UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q

                       QUARTERLY REPORT UNDER SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

                             Commission File Number
                                    000-28037

                            FIRST SOUTH BANCORP, INC.
             (Exact Name of registrant as specified in its charter)


    SOUTH CAROLINA                                   57-1086258
(State of Incorporation)                  (IRS Employer Identification number)

                         1450 John B. White, Sr., Blvd.
                        Spartanburg, South Carolina 29306
                     (Address of Principal Executive Office)

                                 (864) 595-0455
                         (Registrant's Telephone Number)



Check whether the registrant (1) has filed all reports 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 Issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES {X} N0 { }

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and a large  accelerated  filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer ( ) Accelerated filer ( ) Non-accelerated filer(X)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. ( ) Yes (X) No

State the number of shares  outstanding of each of the  registrant's  classes of
common equity,  as of the latest  practical  date:  Common Stock,  no par value,
2,160,038 shares outstanding on May 5, 2007.









<PAGE>










                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-Q

                                      INDEX


PART I - FINANCIAL INFORMATION                                             Page

      Item 1.  Financial Statements

              Consolidated Balance Sheets.....................................3

              Consolidated Statements of Income    ...........................4

              Consolidated Statements of Comprehensive Income.................5

              Consolidated Statements of Cash Flows...........................6

              Notes to Unaudited Consolidated Financial Statements..........7-9


      Item 2.  Management's Discussion and Analysis of Financial Condition
                and Results of Operations..................................9-21

      Item 3.  Quantitative and Qualitative Disclosures about Market Risk....22

      Item 4.  Controls and Procedures.......................................22


Part II- OTHER INFORMATION

      Item 6.  Exhibits......................................................23
















                                       2
<PAGE>





                         PART I - FINANCIAL INFORMATION

                          Item 1 - Financial Statements

                     FIRST SOUTH BANCORP, INC AND SUBSIDIARY

                           Consolidated Balance Sheets
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                 (Unaudited)
                                                                                                   March 31,               Dec. 31,
                                                                                                     2007                    2006
                                                                                                     ----                    ----
Assets
<S>                                                                                              <C>                      <C>
Cash & due from banks ............................................................               $   4,609                $   5,032
Due from banks - interest bearing ................................................                   1,035                   10,650
Investment securities:
    Securities held to maturity ..................................................                   9,827                    9,902
    Securities available for sale ................................................                  23,679                   23,293
Loans ............................................................................                 303,436                  296,465
      Less, allowance for loan losses ............................................                  (3,350)                  (3,275)
                                                                                                 ---------                ---------
Loans - net ......................................................................                 300,086                  293,190
Property & equipment, net ........................................................                   6,381                    5,290
Investment in FSBS Capital Trust .................................................                     155                      155
Other assets .....................................................................                   5,639                    5,911
                                                                                                 ---------                ---------
Total assets .....................................................................               $ 351,411                $ 353,423
                                                                                                 =========                =========

Liabilities

Deposits:
      Noninterest-bearing ........................................................               $  14,213                $  16,038
      Interest-bearing ...........................................................                 282,091                  292,019
                                                                                                 ---------                ---------
    Total deposits ...............................................................                 296,304                  308,057

Securities sold under repurchase agreements ......................................                   1,019                    2,171
Other borrowed funds .............................................................                  10,000                        -
Demand notes issued to the U.S. Treasury .........................................                     197                      287
Subordinated debt ................................................................                   5,155                    5,155
Other liabilities ................................................................                   1,910                    1,798
                                                                                                 ---------                ---------
    Total liabilities ............................................................                 314,585                  317,468

Shareholders' equity

Common stock - no par value; 30,000,000 authorized,
Outstanding 2,155,538 and 2,155,538, respectively ................................                       -                        -
Paid-in capital ..................................................................                  19,849                   19,849
Retained earnings ................................................................                  17,031                   16,206
Accumulated other comprehensive (loss) ...........................................                     (54)                    (100)
                                                                                                 ---------                ---------
Total shareholders' equity .......................................................                  36,826                   35,955

Total liabilities and shareholders' equity .......................................               $ 351,411                $ 353,423
                                                                                                 =========                =========
</TABLE>

 See notes to consolidated financial statements.



                                       3
<PAGE>


                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Income


                                                               (Unaudited)
                                                            Three Months ended,
                                                                  March 31
                                                                  --------
                                                              2007        2006
                                                              ----        ----
                                                          (Dollars in thousands,
                                                            except per share)
Interest income
               Loans, including fees ...................    $ 6,754     $ 6,126
               Investment securities ...................        427         356
               Interest bearing deposits ...............         42         127
                                                            -------     -------

               Total interest income ...................      7,223       6,609
Interest expense
               Deposits and borrowings .................      3,647       2,794
                                                            -------     -------

Net interest income ....................................      3,576       3,815
               Provision for loan losses ...............       (440)       (315)
                                                            -------     -------
Net interest income after provision ....................      3,136       3,500

Noninterest income
               Service charges on deposit accounts .....         55          63
               Other income ............................        218         101
                                                            -------     -------
               Total noninterest income ................        273         164
                                                            -------     -------

Noninterest expense
               Salaries and benefits ...................      1,303       1,099
               Occupancy and equipment .................        245         208
               Other expense ...........................        566         458
                                                            -------     -------
               Total noninterest expense ...............      2,114       1,765
                                                            -------     -------

Income before income taxes .............................      1,295       1,899
               Provision for income taxes ..............        470         685
                                                            -------     -------

Net income .............................................    $   825     $ 1,214
                                                            =======     =======

Basic per share earnings ...............................    $  0.38     $  0.58

Diluted earnings per share .............................    $  0.38     $  0.56



 See notes to consolidated financial statements.


                                       4
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                 Consolidated Statements of Comprehensive Income
                          (Dollar amounts in thousands)



                                                                (Unaudited)
                                                            Three Months ended
                                                                 March 31,
                                                                 ---------
                                                            2007          2006
                                                            ----          ----
Net Income .........................................      $   825       $ 1,214

Other comprehensive income (loss):

Change in unrealized holdings gains &
    losses on available for sale securities ........           74           (65)

Income tax (expense) benefit on other
    comprehensive income (loss) ....................          (28)           25
                                                          -------       -------

Total other comprehensive income (loss) ............           46           (40)
                                                          -------       -------

Comprehensive income ...............................      $   871       $ 1,174
                                                          =======       =======







  See notes to consolidated financial statements.



                                       5
<PAGE>


                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Three Months ended,
                                                                                                                  March 31,
                                                                                                                  ---------
                                                                                                           2007              2006
                                                                                                           ----              ----

Operating Activities
<S>                                                                                                      <C>               <C>
Net income .....................................................................................         $    825          $  1,214

Adjustments to reconcile net income to net cash provided by operating activities
                 Provision for loan losses .....................................................              440               315
                 Depreciation ..................................................................              105               104
                 Net amortization of securities ................................................                4                 4
                 Increase in cash surrender value of life insurance ............................               (8)               (8)
                 Increase  (decrease) in other assets ..........................................              386              (464)
                 Increase in accrued expenses and other liabilities ............................              112               184
                                                                                                         --------          --------

Net cash provided by operating activities ......................................................            1,864             1,349
                                                                                                         --------          --------


Investing Activities
                 Purchase of securities available for sale .....................................                -            (4,500)
                 Sale(Purchase) of restricted FHLB stock .......................................             (345)              168
                 Proceeds from MBS principal paydowns ..........................................              110               167
                 Proceeds from matured available for sale securities ...........................                -             2,000
                 Origination of loans, net of principal collected ..............................           (7,475)          (19,501)
                 Purchase of premises and equipment ............................................           (1,197)             (262)
                                                                                                         --------          --------

Net cash used in investing activities ..........................................................           (8,907)          (21,928)
                                                                                                         --------          --------

Financing Activities
                 Net increase (decrease)  in deposits ..........................................          (11,752)           32,535
                 Net decrease in retail repurchase agreements ..................................           (1,153)           (1,216)
                 Net increase  (decrease) in other borrowings ..................................            9,910            (5,088)
                                                                                                         --------          --------

Net cash (used in) provided by financing activities ............................................           (2,995)           26,231
                                                                                                         --------          --------

Net (decrease) increase in cash and cash equivalents ...........................................          (10,038)            5,652

Cash and cash equivalents, beginning ...........................................................           15,682            18,532
                                                                                                         --------          --------

Cash and cash equivalents, ending ..............................................................         $  5,644          $ 24,184
                                                                                                         ========          ========
</TABLE>

 See notes to consolidated financial statements.


                                       6
<PAGE>



                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

Note 1.  Basis of Presentation and Use of Estimates

The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally accepted in the United States for interim
financial  information and with  instructions to Form 10-Q and Regulation S-X of
the Securities and Exchange Commission.  Accordingly, they do not contain all of
the  information  and  footnotes  required by  accounting  principles  generally
accepted in the United States for complete financial statements. However, in the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation  have been included.  Operating  results for the three months ended
March 31,2007 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2007. For further  information,  please refer to
the financial  statements and footnotes thereto for First South Bancorp's,  Inc.
(the "Company") and the Company's  wholly owned  subsidiary,  First South Bank's
(the"Bank")fiscal  year ended December 31, 2006, contained in the Company's 2006
Annual Report on Form 10-K.

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiary, the Bank. All significant intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates - The preparation of the consolidated  financial  statements in
conformity with accounting principles generally accepted in the United States of
America  requires  management  to make  estimates  and  assumptions  that affect
reported  amounts  of  assets  and  liabilities  and  disclosure  of  contingent
liabilities at the date of the financial  statements,  as well as the amounts of
income and expenses  during the reporting  period.  Actual  results could differ
from those estimates.









                                       7
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

Note 2 - Earnings per Share

Earnings  per share has been  determined  under the  provisions  of statement of
Financial  Accounting  Standards No. 128,  Earnings Per Share.  For the quarters
ended March 31, 2007 and 2006,  basic earnings per share has been computed based
upon the weighted average common shares  outstanding of 2,155,538 and 2,100,497,
respectively.

The only  potential  stock of the Company as defined in  Statement  of Financial
Accounting  Standards No. 128,  Earnings Per Share,  is stock options granted to
various  officers and  employees of the Bank prior to 2006.  The  following is a
summary of the diluted earnings per share calculation for the three months ended
March 31, 2007 and 2006 (Dollars in thousands, except share and per share data):

                                                          Three Months Ended
                                                               March 31,
                                                               ---------
                                                        2007             2006
                                                        ----             ----

Net Income ...................................       $      825       $    1,214

Weighted average outstanding shares ..........        2,155,538        2,100,497

Dilutive effect of stock options .............           32,419           71,098
                                                     ----------       ----------

Weighted average diluted shares ..............        2,187,957        2,171,595

Diluted earnings per
share ........................................       $     0.38       $     0.56


Note 3 - Impact of Recently Issued Accounting Standards

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets, an amendment of FASB Statement No. 140. This statement amends
SFAS No. 140,  Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments  of  Liabilities,  a replacement of SFAS No. 125 with respect to
the  accounting  for  separately   recognized  servicing  assets  and  servicing
liabilities.  The  provisions  of this  statement are effective for fiscal years
beginning  after  September 15, 2006.  The impact of SFAS No. 156 did not have a
material impact on the Company's financial position and results of operations.

In July 2006, FASB issued  Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes--an interpretation of SFAS No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions.  This Interpretation  requires that
the Company recognize in its financial statements, the impact of a tax position,
if that position is more likely than not of being  sustained on audit,  based on
the technical merits of the position.  The provisions of FIN 48 are effective as
of the beginning of the Company's 2007 fiscal year,  with the cumulative  effect
of the change in  accounting  principle  recorded  as an  adjustment  to opening
retained  earnings.  The Company  adopted FIN 48 effective  January 1, 2007. The
impact of the adoption of FIN 48 did not have a material impact on the Company's
financial position and results of operations.

In September  2006, FASB issued SFAS No. 157, "Fair Value  Measurements"  ("SFAS
No. 157"), which enhances existing guidance for measuring assets and liabilities


                                       8
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

using fair value and requires additional  disclosure about the use of fair value
for measurement.  The Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal  years.  The Company  will be required to adopt SFAS No. 157 in the first
quarter of 2008, and is currently  evaluating the impact of the adoption of SFAS
No. 157 on its  financial  position  and results of  operations,  including  the
valuation methods and support for the assumptions that underlie the valuation.

During the first  quarter of 2007,  FASB issued  SFAS No.  159,  "The Fair Value
Option for Financial  Assets and  Financial  Liabilities"  ("SFAS  159"),  which
permits  entities to choose and measure many financial  instruments  and certain
other items at fair value. The Company will be required to adopt SFAS No. 159 in
the  first  quarter  of 2008,  and is  currently  evaluating  the  impact of the
adoption of SFAS No. 159 on its financial position and results of operations.

In  September  2006,  the  Emerging  Issues  Task Force  issued EITF Issue 06-4,
"Accounting  for Deferred  Compensation  and  Postretirement  Benefit Aspects of
Endorsement  Split-Dollar Life Insurance Arrangements" ("EITF Issue 06-4"). EITF
Issue 06-4 requires that for  endorsement  split-dollar  insurance  arrangements
that provide a benefit to an employee that extends to postretirement periods, an
employer  should  recognize a liability for future  benefits in accordance  with
SFAS No. 106 or APB No. 12 based on the  substantive  agreement of the employee.
If the  employee  has  effectively  agreed to maintain a life  insurance  policy
during postretirement periods, the costs of the life insurance policy during the
postretirement  periods  should  be  accrued  in  accordance  with  either  FASB
Statement  No. 106 or APB No. 12. If the  employer has agreed to provide a death
benefit,  the employer should recognize a liability for the future death benefit
in  accordance  with  either  SFAS No.  106 or APB No.  12.  EITF  Issue 06-4 is
effective for fiscal years  beginning  after  December 15, 2007.  The Company is
currently evaluating the impact of EITF Issue 06-4 on its financial statements.

Note 4 - Other Borrowed Funds

Other  borrowed  funds  consisted  of a $10 million  daily rate advance from the
Federal Home Loan Bank.

Note 5 - Subsequent Events

At the April 18, 2007 meeting of the Board of Directors of First South  Bancorp,
Inc., the Board considered and approved a deferred compensation plan for certain
members of management.  This plan was approved to replace certain benefits which
would have been awarded  under the First South  Bancorp,  Inc. 2005 Stock Option
Plan.

The cash benefits in lieu of stock options provision of the First South Bancorp,
Inc.  Deferred  Compensation  Plan requires that the  benefits,  if awarded,  be
accrued and paid out each year. Though the cash benefits awarded under the First
South Bancorp,  Inc. Deferred  Compensation Plan are tied to the Company's stock
price,  there is no  dilutive  effect  to the  Company's  shareholders.

                                       9
<PAGE>

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

This discussion is intended to assist in understanding  the financial  condition
and results of operations of the Company, and should be read in conjunction with
the financial statements and related notes contained elsewhere herein and in the
Company's 2006 annual report on Form 10-K.  Because the Bank is responsible  for
all of the Company's  operations,  the  discussion  will refer to the results of
operations of the Bank.

Forward Looking Statements

         Statements  included  in this Form 10-Q  which  are not  historical  in
nature  are  intended  to be,  and are  hereby  identified  as  "forward-looking
statements"  for  purposes  of the safe  harbor  provided  by Section 21E of the
Securities  and  Exchange  Act of 1934,  as amended.  Words such as  "estimate",
"project",  "intend",  "expect",  "believe",  "anticipate",  "plan", and similar
expressions  identify forward looking  statements.  The Company cautions readers
that forward looking statements, including without limitation, those relating to
the Company's new offices, future business prospects, revenues, working capital,
liquidity, capital needs, adequacy of allowance for loan losses, interest costs,
and income,  are  subject to certain  risks and  uncertainties  that could cause
actual results to differ from those indicated in forward looking statements, due
to several important factors herein  identified,  among others,  and other risks
and factors identified from time to time in the Company's reports filed with the
Securities and Exchange Commission.  These forward-looking  statements are based
on  current   expectations,   estimates  and  projections  about  our  industry,
management's  beliefs,  and  assumptions  made by management.  Such  information
includes,  without  limitation,   discussions  as  to  estimates,  expectations,
beliefs,  plans,  strategies,  and objectives  concerning  the Company's  future
financial and operating  performance.  These  statements  are not  guarantees of
future performance and are subject to risks,  uncertainties and assumptions that
are  difficult  to  predict.  Therefore,  actual  results  may differ from those
expressed  or  forecasted  in such  forward-looking  statements.  The  risks and
uncertainties include, but are not limited to:

     o    The  Company's  growth and ability to maintain  growth;  o  government
          monetary and fiscal  policies,  as well as legislative  and regulatory
          changes;
     o    the effect of interest  rate changes on our level and  composition  of
          deposits,  loan  demand  and the  value  of our  loan  collateral  and
          securities;
     o    the effects of competition from other financial institutions operating
          in the Company's  market areas and elsewhere,  including  institutions
          operating locally, regionally, nationally and internationally;
     o    failure of assumptions  underlying the  establishment of the allowance
          for loan losses, including the value of collateral securing loans; and
     o    loss of consumer  confidence and economic  disruptions  resulting from
          terrorist activities.

         The Company  undertakes no obligation to publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  In light of these risks,  uncertainties,  and assumptions,
the forward-looking events discussed in this report might not occur.


RESULTS OF  OPERATIONS:  THREE MONTH PERIOD ENDED MARCH 31, 2007 COMPARED TO THE
SAME PERIOD ENDED MARCH 31, 2006.

Net Income

For the  first  three  months  of  2007,  the  Company  earned a net  income  of
approximately  $825  thousand,   or  $  .38  per  diluted  share,   compared  to
approximately $1.214 million, or $ .56 per diluted share, for the same period in
2006. Earnings per share decreased by 32.1%. The decrease in net income of 32.0%
is  attributed  to several  factors  including a 6.3%  decrease in net  interest


                                       10
<PAGE>

income from $3.8  million  during the first three months in 2006 to $3.6 million
during the same period in 2007.  The  provision for loan losses  increased  from
$315  thousand  in the first  quarter of 2006 to $440  thousand  during the same
period in 2007. Noninterest income increased 66.5% from $164 thousand in 2006 to
$273  thousand  during the first  three  months of 2007.  The  increase  of $109
thousand  resulted from a $117 thousand  increase in other income, of which $113
thousand was an increase in the gain from the sale of bank owned assets,  offset
by a $8 thousand  decline in  investment  brokerage  service  fees.  Noninterest
expense  experienced a 19.8%  increase from $1.8 million in the first quarter of
2006 to $2.1 million in the same period in 2007.  This  increase  was  primarily
attributed to the increase in salaries and benefits expense of $204 thousand and
an increase in other  expenses of $108 from the first quarter of 2006.  With the
total  number of full-time  equivalent  employees  increasing  by 5 in 2007 from
2006, 66 versus 61,  respectively,  the increased personnel expense is primarily
attributable  to the  increase in the number of employees in 2007 as compared to
the same  period in 2006.  The  increase  in other  expenses  in the first three
months of 2007 as compared to the first three  months of 2006 is  primarily  the
result of a $78 thousand increase in the loss on sale of bank owned assets.

Profitability

Earnings of  financial  institutions  are most  commonly  measured  through ROAA
(return on average  assets)  and ROAE  (return  on  average  equity).  Return on
average assets is the income for the period, annualized,  divided by the average
assets for the  period.  Return on average  equity is the income for the period,
annualized,  divided by the average equity for the period.  As is shown in Table
One,  ROAA and  ROAE  for the  first  quarter  of 2007  were  0.96%  and  9.14%,
respectively.

Table One
                                                     Selected Earnings Ratios
                                                    at or for the Quarter Ending
                                                             March 31,
                                                             ---------
                                                        2007            2006
                                                        ----            ----
Return on Average Assets ......................         0.96%          1.45%

Return on Average Equity ......................         9.14%         15.49%

Average Shareholders' Equity
  as a Percentage of Average Assets ...........        10.47%          9.34%

Performance results as measured by ROAA and ROAE can be primarily  attributed to
changes in the volume and  composition  of earning  assets and the interest rate
environment.  Details of these changes are provided in the following  discussion
of net interest income.

Net Interest Income

Net interest income,  the major component of the Company's income, is the amount
by which  interest  and fees on earning  assets  exceeds  the  interest  paid on
interest-bearing  liabilities,  primarily deposits.  Net interest income for the
first  three  months of 2007  decreased  from that of the same period in 2006 by
$239 thousand, or 6.3%. This decrease can be largely attributed to the change in
the economic  environment between the first quarter of 2006 and 2007. During the
first  quarter of 2006,  interest  rates were rising and the  Company's  earning
assets were repricing more rapidly than interest-bearing liabilities. During the


                                       11
<PAGE>

first quarter of 2007 when interest rates were stable,  the repricing  frequency
of  interest-bearing  liabilities,  especially  in the  area of  time  deposits,
exceeded that of earning  assets.  The extent to which the earnings in 2007 were
negatively  impacted by the change in the economic  environment  between the two
first quarter periods is shown in Table Two. The average yield on earning assets
increased  in 2007 over that of 2006 by 47 basis points  (8.68% - 8.21%),  while
the cost of  interest-bearing  liabilities between the two periods increased 105
basis points (4.96% - 3.91%). However, some of the negative effect of the change
in the  economic  environment  between  the periods was offset by changes in the
Company's balance sheet. The increase in average earning assets of $11.1 million
in the first  quarter as compared to the same period in 2006  exceeded  the $8.5
million increase in interest-bearing liabilities by $2.6 million. The net effect
of these combined changes between the two first quarter periods resulted in a 58
basis point (3.72% - 4.30%) decrease in the interest spread from 2006 to 2007.

In  addition  to the effect on net  interest  income of changes in the  economic
environment between  comparative periods is the increased  competition which has
recently occurred in each of the Company's market areas. New community banks and
new branch  offices of older banks in the  Spartanburg,  Columbia,  and Bluffton
areas of South Carolina have increased the interest expense of  interest-bearing
liabilities and reduced the interest income of loans.  The most notable evidence
of the effect of this competition on the Company's consolidated balance sheet is
demonstrated  in the change from  December 31, 2006,  to March 31, 2007,  in the
level of interest-bearing  deposits, a decline of $9.9 million, and the increase
of $10 million in other  borrowed  funds on a variable  rate (daily rate) credit
basis from the FHLB of Atlanta of which the Bank is a member.  The Company opted
to allow higher cost funding sources, principally time deposits, to flow out and
be replaced with lower cost Federal Home Loan Bank advances.


Table Two includes a detailed  comparison  of the average  balances,  yields and
rates for the interest  sensitive  segments of the Company's  balance sheets for
the three month periods ended March 31, 2007 and 2006.



                                       12
<PAGE>






<TABLE>
<CAPTION>

Table Two                                                    Net Interest Income and Average Balance Analysis
                                                                   for the Three Months Ended March 31,
                                                                              2007 and 2006
                                                                          (Amounts in thousands)

                                                                                               Interest                  Average
                                                                 Average Balance             Income/Expense           Yield/Cost (1)
Interest-Earning Assets                                        2007          2006         2007          2006          2007      2006
                                                               ----          ----         ----          ----          ----      ----

<S>                                                        <C>            <C>            <C>          <C>             <C>      <C>
Int. Bearing Due from Banks ...........................    $   3,028      $  11,752      $      42    $     127       5.63%    4.38%
Investments ...........................................       33,306         32,706            427          356       5.20%    4.41%
Loans .................................................      301,111        281,887          6,754        6,126       9.10%    8.81%
                                                           ---------      ---------      ---------    ---------
Total Interest Earning Assets .........................      337,445        326,345          7,223        6,609       8.68%    8.21%

Non-interest-Earning Assets
Cash & Due From Banks .................................        4,584          6,391
Allowance for Loan Losses .............................       (3,321)        (3,102)
Investments: Fair Value ...............................         (184)          (282)
Premises & Equipment ..................................        5,358          5,338
Investment in unconsolidated subsidiary ...............          155            155
Interest Receivable & Other ...........................        5,614          5,618
                                                           ---------      ---------
Total Non-interest-Earning Assets .....................       12,206         14,118
                                                           ---------      ---------

TOTAL ASSETS ..........................................    $ 349,651      $ 340,463
                                                           ---------      ---------

Interest-Bearing Liabilities
NOW Accounts ..........................................    $  28,221      $  33,745      $     252    $     278       3.62%    3.34%
Money Market & Savings ................................       62,108         46,717            716          444       4.68%    3.85%
Time Deposits & IRAs ..................................      198,963        189,929          2,528        1,826       5.15%    3.90%

Fed Funds Purchased and Repurchase Agreements .........        1,515          4,147             17           39       4.55%    3.81%
Other Borrowed Funds ..................................        2,200         10,111             30          113       5.53%    4.53%
Subordinated Debt .....................................        5,155          5,000            102           93       8.02%    7.54%
Demand Notes Issued to Treasury .......................          152            164              2            1       5.34%    2.47%
                                                           ---------      ---------      ---------    ---------
Total Interest-Bearing Liabilities ....................      298,314        289,813          3,647        2,794       4.96%    3.91%

Non-interest-Bearing Liabilities
Demand Deposits .......................................       12,973         15,705
Interest Payable ......................................        1,125          1,001
Other Liabilities .....................................          630          1,898
                                                           ---------      ---------
Total Non-interest-Bearing Liabilities ................       14,728         18,604

Stockholders' Equity ..................................       36,609         32,046

TOTAL LIABILITIES & EQUITY ............................    $ 349,651      $ 340,463
                                                           ---------      ---------

Net Interest Income ...................................                                  $   3,576    $   3,815
                                                                                         ---------    ---------

  Net Yield on Earning Assets .........................                                                               4.30%    4.74%
  Interest Rate Spread ................................                                                               3.72%    4.30%
</TABLE>

  (1) Annualized


                                       13
<PAGE>

Noninterest Income

Noninterest  income for the first three months of 2007  increased $109 thousand,
or 66.5%,  from the $164 thousand  amount recorded during the first three months
in 2006.  With income from two of the three general  categories  of  noninterest
income  declining in the first quarter of 2007 from the same period in 2006, the
net  increase can be  exclusively  attributed  to the increase in the  remaining
category  shown in Table Three as Other  Noninterest  Income.  This  noninterest
income  category,   which  normally  reflects  a  total  of  several  individual
noninterest  income amounts which does not  substantially  vary in size from one
period to another, can at times include any amounts received through the gain on
the sale of bank owned  assets.  This was the case in the first quarter of 2007.
Of the $142  thousand  amount  shown in the Other  Noninterest  Income total for
2007,  $113  thousand,  or 80%, of the total amount was derived from the sale of
bank owned assets.  As shown in Table Three,  service charge income decreased by
$8 thousand  from $63 thousand  during the first quarter of 2006 to $55 thousand
during  the same  period in 2007.  This  decrease  resulted  primarily  from the
increase  in 2007,  as  compared  to that of the  same  period  in 2006,  of the
earnings  allowance  interest rate which provided in a larger credit to business
accounts as an offset against  service charges  determined  through full account
analysis.  Of the $14  thousand  decline  in the  total in 2007 from 2006 in the
category  of  Commissions  and Fees,  the  decline in  mortgage  loan fees of $8
thousand was the primary factor.

Table Three provides a three month 2007 to 2006 comparison of various categories
of noninterest income.
  Table Three                                Summary of Total Noninterest Income
                                             for the Three Months Ended March 31
                                                        2007 and 2006
                                                    (Amounts in thousands)

                                                      2007                 2006
                                                      ----                 ----
  Service Charges on deposit
  accounts ......................................     $ 55                 $ 63
  Commissions & Fees ............................       76                   90
  Other Non-interest Income .....................      142                   11
                                                      ----                 ----
  Total .........................................     $273                 $164

Noninterest Expense

Noninterest  expense  for the  first  three  months  of 2007  increased  by $349
thousand,  or 19.8%,  over the first three months total in 2006 of $1.8 million.
The  increase in  salaries  and  employee  benefits,  and the  increase in other
noninterest  expenses  were the  primary  reasons  for the  overall  increase in
noninterest expense.  Salaries and benefits increased 18.6% from the first three
months 2006 total of $1.1 million.  This increase was primarily the result of an
increase in the number of employees from 61 to 66 during the period ending March
31, 2006 to March 31, 2007. Other noninterest  expenses increased 23.6% from the
first three months 2006 total of $458  thousand.  This increase is primarily the
result of an increase in loss on sale of bank owned  assets of $78  thousand for
the first three months of 2007 from the first three months of 2006.


Table Four  provides a three  month 2007 to three month 2006  comparison  of the
various categories of noninterest expense.


                                       14
<PAGE>

Table Four
                      Summary of Total Noninterest Expense
                       For the Three Months Ended March 31
                                  2007 and 2006
                             (Amounts in thousands)

                                                         2007             2006
                                                         ----             ----

Salaries & Employee Benefits .......................   $1,303           $1,099
Occupancy & Equipment ..............................      245              208
Other noninterest expense ..........................      566              458
                                                       ------           ------
Total ..............................................   $2,114           $1,765


Income Taxes

Provision  for income  taxes for the three  months ended March 31, 2007 was $470
thousand as compared to $685  thousand in 2006 during the same  period,  a 31.5%
decrease.  This decrease was due to the overall  decrease in income before taxes
of $604 thousand, or 31.8%, in 2007 as compared to that of 2006.

CHANGES IN FINANCIAL POSITION

Investment portfolio

During the first three months of 2007, there were no purchases,  maturities,  or
calls of investment portfolio holdings.  As compared to the same period in 2006,
the annual yield of the  investment  portfolio  during the first quarter of 2007
increased by 79 basis points to 5.20% from 4.41%.

                                       15
<PAGE>


Table Five
                        Analysis of Investment Securities
                             (Amounts in thousands)


<TABLE>
<CAPTION>
December 31, 2006                                       Available-for-Sale                     Held-for-Investment
                                                        ------------------                     -------------------
                                                Amortized Cost    Estimated Fair Value  Amortized Cost   Estimated Fair Value
                                                --------------    --------------------  --------------   --------------------
<S>                                                 <C>                 <C>                 <C>                 <C>
Due in one year or less .......................     $ 5,000             $ 4,961             $     -             $     -
Due from one to five years ....................       6,493               6,427               4,000               3,978
 Due from five to 10 years ....................       6,500               6,485               4,998               5,037
 Due after ten years ..........................       4,123               4,097                   -                   -
Mortgage backed securities ....................         597                 583                 421                 425
Equity securities .............................         741                 741                 482                 631
                                                    -------             -------             -------             -------

                                                    $23,454             $23,294             $ 9,901             $10,071
                                                    =======             =======             =======             =======

<CAPTION>
March 31, 2007                                           Available-for-Sale                        Held-for-Investment
                                                         ------------------                        -------------------
                                                Amortized Cost   Estimated Fair Value   Amortized Cost   Estimated Fair Value
                                                --------------   --------------------   --------------   --------------------
<S>                                                 <C>                 <C>                 <C>                 <C>
Due in one year or less .......................     $ 5,000             $ 4,982             $     -             $     -
Due from one to five years ....................       6,494               6,442               4,000               3,986
 Due from five to 10 years ....................       6,500               6,496               4,998               5,040
 Due after ten years ..........................       4,123               4,116                   -                   -
Mortgage backed securities ....................         563                 557                 346                 350
Equity securities .............................       1,086               1,086                 483                 630
                                                    -------             -------             -------             -------

                                                    $23,766             $23,679             $ 9,827             $10,006
                                                    =======             =======             =======             =======
</TABLE>

Loan portfolio

From December 31, 2006 to March 31, 2007 total loans grew from $296.5 million to
$303.4 million,  or 2.4%. The percentage  composition of the loan portfolio,  as
shown in Table Six,  changed  slightly as the  percentage  of real estate  loans
declined by .9% of the total  portfolio from 82.8% on December 31, 2006 to 81.9%
on March 31,  2007.  Commercial  and  industrial  loans  increased  by .75% as a
percentage of the loan  portfolio  from 17.05% on December 31, 2006 to 17.80% as
of March 31, 2007.

As shown in Table Seven,  Variable Rate Loans  comprised 77.7% of the total loan
portfolio.

On March 31, 2007,  there were ten loans  totaling  $1.5 million on  non-accrual
status.


                                       16
<PAGE>


<TABLE>
<CAPTION>
Table Six                                                                   Analysis of Loans
                                                                            March 31 Balances
                                                                         (Amounts in thousands)

Real Estate:                                                                   2007                               2006
                                                                               ----                               ----
<S>                                                             <C>                   <C>            <C>                   <C>
Construction/Land Development ............................      $ 26,004                8.57%        $ 29,634               10.00%
    1-4 Family Residential Properties ....................        75,848               25.00%          67,063               22.62%
    Multifamily Residential Properties ...................         7,491                2.47%           6,987                2.36%
    Nonfarm Nonresidential Properties ....................       136,535               45.00%         138,752               46.80%
    Other Real Estate Loans ..............................         2,890                0.94%           3,078                1.04%
Commercial & Industrial ..................................        54,003               17.80%          50,556               17.05%
    Consumer .............................................           665                0.22%             395                0.13%
                                                                --------              ------         --------              ------

       Total .............................................      $303,436              100.0%         $296,465              100.0%
                                                                --------              ------         --------              ------
</TABLE>




Table Seven
               Analysis of Loan Maturities and Repricing Frequency
                              as of March 31, 2007
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                               Within   >3 Months     >1 Year    >3 Years       Over
                             3 Months   12 Months     3 Years     5 Years    5 Years       Total
                             --------   ---------     -------     -------    -------       -----
<S>                          <C>          <C>         <C>         <C>           <C>     <C>
Variable Rate Loans ......   $235,818     $     -     $     -     $     -       $  -    $235,818

Fixed Rate Loans .........   $  6,444     $11,145     $26,353     $21,266       $866     $66,074
                             --------     -------     -------     -------       ----     -------

Total Loans ..............   $242,262     $11,145     $26,353     $21,266       $866    $301,892
                             --------     -------     -------     -------       ----    --------
</TABLE>


Excludes loans on non-accrual status of $1.5 million


                                       17
<PAGE>

The  allowance for loan losses is analyzed  monthly in  accordance  with a board
approved plan. This judgmental  analysis is based on a model that assigns a risk
rating to each individual loan and considers the loss risks  associated with the
various  categories  of loans in  relationship  to the  current  and  forecasted
economic  environment.  Management also monitors the overall loan portfolio,  as
well as the level of  reserves  being  maintained  by peer  banks.  The  monthly
provision for loan losses may fluctuate  based on the results of this  analysis.
Of the $440 thousand  provision  amount credited to the loan loss reserve during
the first quarter of 2007, $367 thousand, or 83.4%, of the total was credited as
a  replacement  of reserves  covering the amount of net loan loans losses during
the quarter.  $73 thousand,  or 16.6%,  of the total  provision  amount credited
during the  quarter was made to cover loan  growth.  Table  Eight  provides  the
results of the year-to-date  analysis for the quarters ending March 31, 2007 and
2006,  as well as the amounts  charged to this reserve as a loss and credited to
this reserve as a recovery.

Table Eight                            Analysis of the Allowance for Loan Losses
                                          for the Three Months Ended March 31

                                          2007                        2006
                                          ----                        ----
Balance at Beginning of Period .....    3,275,000                  $3,000,000
Provision Charged to Operations ....      440,000                     315,000
Loans Charged-Off ..................      370,000                           -
Loan Recoveries ....................        5,000                      10,000
                                       ----------                  ----------
Balance at End Of Period ...........   $3,350,000                  $3,325,000

Interest rate risk

Financial  institutions  are  subject to  interest  rate risk to the degree that
their interest bearing liabilities (consisting principally of customer deposits)
mature or reprice more or less frequently,  or on a different basis,  than their
interest earning assets (generally consisting of intermediate or long-term loans
and  investment  securities).  The match  between the  scheduled  repricing  and
maturities of the Bank's earning assets and interest bearing  liabilities within
defined   time   periods  is   referred  to  as  "gap"   analysis.   The  Bank's
Asset/Liability  Management  Committee  is  responsible  for  managing the risks
associated  with  changing  interest  rates and their  impact on  earnings.  The
regular  evaluation  of the  sensitivity  of net  interest  income to changes in
interest  rates is an integral part of interest rate risk  management.  At March
31, 2007,  the cumulative  one-year gap for the Bank was negative,  or liability
sensitive,  $19.6 million.  At March 31, 2007, the cumulative  five-year gap for
the Bank was  positive  $20.4  million.  A positive  gap means that assets would
reprice   faster   than   liabilities   if   interest   rates   changed,   while
interest-bearing  liabilities  reprice  faster  than  assets in a  negative  gap
position.  The Bank's gap is within  policy  limits  which were  established  to
reduce the adverse  impact on earnings  which  movements  in interest  rates can
cause.  Intense  competition in the Bank's markets continues to pressure quality
loan rates downward while conversely pressuring deposit rates upward. Table Nine
demonstrates  how  the   relationship   between   interest-bearing   assets  and
interest-bearing liabilities was calculated for March 31, 2007.


                                       18
<PAGE>
<TABLE>
<CAPTION>

Table Nine                             Distribution of Interest-Earning Assets and Interest-Bearing Liabilities
                                                       Repricing Schedule as of March 31, 2007
                                                                (Amounts in thousands)

                                                One Year        Over One Year          Over
                                                 or Less        to Five Years        Five Years           Total
                                                 -------        -------------        ----------           -----
Interest Earning Assets

<S>                                             <C>                   <C>               <C>            <C>
Due From Banks ..............................   $  1,071              $     -           $     -        $  1,071
Investment Securities* ......................      5,000               10,494            17,013          32,507
FHLB Stock ..................................      1,086                    -                 -           1,086
Loans** .....................................    253,429               47,598               865         301,892
                                                --------              -------           -------        --------

  Total .....................................   $260,586              $58,092           $17,878        $336,556

Interest Bearing Liabilities

NOW Accounts ................................    $29,589             $      -           $     -        $ 29,589
Savings & MMIA ..............................     62,633                    -                 -          62,633
Time Deposits:$100 & > ......................     60,944                6,749                 -          67,693
Time Deposits: <$100m .......................    110,820               11,356                 -         122,176
Repurchase Agreements .......................      1,019                    -                 -           1,019
Other Borrowed Funds*** .....................     15,197                    -                 -          15,197
                                               ---------              -------           -------        --------
  Total .....................................  $ 280,202              $18,105           $     -        $298,307

Period Gap ..................................  $(19,616)              $39,987           $17,878        $ 38,249

Cumulative Gap ..............................  $(19,616)              $20,371           $38,249

Period Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ............    (93.0%)               320.9%                 -

Cumulative Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ............    (93.0%)               106.8%            112.8%

<CAPTION>

                                                3 Months        Over 3 Months          Over One
Time Deposits                                     & Less         to 12 Months              Year           Total
                                                  ------         ------------              ----           -----
<C>                                              <C>               <C>                    <C>            <C>
$100,000 and Greater ........................    $17,564           $43,380                $6,749         $67,693
</TABLE>
*Amortized Cost
**Excludes $1.5 million in loans on non-accrual status.
***Net of investment in FSBS Capital Trust of $155.


                                       19
<PAGE>

Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or the maturity of existing  assets or the acquisition of additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being the ability to
obtain  deposits  within the Bank's service area.  Core deposits (total deposits
less wholesale time deposits) provide a relatively stable funding base, and were
equal to 63.1% of total  assets at March 31, 2007.  Asset  liquidity is provided
from several sources,  including  amounts due from banks and federal funds sold,
and funds from maturing loans. The Bank is a member of the FHLB of Atlanta,  and
the Bank's  borrowings  from that  institution  increased by $10 million for the
first  quarter of 2007.  These  borrowings  were made on a variable  rate (daily
rate) credit  basis.  The Bank also has $12 million  available  through lines of
credit with other banks as an additional source of liquidity funding. Management
believes  that the Bank's  overall  liquidity  sources are  adequate to meet its
operating needs.

Capital Resources

The  increase in Tier 1 capital for the Company  during the twelve  month period
between  March  31,  2006 and 2007  resulted  from a $4.2  million  increase  in
retained  earnings and the  exercising  of stock options in the amount of $427.2
thousand.  The most  significant  contributors to the difference  between Tier 1
Capital  between the Company and the Bank at March 31, 2007,  are the $5 million
Trust  Preferred  issuance  proceeds,  considered  Tier 1 Capital at the holding
company  level and Tier 2 Capital  at the bank  level,  and the  $1.752  million
received from the exercise of stock  options,  which is in  compliance  with the
Board's  intention  to keep at this time that  amount of capital at the  holding
company level.

The Company and the Bank are subject to regulatory  capital adequacy  standards.
Under these standards,  financial  institutions are required to maintain certain
minimum  capital  ratios of capital to  risk-weighted  assets and average  total
assets.  Under the  provisions  of the  Federal  Deposit  Insurance  Corporation
Improvement Act of 1991, federal financial  institutions  regulatory authorities
are  required  to  implement  prescribed  "prompt  corrective  action"  upon the
deterioration  of the capital  position of a bank. If the capital position of an
affected institution were to fall below certain levels,  increasingly  stringent
regulatory  corrective  actions are mandated.  At March 31, 2007 the Company and
the Bank met all of their applicable capital requirements.

The Bank's and  Company's  March 31, 2007  capital  ratios are  presented in the
following table,  compared with the "well  capitalized" and minimum ratios under
the FDIC regulatory definitions and guidelines:



                                       20
<PAGE>
<TABLE>
<CAPTION>

The Bank                                                                                                         To Be Well
                                                                                                                Capitalized
(Dollar Amounts in Thousands)                                                                                      Under
                                                                                  For Capital                Prompt Corrective
                                                              Actual           Adequacy Purposes             Action Provisions
                                                              ------           -----------------             -----------------
                                                       Amount       Ratio      Amount       Ratio           Amount         Ratio
                                                       ------       -----      ------       -----           ------         -----
<S>                                                    <C>           <C>      <C>             <C>            <C>           <C>
March 31, 2007
                   Total Capital
                   (To Risk Weighted Assets) .......   $43,441       14.52%   $23,938        >8.0%           $29,922      >10.0%
                   Tier I Capital
                   (To Risk Weighted Assets) .......   $35,191       11.76%   $11,689        >4.0%           $17,953       >6.0%
                   Tier I Capital
                   (To Average Assets) .............   $35,191       10.05%   $14,007        >4.0%           $17,509       >5.0%
</TABLE>



<TABLE>
<CAPTION>
The Holding Company                                                                                              To Be Well
                                                                                                                 Capitalized
(Dollar Amounts in Thousands)                                                                                       Under
                                                                                  For Capital                 Prompt Corrective
                                                             Actual            Adequacy Purposes              Action Provisions
                                                             ------            -----------------              -----------------
                                                       Amount       Ratio      Amount       Ratio           Amount         Ratio
                                                       ------       -----      ------       -----           ------         -----
<S>                                                    <C>           <C>       <C>            <C>
March 31, 2007
                   Total Capital
                   (To Risk Weighted Assets)           $45,230       15.11%    $23,953       >8.0%            N/A           N/A
                   Tier I Capital
                   (To Risk Weighted Assets)           $41,880       13.99%    $11,975       >4.0%            N/A           N/A
                   Tier I Capital
                   (To Average Assets)                 $41,880       11.98%    $13,986       >4.0%            N/A           N/A
</TABLE>

Off-Balance Sheet Arrangements

The Company,  through the operations of the Bank, makes contractual  commitments
to  extend  credit in the  ordinary  course of its  business  activities.  These
commitments  are legally  binding  agreements  to lend money to customers of the
Bank at predetermined interest rates for a specific period of time. At March 31,
2007, the Bank had issued  commitments to extend credit of $55.5 million through
various types of lending  arrangements.  Of these commitments,  64.1 %, or $35.6
million, expire within one year, and 35.9 %, or $19.9 million,  expiring in more
than one year.  Past  experience  indicates  that many of these  commitments  to
extend credit will expire unused.

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

                                       21
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

The Company  periodically uses a simulation model to assist in the management of
interest rate risk. Since the model incorporates the use of estimated changes in
growth and mix of both  earning  assets and  interest-bearing  liabilities  over
established  time periods,  as well as projected  changes in interest rates, the
resulting  "What-if"  scenarios are heavily dependant on accurate  forecasts and
can not be relied on as indicative of actual future results.

As of March  31,  2007,  there  was no  significant  change  from  the  interest
sensitivity  analysis  performed and disclosed in the 2006 Annual Report on Form
10-K filed with the Securities and Exchange Commission.


Item 4 - Controls and Procedures

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

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














                                       22
<PAGE>


                           PART II - OTHER INFORMATION

Item 6 - Exhibits

Exhibit No.   Description

31.1     13a-14(a)/15d-14(a) Certifications of Chief Executive Officer

31.2     13a-14(a)/15d-14(a) Certifications of Chief Financial Officer

32       Section 1350 Certifications
























                                       23
<PAGE>



SIGNATURE

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



                                  First South Bancorp, Inc.

                                  s/Barry L. Slider
May 11, 2007                      ---------------------------------------------
                                  Barry L. Slider, President and CEO


                                  s/V. Lewis Shuler
                                  ---------------------------------------------
                                  V. Lewis Shuler, Executive Vice President
                                            (Principal Accounting Officer)




                                       24
<PAGE>

                                  Exhibit Index



Exhibit No.   Description


31.1     13a-14(a)/15d-14(a) Certifications of Chief Executive Officer

31.2     13a-14(a)/15d-14(a) Certifications of Chief Financial Officer

32       Section 1350 Certifications







                                       25