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U. S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C.  20549

FORM 10-QSB

xQuarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

oTransition Report Under Section 13 or 15(d) of the Exchange Act

For the
transition period ended _______________

Commission File Number 0-21083

|SOUTH STREET FINANCIAL CORP.                                     
|-----------------------------------------------------------------
|                                                                 
|(Exact name of small business issuer as specified in its charter)
|                                                                 
|NORTH CAROLINA                                                   
|                                                                 
|(State or other jurisdiction of incorporation or organization)   
|                                                                 
|155 WEST SOUTH STREET, ALBEMARLE, NC  28001                      
|                                                                 
|(Address of principal executive office)                          
|                                                                 
|(704) 982-9184                                                   
|                                                                 
|(Issuers telephone number)                                      

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.          YesxNo o

As of August 8, 2002, 3,099,867 shares of the issuers common stock, no par value, were outstanding.

This report contains
13 pages.

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|         |                                                                                                              | Page No.
|-------- | ------------------------------------------------------------------------------------------------------------ | --------
|         |                                                                                                              |         
|Part I.  | FINANCIAL INFORMATION                                                                                        |         
|         |                                                                                                              |         
|Item 1 - | Financial Statements (Unaudited)                                                                             |         
|         |                                                                                                             
|         | Consolidated Statements of Financial Condition June 30, 2002 and December 31, 2001                           | 3       
|         |                                                                                                              |         
|         | Consolidated Statements of Income and Comprehensive Income Three and Six Months Ended June 30, 2002 and 2001 | 4       
|         |                                                                                                              |         
|         | Consolidated Statements of Cash Flows Six Months Ended June 30, 2002 and 2001                                | 5       
|         |                                                                                                              |         
|         | Notes to Consolidated Financial Statements                                                                   | 6       
|         |                                                                                                             
|Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations                        | 8       
|         |                                                                                                              |         
|Part II. | Other Information                                                                                            |         
|         |                                                                                                             
|         | Item 4.  Submission of Matters to a Vote of Security Holders                                                 | 12      
|         |                                                                                                              |         
|         | Item 6.  Exhibits and Reports on Form 8-K                                                                    | 12      

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Part I.  FINANCIAL INFORMATIONItem 1 - Financial Statements

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|ASSETS                                     
|Cash and cash equivalents:                 
|                                           
|                                           
|                                           
|Securities held to maturity                
|Securities available for sale              
|Federal Home Loan Bank stock               
|Loans receivable, net                      
|Real estate acquired in settlement of loans
|Real estate held for investment            
|Accrued interest receivable                
|Office properties and equipment, net       
|Prepaid expenses and other assets          
|                                           
|                                           
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|LIABILITIES AND STOCKHOLDERS EQUITY       
|LIABILITIES                                
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|STOCKHOLDERS EQUITY                       
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|                                           

* Derived from audited financial statements

See accompanying notes.

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|INTEREST INCOME                                     
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|TOTAL INTEREST INCOME                               
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|INTEREST EXPENSE                                    
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|TOTAL INTEREST EXPENSE                              
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|NET INTEREST INCOME                                 
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|PROVISION FOR LOAN LOSSES                           
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|NET INTEREST INCOME AFTER  PROVISION FOR LOAN LOSSES
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|NON-INTEREST INCOME                                 
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|TOTAL NON-INTEREST INCOME                           
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|NON-INTEREST EXPENSE                                
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|TOTAL NON-INTEREST EXPENSE                          
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|INCOME BEFORE INCOME TAXES                          
|INCOME TAXES                                        
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|NET INCOME                                          
|                                                    
|PER SHARE DATA:                                     
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|See accompanying notes.                             

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|CASH FLOWS FROM OPERATING ACTIVITIES            
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|NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
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|CASH FLOWS FROM INVESTING ACTIVITIES            
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|NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
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|CASH FLOWS FROM FINANCING ACTIVITIES            
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|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|                                                
|NET INCREASE IN CASH AND CASH EQUIVALENTS       
|CASH AND CASH EQUIVALENTS, BEGINNING            
|                                                
|CASH AND CASH EQUIVALENTS, ENDING               
|                                                
|                                                
|See accompanying notes.                         

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NOTE A - BASIS OF PRESENTATION

In managements opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial
information as of and for the three and six month periods ended June 30, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America.  The consolidated financial statements include the accounts of
South Street Financial Corp. (the Company) and its wholly-owned subsidiary, Home Savings Bank of Albemarle, S.S.B., (Home Savings or the Bank), the Banks wholly-owned subsidiary, South Street Development
Corporation (SSDC), and SSDCs wholly-owned subsidiary, Park Ridge Associates, LLC (Park Ridge). All significant intercompany transactions and balances have been eliminated in consolidation.  Operating results for
the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002.

The organization and business of
the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Companys 2001 annual report on Form 10-KSB. This quarterly report should be
read in conjunction with such annual report.

NOTE B - EARNINGS PER SHARE

The Companys basic earnings per share for the three and six
month periods ended June 30, 2002 is based on net income earned divided by the weighted average number of shares outstanding from the beginning of the period to the end of the period.  Diluted earnings per share is adjusted for all potential
common stock instruments having a dilutive effect.  For purposes of this computation, the number of shares of common stock purchased by the ESOP which have not been allocated to participant accounts are not assumed to be outstanding.

NOTE C - DIVIDENDS DECLARED

On June 17, 2002, the Companys Board of Directors declared a dividend of $.10 per share for shareholders of record
as of July 1, 2002 and payable on July 11, 2002.  In addition, on June 17, 2002, the Board of Directors of the Bank declared an upstream dividend of $309,987 to the Company.

NOTE D -
BORROWINGS

Borrowings, which consisted solely of advances from the FHLB, totaled $17,000,000 at June 30, 2002.  The weighted average interest rate of the advances was 3.50%.  The
advances mature at varying dates from 2002 through 2003.

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NOTE E - COMPREHENSIVE INCOME

Accounting
principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported
as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and
related tax effects are as follows:

|                                                                    |  | Three Months Ended June 30, |     | Six Months Ended June 30, |  
|------------------------------------------------------------------- |  | --------------------------- | --- | ------------------------- | -
|                                                                    |  |                             |     |                           |  
|                                                                    |  | 2002                        |     | 2001                      |  
|                                                                    |  |                             |     |                           |  
|                                                                    |  | (In Thousands)              |     | (In Thousands)            |  
|Unrealized holiding gains (losses) on available-for-sale securities |  | $                           | 107 |                           | $
|Reclassification adjustment for (gains) losses realized in income   |  |                             |    |                           |  
|                                                                    |  |                             |     |                           |  
|Net unrealized gains (losses)                                       |  |                             | 107 |                           |  
|Tax effect                                                          |  |                             | (42 | )                         |  
|                                                                    |  |                             |     |                           |  
|Net of tax amount                                                   |  | $                           | 65  |                           | $
|                                                                    |  |                             |     |                           |  

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Item 2 -
Managements Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates.  These
factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and conditions; changes in accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Companys operations, pricing, products and services.

Comparison of
Financial Condition at June 30, 2002 and December 31, 2001

Total consolidated assets increased by $429,000 or .20% to $212.8 million at June 30, 2002 from $212.4 million at December 31,
2001.  Net loans receivable increased by $5.2 million or 3% to $178.3 million at June 30, 2002 from $173.1 million at December 31, 2001.  This increase in our loan portfolio was funded almost entirely from proceeds from the maturity of
investment securities classified as available for sale, which decreased $5.0 million or 30% to $12.0 million at June 30, 2002 from $17.0 million at December 31, 2001.  Additionally, investment securities held to maturity decreased $785,000 or
16.7% to $3.9 million at June 30, 2002 from $4.7 million at December 31, 2001. Our liabilities, consisting primarily of deposits from our customers and borrowings remained relatively stable at $188.7 million as compared to $188.5 million at December
31, 2001.

The Bank has guaranteed the repayment of the ESOPs note payable to the Company, which it incurred on October 2, 1996 in order to purchase 359,720 shares of stock in the
Company.  The Companys note receivable from the ESOP totals $2.4 million at June 30, 2002 and is reported as a reduction of stockholders equity.  Retained earnings increased by $211,000 to $19.6 million at June 30, 2002, which
is attributable to the Companys net income of $741,000 net of dividends paid for the six months ended June 30, 2002 in the amount of $530,000.  Common stock and unearned compensation decreased by $77,000 to $6.8 million at June 30, 2002
from $6.9 million at December 31, 2001.  The decrease was primarily attributable to the repurchase of 12,000 shares of outstanding common stock in the amount of $82,200.

As a North Carolina
chartered stock savings bank, the Bank is required to meet various capital standards established by federal and state banking agencies.  At June 30, 2002, the Companys stockholders equity amounted to $24.1 million, or 11.3% of total
assets and exceeds all regulatory capital requirements.

The Banks level of nonperforming loans, defined as loans past due 90 days or more, was $270,000 and $747,000 at June 30, 2002 and
December 31, 2001, respectively.  During the three and six month periods ended June 30, 2002, the Banks level of nonperforming loans remained consistently low in relation to prior periods and to total loans outstanding.  Based on
their analysis, management determined that no loan loss provisions were necessary during the three and six months ended June 30, 2002 and 2001.

Comparison of Operating Results for the Three
Months Ended June 30, 2002 and 2001

General.Net income for the three month period ended June 30, 2002 was $380,000, or $182,000 more than the $198,000 earned during the same
period in 2001. This improvement resulted principally from the increase in net interest income of $363,000 during the quarter, which is explained below.

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Interest income.  Interest income decreased by $178,000 from $3.7 million for the three months ended June
30, 2001 to $3.5 million for the three months ended June 30, 2002.  While the level of our average interest earning assets increased from approximately $196.5 million during the second quarter of 2001 to approximately $204.1 million during the
second quarter of 2002, the yield on our average interest earning assets dropped approximately 63 basis points. This decrease in yield resulted from the industry wide rate reductions that occurred subsequent to March 31, 2001, and offset the
increase in the volume of our interest earning assets.

Interest expense.Interest expense on deposits and borrowed funds decreased by $541,000 from $2.3 million for the three months
ended June 30, 2001 to $1.8 million for the three months ended June 30, 2002.  As with our interest earning assets, the volume of our average interest bearing liabilities increased from approximately $176.5 million in the second quarter of
2001, to $183.8 million in the second quarter of 2002. However, the decrease in the rates we pay on these liabilities decreased more significantly than did the rates on our earning assets. The average rates for our interest bearing liabilities
dropped approximately 138 basis points In comparison to the second quarter of 2001. Again, as with our earning assets, the decrease in interest rates had a more significant impact than did the increase in volume.

Net interest income.  Net interest income increased by $363,000 from $1.4 million for the three months ended June 30, 2001 to $1.7 million for the three months ended June 30, 2002.  This increase resulted from
an increase in our net interest earning assets during the quarter combined with the drop in interest rates discussed in the interest income and interest expense captions. The net yield on our average interest earning assets increased approximately
76 basis points during the quarter ended June 30, 2002 as compared to the same period in 2001.

Provision for loan losses.  There were no provisions for loan losses charged to income
during the three months ended June 30, 2002 and 2001.  Provisions, which are charged to operations, and the resulting loan loss allowance are amounts the Banks management believes will be adequate to absorb losses inherent in our loan
portfolio. Loans are charged off against the allowance when management believes that collectibility is unlikely.  The decision to increase or decrease the provision and resulting allowance is based upon an evaluation of both 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.  The Banks level of nonperforming loans has remained consistently low in relation to
prior periods and total loans outstanding and the Banks loan charge-offs during the three months ended June 30, 2002 and 2001 were minimal.

At June 30, 2002, the Banks level of general
valuation allowances for loan losses amounted to $425,000, which management believes is adequate to absorb losses inherent in its loan portfolio.

Non-interest income.  The Company
earned non-interest income of $81,000 during the three months ended June 30, 2002 compared to the $83,000 that was earned during the same period in 2001. This decrease in non-interest income of $2,000 was primarily attributable to a decrease in
nonrecurring gains on the sale of assets.

Non-interest expense.  Non-interest expense increased by $78,000 from $1.1 million for the three months ended June 30, 2001 to $1.2 million for
the three months ended June 30, 2002. This increase resulted primarily from an increase in compensation expense of $54,000 due largely to expense associated with normal and expected compensation adjustments, additional personnel, and increases in
the cost of employee benefits such as health insurance.

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Comparison of Operating Results for the Six Months Ended June 30, 2002 and 2001

General.Net income for the six month period ended June 30, 2002 was $741,000, or $351,000 more than the $390,000 earned during the same period in 2001. As was the case for the quarter ended June 30,
2002, this improvement resulted principally from the increase in net interest income of $761,000 during the period, which is explained below.

Interest income.  Interest income decreased
by $220,000 from $7.3 million for the six months ended June 30, 2001 to $7.1 million for the six months ended June 30, 2002.  While the level of our average interest earning assets increased from approximately $194.4 million during the first
half of 2001 to approximately $204.3 million during the same period in 2002, the yield on our average interest earning assets dropped approximately 58 basis points. This decrease in yield resulted from the industry wide rate reductions that occurred
throughout 2001 and offset the increase in the volume of our interest earning assets.

Interest expense.Interest expense on deposits and borrowed funds decreased by $981,000 from $4.6
million for the six months ended June 30, 2001 to $3.6 million for the six months ended June 30, 2002.  As with our interest earning assets, the volume of our average interest bearing liabilities increased from approximately $174.7 million in
the first half of 2001, to $184.1 million in the first half of 2002. However, the decrease in the rates we pay on these liabilities decreased more significantly than did the rates on our earning assets. The average rates for our interest bearing
liabilities dropped approximately 134 basis points In comparison to the first six months of 2001. Again, as with our earning assets, the decrease in interest rates had a more significant impact than did the increase in volume.

Net interest income.  Net interest income increased by $761,000 from $2.7 million for the six months ended June 30, 2001 to $3.4 million for the six months ended June 30, 2002.  This increase resulted
from an increase in our net interest earning assets during the period combined with the drop in interest rates discussed in the interest income and interest expense captions. The net yield on our average interest earning assets increase
approximately 76 basis points during the six months ended June 30, 2002 as compared to the same period in 2001.

Provision for loan losses.  There were no provisions for loan losses
charged to income during the six months ended June 30, 2002 and 2001.  Provisions, which are charged to operations, and the resulting loan loss allowance are amounts the Banks management believes will be adequate to absorb losses inherent
in our loan portfolio. Loans are charged off against the allowance when management believes that collectibility is unlikely.  The decision to increase or decrease the provision and resulting allowance is based upon an evaluation of both 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.  The Banks level of nonperforming loans has remained consistently low in
relation to prior periods and total loans outstanding and the Banks loan charge-offs during the six months ended June 30, 2002 and 2001 were minimal.

At June 30, 2002, the Banks level
of general valuation allowances for loan losses amounted to $425,000, which management believes is adequate to absorb losses inherent in its loan portfolio.

Non-interest income.  The
Company earned non-interest income of $144,000 during the six months ended June 30, 2002 compared to $156,000 that was earned during the same period in 2001. This decrease in non-interest income of $12,000 was primarily attributable to a decrease in
nonrecurring gains on the sale of assets.

Non-interest expense.  Non-interest expense increased by $195,000 from $2.2 million for the six months ended June 30, 2001 to $2.4 million for
the six months ended June 30, 2002. This

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increase resulted primarily from an increase in compensation expense of $132,000 due largely to expense associated with
normal and expected compensation adjustments, additional personnel, and increases in the cost of employee benefits such as health insurance. due largely to expense associated with annual raises and the addition of personnel.

Liquidity and Capital Resources

The term liquidity generally refers to an organizations ability to generate adequate amounts
of funds to meet its needs for cash.  More specifically for financial institutions, liquidity ensures that adequate funds are available to meet deposit withdrawals, fund loan and capital expenditure commitments, maintain reserve requirements,
pay operating expenses, and provide funds for debt service, dividends to stockholders, and other institutional commitments.  Funds are primarily provided through financial resources from operating activities, expansion of the deposit base,
borrowings, through the sale or maturity of investments, the ability to raise equity capital, or maintenance of shorter term interest-bearing deposits.

As a state chartered stock savings bank, the
Bank must meet certain liquidity requirements that are established by the North Carolina Administrator of the Savings Institutions Division.  The Banks liquidity ratio at June 30, 2002, as computed under such regulations, was considerably
in excess of such requirements.  Given its excess liquidity and its ability to borrow from the FHLB of Atlanta, the Bank believes that it will have sufficient funds available to meet anticipated future loan commitments, unexpected deposit
withdrawals, or other cash requirements.

The FDIC requires the Bank to have a minimum leverage ratio of Tier I Capital (principally consisting of retained earnings and any 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 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.  The Administrator requires a net worth equal to at
least 5% of total assets.  The Bank complied with all of the capital requirements of both the FDIC and the Administrator at June 30, 2002.

Inflation and Changing
Prices

The financial statements and accompanying footnotes have been prepared in accordance with generally accepted accounting principles, 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 the Companys performance than do the effects of inflation.

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Part II.        
OTHER INFORMATION

Item 4. 
Submission of Matters to a Vote of Security Holders

Proposal 1:  To elect six members of the Board of Directors for a one-year term until the Annual Meeting of
Shareholders in 2003.  Votes for each nominee were as follows:

|Name                      |  | For       |  | Withheld | 
|------------------------- |  | --------- |  | -------- | 
|                          |  |           |  |          | 
|J. Banks Garrison, Jr..   |  | 2,748,940 |  | 18,277   | 
|Caldwell A. Holbrook, Jr. |  | 2,756,990 |  | 10,227   | 
|Joel A. Honeycutt         |  | 2,756,990 |  | 10,227   | 
|Douglas Stokes            |  | 2,756,990 |  | 10,227   | 
|R. Ronald Swanner         |  | 2,757,990 |  | 9,227    | 
|Greg E. Underwood         |  | 2,758,990 |  | 10,227   | 

Proposal 2:  To ratify the appointment of Dixon Odom PLLC as the Banks independent
accountants for the year ending December 31, 2002.

| | For       |  | Against |  | Withheld | 
| | --------- |  | ------- |  | -------- | 
| |           |  |         |  |          | 
| | 2,765,540 |  | 1,302   |  | 375      | 

|       
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|Item 6.
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|SIGNATURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
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|Date:  August 12, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|Date:  August 12, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|CERTIFICATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|The undersigned hereby certifies that, to his knowledge, (i) the Form 10-QSB filed by South Street Financial Corp. (the Issuer) for the quarter ended June 30, 2002,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of
the Issuer on the dates and for the periods presented therein.
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|Date:  August 12, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|Date:  August 12, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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