U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                   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, 2004

                                       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 No.
                                     0-25933

                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact name of small business issuer as specified in its charter)

                South Carolina                          28-2384011
         (State or other jurisdiction                (I.R.S. Employer
      of incorporation or organization)            Identification No.)

                           530 Johnnie Dodds Boulevard
                       Mt. Pleasant, South Carolina 29464
                    (Address of principal executive offices)

                                  843-884-0504
                (Issuer's telephone number, including area code)
                ------------------------------------------------

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  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 [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.

     2,969,008 shares of common stock, no par value, as of October 31, 2004

   Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]



<PAGE>



                        SOUTHCOAST FINANCIAL CORPORATION

                                      INDEX

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                                                     Page No.

Item 1.  Financial Statements (Unaudited)

<S>                                                                                                                 <C>
         Condensed Consolidated Balance Sheets - September 30, 2004 and December 31, 2003...............................2

         Condensed Consolidated Statements of Income - Nine months ended September 30, 2004 and 2003
           and three months ended September 30, 2004 and 2003...........................................................3

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
           Nine months ended September 30, 2004 and 2003................................................................4

         Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2004 and 2003................5

Notes to Condensed Consolidated Financial Statements..................................................................6-8

Item 2.  Management's Discussion and Analysis or Plan of Operation...................................................9-14

Item 3. Controls and Procedures........................................................................................15

PART II - OTHER INFORMATION


Item 6.  Exhibits .....................................................................................................16

         Exhibits......................................................................................................16



Signatures ............................................................................................................17
</TABLE>




<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements



                      Condensed Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                                                                 September 30,          December 31,
                                                                                                      2004                2003
                                                                                                      ----                ----
                                                                                                   (Unaudited)
Assets
<S>                                                                                             <C>                     <C>
   Cash and due from banks .........................................................            $  8,606,393            $  5,550,376
   Federal funds sold ..............................................................               5,974,000              12,031,000
   Investment securities available for sale ........................................              24,577,507              19,993,359
   Federal Home Loan Bank stock, at cost ...........................................               2,650,000               2,055,000
   Loans held for sale .............................................................               3,766,048                 427,000
   Loans, net of allowance of $2,807,713 and $2,376,516 ............................             265,817,862             199,732,196
   Property and equipment - net ....................................................              14,922,838               9,412,214
   Other assets ....................................................................               4,574,432               3,670,957
                                                                                                ------------            ------------
       Total assets ................................................................            $330,889,080            $252,872,102
                                                                                                ============            ============
Liabilities
   Deposits
     Noninterest-bearing ...........................................................            $ 29,059,761            $ 19,645,320
     Interest bearing ..............................................................             198,525,629             146,567,087
                                                                                                ------------            ------------
       Total deposits ..............................................................             227,585,390             166,212,407
                                                                                                ------------            ------------
   Other borrowings ................................................................              54,500,000              41,100,000
   Junior subordinated debentures ..................................................              11,000,000              11,000,000
   Other liabilities ...............................................................               2,174,433               1,149,284
                                                                                                ------------            ------------
       Total liabilities ...........................................................             295,259,823             219,461,691
                                                                                                ------------            ------------
Shareholders' Equity
   Common stock (no par value; 20,000,000 shares authorized;
     2,967,180 shares outstanding at September 30,2004 and
     2,948,551 at December 31, 2003) ...............................................              34,048,609              33,298,027
   Retained earnings ...............................................................               1,362,378                       -
   Accumulated other comprehensive income ..........................................                 218,270                 112,384
                                                                                                ------------            ------------
       Total shareholders' equity ..................................................              35,629,257              33,410,411
                                                                                                ------------            ------------
       Total liabilities and shareholders' equity ..................................            $330,889,080            $252,872,102
                                                                                                ============            ============
</TABLE>

            See notes to condensed consolidated financial statements.





                                       2
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                   Condensed Consolidated Statements of Income
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                For the Nine months ended            For the Three months ended
                                                                       September 30,                          September 30,
                                                                       -------------                          -------------
                                                                 2004               2003                2004                2003
                                                                 ----               ----                ----                ----
Interest income
<S>                                                          <C>                 <C>                 <C>                 <C>
   Loans, including fees ...........................         $11,036,073         $ 8,629,159         $ 4,031,072         $ 3,146,144
   Investment securities ...........................             712,399             257,038             292,145              91,498
   Federal funds sold ..............................              73,737             105,883              12,817              19,383
                                                             -----------         -----------         -----------         -----------
       Total interest income .......................          11,822,209           8,992,080           4,336,034           3,257,025
                                                             -----------         -----------         -----------         -----------
Interest expense
   Deposits and borrowings .........................           4,162,778           3,401,624           1,537,293           1,175,727
                                                             -----------         -----------         -----------         -----------
Net interest income ................................           7,659,431           5,590,456           2,798,741           2,081,298
Provision for  loan losses .........................             467,000             605,000             222,000             180,000
                                                             -----------         -----------         -----------         -----------
Net interest income after provision
   for loan losses .................................           7,192,431           4,985,456           2,576,741           1,901,208
                                                             -----------         -----------         -----------         -----------
Noninterest income
   Service fees on deposit accounts ................             716,289             677,733             253,326             235,317
   Fees on loans sold ..............................             275,849             587,143             141,158             192,243
   Other ...........................................             123,588             157,489              48,574              10,514
                                                             -----------         -----------         -----------         -----------
       Total noninterest income ....................           1,115,726           1,422,365             443,058             438,074
                                                             -----------         -----------         -----------         -----------
Noninterest expenses
   Salaries and employment benefits ................           3,202,654           2,810,314           1,180,676             981,581
   Occupancy .......................................             347,391             298,252             118,348              92,384
   Furniture and equipment .........................             611,386             487,224             219,665             171,287
   Advertising and public relations ................             138,419              69,413              59,537              42,123
   Professional fees ...............................             241,148             199,197              87,579              97,223
   Travel and entertainment ........................             179,304             143,725              77,065              57,843
   Telephone, postage and supplies .................             234,659             198,564              70,196              95,203
   Other operating expenses ........................             473,007             383,034             172,879             130,131
                                                             -----------         -----------         -----------         -----------
       Total noninterest expenses ..................           5,427,968           4,589,723           1,985,945           1,667,775
                                                             -----------         -----------         -----------         -----------
Income before income taxes .........................           2,880,189           1,818,098           1,033,854             671,597
Income tax .........................................             900,430             655,656             327,393             243,216
                                                             -----------         -----------         -----------         -----------
Net income .........................................         $ 1,979,759         $ 1,162,442         $   706,461         $   428,381
                                                             ===========         ===========         ===========         ===========
Basic net income per common share ..................         $      0.67         $      0.69         $      0.24         $      0.25
Diluted net income per common share ................         $      0.66         $      0.66         $      0.23         $      0.24
Weighted average shares outstanding
   Basic ...........................................           2,962,627           1,684,603           2,967,147           1,689,038
   Diluted .........................................           3,003,826           1,761,619           3,008,682           1,771,499
</TABLE>

            See notes to condensed consolidated financial statements.





                                       3
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

       Condensed Consolidated Statement of Changes in Shareholders' Equity
                            and Comprehensive Income
             For the nine months ending September 30, 2004 and 2003
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                                       Accumulated
                                                                                                          other
                                                            Common Stock                             comprehensive
                                                            ------------                Retained           income
                                                       Shares           Amount          earnings           (loss)            Total
                                                       ------           ------          --------           ------            -----
<S>                                                  <C>          <C>               <C>                <C>            <C>
Balance, January 1, 2003 ........................    1,321,996    $  11,378,910     $   1,289,321      $    41,221    $  12,709,452
   Net income for the period ....................                                       1,162,442                         1,162,442
   Other comprehensive income,
     net of tax .................................
   Unrealized holding losses
     on securities available for sale ...........                                                          (72,018)         (72,018)
                                                                                                                      -------------

   Comprehensive income .........................                                                                         1,090,424
   Stock dividend ...............................      205,016
   Stock redemption .............................       (6,000)        (112,500)                                           (112,500)
   Exercise of stock options ....................        8,850           43,750                                              43,750
   Employee stock purchase plan .................        2,337           26,158                                              26,158
                                                     ---------    -------------     -------------      -----------    -------------

Balance, September 30, 2003 .....................    1,532,199    $  11,336,318     $   2,451,763      $   (30,797)   $  13,757,284
                                                     =========    =============     =============      ===========    =============

Balance, January 1, 2004 ........................    2,680,501    $  33,298,027     $          -       $   112,384    $  33,410,411

   Net income for the period ....................                                       1,979,759                         1,979,759

   Other comprehensive income,
     net of tax .................................
   Unrealized holding losses
     on securities available for sale ...........                                                          105,886          105,886
                                                                                                                      -------------

   Comprehensive income .........................                                                                         2,085,645

   Stock dividend ...............................      269,592          617,381          (617,381)                                -

   Exercise of stock options ....................       12,820           60,287                                              60,287

   Employee stock purchase plan .................        4,267           72,914                                              72,914
                                                     ---------    -------------     -------------      -----------    -------------

Balance, September 30, 2004 .....................    2,967,180    $  34,048,609     $   1,362,378      $   218,270    $  35,629,257
                                                     =========    =============     =============      ===========    =============
</TABLE>
            See notes to condensed consolidated financial statements.





                                       4
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                      For the nine months ended
                                                                                                            September 30,
                                                                                                            -------------
                                                                                                     2004                   2003
                                                                                                     ----                   ----
Operating activities
<S>                                                                                             <C>                    <C>
   Net income ........................................................................          $  1,979,759           $  1,162,442
   Adjustments to reconcile net income to net
     cash provided (used) by operating activities
       Deferred income taxes .........................................................               900,430                655,656
       Provision for loan losses .....................................................               467,000                605,000
       Depreciation and amortization .................................................               545,504                484,669
       Increase in other assets ......................................................              (903,475)              (572,372)
       Increase (decrease) in other liabilities ......................................                65,158               (245,596)
                                                                                                ------------           ------------

         Net cash provided by operating activities ...................................             3,054,376              2,089,799
                                                                                                ------------           ------------

Investing activities
   Net sale (purchase) of Federal Home Loan Bank stock ...............................              (595,000)                     -
   Net sale (purchase) of investment securities available for sale ...................            (4,446,849)            (9,987,250)
   Net increase in loans .............................................................           (69,891,714)           (50,321,968)
   Purchase of property and equipment ................................................            (6,027,980)            (1,003,124)
                                                                                                ------------           ------------

         Net cash used for investing activities ......................................           (80,961,543)           (61,312,342)
                                                                                                ------------           ------------

Financing activities
   Increase (decrease) in borrowings .................................................            13,400,000             15,100,000
   Proceeds from sale of stock, net ..................................................               133,201                (42,592)
   Net increase in deposits ..........................................................            61,372,983             35,733,507
                                                                                                ------------           ------------

         Net cash provided by financing activities ...................................            74,906,184             50,790,915
                                                                                                ------------           ------------

         Decrease in cash and cash equivalents .......................................            (3,000,983)            (8,431,628)

Cash and cash equivalents, beginning of period .......................................            17,581,376             20,072,586
                                                                                                ------------           ------------

Cash and cash equivalents, end of period .............................................          $ 14,580,393           $ 11,640,958
                                                                                                ============           ============
</TABLE>


            See notes to condensed consolidated financial statements.



                                       5
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


Note 1 - Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
for interim  financial  information and with the instructions to Form 10-QSB and
item  310 (b) of  Regulation  S-B of the  Securities  and  Exchange  Commission.
Accordingly  they do not include all information and notes required by generally
accepted accounting  principles for complete financial  statements.  However, in
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
adjustments) considered necessary for a fair presentation have been included.

Note 2 - Organization

Southcoast Financial Corporation (the "Company") is a South Carolina corporation
organized  in 1999 for the  purpose of being a holding  company  for  Southcoast
Community Bank (the "Bank").  On April 29, 1999,  pursuant to a Plan of Exchange
approved by the shareholders,  all of the outstanding shares of capital stock of
the Bank were  exchanged for shares of common stock of the Company.  The Company
presently  engages in no business other than that of owning the Bank and another
subsidiary and has no employees.

Note 3 - Stock-Based Compensation

We have a stock-based  employee  compensation  plan which is accounted for under
the  recognition  and  measurement  principles  of Accounting  Principles  Board
("APB")  Opinion No. 25,  Accounting for Stock Issued to Employees,  and related
Interpretations.  No stock-based employee  compensation cost is reflected in net
income,  as all stock options  granted  under these plans had an exercise  price
equal to the market value of the  underlying  common stock on the date of grant.
The following table  illustrates the effect on net income and earnings per share
as if we  had  applied  the  fair  value  recognition  provisions  of  Financial
Accounting  Standards  Board ("FASB") SFAS No. 123,  Accounting for  Stock-Based
Compensation, to stock-based employee compensation.

                                                         Nine months ended
                                                            September 30,
                                                            -------------
                                                        2004             2003
                                                        ----             ----
                                                              (Unaudited)

Net income, as reported .......................   $    1,979,759   $   1,162,442
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ..           91,113          23,823
                                                  --------------   -------------

Pro forma net income ..........................   $    1,888,646   $   1,138,619
                                                  ==============   =============

Earnings per share:
  Basic - as reported .........................   $         0.67   $        0.69
                                                  ==============   =============
  Basic - pro forma ...........................   $         0.64   $        0.68
                                                  ==============   =============

  Diluted - as reported .......................   $         0.66   $        0.66
                                                  ==============   =============
  Diluted - pro forma .........................   $         0.63   $        0.65
                                                  ==============   =============



                                       6
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


Note 3 - Stock-Based Compensation - continued

                                                       Three months ended
                                                           September 30,
                                                           -------------
                                                        2004            2003
                                                        ----            ----
                                                            (Unaudited)

Net income, as reported .........................   $      706,461 $     428,381
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ....                -         7,941
                                                    --------------   -----------
Pro forma net income ............................   $      706,461 $     420,440
                                                    ==============   ===========

Earnings per share:
  Basic - as reported ...........................   $         0.24   $      0.25
                                                    ==============   ===========

  Basic - pro forma .............................   $         0.24   $      0.25
                                                    ==============   ===========

  Diluted - as reported .........................   $         0.23   $      0.24
                                                    ==============   ===========

  Diluted - pro forma ...........................   $         0.23   $      0.24
                                                    ==============   ===========


Note 4 - Net Income Per Share

Net income per share is computed on the basis of the weighted  average number of
common shares  outstanding in accordance with Statement of Financial  Accounting
Standards No. 128,  "Earnings per Share".  The treasury  stock method is used to
compute the effect of stock  options on the  weighted  average  number of shares
outstanding for diluted earnings per share.

In April 2004 and April 2003, the Company  declared ten percent stock  dividends
on the Company's common stock. In July, 2003 the Company declared a special five
percent  stock  dividend.  The weighted  average  number of shares and all other
share data have been  restated for all periods  presented to reflect these stock
dividends.


Note 5 - Junior Subordinated Debentures

In May 2002 and December 2002, in two separate transactions,  the Company issued
an aggregate  of $11 million of floating  rate junior  subordinated  debentures.
These securities qualify as Tier 1 capital for regulatory purposes.  They have a
five-year  call date with a maturity of thirty years from date of issuance.  The
interest rate on the securities fluctuates quarterly with the three-month LIBOR.



                                       7
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 6 - Recently Issued Accounting Standards

No recent authoritative  pronouncements that affect accounting,  reporting,  and
disclosure  of  financial  information  by us have  occurred  during the quarter
ending September 30, 2004, other than the items described below.

In November  2003, the Emerging  Issues Task Force ("EITF")  reached a consensus
that certain  quantitative  and qualitative  disclosures  should be required for
debt and marketable equity  securities  classified as available for sale or held
to maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the balance
sheet  date  but  for  which   other-than-temporary   impairment  has  not  been
recognized.   Accordingly   EITF  issued  EITF  No.   03-1,   "The   Meaning  of
Other-Than-Temporary  Impairment and Its  Application  to Certain  Investments."
This issue  addresses  the meaning of  other-than-temporary  impairment  and its
application  to investments  classified as either  available for sale or held to
maturity  under SFAS No. 115 and  provides  guidance  determining  the amount of
impairment and additional quantitative and qualitative disclosures. The guidance
for  determining  the amount of  impairment  was  scheduled to be effective  for
periods  ending after June 15, 2004, but has been delayed  indefinitely  pending
implementation  guidance by the FASB. The disclosure provisions of EITF No. 03-1
were  effective  for fiscal years ending after  December 15, 2003.  Adopting the
disclosure  provisions of EITF No. 03-1 did not have any impact on the Company's
financial position or results of operations.

In March 2004, the FASB issued an exposure draft on "Share-Based  Payment".  The
proposed  Statement  addresses  the  accounting  for  transactions  in  which an
enterprise  receives employee services in exchange for (a) equity instruments of
the  enterprise  or (b)  liabilities  that are  based  on the fair  value of the
enterprise's  equity  instruments or that may be settled by the issuance of such
equity  instruments.  This  proposed  Statement  would  eliminate the ability to
account  for  share-based  compensation  transactions  using APB Opinion No. 25,
"Accounting for Stock Issued to Employees",  and generally would require instead
that such transactions be accounted for using a  fair-value-based  method.  This
Statement,  if  approved,  was  scheduled  to be  effective  for awards that are
granted,  modified,  or settled in fiscal years  beginning after a) December 15,
2004 for public entities and nonpublic  entities that used the  fair-value-based
method  of  accounting  under  the  original  provisions  of  Statement  123 for
recognition  or pro forma  disclosure  purposes and b) December 15, 2005 for all
other  nonpublic  entities.  On October 16, 2004, the FASB delayed the effective
date of this proposal by six months and  anticipates it will be effective by the
third  quarter  of 2005.  Retrospective  application  of this  Statement  is not
permitted.  The adoption of this Statement, if approved, could have an impact on
the Company's financial position or results of operations.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.




                                       8
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related  notes  appearing  in the 2003 Form 10-KSB of
Southcoast  Financial  Corporation.  Results of operations for the period ending
September 30, 2004 are not necessarily  indicative of the results to be attained
for  any  other  period.  Statements  included  in  this  report  which  are not
historical  in nature are intended to be, and are hereby  identified as "forward
looking  statements"  for purposes of the safe harbor provided by Section 21E of
the  Securities  Exchange  Act of 1934,  as amended.  Words such as  "estimate,"
"project,"  "intend,"  "expect,"  "plan,"  "anticipate,"  "believe," and similar
expressions identify  forward-looking  statements.  The Company cautions readers
that forward looking statements including without limitation,  those relating to
the Company's new offices,  future business prospects,  revenues,  allowance for
loan losses,  working  capital,  liquidity,  capital needs,  interest costs, and
income,  are subject to certain risks and uncertainties  that could cause actual
results to differ from those indicated in the forward looking statements, due to
several important factors herein  identified,  among others, and other risks and
factors  identified  from time to time in the  Company's  reports filed with the
Securities and Exchange Commission.

Results of Operations

The  Company's  net income for the nine  months  ended  September  30,  2004 was
$1,979,759  or $.67 per basic share,  compared to  $1,162,442  or $.69 per basic
share,  for the nine months  ended  September  30, 2003.  The average  number of
shares for the nine months ending  September 30, 2004 was 2,962,627  compared to
1,684,603 for the period  ending  September  30, 2003.  The increased  number of
shares is primarily  due to the  1,104,000 new shares issued in November 2003 in
our secondary stock offering.

The  Company's  net income for the three  months  ended  September  30, 2004 was
$706,461 or $.24 per basic share,  compared to $428,381 or $.25 per basic share,
for the three months ended  September 30, 2003. The average number of shares for
the quarter  ending  September 30, 2004 was 2,967,147  compared to 1,689,038 for
the  period  ending  September  30,  2003.  The  increased  number  of shares is
primarily  due to the  1,104,000  new  shares  issued  in  November  2003 in our
secondary stock offering.


Net Interest Income

Net interest  income is the difference  between the interest  earned on interest
earning assets and the interest paid for funds acquired to support those assets.
Net  interest  income,  the  principal  source of the  Company's  earnings,  was
$7,659,431 for the nine months ended September 30, 2004,  compared to $5,590,456
for the nine  months  ended  September  30,  2003.  For the three  months  ended
September 30, 2004, net interest  income was  $2,798,741  compared to $2,081,298
for the three months ended September 30, 2003.

Changes  that affect net  interest  income  include  changes in the average rate
earned on interest earning assets,  changes in the average rate paid on interest
bearing  liabilities,  and changes in the volumes of interest earning assets and
interest bearing liabilities.

Average  earning assets for the nine months ending  September 30, 2004 increased
40.5  percent to $271.3  million from the $193.1  million  reported for the nine
months ending  September 30, 2003. The increase was mainly  attributable  to the
increase in loans  supported  by a $57.4  million  increase in average  interest
bearing  liabilities  which resulted from the continued growth of the Charleston
market area,  growth in the  Company's  branches,  and the  Company's  marketing
efforts,  as well as an increase in average  equity of $20.9  million  resulting
primarily from our secondary stock offering.

The  following  table  compares the average  balances,  yields and rates for the
interest  sensitive segments of the Company's balance sheets for the nine months
ended September 30, 2004 and 2003. The increase in net interest income is due to
increased  volume of earning  assets,  partially  offset  with a 10 basis  point
decrease in the Company's net interest margin.


                                       9
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

<TABLE>
<CAPTION>
                                                   For the nine months ended                       For the nine months ended
                                                       September 30, 2004                              September 30, 2003
                                                       ------------------                              ------------------
                                          Average          Income/       Yield/               Average          Income/       Yield/
                                          Balance          Expense       Rate(1)              Balance          Expense       Rate(1)
                                          -------          -------       -------              -------          -------       -------
Assets
<S>                                   <C>               <C>                <C>            <C>                <C>               <C>
   Federal funds sold ..............  $ 10,099,783      $    73,737        0.97%          $ 12,691,036       $  105,883        1.11%
   Investments .....................    30,720,411          712,399        3.09             10,770,479          257,038        3.18
                                      ------------      -----------                       ------------       ----------
     Total investments and
       federal funds sold ..........    40,820,194          786,136        2.57             23,461,515          362,921        2.06
   Loans ...........................   230,517,105       11,036,073        6.38            169,668,913        8,629,159        6.78
                                      ------------      -----------                       ------------       ----------
     Total earning assets ..........   271,337,299       11,822,209        5.81            193,130,428        8,992,080        6.21
                                                        -----------                                          ----------
     Other assets ..................    19,537,926                                          12,705,850
                                      ------------                                        ------------
     Total assets ..................  $290,875,225                                        $205,836,278
                                      ============                                        ============
Liabilities
   Interest bearing deposits .......  $179,269,755        2,734,728        2.03           $134,501,151       $2,196,342        2.18
   Other borrowings ................    48,309,176        1,428,050        3.94             35,658,638        1,205,282        4.51
                                      ------------      -----------                       ------------       ----------
     Total interest bearing
       liabilities .................   227,578,931        4,162,778        2.44            170,159,789        3,401,624        2.67
                                                        -----------                                          ----------
   Non-interest bearing
     liabilities ...................    29,041,403                                          22,295,385
                                      ------------                                        ------------
     Total liabilities .............   256,620,334        4,162,778        2.16            192,455,174        3,401,624        2.36
                                                        -----------                                          ----------
   Equity ..........................    34,254,891                                          13,381,104
                                      ------------                                        ------------
     Total liabilities
       and equity ..................  $290,875,225                                        $205,836,278
                                      ============                                        ============
     Net interest
       income/margin ..............                     $ 7,659,431        3.76                           $   5,590,456        3.86
                                                        ===========                                       =============
     Net interest spread ..........                                        3.37%                                               3.54%
</TABLE>

(1)  Annualized

As reflected  above,  for the nine months ended  September  30, 2004 the average
yield on earning  assets was 5.81  percent,  while the average  cost of interest
bearing  liabilities  was 2.44 percent.  For the nine months ended September 30,
2003 the average  yield on earning  assets was 6.21 percent and the average cost
of interest-bearing  liabilities was 2.67 percent.  The decrease in the yield on
earning  assets  is  attributable  to change  in the mix of the  assets  and the
maturing of higher yielding loans.  The decrease in the cost of interest bearing
liabilities  is caused by the maturing of higher yield  certificates  of deposit
and the increased balances in low cost core deposits. The net interest margin is
computed by subtracting  interest  expense from interest income and dividing the
resulting figure by average interest earning assets. The net interest margin for
the nine  months  ended  September  30, 2004 was 3.76  percent  compared to 3.86
percent  for the nine months  ended  September  30,  2003.  The  decrease in the
net-interest  margin is  primarily  attributable  the  issuance  of higher  rate
certificates, in the latter part of the first quarter, as part of an advertising
campaign for the new Summerville  branch and the issuance of $20 million dollars
of longer term brokered  certificates in  anticipation of expected  increases in
rates. These increased deposits were invested in liquid assets earning less than
the deposit rates for some portion of the period.  The cost of total liabilities
was 2.16 percent for the nine months ended  September  30, 2004 compared to 2.36
percent for the nine months ended September 30, 2003.



                                       10
<PAGE>
                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

Average earning assets for the three months ending  September 30, 2004 increased
52.0 percent to $294.0  million from the $193.4  million  reported for the three
months ending  September 30, 2003. The increase was mainly  attributable  to the
increase in loans  supported  by a $78.5  million  increase in average  interest
bearing  liabilities  which resulted from the continued growth of the Charleston
market area,  growth in the  Company's  branches,  and the  Company's  marketing
efforts as well as an  increase  in average  equity of $21.8  million  resulting
primarily from our secondary stock offering.

The  following  table  compares the average  balances,  yields and rates for the
interest sensitive segments of the Company's balance sheets for the three months
ended September 30, 2004 and 2003. The increase in net interest income is due to
increased  volume  of  earning  assets,  partially  offset  by a 16 basis  point
decrease in the Company's net interest margin.
<TABLE>
<CAPTION>
                                                   For the three months ended                       For the three months ended
                                                      September 30, 2004                                 September 30, 2003
                                                      ------------------                                 ------------------
                                              Average        Income/         Yield/          Average          Income/        Yield/
                                              Balance        Expense         Rate(1)         Balance          Expense        Rate(1)
                                              -------        -------         -------         -------          -------        -------
Assets
<S>                                        <C>              <C>                <C>         <C>              <C>                <C>
   Federal funds sold ...................  $  3,626,868     $   12,817         1.41%       $  8,186,006     $   19,383          .95%
   Investments ..........................    34,730,057        292,145         3.36          10,983,408         91,498         3.33
                                           ------------     ----------                     ------------     ----------
     Total investments and
       federal funds sold ...............    38,356,925        304,962         3.18          19,169,414        110,881         2.31
   Loans ................................   255,611,035      4,031,072         6.31         190,512,602      3,146,144         6.61
                                           ------------     ----------                     ------------     ----------
     Total earning assets ...............   293,967,960      4,336,034         5.90         209,682,016      3,257,025         6.21
                                                            ----------                                      ----------
     Other assets .......................    22,120,126                                      12,870,326
                                           ------------                                    ------------
     Total assets .......................  $316,088,086                                    $222,352,342
                                           ============                                    ============
Liabilities
   Interest bearing deposits ............  $193,442,339      1,017,727         2.10        $144,922,274     $  748,461         2.07
   Other borrowings .....................    54,630,301        519,566         3.80          39,593,692        427,266         4.32
                                           ------------     ----------                     ------------     ----------
     Total interest bearing
       liabilities ......................   248,072,640      1,537,293         2.48         184,515,966      1,175,727         2.55
                                                            ----------                                      ----------
   Non-interest bearing
     liabilities ........................    32,958,948                                      23,953,942
                                           ------------                                    ------------
     Total liabilities ..................   281,031,588      1,537,293         2.19         208,469,908      1,175,727         2.26
                                                            ----------                                      ----------
   Equity ...............................    35,056,498                                      13,882,434
                                           ------------                                    ------------
     Total liabilities
       and equity .......................  $316,088,086                                    $222,352,342
                                           ============                                    ============
     Net interest
       income/margin ....................                   $2,798,741         3.81                         $2,081,298         3.97
                                                            ==========                                      ==========
     Net interest spread ................                                      3.42%                                           3.66%
</TABLE>
(1)  Annualized

As reflected  above,  for the three months ended  September 30, 2004 the average
yield on earning  assets was 5.90  percent,  while the average  cost of interest
bearing  liabilities was 2.48 percent.  For the three months ended September 30,
2003 the average  yield on earning  assets was 6.21 percent and the average cost
of interest-bearing  liabilities was 2.55 percent.  The decrease in the yield on
earning  assets is  attributable  to the change in the mix of earning assets and
the  maturing of higher  yielding  loans.  The  decrease in the cost of interest
bearing  liabilities is caused by the maturing of higher yield  certificates  of
deposits and the increase in the low yielding  core  deposits.  The net interest
margin for the three months ended September 30, 2004, was 3.81 percent  compared
to 3.97 percent for the three months ended  September 30, 2003.  The decrease in
the  net-interest  margin is primarily  attributable the issuance of higher rate
certificates, in the latter part of the first quarter, as part of an advertising
campaign for the new Summerville  branch and the issuance of $20 million dollars
of longer term brokered  certificates in  anticipation of expected  increases in
rates. These increased deposits were invested in liquid assets earning less than
the deposit rates for some portion of the period.  The cost of total liabilities
was 2.19 percent for the three months ended  September 30, 2004 compared to 2.26
percent for the three months ended September 30, 2003.

                                       11
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

The following  tables present changes in the Company's net interest income which
are   primarily   a  result  of   changes   in  the  volume  and  rates  of  its
interest-earning assets and interest-bearing liabilities.

<TABLE>
<CAPTION>

                                                                                   Analysis of Changes in Net Interest Income
                                                                                  For the nine months ended September 30, 2004
(Dollars in thousand)                                                              Versus nine months ended September 30, 2003
                                                                                   -------------------------------------------
                                                                                  Volume                Rate              Net Change
                                                                                  ------                ----              ----------
<S>                                                                               <C>                  <C>                  <C>
Federal funds sold ..................................................             $   (22)             $   (10)             $   (32)
Investments .........................................................                 476                  (21)                 455
                                                                                  -------              -------              -------
Total investments and federal funds sold ............................                 454                  (31)                 423
Total loans .........................................................               3,094                 (687)               2,407
                                                                                  -------              -------              -------
Total earning assets ................................................               3,548                 (718)               2,830

Total interest-bearing liabilities ..................................               1,160                 (399)                 761
                                                                                  -------              -------              -------
Net interest income .................................................             $ 2,388              $  (319)             $ 2,069
                                                                                  =======              =======              =======
<CAPTION>

                                                                                   Analysis of Changes in Net Interest Income
                                                                                  For the three months ended September 30, 2004
(Dollars in thousands)                                                             Versus three months ended September 30, 2003
                                                                                   --------------------------------------------
                                                                                  Volume                Rate              Net Change
                                                                                  ------                ----              ----------


<S>                                                                               <C>                  <C>                  <C>
Federal funds sold ..................................................             $   (11)             $     4              $    (7)
Investments .........................................................                 198                    3                  201
                                                                                  -------              -------              -------
Total investments and federal funds sold ............................                 187                    7                  194
Total loans .........................................................               1,076                 (191)                 885
                                                                                  -------              -------              -------
Total earning assets ................................................               1,263                 (184)               1,079

Total interest-bearing liabilities ..................................                 414                  (52)                 362
                                                                                  -------              -------              -------
Net interest income .................................................             $   849              $  (132)             $   717
                                                                                  =======              =======              =======
</TABLE>

Noninterest Income and Expenses

Noninterest  income for the nine months ended  September 30, 2004 was $1,115,726
compared to  $1,422,365  for the nine  months  ended  September  30,  2003.  The
decrease  is  attributable  to a  $311,294  decrease  in fees on loans  sold and
commissions received on insurance offset by increases in service fees on deposit
accounts arising from the increased number of accounts.

Noninterest  expenses  for  the  nine  months  ended  September  30,  2004  were
$5,427,968, compared to $4,589,723 for the nine months ended September 30, 2003.
The  increase of $838,245 is mainly  attributable  to  increases in salaries and
benefits,  furniture and equipment expense and  administrative  expenses.  These
increases  primarily  relate to expenditures  associated with the opening of the
Summerville  branch in February  2004 and the  anticipated  opening of the Goose
Creek  branch  in the  fourth  quarter  of  2004,  as  well as the  increase  in
administrative staff to support the growth of the Company's operations.

Noninterest  income for the three months ended  September 30, 2004 was $443,058,
compared to $438,074 for the three months ended September 30, 2003. The increase
is attributable to a $51,085  decrease in fees on loans sold offset by increases
in service fees on deposit accounts.


                                       12
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Noninterest Income and Expenses - continued

Noninterest  expenses  for the  three  months  ended  September  30,  2004  were
$1,985,945,  compared to  $1,667,775  for the three months ended  September  30,
2003. The increase of $318,170 is mainly  attributable  to increases in salaries
and benefits, furniture and equipment expense and administrative expenses. These
increases  primarily  relate to expenditures  associated with the opening of the
Summerville  branch in February  2004 and the  anticipated  opening of the Goose
Creek  branch  in the  fourth  quarter  of  2004,  as  well as the  increase  in
administrative staff to support the growth of the Company's operations.

Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank of Atlanta (the FHLB) are the Company's  primary source of funds for credit
activities.  The Company also has a $5.3 million line of credit with the Bankers
Bank of Atlanta and a $6 million line of credit with First  Tennessee  Bank. The
Company is in the  process of opening  one new branch  office and an  operations
center.  The total cost of these  facilities is expected to be  $2,584,000.  The
funding for these offices will come from normal  operations  and the proceeds of
the 2003  stock  offering.  Management  believes  that the  Company's  liquidity
sources are adequate to meet its normal operating needs.

Loans

Commercial loans (most of which are incidentally  secured with real estate) made
up 48.1 percent of the total loan  portfolio as of September 30, 2004,  totaling
$129.8.  million.  Loans  secured  by real  estate  for  construction  and  land
development  totaled $30.1 million,  or 11.2 percent, of the portfolio while all
other loans secured by real estate totaled $105.6 million,  or 39.3 percent,  of
the total loan portfolio,  as of September 30, 2004. Installment loans and other
consumer loans to individuals  comprised  $3.2 million,  or 1.1 percent,  of the
total loan portfolio. The allowance for loan losses was 1.05 percent of loans as
of  September  30, 2004,  compared to 1.18  percent as of December 31, 2003.  In
management's  opinion,  the allowance for loan losses is adequate.  At September
30,  2004,  the  Company  did not have any  loans 90 days  delinquent  and still
accruing interest and had $1,700,000 of non-accruing  loans and $70,000 of other
real estate owned.  The majority of the  non-accruing  loans are secured by real
estate.

Deposits

Deposits  increased  $61,372,983  during  the  first  nine  months  of  2004  to
$227,585,390  at September 30, 2004.  The increase was  attributable  to several
factors. Noninterest bearing deposits increased $9,414,441 during the first nine
months as a result of the normal  growth of the Bank.  Certificates  of deposits
from retail customers increased approximately  $32,108,000 during the first nine
months.  This  increase  was  largely  attributable  to a  six-month  special on
certificates issued in conjunction with the opening of the Summerville branch in
February  2004.  Brokered  deposits  increased  approximately  $10,540,000.   In
anticipation  of  potentially  higher  interest  rates,  the bank purchased some
longer term deposits.



                                       13
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Other Borrowings

Other  borrowings  include  advances  from the FHLB and a note payable  totaling
$1,500,000 with First Tennessee Bank.  Advances from the FHLB are collateralized
by FHLB  stock  and  pledges  of  certain  residential  mortgage  loans  and are
summarized as follows:

       Maturity                  Rate                          Balance
       --------                  ----                          -------

      May 2005                  7.07%                      $     2,000,000
      June 2005                 2.15%                            2,000,000
      September 2006            2.91%                           10,000,000
      June 2007                 Variable -Libor plus
                                .50% for first year,
                                then fixed at 4.04%               8,000,00
      September 2008            3.01%                           10,000,000
      September 2010            5.55%                            7,000,000
      February 2011             4.31%                            4,500,000
      March 2013                2.91%                            7,500,000
      June 2014                 3.92%                            2,000,000
                                                           ---------------

      Balance                                              $    53,000,000
                                                           ===============

Capital Resources

The capital  base for the Company  increased  by  $2,218,846  for the first nine
months of 2004,  due to operating  income,  capital  raised through the Employee
Stock  Purchase  Plan,  exercise of stock  options,  and by unrealized  gains on
available for sale  securities.  The Company's tier one capital to risk-weighted
asset ratio was 18.78 percent as of September 30, 2004 compared to 23.08 percent
as of December 31, 2003.

The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements  for  banks  and  the  Federal  Reserve  has  established   similar
requirements for bank holding  companies.  As of September 30, 2004, the Company
and  subsidiary  bank  exceed  the  capital  requirement  levels  that are to be
maintained as shown in the following table.

<TABLE>
<CAPTION>
                                                                                   Capital Ratios
                                                                                   --------------
                                                                                      Well Capitalized        Adequately Capitalized
(Dollars in thousands)                                                   Actual          Requirement                Requirement
                                                                         ------          -----------                -----------
                                                             Amount      Ratio         Amount      Ratio         Amount       Ratio
                                                             ------      -----         ------      -----         ------       -----
The Bank
<S>                                                      <C>             <C>       <C>             <C>       <C>            <C>
  Total capital (to risk-weighted assets) ............   $  32,303       13.82%    $  23,337       10.00%    $   18,693     8.00%
  Tier 1 capital (to risk-weighted assets) ...........      29,495       12.62%       14,020        6.00%         9,347     4.00%
  Tier 1 capital (to average assets) .................      29,495        9.73%       15,159        5.00%        12,128     4.00%
The Company
  Total capital (to risk-weighted assets) ............   $  49,219       20.08%    $  24,716       10.00%           N/A      N/A
  Tier 1 capital (to risk-weighted assets) ...........      46,411       18.95%       14,830        6.00%           N/A      N/A
  Tier 1 capital (to average assets) .................      46,411       16.10%       14,544        5.00%           N/A      N/A
</TABLE>


Off-Balance Sheet Risk

The Company makes  contractual  commitments  to extend credit and issues standby
letters  of credit in the  ordinary  course of its  business  activities.  These
commitments  are  legally  binding  agreements  to lend  money to  customers  at
predetermined  interest  rates for a specified  period of time. At September 30,
2004, the Company had issued  commitments  to extend credit of  $31,760,000  and
standby  letters  of credit of  $318,000  through  various  types of  commercial
lending arrangements.  Approximately  $24,788,000 of these commitments to extend
credit had variable rates.



                                       14
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

The  following  table sets forth the  length of time until  maturity  for unused
commitments  to extend  credit and standby  letters of credit at  September  30,
2004.

<TABLE>
<CAPTION>
                                                                    After One    After Three
                                                                     Through       Through                   Greater
                                                      Within One       Three        Twelve     Within One      Than
(Dollars in thousands)                                   Month        Months        Months        Year       One Year        Total
                                                         -----        ------        ------        ----       --------        -----
<S>                                                   <C>          <C>           <C>          <C>          <C>          <C>
Unused commitments to extend credit ...............   $       879  $     1,840   $    18,368  $    21,087  $    20,041  $    41,128
Standby letters of credit .........................           367            -            52          419           25          444
                                                      -----------  -----------   -----------  -----------  -----------  -----------
    Totals ........................................   $     1,246  $     1,840   $    18,420  $    21,506  $    20,066  $    41,572
                                                      ===========  ===========   ===========  ===========  ===========  ===========
</TABLE>

Based on historical  experience,  many of the  commitments and letters of credit
will expire unfunded.  Accordingly,  the amounts shown in the table above do not
necessarily reflect the Company's need for funds in the periods shown.

The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary upon extension of credit,
is based on the company's credit  evaluation of the borrower.  Collateral varies
but may include accounts receivable,  inventory,  property, plant and equipment,
commercial and residential real estate.


Item 3. - Controls and Procedures.

Based  on  the  evaluation  required  by 17  C.F.R.  Sections  240.13a-15(b)  or
240.15d-15(b) of the Company's  disclosure  controls and procedures ( as defined
in 17 C.F.R.  Section  240.13a-15(e)  and  240.15d-15(e))  the  Company's  chief
executive  officer and chief  financial  officer  concluded  such  controls  and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

There  has been no change  in the  Company's  internal  control  over  financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.



                                       15
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

PART II - OTHER INFORMATION

Item 6.  Exhibits

     Exhibits:
     31-1  Rule 13a-14(a) Certifications of CEO
     31-2  Rule 13a-14(a) Certifications of CFO
     32Section 1350 Certification






                                       16
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                                   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.




                                            s/L. Wayne Pearson
Date:    November 10, 2004             By: -------------------------------------
                                           L. Wayne Pearson
                                           Chief Executive Officer


                                           s/Robert M. Scott
Date:    November 10, 2004             By: -------------------------------------
                                           Robert M. Scott
                                           Executive Vice President and Chief
                                           Financial Officer



                                       17
<PAGE>



                        SOUTHCOAST FINANCIAL CORPORATION

Exhibit Index

31.1      Certification  of Chief Executive  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

31.2      Certification  of Chief Financial  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.


32        Certification of Chief Executive  Officer and Chief Financial  Officer
          pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of  2002.  This
          exhibit is not  "filed" for  purposes of Section 18 of the  Securities
          Exchange  Act  of  1934  but  is  instead  furnished  as  provided  by
          applicable rules of the Securities and Exchange Commission.




                                       18