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

                                    FORM 10-Q

    X           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
   ---               OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended March 31, 2010

                                       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 registrant as specified in its charter)

                 South Carolina                          57-1079460
          (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
              (Registrant's telephone number, including area code)
                ------------------------------------------------

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 [ ]

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted  and posted  pursuant to Rule 405 of  Regulation  S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to  submit  and  post  such  files).  Yes  [ ] No [ ]  (Not  yet  applicable  to
Registrant)

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated filer,"  "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [ ]                    Accelerated filer      [ ]

Non-accelerated filer  [ ]                     Smaller reporting company  [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                  YES [ ]  NO [X]

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

      4,557,748 shares of common stock, no par value, as of April 30, 2010


<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                                      INDEX

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                                                     Page No.
------------------------------                                                                                     --------

Item 1.  Financial Statements (Unaudited)

<S>                                                                                                                 <C>
         Condensed Consolidated Balance Sheets - March 31, 2010 and December 31, 2009...................................2

         Condensed Consolidated Statements of Income - Three months ended March 31, 2010 and 2009.......................3

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) -
           Three months ended March 31, 2010 and 2009...................................................................4

         Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2010 and 2009...................5

               Notes to Condensed Consolidated Financial Statements..................................................6-12

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations......................13-21

Item 3.  Quantitative and Qualitative Disclosures About Market Risk....................................................21

Item 4T. Controls and Procedures.......................................................................................21

PART II - OTHER INFORMATION

Item 6.  Exhibits......................................................................................................22

Signatures ............................................................................................................22

Exhibit Index..........................................................................................................23
</TABLE>





<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
                      Condensed Consolidated Balance Sheets


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
<TABLE>
<CAPTION>
                                                                                                    March 31,          December 31,
                                                                                                      2010                2009
                                                                                                      ----                ----
                                                                                                  (Unaudited)
Assets
   Cash and cash equivalents:
<S>                                                                                              <C>                  <C>
     Cash and due from banks .............................................................       $  17,408,548        $  40,790,143
     Federal funds sold ..................................................................             452,288              108,587
                                                                                                 -------------        -------------
       Total cash and cash equivalents ...................................................          17,860,836           40,898,730
   Investment securities
     Available for sale ..................................................................          80,369,119           60,775,809
     Federal Home Loan Bank Stock, at cost ...............................................           4,266,200            4,266,200
                                                                                                 -------------        -------------
       Total investment securities .......................................................          84,635,319           65,042,009
   Loans held for sale ...................................................................             450,000              320,079
   Loans, net of allowance of $10,322,538 and $10,041,920 ................................         335,567,489          346,870,313
   Property and equipment, net ...........................................................          23,222,698           22,692,344
   Other real estate owned, net ..........................................................           9,468,909            9,789,410
   Company owned life insurance ..........................................................          11,211,099           19,234,080
   Net proceeds receivable from investment transactions ..................................           5,833,657                    -
   Other assets ..........................................................................          15,783,814           16,560,328
                                                                                                 -------------        -------------
       Total assets ......................................................................       $ 504,033,821        $ 521,407,293
                                                                                                 =============        =============

Liabilities
   Deposits
     Noninterest-bearing .................................................................       $  24,767,295        $  25,921,641
     Interest bearing ....................................................................         333,385,910          342,615,299
                                                                                                 -------------        -------------
       Total deposits ....................................................................         358,153,205          368,536,940
   Securities sold under agreements to repurchase ........................................          11,842,448            9,404,218
   Borrowings on cash value of Company owned life insurance ..............................                   -            7,640,636
   Federal Home Loan Bank Borrowings .....................................................          74,000,000           74,000,000
   Junior subordinated debentures ........................................................          10,310,000           10,310,000
   Other liabilities .....................................................................           3,706,711            6,434,707
                                                                                                 -------------        -------------
       Total liabilities .................................................................         458,012,364          476,326,501
                                                                                                 -------------        -------------
Shareholders' Equity
   Common stock (no par value;  20,000,000 shares  authorized;  4,550,015 shares
     outstanding at March 31, 2010 and 4,542,023 at December 31, 2009) ...................          53,610,776           53,583,283
   Retained deficit ......................................................................          (5,745,936)          (6,108,846)
   Accumulated other comprehensive loss ..................................................          (1,843,383)          (2,393,645)
                                                                                                 -------------        -------------
       Total shareholders' equity ........................................................          46,021,457           45,080,792
                                                                                                 -------------        -------------
       Total liabilities and shareholders' equity ........................................       $ 504,033,821        $ 521,407,293
                                                                                                 =============        =============
</TABLE>



                                       2
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                   Condensed Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                 For the Three Months Ended
                                                                                                          March 31,
                                                                                                          ---------
                                                                                                  2010                    2009
                                                                                                  ----                    ----
Interest income
<S>                                                                                         <C>                       <C>
   Loans, including fees ......................................................             $   4,774,123             $   6,018,807
   Investment securities ......................................................                   687,512                   709,359
   Cash and federal funds sold ................................................                    13,719                     3,737
                                                                                            -------------             -------------
       Total interest income ..................................................                 5,475,354                 6,731,903
                                                                                            -------------             -------------
Interest expense
   Deposits and borrowings ....................................................                 2,593,452                 3,444,389
                                                                                            -------------             -------------
Net interest income ...........................................................                 2,881,902                 3,287,514
Provision for loan losses .....................................................                 1,000,000                   100,000
                                                                                            -------------             -------------
Net interest income after provision for loan losses ...........................                 1,881,902                 3,187,514
                                                                                            -------------             -------------
Noninterest income
    Service fees on deposit accounts ..........................................                   258,187                   310,447
    Fees on loans sold ........................................................                    18,471                   111,171
    Gain on sale of available for sale securities .............................                   835,412                         -
    Gain (loss) on sale of real estate owned ..................................                   562,300                   (11,936)
    Rental fee income .........................................................                    75,992                    34,307
    Company owned life insurance earnings .....................................                   106,986                   185,356
    Other .....................................................................                    73,844                    11,838
                                                                                            -------------             -------------
       Total noninterest income ...............................................                 1,931,192                   641,183
                                                                                            -------------             -------------
Noninterest expenses
   Salaries and employment benefits ...........................................                 1,663,654                 2,066,269
   Occupancy ..................................................................                   394,996                   337,863
   Furniture and equipment ....................................................                   372,227                   327,431
   Insurance ..................................................................                   196,584                   123,383
   Advertising and public relations  ..........................................                    28,133                    18,742
   Professional fees ..........................................................                   185,740                   188,821
   Travel and entertainment ...................................................                    39,360                    43,848
   Telephone, postage and supplies ............................................                    90,766                   102,479
   Other operating expenses ...................................................                   321,950                   361,092
                                                                                            -------------             -------------
       Total noninterest expenses .............................................                 3,293,410                 3,569,928
                                                                                            -------------             -------------
Income before income taxes ....................................................                   519,684                   258,769
Income tax benefit ............................................................                   156,774                   (44,365)
                                                                                            -------------             -------------
Net income ....................................................................             $     362,910             $     303,134
                                                                                            =============             =============
Basic net income per common share .............................................             $         .08             $         .07
Diluted net income per common share ...........................................             $         .08             $         .07
Weighted average shares outstanding
   Basic ......................................................................                 4,550,015                 4,521,890
   Diluted ....................................................................                 4,550,015                 4,521,890
</TABLE>


                                       3
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

          Condensed Consolidated Statement of Changes in Shareholders'
                     Equity and Comprehensive Income (Loss)
               For the three months ended March 31, 2010 and 2009
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                                                           other
                                                                Common Stock             Retained      comprehensive
                                                              ------------               earnings         income
                                                        Shares           Amount         (deficit)          (loss)          Total
                                                        ------           ------         ---------          ------          -----
<S>                                                    <C>           <C>              <C>              <C>             <C>
Balance, December 31, 2008 .....................       4,513,463     $ 53,441,978     $  2,814,566     $ (1,023,440)   $ 55,233,104

   Net income for the period ...................                                           303,134                          303,134

   Other comprehensive loss
     net of taxes of $ 520,215;
   Unrealized holding losses
     on securities available for sale ..........                                                          (924,826)        (924,826)
                                                                                                                       ------------
   Comprehensive loss ..........................                                                                           (621,692)

   Employee stock purchase plan ................           8,427           35,225                                            35,225
                                                       ---------     ------------     ------------     ------------    ------------

Balance, March 31, 2009 ........................       4,521,890     $ 53,477,203     $  3,117,700     $ (1,948,266)   $ 54,646,637
                                                       =========     ============     ============     ============    ============

Balance, December 31, 2009 .....................       4,542,023     $ 53,583,283     $ (6,108,846)    $ (2,393,645)   $ 45,080,792

   Net income for the period ...................                                           362,910                          362,910

   Other comprehensive income,
     net of taxes of $ 610,271;
   Unrealized holding gains
     on securities available for sale ..........                                                         1,084,926        1,084,926

   Less reclassification adjustment for
     gains included in net income, net of
     taxes of $ 300,748 ........................                                                          (534,664)        (534,664)
                                                                                                                       ------------
   Comprehensive income ........................                                                                            913,172

   Employee stock purchase plan ................           7,992           27,493                                            27,493
                                                       ---------     ------------     ------------     ------------    ------------
Balance, March 31, 2010 ........................       4,550,015     $ 53,610,776     $ (5,745,936)    $ (1,843,383)   $ 46,021,457
                                                       =========     ============     ============     ============    ============
</TABLE>



                                       4
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                      For the three months ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                       2010                  2009
                                                                                                       ----                  ----
Operating activities
<S>                                                                                               <C>                  <C>
   Net income ............................................................................        $    362,910         $    303,134
   Adjustments to reconcile net income to net
   cash provided (used) by operating activities
       Deferred income taxes .............................................................             418,933             (535,628)
       Provision for loan losses .........................................................           1,000,000              100,000
       Depreciation and amortization .....................................................             272,172              310,630
       Discount accretion and premium amortization .......................................             101,067              (22,628)
       Gain on sale of securities ........................................................            (835,412)                   -
       (Gains) losses on sale of Other Real Estate Owned .................................            (562,300)              11,936
       Originations of loans held for sale ...............................................          (4,328,878)         (23,738,334)
       Proceeds from sales of loans held for sale ........................................           4,198,957           23,171,021
       Increase in value of Company Owned Life Insurance .................................            (106,986)            (185,356)
       Increase in net proceeds receivable from investment transactions ..................          (5,833,657)                   -
       (Increase) decrease in other assets ...............................................             231,071             (116,590)
       Increase (decrease) in other liabilities ..........................................          (2,727,996)             748,993
                                                                                                  ------------         ------------

         Net cash provided (used) by operating activities ................................          (7,810,119)              47,178
                                                                                                  ------------         ------------
Investing activities
   Sales of Federal Home Loan Bank stock .................................................                   -              243,300
   Purchases of investment securities available-for-sale .................................         (55,725,990)          (5,027,989)
   Sales, calls, and maturities of investment securities available-for-sale ..............          37,543,797            1,413,841
   Proceeds from sales of Other Real Estate Owned ........................................           1,857,887              838,421
   Proceeds from liquidation of Company Owned Life Insurance .............................           8,129,967                    -
   Purchases of premises and equipment ...................................................            (802,526)             (97,503)
   Net decrease in loans .................................................................           9,327,738            6,251,288
                                                                                                  ------------         ------------
         Net cash provided by investing activities .......................................             330,873            3,621,358
                                                                                                  ------------         ------------
Financing activities
   Decrease in borrowings ................................................................          (5,202,406)         (12,505,979)
   Proceeds from issuance of stock .......................................................              27,493               35,225
   Net increase (decrease) in deposits ...................................................         (10,383,735)           6,508,134
                                                                                                  ------------         ------------
         Net cash used by financing activities ...........................................         (15,558,648)          (5,962,620)
                                                                                                  ------------         ------------
         Decrease in cash and cash equivalents ...........................................         (23,037,894)          (2,294,084)

Cash and cash equivalents, beginning of period ...........................................          40,898,730           22,561,570
                                                                                                  ------------         ------------
Cash and cash equivalents, end of period .................................................        $ 17,860,836         $ 20,267,486
                                                                                                  ============         ============
Cash paid during the period for:
    Income taxes .........................................................................        $     28,367         $    503,849
    Interest .............................................................................        $  2,218,333         $  3,006,323
</TABLE>


                                       5
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated 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-Q and  Regulation  S-X 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, Southcoast Investment Corporation, and has no employees.

Note 3 - Net Income Per Share

The Company calculates  earnings per share in accordance with generally accepted
accounting  principles,  which  specify  the  computation,   presentation,   and
disclosure  requirements for earnings per share (EPS) for entities with publicly
held  common  stock  or  potential  common  stock  such  as  options,  warrants,
convertible securities, or contingent stock agreements if those securities trade
in a public market.

They also specify the computation and  presentation  requirements for both basic
EPS and diluted EPS for entities with complex capital structures. Basic earnings
per share are computed by dividing  net income or loss by the  weighted  average
common  shares  outstanding.  Diluted  earnings  per  share  is  similar  to the
computation of basic earnings per share except that the denominator is increased
to  include  the  number  of  additional  common  shares  that  would  have been
outstanding  if the  dilutive  potential  common  shares  had been  issued.  The
dilutive effect of options  outstanding under the Company's stock option plan is
reflected in diluted  earnings per share by  application  of the treasury  stock
method.

Note 4 - Recently Issued Accounting Standards

The  following  is a summary  of recent  authoritative  pronouncements  that may
affect  accounting,  reporting,  and disclosure of financial  information by the
Company:

In January  2010,  fair value  guidance was amended to require  disclosures  for
significant amounts transferred in and out of Levels 1 and 2 and the reasons for
such transfers and to require that gross amounts of purchases,  sales, issuances
and settlements be provided in the Level 3  reconciliation.  The new disclosures
are effective for the Company for the current quarter and have been reflected in
the Fair Value footnote.

Guidance related to subsequent events was amended in February 2010 to remove the
requirement  for an SEC filer to  disclose  the date  through  which  subsequent
events were  evaluated.  The amendments  were effective upon issuance and had no
significant impact on the Company's financial statements.

Consolidation  guidance was amended in February 2010 to defer guidance regarding
the analysis of interests in variable  interest entities issued in June 2009 for
entities  having  attributes  of investment  companies or that apply  investment
company measurement  principles.  Disclosure  requirements  provided in the June
2009 guidance were not deferred.  The amendments were effective  January 1, 2010
and had no effect on the Company's financial statements.

In March 2010, guidance related to derivatives and hedging was amended to exempt
embedded credit derivative  features related to the transfer of credit risk from
potential  bifurcation and separate  accounting.  Embedded  features  related to
other  types of risk and other  embedded  credit  derivative  features  were not
exempt from potential  bifurcation and separate accounting.  The amendments will
be  effective  for the  Company  on July 1,  2010  although  early  adoption  is
permitted.  The Company does not expect these  amendments  to have any impact on
the financial statements.

                                       6
<PAGE>
                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 4 - Recently Issued Accounting Standards- (continued)

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.

Note 5 - Investment Securities

The amortized cost and fair value of investment securities are as follows:

<TABLE>
<CAPTION>
                                                                                      March 31, 2010
                                                                                      --------------
                                                                                     Gross Unrealized
                                                        Amortized                    ----------------                    Estimated
                                                           Cost                 Gains                 Losses             Fair Value
                                                           ----                 -----                 ------             ----------
Available for sale
<S>                                                    <C>                   <C>                   <C>                   <C>
   Mortgage backed .........................           $70,818,608           $   401,832           $   427,488           $70,792,952
   Municipal securities ....................             7,531,330               118,717                95,234             7,554,813
   Other ...................................             4,652,853                     -             2,631,499             2,021,354
                                                       -----------           -----------           -----------           -----------
     Total .................................           $83,002,791           $   520,549           $ 3,154,221           $80,369,119
                                                       ===========           ===========           ===========           ===========
<CAPTION>
                                                                                      March 31, 2009
                                                                                      --------------
                                                                                     Gross Unrealized
                                                        Amortized                    ----------------                    Estimated
                                                           Cost                 Gains                 Losses             Fair Value
                                                           ----                 -----                 ------             ----------
Available for sale
<S>                                                    <C>                   <C>                   <C>                   <C>
   Mortgage backed .........................           $52,239,896           $   415,749           $   801,319           $51,854,326
   Municipal securities ....................             7,195,637               101,185                81,095             7,215,727
   Other ...................................             4,650,721                     -             2,944,965             1,705,756
                                                       -----------           -----------           -----------           -----------
     Total .................................           $64,086,254           $   516,934           $ 3,827,379           $60,775,809
                                                       ===========           ===========           ===========           ===========
</TABLE>

The following tables show gross unrealized losses and fair value,  aggregated by
investment category,  and length of time that individual securities have been in
a continuous unrealized loss position, at March 31, 2010 and December 31, 2009.

Available for Sale
<TABLE>
<CAPTION>
                                                                          March 31, 2010
                                                                          --------------
                                           Less than                      Twelve months
                                         twelve months                        or more                             Total
                                         -------------                        -------                             -----
                                                     Unrealized                         Unrealized                        Unrealized
                                    Fair value         losses         Fair value           losses        Fair value          losses
                                    ----------         ------         ----------           ------        ----------          ------
<S>                                 <C>              <C>              <C>              <C>              <C>              <C>
Mortgage backed ..............      $22,433,450      $   145,515      $ 3,092,271      $   281,973      $25,525,721      $   427,488
Municipal securities .........        2,014,699           46,926        1,423,146           48,308        3,437,845           95,234
Other ........................                -                -        1,060,705        2,631,499        1,060,705        2,631,499
                                    -----------      -----------      -----------      -----------      -----------      -----------
  Total ......................      $24,448,149      $   192,441      $ 5,576,122      $ 2,961,780      $30,024,271      $ 3,154,221
                                    ===========      ===========      ===========      ===========      ===========      ===========
<CAPTION>
                                                                          March 31, 2009
                                                                          --------------
                                           Less than                      Twelve months
                                         twelve months                        or more                             Total
                                         -------------                        -------                             -----
                                                     Unrealized                         Unrealized                        Unrealized
                                    Fair value         losses         Fair value           losses        Fair value          losses
                                    ----------         ------         ----------           ------        ----------          ------
<S>                                 <C>              <C>              <C>              <C>              <C>              <C>
Mortgage backed ..............      $15,072,875      $   454,116      $ 3,090,849      $   347,203      $18,163,724      $   801,319
Municipal securities .........        2,025,865           25,516        1,416,119           55,579        3,441,984           81,095
Other ........................                -                -          745,756        2,944,965          745,756        2,944,965
                                    -----------      -----------      -----------      -----------      -----------      -----------
  Total ......................      $17,098,740      $   479,632      $ 5,252,724      $ 3,347,747      $22,351,464      $ 3,827,379
                                    ===========      ===========      ===========      ===========      ===========      ===========
</TABLE>

                                       7
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 5 - Investment Securities - (continued)

Securities classified as  available-for-sale  are recorded at fair market value.
Securities  in a  continuous  loss  position  for twelve  months or more totaled
$2,961,780,  or eight securities  comprising 94% of total unrealized losses, and
$3,347,747,  or eight securities  comprising 87% of total unrealized  losses, at
March 31, 2010 and December 31, 2009, respectively.  The Company does not intend
to sell these  securities  and it is more likely than not that the Company  will
not be  required to sell these  securities  before  recovery of their  amortized
cost. The Company believes,  based on industry analyst reports,  credit ratings,
and  its  own  other-than-temporary   loss  impairment  evaluations,   that  the
deterioration  in value is  attributable  to a combination  of changes in market
interest rates and, in some cases, the lack of liquidity in these securities and
is not in the credit quality of the issuer and  therefore,  these losses are not
considered other-than-temporary.

The  unrealized  loss  attributable  to  other  securities   relates  to  market
valuations on two individual pooled trust preferred securities. These securities
are  considered  Level 3 securities  in the fair value  hierarchy,  as they both
trade in less than liquid markets.  The valuations of these  securities  reflect
the lack of liquidity in these  securities.  One of the  securities is receiving
contractual  interest  payments,  while the other is  receiving  payment-in-kind
interest,  which  consists  of  capitalization  of  interest  amounts due on the
security.   The   Company   evaluates   these   securities   each   quarter  for
other-than-temporary  loss impairment  based on projected cash flows. Due to the
over-collateralized credit position of the security currently receiving interest
payments,  no  other-than-temporary  impairment was recognized on this security.
The Company performed a discounted cash flow analysis on the security  receiving
payment-in-kind   interest  in  order  to  arrive  at  its   conclusion   of  no
other-than-temporary  impairment.  The  credit  quality of these  securities  is
directly  related to the  financial  strength  and  ability to make  contractual
interest payments of the underlying  issuers in these securities,  most of which
are banks. As such, these securities may show other-than-temporary impairment in
future  periods  if  the  financial   condition  of  these  underlying   issuers
deteriorates.

The amortized costs and fair values of investment  securities available for sale
at March 31, 2010 by  contractual  maturity  are shown in the  following  table.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.

                                                         Amortized      Fair
                                                            Cost        Value
                                                            ----        -----
Due after one but within five years ................   $         -   $         -
Due after five but within ten years ................     1,828,285     1,883,468
Due after ten years ................................    10,205,898     7,542,699
Mortgage backed ....................................    70,818,608    70,792,952
Equity securities with no maturity .................       150,000       150,000
                                                       -----------   -----------
  Total investment securities available-for-sale ...   $83,002,791   $80,369,119
                                                       ===========   ===========

Note 6 - Fair Value of Financial Instruments

Fair value is the exchange  price that would be received for an asset or paid to
transfer a  liability  (an exit  price) in the  principal  or most  advantageous
market for the asset or  liability  in an  orderly  transaction  between  market
participants on the measurement date.  Generally accepted accounting  principles
also establish a fair value  hierarchy  which requires an entity to maximize the
use of  observable  inputs and  minimize  the use of  unobservable  inputs  when
measuring fair value. The standard  describes three levels of inputs that may be
used to measure fair value:

Level 1 - Quoted prices in active markets for identical  assets or  liabilities.
Level 1 assets and liabilities include debt and equity securities and derivative
contracts  that  are  traded  in an  active  exchange  market,  as  well as U.S.
Treasuries, and money market funds.

Level 2 - Observable  inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities;  quoted prices in markets that are not active; or
other inputs that are  observable or can be  corroborated  by observable  market
data for  substantially  the full  term of the  assets or  liabilities.  Level 2
assets and  liabilities  include  debt  securities  with quoted  prices that are
traded  less  frequently  than  exchange-traded  instruments,   mortgage  backed
securities, municipal bonds, corporate debt securities, and derivative contracts
whose value is determined  using a pricing model with inputs that are observable
in the market or can be derived  principally  from or corroborated by observable
market data. This category generally  includes certain derivative  contracts and
impaired loans.


                                       8
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 6 - Fair Value of Financial  Instruments - (continued)

Level 3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3
assets and liabilities  include financial  instruments whose value is determined
using pricing models, discounted cash flow methodologies, or similar techniques,
as well as  instruments  for  which the  determination  of fair  value  requires
significant  management  judgment or  estimation.  For  example,  this  category
generally  includes  certain  private  equity  investments,   retained  residual
interests  in  securitizations,   residential  mortgage  servicing  rights,  and
highly-structured or long-term derivative contracts.

Assets  measured at fair value on a  recurring  basis are as follows as of March
31, 2010 and December 31, 2009 (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                           March 31, 2010
                                                                                           --------------
                                                               Quoted market price      Significant other   Significant unobservable
                                                                in active markets       observable inputs          inputs
                                                                     (Level 1)             (Level 2)              (Level 3)
                                                                     ---------             ---------              ---------

<S>                                                                   <C>                   <C>                   <C>
Mortgage backed securities ..................................         $     -               $ 70,793              $        -

Municipal securities ........................................               -                  7,555

Other securities ............................................                                    460                   1,561

Loans held for sale .........................................               -                    450                       -

Interest rate swap derivative instrument ....................               -                   (227)                      -

                                                                      -------               --------                --------
Total assets at fair value ..................................         $     -               $ 79,031                $  1,561
                                                                      =======               ========                ========

<CAPTION>
                                                                                           March 31, 2009
                                                                                           --------------
                                                               Quoted market price      Significant other   Significant unobservable
                                                                in active markets       observable inputs          inputs
                                                                     (Level 1)             (Level 2)              (Level 3)
                                                                     ---------             ---------              ---------

<S>                                                                   <C>                   <C>                     <C>
Mortgage backed securities ..................................         $     -               $ 51,855                $      -

Municipal securities ........................................               -                  7,216

Other securities ............................................                                    460                   1,245

Loans held for sale .........................................               -                    320                       -

Interest rate swap derivative instrument ....................               -                   (329)                      -

                                                                      -------               --------                --------
Total assets at fair value ..................................         $     -               $ 59,522                $  1,245
                                                                      =======               ========                ========
</TABLE>


The Company has no  liabilities  carried at fair value or measured at fair value
on a recurring basis.

                                       9
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 6 - Fair Value of Financial Instruments - (continued)

Assets measured at fair value on a nonrecurring basis are as follows as of March
31, 2010 and December 31, 2009 (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                           March 31, 2010
                                                                                           --------------
                                                               Quoted market price      Significant other   Significant unobservable
                                                                in active markets       observable inputs          inputs
                                                                     (Level 1)             (Level 2)              (Level 3)
                                                                     ---------             ---------              ---------
<S>                                                                  <C>                     <C>                  <C>
Impaired Loans ..............................................        $        -              $25,839              $       -

Other Real
Estate Owned ................................................                 -                9,469                      -
                                                                     ----------              -------              ---------

Total assets at fair value ..................................        $        -              $35,308              $       -
                                                                     ==========              =======              =========
<CAPTION>
                                                                                          December 31, 2009
                                                                                          -----------------
                                                               Quoted market price      Significant other   Significant unobservable
                                                                in active markets       observable inputs          inputs
                                                                     (Level 1)             (Level 2)              (Level 3)
                                                                     ---------             ---------              ---------
<S>                                                                  <C>                     <C>                  <C>
Impaired Loans ..............................................        $        -              $23,478              $       -

Other Real
Estate Owned ................................................                 -                9,789                      -
                                                                     ----------              -------              ---------

Total assets at fair value ..................................        $        -              $33,267              $       -
                                                                     ==========              =======              =========
</TABLE>

The Company has no  liabilities  carried at fair value or measured at fair value
on a nonrecurring basis.

The  following  table  reconciles  the  changes in  recurring  Level 3 financial
instruments  for the three  months  ended  March 31,  2010 and  2009(amounts  in
thousands):

                                                                March 31,
                                                                ---------
                                                        2010              2009
                                                        ----              ----
Beginning of Year Balance ...................          $ 1,245          $ 2,901
Discount Accretion ..........................                3                2
Principal Paydowns ..........................                -               (7)
Unrealized Gain (Loss) ......................              313           (1,864)
                                                       -------          -------
Ending Balance ..............................          $ 1,561          $ 1,032
                                                       =======          =======

The following is a description  of the valuation  methodologies  used for assets
and liabilities recorded at fair value.

Available for Sale Investment Securities

Investment  securities  available-for-sale  are  recorded  at  fair  value  on a
recurring  basis.  Fair  value  measurement  is based  upon  quoted  prices,  if
available.  If quoted prices are not  available,  fair values are measured using
independent pricing models or other model-based valuation techniques such as the
present value of future cash flows,  adjusted for the security's  credit rating,
prepayment assumptions and other factors such as credit loss assumptions.  Level
1 securities  include those traded on an active  exchange,  such as the New York
Stock Exchange,  U.S. Treasury  securities that are traded by dealers or brokers
in active  over-the-counter  markets and money market funds.  Level 2 securities
include  mortgage-backed  securities  issued by government  sponsored  entities,
municipal bonds and corporate debt securities.  Securities classified as Level 3
include asset-backed securities in less liquid markets.

                                       10
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 6 - Fair Value of Financial Instruments - (continued)

Loans Held for Sale

Mortgage  loans held for sale are carried at the lower of cost or market  value.
The  fair  value of  mortgage  loans  held  for sale is based on what  secondary
markets are currently offering for portfolios with similar  characteristics.  As
such,  the  Company  classifies  loans  subjected  to  nonrecurring  fair  value
adjustments as Level 2.

Derivative Financial Instruments

Currently,  the Company uses  interest  rate swaps and  interest  rate floors to
manage its interest rate risk. The valuation of these  instruments is determined
using  widely  accepted  valuation  techniques  including  discounted  cash flow
analysis on the expected cash flows of each derivative.  This analysis  reflects
the contractual terms of the derivatives,  including the period to maturity, and
uses observable market-based inputs,  including interest rate curves and implied
volatilities.  The fair values of interest rate swaps are  determined  using the
market standard methodology of netting the discounted future fixed cash receipts
and the discounted variable cash payments.  The variable cash payments are based
on an  expectation  of future  interest  rates  (forward  curves)  derived  from
observable  market  interest rate curves.  The Company has determined that these
inputs  used to value its  derivatives  fall  within  Level 2 of the fair  value
hierarchy.

The following is a description  of the valuation  methodologies  used for assets
and liabilities  that are not recorded at fair value,  but whose fair value must
be estimated and disclosed:

Loans

For  certain  categories  of loans,  such as variable  rate loans which  reprice
frequently and have no significant  change in credit risk, fair values are based
on the carrying amounts.  The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would  be made  to  borrowers  with  similar  credit  ratings  and for the  same
remaining  maturities.  Loans for which it is probable  that payment of interest
and principal will not be made in accordance with the  contractual  terms of the
loan agreement are considered impaired. Impaired loans are carried at the lesser
of their principal balance or their fair value. The Company considers individual
problem loans with principal balances of $250,000 or greater for impairment. The
fair  value of  impaired  loans  is  estimated  using  one of  several  methods,
including the present value of expected cash flows, market price of the loan, if
available,   or  value  of  the  underlying  collateral.   At  March  31,  2010,
substantially  all impaired loans were evaluated  based on the fair value of the
collateral.  Those  impaired  loans not  requiring an allowance  for loan losses
allocation   represent   loans  with  fair  values   exceeding   their  recorded
investments.  Impaired loans for which an allowance is established  based on the
fair value of collateral  require  classification  in the fair value  hierarchy.
When the fair value of collateral  is based on an  observable  market price or a
current  appraised  value, the Company records the impaired loan as nonrecurring
Level 2.

Other Real Estate Owned

 Other real  estate  owned  (OREO) is  adjusted to fair value less costs to sell
 upon transfer of a loan to OREO. Subsequently,  OREO is carried at the lower of
 carrying value or fair value less costs to sell and is valued on a nonrecurring
 basis. Fair value is generally based upon current appraisals, comparable sales,
 and other estimates of value obtained  principally  from  independent  sources,
 adjusted for estimated selling costs, which the Company considers to be Level 2
 inputs.

 Deposits

 The fair value of demand  deposits,  savings,  and money market accounts is the
 amount payable on demand at the reporting date. The fair value of time deposits
 is estimated  using a discounted  cash flow  calculation  that applies  current
 interest rates to a schedule of aggregated expected maturities.

                                       11
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 6 - Fair Value of Financial Instruments - (continued)

The estimated fair values of the Company's financial instruments were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
                                                                             March 31,                            December 31,
                                                                               2010                                  2009
                                                                               ----                                  ----
                                                                   Carrying             Fair              Carrying            Fair
                                                                    Amount              Value              Amount             Value
                                                                    ------              -----              ------             -----
Financial assets:
<S>                                                                <C>                <C>                <C>                <C>
   Cash and due from banks .............................           $ 17,409           $ 17,409           $ 40,790           $ 40,790
   Federal funds sold ..................................                452                452                109                109
   Investment securities ...............................             84,635             84,635             65,042             65,042
   Loans held for sale .................................                450                450                320                320
   Loans, gross ........................................            345,890            340,904            356,912            358,618
   Other Real Estate Owned, net ........................              9,469              9,469              9,789              9,789
Financial liabilities:
   Deposits ............................................            358,153            350,742            368,537            360,805
   Short term borrowings ...............................             11,842             11,842             17,045             17,045
   Advances from Federal Home Loan Bank ................             74,000             69,280             74,000             69,363
   Junior subordinated debentures ......................             10,310             10,310             10,310             10,310

<CAPTION>
                                                                     Notional            Fair             Notional            Fair
                                                                      Amount             Value             Amount             Value
                                                                      ------             -----             ------             -----
Financial instruments with off-
Balance sheet risk:
<S>                                                                  <C>                 <C>              <C>                 <C>
   Commitments to extend credit ..........................           $22,195             $   -            $21,996             $   -
   Standby letters of credit .............................               569                 -                767                 -
   Derivative instruments ................................            10,000              (227)            10,000              (329)
</TABLE>

Note 7 - Subsequent Events

Subsequent  events are events or transactions that occur after the balance sheet
date but before financial  statements are issued.  Recognized  subsequent events
are events or transactions  that provide  additional  evidence about  conditions
that existed at the date of the balance sheet,  including the estimates inherent
in the  process of  preparing  financial  statements.  Nonrecognized  subsequent
events are events that provide  evidence about  conditions that did not exist at
the date of the balance sheet but arose after that date.














                                       12
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related notes  appearing  herein and in the Company's
Annual  Report on Form 10-K for the year ended  December  31,  2009.  Results of
operations for the period ending March 31, 2010 are not  necessarily  indicative
of the results to be attained for any other period.

This Report on Form 10-Q may contain forward-looking statements relating to such
matters as anticipated financial performance, business prospects,  technological
developments,  new products and similar  matters.  All  statements  that are not
historical  facts  are  "forward-looking  statements."  The  Private  Securities
Litigation  Reform  Act of  1995  provides  a safe  harbor  for  forward-looking
statements.  In order to comply with terms of the safe harbor, the Company notes
that a  variety  of  factors  could  cause  the  Company's  actual  results  and
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations   expressed   in   the   Company's   forward-looking    statements.
Forward-looking  statements  include  statements  with  respect to  management's
beliefs, plans, objectives,  goals,  expectations,  anticipations,  assumptions,
estimates,  intentions,  and future  performance,  and involve known and unknown
risks,  uncertainties  and other  factors,  which may be  beyond  the  Company's
control,  and which may cause actual results,  performance or achievements to be
materially different from future results,  performance or achievements expressed
or  implied  by such  forward-looking  statements.  All  statements  other  than
statements  of  historical  fact are  statements  that could be  forward-looking
statements.  These  forward-looking  statements can be identified through use of
words  such as "may,"  "will,"  "anticipate,"  "assume,"  "should,"  "indicate,"
"would," "believe,"  "contemplate,"  "expect," "seek,"  "estimate,"  "continue,"
"plan,"  "point  to,"  "project,"   "predict,"   "could,"  "intend,"   "target,"
"potential,"  and other  similar  words and  expressions  of the  future.  These
forward-looking  statements  may not be  realized  due to a variety of  factors,
including, without limitation:

     o    future economic and business conditions;
     o    lack of sustained growth and disruptions in the economy of the Greater
          Charleston area;
     o    government monetary and fiscal policies;
     o    the  effects of changes in interest  rates on the levels,  composition
          and costs of deposits, loan demand, and the values of loan collateral,
          securities,  and  interest  sensitive  assets and  liabilities;
     o    the effects of  competition  from a wide  variety of local,  regional,
          national and other providers of financial,  investment,  and insurance
          services;
     o    credit risks;
     o    higher than anticipated levels of defaults on loans;
     o    perceptions by depositors about the safety of their deposits;
     o    the  failure  of  assumptions  underlying  the  establishment  of  the
          allowance for loan losses and other estimates;
     o    the risks of opening new offices,  including,  without limitation, the
          related  costs  and  time  of  building  customer   relationships  and
          integrating  operations as part of these  endeavors and the failure to
          achieve  expected  gains,  revenue growth and/or expense  savings from
          such endeavors;
     o    changes in laws and regulations, including tax, banking and securities
          laws and regulations;
     o    changes  in the  requirements  of  regulatory  agencies;
     o    changes in accounting policies, rules and practices;
     o    changes in technology or products may be more difficult or costly,  or
          less effective than anticipated;
     o    the  effects of war or other  conflicts,  acts of  terrorism  or other
          catastrophic  events that may affect general  economic  conditions and
          economic confidence;
     o    ability to weather the current economic downturn;
     o    loss of consumer or investor confidence; and
     o    other factors and information  described in any of the reports that we
          file with the Securities and Exchange  Commission under the Securities
          Exchange Act of 1934.

All forward-looking statements are expressly qualified in their entirety by this
cautionary  notice.  The Company has no obligation,  and does not undertake,  to
update,  revise or correct any of the forward-looking  statements after the date
of this  report.  The Company  has  expressed  its  expectations,  beliefs,  and
projections  in good faith and believes they have a reasonable  basis.  However,
there is no  assurance  that these  expectations,  beliefs or  projections  will
result or be achieved or accomplished.

                                       13
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Results of Operations

The Company's net income for the three months ended March 31, 2010 was $362,910,
or $.08 per basic share,  compared to $303,134, or $.07 per basic share, for the
three  months  ended  March  31,  2009.  The  average  number  of  basic  shares
outstanding for the three months ending March 31, 2010 was 4,550,015 compared to
4,521,890 for the three months ending March 31, 2009.

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,
and is the principal source of the Company's  earnings.  Net interest income was
$2,881,902 for the three months ended March 31, 2010, compared to $3,287,514 for
the three months ended March 31, 2009.

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 three months ending March 31, 2010 decreased 8.1
percent to $427.0 million from the $464.6 million  reported for the three months
ending March 31, 2009.  The  decrease  was  attributable  to a decrease of $59.5
million in average  loans,  partially  offset by an increase of $21.9 million in
average total  investments and federal funds sold. The decrease in average loans
between the two periods was due to a slower  lending  environment  brought on by
the  economic  downturn  and  increased  nonaccrual  loans and other real estate
owned.  Average nonaccrual loans totaled $22.6 million and $10.1 million for the
three months  ending March 31, 2010 and 2009,  respectively.  Average other real
estate owned  totaled $9.5 million and $2.6 million for the three months  ending
March 31, 2010 and 2009,  respectively.  Additionally,  the Company had net loan
chargeoffs of $11.9  million  during 2009,  further  reducing  outstanding  loan
balances.

Average interest  bearing  liabilities for the three months ended March 31, 2010
decreased 2.2 percent to $431.5 million from the $441.3 million reported for the
three months ended March 31, 2009. The decrease was attributable to decreases of
$22.6  million and $7.6  million in average  time  deposits  and  average  other
borrowings,  respectively.  These decreases were partially offset by an increase
of $20.4 million in average  savings and transaction  accounts.  The decrease in
average time deposits was primarily  attributable to a $17.3 million decrease in
average  brokered and wholesale time deposits.  The decrease in other borrowings
was primarily  attributable  to a $7.0 million  decrease in average Federal Home
Loan Bank borrowings.

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 March 31, 2010 and 2009.

                                       14
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Net Interest Income - (continued)

<TABLE>
<CAPTION>
                                                     For the three months ended              For the three months ended
                                                            March 31, 2010                          March 31, 2009
                                                            --------------                          --------------
                                                      Average           Income/     Yield/      Average          Income/     Yield/
                                                      Balance           Expense     Rate(1)     Balance          Expense     Rate(1)
                                                      -------           -------     -------     -------          -------     -------
Assets
<S>                                                <C>              <C>              <C>     <C>              <C>              <C>
   Cash and Federal funds sold ................    $ 15,824,444     $     13,719     0.35%   $ 10,645,757     $    3,737       0.14%
   Investments - taxable ......................      74,601,709          608,225     3.31      48,043,217        525,698       4.44
   Investments - nontaxable (2) ...............       7,402,557          123,886     6.79      17,273,983        286,970       6.74
                                                   ------------     ------------             ------------     ----------
     Total investments and
       federal funds sold .....................      97,828,710          745,830     3.09      75,962,957        816,405       4.36
   Loans (3) (4) ..............................     329,117,297        4,774,123     5.86     388,625,286      6,018,807       6.25
                                                   ------------     ------------             ------------     ----------

     Total interest earning assets ............     426,946,007        5,519,953     5.22%    464,588,243      6,835,212       5.94%
                                                                    ------------                              ----------
     Other assets .............................      83,180,296                                65,467,030
                                                   ------------                              ------------
     Total assets .............................    $510,126,303                              $530,055,273
                                                   ============                              ============
Liabilities
   Savings and
     transaction accounts .....................    $ 76,533,228          309,019     1.64%   $ 56,122,785        146,944       1.06%
   Time Deposits ..............................     260,396,950        1,337,654     2.08     282,966,196      2,326,878       3.33
   Other borrowings ...........................      84,252,222          788,270     3.79      91,883,529        812,417       3.59
   Subordinated Debt ..........................      10,310,000          158,509     6.24      10,310,000        158,150       6.22
                                                   ------------     ------------             ------------     ----------
     Total interest bearing
       liabilities ............................     431,492,400        2,593,452     2.44     441,282,510      3,444,389       3.17
                                                                    ------------                              ----------
   Non-interest bearing
     liabilities ..............................      33,082,779                                33,832,893
                                                   ------------                              ------------
     Total liabilities ........................     464,575,179        2,593,452     2.26     475,115,403      3,444,389       2.94
                                                                    ------------                              ----------
   Equity .....................................      45,551,124                                54,939,870
                                                   ------------                              ------------
     Total liabilities
       and equity .............................    $510,126,303                              $530,055,273
                                                   ============                              ============
      Net interest
       income/margin (5) ......................                     $  2,926,501     2.72%                    $3,390,823       2.84%
                                                                    ============                              ==========
     Net interest spread (6) ..................                                      2.78%                                     2.77%
</TABLE>

(1)  Annualized
(2)  Tax equivalent yields for nontaxable investments assuming a 36% tax rate.
(3)  Does not include non- accruing loans.
(4)  Income includes loan fees of $128,291 in 2010 and $176,576 in 2009.
(5)  Net interest income divided by total earning assets.
(6)  Total interest earning assets yield less interest bearing liabilities rate.

As shown above,  for the three months ended March 31, 2010 the average  yield on
earning  assets was 5.22  percent,  while the average  cost of interest  bearing
liabilities  was 2.44  percent.  For the three  months  ended March 31, 2009 the
average  yield on  earning  assets  was 5.94  percent  and the  average  cost of
interest-bearing  liabilities was 3.17 percent. The decrease in the asset yields
and average rates paid is due to market  interest rate  decreases  over the last
year. The net interest  margin is computed by annualizing  year to date interest
income and interest expense,  taking the difference,  and dividing the resulting
figure by average interest earning assets. The net interest margin for the three
months  ended March 31, 2010 was 2.72  percent  compared to 2.84 percent for the
three months ended March 31,  2009.  The decrease in the net interest  margin is
attributable to an increase in average other assets of $17.7 million between the
two  periods.  This  increase in average  other  assets was caused by a combined
increase of $19.4 million  between the two periods in average  nonaccrual  loans
and other real estate  owned.  The cost of average  total  liabilities  was 2.26
percent and 2.94  percent for the three  months  ending March 31, 2010 and 2009,
respectively.

                                       15
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Net  Interest  Income -  (continued)

The following table presents  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 three months ended March 31, 2010
                                                                               versus the three months ended March 31, 2009 (1)
                                                                               ------------------------------------------------
                                                                               Volume               Rate               Net Change
                                                                               ------               ----               ----------
Interest income:

<S>                                                                         <C>                   <C>                   <C>
   Federal funds sold ............................................          $     1,818           $     8,164           $     9,982
   Investments - taxable .........................................              290,608              (208,081)               82,527
   Investments - non taxable (2) .................................             (163,993)                  909              (163,084)
                                                                            -----------           -----------           -----------
     Total investments and federal funds sold ....................              128,433              (199,008)              (70,575)
     Loans, net (3) ..............................................             (917,075)             (327,609)           (1,244,684)
                                                                            -----------           -----------           -----------
     Total interest income .......................................             (788,642)             (526,617)           (1,315,259)
                                                                            -----------           -----------           -----------
Interest expense:
   Savings and transaction accounts ..............................               53,440               108,635               162,075
   Time deposits .................................................             (185,591)             (803,633)             (989,224)
   Other borrowings ..............................................              (67,475)               43,328               (24,147)
   Subordinated debt .............................................                    -                   359                   359
                                                                            -----------           -----------           -----------
     Total interest expense ......................................             (199,626)             (651,311)             (850,937)
                                                                            -----------           -----------           -----------
     Net interest income .........................................          $  (589,016)          $   124,696           $  (464,322)
                                                                            ===========           ===========           ===========
</TABLE>

(1) Changes in rate/volume  have been  allocated on a consistent  basis to rate.
(2) Tax equivalent  yields for nontaxable  investments  assuming a 36% tax rate.
(3) Income includes loan fees of $128,291 in 2010 and $176,576 in 2009.

                                       16
<PAGE>
                        SOUTHCOAST FINANCIAL CORPORATION

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

Noninterest Income and Expenses

Noninterest  income for the three  months  ended March 31, 2010 was  $1,931,192,
compared to $641,183 for the three  months ended March 31, 2009,  an increase of
$1,290,009. Gains on sales of available for sale securities totaled $835,412 for
the three  months ended March 31,  2010,  compared  with $0 for the three months
ended March 31, 2009.  The Company had gains on sales of other real estate owned
of $562,300 for the three months ended March 31, 2010, compared to net losses of
$11,936 for the three months  ending  March 31, 2009, a difference  of $574,236.
Rental income increased by $41,685 between the two periods,  with these earnings
totaling $75,992 and $34,307 for the three months ended March 31, 2010 and March
31, 2009,  respectively.  This  increase was due  primarily to rental  income on
leased properties acquired through foreclosure. Earnings from company owned life
insurance  decreased  by $78,370  between the two  periods,  to $106,986 for the
three  months  ending March 31, 2010 from  $185,356 for the three months  ending
March 31, 2009,  a result of declining  market  returns and the  liquidation  of
policies  with cash  surrender  values  totaling  $8.1 million  during the three
months ending March 31, 2010.

Noninterest  expenses for the three months ended March 31, 2010 were $3,293,410,
compared to $3,569,928  for the three months ended March 31, 2009, a decrease of
$276,518.  The  majority of this  decrease was due to a decrease in salaries and
employment  benefits of $402,615  between the two periods,  primarily due to the
Company's not hiring  replacements for a number of departed employees during the
last  twelve  months.  The  decrease in salaries  and  benefits  between the two
periods  was  partially  offset  by a $73,201  increase  in  insurance  expense.
Insurance expense totaled $196,584 and $123,383 for the three months ended March
31, 2010 and 2009, respectively. The increase in insurance expense was primarily
the  result  of higher  FDIC  insurance  premiums.  Occupancy  expenses  totaled
$394,996  and  $337,863  for the three  months  ended  March 31,  2010 and 2009,
respectively,  an increase of $57,133 between the two periods. This increase was
due  primarily  to an increase of $80,355 in real estate  taxes  between the two
periods.

Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain deposits within the Bank's service area. Core deposits (total deposits
less certificates for $100,000 or more, wholesale and brokered deposits) provide
a relatively  stable  funding base, and were equal to 56.8% of total deposits as
of March 31, 2010. Asset liquidity is provided from several  sources,  including
amounts due from banks and federal funds sold and funds from maturing loans. The
Bank is a member of the Federal Home Loan Bank of Atlanta ("FHLBA") and, as such
has the ability to borrow against pledges of its 1-4 family residential mortgage
loans and its commercial  real estate loans.  The Company also has federal funds
accommodations  of $5 million  with Nexity Bank and $10 million with Fifth Third
Bank.  Additionally,  the Company has a borrowing line with the Federal  Reserve
Bank of Richmond  discount  window.  The Company has pledged its  portfolios  of
construction  and land  development  loans and commercial  and industrial  loans
against this borrowing  line.  Total available  borrowings  under this line were
$40.0 million at March 31, 2010.

Loans

Nonfarm, nonresidential real estate loans comprised 27 percent of the total loan
portfolio as of March 31, 2010,  totaling $95.2  million.  Loans secured by real
estate for  construction  and land  development  totaled  $60.2  million,  or 17
percent of the portfolio while 1-4 family mortgage loans totaled $154.2 million,
or 45 percent of the total loan portfolio,  as of March 31, 2010. All other real
estate loans  totaled $6.2  million,  or 2 percent of the total loan  portfolio.
Commercial and industrial loans comprised $26.9 million, or 8% of the total loan
portfolio.  Installment loans and other consumer loans to individuals  comprised
$3.2 million, or 1 percent of the total loan portfolio. Total loans decreased by
$11.0  million  during the three months ended March 31, 2010,  due  primarily to
decreases of $3.4  million,  $3.1  million,  $2.3  million,  and $2.0 million in
nonfarm nonresidential loans, 1-4 family loans, commercial and industrial loans,
and land development loans, respectively.

At March  31,  2010,  the  Company  had no loans 90 days  delinquent  and  still
accruing  interest and $25.9 million of nonaccrual  loans.  The Company had $9.5
million of other real estate  owned at that date.  The  majority  of  nonaccrual
loans are secured by real estate.  The Company's  total balance of problem loans
consists  primarily of construction and land development loans. The primary risk
of loss on these loans is a potential  deterioration  of real estate  collateral
values.  At  December  31,  2009,  the Company had no loans 90 days past due and

                                       17
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. -  Management's  Discussion  and  Analysis of  Financial  Condition  and
           Results of Operations - continued Loans - (continued)

still  accruing  interest,  $9.8 million in other real estate  owned,  and $19.3
million of nonaccrual  loans. At March 31, 2009, the Company had $1.5 million in
loans 90 days past due and still accruing  interest,  $2.9 million in other real
estate  owned,  and $11.4 million of  nonaccrual  loans.  The allowance for loan
losses was 2.98 percent of loans as of March 31, 2010,  compared to 2.81 percent
as of December  31, 2009 and 1.71  percent as of March 31,  2009.  For the three
months  ended  March 31,  2010 the  Company  recorded a loan loss  provision  of
$1,000,000  compared to a loan loss provision of $100,000 during the first three
months of 2009.  The  current  year's  loan loss  provision  is the result of an
increase of $6.6  million in  nonaccrual  loans during the first three months of
the year, as well as current year net chargeoffs of $719,000. Due to the current
depressed state of the economy and declining real estate values in the Company's
market  area,  management  expects  nonperforming  assets to remain at  elevated
levels for the foreseeable future.

In  management's  opinion,  the  allowance for loan losses is adequate to absorb
estimated  losses  inherent in our Company's  loan  portfolio.  In reviewing the
adequacy of the allowance for loan losses at each quarter end,  management takes
into  consideration the historical loan losses we experienced,  current economic
conditions  affecting the ability of our borrowers to repay, the volume of loans
and the trends in delinquent,  nonaccruing, and potential problem loans, and the
quality of collateral  securing  nonperforming and problem loans. After charging
off all  known  losses,  management  considers  the  allowance  for loan  losses
adequate to cover its  estimate of inherent  losses in the loan  portfolio as of
March 31, 2010.

The  following  tables  provide a year to date  analysis of activity  within the
allowance  for loan losses and an  allocation  for the allowance for loan losses
among the various loan categories  (notwithstanding  the allocation,  the entire
allowance is available to absorb losses regardless of category):

(Amounts in thousands)

Balance at December 31, 2009 ................................      $      10,042
Current Year Loan Loss Provision ............................              1,000
Charge- offs:
     Domestic:
       Construction and land development ....................                511
       1-4 family residential ...............................                154
       Nonfarm, nonresidential ..............................                  -
       Commercial and industrial ............................                  5
       Installment loans to individuals .....................                 78
Recoveries:
       1-4 family residential ...............................                 15
       Commercial and industrial ............................                 14
                                                                   -------------
Balance at March 31, 2010 ...................................      $      10,323
                                                                   =============

For the three months  ended March 31,  2010,  net  chargeoffs  to average  loans
outstanding totaled 0.88% on an annualized basis.

Detail of Allowance for Loan Losses Allocation
<TABLE>
<CAPTION>
                                                                                              Period Ended March 31, 2010
                                                                                              ---------------------------
                                                                              General Reserve      Specific Reserve           Total
                                                                              ---------------      ----------------           -----
 (Dollars in thousands)
<S>                                                                              <C>                   <C>                   <C>
Construction and Land Development ................................               $ 2,167               $ 1,229               $ 3,396
Farmland .........................................................                     2                     -                     2
1-4 Family Residential ...........................................                 1,775                     -                 1,775
Multi-Family Residential .........................................                    97                     -                    97
Commercial Real Estate ...........................................                   821                   945                 1,766
Commercial and Industrial ........................................                   670                     -                   670
Consumer and Other ...............................................                   202                     -                   202
Other General Reserves ...........................................                 1,390                     -                 1,390
     Unallocated .................................................                 1,025                     -                 1,025
                                                                                 -------               -------               -------
Total Allowance ..................................................               $ 8,149               $ 2,174               $10,323
                                                                                 =======               =======               =======
</TABLE>

Allocations  to  the  allowance  for  loan  losses  for  construction  and  land
development,  1-4 family  residential,  and  commercial  real estate  loans as a
percentage  of  the  total  allowance  totaled  32.90%,   17.20%,   and  17.10%,
respectively.  Allocations for all other loan types totaled 9.40%. Other general

                                       18
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. -  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations - continued Loans - (continued)

reserves  related to risk factors not  segregated  by loan type totaled  13.47%.
Unallocated  general  reserves  totaled 9.93%.  One of the components of general
reserves is a historical  loss factor  which takes into  account  losses by loan
type for our Company and other banks for a three year period.  The data used for
the most recent period's  calculation lag by a quarter, as peer loss data is not
published by the FDIC until the quarter following call report filings.  In order
to maintain  comparability  between our data and our peers'  data,  we use prior
quarter data in computing both our Company's and our peers' most recent periods'
historical  loss data.  When we prepare our June 30,  2010,  allowance  for loan
losses calculation,  we will use annualized first quarter chargeoff data for our
company and our peers.  Historical chargeoffs from 2007, which are significantly
lower than current period chargeoffs for ourselves,  and, we expect,  our peers,
will drop from the calculation,  and we anticipate our level of general reserves
related to these  historical  chargeoffs  will rise over its current  calculated
levels.  We have  therefore  determined  that our current  level of  unallocated
reserves is appropriate,  given the expected  effects of current year chargeoffs
on our calculated allowance for loan losses.

Management identifies and maintains a list of potential problem loans. These are
loans that are still accruing interest and are not included in nonaccrual status
and are not past due 90 days or more. A loan is added to the  potential  problem
list when management becomes aware of information about possible credit problems
of the borrower  which raises  serious doubts as to the ability of such borrower
to comply with the current loan  repayment  terms.  At March 31, 2010  potential
problem loans totaled $21,252,187.  Management closely tracks the current values
of real estate collateral when assessing the collectibility of problem loans.

Deposits

Deposits decreased $10.4 million during the first three months of 2010 to $358.2
million at March 31, 2010. The decrease was primarily  attributable  to interest
bearing deposits, which decreased $9.2 million.  Brokered and wholesale deposits
decreased  $10.3  million  during the three month  period,  as the Company  made
efforts to decrease its reliance on wholesale funding. Partially offsetting this
decrease in brokered  and  wholesale  deposits  was a $1.4  million  increase in
interest bearing savings and transaction  accounts.  This increase was primarily
attributable to continued growth in the Company's  Rewards Checking  product,  a
high interest  rate checking  account  offered to retail  customers  designed to
increase the  Company's  market share in  transaction  accounts and increase its
core  deposits.  Retail time deposits  changed  little in the three months ended
March 31, 2010,  decreasing  $322,000 from $161,540,000 at December 31, 2009, to
$161,218,000 at March 31, 2010.

Federal Home Loan Bank Borrowings

Other borrowings are primarily  comprised of FHLBA advances.  FHLBA Advances are
collateralized  by pledged  FHLBA stock and  certain  residential  mortgage  and
commercial real estate loans. FHLBA advances are summarized as follows:

            Maturity                       Rate                 Balance
            --------                       ----                 -------
           September 2010                  5.55%             $   7,000,000
           November 2010                   3.24%                 3,000,000
           February 2011                   0.25%                 4,500,000
           March 2011                      2.96%                 7,500,000
           September 2013                  4.75%                10,000,000
           June 2014                       3.92%                 2,000,000
           October 2016                    4.25%                 5,000,000
           November 2016                   4.08%                 5,000,000
           January 2017                    4.35%                 5,000,000
           January 2017                    4.40%                 5,000,000
           January 2017                    4.46%                 5,000,000
           January 2017                    4.60%                 5,000,000
           March 2018                      2.33%                 5,000,000
           April 2018                      3.03%                 5,000,000
                                                             -------------

           Balance                                           $  74,000,000
                                                             =============

                                       19
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Junior Subordinated Debentures

On  August  5, 2005  Southcoast  Capital  Trust  III (the  "Capital  Trust"),  a
non-consolidated  subsidiary  of the Company,  issued and sold a total of 10,310
floating rate  securities,  with a $1,000  liquidation  amount per security (the
"Capital  Securities").  Institutional  buyers  bought  10,000  of  the  Capital
Securities  denominated as preferred securities and the Company bought the other
310 Capital Securities which are denominated as common securities.  The proceeds
of those  sales,  $10.3  million,  were used by the  Capital  Trust to buy $10.3
million of junior subordinated debentures from the Company which are reported on
its  consolidated   balance  sheets.   The  Capital  Securities  mature  or  are
mandatorily  redeemable  upon  maturity on September  30, 2035,  or upon earlier
optional  redemption as provided in the indenture.  The Company has the right to
redeem the Capital  Securities  in whole or in part,  on or after  September 30,
2010. The Company may also redeem the capital securities prior to such date upon
occurrence of specified  conditions and the payment of a redemption premium. See
Note 12 to the consolidated financial statements for the year ended December 31,
2009,  and  the   information   set  forth  in  Exhibit  13  under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-  Junior  Subordinated  Debentures"  filed with our Form 10-K for the
year ended December 31, 2009, for more information about the terms of the junior
subordinated  debentures.  The securities issued by Southcoast Capital Trust III
were effectively  converted from a floating rate to a fixed rate through the use
of an interest rate swap  agreement.  The agreement  provides for the Company to
make payments at a fixed rate of 6.32% in exchange for  receiving  payments at a
variable  rate  (three  month LIBOR plus 150 basis  points).  See Note 13 to the
consolidated  financial  statements  filed with our Form 10-K for the year ended
December  31,  2009,  for more  information  about  the  terms of the rate  swap
agreement.

Capital Resources
The capital  base for the  Company  increased  by  $940,665  for the first three
months of 2010,  due to net income of $362,910,  other  comprehensive  income of
$550,262,  and proceeds  from stock  issuances  of $27,493  through our Employee
Stock  Purchase  Plan.  The Company's Tier 1 capital to average assets ratio was
10.92  percent as of March 31, 2010 compared to 11.34 percent as of December 31,
2009.

The  Federal  Reserve  Board and other bank  regulatory  agencies  require  bank
holding  companies and financial  institutions  to maintain  capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Under the risk-based standard, capital
is  classified  into two tiers.  The  Company's  and the  Bank's  Tier 1 capital
consists of common  shareholders'  equity minus a portion of deferred tax assets
plus, in the case of the Company,  junior  subordinated  debt subject to certain
limitations.  The  Company's  and the  Bank's  Tier 2  capital  consists  of the
allowance for loan losses subject to certain limitations and, in the case of the
Company,  its junior subordinated debt in excess of 25% of its Tier 1 capital. A
bank holding  company's  qualifying  capital base for purposes of its risk-based
capital  ratio  consists  of the  sum of its  Tier  1 and  Tier 2  capital.  The
regulatory  minimum  requirements  are 4% for Tier 1 and 8% for total risk-based
capital.  Southcoast  and the Bank are also  required to  maintain  capital at a
minimum level based on quarterly average assets,  which is known as the leverage
ratio.  Only the  strongest  bank  holding  companies  and banks are  allowed to
maintain  capital  at  the  minimum  requirement.  All  others  are  subject  to
maintaining  ratios 100 to 200 basis points  above the minimum.  As of March 31,
2010, the Company and the Bank exceeded their capital  requirements  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) ...........      $51,892         15.22%    34,088       10.00%        27,271       8.00%
  Tier 1 capital (to risk-weighted assets) ..........       47,556         13.95%    20,453        6.00%        13,635       4.00%
  Tier 1 capital (to average assets) ................       47,556          9.66%    24,615        5.00%        19,692       4.00%
The Company
  Total capital (to risk-weighted assets) ...........      $59,844         17.21%       N/A         N/A         27,819       8.00%
  Tier 1 capital (to risk-weighted assets) ..........       55,423         15.94%       N/A         N/A         13,910       4.00%
  Tier 1 capital (to average assets) ................       55,423         10.92%       N/A         N/A         20,295       4.00%
</TABLE>


                                       20
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

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.  In addition to
commitments to extend credit,  the Company also issues standby letters of credit
which are  assurances  to a third  party  that it will not  suffer a loss if the
customer fails to meet a contractual obligation to the third party. At March 31,
2010, the Company had issued  commitments  to extend credit of  $22,195,336  and
standby  letters  of credit of  $569,162  through  various  types of  commercial
lending arrangements.  Approximately  $19,138,222 of these commitments to extend
credit had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit and standby letters of credit at March 31, 2010.

<TABLE>
<CAPTION>
                                                                  After One     After Three
                                                                   Through        Through                   Greater
                                                    Within One      Three         Twelve     Within One       Than
                                                       Month        Months        Months        Year         One Year       Total
                                                       -----        ------        ------        ----         --------       -----
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Unused commitments to extend credit ............   $ 3,093,210   $ 2,458,646   $ 7,541,849   $13,093,705   $ 9,101,631   $22,195,336
Standby letters of credit ......................        40,000        25,200       498,849       564,049         5,113       569,162
                                                   -----------   -----------   -----------   -----------   -----------   -----------
    Totals .....................................   $ 3,133,210   $ 2,483,846   $ 8,040,698   $13,657,754   $ 9,106,744   $22,764,498
                                                   ===========   ===========   ===========   ===========   ===========   ===========
</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.  Further,
through its various sources of liquidity,  the Company  believes it will be able
to fund these  obligations as they arise. 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. - Quantitative and Qualitative Disclosures About Market Risk.

Information  about the  Company's  exposure to market risk was  disclosed in its
Annual Report on Form 10-K for the year ended December 31, 2009, which was filed
with the Securities and Exchange  Commission on March 16, 2010.  There have been
no material  quantitative  or qualitative  changes in market risk exposure since
the date of that filing.

Item 4T. - 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 that 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.

                                       21
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

PART II - OTHER INFORMATION

Item 6.  Exhibits

31-1   Rule 13a-14(a) Certifications of CEO

31-2   Rule 13a-14(a) Certifications of CFO

32     Section 1350 Certification

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act  of  1934  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                      s/L. Wayne Pearson
Date:    May 12, 2010                              By:--------------------------
                                                        L. Wayne Pearson
                                                        Chief Executive Officer


                                                      s/William C. Heslop
Date:    May 12, 2010                              By:--------------------------
                                                        William C. Heslop
                                                        Chief Financial Officer



                                       22
<PAGE>


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.




                                       23