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

FORM 10-QSB

|x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended September 30, 2002

|o | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------

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.

|Yes | x | No | o
|--- | - | -- | -

As of November 4, 2002, 3,079,867 shares of the issuers common stock, no par value, were outstanding.

This report contains 16 pages.

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##### Table of Contents

|         |                                                                                       | Page No.                                                                                                          
|-------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------
|         |                                                                                       |                                                                                                                   
|Part I.  | FINANCIAL INFORMATION                                                                 |                                                                                                                   
|         |                                                                                       |                                                                                                                   
|Item 1 - | Financial Statements (Unaudited)                                                      |                                                                                                                   
|         |                                                                                       |                                                                                                                   
|         |                                                                                       | Consolidated Statements of Financial Condition September 30, 2002 and December 31, 2001                           
|         |                                                                                       |                                                                                                                   
|         |                                                                                       | Consolidated Statements of Income and Comprehensive Income Three and Nine Months Ended September 30, 2002 and 2001
|         |                                                                                       |                                                                                                                   
|         |                                                                                       | Consolidated Statements of Cash Flows Nine Months Ended September 30, 2002 and 2001                               
|         |                                                                                       |                                                                                                                   
|         |                                                                                       | Notes to Consolidated Financial Statements                                                                        
|         |                                                                                       |                                                                                                                   
|Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations | 8                                                                                                                 
|         |                                                                                       |                                                                                                                   
|Item 3 - | Controls and Procedures                                                               | 12                                                                                                                
|         |                                                                                       |                                                                                                                   
|Part II. | OTHER INFORMATION                                                                     |                                                                                                                   
|         |                                                                                       |                                                                                                                   
|Item 6.  | Exhibits and Reports on Form 8-K                                                      | 13                                                                                                                

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##### Table of Contents

Part I. 
FINANCIAL INFORMATIONItem 1 -
Financial Statements

South Street Financial Corp. and SubsidiaryConsolidated Statements of Financial Condition

|                                            |                                                                                                                                                   | September 30, 2002 |         | December 31,2001* |  
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ----------------- | -
|                                            |                                                                                                                                                   | (Unaudited)        |         |                   |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|                                            |                                                                                                                                                   | (In Thousands)     |        
|ASSETS                                      |                                                                                                                                                   |                    |         |                   |  
|Cash and cash equivalents:                  |                                                                                                                                                   |                    |         |                   |  
|                                            | Noninterest-earning deposits                                                                                                                      |                    | $       | 3,547             |  
|                                            | Interest-earning deposits                                                                                                                         |                    |         | 18,392            |  
|                                            | Federal funds sold                                                                                                                                |                    |         | 698               |  
|Securities held to maturity                 |                                                                                                                                                   |                    | 3,534   |                   |  
|Securities available for sale               |                                                                                                                                                   |                    | 12,112  |                   |  
|Loans receivable, net                       |                                                                                                                                                   |                    | 177,913 |                   |  
|Accrued interest receivable                 |                                                                                                                                                   |                    | 997     |                   |  
|Real estate acquired in settlement of loans |                                                                                                                                                   |                    | 18      |                   |  
|Real estate held for investment             |                                                                                                                                                   |                    | 1,029   |                   |  
|Federal Home Loan Bank stock                |                                                                                                                                                   |                    | 1,509   |                   |  
|Office properties and equipment, net        |                                                                                                                                                   |                    | 1,309   |                   |  
|Prepaid expenses and other assets           |                                                                                                                                                   |                    | 929     |                   |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|TOTAL ASSETS                                |                                                                                                                                                   | $                  | 221,987 |                   | $
|                                            |                                                                                                                                                   |                    |         |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                                                                                                                                   |                    |         |                   |  
|LIABILITIES                                 |                                                                                                                                                   |                    |         |                   |  
|                                            | Deposits                                                                                                                                          |                    | $       | 172,640           |  
|                                            | Borrowings                                                                                                                                        |                    |         | 21,000            |  
|                                            | Advance payments by borrowers for taxes and insurance                                                                                             |                    |         | 213               |  
|                                            | Accrued expenses and other liabilities                                                                                                            |                    |         | 3,741             |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|TOTAL LIABILITIES                           |                                                                                                                                                   |                    | 197,594 |                   |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|STOCKHOLDERS EQUITY                        |                                                                                                                                                   |                    |         |                   |  
|                                            | Preferred stock, no par value: authorized 5,000,000 shares; none issued                                                                           |                    |         |                  |  
|                                            | Common stock, no par value: authorized 20,000,000 shares; issued 3,099,867 shares at September 30, 2002 and 3,111,867 shares at December 31, 2001 |                    |         | 7,974             |  
|                                            | Unearned compensation                                                                                                                             |                    |         | (1,188            | )
|                                            | Unearned ESOP                                                                                                                                     |                    |         | (2,299            | )
|                                            | Retained earnings, substantially restricted                                                                                                       |                    |         | 19,785            |  
|                                            | Accumulated other comprehensive income                                                                                                            |                    |         | 121               |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|TOTAL STOCKHOLDERS EQUITY                  |                                                                                                                                                   |                    | 24,393  |                   |  
|                                            |                                                                                                                                                   |                    |         |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY  |                                                                                                                                                   | $                  | 221,987 |                   | $
|                                            |                                                                                                                                                   |                    |         |                   |  

* Derived from audited financial statements

See accompanying notes.

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South Street Financial Corp. and SubsidiaryConsolidated Statements of Income and Comprehensive Income (Unaudited)

|                                                    |                                                               | Three Months Ended September 30,      |       | Nine Months Ended September 30, |  
|--------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------- | ----- | ------------------------------- | -
|                                                    |                                                               |                                       |       |                                 |  
|                                                    |                                                               | 2002                                  |       | 2001                            |  
|                                                    |                                                               |                                       |       |                                 |  
|                                                    |                                                               | (In thousands, except per share data) |      
|INTEREST INCOME                                     |                                                               |                                       |       |                                 |  
|                                                    | Loans                                                         |                                       | $     | 3,176                           |  
|                                                    | Investment securities                                         |                                       |       | 199                             |  
|                                                    | Other interest-earning deposits                               |                                       |       | 58                              |  
|                                                    |                                                               |                                       |       |                                 |  
|TOTAL INTEREST INCOME                               |                                                               |                                       | 3,433 |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|INTEREST EXPENSE                                    |                                                               |                                       |       |                                 |  
|                                                    | Deposits                                                      |                                       |       | 1,567                           |  
|                                                    | Borrowings                                                    |                                       |       | 148                             |  
|                                                    |                                                               |                                       |       |                                 |  
|TOTAL INTEREST EXPENSE                              |                                                               |                                       | 1,715 |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|NET INTEREST INCOME                                 |                                                               |                                       | 1,718 |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|PROVISION FOR LOAN LOSSES                           |                                                               |                                       |      |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |                                                               |                                       | 1,718 |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|NON-INTEREST INCOME                                 |                                                               |                                       |       |                                 |  
|                                                    | Service charges and fees                                      |                                       |       | 64                              |  
|                                                    | Gain on sale of assets                                        |                                       |       |                                |  
|                                                    | Other                                                         |                                       |       | 84                              |  
|                                                    |                                                               |                                       |       |                                 |  
|TOTAL NON-INTEREST INCOME                           |                                                               |                                       | 148   |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|NON-INTEREST EXPENSE                                |                                                               |                                       |       |                                 |  
|                                                    | Compensation and benefits                                     |                                       |       | 865                             |  
|                                                    | Net occupancy                                                 |                                       |       | 88                              |  
|                                                    | Federal deposit insurance premium                             |                                       |       | 7                               |  
|                                                    | Data processing                                               |                                       |       | 63                              |  
|                                                    | Other                                                         |                                       |       | 206                             |  
|                                                    |                                                               |                                       |       |                                 |  
|TOTAL NON-INTEREST EXPENSE                          |                                                               |                                       | 1,229 |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|INCOME BEFORE INCOME TAXES                          |                                                               |                                       | 637   |                                 |  
|INCOME TAXES                                        |                                                               |                                       | 235   |                                 |  
|                                                    |                                                               |                                       |       |                                 |  
|NET INCOME                                          |                                                               | $                                     | 402   |                                 | $
|                                                    |                                                               |                                       |       |                                 |  
|PER SHARE DATA:                                     |                                                               |                                       |       |                                 |  
|                                                    | Basic and diluted net income per common share                 |                                       | $     | .14                             |  
|                                                    |                                                               |                                       |       |                                 |  
|                                                    | Dividends                                                     |                                       | $     | .10                             |  
|                                                    |                                                               |                                       |       |                                 |  
|                                                    | Weighted average common shares outstanding, basic and diluted |                                       |       | 2,861,646                       |  
|                                                    |                                                               |                                       |       |                                 |  
|                                                    |                                                               |                                       |       |                                 |  

See accompanying notes.

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South Street Financial Corp. and SubsidiaryConsolidated Statements of Cash Flows (Unaudited)

|                                                 |                                                                                          | Nine Months Ended September 30, |       
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------- | ------
|                                                 |                                                                                          |                                 |       
|                                                 |                                                                                          | 2002                            |       
|                                                 |                                                                                          |                                 |       
|                                                 |                                                                                          | (In Thousands)                  |       
|CASH FLOWS FROM OPERATING ACTIVITIES             |                                                                                          |                                 |       
|                                                 | Net income                                                                               |                                 | $     
|                                                 | Adjustments to reconcile net income to net cash provided (used) by operating activities: |                                 |       
|                                                 | Net accretion of premiums and discounts on securities                                    |                                 |       
|                                                 | Amortization of deferred loan fees                                                       |                                 |       
|                                                 | Provision for depreciation                                                               |                                 |       
|                                                 | Gain on sale of real estate held for investment                                          |                                 |       
|                                                 | Amortization of unearned compensation                                                    |                                 |       
|                                                 | Deferred income taxes                                                                    |                                 |       
|                                                 | ESOP expense                                                                             |                                 |       
|                                                 | (Increase) decrease in assets:                                                           |                                 |       
|                                                 | Accrued interest receivable                                                              |                                 |       
|                                                 | Prepaid expenses and other assets                                                        |                                 |       
|                                                 | Increase (decrease) in other liabilities:                                                |                                 |       
|                                                 | Accrued expenses and other liabilities                                                   |                                 |       
|                                                 |                                                                                          |                                 |       
|NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES |                                                                                          |                                 | 780   
|                                                 |                                                                                          |                                 |       
|CASH FLOWS FROM INVESTING ACTIVITIES             |                                                                                          |                                 |       
|                                                 | Purchase of FHLB stock                                                                   |                                 |       
|                                                 | Purchase of securities available for sale                                                |                                 |       
|                                                 | Proceeds from maturities and calls of securities available for sale                      |                                 |       
|                                                 | Principal collected on securities held to maturity                                       |                                 |       
|                                                 | Loan originations and principal payments on loans, net                                   |                                 |       
|                                                 | Purchase of office properties and equipment                                              |                                 |       
|                                                 | Investment in real estate held for investment                                            |                                 |       
|                                                 | Proceeds from sale of real estate held for investment                                    |                                 |       
|                                                 |                                                                                          |                                 |       
|NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES |                                                                                          |                                 | 1,513 
|                                                 |                                                                                          |                                 |       
|CASH FLOWS FROM FINANCING ACTIVITIES             |                                                                                          |                                 |       
|                                                 | Net increase (decrease) in deposits                                                      |                                 |       
|                                                 | Proceeds from FHLB borrowings, net of repayments                                         |                                 |       
|                                                 | Net increase in advance payments by borrowers for taxes and insurance                    |                                 |       
|                                                 | Principal payment received on ESOP note                                                  |                                 |       
|                                                 | Dividends paid                                                                           |                                 |       
|                                                 | Repurchase of common stock                                                               |                                 |       
|                                                 |                                                                                          |                                 |       
|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES |                                                                                          |                                 | 8,365 
|                                                 |                                                                                          |                                 |       
|NET INCREASE IN CASH AND CASH EQUIVALENTS        |                                                                                          |                                 | 10,658
|CASH AND CASH EQUIVALENTS, BEGINNING             |                                                                                          |                                 | 11,979
|                                                 |                                                                                          |                                 |       
|CASH AND CASH EQUIVALENTS, ENDING                |                                                                                          | $                               | 22,637
|                                                 |                                                                                          |                                 |       
|                                                 |                                                                                          |                                 |       

See accompanying notes.

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South Street Financial Corp. and SubsidiaryNotes to Consolidated Financial Statements

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 nine month periods ended September 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 nine month periods ended September 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 nine month periods ended September 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 September 16, 2002, the Companys Board of Directors declared a dividend of $.10 per share for shareholders of record as of
September 30, 2002 and payable on October 10, 2002.  In addition, on September 16, 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 $21,000,000 at September 30, 2002.  The weighted average interest rate of the advances was 2.39%. 
The advances mature at varying dates from 2003 through 2004.

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South Street Financial Corp. and Subsidiary Notes to Consolidated Financial Statements

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 EndedSeptember 30, |     | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------- |  | ------------------------------- | --- | ------------------------------ | -
|                                                                    |  |                                 |     |                                |  
|                                                                    |  | 2002                            |     | 2001                           |  
|                                                                    |  |                                 |     |                                |  
|                                                                    |  | (In Thousands)                  |     | (In Thousands)                 |  
|Unrealized holiding gains (losses) on available-for-sale securities |  | $                               | 153 |                                | $
|Reclassification adjustment for (gains) losses realized in income   |  |                                 |    |                                |  
|                                                                    |  |                                 |     |                                |  
|Net unrealized gains (losses)                                       |  |                                 | 153 |                                |  
|Tax effect                                                          |  |                                 | (61 | )                              |  
|                                                                    |  |                                 |     |                                |  
|Net of tax amount                                                   |  | $                               | 92  |                                | $
|                                                                    |  |                                 |     |                                |  

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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 September 30, 2002 and December 31, 2001

The Companys total consolidated assets increased $9.6 million during the nine months ended September 30, 2002 from
$212.4 million at December 31, 2001 to $222.0 million. During the first nine months of 2002, our cash and cash equivalents, consisting of interest earning deposits, non-interest earning deposits, and federal funds sold, increased $10.7 million to
$22.6 million and our loan portfolio increased $4.8 million to $177.9 million. The growth in our cash and cash equivalents and our loan portfolio was funded by a decrease in our investment securities and by increases in deposits from our customers
and borrowings. Our investment securities decreased $6.0 during the nine-month period to $15.6 million at September 30, 2002. This decrease resulted from maturities, repayments, and calls of our investment securities. Deposits from our customers
increased $5.0 million from $167.6 million at December 31, 2001 to $172.6 million at September 30, 2002 while our borrowings, consisting solely of advances from the Federal Home Loan Bank, increased $4.0 million during the period to $21.0
million.

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 $2.3 million at September 30, 2002 and is reported as a reduction of stockholders equity.  Retained earnings increased by $351,000 to $19.8 million at September 30,
2002, which is attributable to the Companys net income of $1.1 million net of dividends paid for the nine months ended September 30, 2002 in the amount of $791,000.   Common stock and unearned compensation decreased by $73,000 to
$6.8 million at September 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 September 30, 2002, the Companys stockholders
equity amounted to $24.4 million, or 11% 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 $770,000 and $747,000 at September 30, 2002 and December 31, 2001, respectively.  During the three and nine month periods ended September 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 nine months ended September 30, 2002 and 2001.

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

General.Net income for the three month period ended
September 30, 2002 was $402,000, or $137,000 more than the $265,000 earned during the same period in 2001. This improvement

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resulted principally from the increase in net interest income of $269,000 during the quarter, which is explained below.

Interest income.  Interest income decreased by $285,000 from $3.7 million for the three months ended September 30, 2001 to $3.4 million for the three months ended September 30, 2002.  While the level of our
average interest earning assets increased from approximately $202.3 million during the third quarter of 2001 to approximately $209.9 million during the third quarter of 2002, the yield on our average interest earning assets dropped approximately 81
basis points. This decrease in yield resulted from the industry wide rate reductions that occurred subsequent to September 30, 2001, and offset the effects of the increase in the volume of our interest earning assets during the current
quarter.

Interest expense.Interest expense on deposits and borrowings decreased by $554,000 from $2.3 million for the three months ended September 30, 2001 to $1.7 million for the
three months ended September 30, 2002.  As with our interest earning assets, the volume of our average interest bearing liabilities increased from approximately $181.6 million in the third quarter of 2001, to $188.5 million in the third quarter
of 2002. However, the decrease in the rates we paid on these liabilities decreased more significantly than did the rates on our earning assets. The average rates for our interest bearing liabilities dropped approximately 136 basis points In
comparison to the third 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 of our interest-bearing liabilities.

Net interest income.  Net interest income increased by $269,000 from $1.4 million for the three months ended September 30, 2001 to $1.7 million for the three months ended September 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 55 basis points during the quarter ended September 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 September 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 September 30, 2002 and 2001 were minimal.

At September
30, 2002, the Banks allowance 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 $148,000 during the three months ended September 30, 2002 compared to the $44,000 that was earned during the same period in 2001. This increase in non-interest income of $104,000 was primarily attributable
to a $79,000 increase in the cash surrender values of life insurance policies owned by the Company.

Non-interest expense.  Non-interest expense increased by $162,000 from $1.1 million
for the three months ended September 30, 2001 to $1.2 million for the three months ended September 30, 2002. This increase resulted primarily from an increase in compensation

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expense of $162,000 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.

Comparison of Operating Results for the Nine Months Ended September 30, 2002 and 2001

General.Net income for the nine month period ended September 30, 2002 was $1.1 million, or $488,000 more than the $655,000 earned during the same period in 2001. As was the case for the quarter ended September 30, 2002, this improvement resulted
principally from the increase in net interest income of $1.0 million during the period, which is explained below.

Interest income.  Interest income decreased by $505,000 from $11.0
million for the nine months ended September 30, 2001 to $10.5 million for the nine months ended September 30, 2002.  While the level of our average interest earning assets increased from approximately $197.3 million during the first nine months
of 2001 to approximately $206.8 million during the same period in 2002, the yield on our average interest earning assets dropped approximately 100 basis points. This decrease in yield resulted from the industry wide rate reductions that have
continued throughout 2002 and offset the effects of the increase in the volume of our interest earning assets during the period.

Interest expense.Interest expense on deposits and
borrowed funds decreased by $1.5 million from $6.9 million for the nine months ended September 30, 2001 to $5.4 million for the nine months ended September 30, 2002.  As with our interest earning assets, the volume of our average interest
bearing liabilities increased from approximately $177.6 million in the first nine months of 2001, to $186.5 million in the same period of 2002. However, the decrease in the rates we paid on these liabilities decreased more significantly than did the
rates on our earning assets. The average rates for our interest bearing liabilities dropped approximately 202 basis points In comparison to the first nine 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 of our interest-bearing liabilities.

Net interest income.  Net interest income increased by $1.1 million from $4.1 million for the
nine months ended September 30, 2001 to $5.2 million for the nine months ended September 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 102 basis points during the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2002 and 2001 were minimal.

At September 30, 2002, the Banks allowance for loan losses amounted to $425,000, which management believes is adequate
to absorb losses inherent in its loan portfolio.

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Non-interest income.  The Company earned non-interest income of $292,000 during the nine months ended September 30, 2002 compared to $200,000 that was earned during
the same period in 2001. This increase in non-interest income of $92,000 was primarily attributable to a $79,000 increase in the cash surrender values of life insurance policies owned by the Company.

Non-interest expense.  Non-interest expense increased by $357,000 from $3.3 million for the nine months ended September 30, 2001 to $3.7 million for the nine months ended September 30, 2002. This increase resulted
primarily from an increase in compensation expense of $294,000 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 Commissioner of Banks (the
Commissioner).  The Banks liquidity ratio at September 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 Commissioner at September 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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Item 3 -
Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of
the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-14 and Item 307 of Regulation S-K.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be included in the Companys periodic SEC Filings.  There were no significant changes in the Companys internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.

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Part II.     
OTHER INFORMATION

Item 6.      
Exhibits and Reports on Form 8-K

| | (a) | Exhibits.                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                
| |     | Exhibit (3)(i)                                                                                                                                 
| |     |                                                                                                                                                
| |     | Exhibit (3)(ii)                                                                                                                                
| |     |                                                                                                                                                
| |     | Exhibit (4)                                                                                                                                    
| |     |                                                                                                                                                
| |     | Exhibit (10)(i)                                                                                                                                
| |     |                                                                                                                                                
| |     | Exhibit (10)(ii)                                                                                                                               
| |     |                                                                                                                                                
| |     | Exhibit (10)(iii)                                                                                                                              
| |     |                                                                                                                                                
| |     | Exhibit (10)(iv)                                                                                                                               
| |     |                                                                                                                                                
| |     | Exhibit (10)(v)                                                                                                                                
| |     |                                                                                                                                                
| |     | Exhibit (10)(vi)                                                                                                                               
| |     |                                                                                                                                                
| |     | Exhibit (10)(vii)                                                                                                                              
| |     |                                                                                                                                                
| |     | Exhibit (10)(viii)                                                                                                                             
| |     |                                                                                                                                                
| |     |                                                                                                                                                
| |     |                                                                                                                                                
| | (b) | Reports on Form 8-K.                                                                                                                           
| |     |                                                                                                                                                
| |     | One report on Form 8-K was filed by the Company on July 25, 2002 regarding changes made to the composition of the Companys Board of Directors.
| |     |                                                                                                                                                

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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.

|                        | SOUTH STREET FINANCIAL CORP.
|----------------------- | ----------------------------
|                        |                             
|Date: November 13, 2002 | By:                         
|                        |                             
|                        |                             
|                        |                             
|Date: November 13, 2002 | By:                         
|                        |                             
|                        |                             

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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

|I, R. Ronald Swanner, certify that:
|-----------------------------------
|                                   
|(1)                                
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|(2)                                
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|(3)                                
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|(4)                                
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|(5)                                
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|(6)                                
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|Date: November 13, 2002 | By: | /s/ R. RONALD SWANNER                                  
|----------------------- | --- | -------------------------------------------------------
|                        |     |                                                        
|                        |     | R. Ronald Swanner President and Chief Executive Officer

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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

|I, Christopher F. Cranford, certify that:
|-----------------------------------------
|                                         
|(1)                                      
|                                         
|(2)                                      
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|(3)                                      
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|(4)                                      
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|(5)                                      
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|(6)                                      
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|Date: November 13, 2002 | By: | /s/ CHRISTOPHER F. CRANFORD                     
|----------------------- | --- | ------------------------------------------------
|                        |     |                                                 
|                        |     | Christopher F. Cranford Treasurer and Controller

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