<PAGE>
<PAGE>

                U.S. SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C.  20549

                          ________________

                             FORM 10-Q

(Mark One)

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

      For the quarterly period ended March 31, 2000

                           OR

[ ]   TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

      For the transition period from ______ to ______

                Commission file number:  0-25859

                    1ST STATE BANCORP, INC.
   ----------------------------------------------------
   (Exact Name of Registrant as Specified in Its Charter)


           VIRGINIA                            56-2130744
-------------------------------           ----------------------
(State or Other Jurisdiction of           (I.R.S. Employer
 Incorporation or Organization)           Identification No.)

445 S. MAIN STREET, BURLINGTON, NORTH CAROLINA          27215
----------------------------------------------------------------
(Address of Principal Executive Offices)              (Zip Code)


Registrant' s Telephone Number, Including Area Code
(336) 227-8861
--------------

                               N/A
      ---------------------------------------------------
      Former Name, Former Address and Former Fiscal Year,
                 if Changed Since Last Report

     Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 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
                                                ---       ---
     As of May 10, 2000, the issuer had 3,163,125 shares of
common stock issued and outstanding.

<PAGE>
<PAGE>
                            CONTENTS

                                                            PAGE
                                                            ----

PART I.  FINANCIAL INFORMATION
         ---------------------

Item 1.  Financial Statements

         Consolidated Balance Sheets as of March
           31, 2000 (unaudited) and September 30, 1999. . . . 1

         Consolidated Statements of Income for the
           Three Months Ended March 31, 2000 and
           1999 (unaudited) . . . . . . . . . . . . . . . . . 2

         Consolidated Statements of Income for the
           Six Months Ended March 31, 2000 and
           1999 (unaudited) . . . . . . . . . . . . . . . . . 3


         Consolidated Statements of Stockholders' Equity
           and Comprehensive Income for the Six Months
           Ended March 31, 2000 and 1999 (unaudited). . . . . 4

         Consolidated Statements of Cash Flows for the
           Six Months Ended March 31, 2000 and
           1999 (unaudited) . . . . . . . . . . . . . . . . . 5

         Notes to Consolidated Financial Statements . . . . . 7

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations. . . 9

Item 3.  Quantitative and Qualitative Disclosures About
           Market Risk . . . . . . . . . . . . . . . . . . . 13


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . 14

Item 2.  Changes in Securities and Use of Proceeds. . . . . . 14

Item 3.  Defaults Upon Senior Securities. . . . . . . . . . . 14

Item 4.  Submission of Matters to a Vote of Security
            Holders . . . . . . . . . . . . . . . . . . . . . 14

Item 5.  Other Information. . . . . . . . . . . . . . . . . . 14

Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . 14


SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .15



<PAGE>
<PAGE>
          1ST STATE BANCORP, INC. AND SUBSIDIARY

              CONSOLIDATED BALANCE SHEETS

        MARCH 31, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
                                                    AT              AT
                                                 MARCH 31,      SEPTEMBER 30,
                                                   2000             1999
                                                ------------    ------------
                                                (Unaudited)
<S>                                             <C>             <C>
               ASSETS
Cash and cash equivalents                       $ 21,371,784     $ 15,657,202
Investment securities:
  Held to maturity (fair value of $80,480,070
    and $82,541,457 at March 31, 2000 and
    September 30, 1999, respectively)             83,039,952       84,228,343
  Available for sale (cost of $10,104,329
    and $11,241,966 at March 31, 2000 and
    September 30, 1999, respectively)              9,753,329       11,035,966
Loans held for sale, at lower of cost or
  fair value                                       3,753,080       12,143,063
Loans receivable (net of allowance for loan
  losses of $3,573,846 and $3,454,373 at
  March 31, 2000 and September 30, 1999,
  respectively)                                  212,278,895      195,292,344
Federal Home Loan Bank stock, at cost              1,400,000        1,259,600
Premises and equipment                             7,664,846        7,282,361
Accrued interest receivable                        2,739,552        2,652,134
Other assets                                       3,573,264        3,374,915
                                                ------------     ------------
          Total assets                          $345,574,702     $332,925,928
                                                ============     ============

                LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposit accounts                              $239,995,771     $234,094,735
  Advances from Federal Home Loan Bank            28,000,000       22,000,000
  Advance payments by borrowers for property
    taxes and insurance                              579,972          232,973
  Other liabilities                                3,459,795        4,983,039
                                                ------------     ------------
          Total liabilities                      272,035,538      261,310,747
                                                ------------     ------------

Stockholders' Equity:
   Preferred stock, $0.01 par value, 1,000,000
     shares authorized; none issued                       --               --
   Common stock, $0.01 par value, 7,000,000
    shares authorized; 3,163,125 shares issued
    and outstanding                                   31,631           31,631
   Additional paid in capital                     49,211,361       49,216,648
   Unearned ESOP shares                           (4,188,194)      (4,469,611)
   Deferred compensation                           2,603,381        2,373,485
   Treasury stock for deferred compensation       (2,603,381)      (2,373,485)
   Retained income - substantially restricted     28,698,366       26,959,913
   Accumulated other comprehensive income
    (loss) - net unrealized loss on investment
    securities available for sale                   (214,000)        (123,400)
                                                ------------     ------------
          Total stockholders' equity              73,539,164       71,615,181
                                                ------------     ------------
          Total liabilities and stockholders'
            equity                              $345,574,702     $332,925,928
                                                ============     ============
</TABLE>
See accompanying notes to the consolidated financial statements.
                              1

<PAGE>
             1ST STATE BANCORP, INC. AND SUBSIDIARY

              CONSOLIDATED STATEMENTS OF INCOME

         FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999

                           (UNAUDITED)
<TABLE>
<CAPTION>
                                                    FOR THE THREE MONTHS ENDED
                                                               MARCH 31,
                                                    --------------------------
                                                       2000             1999
                                                     -------          -------
<S>                                                  <C>              <C>
Interest income:
   Interest and fees on loans                        $4,442,131       $3,910,451
   Interest and dividends on investments              1,432,874          912,252
   Overnight deposits                                   112,764          366,796
                                                     ----------       ----------
       Total interest income                          5,987,769        5,189,499
                                                     ----------       ----------
Interest expense:
    Deposit accounts                                  2,436,297        2,439,032
    Borrowings                                          365,281          269,499
                                                     ----------       ----------
       Total interest expense                         2,801,578        2,708,531
                                                     ----------       ----------
       Net interest income                            3,186,191        2,408,968

Provision for loan losses                                60,000           60,000
                                                     ----------       ----------
       Net interest income after provision for
         loan losses                                  3,126,191        2,420,968
                                                     ----------       ----------

Other income:
   Loan servicing fees                                   21,804           26,613
   Customer service fees                                140,425          129,076
   Commission from sales of annuities and
     mutual funds                                       115,549          102,351
   Mortgage banking income, net                          25,075           79,634
   Other                                                 38,646           38,742
                                                     ----------       ----------
       Total other income                               341,499          376,416
                                                     ----------       ----------

Operating expenses:
   Compensation and related benefits                  1,107,593          957,668
   Occupancy and equipment                              255,489          194,645
   Deposit insurance premiums                            12,404           35,654
   Other expenses                                       368,773          289,946
                                                     ----------       ----------
       Total operating expenses                       1,744,259        1,477,913
                                                     ----------       ----------

       Income before income taxes                     1,723,431        1,319,471

Income taxes                                            608,000          453,000
                                                     ----------       ----------
       Net income                                    $1,115,431       $  866,471
                                                     ==========       ==========

       Earnings per share:

       Basic                                         $     0.38               --
       Diluted                                       $     0.38               --
</TABLE>
See accompanying notes to the consolidated financial statements.

                              2

<PAGE>
               1ST STATE BANCORP, INC. AND SUBSIDIARY

               CONSOLIDATED STATEMENTS OF INCOME

        FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999

                         (UNAUDITED)
<TABLE>
<CAPTION>
                                                FOR THE SIX MONTHS ENDED
                                                         MARCH 31,
                                                --------------------------
                                                   1999            1998
                                                ----------      ----------
<S>                                             <C>             <C>
Interest income:
   Interest and fees on loans                   $ 8,834,310     $ 7,958,710
   Interest and dividends on investments          2,904,335       1,638,745
   Overnight deposits                               205,198         686,480
                                                -----------     -----------
       Total interest income                     11,943,843      10,283,935
                                                -----------     -----------
Interest expense:
    Deposit accounts                              4,770,588       5,004,187
    Borrowings                                      720,761         549,950
                                                -----------     -----------
       Total interest expense                     5,491,349       5,554,137
                                                -----------     -----------
       Net interest income                        6,452,494       4,729,798

Provision for loan losses                           120,000         120,000
                                                -----------     -----------

       Net interest income after provision
         for loan losses                          6,332,494       4,609,798
                                                -----------     -----------
Other income:
   Loan servicing fees                               44,677          51,847
   Customer service fees                            281,418         275,625
   Commission from sales of annuities and
     mutual funds                                   194,917         229,637
   Mortgage banking income (loss), net              (57,732)        446,207
   Other                                             84,771          67,788
                                                -----------     -----------
       Total other income                           548,051       1,071,104
                                                -----------     -----------

Operating expenses:
   Compensation and related benefits              2,283,173       2,067,626
   Occupancy and equipment                          501,184         468,573
   Deposit insurance premiums                        45,769          69,467
   Other expenses                                   657,805         590,996
                                                -----------     -----------
       Total operating expenses                   3,487,931       3,196,662
                                                -----------     -----------
       Income before income taxes                 3,392,614       2,484,240

Income taxes                                      1,185,000         867,000
                                                -----------     -----------

       Net income                               $ 2,207,614     $ 1,617,240
                                                ===========     ===========
       Earnings per share:

       Basic                                    $      0.75              --
       Diluted                                  $      0.75              --
</TABLE>
See accompanying notes to the consolidated financial statements.

                              3
<PAGE>
<PAGE>
            1ST STATE BANCORP, INC. AND SUBSIDIARY

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
         AND COMPREHENSIVE INCOME FOR THE SIX MONTHS
                  ENDED MARCH 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                  Treasury              Accumulated
                                  Additional Unearned  Deferred   stock for                other           Total
                        Common     paid-in      ESOP     comp-    deferred    Retained  comprehensive  stockholders'
                         stock     capital     shares  ensation  compensation  income   income (loss)     equity
<S>                   <C>           <C>       <C>     <C>        <C>         <C>       <C>           <C>
Balance at September
  30, 1998            $    --         --         --         --         --   25,872,605     93,000       25,965,605

Comprehensive income:
  Net income               --         --         --         --         --    1,617,240         --        1,617,240
  Other comprehensive
    income-unrealized
    gain on securities
    available-for-
    sale net of
    income taxes of
    $52,000                --         --         --         --         --           --    (82,000)         (82,000)
                                                                                                        ----------
Total comprehensive
  income                                                                                                 1,535,240

Balance at March
  31, 1999            $    --         --         --         --         --   27,489,845     11,000       27,500,845

Balance at September
  30, 1999            $31,631 49,216,648 (4,469,611) 2,373,485 (2,373,485)  26,959,913   (123,400)      71,615,181

Comprehensive income:
  Net income               --         --         --         --         --    2,207,614         --        2,207,614
  Other comprehensive
    income-unrealized
    loss on securities
    available-for-
    sale net of
    income taxes of
    $54,000                --         --         --         --         --           --    (90,600)         (90,600)
                                                                                                        ----------
Total comprehensive
  income                                                                                                 2,117,014
Release of ESOP
  shares                   --     (5,287)   281,417         --         --           --         --          276,130
Deferred
  compensation             --         --         --    229,896         --           --         --          229,896
Treasury stock
  held for deferred
  compensation             --         --         --         --   (229,896)          --         --         (229,896)
Cash dividend
  declared                 --         --         --         --         --     (506,100)        --         (506,100)
Cash dividend on
  unallocated
  ESOP shares              --         --         --         --         --       36,939         --           36,939
Balance at March
  31, 2000            $31,631 49,211,361 (4,188,194) 2,603,381 (2,603,381)  26,698,366   (214,000)      73,539,164

</TABLE>

See accompanying notes to the consolidated financial statements.
                               4
<PAGE>
<PAGE>
          1ST STATE BANCORP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CASH FLOWS

          SIX MONTHS ENDED MARCH 31, 2000 AND 1999
                       (UNAUDITED)
<TABLE>
<CAPTION>

                                                FOR THE SIX MONTHS ENDED
                                                        MARCH 31,
                                                --------------------------
                                                   2000            1999
                                                ----------      ----------
<S>                                             <C>             <C>
Cash flows from operating activities:
   Net income                                    $  2,207,614   $  1,617,240
   Adjustment to reconcile net income to
     net cash provided by (used in) operating
     activities:
       Provision for loan losses                      120,000        120,000
       Depreciation                                   238,739        201,926
       Deferred tax expense (benefit)                (115,000)            --
       Amortization of premiums and
         discounts, net                               (17,453)         9,688
       Release of ESOP shares                         276,130             --
       Loan origination fees and unearned
         discounts deferred, net of current
         amortization                                  32,820         68,996
       Net loss on sale of loans                      361,567         91,174
       Proceeds from loans held for sale            9,209,435     26,931,170
       Originations of loans held for sale         (6,277,617)   (29,574,843)
       Increase in other assets                      (574,130)      (396,967)
       Increase in accrued interest receivable        (87,418)      (252,211)
       Decrease in other liabilities               (1,523,244)    (2,442,817)
                                                 ------------   ------------
              Net cash provided by (used in)
                operating activities                3,851,443     (3,262,644)
                                                 ------------   ------------

Cash flows from investing activities:
   Purchase of FHLB stock                            (430,800)            --
   Redemption of FHLB stock                           290,400             --
   Purchases of investment securities held
     to maturity                                   (3,996,250)   (30,748,750)
   Purchases of investment securities available
     for sale                                              --     (4,000,000)
   Proceeds from maturities of investment
     securities available for sale                  2,040,166      1,222,691
   Proceeds from maturities of investment
     securities held to maturity                    4,299,565     11,000,000
   Net decrease (increase) in loans receivable    (12,042,773)     8,016,843
   Purchases of premises and equipment                (76,043)      (181,036)
                                                 ------------   ------------
              Net cash used in investing
                activities                         (9,915,735)   (14,690,252)
                                                 ------------   ------------

                                                                  (Continued)
</TABLE>
                         5
<PAGE>
<PAGE>
           1ST STATE BANCORP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CASH FLOWS

          SIX MONTHS ENDED MARCH 31, 2000 AND 1999
                       (UNAUDITED)
<TABLE>
<CAPTION>

                                                FOR THE SIX MONTHS ENDED
                                                        MARCH 31,
                                                --------------------------
                                                   2000            1999
                                                ----------      ----------
<S>                                             <C>             <C>
Cash flows from financing activities:
   Net increase in deposits                      $  5,901,036    $ 85,311,147
   Advances from the Federal Home Loan Bank        16,000,000              --
   Repayments of advances from Federal Home
     Loan Bank                                    (10,000,000)             --
   Dividends on common stock                         (469,161)             --
   Increase in advance payments by borrowers
     for property taxes and insurance                 346,999         343,732
                                                 ------------    ------------
         Net cash provided by financing
           activities                              11,778,874      85,654,879
                                                 ------------    ------------
         Net increase in cash and cash
           equivalents                              5,714,582      67,337,983

Cash and cash equivalents at beginning of
  period                                           15,657,202      31,077,054
                                                 ------------    ------------
Cash and cash equivalents at end of period       $ 21,371,784    $ 98,415,037
                                                 ============    ============

Payments are shown below for the following:
  Interest                                       $  5,428,826    $  5,464,109
                                                 ============    ============
  Income taxes                                   $  1,316,825    $    300,000
                                                 ============    ============

Deferred compensation to be settled in
  Company's stock                                $    229,896    $          0
                                                 ============    ============
Unrealized losses on investment securities
     available for sale                          $   (144,600)   $   (134,000)
                                                 ============    ============

Dividends declared and payable                   $    234,579    $          0
                                                 ============    ============

Cash dividends on unallocated ESOP shares        $     36,939    $          0
                                                 ============    ============

Transfer of land from other assets to premises
  and equipment                                  $    545,181    $          0
                                                 ============    ============
Transfer from loans available for sale to
  loans receivable                               $  5,099,472    $          0
                                                 ============    ============
</TABLE>
See accompanying notes to consolidated financial statements.
                         6
<PAGE>
<PAGE>
        1ST STATE BANCORP, INC. AND SUBSIDIARY

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    MARCH 31, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999


NOTE 1.   NATURE OF BUSINESS

     1st State Bancorp, Inc. (the "Company") was incorporated
under the laws of the Commonwealth of Virginia for the purpose
of becoming the holding company for 1st State Bank (the "Bank")
in connection with the Bank's conversion from a North
Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank (the "Converted Bank")
pursuant to its Plan of Conversion (the "Stock Conversion").
Upon completion of the Stock Conversion, the Bank converted from
a North Carolina-chartered stock savings bank to a North
Carolina commercial bank (the "Bank Conversion"), retaining the
name 1st State Bank (the "Commercial Bank"), and the Commercial
Bank succeeded to all of the assets and liabilities of the
Converted Bank.  The Stock Conversion and the Bank Conversion
were consummated on April 23, 1999.  The Company issued
3,163,125 shares of its common stock, par value $0.01 per share,
for $16.00 per share.  After deducting issuance costs of
approximately $1,363,000, and excluding proceeds on 187,500
shares donated at the time of the Stock Conversion to the 1st
State Bank Foundation, Inc. (the "Foundation"), the Stock
Conversion resulted in net proceeds of $ 46,247,000.  Included
in this amount are proceeds received from withdrawals from
deposit accounts that were used to acquire stock in the Stock
Conversion.  The common stock of the Company began trading on
the Nasdaq National Market System under the symbol "FSBC" on
April 26, 1999.

NOTE 2.   BASIS OF PRESENTATION

     The accompanying consolidated financial statements (which
are unaudited, except for the consolidated balance sheet at
September 30, 1999, which is derived from the September 30, 1999
audited consolidated financial statements) have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the rules and regulations
of the Securities and Exchange Commission.  Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.  In the opinion of management, all adjustments (none
of which were other than normal recurring accruals) necessary
for a fair presentation of the financial position and results of
operations for the periods presented have been included.

     The results of operations for the three and six month
periods ended March 31, 2000 are not necessarily indicative of
the results of operations that may be expected for the year
ended September 30, 2000. The preparation of consolidated
financial statements in accordance with generally accepted
accounting principles requires management to make certain
estimates.  These amounts may be revised in future periods
because of changes in the facts and circumstances underlying
their estimation.

NOTE 3.   EARNINGS  PER SHARE

     Earnings per share computations have been made only for the
periods subsequent to the Conversion.  Since the Company has no
potential dilutive common stock there is no difference in the
computations of basic and diluted earnings per share.  For
purposes of computing basic and diluted earnings per share,
weighted average shares outstanding excludes unallocated ESOP
shares that have not been committed to be released.

                         7
<PAGE>
<PAGE>
The components of the earnings per share computation for the
three and six months ended March 31, 2000 are as follows:
<TABLE>
<CAPTION>
                                                  Six Months     Three Months
                                                  ----------     ------------
<S>                                               <C>            <C>
Weighted average shares outstanding                3,163,125      3,163,125

Less: Unallocated ESOP shares                        223,597        219,932
                                                   ---------      ---------
Basic and diluted weighted average shares
  outstanding                                      2,939,528      2,943,193
                                                   =========      =========
</TABLE>
NOTE 4.   EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")

     The Company sponsors an employee stock ownership plan (the
"ESOP") whereby an aggregate number of shares amounting to
253,050 or 8% of the stock issued in the conversion was
purchased for future allocation to employees.  The ESOP was
funded by an 11 year term loan from the Company in the amount of
$4,898,639.  The loan is secured by the shares of stock
purchased by the ESOP.  During the three and six months ended
March 31, 2000, 7,251 and 14,582 shares of stock were committed
to be released and approximately $133,000 and $276,000 of
compensation expense was recognized, respectively.

NOTE 5.   DEFERRED COMPENSATION

     Directors and certain executive officers participate in a
deferred compensation plan, which was approved by the Board of
Directors on September 24, 1997.  This plan generally provides
for fixed payments beginning after the participant retires.
Each participant is fully vested in his account balance under
the plan.  Directors may elect to defer their directors' fees
and executive officers may elect to defer 25% of their salary
and 100% of bonus compensation.

     Prior to the Conversion, amounts deferred by each
participant accumulated interest at a rate equal to the highest
rate of interest paid on the Bank's one-year certificates of
deposit.  In connection with the Conversion, participants in the
plan were given the opportunity to prospectively elect to have
their deferred compensation balance earn a rate of return equal
to the total return of the Company's stock.  All participants
elected this option concurrent with the Conversion, so the
Company purchased common stock in the Conversion on behalf of
these participants to fund this obligation.  Refer to the
Company's notes to consolidated financial statements,
incorporated  by reference in the Company's 1999 Annual Report
on Form 10-K for a discussion of the Company's accounting policy
with respect to this deferred compensation plan and the related
treasury stock purchased by the Company to fund this obligation.

     During the six months ended March 31, 2000, deferred
compensation recognized was $229,696.

NOTE 5.   COMPREHENSIVE INCOME

     On October 1, 1998, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income."  SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose
financial statements. The statement requires that an enterprise
(a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings
and surplus in the equity section of a statement of financial
position.  In accordance with the provisions of SFAS No. 130,
comparative financial statements presented for earlier periods
have been reclassified to reflect the provisions of the
statement.

      Comprehensive income is the change in equity of an
enterprise during the period from transactions and other events
and circumstances from nonowner sources, and, accordingly,
includes both net income and amounts referred to as other
comprehensive income.  The Bank's other comprehensive income for
the six months ended March 31, 2000 and 1999 consisted of
unrealized gains and losses on certain investment securities
available for sale.  Comprehensive income for the six months
ended March 31, 2000 and 1999 amounted to $2,117,014 and
$1,535,240, respectively.

                         8
<PAGE>
<PAGE>
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

     When used in this Form 10-Q, the words or phrases "will
likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties
including changes in economic conditions in our market area,
changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in our market area, and
competition that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected.  We wish to caution you not to place undue reliance
on any such forward-looking statements, which speak only as of
the date made.  We wish to advise you that the factors listed
above could affect our financial performance and could cause our
actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods
in any current statements.

     We do not undertake, and specifically disclaim any
obligation, to publicly release the result of any revisions
which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND
SEPTEMBER 30, 1999

     Total assets increased by $12.6 million or 3.8% from $332.9
million at September 30, 1999 to $345.6 million at March 31,
2000.  Asset growth was funded during the period by a $5.9
million, or 2.5% increase in deposits and a $6.0 million, or
27.3% increase in FHLB advances.  Deposits at March 31, 2000 and
September 30, 1999 were $240.0 million and $234.1 million,
respectively.  The majority of the deposit increase was in
demand, savings and money market investment accounts, which
typically carry a lower interest rate than time deposits.  At
March 31, 2000, 65.7% of the Company's deposits are time
deposits. Advances at March 31, 2000 and September 30, 1999 were
$28.0 million and $22.0 million, respectively.

     Investment securities, both available for sale and held to
maturity, decreased a combined total of $2.5 million, or 2.6%,
from $95.3 million at September 30, 1999 to $92.8 million at
March 31, 2000.  During the six months ended March 31, 2000, we
purchased $4.0 million of short-term government agency
securities and we received $6.3 million from the maturity of
like securities. Cash and cash equivalents increased $5.7
million, or 36.5%, from $15.7 million at September 30, 1999 to
$21.4 million at March 31, 2000.   The increase in cash and cash
equivalents resulted primarily from the sale of $4.0 million of
mortgage loans which was funded on March 31, 2000.

     Loans receivable, net increased by $17.0 million, or 8.7%,
from $195.3 million at September 30, 1999 to $212.3 million at
March 31, 2000.   This increase was offset somewhat by an $8.4
million decrease in loans held for sale. During the quarter
ended March 31, 2000, the Company sold $6.9 million of loans
held for sale and transferred $5.1 million to loans, net.  These
loans were transferred at the lower of their cost or fair value.
Commercial and commercial real estate loans increased  $7.1
million, or 8.1%, compared to September 30, 1999 levels
reflecting current loan demand. Interest rates have risen to a
level that we are retaining more of our mortgage production. One
to four family residential loans increased $15.3 million, or
19.7%, compared to September 30, 1999 levels.  We continue to
emphasize consumer loans and equity lines of credit, which
increased a combined total of $1.8 million since September 30,
1999.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999

     Net Income.  We recorded net income of $1.1 million for the
quarter ended March 31, 2000, compared to net income of $866,000
for the quarter ended March 31, 1999, representing an increase
of $249,000, or 28.8%.  The principal reason for the increase
was the increase in the net interest income, which was offset in
part by a decrease in other income and increased operating
expenses and income taxes.  For the three months ended March 31,
2000 both basic and diluted earnings per share were $0.38.
Earnings per share data is not available for the 1999 period
since the Company had no shares outstanding at that time.

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     Interest Income.  Total interest income was $6.0 million
for the quarter ended March 31, 2000, as compared to $5.2
million for the quarter ended March 31, 1999, representing an
increase of $798,000, or 15.4%.  Average interest-earning assets
increased by $35.6 million, or 12.5%, from $283.8 million for
the quarter ended March 31, 1999 to $319.4 million for the
quarter ended March 31, 2000.  The growth in average
interest-earning assets resulted from increases in loans and
investments, which was partially offset by a decrease in
overnight funds.  We invested excess overnight funds into higher
yielding government and agency securities and loans. Adding to
the increase in interest income was an 18 basis point increase
in the annualized average yield on interest-earning assets which
increased from 7.32% for the three months ended March 31, 1999
to 7.50% for the three months ended March 31, 2000.  The
increased volume of interest-earning assets raised interest
income by approximately $678,000 and the increased yield
increased interest income by approximately $120,000.

     Interest Expense. Total interest expense was $2.8 million
for the quarter ended March 31, 2000, as compared to $2.7
million for the quarter ended March 31, 1999, representing a
decrease of $93,000, or 3.4%.  Average interest-bearing
liabilities increased $5.0 million, or 2.0%, from $247.4 million
for the quarter ended March 31, 1999 to $252.4 million for the
quarter ended March 31, 2000.  Deposits decreased $1.3 million,
which was offset by increased FHLB advances of $6.3 million.
Some of the deposit outflow was used to fund 1st State stock
purchases. The cost of funds increased 6 basis points from 4.38%
for the three months ended March 31, 1999 to 4.44% for the same
period in 2000. The Federal Reserve raised interest rates two
times during the quarter ended March 31, 2000.  The Company's
cost of funds is directly impacted by movements in short-term
interest rates.   The increase in the rate paid on
interest-bearing liabilities increased interest expense by
approximately $39,000 and the increase in average outstandings
raised interest expense by approximately $54,000.

     Net Interest Income.  Net interest income, the difference
between interest earned on loans and investments and interest
paid on interest-bearing liabilities, increased by $705,000 or
28.4% from $2.5 million for the quarter ended March 31, 1999 to
$3.2 million for the quarter ended March 31, 2000. Net earning
assets increased by  $30.7 million while our net interest rate
spread increased 12 basis points from 2.94% to 3.06% and the
annualized net interest margin increased 49 basis points from
3.50% to 3.99%.  The increase in net interest rate spread
resulted from our increased level of loans and investments and
higher interest rates.  The increase in net earning assets and
net interest margin resulted primarily from the net proceeds
from the sale of stock.

     Provision for Loan Losses.  The provision for loan losses
is charged to earnings to maintain the total allowance for loan
losses at a level considered adequate to absorb estimated
probable losses inherent in the loan portfolio based on existing
loan levels and types of loans outstanding, nonperforming loans,
prior loan loss experience, general economic conditions and
other factors.  Provisions for loan losses totaled $60,000 for
both the three months ended March 31, 2000 and 1999.

     Other Income.  Other income decreased $35,000, or 9.3%,
from $376,000 for the quarter ended March 31, 1999 to $341,000
for the quarter ended March 31, 2000.  Mortgage banking income,
net decreased $55,000, or 68.5%, from $80,000 for the quarter
ended March 31, 1999 to  $25,000 for the quarter ended March 31,
2000.  Interest rates were higher in 2000 than in 1999  which
decreased our origination of mortgage loans and consequently our
mortgage banking income. During the quarter ended March 31,
2000, we sold fixed-rate mortgage loans of  $6.7 million and
recognized $25,000 from the origination and sale of these loans.
During the quarter ended March 31, 1999, we sold fixed-rate
mortgage loans of $7.9 million and recognized income of $80,000
from the origination and sale of these loans.  Customer service
fees increased $11,000, or 8.8% from $129,000 for the quarter
ended March 31, 1999 to $140,000 for the quarter ended March 31,
2000.  This increase results from growth in the number of
transaction accounts.  In addition, during the quarter ended
March 31, 2000, commissions from sales of annuities and mutual
funds increased $14,000 or 12.9% from $102,000 for the quarter
ended March 31, 1999 to $116,000 for the quarter ended March 31,
2000.  The increase resulted from a slightly higher volume of
sales of annuities and mutual fund products.

     Operating Expenses.  Total operating expenses increased
$266,000, or 18.0% from $1.5 million for the quarter ended March
31, 1999 to $1.7 million for the quarter ended March 31, 2000.
Compensation and related benefits expense increased $150,000, or
15.7% from $1.0 million for the quarter ended March 31, 1999 to
$1.1 million for the quarter ended March 31, 2000.  This

                         10
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increase was primarily the result of the ESOP expense of
$133,000 for the quarter ended March 31, 2000, which was not
present in 1999.  Occupancy and equipment expense increased
$61,000, or 31.3% from $195,000 million for the quarter ended
March 31, 1999 to $255,000 for the quarter ended March 31, 2000.
This increase was primarily the result of higher depreciation
expense.  Other operating expense increased $79,000, or 27.2%
from $290,000 for the quarter ended March 31, 1999 to $369,000
for the quarter ended March 31, 2000.  This increase results
from expenses of being a public company that were not present in
the prior year.  We expect that operating expenses will continue
to increase in subsequent periods as a result of increased cost
associated with operating as a public company.  Operating
expense is also expected to increase as the result of the
implementation of stock-based compensation plans.

     Income Tax Expense. Income tax expense increased $155,000,
or 34.2%, from $453,000 for the quarter ended March 31, 1999 to
$608,000 for the quarter ended March 31, 2000.  The increase
resulted from a $404,000 increase in income before income taxes.
The effective tax rates were 35.3% and 34.3% for the quarters
ended March 31, 2000 and 1999, respectively.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH
31, 2000 AND 1999

     Net Income.  We recorded net income of $2.2 million for the
six months ended March 31, 2000, compared to net income of $1.6
million for the six months ended March 31, 1999, representing an
increase of $590,000, or 36.5%. The principal reason for the
increase was the increase in the net interest income, which was
offset in part by a decrease in other income and increases in
operating expenses and income taxes.  For the six months ended
March 31, 2000 both basic and diluted earnings per share were
$0.75.  Earnings per share data is not available for the 1999
period since the Company had no shares outstanding at that time.

     Interest Income.  Total interest income was $11.9 million
for the six months ended March 31, 2000, as compared to $10.3
million for the six months ended March 31, 1999, representing an
increase of $1.7 million, or 16.1%. Average interest-earning
assets increased by $40.0 million, or 14.4 %, from $277.2
million for the six months ended March 31, 1999 to $317.2
million for the six months ended March 31, 2000.  The growth in
average interest-earning assets was primarily from the
investment of the net proceeds from the Conversion.  We invested
excess overnight funds into higher yielding government and
agency securities and loans. Interest income also increased
because of an 11 basis point increase in the annualized average
yield on interest-earning assets from 7.42% for the six months
ended March 31, 1999 to 7.53% for the six months ended March 31,
2000.  The increased volume of interest-earning assets raised
interest income by approximately $1.5 million and the increased
yield increased interest income by approximately $155,000.

     Interest Expense. Total interest expense was $5.5 million
for the six months ended March 31, 2000, as compared to $5.6
million for the six months ended March 31, 1999, representing a
decrease of $63,000, or 1.1%.  Average interest-bearing
liabilities increased $2.7 million, or 1.1%, from $247.7 million
for the six months ended March 31, 1999 to $250.4 million for
the six months ended March 31, 2000.  The cost of funds
decreased  9 basis points from 4.48% for the six months ended
March 31, 1999 to 4.39% for the same period in 2000.  The
decrease in the rate paid on interest-bearing liabilities
reduced interest expense by approximately $123,000 and the
increase in average outstandings raised interest expense by
approximately $60,000.

     Net Interest Income.  Net interest income, the difference
between interest earned on loans and investments and interest
paid on interest-bearing liabilities, increased by $1.7 million
or 36.4% from $4.7 million for the six months ended March 31,
1999 to $6.5 million for the six months ended March 31, 2000.
Net earning assets increased by  $37.4 million while our net
interest rate spread increased 66 basis points from 3.41% to
4.07% and the annualized net interest margin increased 20 basis
points from 2.94% to 3.14%.  The increase in net interest rate
spread resulted from our increased level of loans and
investments and higher interest rates.  The increase in net
earning assets and net interest margin resulted primarily from
the net proceeds from the sale of stock.

     Provision for Loan Losses.  The provision for loan losses
is charged to earnings to maintain the total allowance for loan
losses at a level considered adequate to absorb estimated
probable losses inherent in the loan portfolio based on existing
loan levels and types of loans outstanding, nonperforming loans,
prior loan loss experience, general economic conditions and
other factors.  Provisions for loan losses totaled $120,000 for
both the six months ended March 31, 2000 and 1999.

                         11
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     Other Income.  Other income decreased $523,000, or 48.8%,
from $1.1 million for the six months ended March 31, 1999 to
$548,000 for the six months ended March 31, 2000.  Interest
rates on mortgage loans were higher in the six months ended
March 31, 2000 than in 1999 which slowed the origination and
sale of fixed rate mortgage loans. As a result, mortgage banking
income, net decreased $504,000, or 113.0%, from income of
$446,000 for the six months ended March 31, 1999 to a loss of
$58,000 for the six months ended March 31, 2000. We sold $9.2
million of loans during the six months ended March 31, 2000, a
decrease of $17.7 million, or 65.8% from the $26.9 million sold
in the six months ended March 31, 1999.  The increase in
interest rates during the six months caused the fair market
value of the loans held for sale to decline below cost.  We
charged earnings with a loss of $180,000, which offset the
$122,000, recognized from the origination and sale of loans
during the six months ended March 31, 2000.  In addition, during
the six months ended March 31, 2000, commissions from sales of
annuities and mutual funds decreased $35,000 or 15.1% from
$230,000 for the six months ended March 31, 2000 to $195,000 for
the six months ended March 31, 2000.  The decrease resulted from
lower sales of these products during the first quarter of fiscal
2000.

     Operating Expenses.  Total operating expenses increased
$291,000, or 9.1% from $3.2 million for the six months ended
March 31, 1999 to $3.5 million for the six months ended March
31, 2000.  Compensation and related benefits expense increased
$216,000, or 10.4% from $2.1 million for the six months ended
March 31, 1999 to $2.3 million for the six months ended March
31, 2000.  The primary reason for this increase was the $276,000
of ESOP expense which was not present in 1999.  Other operating
expenses increased $67,000 or 11.3% from $591,000 for the six
months ended March 31, 1999 to $658,000 for the six months ended
March 31, 2000.  The primary reason for this increase is
additional expenses (legal, accounting, printing, postage) of
being a public company which were not present in 1999. We expect
that operating expenses will continue to increase in subsequent
periods as a result of increased cost associated with operating
as a public company.  Operating expense is also expected to
increase as the result of the implementation of stock-based
compensation plans.

     Income Tax Expense. Income tax expense increased $318,000,
or 36.7%, from $867,000 for the six months ended March 31, 1999
to $1,185,000 for the six months ended March 31, 2000.  The
increase resulted from a $908,000 increase in income before
income taxes.  The effective tax rates were 34.9% for both the
six months ended March 31, 2000 and 1999.

ASSET QUALITY

     At March 31, 2000, we had approximately $3.1 million of
loans in nonaccrual status as compared with $366,000 at
September 30, 1999 and $505,000 at March 31, 1999.  At March 31,
2000, impaired loans totaled $2.8 million as defined by
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan."  The increase resulted
from two unrelated loan customers, both of which have loans
secured by commercial real estate properties in Alamance county.
At March 31, 2000, all of the $2.8 million is on non-accrual
status, and their related reserve for loan losses totaled
$404,000.  There was no impact on the provision as management
had already anticipated the loans' performance in setting the
allowance for loan losses in previous periods.  The average
carrying value of impaired loans was $2.8 million and $1.7
million during the three and six months ended March 31, 2000,
respectively.  Gross interest income of $1,000 and $47,000 was
recognized during the three and six months ended March 31, 2000.
This interest income represents payments that were made on these
impaired loans before they were impaired.  If amounts are
received on nonaccrual loans or impaired loans, we decide
whether payments received should be recorded as a reduction of
the principal balance or as interest income depending on our
analysis of the collectibility of principal.  No payments have
been received on impaired loans since they have been classified
as impaired.  There were no impaired loans at March 31, 1999.
We had no loans contractually past due 90 days or more and still
accruing at March 31, 2000 and 1999.  The allowance for loan
losses was $3.6 million or 1.66% of outstanding loans at March
31, 2000.  This compares to 1.74% at September 30, 1999 and
1.74% at March 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank must meet certain liquidity requirements
established by the State of North Carolina Office of the
Commissioner of Banks (the "Commissioner").  At March 31, 1999,
the Bank's liquidity ratio exceeded such requirements.
Liquidity generally refers to the Bank's ability to generate
adequate amounts of funds to meet its cash needs.  Adequate
liquidity guarantees that sufficient funds are available to meet
deposit withdrawals, fund loan

                              12
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commitments, maintain adequate reserve requirements, pay
operating expenses, provide funds for debt service, pay
dividends to stockholders and meet other general commitments.

     Our primary sources of funds are deposits, principal and
interest payments on loans, proceeds from the sale of loans, and
to a lesser extent, advances from the FHLB of Atlanta.  While
maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic
conditions and local competition.

     Our most liquid assets are cash and cash equivalents.  The
levels of these assets are dependent on our operating,
financing, lending and investing activities during any given
period.  At March 31, 1999, cash and cash equivalents totaled
$21.4 million.  We have other sources of liquidity should we
need additional funds.  During the six months ended March 31,
2000 and 1999, we sold loans totaling $9.2 million and $26.9
million, respectively.  Additional sources of funds include FHLB
of Atlanta advances.  Other sources of liquidity include loans
and investment securities designated as available for sale,
which totaled $13.5 million at March 31, 2000.

     We anticipate that we will have sufficient funds available
to meet our current commitments.  At March 31, 2000, we had
$11.9 million in commitments to originate new loans, $52.5
million in unfunded commitments to extend credit under existing
equity lines and commercial lines of credit and $139,000 in
standby letters of credit.  At March 31, 2000, certificates of
deposit, which are scheduled to mature within one year totaled
$126.3 million.  We believe that a significant portion of such
deposits will remain with us.

     The FDIC requires the Bank to meet a minimum leverage
capital requirement of Tier I capital to assets ratio of 4%.
The FDIC also requires the Bank to meet a ratio of total capital
to risk-weighted assets of 8%, of which 4% must be in the form
of Tier I capital.  The Commissioner requires the Bank at all
times to maintain certain minimum capital levels. The Bank was
in compliance with all capital requirements of the FDIC and the
Commissioner at March 31, 2000 and is deemed to be "well
capitalized."

ACCOUNTING ISSUES

     Accounting for Derivative Instruments and Hedging
Activities.  In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133
("SFAS 133").  SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities.
Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB No. 133 - an amendment of FASB No.
133" delayed the effective date of this statement for one year.
This statement is effective for the Company beginning October 1,
2000, without any significant impact expected on the
consolidated financial statements as the Company does not have
any significant derivative financial instruments and is not
involved in any hedging activities.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK

     The Company monitors whether material changes in market
risk have occurred since September 30, 1999. The Company does
not believe that any material adverse changes in market risk
exposures occurred since September 30, 1999.

                         13
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                  PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

None.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company's Annual Meeting of Stockholders was held on
January 25, 2000.  At this meeting 2,536,884 shares of the
Company's common stock were represented in person or by proxy.

     Stockholders voted in favor of the election of three
nominees for director.  The voting results for each nominee were
as follows:

                         Votes in Favor        Votes
     Nominee              Of Election         Withheld

Bernie C. Bean             2,532,383           4,501
James C. McGill            2,532,383           4,501
Virgil L. Stadler          2,532,383           4,501

     There were no broker nonvotes on the matter.

     The terms of office of Directors James A. Barnwell, Jr.,
James G. McClure, T. Scott Quakenbush, Richard C. Keziah and
Richard H. Shirley continued after the meeting.


ITEM 5.   OTHER INFORMATION

None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a.)      The following exhibits are being filed with this
quarterly report on Form 10-Q:

               NO.            DESCRIPTION
               --             -----------

               27        Financial Data Schedule (EDGAR Only)

(b.) Reports on Form 8-K.   During the quarter ended March 31,
     -------------------
2000, the registrant did not file any current reports on Form
8-K.

                         14
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                      SIGNATURES



Pursuant to the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                      1ST STATE BANCORP, INC.


Date: May 11, 2000    /s/ James C. McGill
                      --------------------------------
                      James C. McGill
                      President and Chief Executive Officer
                      (Principal Executive Officer)


Date: May 11, 2000    /s/ A. Christine Baker
                      --------------------------------
                      A. Christine Baker
                      Treasurer and Secretary
                      (Principal Financial and Accounting
                       Officer)

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