash flows by fixed and
      adjustable rates for residential 1-4 family loans, commercial and consumer
      loans. The table includes contractual maturities including scheduled
      principal repayments. The table presents fair values at December 31, 2000
      and September 30, 1999 and weighted average interest rates by maturity
      dates.

(B)   For investment securities, including securities available for sale,
      securities held to maturity, and nonmarketable equity securities, the
      table presents contractual maturities, including scheduled principal
      repayments for mortgage-backed securities. Interest-bearing cash and
      federal funds sold are due on demand financial instruments and are
      presented in the due in one year category. Nonmarketable equity securities
      have no contractual maturity and are placed in the longest expected
      maturity date. The table presents fair values at December 31, 2000 and
      September 30, 1999 and weighted average interest rates by maturity dates.

(C)   For deposits, the table presents principal cash flows and weighted average
      interest rates by expected maturity dates. The table utilizes anticipated
      decay rates on deposits and present fair values at December 31, 2000 and
      September 30, 1999


                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                    December 31, 2000
                                                                     Loans Receivable
                                                                   Expected Maturity Date
                                                                  Years Ending December 31,
                                  --------------------------------------------------------------------------------------------------
                                                                                                                              Fair
                                    2001         2002         2003         2004         2005     Thereafter      Total       Value
                                                                   (Dollars In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>          <C>         <C>
Fixed Rate                        $  2,037     $    305     $    968     $    797     $  3,639     $136,501     $144,247    $142,064
Average interest rate                 8.23%        8.50%        8.70%        8.54%        8.28%        7.69%
Variable Rate                     $  5,487     $  2,595     $    250     $    171     $    100     $     93     $  8,696    $  8,696
Average interest rate                 9.12%        9.18%        9.18%        8.50%        9.19%        9.19%
</TABLE>

<TABLE>
<CAPTION>
                                                                   Investment Securities
                                                                   Expected Maturity Date
                                                                  Year Ending December 31,
                                 -------------------------------------------------------------------------------------------------
                                                                                                                            Fair
                                   2001         2002         2003         2004         2005     Thereafter      Total      Value
                                                                  (Dollars In Thousands)
<S>                              <C>          <C>          <C>          <C>          <C>          <C>          <C>        <C>
Interest-bearing cash            $  2,935     $     --     $     --     $     --     $     --     $     --     $  2,935   $   2,935
Average interest rate                5.70%          --%          --%          --%          --%          --%
Federal Fund sold                $  1,570     $     --     $     --     $     --     $     --     $     --     $  1,570   $   1,570
Average interest rate                5.30%          --%          --%          --%          --%          --%
Securities available for sale    $  6,484     $  8,990     $     --     $     --     $     --     $  9,214     $ 24,688   $  24,688
Average interest rate                5.48%        5.67%          --%          --%          --%        6.11%
Securities held to maturity      $     --     $    100     $     --     $     --     $     --     $  6,662     $  6,762   $   6,426
Average interest rate                  --%        7.26%          --%          --%          --%        7.36%
Nonmarketable equity securities  $    300     $     --     $     --     $     --     $     --     $  1,529     $  1,829   $   1,829
Average interest rate                  --%          --%          --%          --%          --%          --%
</TABLE>

<TABLE>
<CAPTION>
                                                                       Debt Obligations
                                                                     Expected Maturity Date
                                                                   Years Ending December 31,
                                  --------------------------------------------------------------------------------------------------
                                                                                                                              Fair
                                    2001         2002         2003         2004         2005     Thereafter      Total       Value
                                                                   (Dollars In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>          <C>         <C>
Deposits                          $ 90,538     $ 47,739     $ 14,780     $     --     $     --     $     --     $153,057    $152,967
Average interest rate                 4.68%        5.85%        6.11%          --%          --%          --%
FHLB advances                     $ 16,000     $     --     $     --     $     --     $     --     $     --     $ 16,000    $ 16,000
Average interest rate                 6.56%          --%          --%          --%          --%          --%
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                     September 30, 1999
                                                                      Loans Receivable
                                                                   Expected Maturity Date
                                                                  Years Ending September 30,
                                  --------------------------------------------------------------------------------------------------
                                                                                                                              Fair
                                    2000         2001         2002         2003         2004     Thereafter      Total       Value
                                                                   (Dollars In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>          <C>         <C>
Fixed Rate                        $     65     $    449     $    600     $    716     $  1,851     $115,433     $119,114    $119,161
Average interest rate                10.21%        8.68%        8.86%        8.25%        7.06%        7.45%
Variable Rate                     $  2,694     $    271     $    200     $     96     $     38     $  3,509     $  6,808    $  6,808
Average interest rate                 9.28%        9.15%        8.93%        8.49%        9.19%        8.83%
</TABLE>

<TABLE>
<CAPTION>
                                                                    Investment Securities
                                                                   Expected Maturity Date
                                                                  Year Ending September 30,
                                 --------------------------------------------------------------------------------------------------
                                                                                                                             Fair
                                    2000         2001         2002         2003         2004     Thereafter      Total       Value
                                                                  (Dollars In Thousands)
<S>                              <C>          <C>          <C>          <C>          <C>          <C>          <C>         <C>
Interest-bearing cash            $  1,867     $     --     $     --     $     --     $     --     $     --     $  1,867    $  1,867
Average interest rate                5.50%          --%          --%          --%          --%          --%
Federal Fund sold                $    430     $     --     $     --     $     --     $     --     $     --     $    430    $    430
Average interest rate                5.50%          --%          --%          --%          --%          --%
Securities available for sale    $    999     $  6,439     $  8,876     $     --     $     --     $ 12,479     $ 28,793    $ 28,793
Average interest rate                5.75%        5.48%        5.67%          --%          --%        6.31%
Securities held to maturity      $     --     $     --     $     --     $     --     $     --     $  8,932     $  8,932    $  8,571
Average interest rate                  --%          --%          --%          --%          --%        7.46%
Nonmarketable equity securities  $     --     $     --     $     --     $     --     $     --     $  1,468     $  1,468    $  1,468
Average interest rate                  --%          --%          --%          --%          --%        7.50%
</TABLE>

<TABLE>
<CAPTION>
                                                                       Debt Obligations
                                                                     Expected Maturity Date
                                                                   Years Ending September 30,
                                  --------------------------------------------------------------------------------------------------
                                                                                                                              Fair
                                    2000         2001         2002         2003         2004     Thereafter      Total       Value
                                                                   (Dollars In Thousands)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>          <C>         <C>
Deposits                          $113,128     $ 25,376     $  4,330     $     --     $     --     $     --     $142,834    $142,867
Average interest rate                 4.39%        5.30%        5.48%          --%          --%          --%
</TABLE>


                                       7
<PAGE>

Changes in Financial Condition

Total assets of the Company amounted to $198.3 million at December 31, 2000,
which is an increase of $12.7 million or 6.8% from total assets at December 31,
1999. The Company's total assets at December 31, 1999 increased by $11.1
million, or 6.4% from total assets of $174.5 million at September 30, 1999. The
strong growth in loans is the primary reason for the increase in total assets
during both periods.

The principal category of earning assets is loans receivable, which amounted to
$152.5 million, $133.8 million, and $125.5 million at December 31, 2000, 1999
and September 31, 1999, respectively. The increase in loans during 2000 was
primarily due to a $7.4 million or 77% increase in commercial loans. Throughout
1999, residential mortgage and construction loans increased, which was sparked
by anticipation of rising interest rates. In addition, commercial and consumer
loans increased during 1999 when the Bank hired a commercial loan officer to
build this side of the loan portfolio. Loan originations for the year ended
December 31, 2000 totaled $41.1 million and were funded primarily by loan
principal repayments of $24.6 million and liquidation of investments as the loan
portfolio increased by $18.7 million. Loan originations for the year ended
September 30, 1999 totaled $47.3 million and were funded primarily by loan
principal repayments of $27.9 million as the loan portfolio increased by $14.9
million. Management believes that its new commercial loan focus, marketing
efforts, competitive rates and contacts within its community contributed to the
increased loan demand. The Bank maintains underwriting and credit standards
designed to maintain the quality of the loan portfolio. Nonperforming loans at
December 31, 2000 and 1999 and September 30, 1999 totaled $439,000, $331,000 and
$175,000, respectively, and were 0.28%, 0.23% and 0.13% of total loans,
respectively.

In addition to loans, the Company invests in U.S. Treasury and Government agency
securities, mortgage-backed securities and equity securities. Management does
not engage in the practice of trading securities, rather, the Company's
investment portfolio consists primarily of securities designated as available
for sale. Investment securities, excluding interest-bearing deposits, federal
funds sold and FHLB stock, at December 31, 2000 and 1999, and September 30, 1999
totaled $32.0 million, $36.8 million and $38.0 million, respectively. The
securities portfolio decreased by $4.7 million for the year ended December 31,
2000 from December 31, 1999, as $1.5 million of securities were sold, $2.6
million of securities matured, $1.6 million of repayments were collected and
$300,000 of new securities were purchased. For the year ended September 30,
1999, the securities portfolio decreased by $14.5 million, as $32.2 million of
securities matured or were called, $4.3 million of repayments were collected and
$23.0 million in new securities were purchased.

Cash and cash equivalents totaled $7.5 million, $9.5 million and $4.9 million at
December 31, 2000, 1999, and September 30, 1999, respectively. The $2.0 million
decrease in cash from December 31, 1999 to December 31, 2000 was due primarily
to cash being used to fund loan originations and a buildup of cash at December
31, 1999 for Year 2000 concerns. The $4.6 million increase from September 30,
1999 to December 31, 1999 was due primarily to an $8.0 million borrowing from
the FHLB.

Savings deposits amounted to $155.0 million at December 31, 2000, an increase of
$6.7 million from December 31, 1999. At December 31, 1999, deposits increased
$4.0 million to $148.3 million from $144.3 million at September 30, 1999. The
increases were due to the addition of a Premium Savings Account, new in 1999,
which offers a higher rate for savings accounts greater than $10,000. The Bank
priced its deposits in a fashion to be at or near the top of the market because
of its dependence on the local market for funds availability.

The Bank had FHLB advances outstanding of $16.0 million and $8.0 million at
December 31, 2000 and 1999, respectively, which were used to fund increased loan
demand.


                                       8
<PAGE>

Stockholders' equity decreased by $2.1 million during 2000 due primarily to
repurchasing 476,385 shares of outstanding stock for $3.1 million. Equity also
decreased by $1.1 million for quarterly cash dividends totaling $.40 per share
and $248,000 for the ESOP contribution. Increases in equity were due to $731,000
of net income, $410,000 in payments received on the ESOP debt, vesting of the
management recognition plan of $599,000 and $145,000 for amortization of the
return of capital dividends paid on unvested ESOP shares. Stockholders' equity
decreased by $734,000 for the three months ended December 31, 1999 primarily due
to the repurchasing of 120,200 shares of outstanding stock for $877,000, offset
by $210,000 of net income. The unrealized gain (loss) on securities available
for sale, net of tax, amounted to $(163,000), $(652,000) and $(519,000) at
December 31, 2000 and 1999, and September 30, 1999, respectively. The change in
the unrealized gain (loss) reflected through stockholders' equity was $489,000,
$(545,000) and $(133,000) for the years ended December 31, 2000 and September 30
1999, and the three months ended December 31, 1999, respectively.

Comparison of Operating Results for the Years Ended December 31, 2000, September
30, 1999 and September 30, 1998

Net Income

Net income for the years ended December 31, 2000, September 30, 1999 and 1998
was $731,000, $278,000 and $763,000, respectively. The increase in net income
from 1999 to 2000 was due primarily to a decrease in noninterest expense of
$366,000. The decrease in net income from 1998 to 1999 was primarily due to
decrease in interest income from securities as proceeds from investments that
matured were used to repay debt.

Net Interest Income

Net interest income amounted to $5.6 million, $5.6 million and $6.3 million
during the years ended December 31, 2000, September 30, 1999 and 1998,
respectively. The average outstanding balance of interest-earning assets in
excess of interest-bearing liabilities was $24.0 million during 2000, $27.1
million during 1999, and $39.9 million during 1998. The Company's interest rate
spread was 2.39%, 2.48%, and 1.97% in 2000, 1999 and 1998, respectively. The
decrease in 2000 is due to a larger increase in the cost of funds than the
increase in the yield on interest-earning assets. The increase in 1999 is a
result of a decrease in the Company's cost of funds.

The table on the following page 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.


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                   Year Ended December 31, 2000                Year Ended September 30,
                                      vs. September 30, 1999                        1999 vs. 1998
                             --------------------------------------     ----------------------------------------
                                Increase (Decrease) Attributable to       Increase (Decrease) Attributable to
                             --------------------------------------     ----------------------------------------
                                                    Rate/                                     Rate/
                              Volume      Rate     Volume       Net      Volume      Rate     Volume        Net
                             --------------------------------------     ----------------------------------------
                                                           (Dollars in Thousands)
<S>                          <C>         <C>       <C>      <C>         <C>         <C>       <C>       <C>
Interest income on:
Interest-bearing deposits    $  (597)    $ 131     $(89)    $  (555)    $  (736)    $(219)    $  93     $  (862)
Investments                      (47)      (37)       2         (82)     (1,911)     (101)       63      (1,949)
Mortgage-backed securities      (317)      (20)       4        (333)       (163)       91       (10)        (82)
Loans receivable               2,292       (43)     (11)      2,238         339      (563)      (21)       (245)
                             --------------------------------------     ---------------------------------------
  Total interest income on
    interest-earning assets    1,331        31      (94)      1,268      (2,471)     (792)      125      (3,138)
                             --------------------------------------     ---------------------------------------

Interest expense on:
Passbook savings                 108       117       45         270         (29)     (115)        8        (136)
NOW and money market             (30)       14       (2)        (18)         20      (101)       (6)        (87)
Certificates of deposit          (94)      271       (4)        173         136      (266)       (6)       (136)
FHLB advances                    812        --       --         812        (936)       --        --        (936)
Note payable                      --        --       --          --      (1,080)       --        --      (1,080)
                             --------------------------------------     ---------------------------------------
  Total interest expense on
    interest-bearing
    liabilities                  796       402       39       1,237      (1,889)     (482)       (4)     (2,375)
                             --------------------------------------     ---------------------------------------
Increase (decrease) in net
  interest income            $   535     $(371)    $(133)   $    31     $  (582)    $(310)    $ 129     $  (763)
                             ======================================     =======================================

<CAPTION>
                                     Year Ended September 30,
                                         1998 vs. 1997
                              --------------------------------------
                               Increase (Decrease) Attributable to
                              --------------------------------------
                                                    Rate/
                              Volume      Rate     Volume        Net
                              --------------------------------------
                                      (Dollars in Thousands)
<S>                          <C>         <C>       <C>       <C>
Interest income on:
Interest-bearing deposits    $   721     $  22     $  14     $   757
Investments                   (1,831)      406      (165)     (1,590)
Mortgage-backed securities        77       (94)       (3)        (20)
Loans receivable                 (16)     (188)        6        (198)
                             ---------------------------------------
  Total interest income on
    interest-earning assets   (1,049)      146      (148)     (1,051)
                             ---------------------------------------

Interest expense on:
Passbook savings                 (42)      (30)        4         (68)
NOW and money market             (41)       (2)        1         (42)
Certificates of deposit          266      (199)       (9)         58
FHLB advances                   (565)       18        (8)       (555)
Note payable                   1,080        --        --       1,080
                             ---------------------------------------
  Total interest expense
    on interest-bearing
    liabilities                  698      (213)      (12)        473
                             ---------------------------------------

Increase (decrease) in net
  interest income            $(1,747)    $ 359     $(136)    $(1,524)
                             =======================================
</TABLE>


                                       10
<PAGE>

Interest Income

Interest income amounted to $13.8 million, $12.5 million and $15.7 million for
the years ended December 31, 2000, September 30, 1999 and 1998, respectively.
The Company's average yield on interest-earning assets increased to 7.54% in
2000, but decreased to 7.26% in 1999 from 7.36% in 1998. The primary
interest-earning asset is loans, which experienced an increased average loan
balance and fairly flat interest rates during 2000. Loans experienced a decrease
in average yield from 1998 through 1999. The reduction in interest income on
loans in 1999 was due to the decrease in average yield as rates declined during
the year. The decrease in average yield was offset, in part, by a $4.0 million
increase in the average outstanding loan balance.

The other primary interest-earning asset is investment securities, defined as
interest-bearing deposits, investment securities available for sale,
mortgage-backed securities and FHLB stock, which is the primary cause of the
changes in interest income during 2000, 1999, and 1998. The average balance of
investment securities decreased $18.3 million to $39.6 million in 2000. The
average balance of investment securities decreased $30.9 million to $39.7
million in 1999. Interest income from interest-bearing deposits, including
federal funds sold decreased $555,000 in 2000 and $862,000 in 1999 primarily due
to a decrease in the average outstanding balance.

Interest Expense

Interest expense amounted to $8.2 million, $6.9 million and $9.3 million for the
years ended December 31, 2000, September 30, 1999 and 1998, respectively.
Interest expense increased in 2000 due to an increase in the average balance of
interest-bearing liabilities, including FHLB advances, and an increase in the
cost of funds of 37 basis points during the year. Interest expense decreased in
1999 as compared to 1998, as there were no outstanding borrowings throughout the
entire year, compared to average outstanding borrowings of $13.8 million in
1998. In addition, interest expense on deposit accounts decreased with the
decrease in the average outstanding deposits balance and average yield.
Management believes the Bank's cost of funds was indicative of changes in
overall market rates.

The table on the next 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, 2000, September
30, 1999 and 1998, respectively.


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                     --------------------------------
                                 At December 31,                  2000
                                     2000            --------------------------------
                                    Average                                   Average
                                     Yield/           Average                  Yield/
                                    Rate(5)          Balance(6)  Interest       Rate
                                 ---------------     --------------------------------
                                                         (Dollars in Thousands)
<S>                                  <C>             <C>         <C>            <C>
Assets:
  Interest earning assets:
  Interest-bearing deposits          5.70%           $  5,780    $    321       5.55%
  Investments (1)                    5.74%             15,883       1,012       6.37%
  Mortgage-backed securities         6.74%             17,951       1,082       6.03%
  Loans receivable, net (4)          7.84%            143,320      11,376       7.94%
                                                     --------------------
Total interest-earning assets        7.51%            182,934      13,791       7.54%
                                                                 --------
Non interest-earning assets                             6,418
                                                     --------
       Total                                         $189,352
                                                     ========

Liabilities and stockholders'
  equity
Interest-bearing liabilities:
  Passbook savings                   3.17%             19,333         552       2.86%
  NOW and money market               1.62%             12,140         206       1.70%
  Certificates of deposit            6.11%            115,600       6,611       5.72%
  FHLB advances                      6.56%             11,850         812       6.85%
  Note payable                         --                  --          --         --
                                                     --------------------
Total interest-bearing liabilities   5.28%            158,923       8,181       5.15%
                                                                 --------
Non-interest-bearing liabilities                        5,595
Stockholders' equity                                   24,835
                                                     --------
       Total                                         $189,353
                                                     ========
Net interest income and interest
  rate spread (2)                    2.23%                         $5,610       2.39%
                                                                   ======
Net yield on interest-
  earning assets (3)                                                            3.07%
Ratio of interest-earning assets
  to interest-bearing liabilities                                             115.11%

<CAPTION>
                                                          Year Ended September 30,
                                  ----------------------------------------------------------------------
                                                 1999                               1998
                                  ---------------------------------   ----------------------------------
                                                            Average                              Average
                                   Average                   Yield/    Average                    Yield/
                                  Balance(6)   Interest       Rate    Balance(6)   Interest       Rate
                                  ---------------------------------   ----------------------------------
                                                          (Dollars in Thousands)
Assets:
  Interest earning assets:
  Interest-bearing deposits        $ 18,129    $    876       4.83%    $ 31,446    $  1,738       5.53%
  Investments (1)                    16,601       1,094       6.59%      44,639       3,043       6.82%
  Mortgage-backed securities         23,146       1,415       6.11%      25,977       1,497       5.76%
  Loans receivable, net (4)         114,577       9,138       7.98%     110,586       9,383       8.48%
                                   --------------------                --------------------
Total interest-earning assets       172,453      12,523       7.26%     212,648      15,661       7.36%
                                               --------                            --------
Non interest-earning assets           7,042                               6,921
                                   --------                            --------
       Total                       $179,495                            $219,569
                                   ========                            ========


Liabilities and stockholders'
  equity
Interest-bearing liabilities:
  Passbook savings                   13,990         282       2.02%      15,041         418       2.78%
  NOW and money market               14,011         224       1.60%      13,158         311       2.36%
  Certificates of deposit           117,306       6,438       5.49%     114,935       6,574       5.72%
  FHLB advances                          --          --         --       15,769         936       5.94%
  Note payable                           --          --         --       13,846       1,080       7.80%
                                   --------------------                --------------------
Total interest-bearing liabilities  145,307       6,944       4.78%     172,749       9,319       5.39%
                                               --------                            --------
Non-interest-bearing liabilities      5,255                               6,360
Stockholders' equity                 28,933                              40,460
                                   --------                            --------
       Total                       $179,495                            $219,569
                                   ========                            ========
Net interest income and interest
  rate spread (2)                                $5,579       2.48%                  $6,342       1.97%
                                                 ======                              ======
Net yield on interest-
  earning assets (3)                                          3.24%                               2.98%
Ratio of interest-earning assets
  to interest-bearing liabilities                           118.68%                             123.10%
</TABLE>

(1)   Includes investment securities available for sale 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.
(5)   The weighted average rate represents the coupon associated with each asset
      and liability, weighted by the principal balance associated with each
      asset and liability.
(6)   Average balances are based on monthly balances. Management does not
      believe the use of month end balances has caused a material difference in
      the information. provided.


                                       12
<PAGE>

Provision for Loan Losses and Asset Quality

No provisions for loan losses were made in 2000, 1999, or 1998. No provisions
were made in each of the three years due to a low level of nonperforming loans
as noted below, and there being no net charge-offs in the same periods. The
methods and assumptions used in determining the loan loss allowance were updated
in 2000 to more accurately reflect the growing commercial loan portfolio. This
change did not result in any adjustments to the allowance for loan losses. The
loan loss allowances are amounts Home's management believes will be adequate to
absorb potential losses on existing loans that may become uncollectible. Loans
are charged off against the allowance when management believes that
collectibility is unlikely. The evaluation to increase or decrease the provision
and resulting allowances is based both on prior loan loss experience and other
factors, such as changes in the nature and volume of the loan portfolio, overall
portfolio quality, and current economic conditions.

Home's level of nonperforming loans, defined as loans past due 90 days or more,
has historically been low as a percentage of total loans outstanding. Loans
outstanding which were delinquent more than 90 days were approximately $439,000,
$331,000 and $175,000 at December 31, 2000 and September 30, 1999 and 1998,
respectively. Real estate acquired in the settlement of loans amounted to
$18,000 at December 31, 2000 and 1999, and September 30, 1999. Home Savings has
adopted policies which it believes provides for prudent and adequate levels of
loan loss allowances. At December 31, 2000, Home's level of general valuation
allowances for loan losses amounted to $429,000, which management believes is
adequate to absorb potential losses in its loan portfolio.

Noninterest Income

Noninterest income amounted to $196,000, $220,000 and $353,000 for the years
ended December 31, 2000, September 30, 1999 and 1998, respectively. Noninterest
income consists primarily of service charges and fees associated with the Bank's
checking accounts and gains or losses on the sale of securities. Realized gains
(losses) from the sale or call of investments available for sale or call
amounted to $(84,000), $3,000 and $88,000 during 2000, 1999 and 1998,
respectively.

Noninterest Expense

Noninterest expense consists primarily of operating expenses for compensation
and employee benefits, occupancy, federal deposit insurance premiums, data
processing charges and other operating expenses. Noninterest expense amounted to
$4.7 million, $5.0 million and $5.6 million for the years ended December 31,
2000, September 30, 1999 and 1998, respectively. Compensation decreased $307,000
for the year ended December 31, 2000 and $705,000 for the year ended September
30, 1999. The expense was higher than usual in 1998, due to the implementation
of the management recognition plan. During 1998, 50% of the restricted stock
awards allocated to directors, officers and employees vested, resulting in $1.6
million of compensation expense. The expense related to the restricted stock
awards in 1999 was approximately $798,000, as another 25% of the awards vested.
This expense was $599,000 in 2000, as the remaining awards vested. In addition,
the Company incurred $248,000, $462,000, and $459,000 of expense related to the
ESOP in 2000, 1999, and 1998, respectively, which is included in compensation
expense. Other slight increases from 1998 through 2000 were due to additional
personnel, and inflationary increases. Occupancy, data processing and federal
insurance premium expenses changed nominally during the years ended December 31,
2000 and September 30, 1999 and 1998, respectively.


                                       13
<PAGE>

Income Taxes

The Company's effective income tax rate was 35.9%, 64.2%, and 29.0% for the
years ended December 31, 2000 and September 30, 1999 and 1998, respectively. The
effective rate for 1999 is higher than expected due to permanent nondeductible
income tax differences, primarily a portion of the expenses related to the MRP.
The effective rate for 1998 was lower than expected due to permanent taxable
differences and incurring a net operating loss for state tax purposes.

Capital Resources and Liquidity

The Company paid regular quarterly cash dividends of $.40 per share in the
aggregate during 2000, 1999, and 1998, and a special return of capital dividend
of $6.00 per share during 1998. 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, 2000, cash
inflow was provided by proceeds from maturities, calls and principal repayments
on securities of $5.7 million, cash provided by operating activities of $984,000
and an increase in deposits and borrowings of 14.9 million. Significant cash
outflows during 2000 included repurchase of common stock for $3.1 million,
purchases of securities available for sale of $300,000, and net loan
originations of $18.4 million. During year ended September 30, 1999, cash inflow
was provided by proceeds from maturities, calls, and principal repayments on
securities of $36.5 million and cash provided by operating activities of
$809,000. Significant cash outflows during 1999 included a net decrease in
deposits of $4.2 million, repayments on a note payable of $18.0 million,
repurchase of common stock for $4.5 million, purchases of securities available
for sale of $23.0 million, and net loan originations of $14.5 million. During
1998, cash inflow was provided by a net increase in deposits of $6.8 million,
proceeds from borrowings on a note payable of $18.0 million, proceeds from the
sale, maturity or call of securities of $61.1 million and operating activities
of $3.7 million. Significant cash outflows during 1998 included $18.1 million
for the purchase of securities, $29.8 million in payment of dividends, $35.0
million in repayment of FHLB advances and $3.0 million for the repurchase of
common stock.


                                       14
<PAGE>

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 48% of Home's certificates of deposit outstanding at December 31,
2000 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, 2000, 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.

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, 2000, Home had a
one-year sensitivity gap of negative 36.56%. 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.


                                       15
<PAGE>

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 53.55%.

The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2000, 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.


                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                                           At December 31, 2000
                                                                      --------------------------------------------------------------
                                                                                         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 (1):
  Loans Receivable:
    Adjustable rate 1-4 family residential                            $      8                 49               924              981
    Fixed rate 1-4 family residential                                      141              2,085           113,438          115,664
    Other adjustable rate real estate loans                              7,080                216             4,470           11,766
    Other fixed rate real estate loans                                   1,180              1,694            15,545           18,419
    Other loans                                                            931              2,113             3,559            6,603
                                                                      --------          ---------          --------         --------
        Total loans                                                      9,340              6,157           137,936          153,433
Interest-bearing deposits and federal funds sold                         4,505                 --                --            4,505
Investment securities
  Available for sale                                                     6,484              8,990                --           15,474
  Available for sale mortgage-backed securities (2)                         --                 --             9,214            9,214
  Equity and other securities                                              300                 --             1,529            1,829
Mortgage-backed securities held to maturity (2)                             --                100             6,662            6,762
                                                                      --------          ---------          --------         --------
    Total interest-earning assets                                     $ 20,629          $  15,247          $155,341         $191,217
                                                                      ========          =========          ========         ========

Interest-bearing liabilities:
  Deposits:
    Certificates of deposit                                           $ 56,673          $  47,739          $ 14,780         $119,192
    Money market deposit accounts                                        4,833                 --                --            4,833
    NOW and commercial checking accounts                                 8,473                 --                --            8,473
    Passbook savings                                                    20,559                 --                --           20,559
                                                                      --------          ---------          --------         --------
        Total deposits                                                  90,538             47,739            14,780          153,057
                                                                      --------          ---------          --------         --------
        Total interest-bearing liabilities                            $ 90,538          $  47,739          $ 14,780         $153,057
                                                                      ========          =========          ========         ========

Interest sensitivity gap per report                                   $(69,909)         $ (32,492)         $140,561
Cumulative interest sensitivity gap                                    (69,909)          (102,401)           38,160
Cumulative gap as a percentage of
  total interest-earning assets                                         -36.56%             53.55%            19.96%
Cumulative interest-earning assets                                       22.78%             25.95%           124.93%
  as a percentage of interest-bearing liabilities
</TABLE>

(1)   Interest-earning assets are included in the period in which the balances
      are expected to be redeployed and/or repriced as a result of anticipated
      prepayments, scheduled rate adjustments and contractual maturities.
(2)   Based upon contractual maturities.


                                       17
<PAGE>

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.

Impact of New Accounting Standards

The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which the Company has not been required to adopt as of
December 31, 2000. This Statement, which is effective for fiscal years beginning
after June 15, 2000, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available for sale security, or a
foreign currency denominated forecasted transaction. This Statement will not
expected to have a significant impact on the Company, as it does not currently
have derivatives or engage in hedging activities.

Recapture of Tax Bad Debt Reserves

Prior to the enactment of the Small Business Job Protection Act of 1996 (the
"1996 Act") on August 20, 1996, thrift institutions which met certain
definitional tests, were permitted to establish tax reserves for bad debts and
to deduct annual additions to such reserves in arriving at taxable income. The
Bank was permitted to compute the annual bad debt deduction based upon an
experience method or a percentage equal to 8.0% of the Bank's taxable income
(the "PTI Method") before such bad debt deduction, subject to certain
limitations. Under the 1996 Act, the PTI Method was repealed and the Bank is now
required to use the experience method for computing its annual bad debt
deduction for taxable years after October 1, 1996.

The Bank will also have to recapture, over a six year period, its tax bad debt
reserves which have accumulated since 1987 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 as the Bank originated a certain 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 each of the years ended
December 31, 2000 and September 30, 1999, the Bank has recaptured $171,000 of
this reserve, resulting in a reduction to the deferred tax asset of $59,000.


                                       18
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated statements of financial condition
of South Street Financial Corp. and subsidiary as of December 31, 2000 and 1999
and September 30, 1999, and the related consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for the years ended
December 31, 2000, September 30, 1999 and 1998 and the three months ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2000 and 1999 and September
30, 1999, and the results of their operations and their cash flows for the years
ended December 31, 2000, September 30, 1999 and 1998 and the three months ended
December 31, 1999, in conformity with generally accepted accounting principles.

Charlotte, North Carolina
February 1, 2001


                                       19
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2000 and 1999 and September 30, 1999

<TABLE>
<CAPTION>
                                                      December 31,    December 31,    September 30,
ASSETS                                                    2000            1999            1999
---------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
Cash and cash equivalents:
  Noninterest-bearing deposits                        $  2,978,000    $  5,524,000    $  2,598,000
  Interest-bearing deposits                              2,935,000       4,009,000       1,867,000
  Federal funds sold                                     1,570,000              --         430,000
Securities held to maturity, fair value
  December 31, 2000 $6,426,000; December
  31, 1999 $7,950,000;
  September 30, 1999 $8,571,000 (Note 2)                 6,762,000       8,397,000       8,932,000
Securities available for sale (Note 2)                  25,288,000      28,397,000      29,108,000
Federal Home Loan Bank stock, at cost                    1,229,000       1,153,000       1,153,000
Loans receivable, net (Note 3)                         152,514,000     133,785,000     125,493,000
Real estate acquired in settlement of loans                 18,000          18,000          18,000
Real estate held for investment                          1,284,000         879,000       1,212,000
Accrued interest receivable (Note 4)                     1,088,000       1,018,000       1,084,000
Office properties and equipment, net (Note 5)            1,504,000       1,348,000       1,288,000
Prepaid expenses and other assets (Notes 6 and 11)       1,173,000       1,139,000       1,362,000
                                                      --------------------------------------------
Total assets                                          $198,343,000    $185,667,000    $174,545,000
                                                      ============================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                December 31,     December 31,     September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                                2000             1999             1999
---------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>              <C>
Liabilities:
  Deposits (Note 7)                                             $155,035,000     $148,314,000     $144,272,000
  Federal Home Loan Bank advances (Note 8)                        16,000,000        8,000,000               --
  Advance payments by borrowers for taxes and insurance              232,000          232,000          123,000
  Minority interest in Park Ridge Associates, LLC                         --          140,000           10,000
  Accounts payable and other liabilities (Note 9 and 11)           2,718,000        2,536,000        2,846,000
  Checks outstanding on disbursement account                         549,000          505,000          620,000
                                                                ----------------------------------------------
      Total liabilities                                          174,534,000      159,727,000      147,871,000
                                                                ----------------------------------------------
Commitments (Notes 6, 9 and 14)
Stockholders' equity: (Note 13)
  Common stock, no par value, authorized
    20,000,000 shares; issued 3,176,267 in December 2000;
    issued 3,652,652 shares in December 1999; issued
    3,772,852 shares in September 1999                                    --               --               --
  Additional paid-in capital                                       9,051,000       12,410,000       13,348,000
  Accumulated other comprehensive income (loss) (Note 2)            (163,000)        (652,000)        (519,000)
  Unearned ESOP (Note 13)                                         (2,993,000)      (3,403,000)      (3,672,000)
  Deferred management recognition plan (Note 10)                          --         (599,000)        (798,000)
  Unearned compensation (Note 13)                                 (1,665,000)      (1,810,000)      (1,846,000)
  Retained earnings, substantially restricted (Notes 11
      and 12)                                                     19,579,000       19,994,000       20,161,000
                                                                ----------------------------------------------
        Total stockholders' equity                                23,809,000       25,940,000       26,674,000
                                                                ----------------------------------------------
        Total liabilities and stockholders' equity              $198,343,000     $185,667,000     $174,545,000
                                                                ==============================================
</TABLE>


                                       21
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 2000, September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                                   December 31,      September 30,    September 30,    December 31,
                                                                       2000              1999             1998             1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>              <C>              <C>
Interest income:
  Loans                                                            $ 11,376,000       $ 9,138,000      $ 9,383,000      $2,492,000
  Mortgage-backed securities                                          1,082,000         1,415,000        1,497,000         322,000
  Securities                                                          1,012,000         1,094,000        3,043,000         262,000
  Other interest-bearing deposits                                       321,000           876,000        1,738,000          53,000
                                                                   ---------------------------------------------------------------
                                                                     13,791,000        12,523,000       15,661,000       3,129,000
                                                                   ---------------------------------------------------------------
Interest expense:
  Deposits (Note 7)                                                   7,369,000         6,944,000        7,303,000       1,690,000
  FHLB advances (Note 8)                                                812,000                --          936,000          25,000
  Note payable                                                               --                --        1,080,000              --
                                                                   ---------------------------------------------------------------
                                                                      8,181,000         6,944,000        9,319,000       1,715,000
                                                                   ---------------------------------------------------------------
    Net interest income                                               5,610,000         5,579,000        6,342,000       1,414,000
Provision for loan losses (Note 3)                                           --                --               --              --
                                                                   ---------------------------------------------------------------
    Net interest income after
      provision for loan losses                                       5,610,000         5,579,000        6,342,000       1,414,000
                                                                   ---------------------------------------------------------------
Noninterest income:
  Gain (loss) on sale or call of investment securities                  (84,000)            3,000           88,000              --
  Gain on sale of real estate held for investments                       28,000                --               --         260,000
  Other                                                                 252,000           217,000          265,000          29,000
                                                                   ---------------------------------------------------------------
                                                                        196,000           220,000          353,000         289,000
                                                                   ---------------------------------------------------------------
Noninterest expenses:
  Compensation and benefits (Notes 6, 9, 10 and 13)                   3,337,000         3,644,000        4,349,000         877,000
  Net occupancy                                                         341,000           318,000          270,000          77,000
  Federal insurance premium expenses                                     31,000            87,000           89,000          22,000
  Data processing                                                       248,000           211,000          210,000          64,000
  Contributions                                                          21,000            31,000           26,000           5,000
  Other                                                                 678,000           731,000          676,000         189,000
                                                                   ---------------------------------------------------------------
                                                                      4,656,000         5,022,000        5,620,000       1,234,000
                                                                   ---------------------------------------------------------------
      Income before income taxes                                      1,150,000           777,000        1,075,000         469,000
Income taxes (Note 11)                                                  409,000           499,000          312,000         129,000
                                                                   ---------------------------------------------------------------
      Income before minority interest in
      net income of consolidated subsidiary                             741,000           278,000          763,000         340,000
                                                                   ---------------------------------------------------------------
Less minority interest in net income of
  consolidated subsidiary                                                10,000                --               --         130,000
                                                                   ---------------------------------------------------------------
      Net income                                                        731,000           278,000          763,000         210,000
                                                                   ---------------------------------------------------------------
</TABLE>

                                   (Continued)


                                       22
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (CONTINUED)
Years Ended December 31, 2000, September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                                 December 31,       September 30,    September 30,    December 31,
                                                                     2000               1999             1998            1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>              <C>              <C>
Other comprehensive income (loss), net of tax:
  Unrealized holding gains (losses) arising during
    the year, net of tax December 2000 $280,000;
    September 1999 $(348,000); September 1998
    $6,000; December 1999 $(85,000)                              $    438,000       $  (543,000)     $    11,000      $ (133,000)
  Plus (less) reclassification adjustment for
    realized (gains) losses included in income,
    net of tax December 2000 $33,000;
    September 1999 $(1,000); September 1998
    $(34,000); December 1999 $-0-                                      51,000            (2,000)         (54,000)             --
                                                                 ---------------------------------------------------------------
    Other comprehensive income (loss)                                 489,000          (545,000)         (43,000)       (133,000)
                                                                 ---------------------------------------------------------------
        Comprehensive income (loss)                              $  1,220,000       $  (267,000)     $   720,000      $   77,000
                                                                 ===============================================================
Basic earnings per share (Note 15)                               $       0.24       $      0.08      $      0.19      $     0.06
                                                                 ===============================================================
Diluted earnings per share (Note 15)                             $       0.24       $      0.08      $      0.19      $     0.06
                                                                 ===============================================================
Regular dividends declared per share                             $       0.40       $      0.40      $      0.40      $     0.10
                                                                 ===============================================================
Return of capital dividend declared per share                    $         --       $        --      $      6.00      $       --
                                                                 ===============================================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                       23
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2000, September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                                                                 Accumulated
                                                                             Additional             Other
                                                                              Paid-in            Comprehensive            Unearned
                                                                              Capital            Income (Loss)              ESOP
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                     <C>                  <C>
Balance at September 30, 1997                                              $ 43,684,000            $  69,000            $(4,258,000)
  Principal payment on note receivable
    from the ESOP                                                                    --                   --                178,000
  ESOP contribution                                                             142,000                   --                     --
  Retirement of 325,300 shares of common
    stock repurchased                                                        (3,021,000)                  --                     --
  Adoption of management recognition plan                                     3,193,000                   --                     --
  Vesting of management recognition plan                                             --                   --                     --
  Return of capital dividend                                                (26,068,000)                  --                     --
  Cash dividends                                                                     --                   --                     --
  Net change in unrealized gain (loss) on
    securities available for sale, net                                               --              (43,000)                    --
  Net income                                                                         --                   --                     --
                                                                           --------------------------------------------------------
Balance at September 30, 1998                                                17,930,000               26,000             (4,080,000)
  Principal payment on note receivable
    from the ESOP                                                                    --                   --                408,000
  ESOP contribution                                                            (109,000)                  --                     --
  Retirement of 578,208 shares of common
    stock repurchased                                                        (4,473,000)                  --                     --
  Vesting of management recognition plan                                             --                   --                     --
  Cash dividends                                                                     --                   --                     --
  Net change in unrealized gain (loss) on
    securities available for sale, net                                               --             (545,000)                    --
  Amortization of return of capital dividend                                         --                   --                     --
  Net income                                                                         --                   --                     --
                                                                           --------------------------------------------------------
Balance at September 30, 1999                                                13,348,000             (519,000)            (3,672,000)
  Principal payment on note receivable
    from the ESOP                                                                    --                   --                269,000
  ESOP contribution                                                             (61,000)                  --                     --
  Retirement of 120,200 shares of common
    stock repurchased                                                          (877,000)                  --                     --
  Vesting of management recognition plan                                             --                   --                     --
  Cash dividends                                                                     --                   --                     --
  Net change in unrealized gain (loss) on
    securities available for sale, net                                               --             (133,000)                    --
  Amortization of return of capital dividend                                         --                   --                     --
  Net income                                                                         --                   --                     --
                                                                           --------------------------------------------------------
Balance at December 31, 1999                                                 12,410,000             (652,000)            (3,403,000)
  Principal payment on note receivable
    from the ESOP                                                                    --                   --                410,000
  ESOP contribution                                                            (248,000)                  --                     --
  Retirement of 476,385 shares of common
    stock repurchased                                                        (3,111,000)                  --                     --
  Vesting of management recognition plan                                             --                   --                     --
  Cash dividends                                                                     --                   --                     --
  Net change in unrealized gain (loss) on
    securities available for sale, net                                               --              489,000                     --
  Amortization of return of capital dividend                                         --                   --                     --
  Net income                                                                         --                   --                     --
                                                                           --------------------------------------------------------
Balance at December 31, 2000                                               $  9,051,000            $(163,000)           $(2,993,000)
                                                                           ========================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                 Deferred                       Retained
                                                Management                      Earnings,        Total
                                               Recognition       Unearned     Substantially   Stockholders'
                                                  Plan         Compensation    Restricted        Equity
                                               ------------------------------------------------------------
<S>                                               <C>           <C>            <C>                    <C>
Balance at September 30, 1997                  $         --    $         --    $ 22,199,000    $ 61,694,000
  Principal payment on note receivable
    from the ESOP                                        --              --              --         178,000
  ESOP contribution                                      --              --              --         142,000
  Retirement of 325,300 shares of common
    stock repurchased                                    --              --              --      (3,021,000)
  Adoption of management recognition plan        (3,193,000)             --              --              --
  Vesting of management recognition plan          1,597,000              --              --       1,597,000
  Return of capital dividend                             --      (1,990,000)             --     (28,058,000)
  Cash dividends                                         --              --      (1,697,000)     (1,697,000)
  Net change in unrealized gain (loss) on
    securities available for sale, net                   --              --              --         (43,000)
  Net income                                             --              --         763,000         763,000
                                               ------------------------------------------------------------
Balance at September 30, 1998                    (1,596,000)     (1,990,000)     21,265,000      31,555,000
  Principal payment on note receivable
    from the ESOP                                        --              --              --         408,000
  ESOP contribution                                      --              --              --        (109,000)
  Retirement of 578,208 shares of common
    stock repurchased                                    --              --              --      (4,473,000)
  Vesting of management recognition plan            798,000              --              --         798,000
  Cash dividends                                         --              --      (1,382,000)     (1,382,000)
  Net change in unrealized gain (loss) on
    securities available for sale, net                   --              --              --        (545,000)
  Amortization of return of capital dividend             --         144,000              --         144,000
  Net income                                             --              --         278,000         278,000
                                               ------------------------------------------------------------
Balance at September 30, 1999                      (798,000)     (1,846,000)     20,161,000      26,674,000
  Principal payment on note receivable
    from the ESOP                                        --              --              --         269,000
  ESOP contribution                                      --              --              --         (61,000)
  Retirement of 120,200 shares of common
    stock repurchased                                    --              --              --        (877,000)
  Vesting of management recognition plan            199,000              --              --         199,000
  Cash dividends                                         --              --        (377,000)       (377,000)
  Net change in unrealized gain (loss) on
    securities available for sale, net                   --              --              --        (133,000)
  Amortization of return of capital dividend             --          36,000              --          36,000
  Net income                                             --              --         210,000         210,000
                                               ------------------------------------------------------------
Balance at December 31, 1999                       (599,000)     (1,810,000)     19,994,000      25,940,000
  Principal payment on note receivable
    from the ESOP                                        --              --              --         410,000
  ESOP contribution                                      --              --              --        (248,000)
  Retirement of 476,385 shares of common
    stock repurchased                                    --              --              --      (3,111,000)
  Vesting of management recognition plan            599,000              --              --         599,000
  Cash dividends                                         --              --      (1,146,000)     (1,146,000)
  Net change in unrealized gain (loss) on
    securities available for sale, net                   --              --              --         489,000
  Amortization of return of capital dividend             --         145,000              --         145,000
  Net income                                             --              --         731,000         731,000
                                               ------------------------------------------------------------
Balance at December 31, 2000                   $         --    $ (1,665,000)   $ 19,579,000    $ 23,809,000
                                               ============================================================
</TABLE>


                                       25
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                            December 31,      September 30,    September 30,    December 31,
                                                                2000              1999             1998            1999
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>              <C>              <C>
Cash Flows from Operating Activities
  Net income before minority interest                       $    741,000       $   278,000      $   763,000      $  340,000
  Adjustments to reconcile net income
    to net cash provided by
    operating activities:
    Net accretion (amortization) of
      premiums and discounts on securities                        73,000            59,000           10,000          19,000
    Amortization of deferred loan fees                          (335,000)         (387,000)        (254,000)         11,000
    Gain on sale of real estate acquired
      in settlement of loans                                          --            (8,000)              --              --
    Provision for depreciation                                   154,000           155,000          112,000          43,000
    Deferred income taxes                                        (40,000)         (125,000)        (387,000)        214,000
    (Gain) loss on sale or call of investments
      available for sale                                          84,000            (3,000)         (88,000)             --
    Gain on sale of real estate held for
      investment                                                 (28,000)               --               --        (260,000)
    ESOP contribution                                           (248,000)         (109,000)         142,000         (61,000)
    Vesting of management recognition plan                       599,000           798,000        1,597,000         199,000
    Amortization of unearned compensation                        145,000           144,000               --          36,000
    (Increase) decrease in assets:
      Accrued interest receivable                                (70,000)          218,000          601,000          66,000

      Prepaid expenses and other assets                         (257,000)           70,000          (71,000)         95,000
    Increase (decrease) in liabilities:
      Accounts payable and other liabilities                     276,000          (348,000)       1,155,000        (310,000)
      Interest payable on deposits                              (154,000)            8,000         (117,000)             --
      Checks outstanding on disbursement
        account                                                   44,000            59,000          269,000        (115,000)
                                                            ---------------------------------------------------------------
          Net cash provided by
            operating activities                                 984,000           809,000        3,732,000         277,000
                                                            ---------------------------------------------------------------
</TABLE>

                                   (Continued)


                                       26
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2000, September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                               December 31,      September 30,      September 30,       December 31,
                                                                   2000               1999               1998               1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>                <C>                <C>
Cash Flows from Investing Activities
  Purchases of securities available for sale                  $   (300,000)      $(23,034,000)      $(18,081,000)      $         --
  Proceeds from sales of securities
    available for sale                                           1,469,000                 --          8,463,000                 --
  Proceeds from maturities and calls of
    securities available for sale                                2,644,000         32,197,000         44,427,000            488,000
  Principal collected on securities
    held to maturity                                             1,576,000          4,345,000          8,247,000            520,000
  Loan originations and principal
    payments on loans, net                                     (18,394,000)       (14,498,000)         1,644,000         (8,303,000)
  Purchase of equipment                                           (310,000)          (337,000)           (60,000)          (103,000)
  Draw by minority interest in LLC                                 (46,000)                --                 --                 --
  Purchase of minority interest in LLC                            (154,000)                --                 --                 --
  Purchase of real estate held for investment                     (457,000)          (493,000)          (960,000)          (184,000)
  Proceeds from sale of real estate held
    for investment                                                  80,000            241,000                 --            777,000
  Purchase of FHLB stock                                           (76,000)                --                 --                 --
  Proceeds from the sale of FHLB stock                                  --            554,000            543,000                 --
                                                              ---------------------------------------------------------------------
      Net cash provided by (used in)
        investing activities                                   (13,968,000)        (1,025,000)        44,223,000         (6,805,000)
                                                              ---------------------------------------------------------------------
Cash Flows from Financing Activities
  Net increase (decrease) in deposits                            6,875,000         (4,180,000)         6,806,000          4,042,000
  Payment of dividends                                          (1,240,000)        (1,438,000)       (29,770,000)          (377,000)
  Retirement of stock repurchased                               (3,111,000)        (4,473,000)        (3,021,000)          (877,000)
  Minority interest contribution in LLC                                 --                 --             10,000                 --
  Proceeds from FHLB borrowings                                 24,000,000                 --                 --          8,000,000
  Repayments on FHLB borrowings                                (16,000,000)                --        (35,000,000)                --
  Proceeds from borrowings on note payable                              --                 --         18,000,000                 --
  Repayments on note payable                                            --        (18,000,000)                --                 --
  Principal payment received on ESOP note                          410,000            408,000            178,000            269,000
  Net increase (decrease) in advance payments
    by borrowers for taxes and insurance                                --             (2,000)            (6,000)           109,000
                                                              ---------------------------------------------------------------------
      Net cash provided by (used in)
        financing activities                                    10,934,000        (27,685,000)       (42,803,000)        11,166,000
                                                              ---------------------------------------------------------------------
</TABLE>

                                   (Continued)


                                       27
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2000,
September 30, 1999 and 1998, and
Three Months Ended December 31, 1999

<TABLE>
<CAPTION>
                                                               December 31,      September 30,      September 30,       December 31,
                                                                   2000               1999               1998               1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>                <C>                <C>
        Increase (decrease) in cash
          and cash equivalents                                $ (2,050,000)      $(27,901,000)      $  5,152,000       $  4,638,000
Cash and cash equivalents:
  Beginning                                                      9,533,000         32,796,000         27,644,000          4,895,000
                                                              ---------------------------------------------------------------------
  Ending                                                      $  7,483,000       $  4,895,000       $ 32,796,000       $  9,533,000
                                                              =====================================================================

Supplemental Schedule of Cash and
  Cash Equivalents:
    Interest-bearing deposits                                 $  2,935,000       $  1,867,000       $  2,891,000       $  4,009,000
    Noninterest-bearing deposits                                 2,978,000          2,598,000         26,895,000          5,524,000
    Federal funds sold                                           1,570,000            430,000          3,010,000                 --
                                                              ---------------------------------------------------------------------
                                                              $  7,483,000       $  4,895,000       $ 32,796,000       $  9,533,000
                                                              =====================================================================
Supplemental Disclosures of Cash
  Flow Information:
  Cash payments for (receipts of):
    Interest                                                  $  8,270,000       $  7,304,000       $  9,227,000       $  1,675,000
    Income taxes                                                   744,000            980,000            314,000            (32,000)
Supplemental Disclosures of Noncash
  Transactions
  Transfer of loans to real estate acquired
    in settlement of loans                                              --             42,000             50,000                 --
  Loans originated to finance the sale
    of real estate acquired in settlement
    of loans                                                            --            100,000                 --                 --
  Net change in unrealized gain (loss) on
    securities available for sale, net of
    deferred taxes (credits)                                       489,000           (545,000)           (43,000)          (133,000)
  Change in dividends accrued                                       94,000            (56,000)           (15,000)                --
  Net income of minority interest                                   10,000                 --                 --            130,000
  Adoption of management recognition plan                               --                 --          3,193,000                 --
</TABLE>

See Notes to Consolidated Financial Statements.


                                       28
<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., S.S.B. ("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, S.S.B., 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.

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


                                       29
<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.

The Bank is required to maintain a minimum balance of $225,000 with the Federal
Reserve Bank for transactions clearing through that account.

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 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.


                                       30
<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 estimated losses on
existing loans. 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.


                                       31
<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.

Office properties and equipment: Office properties and equipment are 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.


                                       32
<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 amount, 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.


                                       33
<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>
                                                                                      December 31, 2000
                                                         ---------------------------------------------------------------------------
                                                                                Gross                Gross
                                                          Amortized          Unrealized            Unrealized               Fair
                                                            Cost                Gains               (Losses)                Value
                                                         ---------------------------------------------------------------------------
<S>                                                      <C>                  <C>                 <C>                    <C>
Securities available for sale:
  U.S. Government and federal
    agencies obligations                                 $15,498,000          $  15,000           $    (39,000)          $15,474,000
  Mortgage-backed securities                               9,457,000                 --               (243,000)            9,214,000
  Other securities                                           600,000                 --                     --               600,000
                                                         ---------------------------------------------------------------------------
                                                         $25,555,000          $  15,000           $   (282,000)          $25,288,000
                                                         ===========================================================================
Securities held to maturity:
  Mortgage-backed securities
    and related securities                               $ 6,762,000          $  46,000           $   (382,000)          $ 6,426,000
                                                         ===========================================================================
Other investments:
  Interest-earning deposits                              $ 2,935,000          $      --           $         --           $ 2,935,000
  Federal funds sold                                       1,570,000                 --                     --             1,570,000
  Federal Home Loan Bank stock                             1,229,000                 --                     --             1,229,000
                                                         ---------------------------------------------------------------------------
                                                         $ 5,734,000          $      --           $         --           $ 5,734,000
                                                         ===========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                      December 31, 1999
                                                         ---------------------------------------------------------------------------
                                                                                Gross                Gross
                                                          Amortized          Unrealized            Unrealized               Fair
                                                            Cost                Gains               (Losses)                Value
                                                         ---------------------------------------------------------------------------
<S>                                                      <C>                  <C>                 <C>                    <C>
Securities available for sale:
  U.S. Government and federal
    agencies obligations                                 $16,496,000          $      --           $   (283,000)          $16,213,000
  Mortgage-backed securities                              12,655,000                 --               (786,000)           11,869,000
  Other security                                             315,000                 --                     --               315,000
                                                         ---------------------------------------------------------------------------
                                                         $29,466,000          $      --           $ (1,069,000)          $28,397,000
                                                         ===========================================================================
Securities held to maturity:
  Mortgage-backed securities
    and related securities                               $ 8,397,000          $  45,000           $   (492,000)          $ 7,950,000
                                                         ===========================================================================
Other investments:
    Interest-earning deposits                            $ 4,009,000          $      --           $         --           $ 4,009,000
    Federal Home Loan Bank stock                           1,153,000                 --                     --             1,153,000
                                                         ---------------------------------------------------------------------------
                                                         $ 5,162,000          $      --           $         --           $ 5,162,000
                                                         ===========================================================================
</TABLE>


                                       34
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 2. Securities (Continued)

<TABLE>
<CAPTION>
                                                                                   September 30, 1999
                                                         ---------------------------------------------------------------------------
                                                          Amortized          Unrealized            Unrealized               Fair
                                                            Cost                Gains               (Losses)                Value
                                                         ---------------------------------------------------------------------------
<S>                                                      <C>                  <C>                 <C>                    <C>
Securities available for sale:
  U.S. Government and federal
    agencies obligations                                 $16,496,000          $      --           $   (182,000)          $16,314,000
  Mortgage-backed securities                              13,148,000                 --               (669,000)           12,479,000
  Other security                                             315,000                 --                     --               315,000
                                                         ---------------------------------------------------------------------------
                                                         $29,959,000          $      --           $   (851,000)          $29,108,000
                                                         ===========================================================================
Securities held to maturity:
  Mortgage-backed securities
    and related securities                               $ 8,932,000          $  84,000           $   (445,000)          $ 8,571,000
                                                         ===========================================================================
Other investments:
  Interest-earning deposits                              $ 1,867,000          $      --           $         --           $ 1,867,000
  Federal funds sold                                         430,000                 --                     --               430,000
  Federal Home Loan Bank stock                             1,153,000                 --                     --             1,153,000
                                                         ---------------------------------------------------------------------------
                                                         $ 3,450,000          $      --           $         --           $ 3,450,000
                                                         ===========================================================================
</TABLE>

The amortized cost and fair values of securities as of December 31, 2000 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
                                                               ---------------------------------------
<S>                                                            <C>                         <C>
Securities available for sale:
  Due in one year or less                                      $ 6,499,000                 $ 6,484,000
  Due after one year through five years                          8,999,000                   8,990,000
  Due after ten years                                            9,757,000                   9,514,000
  Equity security                                                  300,000                     300,000
                                                               ---------------------------------------
                                                               $25,555,000                 $25,288,000
                                                               =======================================

Securities held to maturity:
  Due after one year through five years                        $   100,000                 $   101,000
  Due after five years through ten years                         4,684,000                   4,310,000
  Due after ten years                                            1,978,000                   2,015,000
                                                               ---------------------------------------
                                                               $ 6,762,000                 $ 6,426,000
                                                               =======================================
</TABLE>


                                       35
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 2. Securities (Continued)

Proceeds from the sales of securities available for sale for the years ended
December 31, 2000, September 30, 1999 and 1998 and the three months ended
December 31, 1999 were $1,469,000, $-0-, $8,463,000, and $-0-, respectively.
Gross proceeds from maturities and recalled securities available for sale for
the years ended December 31, 2000, September 30, 1999 and 1998 and the three
months ended December 31, 1999 were $2,644,000, $32,197,000, $44,427,000 and
$488,000, respectively. Gross realized gains from sales, maturities or recalls
of securities available for sale for the years ended December 31, 2000,
September 30, 1999 and 1998 and the three months ended December 31, 1999 were
$57,000, $3,000, $88,000 and $-0-, respectively. Gross realized losses from
sales, maturities or recalls of securities available for sale for the years
ended December 31, 2000, September 30, 1999 and 1998 and the three months ended
December 31, 1999 were $141,000, $-0-, $-0- and $-0-, respectively. There were
no sales, maturities or recalls of investment securities held to maturity during
the years ended December 31, 2000, September 30, 1999 and 1998 and the three
months ended December 31, 1999.

The change in accumulated other comprehensive income, which consists of
unrealized gains and losses for the years ended December 31, 2000, September 30,
1999 and 1998 and the three months ended December 31, 1999 is as shown below:

<TABLE>
<CAPTION>
                                                   December 31,     September 30,    September 30,      December 31,
                                                      2000              1999              1998              1999
                                                   -----------------------------------------------------------------
<S>                                                <C>                <C>                <C>               <C>
Balance, beginning                                 $(652,000)         $  26,000          $ 69,000          $(519,000)
  Changes in unrealized gains (losses)               802,000           (894,000)          (71,000)          (218,000)
  Changes in deferred income taxes                  (313,000)           349,000            28,000             85,000
                                                   -----------------------------------------------------------------
Balance, ending                                    $(163,000)         $(519,000)         $ 26,000          $(652,000)
                                                   =================================================================
</TABLE>

The following table sets forth certain information regarding the carrying value
and contractual maturities of the Company's investment portfolio at December 31,
2000:

<TABLE>
<CAPTION>
                                                                                   Carrying Value
                                                  ----------------------------------------------------------------------------------
                                                                     After One       After Five
                                                                   Year Through     Years Through         After
                                                    One Year        Five Years        Ten Years         Ten Years             Total
                                                  ----------------------------------------------------------------------------------
<S>                                               <C>               <C>              <C>               <C>               <C>
Securities available for sale:
  Federal Home Loan Bank bonds                    $ 6,484,000       $8,990,000       $        --       $        --       $15,474,000
  Mortgage-backed securities                               --               --                --         9,214,000         9,214,000
  Equity security                                     300,000               --                --                --           300,000
  Other                                                    --               --                --           300,000           300,000
Securities held to maturity:
  Mortgage-backed securities                               --          100,000         4,684,000         1,978,000         6,762,000
Other investments:
  Interest-earning deposits                         2,935,000               --                --                --         2,935,000
  Federal funds sold                                1,570,000               --                --                --         1,570,000
  Federal Home Loan Bank stock                             --               --                --         1,229,000         1,229,000
                                                  ----------------------------------------------------------------------------------
                                                  $11,289,000       $9,090,000       $ 4,684,000       $12,721,000       $37,784,000
                                                  ==================================================================================
</TABLE>


                                       36
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 2. Securities (Continued)

The following table sets forth the weighted average yield by maturity of the
Company's investment portfolio at December 31, 2000:

<TABLE>
<CAPTION>
                                                                     After One       After Five
                                                                   Year Through     Years Through         After
                                                    One Year        Five Years        Ten Years         Ten Years             Total
                                                  ----------------------------------------------------------------------------------
<S>                                               <C>               <C>              <C>               <C>               <C>
Securities available for sale:
  Federal Home Loan Bank bonds                         5.48%            5.67%               --                --              5.59%
  Mortgage-backed securities                             --               --                --              6.11%             6.11%
  Equity security                                        --               --                --                --                --
  Other                                                  --               --                --                --                --
Securities held to maturity:
  Mortgage-backed securities                             --             7.26%             7.46%             7.17%             7.37%
Other investments:
  Interest-earning deposits                            5.70%              --                --                --              5.70%
  Federal funds sold                                   5.30%              --                --                --              5.30%
  Federal Home Loan Bank stock                           --               --                --              7.64%             7.64%
                                                  --------------------------------------------------------------------------------
                                                       5.60%            5.69%             7.46%             6.28%             6.02%
                                                  ================================================================================
</TABLE>

Note 3. Loans Receivable

Loans receivable are summarized below:

<TABLE>
<CAPTION>
                                      December 31, 2000            December 31, 1999           September 30, 1999
                                                    % of                         % of                         % of
                                    Amount          Total        Amount          Total       Amount           Total
                                 -----------------------------------------------------------------------------------
<S>                              <C>                <C>       <C>                <C>       <C>                <C>
Real estate loans:
  Residential 1-4 family         $116,410,000       76.33%    $106,544,000       79.64%    $104,994,000       83.67%
  Residential multi-family            566,000        0.37%         605,000        0.45%         620,000        0.49%
  Nonresidential real estate        2,276,000        1.49%       3,656,000        2.73%       3,791,000        3.02%
  Residential construction          7,929,000        5.20%      11,949,000        8.93%      11,225,000        8.95%
  Land                              5,467,000        3.58%       2,355,000        1.76%       2,489,000        1.98%
  Line of credit                    4,267,000        2.80%       3,063,000        2.29%       2,854,000        2.27%
  Commercial loans                 16,960,000       11.12%       9,560,000        7.15%       4,920,000        3.92%
                                 ----------------------------------------------------------------------------------
  Total real estate loans         153,875,000      100.89%     137,732,000      102.95%     130,893,000      104.30%
                                 ----------------------------------------------------------------------------------
Consumer loans:
  Share and other                   3,577,000        2.35%       3,205,000        2.40%       2,468,000        1.97%
  Credit reserve                       98,000        0.06%          92,000        0.06%         102,000        0.08%
                                 ----------------------------------------------------------------------------------
  Total consumer loans              3,675,000        2.41%       3,297,000        2.46%       2,570,000        2.05%
                                 ----------------------------------------------------------------------------------
Less:
  Net deferred loan fees              490,000        0.32%         575,000        0.43%         564,000        0.45%
  Loans in process                  4,117,000        2.70%       6,240,000        4.66%       6,977,000        5.56%
  Allowance for loan losses           429,000        0.28%         429,000        0.32%         429,000        0.34%
                                 ----------------------------------------------------------------------------------
  Total reductions                  5,036,000        3.30%       7,244,000        5.41%       7,970,000        6.35%
                                 ----------------------------------------------------------------------------------
  Total loans receivable, net    $152,514,000      100.00%    $133,785,000      100.00%    $125,493,000      100.00%
                                 ==================================================================================
</TABLE>


                                       37
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 3. Loans Receivable (Continued)

<TABLE>
<CAPTION>
                                     September 30, 1998            September 30, 1997         September 30, 1996
                                 -----------------------------------------------------------------------------------
                                                    % of                         % of                         % of
                                    Amount          Total        Amount          Total       Amount           Total
                                 -----------------------------------------------------------------------------------
<S>                              <C>                <C>       <C>                <C>       <C>                <C>
Real estate loans:
  Residential 1-4 family         $ 96,218,000       87.04%    $ 95,984,000       85.71%    $ 93,275,000       84.90%
  Residential multi-family            464,000        0.42%         555,000        0.50%         695,000        0.63%
  Nonresidential real estate        3,777,000        3.42%       3,774,000        3.37%       4,038,000        3.67%
  Residential construction          4,427,000        4.00%       8,394,000        7.50%       4,720,000        4.30%
  Land                              5,507,000        4.98%       6,091,000        5.44%       6,304,000        5.74%
  Line of credit                    3,167,000        2.86%       3,328,000        2.96%       3,786,000        3.45%
  Commercial loans                         --          --               --          --               --          --
                                 ----------------------------------------------------------------------------------
  Total real estate loans         113,560,000      102.72%     118,126,000      105.48%     112,818,000      102.69%
                                 ----------------------------------------------------------------------------------
Consumer loans:
  Share and other                     201,000        0.18%         488,000        0.44%         196,000        0.18%
  Credit reserve                      385,000        0.35%          96,000        0.08%         470,000        0.43%
                                 ----------------------------------------------------------------------------------
  Total consumer loans                586,000        0.53%         584,000        0.52%         666,000        0.61%
                                 ----------------------------------------------------------------------------------
Less:
  Net deferred loan fees              591,000        0.53%         636,000        0.57%         582,000        0.53%
  Loans in process                  2,576,000        2.33%       5,655,000        5.05%       2,616,000        2.38%
  Allowance for loan losses           429,000        0.39%         429,000        0.38%         428,000        0.39%
                                 ----------------------------------------------------------------------------------
  Total reductions                  3,596,000        3.25%       6,720,000        6.00%       3,626,000        3.30%
                                 ----------------------------------------------------------------------------------
  Total loans receivable, net    $110,550,000      100.00%    $111,990,000      100.00%    $109,858,000      100.00%
                                 ==================================================================================
</TABLE>

The following table sets forth the time to contractual maturity of the Bank's
loan portfolio at December 31, 2000. Loans which have adjustable rates are shown
as being due in the period during which rates are next subject to change, while
fixed rate and other loans are shown as due in the period of contractual
maturity. Demand loans, loans having no stated maturity and overdrafts, are
reported as due in one year or less. The table does not include prepayments or
scheduled principal repayments. Amounts in the table are net of loans in process
and are net of unamortized loan fees.

<TABLE>
<CAPTION>
                                                           At December 31, 2000
                                          -----------------------------------------------------------
                                                          More than        Greater
                                            One Year      1 Year to         than
                                            or Less        5 Years         5 Years            Total
                                          -----------------------------------------------------------
<S>                                       <C>             <C>           <C>             <C>
Adjustable rate residential 1-4 family    $     8,000     $   49,000    $    924,000    $     981,000
Fixed rate residential 1-4 family             141,000      2,085,000     113,438,000      115,664,000
Other real estate loans - adjustable        7,080,000        216,000       4,470,000       11,766,000
Other real estate loans - fixed             1,180,000      1,694,000      15,545,000       18,419,000
Other loans                                   931,000      2,113,000       3,559,000        6,603,000
Net deferred loan fees                       (490,000)            --              --         (490,000)
Allowance for loan losses                    (429,000)            --              --         (429,000)
                                          -----------------------------------------------------------
        Totals                            $ 8,421,000     $6,157,000    $137,936,000    $ 152,514,000
                                          ===========================================================
</TABLE>


                                       38
<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, 2000 of all
loans maturing or repricing on or after December 31, 2001 which have fixed or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                   Fixed              Adjustable
                                                   Rates                Rates
                                               ---------------------------------
<S>                                            <C>                    <C>
Real estate loans                              $132,762,000           $5,659,000
Other                                             5,672,000                   --
                                               ---------------------------------
                                               $138,434,000           $5,659,000
                                               =================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                                                   Three Months
                                                                    Year Ended                                     ------------
                                   ------------------------------------------------------------------------------     Ended
                                   December 31,    September 30,   September 30,  September 30,     September 30,  December 31,
                                       2000            1999            1998           1997              1996           2000
                                   --------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>            <C>               <C>            <C>
Balance, beginning of period       $    429,000    $    429,000    $    429,000   $    428,000      $    137,000   $    429,000

Provision for loan losses                    --              --              --             --           300,000             --

Charge-offs:
  Residential 1-4 family                     --              --          (1,000)        (1,000)           (8,000)            --
  Line of credit                             --              --              --             --           (10,000)            --

Recoveries:
  Residential 1-4 family                     --              --           1,000          2,000             6,000             --
  Line of credit                             --              --              --             --             3,000             --
                                   --------------------------------------------------------------------------------------------

Balance, end of period             $    429,000    $    429,000    $    429,000   $    429,000      $    428,000   $    429,000
                                   ============================================================================================

Net charge-offs (recoveries) as
  a percent of average loans                 --              --              --         (0.001)%           0.008%            --

Allowance at period end as a
  percent of nonperforming
  loans                                   97.72%         245.14%         172.98%         84.12%            65.44%        280.39%

Allowance at period end as a
  percent of nonperforming
  assets                                  93.87%         222.28%         135.76%         81.25%            63.69%        250.88%

Allowance at period end as a
  percent of total gross loans             0.27%           0.32%           0.38%          0.36%             0.38%          0.30%
</TABLE>


                                       39
<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, 2000                          December 31, 1999
                                            -------------------------------------------------------------------------------------
                                                           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
                                            -------------------------------------------------------------------------------------
<S>                                         <C>               <C>            <C>         <C>               <C>            <C>
Real estate loans:
  One-to-four family
    residential                             $153,000          35.66%         73.89%      $185,000          43.12%         75.55%
  Multi-family residential                     1,000           0.23%          0.36%         1,000           0.23%          0.43%
  Nonresidential real estate                   2,000           0.47%          1.44%         4,000           0.93%          2.59%
  Residential construction                        --             --           5.03%            --             --           8.47%
  Land                                         5,000           1.17%          3.47%         2,000           0.47%          1.67%
  Home equity                                 10,000           2.33%          2.71%         5,000           1.17%          2.17%
  Commercial loans                            39,000           9.09%         10.77%        10,000           2.33%          6.78%
                                            -----------------------------------------------------------------------------------
    Total real estate loans                  210,000          48.95%         97.67%       207,000          48.25%         97.66%
                                            -----------------------------------------------------------------------------------
Consumer loans:
  Share and other loans                        4,000           0.93%          2.27%         3,000           0.70%          2.27%
  Credit reserve                                  --             --           0.06%            --             --           0.07%
                                            -----------------------------------------------------------------------------------
    Total consumer loans                       4,000           0.93%          2.33%         3,000           0.70%          2.34%
                                            -----------------------------------------------------------------------------------

Unallocated                                  215,000          50.12%            --        219,000          51.05%            --
                                            -----------------------------------------------------------------------------------
                                            $429,000         100.00%        100.00%      $429,000         100.00%        100.00%
                                            ===================================================================================
</TABLE>


                                       40
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 3. Loans Receivable (Continued)

<TABLE>
<CAPTION>
                                                       September 30, 1999                         September 30, 1998
                                            -------------------------------------------------------------------------------------
                                                           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
                                            -------------------------------------------------------------------------------------
<S>                                         <C>               <C>            <C>         <C>               <C>            <C>
Real estate loans:
  One-to-four family
    residential                             $175,000          40.79%         82.97%      $203,000          47.31%         84.30%
  Multi-family residential                     1,000           0.23%          0.49%         1,000           0.23%          0.41%
  Nonresidential real estate                   2,000           0.47%          2.99%            --             --           3.31%
  Residential construction                        --             --           3.37%            --             --           3.88%
  Land                                         4,000           0.93%          1.97%            --             --           4.82%
  Home equity                                 11,000           2.57%          2.27%         6,000           1.40%          2.77%
  Commercial loans                             5,000           1.17%          3.91%            --             --             --
                                            -----------------------------------------------------------------------------------
    Total real estate loans                  198,000          46.16%         97.97%       210,000          48.94%         99.49%
                                            -----------------------------------------------------------------------------------
Consumer loans:
  Share and other loans                        1,000           0.23%          1.95%            --             --           0.43%
  Credit reserve                                  --             --           0.08%            --             --           0.08%
                                            -----------------------------------------------------------------------------------
    Total consumer loans                       1,000           0.23%          2.03%            --             --           0.51%
                                            -----------------------------------------------------------------------------------

Unallocated                                  230,000          53.61%            --        219,000          51.06%            --
                                            -----------------------------------------------------------------------------------
                                            $429,000         100.00%        100.00%      $429,000         100.00%        100.00%
                                            ===================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                        September 30, 1997                        September 30, 1996
                                            -------------------------------------------------------------------------------------
                                                           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
                                            -------------------------------------------------------------------------------------
<S>                                         <C>               <C>            <C>         <C>               <C>            <C>
Real estate loans:
  One-to-four family
    residential                             $262,000          61.07%         80.86%      $243,000          56.78%         82.19%
  Multi-family residential                     1,000           0.23%          0.47%         1,000           0.23%          0.61%
  Nonresidential real estate                   4,000           0.94%          3.18%         4,000           0.93%          3.56%
  Residential construction                        --             --           7.07%            --             --           4.16%
  Land                                         4,000           0.93%          5.13%         6,000           1.40%          5.56%
  Home equity                                  7,000           1.63%          2.80%        10,000           2.34%          3.34%
  Commercial loans                                --             --             --             --             --             --
                                            -----------------------------------------------------------------------------------
    Total real estate loans                  278,000          64.80%         99.51%       264,000          61.68%         99.42%
                                            -----------------------------------------------------------------------------------
Consumer loans:
  Share and other loans                           --             --           0.41%            --             --           0.17%
  Credit reserve                                  --             --           0.08%            --             --           0.41%
                                            -----------------------------------------------------------------------------------
    Total consumer loans                          --             --           0.49%            --             --           0.58%
                                            -----------------------------------------------------------------------------------

Unallocated                                  151,000          35.20%            --        164,000          38.32%            --
                                            -----------------------------------------------------------------------------------
                                            $429,000         100.00%        100.00%      $428,000         100.00%        100.00%
                                            ===================================================================================
</TABLE>


                                       41
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 3. Loans Receivable (Continued)

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 $439,000, $331,000 and $175,000 at December 31, 2000, December 31,
1999 and September 30, 1999, respectively. These loans had an average
outstanding balance of $282,000, $279,000, $373,000 and $253,000 for the years
ended December 31, 2000, September 30, 1999 and 1998, and for the three months
ended December 31, 1999. 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
$20,000, $12,000, $14,000 and $12,000 for the years ended December 31, 2000,
September 30, 1999 and 1998 and for the three months ended December 31, 1999,
respectively.

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

<TABLE>
<CAPTION>
                                                                        December 31,           December 31,            September 30,
                                                                           2000                    1999                    1999
                                                                       ------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Nonaccrual loans                                                       $    439,000            $    331,000            $    175,000
Foreclosed real estate                                                       18,000                  18,000                  18,000
                                                                       ------------------------------------------------------------
Total non-performing assets                                                 457,000                 349,000                 193,000
                                                                       ============================================================

Non-performing loans to total gross loans                                      0.28%                   0.23%                   0.13%
                                                                       ============================================================

Non-performing assets to total assets                                          0.23%                   0.19%                   0.11%
                                                                       ============================================================

Total assets                                                           $198,343,000            $185,667,000            $174,545,000

Total gross loans                                                      $157,550,000            $141,029,000            $133,463,000
</TABLE>


                                       42
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 3. Loans Receivable (Continued)

<TABLE>
<CAPTION>
                                                                       September 30,           September 30,           September 30,
                                                                           1998                     1997                    1996
                                                                       ------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Nonaccrual loans                                                       $    248,000            $    510,000            $    654,000
Foreclosed real estate                                                       68,000                  18,000                  18,000
                                                                       ------------------------------------------------------------
Total non-performing assets                                                 316,000                 528,000                 672,000
                                                                       ============================================================

Non-performing loans to total gross loans                                      0.22%                   0.43%                   0.58%
                                                                       ============================================================

Non-performing assets to total assets                                          0.16%                   0.22%                   0.31%
                                                                       ============================================================

Total assets                                                           $201,945,000            $241,061,000            $217,954,000

Total gross loans                                                      $114,146,000            $118,710,000            $113,484,000
</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>
                                                                       December 31,            December 31,            September 30,
                                                                           2000                    1999                    1999
                                                                       ------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Balance, beginning                                                     $  2,742,000            $  2,791,000            $  1,436,000
  Originations                                                              801,000                 155,000               1,632,000
  Payments received                                                        (326,000)               (204,000)               (277,000)
                                                                       ------------------------------------------------------------
Balance, ending                                                        $  3,217,000            $  2,742,000            $  2,791,000
                                                                       ============================================================
</TABLE>

Note 4. Accrued Interest Receivable

Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                       December 31,            December 31,            September 30,
                                                                            2000                    1999                    1999
                                                                       ------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Securities                                                             $    182,000            $    203,000            $    266,000
Mortgage-backed securities                                                  112,000                 155,000                 160,000
Loans receivable                                                            794,000                 660,000                 658,000
                                                                       ------------------------------------------------------------
                                                                       $  1,088,000            $  1,018,000            $  1,084,000
                                                                       ============================================================
</TABLE>


                                       43
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 5. Office Properties and Equipment

Office properties and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                       December 31,            December 31,            September 30,
                                                                            2000                    1999                    1999
                                                                       ------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Land                                                                   $    402,000            $    138,000            $    138,000
Buildings and improvements                                                1,499,000               1,496,000               1,425,000
Furniture and equipment                                                     916,000                 990,000                 957,000
                                                                       ------------------------------------------------------------
                                                                          2,817,000               2,624,000               2,520,000
Less accumulated depreciation                                             1,313,000               1,276,000               1,232,000
                                                                       ------------------------------------------------------------
                                                                       $  1,504,000            $  1,348,000            $  1,288,000
                                                                       ============================================================
</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 $180,000, $173,000, $165,000 and
$42,000 for the years ended December 31, 2000, September 30, 1999 and 1998 and
the three months ended December 31, 1999, respectively, and is included in
compensation and benefits in the accompanying statements of income.


                                       44
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 6. Employee Pension Plan (Continued)

The most recent actuarial valuation of the plan was completed as of and for the
fiscal year ended September 30, 2000. Management believes that there have been
no significant changes in the assumptions or plan activity through December 31,
2000 that would cause a material change in the balances presented below. The
following table sets forth the Plan's funded status:

<TABLE>
<CAPTION>
                                                           September 30,               September 30,
                                                               2000                         1999
                                                           ----------------------------------------
<S>                                                        <C>                          <C>
Change in benefit obligation:
  Benefit obligation, beginning                            $ 1,521,000                  $ 1,283,000
  Service cost                                                  68,000                       56,000
  Interest cost                                                120,000                      109,000
  Actuarial (gain) loss                                        (19,000)                      77,000
  Distributions                                                     --                       (4,000)
                                                           ----------------------------------------
  Benefit obligation, ending                                 1,690,000                    1,521,000
                                                           ----------------------------------------

Change in plan assets:
  Fair value of plan assets, beginning                         784,000                      593,000
  Actual return on plan assets                                  56,000                       45,000
  Employer contribution                                        164,000                      150,000
  Distributions                                                     --                       (4,000)
                                                           ----------------------------------------
  Fair value of plan assets, ending                          1,004,000                      784,000
                                                           ----------------------------------------

  Funded status                                               (686,000)                    (737,000)
  Unrecognized net actuarial loss                              405,000                      425,000
  Unrecognized prior service cost                              304,000                      336,000
                                                           ----------------------------------------
  Prepaid benefit cost                                     $    23,000                  $    24,000
                                                           ========================================
</TABLE>

The components of net periodic benefit cost are as follows:

<TABLE>
<CAPTION>
                                                                                                Year Ended
                                                                       -------------------------------------------------------------
                                                                       September 30,           September 30,           September 30,
                                                                           2000                    1999                    1998
                                                                       -------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Service cost                                                           $     68,000            $     56,000            $     52,000
Interest cost                                                               120,000                 109,000                  91,000
Expected return on plan assets                                              (72,000)                (54,000)                (37,000)
Amortization of prior service cost                                           34,000                  34,000                  34,000
Recognized net actuarial loss                                                17,000                  28,000                  25,000
                                                                       ------------------------------------------------------------
      Net periodic benefit cost                                        $    167,000            $    173,000            $    165,000
                                                                       ============================================================
</TABLE>


                                       45
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 6. Employee Pension Plan (Continued)

Weighted-average assumptions used to develop the net periodic pension cost as of
September 30, 1999 and 1998 were:

Discount rate                                                               8.0%
Expected rate of return on plan assets                                      8.0
Rate of compensation increase                                               5.0

Note 7. Deposits

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                    December 31, 2000                               December 31, 1999
                                  ------------------------------------------------------------------------------------------------
                                                        Weighted                                        Weighted
                                                         Average           % of                          Average           % of
                                     Amount               Rate           deposits      Amount              Rate           deposits
                                  ------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>             <C>       <C>                    <C>             <C>
Demand Accounts:
  Passbook savings                $ 20,559,000            3.17%           13.26%    $ 16,654,000           2.57%           11.23%
  NOW accounts                       8,473,000            1.00%            5.47%       7,857,000           1.00%            5.30%
  Money market                       4,833,000            2.72%            3.12%       5,221,000           2.00%            3.52%
  Noninterest bearing
    accounts                         1,976,000               -             1.27%       2,095,000              -             1.41%
                                  ----------------------------------------------------------------------------------------------
    Total demand deposits           35,841,000            2.42%           23.12%      31,827,000           1.92%           21.46%

Certificates of deposit            119,192,000            6.11%           76.88%     116,331,000           5.42%           78.44%

Accrued interest payable                 2,000                             0.00%         156,000                            0.10%
                                  ----------------------------------------------------------------------------------------------
Total Deposits                    $155,035,000            5.26%          100.00%    $148,314,000           4.66%          100.00%
                                  ==============================================================================================
</TABLE>


                                       46
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 7. Deposits (Continued)

<TABLE>
<CAPTION>
                                                   September 30, 1999                             September 30, 1998
                                  ------------------------------------------------------------------------------------------------
                                                        Weighted                                        Weighted
                                                         Average           % of                          Average           % of
                                     Amount               Rate           deposits      Amount              Rate           deposits
                                  ------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>             <C>       <C>                    <C>             <C>
Demand Accounts:
  Passbook savings                $ 14,562,000            2.10%           10.09%    $ 13,766,000             2.00%          9.27%
  NOW accounts                       7,424,000            1.00%            5.15%       7,875,000             1.00%          5.31%
  Money market                       5,803,000            2.00%            4.02%       6,512,000             2.50%          4.39%
  Noninterest bearing
    accounts                         1,322,000               -             0.92%       1,502,000                -           1.01%
                                  ----------------------------------------------------------------------------------------------
    Total demand deposits           29,111,000            1.67%           20.18%      29,655,000             1.74%         19.98%

Certificates of deposit            115,045,000            5.32%           79.74%     118,681,000             5.65%         79.95%

Accrued interest payable               116,000                             0.08%         108,000                            0.07%
                                  ----------------------------------------------------------------------------------------------
Total Deposits                    $144,272,000            4.59%          100.00%    $148,444,000             4.87%        100.00%
                                  ==============================================================================================
</TABLE>

At December 31, 2000, the scheduled maturities of certificates of deposit are as
follows:

Year Ending December 31,                                               Amount
------------------------                                            ------------
  2001                                                              $ 56,673,000
  2002                                                                47,739,000
  2003                                                                14,780,000
                                                                    ------------
                                                                    $119,192,000
                                                                    ============

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $22,700,00, $17,492,000 and
$16,186,000 at December 31, 2000, December 31, 1999 and September 30, 1999,
respectively.

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

                                                                   December 31,
                                                                       2000
                                                                   -----------
Maturity Period:
  Within 3 months or less                                          $ 3,348,000
  Over 3 months through 6 months                                     4,939,000
  Over 6 months through 12 months                                    2,299,000
  Over 12 months                                                    12,114,000
                                                                   -----------
                                                                   $22,700,000
                                                                   ===========


                                       47
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 7. Deposits (Continued)

Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                                       Year Ended                           Three Months
                                                  --------------------------------------------------------     Ended
                                                  December 31,          September 30,         September 30,  December 31,
                                                     2000                  1999                  1998           1999
                                                  ----------------------------------------------------------------------
<S>                                               <C>                   <C>                   <C>             <C>
Passbook savings                                  $  552,000            $  282,000            $  418,000      $   94,000
NOW and money market                                 206,000               224,000               311,000          49,000
Certificates of deposit                            6,611,000             6,438,000             6,574,000       1,547,000
                                                  ----------------------------------------------------------------------
                                                  $7,369,000            $6,944,000            $7,303,000      $1,690,000
                                                  ======================================================================
</TABLE>

The Bank has pledged securities with an amortized cost of $1,000,000 as
collateral for public deposits and pledged securities with an amortized cost of
$500,000 as collateral on treasury tax and loan account at December 31, 2000.

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 $16,000,000, $8,000,000 and $-0- at December
31, 2000, December 31, 1999 and September 30, 1999, respectively. All of the
advances outstanding at December 31, 2000 mature in 2001. The weighted average
interest rate of the advances was 6.56% and 6.42% at December 31, 2000 and 1999,
respectively.

The average amount of FHLB advances outstanding was approximately $11,185,000,
$-0-, $29,615,000 and $5,300,000 and had a weighted average interest rate of
6.85%, 0%, 6.81% and 6.42% during the years ended December 31, 2000 and
September 30, 1999 and 1998 and for the three months ended December 31, 1999,
respectively. The maximum amount of borrowings outstanding amounted to
$16,000,000, $-0-, $53,000,000 and $8,000,000 during the years ended December
31, 2000 and September 30, 1999 and for the three months ended December 31, 1999
and 1998, respectively. Interest expense on FHLB advances totaled $812,000,
$-0-, $936,000 and $25,000 for the years ended December 31, 2000, September 30,
1999 and 1998 and for the three months ended December 31, 1999, respectively.


                                       48
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 $2,159,000, $1,946,000 and
$1,883,000 at December 31, 2000, December 31, 1999 and September 30, 1999,
respectively. The total expense for the deferred compensation agreements and
supplemental income agreements amounted to $219,000, $273,000, $272,000 and
$62,000 for the years ended December 31, 2000, September 30, 1999 and 1998, and
for the three months ended December 31, 1999, 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. The weighted average fair value of the options on the grant date was
$3.49 per share. As permitted under the generally accepted accounting
principles, grants under the plan will be 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 FASB Statement
No. 123, the pro forma effect on reported net income would be as follows:

<TABLE>
<CAPTION>
                                                                       Year Ended                         Three Months
                                                  ------------------------------------------------------     Ended
                                                  December 31,          September 30,      September 30,  December 31,
                                                     2000                  1999               1998           1999
                                                  --------------------------------------------------------------------
<S>                                               <C>                  <C>                 <C>             <C>
Net income (loss)
  As reported                                     $   731,000          $ 278,000           $    763,000     $  210,000
  Pro forma                                           417,000            (35,000)               136,000        132,000
Earnings (loss) per share
  As reported
    Basic                                         $      0.24          $    0.08           $       0.19     $     0.06
    Diluted                                              0.24               0.08                   0.19           0.06
  Pro forma
    Basic                                                0.14              (0.01)                  0.03           0.04
    Diluted                                              0.14              (0.01)                  0.03           0.04
</TABLE>

In determining the fair value of the option grant as prescribed in Statement 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.


                                       49
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 10. Management Recognition Plan and Stock Option Plan (Continued)

At December 31, 2000, all options have been granted at an exercise price of
$12.00 and 382,203 options are currently exercisable. No options have been
exercised to date and all options granted are outstanding at December 31, 2000.

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 vests at the rate of
25% annually beginning at the date of grant. The expense related to the vesting
of the MRP totaled $599,000, $798,000, $1,597,000 and $199,000 for the years
ended December 31, 2000, September 30, 1999 and 1998 and for the three months
ended December 31, 1999, respectively.

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, 2000, September 30, 1999 and for the three months ended December 31, 1999,
the Bank recaptured $171,000, $171,000 and $43,000 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, 2000, 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, 2000.


                                       50
<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 prepaid expenses and other assets
in the Statement of Financial Condition):

<TABLE>
<CAPTION>
                                                                       December 31,            December 31,            September 30,
                                                                           2000                    1999                    1999
                                                                       -------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Deferred tax assets:
  Net deferred loan fees and costs                                     $         --            $         --            $     22,000
  Unrealized loss on securities available for sale                          104,000                 417,000                 332,000
  Deferred compensation and supplemental income                             841,000                 755,000                 631,000
  Accrued management recognition plan                                            --                  56,000                 271,000
  Reserve for uncollected interest                                            8,000                   5,000                   4,000
  Allowance for loan losses                                                 146,000                 146,000                 146,000
  State NEL carryforward                                                         --                   8,000                      --
                                                                       ------------------------------------------------------------
                                                                          1,099,000               1,387,000               1,406,000
Less valuation allowance                                                         --                   8,000                      --
                                                                       ------------------------------------------------------------
                                                                          1,099,000               1,379,000               1,406,000
                                                                       ------------------------------------------------------------
Deferred tax liabilities:
  Net deferred loan fees and costs                                          142,000                  91,000                      --
  FHLB dividends                                                            229,000                 229,000                 229,000
  Reserve for bad debts                                                     218,000                 277,000                 291,000
  Property and equipment                                                     81,000                  80,000                  55,000
                                                                       ------------------------------------------------------------
                                                                            670,000                 677,000                 575,000
                                                                       ------------------------------------------------------------
      Net deferred tax asset                                           $    429,000            $    702,000            $    831,000
                                                                       ============================================================
</TABLE>

Income tax expense (credits) consist of the following:

<TABLE>
<CAPTION>
                                                                       Year Ended                         Three Months
                                                  ------------------------------------------------------     Ended
                                                  December 31,          September 30,      September 30,  December 31,
                                                     2000                  1999               1998           1999
                                                  --------------------------------------------------------------------
<S>                                               <C>                  <C>                 <C>             <C>
Current                                           $    449,000         $    624,000        $    699,000    $   (85,000)
Deferred                                               (40,000)            (125,000)           (387,000)       214,000
                                                  --------------------------------------------------------------------
      Total                                       $    409,000         $    499,000        $    312,000    $   129,000
                                                  ====================================================================
</TABLE>


                                       51
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 11. Income Tax Matters (Continued)

The following is a reconciliation of the federal income tax rate of 34% to the
effective tax rate:

<TABLE>
<CAPTION>
                                                                       Year Ended                         Three Months
                                                  ------------------------------------------------------     Ended
                                                  December 31,          September 30,      September 30,  December 31,
                                                     2000                  1999               1998           1999
                                                  --------------------------------------------------------------------
<S>                                               <C>                  <C>                 <C>             <C>
Statutory federal income tax rate                     34.0 %               34.0               34.0 %          34.0 %
Increase (decrease) in taxes
  resulting from:
    State income taxes, net of federal
      benefit                                          2.0                  5.1               (0.9)            3.0
    Permanent differences                             (2.2)                 7.8               (2.1)            1.9
    Other, primarily prior year
      underaccrual                                     2.1                 17.3               (2.0)           (0.9)
                                                  ----------------------------------------------------------------
                                                      35.9 %               64.2 %             29.0 %          38.0 %
                                                  ================================================================
</TABLE>

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.


                                       52
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 12. Stockholders' Equity (Continued)

For a period of five years after its conversion from mutual to stock form, Home
Savings must obtain the 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,
2000, September 30, 1999 and 1998 and the three months ended December 31, 1999,
the Bank paid $4,234,000, $19,239,000, $1,173,000 and $29,000, respectively, in
dividends to the Company.

The Company paid cash dividends totaling $.40, $.40, $6.40 and $.10 (including a
return of capital dividend of $6.00 per share in 1998) per share during the
years ended December 31, 2000, September 30, 1999 and 1998 and for the three
months ended December 31, 1999 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 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 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.

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, 2000, 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, 2000, December 31,
1999 and September 30, 1999 as presented in the following table.


                                       53
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 12. Stockholders' Equity (Continued)

<TABLE>
<CAPTION>
                                                                                             Minimum To Be Well
                                                                 Minimum Capital          Capitalized Under Prompt
                                            Actual                  Requirement         Corrective Action Provisions
                                     -------------------------------------------------------------------------------
                                     Amount        Ratio        Amount        Ratio         Amount        Ratio
                                     -------------------------------------------------------------------------------
                                                               (Dollars in Thousands)
<S>                                  <C>             <C>        <C>              <C>       <C>            <C>
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%

December 31, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                    26,927         30.6%        7,030          8.0%           --           --
      Bank                            25,743         29.3%        7,030          8.0%        8,787         10.0%

Tier 1 Capital to Risk
  Weighted Assets:
    Consolidated                      26,498         30.1%        3,515          4.0%           --           --
    Bank                              25,314         28.8%        3,515          4.0%        5,272          6.0%

Tier 1 Capital to Assets:
  Consolidated                        26,498         14.3%        5,570          3.0%           --           --
  Bank                                25,314         13.7%        5,554          3.0%        9,257          5.0%

September 30, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                    27,546         32.6%        6,765          8.0%           --           --
      Bank                            25,394         14.7%        6,765          8.0%        8,457         10.0%

Tier 1 Capital to Risk
  Weighted Assets:
    Consolidated                      27,117         32.1%        3,383          4.0%           --           --
    Bank                              24,965         29.5%        3,383          4.0%        5,074          6.0%

Tier 1 Capital to Assets:
  Consolidated                        27,177         15.5%        5,236          3.0%           --           --
  Bank                                24,965         14.4%        5,188          3.0%        8,646          5.0%
</TABLE>


                                       54
<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, 2000, the outstanding balance of the note receivable is $2,993,000,
and is presented as a reduction of stockholders' equity.

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

Dividends on unallocated shares may be used by the ESOP to repay the debt to the
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, 2000 and
September 30, 1999 and for the three months ended December 31, 1999, $145,000,
$144,000 and $36,000 was amortized as compensation expense.

Expenses of $248,000, $462,000, $459,000 and $78,000 have been incurred during
the years ended December 31, 2000, September 30, 1999 and 1998 and for the three
months ended December 31, 1999, respectively, in connection with the ESOP. The
expenses include, in addition to the cash contribution necessary to fund the
ESOP, $(248,000), $(109,000), $142,000 and $(61,000) for the years ended
December 31, 2000, September 30, 1999 and 1998 and for the three months ended
December 31, 1999, 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.


                                       55
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 13. Employee Stock Ownership Plan (Continued)

At December 31, 2000, 204,439 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, 2000, based
on a fair value of the ESOP shares released or committed to be released of
$6.563, is $1,342,000. The fair value of the unallocated shares is $2,125,000 at
December 31, 2000. This commitment will fluctuate based on the fair value of the
shares.

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, 2000
                                                                                            --------------------------------
                                                                                            Fixed Rate         Variable Rate
                                                                                            --------------------------------
<S>                                                                                         <C>                  <C>
Financial instruments whose contract amounts represent credit risk:
  Commitments to extend credit, mortgage and commercial loans                               $7,301,000           $       --
  Undisbursed lines of credit                                                                       --            4,437,000
                                                                                            -------------------------------
                                                                                            $7,301,000           $4,437,000
                                                                                            ===============================
</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.


                                       56
<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 (Continued)

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 Financial Accounting
Standards Board Statement 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, 2000
                                         -----------------------------------------
                                           Income          Shares        Per Share
                                         (Numerator)    (Denominator)      Amount
                                         -----------------------------------------
<S>                                       <C>             <C>              <C>
Basic and Diluted EPS                     $731,000        3,004,706        $0.24
                                          ========================================
</TABLE>

<TABLE>
<CAPTION>
                                           For the Year Ended September 30, 1999
                                         -----------------------------------------
                                           Income          Shares        Per Share
                                         (Numerator)    (Denominator)      Amount
                                         -----------------------------------------
<S>                                       <C>             <C>              <C>
Basic and Diluted EPS                     $278,000        $3,500,840       $0.08
                                          ========================================
</TABLE>

<TABLE>
<CAPTION>
                                           For the Year Ended September 30, 1998
                                         -----------------------------------------
                                           Income          Shares        Per Share
                                         (Numerator)    (Denominator)      Amount
                                         -----------------------------------------
<S>                                       <C>             <C>              <C>
Basic and Diluted EPS                     $763,000        $4,092,339       $0.19
                                          ========================================
</TABLE>

<TABLE>
<CAPTION>
                                        For the Three Months Ended December 31, 1999
                                        --------------------------------------------
                                           Income          Shares        Per Share
                                         (Numerator)    (Denominator)      Amount
                                         -----------------------------------------
<S>                                       <C>             <C>              <C>
Basic and Diluted EPS                     $210,000        3,231,449        $0.06
                                          ========================================
</TABLE>


                                       57
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 account, 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.


                                       58
<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, 2000                        December 31, 1999
                                                           -------------------------------------------------------------------------
                                                            Recorded            Estimated             Recorded            Estimated
                                                           Book Value           Fair Value           Book Value           Fair Value
                                                           -------------------------------------------------------------------------
<S>                                                      <C>                  <C>                  <C>                  <C>
Financial Assets:
  Interest-earning deposits                              $  4,505,000         $  4,505,000         $  4,009,000         $  4,009,000
  Securities held to maturity                               6,762,000            6,426,000            8,397,000            7,950,000
  Securities available for sale                            25,288,000           25,288,000           28,397,000           28,397,000
  Federal Home Loan Bank stock                              1,229,000            1,229,000            1,153,000            1,153,000
  Loans receivable, net                                   152,514,000          150,331,000          133,785,000          132,152,000
  Accrued interest receivable                               1,088,000            1,088,000            1,018,000            1,018,000
Financial Liabilities:
  Interest-bearing deposits with
    no stated maturities                                   35,841,000           35,841,000           31,827,000           31,827,000
  Interest-bearing deposits
    with stated maturities                                119,192,000          119,102,000          116,331,000          115,990,000
  Checks outstanding on
    disbursement account                                      549,000              549,000              505,000              505,000
  Accrued interest payable                                      2,000                2,000              156,000              156,000
  Advance payments by borrowers
    for taxes and insurance                                   232,000              232,000              232,000              232,000
Federal Home Loan Bank advances                            16,000,000           16,000,000            8,000,000            8,000,000
</TABLE>


                                       59
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 16. Fair Value of Financial Instruments (Continued)

<TABLE>
<CAPTION>
                                                                          September 30, 1999
                                                              ------------------------------------------
                                                                Recorded                     Estimated
                                                               Book Value                    Fair Value
                                                              ------------------------------------------
<S>                                                           <C>                           <C>
Financial Assets:
  Interest-earning deposits                                   $  2,297,000                  $  2,297,000
  Securities held to maturity                                    8,932,000                     8,571,000
  Securities available for sale                                 29,108,000                    29,108,000
  Federal Home Loan Bank stock                                   1,153,000                     1,153,000
  Loans receivable, net                                        125,493,000                   125,540,000
  Accrued interest receivable                                    1,084,000                     1,084,000
Financial Liabilities:
  Interest-bearing deposits with
    no stated maturities                                        27,789,000                    27,789,000
  Interest-bearing deposits
    with stated maturities                                     115,045,000                   115,078,000
  Checks outstanding on
    disbursement account                                           620,000                       620,000
  Accrued interest payable                                         116,000                       116,000
  Advance payments by borrowers
    for taxes and insurance                                        123,000                       123,000
  Federal Home Loan Bank advances                                       --                            --
</TABLE>


                                       60
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 17. Parent Company Financial Data

                            Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                       December 31,            December 31,            September 30,
                                                                           2000                    1999                    1999
                                                                       -------------------------------------------------------------
<S>                                                                    <C>                     <C>                     <C>
Assets:
  Cash                                                                 $     13,000            $     16,000            $    131,000
  Federal funds sold                                                      1,570,000                      --                 430,000
  Securities available for sale                                             300,000               1,385,000               1,474,000
  Accrued interest receivable                                                61,000                  80,000                 331,000
  Prepaid expenses and other assets                                          19,000                  83,000                 165,000
  Investment in Home Savings Bank                                        22,165,000              24,756,000              24,522,000
                                                                       ------------------------------------------------------------
                                                                       $ 24,128,000            $ 26,320,000            $ 27,053,000
                                                                       ============================================================
Liabilities and Stockholders' Equity:
  Liabilities:
    Other liabilities                                                  $    319,000            $    380,000            $    379,000
                                                                       ------------------------------------------------------------
  Stockholders' Equity:
    Additional paid-in capital                                            9,051,000              12,410,000              13,348,000
    Accumulated other comprehensive
      income (loss)                                                        (163,000)               (652,000)               (519,000)
    Unearned ESOP                                                        (2,993,000)             (3,403,000)             (3,672,000)
    Deferred management recognition plan                                         --                (599,000)               (798,000)
    Unearned compensation                                                (1,665,000)             (1,810,000)             (1,846,000)
    Retained earnings                                                    19,579,000              19,994,000              20,161,000
                                                                       ------------------------------------------------------------
                                                                         23,809,000              25,940,000              26,674,000
                                                                       ------------------------------------------------------------
                                                                       $ 24,128,000            $ 26,320,000            $ 27,053,000
                                                                       ============================================================
</TABLE>

                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                       Year Ended                         Three Months
                                                  ------------------------------------------------------     Ended
                                                  December 31,          September 30,      September 30,  December 31,
                                                     2000                  1999               1998           1999
                                                  --------------------------------------------------------------------
<S>                                               <C>                  <C>                 <C>             <C>
Interest income                                   $ 379,000            $ 562,000         $ 1,065,000         $ 101,000
Interest expense                                         --                   --          (1,080,000)               --
Equity in earnings of Home Savings Bank             601,000              (50,000)            780,000           150,000
Net gain (loss) on sale of investments
  available for sale                               (141,000)                  --               4,000                --
Other expense                                       (25,000)             (25,000)            (30,000)           (3,000)
Income tax (expense) benefit                        (83,000)            (209,000)             24,000           (38,000)
                                                  --------------------------------------------------------------------
      Net income                                  $ 731,000            $ 278,000         $   763,000         $ 210,000
                                                  ====================================================================
</TABLE>


                                       61
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 17. Parent Company Financial Data (Continued)

                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                 Year Ended                           Three Months
                                                            -----------------------------------------------------        Ended
                                                             December 31,       September 30,       September 30,     December 31,
                                                                2000                1999                1998             1999
                                                            ----------------------------------------------------------------------
<S>                                                         <C>                <C>                 <C>                 <C>
Cash Flows from Operating Activities:
  Net income                                                $   731,000        $    278,000        $    763,000        $ 210,000
  Adjustments to reconcile net income to
    net cash provided by (used in)
    operating activities:
      (Gain) loss on sale of investments
        available for sale                                      141,000                  --              (4,000)              --
  Change in assets and liabilities:
    Equity in earnings of Home Savings                         (601,000)             50,000            (780,000)        (150,000)
    (Increase) decrease in accrued interest
      receivable and other assets                                83,000             127,000            (471,000)         333,000
    Increase (decrease) in other liabilities                   (178,000)           (579,000)            346,000          (42,000)
                                                            --------------------------------------------------------------------
        Net cash provided by (used in)
          operating activities                                  176,000            (124,000)           (146,000)         351,000
                                                            --------------------------------------------------------------------
Cash Flows from Investing Activities:
  Purchase of securities available for sale                    (300,000)                 --                  --               --
  Proceeds from sales and repayments of
    securities available for sale                             1,398,000           1,550,000          10,209,000           60,000
  Upstream dividend from Home Savings
    Bank                                                      4,234,000          19,239,000           1,173,000           29,000
                                                            --------------------------------------------------------------------
        Net cash provided by
          investing activities                                5,332,000          20,789,000          11,382,000           89,000
                                                            --------------------------------------------------------------------
Cash Flows from Financing Activities:
  Proceeds from borrowings on notes
    payable                                                          --                  --          18,000,000               --
  Repayments on note payable                                         --         (18,000,000)                 --               --
  Retirement of stock purchased                              (3,111,000)         (4,473,000)         (3,021,000)        (877,000)
  Payment of dividends                                       (1,240,000)         (1,438,000)        (29,782,000)        (377,000)
  Principal payment received on note
    receivable from ESOP                                        410,000             408,000             178,000          269,000
                                                            --------------------------------------------------------------------
        Net cash provided used in
          financing activities                               (3,941,000)        (23,503,000)        (14,625,000)        (985,000)
                                                            --------------------------------------------------------------------
</TABLE>

                                   (Continued)


                                       62
<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>
                                                                                 Year Ended                           Three Months
                                                            -----------------------------------------------------        Ended
                                                             December 31,       September 30,       September 30,     December 31,
                                                                2000                1999                 1998             1999
                                                            ----------------------------------------------------------------------
<S>                                                         <C>                <C>                 <C>                 <C>
          Net increase (decrease) in
            cash and cash equivalents                         $1,567,000        $(2,838,000)        $(3,389,000)        $(545,000)
Cash and cash equivalents:
  Beginning                                                       16,000          3,399,000           6,788,000           561,000
                                                              -------------------------------------------------------------------
  Ending                                                      $1,583,000        $   561,000         $ 3,399,000         $  16,000
                                                              ===================================================================

Supplemental Disclosures of Cash Flow
  Information
    Cash payments for income taxes                            $   45,000        $   118,000         $   132,000         $      --
    Cash payments for interest                                        --            368,000                  --                --

Supplemental Disclosures of Noncash
  Investing and Financing
    Change in unrealized gain (loss) on
      securities available for sale, net                         489,000           (545,000)            (43,000)         (133,000)
    Change in dividends accrued                                   94,000            (56,000)            (15,000)               --
    Adoption of management recognition
      plan                                                            --                 --           3,193,000                --
</TABLE>


                                       63
<PAGE>

SOUTH STREET FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 18. Selected Quarterly Financial Data (Unaudited)

The following tables present summarized quarterly data for the years ended
December 31, 2000 and September 30, 1999:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31, 2000
                                                                           Three Months Ended
                                                 March 31              June 30           September 30          December 31
                                                --------------------------------------------------------------------------
<S>                                             <C>                  <C>                  <C>                  <C>
Net interest income (1)                         $1,461,000           $1,495,000           $1,354,000           $1,300,000
Other income                                        66,000               37,000               44,000               49,000
Other expense (2)                                1,401,000            1,318,000            1,264,000            1,092,000
                                                -------------------------------------------------------------------------
Net income                                      $  126,000           $  214,000           $  134,000           $  257,000
                                                =========================================================================
Earnings per share                              $     0.04           $     0.07           $     0.04           $     0.09
                                                =========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                      Year Ended December 31, 1999
                                                                           Three Months Ended
                                                December 31            March 31             June 30           September 30
                                                --------------------------------------------------------------------------
<S>                                             <C>                  <C>                  <C>                  <C>
Net interest income                              $1,462,000           $1,393,000           $1,326,000          $1,398,000
Other income                                         29,000               32,000               28,000             131,000
Other expense                                     1,298,000            1,392,000            1,294,000           1,537,000
                                                 ------------------------------------------------------------------------
Net income (loss)                                $  193,000           $   33,000           $   60,000          $   (8,000)
                                                 ========================================================================

Earnings per share                               $     0.05           $     0.01           $     0.02          $    (0.01)
                                                 ========================================================================
</TABLE>

(1)   Net interest income decreased subsequent to the quarter ended June 30,
      2000 due to additional interest expense incurred on borrowings to fund
      loan growth.
(2)   Management Recognition Plan became fully vested during the quarter ended
      September 30, 2000, reducing compensation expense by $199,000 during the
      quarter ended December 31, 2000.

Note 19. Future Reporting Requirements

The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which the Company has not been required to adopt as of
December 31, 2000. This Statement, which is effective for fiscal years beginning
after June 15, 2000, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available for sale security, or a
foreign currency denominated forecasted transaction. This Statement will not
have a significant impact on the Company, as it does not currently have
derivatives or engage in hedging activities.


                                       64
<PAGE>

                              CORPORATE INFORMATION

                               EXECUTIVE OFFICERS:

                                  Carl M. Hill
                                President and CEO

                            Christopher F. Cranford
                            Treasurer and Controller

                                R. Ronald Swanner
                            Executive Vice President
                                  and Secretary


                                   DIRECTORS:

                                  Carl M. Hill
                                Chairman and CEO
                                 of Home Savings

                            Caldwell A. Holbrook, Jr.
                             Partner, D.A. Holbrook
                         and Sons, General Contractors

                               R. Ronald Swanner
                               President and COO
                                of Home Savings

                                Douglas D. Stokes
                              Owner and President,
                          Stokes Construction Company

                                Joel A. Huneycutt
                            President, Locust Lumber
                                  Company, Inc.

                             Greg E. Underwood, CPA
                           Owner, Carolina Oil Company
                         of Albemarle, Inc. and Barefoot
                         Oil Company of Albemarle, Inc.


                              Stock Transfer Agent
                         Registrar and Transfer Company
                                10 Commerce Drive
                               Cranford, NJ 07016

                              Special Legal Counsel
                            Brooks, Pierce, McLendon,
                             Humphrey & Leonard, LLP
                             2000 Renaissance Plaza
                              230 North Elm Street
                              Greensboro, NC 27420


                              Independent Auditors
                             McGladrey & Pullen, LLP
                              One Morrocroft Centre
                       6805 Morrison Boulevard, Suite 200
                               Charlotte, NC 28211


                                 Annual Meeting
The 2000 annual meeting of stockholders of South Street Financial Corp. will be
held at 4:00 p.m. on May 21, 2001 at the Company's corporate office at 155 West
South Street, Albemarle, NC.

                                    Form 10-K
A copy of Form 10-K 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.

                                Corporate Office
                              155 West South Street
                                  P.O. Box 489
                            Albemarle, NC 28002-0489


                                       65
<PAGE>

                            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, 2000, there
were approximately 662 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.

                                             December 31, 2000
                                 -----------------------------------------
                                                        Stock Price
                                                --------------------------
                                 Dividends         High             Low
                                 -----------------------------------------
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


                                             December 31, 1999
                                 -----------------------------------------
                                                        Stock Price
                                                --------------------------
                                 Dividends         High             Low
                                 -----------------------------------------
Quarter                          $   0.10       $    7.063      $    6.688

                                             September 30, 1999
                                 -----------------------------------------
                                                        Stock Price
                                                --------------------------
                                 Dividends         High             Low
                                 -----------------------------------------
First Quarter                    $   0.10       $    8.625      $    7.500
Second Quarter                       0.10            8.000           7.438
Third Quarter                        0.10            7.625           6.875
Fourth Quarter                       0.10            7.563           6.594


                                       66