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

                                    FORM 10-Q

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

                  For the Quarterly Period Ended March 31, 2005

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

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

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

Indicate by checkmark  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  preceeding 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  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 YES [ ] NO [X]



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

      3,319,258 shares of common stock, no par value, as of April 30, 2005


            See notes to condensed consolidated financial statements.



                                       1
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                                      INDEX
<TABLE>
<CAPTION>

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

<S>                                                                                                                  <C>
Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets - March 31, 2005 and December 31, 2004...................................2

         Condensed Consolidated Statements of Income - Three months ended March 31, 2005 and 2004.......................3

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
           Three months ended March 31, 2005 and 2004...................................................................4

         Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004...................5

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

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.......................9-12

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

Item 4.  Controls and Procedures.......................................................................................13

PART II - OTHER INFORMATION

Item 6.  Exhibits......................................................................................................14

Signatures ............................................................................................................15
</TABLE>


            See notes to condensed consolidated financial statements.



                                       2
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
<TABLE>
<CAPTION>
                                                                                                       March 31,        December 31,
                                                                                                         2005               2004
                                                                                                         ----               ----
                                                                                                     (Unaudited)
Assets
<S>                                                                                               <C>                  <C>
   Cash and cash equivalents:
     Cash and due from banks ..............................................................       $   5,250,923        $  11,853,273
     Federal funds sold ...................................................................          24,749,000            4,236,000
                                                                                                  -------------        -------------
         Total cash and cash equivalents ..................................................          29,999,923           16,089,273
   Investment securities
     Available for sale ...................................................................          24,470,725           21,738,335
     Federal Home Loan Bank Stock, at Cost ................................................           3,000,100            3,093,100
                                                                                                  -------------        -------------
         Total investment securities ......................................................          27,470,825           24,831,435
   Loans held for sale ....................................................................           8,399,534           12,009,550
   Loans, net of allowance of $3,575,845 and $3,403,970 ...................................         304,334,496          293,206,968
   Property and equipment, net ............................................................          16,839,776           14,843,884
   Other assets ...........................................................................           6,140,206            5,122,013
                                                                                                  -------------        -------------

       Total assets .......................................................................       $ 393,184,760        $ 366,103,123
                                                                                                  =============        =============

Liabilities
   Deposits
     Noninterest-bearing ..................................................................       $  36,385,461        $  27,954,739
     Interest bearing .....................................................................         255,318,607          230,198,544
                                                                                                  -------------        -------------

       Total deposits .....................................................................         291,704,068          258,153,283

   Advances from Federal Home Loan Bank ...................................................          51,000,000           58,000,000
   Junior subordinated debentures .........................................................          11,345,000           11,345,000
   Other liabilities ......................................................................           1,744,360            2,034,091
                                                                                                  -------------        -------------

       Total liabilities ..................................................................         355,793,428          329,532,374
                                                                                                  -------------        -------------

Shareholders' Equity
   Common stock (no par value; 20,000,000 shares authorized; 3,317,617 shares
     outstanding at March 31, 2005 and 2,970,663 at December 31, 2004) ....................          37,552,570           34,080,782
   Retained earnings ......................................................................                   -            2,364,340
   Accumulated other comprehensive income (loss) ..........................................            (161,238)             125,627
                                                                                                  -------------        -------------

       Total shareholders' equity .........................................................          37,391,332           36,570,749
                                                                                                  -------------        -------------

       Total liabilities and shareholders' equity .........................................       $ 393,184,760        $ 366,103,123
                                                                                                  =============        =============
</TABLE>

            See notes to condensed consolidated financial statements.



                                       3
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                  Condensed Consolidated Statements of Income
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                   For the Three Months Ended
                                                                                                              March 31,
                                                                                                              ---------
                                                                                                     2005                    2004
                                                                                                     ----                    ----
Interest income
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $4,853,483               $3,317,212
   Investment securities .........................................................                  280,786                  183,632
   Federal funds sold ............................................................                  115,619                   30,736
                                                                                                 ----------               ----------
       Total interest income .....................................................                5,249,888                3,531,580
Interest expense
   Deposits and borrowings .......................................................                2,103,098                1,196,120
                                                                                                 ----------               ----------
Net interest income ..............................................................                3,146,790                2,335,460
Provision for  loan losses .......................................................                  171,255                  150,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                2,975,535                2,185,460
Noninterest income
   Service fees on deposit accounts ..............................................                  221,985                  220,962
   Fees on loans sold ............................................................                  147,988                   51,137
   Other .........................................................................                   95,910                   42,492
                                                                                                 ----------               ----------
       Total noninterest income ..................................................                  465,883                  314,591
                                                                                                 ----------               ----------
Noninterest expenses
   Salaries and employment benefits ..............................................                1,256,065                  976,136
   Occupancy .....................................................................                  165,924                  106,696
   Furniture and equipment .......................................................                  177,644                  175,410
   Advertising and public relations ..............................................                   48,971                   29,363
   Professional fees .............................................................                   62,186                   56,100
   Travel and entertainment ......................................................                   68,097                   44,115
   Telephone, postage and supplies ...............................................                   93,373                   87,603
   Other operating expenses ......................................................                  225,081                  128,528
                                                                                                 ----------               ----------
       Total noninterest expenses ................................................                2,097,341                1,603,951
                                                                                                 ----------               ----------
Income before income taxes .......................................................                1,344,077                  896,100
Income tax expense ...............................................................                  455,437                  278,719
                                                                                                 ----------               ----------
Net income .......................................................................               $  888,640               $  617,381
                                                                                                 ==========               ==========
Basic net income per common share ................................................               $      .27               $      .19
Diluted net income per common share ..............................................               $      .27               $      .19
Weighted average shares outstanding
   Basic .........................................................................                3,286,002                3,252,482
   Diluted .......................................................................                3,308,921                3,289,965
</TABLE>

            See notes to condensed consolidated financial statements.



                                       4
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

       Condensed Consolidated Statement of Changes in Shareholders' Equity
                            and Comprehensive Income
               For the three months ended March 31, 2005 and 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                                                           other
                                                              Common Stock                            comprehensive
                                                              ------------             Retained            income
                                                       Shares            Amount        earnings            (loss)          Total
                                                       ------            ------        --------            ------          -----
<S>                                                    <C>            <C>             <C>              <C>             <C>
Balance, December 31, 2003 .....................       2,680,501      $33,298,027     $          -     $    112,384    $ 33,140,411

   Net income for the period ...................                                           617,381                          617,381

   Other comprehensive income,
     net of tax
     Unrealized holding gains
       on securities available for sale ........                                                            130,980         130,980
                                                                                                                       ------------

   Comprehensive income ........................                                                                            748,361

   Stock dividend ..............................         269,564          617,381         (617,381)

   Exercise of stock options ...................          12,336           57,639                                            57,639

   Employee stock purchase plan ................           1,137           18,840                                            18,840
                                                       ---------     ------------     ------------     ------------    ------------

Balance, March 31, 2004 ........................       2,963,538     $ 33,991,887     $          -     $    243,364    $ 34,235,251
                                                       =========     ============     ============     ============    ============

Balance, December 31, 2004 .....................       2,970,663     $ 34,080,782     $  2,364,340     $    125,627    $ 35,570,749

   Net income for the period ...................                                           888,640                          888,640

   Other comprehensive income,
     net of tax
     Unrealized holding losses
       on securities available for sale ........                                                          (286,865)        (286,865)
                                                                                                                         ----------

   Comprehensive income ........................                                                                            601,775

   Stock dividend ..............................         301,601        3,252,980       (3,252,980)

   Exercise of stock options ...................          43,843          186,268                                           186,268

   Employee stock purchase plan ................           1,510           32,540                                            32,540
                                                       ---------     ------------     ------------     ------------     ------------

Balance, March 31, 2005 ........................       3,317,617     $ 37,552,570     $          -     $   (161,238)    $ 37,391,332
                                                       =========     ============     ============     ============     ============
</TABLE>



            See notes to condensed consolidated financial statements.


                                       5
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                     For the Three Months Ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                     2005                   2004
                                                                                                     ----                   ----
Operating activities
<S>                                                                                            <C>                     <C>
   Net income ......................................................................           $    888,640            $    617,381
   Adjustments to reconcile net income to net
     cash provided (used) by operating activities
       Income tax ..................................................................                455,437                 278,719
       Provision for loan losses ...................................................                171,255                 150,000
       Depreciation and amortization ...............................................                179,079                 169,715
       Increase in other assets ....................................................             (1,018,193)               (839,934)
       Increase in other liabilities ...............................................               (602,313)                (11,934)
                                                                                               ------------            ------------

         Net cash provided by operating activities .................................                 73,905                 363,947
                                                                                               ------------            ------------

Investing activities
   Sale (purchase) Federal Home Loan Bank stock ....................................                 93,000                 315,000
   Sale (purchase) of investment securities available for sale .....................             (3,165,074)                448,120
   Net increase in loans ...........................................................             (7,688,767)             (6,651,720)
   Purchase of property and equipment ..............................................             (2,172,007)             (2,575,238)
                                                                                               ------------            ------------

         Net cash used for investing activities ....................................            (12,932,848)             (8,463,838)
                                                                                               ------------            ------------

Financing activities
   Increase (decrease) in borrowings ...............................................             (7,000,000)            (10,100,000)
   Proceeds from issuance of stock .................................................                218,808                  76,479
   Net increase in deposits ........................................................             33,550,785              48,566,461
                                                                                               ------------            ------------

         Net cash provided by financing activities .................................             26,769,593              38,542,940
                                                                                               ------------            ------------

         Increase in cash and due and cash equivalents .............................             13,910,650              30,443,049

Cash and cash equivalents, beginning of period .....................................             16,089,273              17,581,376
                                                                                               ------------            ------------

Cash and cash equivalents, end of period ...........................................           $ 29,999,923            $ 48,024,425
                                                                                               ============            ============
</TABLE>


            See notes to condensed consolidated financial statements.


                                       6
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 1 - Basis of Presentation

The accompanying  unaudited condensed 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  rule  10-01(a)-(c)  of  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 and has no employees.


Note 3 - Stock-Based Compensation

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

                                                    Three months ended March 31,
                                                    ----------------------------
                                                         2005             2004
                                                         ----             ----
                                                               (Unaudited)
Net income, as reported ..........................      $888,640        $617,381
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects .....             -          91,113
                                                        --------        --------

Pro forma net income .............................      $888,640        $526,268
                                                        ========        ========

Earnings per share:
  Basic - as reported ............................      $    .27        $   0.19
                                                        ========        ========
  Basic - pro forma ..............................      $    .27        $   0.16
                                                        ========        ========

  Diluted - as reported ..........................      $    .27        $   0.19
                                                        ========        ========
  Diluted - pro forma ............................      $    .27        $   0.16
                                                        ========        ========




                                       7
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 4 - Net Income Per Share

Net income per share is computed on the basis of the weighted  average number of
common shares  outstanding in accordance with Statement of Financial  Accounting
Standards No. 128,  "Earnings per Share".  The treasury  stock method is used to
compute the effect of stock  options on the  weighted  average  number of shares
outstanding for diluted earnings per share.
On April 27,  2005,  the  Company  declared  a ten  percent  stock  dividend  to
shareholders'  of record as of May 27, 2005 and payable June 24, 2005. The March
31, 2005  financials  reflect this  dividend.  The Company  also  declared a ten
percent stock dividend in April 2004. The weighted  average number of shares and
all other share data have been  restated  for all periods  presented  to reflect
these stock dividends.




Note 5 - Recently Issued Accounting Standards


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

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment"  ("SFAS  No.  123(R)").  Statement  No.123(R)  covers  a wide  range of
share-based compensation arrangements including share options,  restricted share
plans,  performance-based  awards, share appreciation rights, and employee share
purchase plans.  SFAS No. 123(R) will require  companies to measure all employee
stock-based  compensation  awards  using a fair value  method  and  record  such
expense in its  financial  statements.  In  addition,  the  adoption of SFAS No.
123(R) requires  additional  accounting and disclosure related to the income tax
and cash flow effects resulting from share-based payment arrangements.  SFAS No.
123(R) is  effective  beginning  within the first  interim  or annual  reporting
period of a company's first fiscal year beginning on or after June 15, 2005.


In April 2005,  the  Securities  and Exchange  Commission's  Office of the Chief
Accountant and its Division of Corporation Finance has released Staff Accounting
Bulletin (SAB) No.107.  SAB 107 provides  interpretive  guidance  related to the
interaction  between Statement  No.123(R) and certain SEC rules and regulations,
as well as the staff's  views  regarding the  valuation of  share-based  payment
arrangements for public companies.  SAB 107 also reminds public companies of the
importance of including disclosures within filings made with the SEC relating to
the accounting for share-based  payment  transactions,  particularly  during the
transition  to  Statement  No.123(R).  The Company is currently  evaluating  the
impact that the adoption of SFAS No. 123(R) will have on the financial position,
results of operations and cash flows.

In  December  2003,  the FASB  issued FIN No. 46  (revised),  "Consolidation  of
Variable Interest Entities" ("FIN No. 46(R)"), which addresses  consolidation by
business  enterprises of variable  interest  entities.  FIN No. 46(R) requires a
variable  interest  entity to be  consolidated  by a company if that  company is
subject to a majority of the risk of loss from the  variable  interest  entity's
activities or entitled to receive a majority of the entity's  residual  returns,
or both.  FIN No.  46(R)  also  requires  disclosures  about  variable  interest
entities  that a company is not required to  consolidate,  but in which it has a
significant  variable interest.  FIN No. 46(R) provides guidance for determining
whether an entity qualifies as a variable interest entity by considering,  among
other  considerations,  whether the entity lacks sufficient equity or its equity
holders lack adequate decision-making ability. The consolidation requirements of
FIN No. 46(R) applied  immediately to variable  interest  entities created after
January  31,  2003.  The  consolidation  requirements  applied to the  Company's
existing  variable  interest entities in the first reporting period ending after
March 15, 2004. Certain of the disclosure  requirements applied to all financial
statements  issued  after  December 31,  2003,  regardless  of when the variable
interest  entity was  established.  The adoption of FIN No. 46(R) did not have a
material impact on the Company's financial position or results of operations.

                                       8
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


In November  2003, the Emerging  Issues Task Force ("EITF")  reached a consensus
that certain  quantitative  and qualitative  disclosures  should be required for
debt and marketable equity  securities  classified as available for sale or held
to maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the balance
sheet  date  but  for  which   other-than-temporary   impairment  has  not  been
recognized.  Accordingly  the  EITF  issued  EITF  No.  03-1,  "The  Meaning  of
Other-Than-Temporary  Impairment and Its  Application  to Certain  Investments."
This issue  addresses  the meaning of  other-than-temporary  impairment  and its
application  to investments  classified as either  available for sale or held to
maturity  under  SFAS  No.  115  and  provides   guidance  on  quantitative  and
qualitative  disclosures.  The  disclosure  requirements  of EITF  No.  03-1 are
effective for annual financial statements for fiscal years ending after June 15,
2004. The effective date for the measurement  and  recognition  guidance of EITF
No. 03-1 has been delayed.  The FASB staff has issued a proposed  Board-directed
FASB Staff Position ("FSP"), FSP EITF 03-1-a,  "Implementation  Guidance for the
Application  of Paragraph 16 of Issue No.  03-1." The proposed FSP would provide
implementation guidance with respect to debt securities that are impaired solely
due   to   interest    rates   and/or   sector    spreads   and   analyzed   for
other-than-temporary   impairment   under  the   measurement   and   recognition
requirements  of  EITF  No.  03-1.  The  delay  of the  effective  date  for the
measurement  and  recognition  requirements  of EITF No. 03-1 will be superseded
concurrent  with the final issuance of FSP EITF 03-1-a.  Adopting the disclosure
provisions of EITF No. 03-1 did not have any impact on the  Company's  financial
position or results of operations.

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



                                       9
<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  in the 2004  Form 10-K of
Southcoast  Financial  Corporation.  Results of operations for the period ending
March 31, 2005 are not necessarily  indicative of the results to be attained for
any other period.  Statements  included in Management's  Discussion and Analysis
which are not historical in nature are intended to be, and are hereby identified
as "forward  looking  statements"  for  purposes of the safe harbor  provided by
section 21E of the  Securities  Exchange Act of 1934, as amended.  Words such as
"estimate," "project," "intend," "expect," "plan," "anticipate,"  "believe," and
similar expressions identify  forward-looking  statements.  The Company cautions
readers that forward looking  statements  including  without  limitation,  those
relating to the  Company's new offices,  future  business  prospects,  revenues,
allowance for loan losses, working capital,  liquidity,  capital needs, interest
costs,  and income,  are subject to certain risks and  uncertainties  that could
cause  actual  results to differ from those  indicated  in the  forward  looking
statements,  due to several important factors herein  identified,  among others,
and  other  risks and  factors  identified  from  time to time in the  Company's
reports filed with the Securities and Exchange Commission.

Results of Operations

The  Company's net income for the three months ended March 31, 2005 was $888,640
or $.27 per basic share,  compared to $617,381 or $.19 per basic share,  for the
three months ended March 31, 2004.  The average number of shares for the quarter
ending March 31, 2005 was 3,286,002  compared to 3,252,482 for the period ending
March 31, 2004.

Net Interest Income

Net interest  income is the difference  between the interest  earned on interest
earning assets and the interest paid for funds acquired to support those assets.
Net  interest  income,  the  principal  source of the  Company's  earnings,  was
$3,146,790 for the three months ended March 31, 2005, compared to $2,335,460 for
the three months ended March 31, 2004.

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, 2005 increased 49.4
percent to $356.7 million from the $238.7 million  reported for the three months
ending March 31, 2004. The increase was mainly  attributable  to the increase in
loans,  supported  by a $112.6  million  increase  in average  interest  bearing
liabilities,  which resulted from the continued growth of the Charleston  market
area, growth in the Company's branches, and the Company's marketing efforts.

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, 2005 and 2004.  The  increase in net  interest  income is due to
increased volume of earning assets.




                                       10
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Net Interest Income - continued

<TABLE>
<CAPTION>
                                                          For the three months ended                 For the three months ended
                                                              March 31, 2005                               March 31, 2004
                                                              --------------                                --------------
                                                   Average       Income/        Yield/           Average        Income/     Yield/
                                                   Balance       Expense        Rate(1)          Balance        Expense     Rate(1)
                                                   -------       -------        -------          -------        -------     -------
Assets
<S>                                            <C>             <C>               <C>          <C>             <C>             <C>
   Federal funds sold ....................     $ 18,791,967    $    115,619      2.46%        $  9,407,516    $   20,736      0.88%
   Investments ...........................       26,069,206         280,786      4.31           19,469,138       183,632      3.77
                                               ------------    ------------                   ------------    ----------
     Total investments and
       federal funds sold ................       44,861,173         396,405      3.53           28,876,654       204,368      2.83
   Loans .................................      311,871,957       4,853,483      6.22          209,784,627     3,317,212      6.32
                                               ------------    ------------                   ------------    ----------
     Total earning assets ................      356,733,130       5,249,888      5.89          238,661,281     3,521,580      5.90
                                                               ------------                                   ----------
     Other assets ........................       24,959,460                                     16,893,013
                                               ------------                                   ------------
     Total assets ........................     $381,692,590                                   $255,554,294
                                               ============                                   ============
Liabilities
   Interest bearing deposits .............     $247,297,402       1,482,734      2.40%        $151,920,416       725,832      1.91
   Other borrowings ......................       63,789,444         620,364      3.89           46,552,761       460,288      3.95
                                               ------------    ------------                   ------------    ----------
     Total interest bearing liabilities ..      311,086,846       2,103,098      2.70          198,473,177     1,186,120      2.39
                                                               ------------                                   ----------
    Non-interest bearing liabilities .....       33,887,264                                     23,119,835
                                               ------------                                   ------------
     Total liabilities ...................      344,974,110       2,103,098      2.44          221,593,012     1,186,120      2.14
                                                               ------------                                   ----------
   Equity ................................       36,718,480                                     33,961,282
                                               ------------                                   ------------
     Total liabilities and equity ........     $381,692,590                                   $255,554,294
                                               ============                                   ============
     Net interest income/margin ..........                     $  3,146,790      3.53                         $2,335,460      3.91
                                                               ============                                   ==========
     Net interest spread .................                                       3.19%                                        3.51%
</TABLE>

(1)  Annualized

As reflected  above, for the three months ended March 31, 2005 the average yield
on earning assets was 5.89 percent,  while the average cost of interest  bearing
liabilities  was 2.70  percent.  For the three  months  ended March 31, 2004 the
average  yield on  earning  assets  was 5.90  percent  and the  average  cost of
interest-bearing  liabilities was 2.39 percent. The slight decrease in the yield
on  earning  assets  is  attributable  to a change  in the mix of the  Company's
lending  portfolio and short term investments  offset by the increase in overall
market rates. The increase in the rate paid on interest  bearing  liabilities is
attributable  to the market  interest rate  increases over the last year and the
maturing of lower yield  certificates  of deposits.  The net interest  margin is
computed by subtracting  interest  expense from interest income and dividing the
resulting figure by average interest earning assets. The net interest margin for
the three months ended March 31, 2005 was 3.53 percent  compared to 3.91 percent
for the three  months ended March 31,  2004.  The  decrease in the  net-interest
margin is primarily  attributable to the change in the mix of the loan portfolio
and the temporary  increase in short term  investments  caused by an increase in
short term escrow deposits.  The cost of total  liabilities was 2.44 percent for
the three  months  ended March 31, 2005  compared to 2.14  percent for the three
months ended March 31, 2004.




                                       11
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

The following table presents  changes in the Company's net interest income which
are   primarily   a  result  of  changes  in  the   volumes  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, 2005
(Dollars in thousands)                                                              Versus three months ended March 31, 2004
                                                                                    ----------------------------------------
                                                                                Volume                Rate                Net Change
<S>                                                                          <C>                   <C>                    <C>
Federal funds sold ..............................................            $   20,685            $   64,198             $   84,883
Investments .....................................................                62,252                34,902                 97,154
                                                                             ----------            ----------             ----------
Total investments and federal funds sold ........................                82,937                99,100                182,037
Total loans .....................................................             1,614,252               (77,981)             1,536,271
                                                                             ----------            ----------             ----------
Total earning assets ............................................             1,697,189                21,119              1,718,308
Total interest-bearing liabilities ..............................               626,111               280,867                906,978
                                                                             ----------            ----------             ----------
Net interest income .............................................            $1,071,078            $ (259,748)            $  811,330
                                                                             ==========            ==========             ==========
</TABLE>

Noninterest Income and Expenses

Noninterest  income  for the three  months  ended  March 31,  2005 was  $465,883
compared to $314,591 for the three months ended March 31, 2004.  The increase is
attributable to a $96,851  increase in fees on loans sold, a $53,418 increase in
other income and a slight increase in service fees on deposit accounts.

Noninterest  expenses for the three months ended March 31, 2005 were $2,097,341,
compared to $1,603,951  for the three months ended March 31, 2004.  The increase
of $493,390 is mainly  attributable  to  increases  in  salaries  and  benefits,
occupancy expense and administrative  expenses. These increases primarily relate
to  expenditures  associated  with the  opening  of the  Goose  Creek  branch in
December  2004 as well as the  increase in  administrative  staff to support the
growth of the Company's operations.

Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank are the  Company's  primary  source of funds  for  credit  activities.  The
Company  also has a $5.3 million line of credit with the Bankers Bank of Atlanta
and a $6.0 million line of credit with First  Tennessee  Bank. The Company is in
the process of opening one new branch office and an operations center. The total
unexpended cost of these facilities is $2,271,000. The funding for these offices
will  come  from  normal  operations.  Management  believes  that the  Company's
liquidity sources are adequate to meet its normal operating needs.

Federal Funds Sold

Federal funds sold increased $20.5 million during the first three months of 2005
to $24.7  million at March 31, 2005.  The  increase  was a direct  result of the
increase in escrow  deposits held for a start up bank that plans to open in June
2005. These funds are being maintained in federal funds until the institution is
approved and opened.

Loans

Commercial loans (most of which are incidentally  secured with real estate) made
up 47.7  percent  of the total loan  portfolio  as of March 31,  2005,  totaling
$146.9  million.  Loans  secured  by  real  estate  for  construction  and  land
development  totaled $32.6 million or 10.6% percent of the portfolio,  while all
other loans secured by real estate totaled $125.1 million or 40.6 percent of the
total loan portfolio, as of March 31, 2005. Installment loans and other consumer
loans to  individuals  comprised  $3.3  million or 1.1 percent of the total loan
portfolio.  The  allowance for loan losses was 1.16 percent of loans as of March
31, 2005  compared to 1.15  percent as of December  31,  2004.  In  management's
opinion,  the  allowance  for loan losses is adequate.  At March 31,  2005,  the
Company did not have any loans 90 days  delinquent and still  accruing  interest
and had $1.4  million  of  non-accruing  loans and $ 0.3  million  of other real
estate owned.



                                       12
<PAGE>
                        SOUTHCOAST FINANCIAL CORPORATION

Deposits

Deposits  increased  $33,550,785  during  the  first  three  months  of  2005 to
$291,704,068  at March 31,  2005.  The  increase  was  attributable  to  several
factors.  Noninterest  bearing deposits  increased  $8,430,722  during the first
three  months as a result of the  normal  growth of the Bank.  Interest  bearing
checking,  money market and savings accounts increased by $15,489,036 mainly due
to escrow  accounts.  Brokered  deposits  increased  $9,384,000  during the same
period.

Capital Resources

The capital  base for the  Company  increased  by  $820,583  for the first three
months of 2005,  due to operating  income,  capital  raised through the Employee
Stock Purchase Plan and exercise of stock options,  net of unrealized  losses on
available for sale securities. The Company's tier one capital to asset ratio was
12.72%  percent as of March 31, 2005  compared to 13.64%  percent as of December
31, 2004.

The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements  for  banks  and  the  Federal  Reserve  has  established   similar
requirements  for bank  holding  companies.  As of March 31,  2005,  each of the
Company and the subsidiary bank exceeded the capital requirement levels that are
to be maintained as shown in the following table.

<TABLE>
<CAPTION>
                                                                                                                     Capital Ratios
                                                                                         Well Capitalized     Adequately Capitalized
(Dollars in thousands)                                            Actual                   Requirement               Requirement
                                                                  ------                   -----------               -----------
                                                           Amount        Ratio        Amount        Ratio       Amount        Ratio
                                                           ------        -----        ------        -----       ------        -----
The Bank
<S>                                                      <C>             <C>        <C>              <C>      <C>             <C>
  Total capital (to risk-weighted assets) ............   $  34,327       12.52%     $  21,934        8.00%    $ 27,418        10.00%
  Tier 1 capital (to risk-weighted assets) ...........      31,202       11.38%        10,967        4.00%      16,451         6.00%
  Tier 1 capital (to average assets) .................      31,202        8.51%        14,671        4.00%      18,338         5.00%
The Company
  Total capital (to risk-weighted assets) ............   $  48,553       18.02%     $  28,921       10.00%         N/A           N/A
  Tier 1 capital (to risk-weighted assets) ...........      52,128       16.79%        17,353        6.00%         N/A           N/A
  Tier 1 capital (to average assets) .................      52,128       12.72%        19,064        5.00%         N/A           N/A
</TABLE>

Off-Balance Sheet Risk

The Company makes  contractual  commitments  to extend credit and issues standby
letters  of credit in the  ordinary  course of its  business  activities.  These
commitments  are  legally  binding  agreements  to lend  money to  customers  at
predetermined  interest rates for a specified period of time. At March 31, 2005,
the Company had issued  commitments to extend credit of $38,530,000  and standby
letters of credit of $1,022,000  through  various  types of  commercial  lending
arrangements.  Approximately  $33,913,000 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, 2005.

<TABLE>
<CAPTION>
                                                                    After One    After Three
                                                          Within      Through       Through       Within    Greater
                                                            One        Three         Twelve        One        Than
(Dollars in thousands)                                     Month       Months        Months       Year      One Year        Total
                                                           -----       ------        ------       ----      --------        -----
<S>                                                   <C>          <C>           <C>          <C>          <C>          <C>
Unused commitments to extend credit ...............   $     1,655  $     3,486   $    15,259  $    20,400  $    18,130  $    38,530
Standby letters of credit .........................            65            0           932          997           25        1,022
                                                      -----------  -----------   -----------  -----------  -----------  -----------
    Totals ........................................   $     1,720  $     3,486   $    16,191  $    21,397  $    18,155  $    39,552
                                                      ===========  ===========   ===========  ===========  ===========  ===========
</TABLE>

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

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




                                       13
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market  risk is the risk of loss  from  adverse  changes  in market  prices  and
interest rates. The Company's market risk arises  principally from interest rate
risk  inherent in our lending,  deposit,  and borrowing  activities.  Management
actively  monitors and manages its  interest  rate risk  exposure.  Although the
Company  manages other risks,  such as credit  quality and liquidity risk in the
normal  course of business,  management  considers  interest rate risk to be its
most  significant  market  risk and this risk  could  potentially  have the most
significant  effect  on  the  Company's   financial  condition  and  results  of
operations.  Other types of market risks, such as foreign currency exchange risk
and commodity price risk do not arise in the normal course of community  banking
activities.

Achieving  consistent  growth in net interest  income is the primary goal of the
company's  asset/liability function. The Company attempts to control the mix and
maturities  of  assets  and  liabilities  to  achieve  consistent  growth in net
interest income despite  changes in market interest rates.  The Company seeks to
accomplish  this goal while  maintaining  adequate  liquidity  and capital.  The
Company's  asset/liability  mix is  sufficiently  balanced so that the effect of
interest  rates moving in either  direction is not expected to be material  over
time.

The  Bank's  Asset/Liability  Committee  uses a  simulation  model to  assist in
achieving  consistent growth in net interest income while managing interest rate
risk.  The model takes into account  interest rate changes as well as changes in
the mix and volume of assets and  liabilities.  The model  simulates  the Bank's
balance sheet and income statement under several  different rate scenarios.  The
model's  input (such as  interest  rates and levels of loans and  deposits)  are
updated  on a  quarterly  basis in order to obtain  the most  accurate  forecast
possible.  The forecast  presents  information  over a twelve month  period.  It
reports a base case in which  interest  rates  remain flat and  variations  that
occur when rates increase or decrease 100, 200, and 300 basis points.  According
to the model,  as of March 31, 2005 the Bank is  positioned so that net interest
income would increase  $999,000 and net income would increase  $613,000 if rates
were to rise  100  basis  points  in the next  twelve  months.  Conversely,  net
interest income would decline  $899,000 and net income would decline $551,000 if
interest  rates were to decline 100 basis  points.  Computation  of  prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including  relative  levels of market interest rates and loan  prepayments,  and
should  not be  relied  upon as  indicative  of  actual  results.  Further,  the
computations do not contemplate any actions the Bank could undertake in response
to changes in interest  rates or the effects of responses  by others,  including
borrowers and depositors.

As of March 31,  2005 there was no  significant  change from the  interest  rate
sensitivity  analysis for the various changes in interest rates calculated as of
December 31, 2004. The foregoing  disclosures  related to the market risk of the
Company should be read in conjunction with Management's  Discussion and Analysis
of  Financial  Position  and Results of  Operations  included in the 2004 Annual
Report on Form 10-K.





Item 4.  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.


                                       14
<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





                                       15
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                                   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.





Date:    May 11, 2005                       By: s/L. Wayne Pearson
                                               ---------------------------------
                                               L. Wayne Pearson
                                               Chief Executive Officer




Date:    May 11, 2005                       By: s/Robert M. Scott
                                               ---------------------------------
                                               Robert M. Scott
                                               Chief Financial Officer




                                       16
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION


Exhibit Index

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

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

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




                                       17