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

# FORM 10-QSB

(Mark One)

|[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------

| | For the Quarterly Period Ended September 30, 2005
| | -------------------------------------------------

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

| | For the Transition Period from ___________ to _____________
| | -----------------------------------------------------------

Commission file number
333-117053

COMMUNITYSOUTH BANCSHARES, INC.(Exact name of registrant as specified in its charter)

|South Carolina               |  | 20-0934786         
|---------------------------- |  | -------------------
|(State or other jurisdiction |  | (I.R.S. Employer   
|of incorporation)            |  | Identification No.)

6650 Calhoun Memorial HighwayEasley, South Carolina 29640
(Address of principal executive offices, including zip code)

(864) 306-2540(Issuers telephone number, including area code)

______________________________

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.     Yes X   No

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

State
the number of shares outstanding of each of the issuers classes of common equity, as
of the latest practicable date: 2,995,942 shares of common stock, par value $.01 per
share, outstanding as of November 10, 2005.

Transitional Small Business Disclosure
Format (check one):        Yes    NoX

---

# CommunitySouth
Bancshares, Inc.

# Part I  Financial
Information

# Item 1.  Financial
Statements

# CONSOLIDATED BALANCE
SHEETS September 30, 2005

|                                               | September 30, 2005 | December 31, 2004
|---------------------------------------------- | ------------------ | -----------------
|
|
|
|Assets                                         |                    |                  
|Cash and cash equivalents                      |                    |                  
|Cash and due from bank                         |                    |                  
|Restricted cash                                |                    |                  
|Federal funds sold                             |                    |                  
|                                               |                    |                  
|Total cash and cash equivalents                |                    |                  
|Other investments, at cost                     |                    |                  
|Loans                                          |                    |                  
|Less reserve for loan losses                   |                    |                  
|                                               |                    |                  
|                                               |                    |                  
|                                               |                    |                  
|Accrued interest receivable                    |                    |                  
|Property and equipment, net                    |                    |                  
|Other assets                                   |                    |                  
|                                               |                    |                  
|                                               |                    |                  
|Total assets                                   |                    |                  
|                                               |                    |                  
|Liabilities and Shareholders Equity           |                    |                  
|                                               |                    |                  
|Liabilities                                    |                    |                  
|Noninterest bearing deposits                   |                    |                  
|Interest bearing deposits                      |                    |                  
|Subscriptions to be refunded                   |                    |                  
|Accrued expense                                |                    |                  
|Accrued interest payable                       |                    |                  
|Other liabilities                              |                    |                  
|                                               |                    |                  
|                                               |                    |                  
|                                               |                    |                  
|Shareholders Equity                           |                    |                  
|Preferred stock, par value $.01 per share      |                    |                  
|10,000,000 shares authorized, no shares issued |                    |                  
|Common stock, par value $.01 per share         |                    |                  
|10,000,000 shares authorized 2,995,942 issued  |                    |                  
|and outstanding at September 30, 2005 and      |                    |                  
|December 31, 2004                              |                    |                  
|Additional paid-in capital                     |                    |                  
|Retained deficit                               |                    |                  
|                                               |                    |                  
|Total shareholders' equity                     |                    |                  
|                                               |                    |                  
|Total liabilities and shareholders' equity     |                    |                  
|                                               |                    |                  

# See notes to
consolidated financial statements.

2

---

# CommunitySouth
Bancshares, Inc.

# CONSOLIDATED STATEMENT
OF INCOME (Unaudited)

|                                                    | Three Months Ended | Nine Months Ended
|--------------------------------------------------- | ------------------ | -----------------
|
|Interest income                                     |                    |                  
|Interest and dividends on investments               |                    |                  
|Interest and fees on loans                          |                    |                  
|                                                    |                    |                  
|Total interest income                               |                    |                  
|                                                    |                    |                  
|Interest expense                                    |                    |                  
|                                                    |                    |                  
|Net interest income                                 |                    |                  
|                                                    |                    |                  
|Provision for loan loss                             |                    |                  
|                                                    |                    |                  
|Net interest income after provision for loan losses |                    |                  
|                                                    |                    |                  
|Noninterest income                                  |                    |                  
|Mortgage origination fee income                     |                    |                  
|Other income                                        |                    |                  
|                                                    |                    |                  
|Total noninterest income                            |                    |                  
|                                                    |                    |                  
|Noninterest expense                                 |                    |                  
|Salaries and benefits                               |                    |                  
|Professional fees                                   |                    |                  
|Advertising                                         |                    |                  
|Supplies                                            |                    |                  
|Data processing                                     |                    |                  
|Occupancy                                           |                    |                  
|Depreciation                                        |                    |                  
|Equipment maintenance and rental                    |                    |                  
|Telephone                                           |                    |                  
|Other                                               |                    |                  
|                                                    |                    |                  
|Total noninterest expense                           |                    |                  
|                                                    |                    |                  
|Net income (loss) before taxes                      |                    |                  
|                                                    |                    |                  
|Income tax expense (benefit)                        |                    |                  
|                                                    |                    |                  
|Net income (loss)                                   |                    |                  
|                                                    |                    |                  
|Basic and diluted earnings (loss) per share         |                    |                  
|                                                    |                    |                  
|Weighted average shares outstanding:                |                    |                  
|Basic                                               |                    |                  
|Diluted                                             |                    |                  

# See notes to
consolidated financial statements.

3

---

# CommunitySouth
Bancshares, Inc.

# CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS EQUITY For the nine months
ended September 30, 2005(Unaudited)

|                               |  |  |  |           | Total
|------------------------------ |  |  |  | --------- | -----
|
|
|Balance at  December 31, 2004  |  |  |  | 2,995,942 |      
|Net loss                       |  |  |  | -         |      
|Additional offering expenses   |  |  |  | -         |      
|                               |  | 
|Balance at  September 30, 2005 |  |  |  | 2,995,942 |      
|                               |  | 

# See notes to
consolidated financial statements.

4

---

# CommunitySouth
Bancshares, Inc.

# CONSOLIDATED STATEMENT
OF CASH FLOWS For the nine months ended September 30, 2005 (Unaudited)

|                                                                                | 
|------------------------------------------------------------------------------- | 
|Operating activities                                                            | 
|Net loss                                                                        | 
|Adjustments to reconcile net loss to net cash provided by operating activities: | 
|Provision for loan losses                                                       | 
|Depreciation and amortization                                                   | 
|Change in accrued interest receivable                                           | 
|Change in accrued interest payable                                              | 
|Change in accrued expenses                                                      | 
|Change in other assets                                                          | 
|Change in other liabilities                                                     | 
|                                                                                | 
|Net cash provided by operating activities                                       | 
|                                                                                | 
|Investing activities                                                            | 
|                                                                                | 
|Net increase in loans outstanding                                               | 
|Purchase of FHLB Stock                                                          | 
|Purchase of property and equipment                                              | 
|                                                                                | 
|Net cash used in investing activities                                           | 
|                                                                                | 
|Financing activities                                                            | 
|                                                                                | 
|Refund of subscriptions                                                         | 
|Additional stock offering costs                                                 | 
|Net increase in deposit accounts                                                | 
|                                                                                | 
|Net cash provided by financing activities                                       | 
|                                                                                | 
|Net increase in cash                                                            | 
|                                                                                | 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  | 
|                                                                                | 
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                        | 
|                                                                                | 

# See notes to
consolidated financial statements.

5

---

# Notes to Unaudited
Consolidated Financial Statements

# NOTE 1  NATURE OF
BUSINESS AND BASIS OF PRESENTATION

# Business activity and
organization

CommunitySouth Bancshares, Inc. (the
Company) is a South Carolina corporation organized for the purpose of owning
and controlling all of the capital stock of CommunitySouth Bank and Trust (the
Bank). The Bank is a state chartered bank organized under the laws of South
Carolina in Pickens County, South Carolina. From inception in March 2004 through January
18, 2005, the Company engaged in organizational and pre-opening activities necessary to
obtain regulatory approvals and to prepare its subsidiary, the Bank, to commence business
as a financial institution. The company received approval from the FDIC, Federal Reserve
and the State Board of Financial Institutions in January 2005. The Bank began operations
on January 18, 2005. The Bank is primarily engaged in the business of accepting deposits
insured by the Federal Deposit Insurance Corporation, and providing commercial, consumer
and mortgage loans to the general public.

# Basis of Presentation

The accompanying financial statements
have been prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period ended
September 30, 2005 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2005. For further information, refer to the audited
consolidated financial statements and footnotes dated December 31, 2004 included in the
Companys Form 10-KSB for the year ended December 31, 2004 as filed with the
Securities and Exchange Commission.

Until the Bank opened for business on
January 18, 2005, the Company was accounted for as a development stage enterprise as
defined by Statement of Financial Accounting Standards No. 7, Accounting and
Reporting by Development Stage Enterprises, as the Company devoted substantially all
of its efforts to establishing a new business, and thus, comparison of the quarter ended
September 30, 2005 to September 30, 2004 is not meaningful. When the Bank opened, certain
reclassifications and adjustments were made to the financial statements to reflect that
the Company is now accounted for as an operating company.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation The consolidated financial statements include the accounts of CommunitySouth
Bancshares, Inc., the parent company, and CommunitySouth Bank and Trust, its wholly owned
subsidiary. All significant intercompany items have been eliminated in the consolidated
statements.

Managements Estimates
 The preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.

Material estimates that are
particularly susceptible to significant change relate to the determination of the
allowance for losses on loans, including valuation allowances for impaired loans. In
connection with the determination of the allowances for losses on loans, management
obtains independent appraisals for significant properties. Management must also make
estimates in determining the estimated useful lives and methods for depreciating premises
and equipment.

While management uses available
information to recognize losses on loans, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Companys
allowances for losses on loans. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably possible that
the allowances for losses on loans may change materially in the near term.

6

---

Loans receivable  Loans
are stated at their unpaid principal balance. Interest income is computed using the simple
interest method and is recorded in the period earned. Fees earned on loans are amortized
over the life of the loan.

When serious doubt exists as to the
collectibility of a loan or when a loan becomes contractually 90 days past due as to
principal or interest, interest income is generally discontinued unless the estimated net
realizable value of collateral exceeds the principal balance and accrued interest. When
interest accruals are discontinued, income earned but not collected is reversed.

The Company identifies impaired loans
through its normal internal loan review process. Loans on the Companys problem loan
watch list are considered potentially impaired loans. These loans are evaluated in
determining whether all outstanding principal and interest are expected to be collected in
accordance with the contractual terms. Loans are not considered impaired if a minimal
payment delay occurs and all amounts due, including accrued interest at the contractual
interest rate for the period of delay, are expected to be collected. At September 30, 2005
management has determined that the Company had no impaired loans.

Allowance for Loan Losses
 An allowance for loan losses is maintained at a level deemed appropriate by
management to provide adequately for known and inherent losses in the loan portfolio.
Management evaluates current and future economic conditions which may affect the
borrowers ability to pay and the underlying collateral value of the loans in
determining the estimate of the allowance for loan losses. Loans which are deemed to be
uncollectible are charged off and deducted from the allowance. The provision for loan
losses and recoveries of loans previously charged off are added to the allowance.

Premises, Furniture and
Equipment  Premises, furniture and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the straight-line
method based on the estimated useful lives for buildings of 40 years and for furniture and
equipment of 5 to 10 years. Leasehold improvements are amortized over the life of the
lease. The cost of assets sold or otherwise disposed of and the related allowance for
depreciation are eliminated from the accounts and the resulting gains or losses are
reflected in the income statement when incurred. Maintenance and repairs are charged to
current expense. The costs of major renewals and improvements are capitalized.

Residential Loan Origination
Fees  The Company offers residential loan origination services to its customers.
The loans are offered on terms and prices offered by the Companys correspondents and
are closed in the name of the correspondents. The Company receives fees for services it
provides in conjunction with the origination services it provides. The fees are recognized
in income at the time the loans are closed by the Companys correspondent.

Income Taxes  Income
taxes are the sum of amounts currently payable to taxing authorities and the net changes
in income taxes payable or refundable in future years. Income taxes deferred to future
years are determined utilizing an asset and liability approach. This method gives
consideration to the future tax consequences associated with differences between financial
accounting and tax bases of certain assets and liabilities which are principally the
allowance for loan losses, depreciable premises and equipment, and net operating loss
carryforwards. It is more likely than not the operating losses generated will be utilized
prior to their expiration.

Income (Loss) Per Share 
Basic income (loss) per share represents net income or loss available or allocated to
shareholders divided by the weighted-average number of common shares outstanding during
the period. Dilutive income (loss) per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued. Potential
common shares that may be issued by the Company relate to both outstanding warrants and
stock options, and are determined using the treasury stock method. Due to the net loss for
the nine months ended September 30, 2005, the outstanding warrants and stock options are
not considered common stock equivalents and therefore, dilutive loss per share and
dilutive shares are not presented for the nine month period.

Warrants and stock options Upon completion of the offering, the Company agreed to issue warrants to the
organizing directors for the purchase of one share of common stock at $10.00 per share for
every two shares purchased in the stock offering, up to a maximum of 10,000 warrants per
director. The Company issued a total of 109,700 warrants. In addition, the Company has
adopted a stock option plan. As of September 30, 2005 the Company has 457,381 outstanding
options to employees and directors. The Company accounts for the warrants and stock
options under the recognition and measurement principals of Accounting Principles Board
(APB) Opinion No. 25,Accounting for Stock Issued to Employees, and
related interpretations. No stock-based compensation cost will be reflected in the net
income, as all warrants and stock options granted under these plans will have the exercise
price equal to the market value of the underlying common stock on the date of grant.

7

---

Statement of Cash Flows
For purposes of reporting cash flows in the financial statements, the Company considers
certain highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. Cash equivalents include amounts due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.

# NOTE 3  LEASES

Easley location  The
Company leases the site, modular facility and equipment for $7,154 per month for the
temporary modular banking facility being used during the construction of the main office
in Easley. The Company purchased land for the main office in Easley on March 16, 2005 for
$775,000. Construction began in the third quarter of 2005.

Spartanburg location 
The Company has a ten year lease for its Spartanburg office with an initial monthly rental
payment of $6,500, which begins on November 1, 2005.

Greenwood location  The
Company has a six month lease for its Greenwood office with monthly rental payments of
$725, which was renewed in September 2005.

# NOTE 4   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)). 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 as of the first annual
reporting period beginning after December 15, 2005. The Company will adopt SFAS No. 123(R)
effective January 1, 2006.

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 to provide guidance regarding
the application of FASB Statement No.123 (revised 2004), Share-Based Payment.
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. SAB 107 provides interpretive guidance related
to the interaction between Statement No.123R 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.123R.

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.

# NOTE 5  STOCK
OPTIONS AND WARRANTS

The Company has a stock-based
employee and director option plan. Prior to its revision in December 2004, SFAS No. 123,
Accounting for Stock-Based Compensation, allowed a company to either adopt the
fair market value method of valuation or continue using the intrinsic valuation method
presented under APB Opinion No. 25 to account for stock-based compensation. SFAS No. 123
permitted companies to recognize as expense over the vesting period the fair market value
of all stock-based awards on the date of grant. In managements opinion, the existing
stock option valuation models did not necessarily provide a reliable single measure of
stock option fair market value. Therefore, as permitted, the Company applied the existing
accounting rules under APB Opinion No. 25 and provided proforma net income and proforma
earnings per common share disclosures for stock option grants as if the fair market value
based method defined in SFAS No. 123 had been applied. In accordance with the provisions
of ABP Opinion No. 25 and related interpretations, which requires compensation expense for
options to be recognized only if the market price of the underlying stock exceeds the
exercise price on the date of grant, no compensation expense was recognized for stock
options granted during the three or nine months periods ended September 30, 2005.

8

---

The table set forth below summarizes
the impact the fair market value recognition provisions of SFAS No. 123 would have had on
net income and earnings per common share if the Company had applied these provisions to
stock-based compensation for the periods indicated (in thousands, except per share data).

|                                                       | For the three months ended | For the nine months ended
|------------------------------------------------------ | -------------------------- | -------------------------
|
|Net income (loss), as reported                         |                            |                          
|Deduct: Total stock-based employee and director        |                            |                          
|compensation expense determined under fair value-based |                            |                          
|methods for all awards, net of related tax effects     |                            |                          
|                                                       |                            |                          
|pro-forma net income (loss)                            |                            |                          
|                                                       |                            |                          
|Earnings per share                                     |                            |                          
|Basic and diluted - as reported                        |                            |                          
|Basic and diluted - pro-forma                          |                            |                          

The Company granted 466,556 options
and 109,700 warrants during the nine month period ended September 30, 2005. The weighted
average fair value of options and warrants granted approximated $3.43. The fair value of
each option and warrant granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend yield of
0%, expected volatility of 10% , average risk-free interest rate of 4% and expected lives
of 10 years.

The table set forth below summarizes
stock option activity for the Companys 2005 Stock Incentive Plan for the period
indicated.

|                                  |  | Weighted- Average
|--------------------------------- |  | -----------------
|
|Outstanding at December 31, 2004  |  |                  
|Granted                           |  |                  
|Forfeited                         |  |                  
|Exercised                         |  |                  
|                                  |  |                  
|Outstanding at September 30, 2005 |  |                  

SFAS No. 123 (R) is designed to
provide investors and other users of financial statements with more complete and neutral
financial information by requiring that the compensation cost related to share-based
payment transactions be recognized in financial statements. That cost will be measured
based on the fair market value of the equity of liability instruments issued. The Company
will be required to apply SFAS No. 123 (R) as of the first annual reporting period that
begins after December 31, 2005. Until the time of adoption, the Company will continue to
comply with the requirements of the original SFAS No. 123 as amended December 2002.

# NOTE 6  RELATED
PARTY TRANSACTIONS

Certain parties (principally certain
directors and executive officers of the Company, their immediate families and business
interests) were loan customers and had other transactions in the normal course of business
with the bank. Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions
with unrelated persons and do not involve more than the normal risk of collectibility.

9

---

# Item 2.
Managements Discussion and Analysis or Plan of Operation.

The following discussion reviews
our results of operations and assesses our financial condition. You should read the
following discussion and analysis in conjunction with the accompanying consolidated
financial statements. The commentary should be read in conjunction with the discussion of
forward-looking statements, the financial statements, and the related notes and the other
statistical information included in this report.

# DISCUSSION OF
FORWARD-LOOKING STATEMENTS

This report contains
forward-looking statements relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and projections of
revenues and other financial items that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. The words
may, will, anticipate, should,
would, believe, contemplate, expect,
estimate, continue, and intend, as well as other
similar words and expressions of the future, are intended to identify forward-looking
statements. Our actual results may differ materially from the results discussed in the
forward-looking statements, and our operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in our filings with the
Securities and Exchange Commission, including, without limitation:

| |  | our rapid growth to date and short operating history;
| | - | -----------------------------------------------------

| |  | our plans to open two new full-service branches and the resulting pressure this could cause on our management
team;
| | - | -------------------------------------------------------------------------------------------------------------------

| |  | significant increases in competitive pressure in the banking and financial services industries;
| | - | -----------------------------------------------------------------------------------------------

| |  | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| |  | changes in political conditions or the legislative or regulatory environment;
| | - | -----------------------------------------------------------------------------

| |  | general economic conditions, either nationally or regionally and especially in our primary service area,
becoming less favorable than expected resulting in, among other things, a deterioration in credit
quality;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| |  | changes in technology;
| | - | ----------------------

| |  | changes in monetary and tax policies;
| | - | -------------------------------------

| |  | the lack of seasoning of our loan portfolio, especially given our rapid loan growth;
| | - | ------------------------------------------------------------------------------------

| |  | the level of allowance for loan loss;
| | - | -------------------------------------

| |  | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| |  | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| |  | loss of consumer confidence and economic disruptions resulting from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

| |  | changes in the securities markets; and
| | - | --------------------------------------

| |  | other risks and uncertainties detailed from time to time in our filings with the Securities and
Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

# Overview

The following discussion describes
our results of operations for the quarter and nine months ended September 30, 2005 and
also analyzes our financial condition as of September 30, 2005. Because our bank opened
for business on January 18, 2005, a comparison of the quarter and nine month periods ended
September 30, 2005 to the quarter and nine month periods ended September 30, 2004 is not
meaningful. Until January 2005, our principal activities related to our organization, the
conducting of our initial public offering, the pursuit of approvals from the State Board
of Financial Institutions for our application to charter the bank, the pursuit of
approvals from the Federal Reserve to become a bank holding company, and the pursuit of
approvals from the FDIC for our application for insurance of the deposits of the bank. We
received approval from the FDIC, Federal Reserve, and the State Board of Financial
Institutions in January 2005, and commenced business on January 18, 2005. We completed our
stock offering in February 2005, upon the issuance of 2,995,942 shares for a total of
$29,959,420. We capitalized the bank with $20,500,000 of the proceeds from the stock
offering. We now have a full service office in Easley and limited service loan production
offices in Spartanburg and Greenwood. We have received regulatory approval to establish
full service branches in both Spartanburg and Mauldin. Construction and renovations have
started on all three sites.

Like most community banks, we derive
most of our income from interest we receive on our loans and investments. Our primary
source of funds for making these loans and investments is our deposits, on which we pay
interest. Consequently, one of the key measures of our success is our amount of net
interest income, or the difference between the income on our interest-earning assets, such
as loans and investments, and the expense on our interest-bearing liabilities, such as
deposits. Another key measure is the spread between the yield we earn on these
interest-earning assets and the rate we pay on our interest-bearing liabilities.

10

---

Of course, there are risks inherent
in all loans, so we maintain an allowance for loan losses to absorb probable losses on
existing loans that may become uncollectible. We establish and maintain this allowance by
charging a provision for loan losses against our operating earnings. In the following
section we have included a detailed discussion of this process.

In addition to earning interest on
our loans and investments, we earn income through fees and other expenses we charge to our
customers. We describe the various components of this noninterest income, as well as our
noninterest expense, in the following discussion.

# Results of Operations

We incurred a net loss of $862,323
for the nine months ended September 30, 2005. Our net income was $3,733 for the three
months ended September 30, 2005, which represents our first quarterly profit. Included in
the $862,323 net loss for the nine months ended September 30, 2005 is a non-cash expense
of $1,226,000 for the provision for loan losses. For the three months ended September 30,
2005, our provision for loan losses was $269,000. For the nine months ended September 30,
2005, we realized $2,841,519 in interest income, of which $256,552 was from investment
activities and $2,584,967 was from loan activities. For the three months ended September
30, 2005, we realized $1,579,358 in interest income, of which $127,746 was from investment
activities and $1,451,612 was from loan activities. The substantial increase in our
interest income is primarily a result of our rapid loan growth during our first nine
months of operation. We anticipate the growth in loans will continue to drive the growth
in assets and the growth in interest income. The primary source of funding for our loan
portfolio is deposits that are acquired both locally and via the national brokered
certificate market. We incurred interest expense of $942,687 for the nine months ended
September 30, 2005. We incurred interest expense of $626,909 in the third quarter of 2005.
All of the interest expense was related to deposit accounts.

We had noninterest income of $69,023
and $195,514 for the three and nine month periods ended September 30, 2005, respectively.
Mortgage origination fee income for the nine months ended September 30, 2005 was $173,781.
We had $55,999 in mortgage origination fee income in the third quarter of 2005.

We incurred noninterest expense of
$2,035,760 during the nine months ended September 30, 2005. Included in the expense was
$1,097,979 of salaries and benefits, $102,870 of occupancy expenses, $85,429 of
professional expense, $80,833 of data processing expense, and $161,985 of advertising
expense. We also incurred $81,546 of expenses related to supplies. The noninterest expense
incurred in the three months ended September 30, 2005 was $747,441. Included in the
expense was $408,057 of salaries and benefits, $40,274 of occupancy expenses, $30,412 of
professional expense, $39,902 of data processing expense, and $37,935 of advertising
expense. We also incurred $22,222 of expenses related to supplies. The primary expense in
the other expense category relates to the various expenses we incurred to form the bank.

For the nine months ended September
30, 2005, we incurred $145,075 in other fixed asset expenses, which included $109,489 in
depreciation and $35,586 in equipment maintenance and rental. For the three months ended
September 30, 2005, we incurred $56,138 in other fixed asset expense, which included
$45,276 in depreciation and $10,862 in equipment maintenance and rental. We incurred
$40,274 and $102,870 in occupancy expense related to our offices in Easley, Spartanburg
and Greenwood for the three and nine months ended September 30, 2005, respectively.

As described above under Note 4
 Recently Issued Accounting Standards, beginning with calendar year 2006, SFAS No.
123(R) will require us to measure all employee stock-based compensation awards using a
fair value method and record this expense in our financial statements. Consequently, our
noninterest expense in future reporting periods will include a compensation expense for
the fair value of stock options we have granted. If we had been required to report this
expense for the nine months ended September 30, 2005, we would have reported an additional
compensation expense of $ 1,262,149.

# Assets and Liabilities

General

At September 30, 2005, we had total
assets of $122.8 million, consisting principally of $90.8 million in loans, $29.3 million
in federal funds sold, and $1.4 million in cash and due from banks. Liabilities at
September 30, 2005 totaled $94.8 million, consisting principally of $94.1 million in
deposits. At September 30, 2005, shareholders equity was $28.0 million.

11

---

Loans

Since loans typically provide higher
interest yields than other types of interest earning assets, we intend to invest a
substantial percentage of our earning assets in our loan portfolio. At September 30, 2005,
our loan portfolio consisted of $79.1 million of real estate loans, $8.0 million of
commercial business loans, and $3.7 million of consumer and home equity loans.

We will discontinue accrual of
interest on a loan when we conclude it is doubtful that we will be able to collect
interest from the borrower. We will reach this conclusion by taking into account factors
such as the borrowers financial condition, economic and business conditions, and the
results of our previous collection efforts. Generally, we will place a delinquent loan in
nonaccrual status when the loan becomes 90 days or more past due. When we place a loan in
nonaccrual status, we will reverse all interest which has been accrued on the loan but
remains unpaid and we will deduct this interest from earnings as a reduction of reported
interest income. We will not accrue any additional interest on the loan balance until we
conclude the collection of both principal and interest is reasonably certain. At September
30, 2005, there were no non-performing loans, and we had no loans that were 90 days or
more past due or non-accruing.

Provision and Allowance
for Loan Losses

We have established an allowance for
loan losses through a provision for loan losses charged to expense on our statement of
income. The allowance for loan losses represents an amount which we believe is adequate to
absorb probable losses on existing loans that may become uncollectible. Our judgment as to
the adequacy of the allowance for loan losses is based on a number of assumptions about
future events, which we believe to be reasonable, but which may or may not prove to be
accurate. Our determination of the allowance for loan losses is based on evaluations of
the collectibility of loans, including consideration of factors such as the balance of
impaired loans, the quality, mix, and size of our overall loan portfolio, economic
conditions that may affect the borrowers ability to repay, the amount and quality of
collateral securing the loans, our historical loan loss experience, and a review of
specific problem loans. We also consider subjective issues such as changes in the lending
policies and procedures, changes in the local/national economy, changes in volume or type
of credits, changes in volume/severity of problem loans, quality of loan review and board
of director oversight, concentrations of credit, and peer group comparisons. Due to our
limited operating history, to date the provision for loan losses has been made primarily
as a result of our assessment of general loan loss risk compared to banks of similar size
and maturity. Due to our short operating history, the loans in our loan portfolio and our
lending relationships are of very recent origin. In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for some period
of time, a process known as seasoning. As a result, a portfolio of older loans will
usually behave more predictably than a newer portfolio. Because our loan portfolio is new,
the current level of delinquencies and defaults may not be representative of the level
that will prevail when the portfolio becomes more seasoned, which may be higher than
current levels. If delinquencies and defaults increase, we may be required to increase our
provision for loan losses, which would adversely affect our results of operations and
financial condition. Periodically, we adjust the amount of the allowance based on changing
circumstances. We charge recognized losses to the allowance and add subsequent recoveries
back to the allowance for loan losses. There can be no assurance that charge-offs of loans
in future periods will not exceed the allowance for loan losses as estimated at any point
in time or that provisions for loan losses will not be significant to a particular
accounting period.

Deposits

Our primary source of funds for loans
and investments is our deposits and short-term repurchase agreements. We have chosen to
obtain a portion of our certificates of deposits from areas outside of our market. The
deposits obtained outside of our market area generally have comparable rates compared to
rates being offered for certificates of deposits in our local market. At September 30,
2005, we had $94.1 million in deposits, which consisted primarily of $3.4 million in
personal checking, $6.3 million in business checking, $30.4 million in certificates of
deposit, $50.2 million in brokered certificates of deposit and $3.8 million of money
market and savings accounts.

Liquidity 
Liquidity is the ability to meet current and future obligations through liquidation or maturity of existing assets or the
acquisition of liabilities. We manage both assets and liabilities to achieve appropriate
levels of liquidity. Cash and short-term investments are our primary sources of asset
liquidity. These funds provide a cushion against short-term fluctuations in cash flow from
both deposits and loans. Individual and commercial deposits and borrowings are our primary
source of funds for credit activities. We have lines of credit with unrelated banks
totaling $7.125 million. These lines, which are unsecured, are available on a one to seven
day basis for general corporate purposes. We believe our liquidity sources are adequate to
meet our operating needs as well as our construction commitments. The level of liquidity
is measured by the cash and cash equivalents-to-total assets ratio, which was at 25% at
September 30, 2005.

12

---

As members of the Federal Home Loan
Bank of Atlanta, we have credit availability of up to 10% of the banks total assets
which meant $12.2 million was available as of September 30, 2005. Advances under this
credit facility are subject to qualifying collateral.

Impact of Off-Balance
Sheet Instruments Through the operations of our bank,
we have made contractual commitments to extend credit in the ordinary course of our
business activities. These commitments are legally binding agreements to lend money to our
customers at predetermined interest rates for a specified period of time. At September 30,
2005, we had issued commitments to extend credit of $18.3 million through various types of
lending arrangements. We evaluate each customers credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the borrower. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment, commercial and
residential real estate. We manage the credit risk on these commitments by subjecting them
to normal underwriting and risk management processes.

Capital Resources
Total shareholders equity decreased from $29.0 million at December 31, 2004 to $28.0 million at September 30, 2005.
The decrease is due to the net loss for the period of $862,323, and additional stock
offering expenses charged directly to shareholders equity of $82,183.

The bank is subject to various
regulatory capital requirements administered by the federal banking agencies. Because our
total assets are less than $150 million, we are judged only by the adequacy of the
banks capital and not at the holding company level. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a material effect on the banks
financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the bank must meet specific capital guidelines that involve
quantitative measures of the banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
banks capital amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

Quantitative measures established by
regulation to ensure capital adequacy require the bank to maintain minimum ratios of Tier
1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Tier 1 capital of the bank consists of common
shareholders equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. The banks Tier 2 capital
consists of the allowance for loan losses subject to certain limitations. Total capital
for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2
capital. The regulatory minimum requirements are 4% for Tier 1 capital and 8% for total
risk-based capital.

The bank is also required to maintain
capital at a minimum level based on quarterly average assets, which is known as the
leverage ratio. Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the
minimum. The bank exceeded its minimum regulatory capital ratios as of September 30, 2005,
as well as the ratios to be considered well capitalized.

The following table summarizes the
capital amounts and ratios of the bank and the regulatory minimum requirements at
September 30, 2005.

(Dollars in thousands)

|                                       |  |  |   |        | Adequately
|-------------------------------------- |  |  | - | ------ | ----------
|
|
|
|Total capital to risk weighted assets  |  |  | $ | 19,965 |           
|Tier 1 capital to risk weighted assets |  |  | $ | 18,739 |           
|Tier 1 capital to average assets       |  |  | $ | 18,739 |           

13

---

Critical Accounting
Policies We have adopted various accounting
policies that govern the application of accounting principles generally accepted in the
United States and with general practices within the banking industry in the preparation of
our financial statements. Our significant accounting policies are described in the
footnotes to our audited consolidated financial statements as of December 31, 2004, as
filed in our annual report on Form 10-KSB.

Certain accounting policies involve
significant judgments and assumptions by us that have a material impact on the carrying
value of certain assets and liabilities. We consider these accounting policies to be
critical accounting policies. The judgment and assumptions we use are based on historical
experience and other factors, which we believe to be reasonable under the circumstances.
Because of the nature of the judgment and assumptions we make, actual results could differ
from these judgments and estimates that could have a material impact on the carrying
values of our assets and liabilities and our results of operations.

We believe the allowance for loan
losses is the critical accounting policy that requires the most significant judgment and
estimates used in preparation of our consolidated financial statements. Some of the more
critical judgments supporting the amount of our allowance for loan losses include
judgments about the credit worthiness of borrowers, the estimated value of the underlying
collateral, the assumptions about cash flow, determination of loss factors for estimating
credit losses, the impact of current events, and conditions, and other factors impacting
the level of probable inherent losses. Under different conditions or using different
assumptions, the actual amount of credit losses incurred by us may be different from
managements estimates provided in our consolidated financial statements. Refer to
the portion of this discussion that addresses our allowance for loan losses for a more
complete discussion of our processes and methodology for determining our allowance for
loan losses.

# Item 3. Controls and
Procedures

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 15d-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of September 30, 2005. There have been
no significant changes in our internal controls over financial reporting during the fiscal
quarter ended September 30, 2005 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

14

---

# Part II  Other
Information

# Item 1. Legal Proceedings

Not Applicable

# Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds

Not applicable

# Item 3. Defaults Upon
Senior Securities

Not applicable

# Item 4. Submission of Matters
to Vote of Security Holders

Not applicable

# Items 5. Other
Information

Not applicable

# Item 6. Exhibits

10.1        Standard Form of Design-Build Agreement and General Conditions between CommunitySouth Bancshares, Inc. and 
               Trehel Corporation dated August 3, 2005.

31.1        Rule 15d-14(a) Certification of the Principal Executive Officer.

31.2        Rule 15d-14(a) Certification of the Principal Financial Officer.

32           Section 1350
Certifications.

15

---

# SIGNATURES

In accordance with the requirements
of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

|Date:  November 14, 2005 |  | By:   /s/  C. Allan Ducker, III
|------------------------ |  | -------------------------------
|                         |  | C. Allan Ducker, III           
|                         |  | Chief Executive Officer        

|Date:  November 14, 2005 |  | By:   /s/  John W. Hobbs
|------------------------ |  | ------------------------
|                         |  | John W. Hobbs           
|                         |  | Chief Financial Officer 

16

---

# EXHIBIT INDEX

ExhibitNumber               
Description

10.1        Standard Form of Design-Build Agreement and General Conditions between CommunitySouth Bancshares, Inc. and 
               Trehel Corporation dated August 3, 2005.

31.1        Rule 15d-14(a) Certification of the Principal Executive Officer.

31.2        Rule 15d-14(a) Certification of the Principal Financial Officer.

32           Section 1350
Certifications.

17