UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB

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

                  FOR THE QUARTERLY PERIOD ENDED September 30, 2005

                             Commission File Number
                                    000-28037

                            FIRST SOUTH BANCORP, INC.
                      (Exact Name of Small Business Issuer)

     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
                           (Issuer's Telephone Number)


Check whether the issuer (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 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 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 issuer's classes of common
equity, as of the latest practical date:  Common Stock, no par value,  1,748,994
shares outstanding on November 14, 2005.

Transitional Small Business Disclosure Format (Check One) YES [ ] NO [X]











                                       1
<PAGE>






                            FIRST SOUTH BANCORP, INC.

                                   FORM 10-QSB

                                      INDEX


PART I - FINANCIAL INFORMATION                                              Page

  Item 1.  Financial Statements

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

           Statements of Operations ....................................     4

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

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

           Statements of Changes in Shareholders' Equity ...............     7

           Notes to Unaudited Financial Statements .....................  8-10


  Item 2.  Management's Discussion and Analysis or Plan of Operation ... 10-19

  Item 3.  Controls and Procedures......................................    19

Part II -         OTHER INFORMATION ....................................    20

  Item 6.  Exhibits


SIGNATURES .............................................................    21
















                                       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)
                                                                                                 Sep. 30,                   Dec. 31,
                                                                                                    2005                     2004
                                                                                                    ----                     ----
Assets
<S>                                                                                              <C>                      <C>
Cash & due from banks ............................................................               $  10,366                $   4,092
Due from banks - interest bearing ................................................                  11,507                    9,200
 Investment securities:
    Securities held to maturity ..................................................                   1,397                    3,358
    Securities available for sale ................................................                  22,291                   17,552
Federal Home Loan Bank Stock .....................................................                   1,044                      954
Loans ............................................................................                 258,412                  254,749
      Less, allowance for loan losses ............................................                  (3,000)                  (2,900)
Loans - net ......................................................................                 255,412                  251,849
Property & equipment, net ........................................................                   5,270                    5,334
Investment in FSBS Capital Trust .................................................                     155                      155
Other assets .....................................................................                   4,905                    3,936
                                                                                                 ---------                ---------
Total assets .....................................................................               $ 312,347                $ 296,430
                                                                                                 =========                =========

Liabilities
Deposits:
      Noninterest-bearing ........................................................               $  19,092                $  18,633
      Interest-bearing ...........................................................                 242,490                  229,242
                                                                                                 ---------                ---------
    Total deposits ...............................................................                 261,582                  247,875

Securities sold under repurchase agreements ......................................                   3,583                    4,700
Other borrowed funds .............................................................                  10,000                   10,000
Demand notes issued to the U.S. Treasury .........................................                     453                      417
Subordinated debt ................................................................                   5,155                    5,155
Other liabilities ................................................................                   1,945                    1,439
                                                                                                 ---------                ---------
    Total liabilities ............................................................                 282,718                  269,586

Shareholders' equity
Common stock - no par value; 30,000,000 authorized,
Outstanding 1,748,144 and 1,682,490 respectively
Paid-in capital ..................................................................                  19,393                   18,638
Undivided profits ................................................................                  10,330                    8,225
Accumulated other comprehensive (loss) ...........................................                     (94)                     (19)
                                                                                                 ---------                ---------
Total shareholders' equity .......................................................               $  29,629                $  26,844

Total liabilities and shareholders' equity .......................................               $ 312,347                $ 296,430
                                                                                                 =========                =========
</TABLE>

See Notes to accompanying financial statements.




                                       3
<PAGE>








                 FIRST SOUTH BANCORP, INC AND SUBSIDIARY
                         Statements of Operations

<TABLE>
<CAPTION>
                                                                                                  (Unaudited)
                                                                                           Period ended September 30,
                                                                                           --------------------------
                                                                               Three Months                         Nine Months
                                                                           2005             2004               2005            2004
                                                                           ----             ----               ----            ----
                                                                                    (Dollars in thousands, except per share)
Interest income
<S>                                                                      <C>               <C>              <C>              <C>
           Loans, including fees ..............................          $ 4,953           $ 3,668          $14,012          $10,526
           Investment securities ..............................              231               185              653              422
           Interest bearing deposits ..........................              133                35              321               60
                                                                         -------           -------          -------          -------

           Total interest income ..............................            5,317             3,888           14,986           11,008
Interest expense
           Deposits and borrowings ............................            2,069             1,345            5,742            3,646

Net interest income ...........................................            3,248             2,543            9,244            7,362
           Provision for loan losses ..........................               (5)              248              418              301
                                                                         -------           -------          -------          -------
Net interest income after provision ...........................            3,253             2,295            8,826            7,061

Noninterest income
           Service charges on deposit accounts ................               67                86              222              271
           Other income .......................................              105               285              388              656
                                                                         -------           -------          -------          -------
           Total noninterest income ...........................              172               371              610              927

Noninterest expense
           Salaries and benefits ..............................              958               957            2,807            2,649
           Occupancy and equipment ............................              171               216              552              632
           Other expense ......................................              374               370            1,146            1,151
           Litigation settlement ..............................                -                 -            1,677                -
                                                                         -------           -------          -------          -------
           Total noninterest expense ..........................            1,503             1,543            6,182            4,432

Income before income taxes ....................................            1,922             1,123            3,254            3,556
           Provision for income taxes .........................              677               373            1,149            1,252
                                                                         -------           -------          -------          -------

Net income ....................................................          $ 1,245           $   750          $ 2,105          $ 2,304
                                                                         =======           =======          =======          =======

Basic per share earnings ......................................          $  0.71           $  0.49          $  1.23          $  1.52

Diluted earnings per share ....................................          $  0.69           $  0.46          $  1.17          $  1.43
</TABLE>


See Notes to accompanying financial statements.





                                       4
<PAGE>







                     FIRST SOUTH BANCORP, INC AND SUBSIDIARY
               Consolidated Statements of Comprehensive Income

                                                                (Unaudited)
                                                             Nine Months Ended
                                                               September 30,
                                                               -------------
                                                             2005          2004
                                                             ----          ----
                                                        (dollars  in  thousands)
Net Income ...........................................     $ 2,105      $ 2,304

Other comprehensive income (loss):

Change in unrealized holdings gains &
    losses on available for sale securities ..........        (120)          20

Income tax benefit (expense) on other
    comprehensive income (loss) ......................          45           (8)

Total other comprehensive income  (loss) .............         (75)          12
                                                           -------      -------

Comprehensive income .................................     $ 2,030      $ 2,316
                                                           -------      -------





 See Notes to accompanying financial statements.





















                                       5
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                              (Unaudited)
                                                                                                            Nine Months Ended
                                                                                                               September 30,
                                                                                                               -------------
                                                                                                          2005                2004
                                                                                                          ----                ----
                                                                                                           (amounts in thousands)
Operating Activities
<S>                                                                                                    <C>                 <C>
Net income .................................................................................           $  2,105            $  2,304

Adjustments to reconcile net income to net cash
   provided by operating activities
              Provision for loan losses ....................................................                418                 301
              Gain on Called Security ......................................................                 (8)
              Depreciation .................................................................                281                 273
              Amortization .................................................................                 15                  13
              Deferred Tax Asset ...........................................................                230                 (33)

              Increase in other assets .....................................................             (1,144)               (197)
              Decrease in accrued expenses and other liabilities ...........................               (587)               (251)

Net cash provided by operating activities ..................................................              1,310               2,410
                                                                                                       --------            --------
Investing Activities
              Purchase of securities .......................................................             (7,992)            (10,000)
              Sale/(Purchase) of restricted FHLB stock .....................................                (90)                 50
              Proceeds from MBS principal paydowns .........................................                718                 329
              Proceeds from  matured / called securities ...................................              4,375               3,000
              Origination of loans, net of principal collected .............................             (3,664)            (19,315)
              Purchase of other real estate owned ..........................................                  -                (520)
              Purchase of premises and equipment ...........................................               (342)               (193)
              Investments in and advances to subsidiaries ..................................                  -                (155)
                                                                                                       --------            --------
Net cash used in investing activities ......................................................             (6,995)            (26,804)
                                                                                                       --------            --------
Financing Activities
              Net increase in deposits .....................................................             14,591              21,005
              Net increase (decrease) in retail repurchase agreements ......................             (1,117)                942
              Proceeds from exercise of stock options ......................................                755                   -
              Net increase (decrease) in other borrowings ..................................                 37              (1,983)
              Net proceeds from stock issuance .............................................                  -               7,482
              Proceeds from issuance of subordinated debt ..................................                  -               5,155
                                                                                                       --------            --------
Net cash provided by financing activities ..................................................             14,266              32,601
                                                                                                       --------            --------
Net increase in cash and cash equivalents ..................................................              8,581               8,207

Cash and cash equivalents, beginning .......................................................             13,292               4,462
                                                                                                       --------            --------
Cash and cash equivalents, ending ..........................................................           $ 21,873            $ 12,669
                                                                                                       ========            ========
</TABLE>

 See Notes to accompanying financial statements.


                                       6
<PAGE>

        FIRST SOUTH BANCORP INC., AND SUBISIDIARY
      Statements of Changes in Shareholders' Equity
           Nine Months Ended September 30, 2005
                       (Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)                                                                                  ACCUMULATED
                                                     SHARES OF                                             OTHER          TOTAL
                                                       COMMON         PAID-IN         ACCUMULATED      COMPREHENSIVE   SHAREHOLDERS'
                                                       STOCK          CAPITAL           EARNINGS       INCOME/(LOSS)      EQUITY
                                                       -----          -------           --------       -------------      ------
<S>                                                 <C>              <C>               <C>              <C>              <C>
Balance at December 31, 2003 ...............        1,382,040        $   11,153        $    5,225       $       32       $   16,410

Net income .................................                                                3,000                             3,000

Exercised Stock Options ....................              450                 3                                                   3


Private Issuance of Common Stock ...........          300,000             7,482                                               7,482
(300,000 shares @ $25/share)
 Net of expense $18

Net change in
  unrealized gain on
  available for sale
  securities, net of tax ...................                                                                   (51)             (51)
                                                   ----------        ----------        ----------       ----------       ----------

Balance at December 31, 2004 ...............        1,682,490            18,638             8,225              (19)          26,844


Net income .................................                                                2,105                             2,105

Exercised Stock Options ....................           65,654               755                                                 755

Net change in
  unrealized gain on
  available for sale
  securities, net of tax ...................                                                                   (75)             (75)
                                                   ----------        ----------        ----------       ----------       ----------

Balance at September 30, 2005 ..............        1,748,144        $   19,393        $   10,330       $      (94)      $   29,629
                                                   ==========        ==========        ==========       ==========       ==========
</TABLE>










                                       7
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited  Financial Statements

Note 1 - Basis of Presentation

              The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
for interim financial  information and with instructions to Form 10-QSB and Item
310(b) of Regulation S-B of the Securities and Exchange Commission. Accordingly,
they do not  contain all of the  information  and notes  required  by  generally
accepted  accounting  principles  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
nine months  ended  September  30, 2005 are not  necessarily  indicative  of the
results that may be expected for the year ended  December 31, 2005.  For further
information,  please refer to the financial statements and notes thereto for the
Corporation's   fiscal  year  ended   December  31,   2004,   contained  in  the
Corporation's annual report on Form 10-KSB.


In accordance  with SFAS No. 123,  Accounting for Stock-Based  Compensation,  as
amended by SFAS No. 148,  Accounting for  Stock-Based  Compensation - Transition
and Disclosure - An Amendment of FASB Statement No. 123, the Company has adopted
the disclosure-only option and elected to apply the provisions of APB No. 25 for
financial  statement  purposes.  No stock-based  employee  compensation  cost is
reflected in the Company's net income.

Pro forma  information  regarding  net income and  earnings  per share have been
determined as if the Company had accounted for its employee  stock options using
the fair value method, and is presented below.


<TABLE>
<CAPTION>
                                                                                                    Nine Months         Nine Months
                                                                                                       ended               ended
(dollar amounts in thousand, except per share amounts)                                               Sept. 30,           Sept. 30,
                                                                                                       2005                2004
                                                                                                       ----                ----

<S>                                                                                                <C>                     <C>
Net income: As reported ............................................................               $   2,105               $   2,304

Deduct:  Total stock-based compensation cost
             determined under the fair value method
             net of tax ............................................................                      76                      84
                                                                                                   ---------               ---------
Pro forma ..........................................................................               $   2,029               $   2,220
                                                                                                   =========               =========
Basic earnings per share:
             As reported ...........................................................               $    1.23               $    1.52
             Pro forma .............................................................               $    1.18               $    1.46

Diluted earnings per share
            As reported ............................................................               $    1.17               $    1.43
            Pro forma ..............................................................               $    1.12               $    1.37
</TABLE>


The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  used for the nine-month  periods ended September 30, 2005 and 2004;
dividend yield of 0%, expected  volatility of 50%,  risk-free  interest rates of
4.33% and 4.24% for 2005 and 2004  respectively,  and expected lives of 10 years
for the options.

                                       8
<PAGE>

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, which
requires  the Company to present  basic and  diluted  net income per share.  The
assumed  conversion of stock options  creates the  difference  between basic and
diluted net income per share.  Income per share is  calculated  by dividing  net
income by the weighted  average  number of common  shares  outstanding  for each
period  presented.  For the quarters  ended  September 30, 2005 and 2004,  basic
earnings  per share has been  computed  based upon the weighted  average  common
shares outstanding of 1,748,144 and 1,607,245, respectively.

         The only  potentially  dilutive stock of the Company as defined in FASB
128, is stock options granted to various officers and employees of the Bank. The
following  is a summary of the diluted  earnings per share  calculation  for the
nine months ended September 30, 2005 and 2004 (in thousands, except share data):

                                                           Nine Months Ended
                                                             September 30,
                                                             -------------
                                                         2005            2004
                                                         ----            ----

Net Income (in thousands) ....................       $    2,105       $    2,304
Weighted average outstanding shares ..........        1,718,252        1,607,245

Basic Earnings Per Share .....................       $     1.23       $     1.52

Weighted average outstanding shares ..........        1,718,252        1,516,106
Dilutive effect of stock options .............           76,525           99,536
                                                     ----------       ----------

Weighted average diluted shares ..............        1,794,777        1,615,642

Diluted earnings per share ...................       $     1.17       $     1.43


Note 3 - Litigation

The  Corporation  recorded an expense of $1.7 million in June 2005 in connection
with the  settlement  of the lawsuit  described  in Item 3 of the  Corporation's
annual report on Form 10-KSB for the year ended December 31, 2004.

Note 4 - Impact of Recently Issued Accounting Standards

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) covers a wide range of share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance based awards, share appreciation rights, and employee share purchase
plans.  SFAS No. 123(R) requires  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 for small business issuers beginning as of the first interim or annual
reporting  period of the  registrant's  first fiscal year  beginning on or after
December  15,  2005.  The Company is  currently  evaluating  the impact that the
adoption of SFAS No.  123(R)  will have on its  financial  position,  results of
operations  and cash flows.  In the absence of any other grants,  exercises,  or
forfeitures  through the end of the 2005 year,  the  expected  expense for stock
options  for  2006  and  2007  will  be   approximately   $75,000  and  $71,000,
respectively.


In April 2005,  the  Securities  and Exchange  Commission's  Office of the Chief
Accountant and its Division of  Corporation  Finance  released Staff  Accounting
Bulletin  (SAB) No.107 to provide  guidance  regarding the  application  of SFAS
No.123(R).  SAB 107 provides  interpretive  guidance  related to the interaction
between  Statement  No.123(R) and certain SEC rules and regulations,  as well as
the staff's views  regarding the valuation of share-based  payment  arrangements
for public companies. SAB 107 also reminds public companies of the importance of
including  disclosures  within  filings  made  with  the  SEC  relating  to  the
accounting  for  share-based  payment  transactions,   particularly  during  the
transition to Statement No.123(R).

                                       9
<PAGE>

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections-a  replacement of APB Opinion No. 20 and FASB Statement  No.3" (SFAS
No. 154).  SFAS No. 154  establishes  retrospective  application as the required
method  for   reporting  a  change  in  accounting   principle,   unless  it  is
impracticable,  in which  case the  changes  should  be  applied  to the  latest
practicable  date presented.  SFAS No. 154 also requires that a correction of an
error be  reported  as a prior  period  adjustment  by  restating  prior  period
financial  statements.  SFAS No. 154 is  effective  for  accounting  changes and
corrections of errors made in fiscal years beginning after December 15, 2005.


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.


                     FIRST SOUTH BANCORP, INC.AND SUBSIDIARY

Forward Looking Statements

         Statements  included in this Form 10-QSB  which are not  historical  in
nature  are  intended  to be,  and are  hereby  identified  as  "forward-looking
statements"  for  purposes  of the safe  harbor  provided  by Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.  Words  such  as  "estimate",
"project",  "intend",  "expect",  "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,  particularly in light of the fact that the Company is
a relatively  new company  with limited  operating  history.  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.

                                       Part I - Item 2

Management's Discussion and Analysis or Plan of Operation

         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 2004 annual report on Form 10-KSB.  Because the Bank
is responsible for all of the Company's operations, the discussion will refer to
the results of operations of the Bank.


                                       10
<PAGE>



RESULTS OF  OPERATIONS:  NINE MONTH PERIOD ENDED  SEPTEMBER 30, 2005 COMPARED TO
THE SAME PERIOD ENDED SEPTEMBER 30, 2004.

Net Income

For the first nine months of 2005, First South Bancorp, Inc. earned a net profit
of $2,105,000, compared to $2,304,000 for the same period in 2004, a decrease of
$199,000,  or 8.6%.  Basic  earnings  per share were  $1.23 in the 2005  period,
compared to $1.52 for the 2004 period. The decrease in net income was attributed
to an expense of  $1,677,000,  which involved a mediated  litigation  settlement
that occurred in June 2005. Net interest income increased from $7,362,000 during
the first nine months of 2004 to  $9,244,000  during the same period in 2005,  a
25.6% increase.  The amount charged to operations as a provision for loan losses
increased  from  $301,000  during the first  three  quarters in 2004 to $418,000
during the same period in 2005, a 38.9%  increase.  This increase was attributed
to the loan portfolio  experiencing a downgrading pertaining to some outstanding
loans in the portfolio.

Profitability

Earnings of financial  institutions  are often 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 nine  months of 2005 were .92% and 9.88%,  respectively.  The
declines  in ROAA and ROAE  resulted  from the  impact of the  legal  settlement
referred to above.

                                                   Selected Earnings Ratios
                                                  at or for the Periods Ending
                                                        September 30,
                                                        -------------
                                                    2005             2004
                                                    ----             ----
Return on Average Assets ....................      0.92%             1.14%

Return on Average Equity ....................      9.88%            14.10%

Dividend Payout Ratio .......................       N/A               N/A

Average Stockholders Equity
  as a Percentage of Average Assets .........      9.30%             8.10%

Net Interest Income

Net interest income, the major component of First South Bancorp's income, is the
amount by which interest and fees on earning assets exceeds the interest paid on
interest bearing liabilities, primarily deposits. As noted earlier, net interest
income  increased by  $1,882,000,  or 25.6%,  from the first nine months in 2004
compared to the same period in 2005.

Several factors contributed to this increase including growth in average earning
assets,  increase in earning asset yield,  and increase in interest rate spread.
Average earning assets for the first nine months increased by $35.5 million from
September  30, 2004 to September  30, 2005.  The earning asset yield grew by 113
basis  points  from 5.69% for the  September  30,  2004  period to 6.82% for the
September  30, 2005  period.  Each of the three  components  of average  earning
assets  increased  in yield and volume from the first nine months of 2004 to the
same period in 2005.  Average interest bearing due from bank balances grew $10.8
million  with an  increase  in yield of 176  basis  points.  Average  investment
securities increased by $7.4 million in volume and 20 basis points in yield. The
highest yielding component of earning assets, loans,  increased by $20.4 million
in  average  volume and 135 basis  points in yield.  Although  average  interest


                                       11
<PAGE>

bearing  liabilities  increased  by $32.5  million and the overall cost of these
liabilities  increased by 82 basis points during this same period,  the interest
rate spread,  the difference between the net yield on earning assets and cost of
interest bearing liabilities, increased by 31 basis points from 3.53% during the
first nine months in 2004 to 3.84% during the same period in 2005.

Table Two includes a detailed  comparison  of the average  balances,  yields and
rates for the interest  sensitive  segments of the Corporation's  balance sheets
for the nine months ended September 30, 2005 and 2004.

<TABLE>
<CAPTION>
Table Two                                                     Net Interest Income and Average Balance Analysis
                                                                   for the Nine Months Ended September 30,
                                                                                2005 and 2004
                                                                           (Amounts in thousands)

                                                                                          Interest                     Average
                                                            Average Balance            Income/Expense                 Yield/Cost
                                                            ---------------            --------------                 ----------
Interest Earning Assets                                    2005          2004         2005          2004             2005    2004
                                                           ----          ----         ----          ----             ----    ----

<S>                                                      <C>           <C>           <C>           <C>                <C>     <C>
Int. Bearing Due from Banks .........................    $ 14,739      $  6,957      $   321       $    60            2.91%   1.15%
Investments .........................................      23,199        15,829          653           422            3.76%   3.56%
Loans ...............................................     256,040       235,644       14,012        10,526            7.32%   5.97%
                                                         --------      --------      -------       -------            -----   -----
Total Interest Earning Assets .......................     293,978       258,430       14,986        11,008            6.82%   5.69%

Noninterest Earning Assets

Cash & Due From Banks ...............................       5,425         4,718
Allowance for Loan Losses ...........................      (3,046)       (2,634)
Investments: Fair Value .............................        (120)           24
Premises & Equipment ................................       5,266         5,383
Investment in unconsolidated subsidiary .............         155           138
Interest Receivable & Other .........................       4,515         3,436
                                                         --------      --------
Total Noninterest Earning Assets ....................      12,195        11,065
                                                         --------      --------

TOTAL ASSETS ........................................    $306,173      $269,495
                                                         ========      ========

Interest Bearing Liabilities
NOW Accounts ........................................    $ 39,151      $ 34,236      $   706       $   420            2.41%   1.64%
Money Market & Savings ..............................      50,952        47,006          927           584            2.43%   1.66%
Time Deposits & IRAs ................................     148,035       123,967        3,463         2,132            3.13%   2.30%
Fed Funds Purchased & Repurchase Agreements .........       4,426         4,977           80            26            2.42%   0.70%
Other borrowed funds ................................      10,000        10,445          338           345            4.52%   4.41%
Subordinated debt ...................................       5,000         4,444          224           139            5.99%   4.18%
Demand Notes Issued to Treasury .....................         214           202            4             1            2.50%   0.66%
                                                         --------      --------       ------       -------            -----   -----
Total Interest Bearing Liabilities ..................     257,778       225,277        5,742         3,647            2.98%   2.16%

Noninterest Bearing Liabilities
Demand Deposits .....................................      17,492        20,480
Interest Payable ....................................         682           568
Other Liabilities ...................................       1,733         1,340
                                                         --------      --------
Total Non-interest Bearing Liabilities ..............      19,907        22,388

Stockholder's Equity ................................      28,488        21,830
                                                         --------      --------

TOTAL LIABILITIES & EQUITY ..........................    $306,173      $269,495
                                                         ========      ========

Net Interest Income .................................                                 $9,244       $ 7,361
                                                                                      ======       =======

  Net Yield on Earning Assets .......................                                                                 4.20%   3.80%
  Interest Rate Spread ..............................                                                                 3.84%   3.53%
</TABLE>

                                       12
<PAGE>


Other Income

Total other, or noninterest,  income decreased for the first nine months of 2005
by $317,000,  or 34.2%,  compared to the same period in 2004. Service charges on
deposit accounts decreased by $49,000 primarily due to the reduction in NSF fees
by $30,000.  Commissions and Fees decreased from $611,000 during the first three
quarters of 2004 to $348,000  during the same period in 2005, a 43.1%  decrease.
This  $263,000  decrease  resulted  primarily  from a $174,500  decrease in loan
brokerage fees, a $52,000 decrease in mortgage loan fees, and a $35,000 decrease
on  investment  brokerage  service  fees.  Table  Three  provides a  performance
comparison of categories of non-interest income for the nine month periods ended
September 30, 2004 and 2005.

Table Three                              Summary of Total Noninterest Income
                                       for the Nine Months Ended September 30,
                                                    2005 and 2004
                                                    -------------
                                               (Amounts in thousands)

                                             2005                  2004
                                             ----                  ----
Service Charges .......................      $222                  $271
Commissions & Fees ....................       348                   611
Other Noninterest Income ..............        40                    45
                                             ----                  ----
Total .................................      $610                  $927

Other Expense

Other, or  non-interest,  expense for the first nine months of 2005 increased by
$1.8 million,  or 39.5%, as compared to the first nine months of 2004.  Salaries
and Employee  Benefits  increased  from $2.6  million in September  2004 to $2.8
million in September 2005  primarily due to cost of living salary  increases and
an  additional  full-time  employee  in the first  nine  months  of 2005.  Other
Expenses  decreased  slightly.   The  net  mediated  litigation   settlement  of
$1,677,154  accounted for 95.8% of the total increase in  non-interest  expense.
The Corporation  recorded the litigation  settlement  expense of $1.7 million in
June of 2005 in connection with the settlement of the lawsuit  described in Item
3 of the Corporation's  annual report on Form 10-KSB for the year ended December
31, 2004.

Table Four provides a comparison of various  categories of non-interest  expense
For the first nine months of 2005 and 2004.

Table Four                           Summary of Total Non-interest Expense
                                    For the Nine Months Ended September 30,
                                                 2005 and 2004
                                                 -------------
                                            (Amounts in thousands)

                                          2005                  2004
                                          ----                  ----

Salaries & Employee Benefits .........  $2,807                $2,649
Occupancy & Equipment ................     552                   632
Other expense ........................   1,146                 1,151
Net Litigation Settlement ............   1,677                     -
                                        ------                ------
Total ................................  $6,182                $4,432







                                       13
<PAGE>






Income Taxes

Provision  for income  taxes for the nine months  ended  September  30, 2005 was
$1,149,000 as compared to $1,252,000 during the same period in 2004, a $103,000,
or 8.2%,  decrease.  This  decrease  was due to the  overall  decrease in pretax
income of $302,000, or 8.5%.


CHANGES IN FINANCIAL POSITION

Investment portfolio

During the first nine months of 2005, $4,000,000 in government agency securities
with a weighted average rate of 4.83% and a $375,000  municipal  security with a
coupon yield of 5.25% and a gain of $7,500 were called. During this same period,
$7,992,000,000  in government  agency securities with a weighted average rate of
4.13%  were  purchased.  A  total  of  $13,365,33  (book  value)  of  investment
securities were pledged at September 30, 2005.

<TABLE>
<CAPTION>
Table Five                                                         Analysis of Investment Securities
                                                                         (Amounts in thousands)

December 31, 2004                                            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 ............................    $ 1,499             $ 1,494             $ 1,004             $ 1,003
Due from one to five years .........................     13,000              12,985                   -                   -
Due from five to 10 years ..........................      1,000               1,001                   -                   -
Due after ten years ................................      1,123               1,127                 854                 997
Mortgage backed securities .........................        961                 945               1,500               1,539
                                                        -------             -------             -------             -------

                                                        $17,583             $17,552             $ 3,358             $ 3,539
                                                        =======             =======             =======             =======

<CAPTION>

September 30, 2005                                           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 ............................    $ 7,499             $ 7,471             $     -             $     -
Due from one to five years .........................     11,993              11,891                   -                   -
Due from five to 10 years ..........................      1,000                 993                   -                   -
Due after ten years ................................      1,123               1,123                 480                 642
Mortgage backed securities .........................        826                 812                 916                 929
                                                        -------             -------             -------             -------

                                                        $22,441             $22,290             $ 1,396             $ 1,571
                                                        =======             =======             =======             =======
</TABLE>

Excludes FHLB equity securities of $ 954,000 on December 31, 2004 and $1,043,800
 on September 30, 2005.



                                       14
<PAGE>

Loan portfolio

From September 30, 2004 to September 30, 2005,  loans increased by $3.7 million,
or 1.4%. As is shown in Table Six, loans secured by real estate at September 30,
2005,  continued  to  comprise  a  substantial  percentage  of  the  total  loan
portfolio,  83.6% versus 81.5% at September  30, 2004.  The  Corporation's  loan
portfolio at  September  30,  2005,  as shown in Table Seven,  is comprised of a
substantial percentage, 92.2%, of variable rate loans, an increase from 91.3% at
September 30, 2004.


<TABLE>
<CAPTION>
Table Six                                                                              Analysis of Loans
                                                                          December 31, 2004 and September 30, 2005
                                                                          ----------------------------------------
                                                                                      (Amounts in thousands)
Real Estate:                                                             Sept. 30, 2005                      Dec. 31, 2004
                                                                         --------------                      -------------
<S>                                                              <C>                   <C>            <C>               <C>
   Construction/Land Development .........................       $ 11,218                4.34%        $ 17,223             6.76%
   1-4 Family Residential Properties .....................         64,047               24.78%          70,445            27.65%
   Multifamily Residential Properties ....................          5,161                2.00%           1,649             0.65%
   Nonfarm Nonresidential Properties .....................        134,760               52.15%         117,031            45.94%
   Other Real Estate Loans ...............................            868                0.34%           1,201             0.47%
Commercial & Industrial ..................................         41,947               16.23%          46,729            18.34%
Consumer .................................................            411                0.16%             471             0.18%
                                                                 --------                             --------

Total ....................................................       $258,412              100.0%         $254,749           100.0%
                                                                 ========              =====          ========           ======
</TABLE>


<TABLE>
<CAPTION>
Table Seven                        Analysis of Loan Maturities and Repricing Frequency
                                                as of September 30, 2005 *
                                                  (Amounts in thousands)

                               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 ......   $236,503      $    -      $    -      $    -     $    -    $236,503

Fixed Rate Loans .........      1,347       5,280       9,856       2,428      1,137      20,048

Total Loans ..............   $237,850      $5,280      $9,856      $2,428     $1,137    $256,551
</TABLE>


* Excludes loans on non-accrural status of $1,861,000


                                       15
<PAGE>

Allowance for loan losses

The  allowance for loan losses is analyzed  monthly in  accordance  with a board
approved  plan.  This  judgmental  analysis is based upon a model that assigns a
risk rating on each  individual  loan and considers the loss risk  categories in
relation to the current and forecasted  economic  environment.  The  Corporation
also monitors the overall portfolio, as well as the level of reserves maintained
by peer banks. The monthly  provision for loan losses may fluctuate based on the
results of this analysis.  The increased  provision of $117,000 to the loan loss
reserve during the first nine months of 2005, as compared to the same nine month
period in 2004,  was  primarily  due to the  increase  in  charge-offs  and loan
downgrades  experienced in 2005. During the third quarter of 2005, there were no
monthly provisions to the reserve for loan losses charged against earnings.  The
only change to the loan loss reserve was a $5,000  reduction in the year-to-date
allowance  amount for loan losses.  This reduction was made as adjustment to the
loan loss reserve to maintain the reserve balance at a level consistent with the
level determined by the applied methodology. Table Eight provides the details of
the activity in the loan loss reserve  account for the periods ending  September
30, 2005 and 2004.

Table Eight                            Analysis of the Allowance for Loan Losses
                                         for the Nine Months Ended September 30
                                         --------------------------------------
                                               2005                   2004
                                               ----                   ----
Balance at Beginning of Year ..........     $2,900,000             $2,600,000
Provision Charged to Operations .......        418,000                301,000
Loans Charged-Off .....................       (328,000)              (115,000)
Loan Recoveries .......................         10,000                 14,000
                                            ----------             ----------
Balance at End Of Period ..............     $3,000,000             $2,800,000

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 earning  assets and interest  bearing  liabilities  within defined
time periods is referred to as "gap" analysis.  The  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 September 30, 2005, the cumulative one
year gap was a positive or asset sensitive $40.4 million. At September 30, 2005,
the  cumulative  five-year  gap was a positive  $35.9  million,  12.3%,of  total
assets.  The  positive  gap is  largely  attributable  to the  extent  to  which
management  prefers to make loans on a variable rate basis. A positive gap means
that assets  would be expected to reprice  faster than  liabilities  if interest
rates  changed.  The  Corporation's  gap  is  within  policy  limits  that  were
established to reduce The adverse impact on earnings which movements in interest
rates can cause.  Competition in the Corporation's  market 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 September 30, 2005.


                                       16
<PAGE>

<TABLE>
<CAPTION>
Table Nine                             Distribution of Interest-Earning Assets and Interest-Bearing Liabilities
                                                     Repricing Schedule as of September 30, 2005
                                                                (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 ....................................................       $ 11,507        $      -         $      -         $ 11,507
Investment Securities* ............................................          7,499          11,993            4,345           23,837

FHLB Stock ........................................................          1,044               -                -            1,044
Loans** ...........................................................        243,130          12,284            1,137          256,551
                                                                          ========        ========         ========         ========

Total .............................................................       $263,180        $ 24,277         $  5,482         $292,939
*Amortized Cost
**Excludes $1,861,000 in loans on non-accrural status.

Interest Bearing
Liabilities

NOW Accounts ......................................................       $ 40,548        $      -         $      -         $ 40,548
Savings & MMIA ....................................................         45,595               -                -           45,595
Time Deposits:$100 & > ............................................         38,262           8,656                -           46,918
Time Deposits: <$100m .............................................         89,323          20,106                -          109,429
Repurchase Agreements .............................................          3,583               -                -            3,583
Subordinated Debt (Trust Preferred Sec.) ..........................          5,000               -                -            5,000
Other Borrowed Funds ..............................................            453               -           10,000           10,453
                                                                          ========        ========         ========         ========
Total .............................................................       $222,764        $ 28,762         $ 10,000         $261,526

Period Gap ........................................................       $ 40,416        $ (4,485)        $ (4,518)        $ 31,413

Cumulative Gap ....................................................       $ 40,416        $ 35,931         $ 31,413

Period Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..................................          118.1%           84.4%            54.8%

Cumulative Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..................................          118.1%          114.3%           112.0%
</TABLE>

<TABLE>
<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 .................      $3,528             $34,734           $8,656         $46,918
</TABLE>

                                       17
<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 that may be immediately
converted into cash at minimal cost(amounts due from banks and overnight invest-
ments).  However,  the most  manageable  sources of  liquidity  are  composed of
liabilities, with the primary focus on liquidity management being the ability to
obtain deposits in the Bank's service areas.  Core deposits (total deposits less
wholesale time deposits)  provide a relatively stable funding base. At September
30, 2005,  core deposits  equaled  approximately  74% of total  deposits.  Asset
liquidity is provided from several sources, including amounts due from banks and
overnight  investments,  and funds from maturing loans.  The Bank is a member of
the Federal  Home Loan Bank of Atlanta  and, as such,  has the ability to borrow
against the security of its 1-4 family residential mortgage loans and commercial
loans.  The Bank also has $12  million  available  through  lines of credit with
other banks as an additional source of liquidity  funding.  Management  believes
the  Corporation's  overall liquidity sources are adequate to meet its operating
needs.


Off-Balance Sheet Risk

Through its  operations,  the Corporation  has made  contractual  commitments to
extend  credit  in  the  ordinary  course  of  its  business  activities.  These
commitments  are legally binding  agreements to lend money to the  Corporation's
customers at  predetermined  interest  rates for a specified  period of time. At
September 30, 2005, the Corporation  had issued  commitments to extend credit of
$37,184,000 and standby letters of credit of $1,868,000 through various types of
commercial  lending  arrangements.  Approximately  95.0% of these commitments to
extend credit had variable  rates.  Past  experience  indicates that many of the
commitments  to extend  credit  will  expire  not  fully  used.  As noted  under
"Liquidity",  the Company  believes that it has adequate sources of liquidity to
fund commitments drawn upon by borrowers.

Capital Resources

The Company experienced a $2.9 million increase in Tier 1 capital to $29,757,000
during the nine month period from December 31, 2004 to September  30, 2005.  The
increase resulted exclusively from an increase in retained earnings $2.1 million
and $.8 million from the exercise of stock  options.  At September 30, 2005, the
Bank had Tier 1 capital of  $28,461,000.  The  $1,296,000  difference  in Tier 1
capital  between the Bank and the Holding  Company as of September  30, 2005, is
due to the Board's intent to keep the difference in capital  between the Holding
Company and the Bank at the Holding Company level at this time.

The  Holding  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  Improvements 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 September 30, 2005, the
Company  and the Bank met all of the  minimum  capital  requirements  to be well
capitalized.

The Bank's and Company's September 30, 2005, capital ratios are presented in the
following  table,  compared  with the required  "well  capitalized"  and minimum
ratios under the FDIC regulatory definitions and guidelines:

                                       18
<PAGE>

<TABLE>
<CAPTION>
The Bank                                                                                              To Be Well
(Dollar Amounts in Thousands)                                                                      Capitalized Under
                                                                             For Capital           Prompt Corrective
                                                       Actual             Adequacy Purposes        Action Provisions
                                                       ------             -----------------        -----------------
                                                 Amount       Ratio      Amount       Ratio       Amount         Ratio
                                                 ------       -----      ------       -----       ------         -----
September 30, 2005
<S>                                              <C>          <C>        <C>          <C>         <C>            <C>
              Total Capital
              (To Risk Weighted Assets) ......   $36,361,000  14.19%     $20,493,440  >8.0%       $25,616,800    >10.0%
              Tier I Capital
              (To Risk Weighted Assets) ......   $28,461,000  11.11%     $10,246,720  >4.0%       $15,370,080    >6.0%
              Tier I Capital
              (To Average Assets) ............   $28,461,000  9.33%      $12,197,160  >4.0%       $15,246,450    >5.0%
</TABLE>

<TABLE>
<CAPTION>
The Holding Company                                                                                   To Be Well
(Dollar Amounts in Thousands)                                                                      Capitalized Under
                                                                             For Capital           Prompt Corrective
                                                       Actual             Adequacy Purposes        Action Provisions
                                                       ------             -----------------        -----------------
                                                 Amount       Ratio      Amount       Ratio       Amount         Ratio
                                                 ------       -----      ------       -----       ------         -----

September  30, 2005
<S>                                              <C>          <C>        <C>          <C>         <C>            <C>
              Total Capital
              (To Risk Weighted Assets) .......  $37,657,000  14.70%     $20,493,000  >8.0%       $25,632,300    >10.0%
              Tier I Capital
              (To Risk Weighted Assets) .......  $29,757,000  11.62%     $10,246,720  >4.0%       $15,379,380    >6.0%
              Tier I Capital
              (To Average Assets) .............  $29,757,000  9.76%      $12,203,360  >4.0%       $15,254,200    >5.0%
</TABLE>

RESULTS OF OPERATIONS:  THREE MONTH PERIOD ENDED  September 30, 2005 COMPARED TO
THE SAME PERIOD ENDED September 30, 2004.

Net income for the third quarter of 2005 increased by $495,000, or 66%, over the
same period in 2004.  Net interest  income for the three months ended  September
30, 2005, was $3.2 million, a 27.7% increase over the $2.5 million amount earned
during the third quarter of 2004. Non-interest income for the three months ended
September 30, 2005, was $172 thousand, 53.6% less than the amount earned for the
same period in 2004.  Non-interest expense was $1.503 million, $40 thousand,  or
2.6%,  less  than the 2004  three  month  period  amount.  Net  interest  income
increased  primarily  due to growth of  earning  assets and an  increase  in the
interest  spread  between the yield on earning assets and the cost of funds rate
on interest-bearing liabilities.  Non-interest income decreased primarily due to
a reduction in fees  generated  by brokerage  services and a decrease in service
charges  on  deposit  accounts.  Non-interest  expense  for the  period,  though
slightly less, was almost equal to that of the third quarter in 2004.

<TABLE>
<CAPTION>
                                                                   Three Months Ended September 30,
                                                                        (Amounts in thousands)
Average Balances                                         2005                      2004                  Change
                                                         ----                      ----                  ------
<S>                                                     <C>                      <C>                    <C>
Earning assets ....................................     $292,423                 $273,700               $18,723
Earning assets yield ($) ..........................     $  5,316                 $  3,892               $ 1,424
Earning assets yield, annualized (%) ..............        7.21%                    5.64%                 1.57%
Interest-bearing liabilities ......................     $256,472                 $235,795               $20,677
Cost of funds ($) .................................     $  2,068                 $  1,345               $   723
Cost of funds, annualized (%) .....................        3.20%                    2.26%                 0.94%
Interest Spread ($) ...............................     $  3,248                 $  2,547               $   701
Interest Spread (%) ...............................        4.01%                    3.38%                 0.63%
</TABLE>

Item 3 - Controls and Procedures

a)       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.

                                       19
<PAGE>

b)       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.



                           PART II - OTHER INFORMATION


Item 6 - Exhibits

                  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
















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SIGNATURE

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



                                  First South Bancorp, Inc.

                                s/Barry L. Slider
November 14, 2005                 ---------------------------------------------
                                  Barry L. Slider, President and Chief Executive
                                  Officer


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




















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