# UNITED STATES
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 June 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

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 August 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 June 30, 2005

|                                               | June 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                |               |                  
|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 June 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

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# CommunitySouth
Bancshares, Inc.

# CONSOLIDATED STATEMENT
OF INCOME (Unaudited)

|                                                    | Three Months Ended | Six 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 loss before taxes                               |                    |                 
|                                                    |                    |                 
|Benefit for income taxes                            |                    |                 
|                                                    |                    |                 
|Net loss                                            |                    |                 
|                                                    |                    |                 
|Basic and diluted loss per share                    |                    |                 
|                                                    |                    |                 
|Weighted average shares outstanding                 |                    |                 

# See notes to
consolidated financial statements.

3

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# CommunitySouth
Bancshares, Inc.

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

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

# See notes to
consolidated financial statements.

4

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# CommunitySouth
Bancshares, Inc.

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

|                                                                            | 
|--------------------------------------------------------------------------- | 
|Operating activities                                                        | 
|Net loss                                                                    | 
|Adjustments to reconcile net loss to net cash used in 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 used in operating activities                                       | 
|                                                                            | 
|Investing activities                                                        | 
|Increase (decrease) in cash realized from:                                  | 
|Net increase in loans outstanding                                           | 
|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 decrease in cash                                                        | 
|                                                                            | 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              | 
|                                                                            | 
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                    | 

# See notes to consolidated financial statements.

5

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# 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 six-month period
ended June 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 June 30, 2005 to June 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,  and the  valuation
of real estate acquired  in connection  with  foreclosures  or in  satisfaction  of loans.  In connection with
the determination of the allowances for losses on loans and valuation of foreclosed real estate, 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 and foreclosed  real estate,
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 and  foreclosed  real  estate.  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 and foreclosed real estate 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 June 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 a 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.

Loss  Per  Share    Basic  loss  per  share  represents   income  available  to shareholders divided by the
weighted-average number of common shares outstanding during the period.  Dilutive 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, the outstanding warrants and stock
options are not considered common stock equivalents and therefore, dilutive loss per share is not presented.

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 June 30, 2005 the Company has
335,031 outstanding options to employees and directors. 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.

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.

7

---

# 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 is expected to start in
the third quarter of 2005.

Spartanburg location  The Company has a six month lease for its Spartanburg office with monthly rental payments
of $2,528, which began in March 2005.

Greenwood location  The Company has a six month lease for its Greenwood office with monthly rental payments of
$725, which began in March 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

As of June 30, 2005, 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 six months periods
ended June 30, 2005.

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).

8

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|                                                       | For the three months ended | For the six 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 344,206 options
and 109,700 warrants during the six month period ended June 30, 2005. The weighted average
fair value of options and warrants granted approximated $3.40. 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%, expected lives of
10 years, and a vesting period of 120 days.

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 June 30, 2005     |  |                 

In December 2004, the FASB published
SFAS No. 123 (revised), Share-Based Payment. SFAS No. 123 (R) was 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.

9

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# 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:

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

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

| |  | the rates of loan growth;
| | - | -------------------------

| |  | 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 six months ended June 30, 2005 and also
analyzes our financial condition as of June 30, 2005. Because our bank opened for business
on January 18, 2005, a comparison of the quarter and six month periods ended June 30, 2005
to the quarter and six month periods ended June 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, 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 has started on the Easley headquarters site. Cost
estimates for the Easley headquarters project as well as the Spartanburg and Mauldin
leasehold improvements projects have not been finalized.

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

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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 $866,056
for the six months ended June 30, 2005. We incurred a net loss of $312,122 for the three
months ended June 30, 2005. Included in the $866,056 of loss is a non-cash expense of
$957,000 related to the provision for loan loss. For the three months ended June 30, 2005,
there is a non-cash expense of $447,000 related to the provision for loan loss. For the
six months ended June 30, 2005, we realized $1,262,161 in interest income, of which
$128,806 was from investment activities and $1,133,355 was from loan activities. For the
three months ended June 30, 2005 we realized $968,859 in interest income, of which $56,092
was from investment activities and $912,767 was from loan activities. 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 $315,778 for the six months ended June 30, 2005. We incurred interest expense
of $295,529 in the second quarter of 2005. All of the interest expense was related to
deposit accounts. We had $117,782 in mortgage origination fee income for the six months
ended June 30, 2005. We had $81,396 in mortgage origination fee income in the second
quarter of 2005.

We incurred noninterest expense of
$1,288,319 during the six months ended June 30, 2005. Included in the expense was $689,922
of salaries and benefits, $62,596 of occupancy expenses, $55,017 of professional expense,
$40,931 of data processing expense, and $124,050 of advertising expense. We also incurred
$59,324 of expenses related to supplies. The noninterest expense incurred in the three
months ended June 30, 2005 was $728,756. Included in the expense was $396,210 of salaries
and benefits, $31,085 of occupancy expenses, $37,456 of professional expense, $29,158 of
data processing expense, and $69,002 of advertising expense. We also incurred $15,744 of
expenses related to supplies. For the six months ended June 30, 2005, we incurred $88,937
in other fixed asset cost, which included $64,213 in depreciation and $24,724 in equipment
maintenance and rental. For the three months ended June 30, 2005, we incurred $45,377 in
other fixed asset cost, which included $40,045 in depreciation and $5,332 in equipment
maintenance and rental. We incurred $31,085 and $62,596 in occupancy expense related to
our offices in Easley, Spartanburg and Greenwood for the three and six months ended June
30, 2005, respectively. The primary expense in the other expense category relates to the
various expenses we incurred to form the bank.

# Assets and Liabilities

General

At June 30, 2005, we had total assets
of $83.8 million, consisting principally of $70.9 million in loans, $11.0 million in
federal funds sold, and $0.8 million in cash and due from banks. Liabilities at June 30,
2005 totaled $55.8 million, consisting principally of $55.5 million in deposits. At June
30, 2005, shareholders equity was $28.0 million.

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 June 30, 2005, our
loan portfolio consisted primarily of $59.8 million of real estate loans, $8.2 million of
commercial business loans, and $2.9 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 June 30,
2005, there were no non-performing loans, and we had no loans that were 90 days or more
past due or non-accruing.

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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 will be
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 will be 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 will 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 will adjust the amount of
the allowance based on changing circumstances. We will 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 June 30, 2005, we
had $55.5 million in deposits, which consisted primarily of $1.1 million in personal
checking, $3.5 million in business checking, $9.3 million in certificates of deposit,
$39.0 million in brokered deposits and $2.6 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. The investment portfolio is our 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 are our primary source of
funds for credit activities. We have lines of credit with unrelated banks totaling $7.125
million. These lines 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. The
level of liquidity is measured by the cash and securities available for sale-to-total
assets ratio, which was at 14.15% at June 30, 2005.

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 June 30,
2005, we had issued commitments to extend credit of $14.8 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.

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Capital Resources
Total shareholders equity decreased from $29.0 million at December 31, 2004 to $28.0 million at June 30, 2005. The
decrease is due to the net loss for the period of $866,056, 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 June 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 June 30,
2005.

(Dollars in thousands)



|                                       |  |  | Adequately
|-------------------------------------- |  |  | ----------
|
|
|
|Total capital to risk weighted assets  |  |  | $         
|Tier 1 capital to risk weighted assets |  |  | $         
|Tier 1 capital to average assets       |  |  | $         

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

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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 June 30, 2005. There have been no
significant changes in our internal controls over financial reporting during the fiscal
quarter ended June 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.

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# 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

On
March 15, 2005, we issued 109,700 warrants to those organizing directors set forth in our
initial registration statement on Form SB-2 (file no. 333-117053). The organizing
directors had invested significant time and effort to form CommunitySouth Bancshares and
CommunitySouth Bank and Trust, and they individually guaranteed our line of credit to the
bank to cover organizational expenses. In recognition of the financial risk and efforts
they had undertaken in organizing the bank, each organizing director received, for no
additional consideration, a warrant to purchase one share of common stock at a purchase
price of $10.00 per share for every two shares the organizing director purchased in the
offering, up to a maximum of 10,000 shares per organizer. The warrants are evidenced by
separate warrant agreements, the form of which is attached as an exhibit to this Form
10-QSB. The warrants vested on May 18 ,2005. In our initial registration statement, we
indicated that the warrants would vest over a three-year period. To avoid accounting
charges under a new accounting rule, FASB 123R, our board decided to revise the form of
warrant agreement and provide that all warrants will vest 120 days after the date the bank
opened for business. The warrants are not transferable and the warrants and the shares
issued pursuant to the exercise of such warrants will be subject to transferability
restrictions applicable to affiliates of CommunitySouth Bancshares. If the FDIC issues a
capital directive or other order requiring the bank to obtain additional capital, the
warrants will be forfeited if not immediately exercised.

# Item 6.  Exhibits

10.1             Form of Warrant Agreement for Organizing Directors.

31.1             Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2             Rule 13a-14(a) Certification of the Principal Financial Officer.

32                Section 1350
Certifications.

15

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# 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:  August 10, 2005 |  | By:   /s/  C. Allan Ducker, III
|---------------------- |  | -------------------------------
|                       |  | C. Allan Ducker, III           
|                       |  | Chief Executive Officer        

|Date:  August 10, 2005 |  | By:   /s/  John W. Hobbs
|---------------------- |  | ------------------------
|                       |  | John W. Hobbs           
|                       |  | Chief Financial Officer 

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# EXHIBIT INDEX

ExhibitNumber     Description

10.1             Form of Warrant Agreement for Organizing Directors.

31.1             Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2             Rule 13a-14(a) Certification of the Principal Financial Officer.

32                Section 1350
Certifications.

17