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 SEPTEMBER 30, 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,
2,161,218 shares outstanding on November 14, 2007.


<PAGE>


                            FIRST SOUTH BANCORP, INC.

                                   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............................9-20


        Item 3.  Quantitative and Qualitative Disclosures about Market Risk..21

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


Part II- OTHER INFORMATION

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







                                       2
<PAGE>

         Part I - Financial Information
   FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
         CONSOLIDATED BALANCE SHEETS
        (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                    (Unaudited)
                                                                                                     Sep. 30,               Dec. 31,
                                                                                                       2007                  2006
                                                                                                       ----                  ----
Assets:
<S>                                                                                                <C>                    <C>
Cash & due from banks ................................................................             $   4,299              $   5,032
Due from banks - interest bearing ....................................................                 6,684                 10,650
  Investment securities:
      Securities held to maturity ....................................................                 9,756                  9,902
      Securities available-for-sale ..................................................                26,946                 23,293
Loans ................................................................................               320,510                296,465

           Less, allowance for loan losses ...........................................                (3,530)                (3,275)
                                                                                                   ---------              ---------

Loans - net ..........................................................................               316,980                293,190

Property & equipment, net ............................................................                 6,915                  5,290
Investment in FSBS Capital Trust .....................................................                   155                    155
Other assets .........................................................................                 6,631                  5,911
                                                                                                   ---------              ---------
Total assets .........................................................................             $ 378,366              $ 353,423
                                                                                                   =========              =========

Liabilities
Deposits
   Noninterest-bearing demand ........................................................             $  13,812              $  16,038
   Interest-bearing ..................................................................               301,696                292,019
                                                                                                   ---------              ---------
       Total deposits ................................................................               315,508                308,057

Securities sold under repurchase agreements ..........................................                 1,612                  2,171
Other borrowed funds .................................................................                15,000                      -
Demand notes issued to the U.S. Treasury .............................................                   464                    287
Subordinated debt ....................................................................                 5,155                  5,155
Other liabilities ....................................................................                 1,944                  1,798
                                                                                                   ---------              ---------
      Total liabilities ..............................................................               339,683                317,468

Shareholder's equity

Common stock, no par value; 36,000,000 shares authorized
  2,161,038 and 2,155,538, respectively ..............................................                     -                      -
Paid-in capital ......................................................................                19,923                 19,849
Retained earnings ....................................................................                18,723                 16,206
Accumulated other comprehensive income (loss) ........................................                    37                   (100)
                                                                                                   ---------              ---------
Total shareholders' equity ...........................................................                38,683                 35,955
                                                                                                   ---------              ---------
Total liabilities and shareholders' equity ...........................................             $ 378,366              $ 353,423
                                                                                                   =========              =========
</TABLE>



See notes to unaudited consolidated financial statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          (Unaudited)                            (Unaudited)
                                                                       Three Months ended                    Nine Months ended
                                                                          September 30                          September 30
                                                                          ------------                          ------------
                                                                     2007              2006                2007               2006
                                                                     ----              ----                ----               ----
                                                                               (Dollars in thousands, except per share data)

Interest income
<S>                                                               <C>                <C>                <C>                <C>
    Loans, including fees ..............................          $  6,800           $  6,542           $ 20,316           $ 19,014
    Investment securities ..............................               449                419              1,280              1,172
    Interest bearing deposits ..........................               195                120                386                418
                                                                  --------           --------           --------           --------
      Total interest income ............................             7,444              7,081             21,982             20,604

Interest expense
    Deposits and borrowings ............................             3,994              3,490             11,461              9,494
                                                                  --------           --------           --------           --------

Net interest income ....................................             3,450              3,591             10,521             11,110
   Provision for loan losses ...........................               (58)               (29)              (958)              (571)
                                                                  --------           --------           --------           --------
Net interest income after provision ....................             3,392              3,562              9,563             10,539

Noninterest income
   Service charges on deposit accounts .................                58                 75                172                210
   Gain on sale of Bank owned assets ...................                 4                  -                186                 47
   Other income ........................................               146                247                349                775
                                                                  --------           --------           --------           --------
     Total noninterest income ..........................               208                322                707              1,032
                                                                  --------           --------           --------           --------

Noninterest expenses
   Salaries and benefits ...............................             1,393              1,250              3,974              3,580
   Occupancy and equipment .............................               238                250                743                690
   Other expense .......................................               479                490              1,613              1,489
                                                                  --------           --------           --------           --------
     Total noninterest expense .........................             2,110              1,990              6,330              5,759
                                                                  --------           --------           --------           --------
Income before income taxes .............................             1,490              1,894              3,940              5,812
   Provision for income taxes ..........................               537                682              1,423              2,096

                                                                  --------           --------           --------           --------
Net income .............................................          $    953           $  1,212           $  2,517           $  3,716
                                                                  ========           ========           ========           ========

Basic per share earnings ...............................          $   0.44           $   0.57           $   1.17           $   1.76
                                                                  ========           ========           ========           ========

Diluted earnings per common share ......................          $   0.44           $   0.56           $   1.15           $   1.71
                                                                  ========           ========           ========           ========
</TABLE>





See notes to unaudited consolidated financial statements.



                                       4
<PAGE>

            FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
         Consolidated Statements of Comprehensive Income
                  (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                                                   (Unaudited)                      (Unaudited)
                                                                               Three Months ended                Nine Months ended
                                                                                   September 30,                  September 30,
                                                                                   -------------                  -------------
                                                                                 2007          2006            2007           2006
                                                                                 ----          ----            ----           ----
<S>                                                                            <C>            <C>            <C>            <C>
Net income .............................................................       $   953        $ 1,212        $ 2,517        $ 3,716

Other comprehensive income:

Change in unrealized holdings gains &
        losses on available for sale securities ........................           341            281            221             55

Income tax expense on other comprehensive income .......................          (130)          (107)           (84)           (21)
                                                                               -------        -------        -------        -------

Total other comprehensive income .......................................           211            174            137             34
                                                                               -------        -------        -------        -------

Comprehensive income ...................................................       $ 1,164        $ 1,386        $ 2,654        $ 3,750
                                                                               =======        =======        =======        =======
</TABLE>




 See notes to unaudited consolidated financial statements.





















                                       5
<PAGE>


                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                         (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                             (Unaudited)
                                                                                                          Nine Months Ended
                                                                                                             September 30,
                                                                                                             -------------
                                                                                                       2007                  2006
                                                                                                       ----                  ----

Operating Activities
<S>                                                                                                 <C>                    <C>
Net income ...........................................................................              $  2,517               $  3,716

Adjustments to reconcile net income to net cash provided
  by operating activities
     Provision for loan losses .......................................................                   958                    571
     Depreciation ....................................................................                   322                    314
     Gain on sale of bank owned assets, net ..........................................                    (3)                     -
     Net Amortization of Securities ..................................................                    13                     10
     Deferred Tax Asset ..............................................................                     -                     18
     Increase in cash surrender value of life insurance ..............................                   (25)                     -
     Increase (decrease) in other assets .............................................                   620                   (562)
     Increase (decrease) in accrued expenses
       and other liabilities .........................................................                   146                   (193)
                                                                                                    --------               --------
Net cash provided by operating activities ............................................                 4,548                  3,874
                                                                                                    --------               --------

Investing Activities
     Purchase of securities available for sale .......................................                (8,000)               (11,498)
     (Purchase) proceeds of restricted FHLB stock ....................................                  (570)                   528
     Proceeds from MBS principal paydowns ............................................                   287                    441
     Proceeds from called maturities .................................................                     -                  6,000
     Proceeds from matured available for sale securities .............................                 5,000                      -
     Origination of loans, net of principal collected ................................               (26,162)               (19,248)
     Purchase of other real estate owned .............................................                     -                    (86)
     Purchase of premises and equipment ..............................................                (1,944)                  (378)
                                                                                                    --------               --------
Net cash used in investing activities ................................................               (31,389)               (24,241)
                                                                                                    --------               --------

Financing Activities
     Net increase in deposits ........................................................                 7,451                 36,592
     Net decrease in retail repurchase agreements ....................................                  (560)                (2,394)
     Proceeds from exercise of stock options .........................................                    74                    180
     Net increase (decrease) in other borrowings .....................................                15,177                (14,886)
                                                                                                    --------               --------
Net cash provided by financing activities ............................................                22,142                 19,492
                                                                                                    --------               --------
Net decrease in cash and cash equivalents ............................................                (4,699)                  (875)

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

Cash and cash equivalents, ending ....................................................              $ 10,983               $ 17,657
                                                                                                    ========               ========
</TABLE>


See notes to unaudited 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 and nine months
ended September 30, 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  the
Corporation's   fiscal  year  ended   December  31,   2006,   contained  in  the
Corporation's 2006 Annual Report on Form 10-K.

The consolidated  financial  statements  include the accounts of the Corporation
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.

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  September 30, 2007 and 2006,  basic  earnings per share has been computed
based upon the weighted  average  common shares  outstanding  of 2,161,038  and,
2,123,938 respectively.

The only potential  dilutive  security 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 and nine months ended  September  30, 2007 and 2006 (dollars in thousands,
except share and per share data):

<TABLE>
<CAPTION>
                                                                    Three Months ended                      Nine Months ended
                                                                       September 30,                           September 30,
                                                                       -------------                           -------------

                                                                 2007               2006                 2007               2006
                                                                 ----               ----                 ----               ----
<S>                                                           <C>                 <C>                 <C>                 <C>
Net Income .........................................          $      953          $    1,212          $    2,517          $    3,716
Weighted average outstanding shares ................           2,161,038           2,123,938           2,159,141           2,115,068

Basic earnings per share ...........................          $     0.44          $     0.57          $     1.17          $     1.76

Weighted average outstanding shares ................           2,161,038           2,123,938           2,159,141           2,115,068
Dilutive effect of stock options ...................              24,408              49,820              27,483              59,115
                                                              ----------          ----------          ----------          ----------

Weighted average diluted shares ....................           2,185,446           2,173,758           2,186,624           2,174,183

Diluted earnings per share .........................          $     0.44          $     0.56          $     1.15          $     1.71
</TABLE>

                                       7
<PAGE>

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 were effective as of the beginning
of the Company's  2007 fiscal year.  The adoption 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 were 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
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
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  employer  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 year $10 million one year  convertible
advance  at 4.115%  issued on April 5, 2007 and a 10 year $5  million  six month
convertible  advance at 4.06% issued on April 5, 2007 from the Federal Home Loan
Bank of Atlanta.


                                       8
<PAGE>

Note 5 - 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 September
30, 2007, the Bank had isseed  commitments to extend credit of $70.9 million and
standby  letters  of credit  of $3  million  through  various  types of  lending
arrangements.  Of these commitments,  59.7%, or $42.3 million, expire within one
year,  and  40.3%,  or $28.6  million,  expiring  in more  than one  year.  Past
experience indicates that many of these commitments to extend credit will expire
unused.

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  may 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 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.


                                       9
<PAGE>


RESULTS OF OPERATIONS:  THREE MONTH PERIOD ENDED SEPTEMBER 30, 2007, COMPARED TO
THE SAME PERIOD ENDED  SEPTEMBER 30, 2006, AND NINE MONTH PERIOD ENDED SEPTEMBER
30, 2007, COMPARED TO SEPTEMBER 30, 2006.


Net Income

For the quarter  ended  September 30, 2007,  the Company  earned a net profit of
$953 thousand,  a decrease of $259 thousand,  or 21.4%,  from the same period in
2006.  Diluted per share quarterly  earnings were $.44 in 2007 and $.56 in 2006.
The decrease in earnings in 2007,  as compared to the same quarter in 2006,  can
be primarily attributed to the $170 thousand,  or 4.8%, decrease in net interest
income after provision for loan losses, the $114 thousand, or 35.4%, decrease in
non-interest  income, and the $120 thousand,  or 6.0%,  increase in non-interest
expense  discussed  below. The provision for income taxes for the quarters ended
September 30, 2007, and September 30, 2006 is based on an effective rate of 36%.
The overall  decrease to income before taxes of $404 thousand,  or 21.3%, in the
third quarter of 2007 as compared to the third quarter of 2006.

For the nine months ended September 30, 2007, the Company earned a net income of
approximately   $2.517  million,  or  $1.15  per  diluted  share,   compared  to
approximately $3.716 million, or $1.71 per diluted share, for the same period in
2006.  Earnings per share decreased by 32.2% in the first nine months of 2007 as
compared  to the same  period in 2006.  The  decrease  in net income of 32.3% is
attributed to several factors  including a $976 thousand,  or 9.3%,  decrease in
net  interest  income  after  the  provision  for loan  losses,  a  decrease  in
noninterest  income of $325 thousand,  or 31.5%,  and an increase in noninterest
expense of $571  thousand,  or 9.9%,  during  the first  nine  months in 2007 as
compared to the same period in 2006. The provision for income taxes for the nine
months ended  September 30, 2007 and September 30, 2006 is based on an effective
rate of 36%. The overall  decrease in income  before tax of $1.872  million,  or
32.2%, for the first nine months of 2007 as compared to the same period in 2006.


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  annualized  income for the period divided by the average
assets for the period. Return on average equity is the annualized income for the
period divided by the average  equity for the period.  As is shown in Table One,
ROAA and ROAE for the three month period  ending  September  30, 2007 were 1.05%
and 10.09%, respectively. For the first nine months of 2007 as is shown in Table
One, ROAA and ROAE were 0.93% and 8.98%, respectively.
















                                       10
<PAGE>

Table One

<TABLE>
<CAPTION>
                                                                 Selected Earnings Ratios

                                            For three months ending               For nine months ending
                                                   September 30,                         September 30,
                                                   -------------                         -------------
                                                  2007            2006               2007            2006
                                                  ----            ----               ----            ----
<S>                                               <C>             <C>                <C>             <C>
Return on Average Assets .....................    1.05%           1.39%              0.93%           1.44%

Return on Average Equity .....................   10.09%          14.00%              8.98%          15.04%

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

Average Shareholders' Equity
as a Percentage of Average Assets ............   10.39%           9.93%             10.39%           9.56%
</TABLE>


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 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.  Net interest income for the
quarter  ended  September  30, 2007  decreased  by $170  thousand,  or 4.8%,  as
compared to the 2006 quarter.  Net interest  income for the first nine months of
2007 decreased by $976 thousand, or 9.3%, over the same period in 2006.

This  decrease  can  be  largely  attributed  to  the  change  in  the  economic
environment  between  the first nine  months of 2006 and 2007.  During the first
nine months of 2006, interest rates were rising and the Company's earning assets
were repricing more rapidly than interest-bearing liabilities.  During the first
nine months 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  earnings in 2007 were  negatively
impacted by the change in the  economic  environment  between the two first nine
month  periods  is shown in Table  Two.  The  average  yield on  earning  assets
increased in 2007 over that of 2006 by 19 basis points (8.46%-8.27%),  while the
cost of interest-bearing  liabilities between the two periods increased 68 basis
points (4.98% - 4.30%). In addition,  contributing to the negative effect of the
change in the  economic  environment  between  the  periods  are  changes in the
Company's balance sheet. The increase in average earning assets of $14.4 million
in the first nine months as compared  to the same  period in 2006  exceeded  the
$12.5 million increase in interest-bearing liabilities by $1.9 million. Although
the growth in average earning assets exceeded interest bearing  liabilities,  it
was not sufficient to offset the pace of repricing for average  interest-bearing
liabilities. The net effect of these combined changes between the two first nine
month  periods  resulted  in a 49 basis  point  decrease  (3.48% - 3.97%) in the
interest  spread  from  2006 to 2007.  In  addition,  the  competition  from new
community  banks  and new  branch  offices  of older  banks in the  Spartanburg,
Columbia,  and  Bluffton  areas of South  Carolina  has  increased  the interest
expense of  interest-bearing  liabilities  and  reduced the  interest  income of
loans.



                                       11
<PAGE>

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 nine months ended September 30, 2007 and 2006.

<TABLE>
<CAPTION>
Table Two                                                             Net Interest Income and Average Balance Analysis
                                                                         for the Nine Months Ended September 30,
                                                                                       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>
Due from Banks ........................................     $   9,952      $  11,679      $    386     $    418       5.19%    4.79%
Investments ...........................................        32,236         33,861         1,280        1,172       5.31%    4.63%
Loans .................................................       305,221        287,441        20,316       19,014       8.90%    8.84%
                                                            ---------      ---------      --------     --------
Total Interest Earning Assets .........................       347,409        332,981        21,982       20,604       8.46%    8.27%

Non-interest-Earning Assets
Cash & Due From Banks .................................         4,672          5,465
Allowance for Loan Losses .............................        (3,385)        (3,224)
Investments: Fair Value Adjustment ....................          (155)          (356)
Premises & Equipment ..................................         6,221          5,396
Investment in unconsolidated subsidiary ...............           155            155
Interest Receivable & Other ...........................         5,773          5,398
                                                            ---------      ---------
Total Noninterest-Earning Assets ......................        13,281         12,834
                                                            ---------      ---------

TOTAL ASSETS ..........................................     $ 360,690      $ 345,815
                                                            ---------      ---------

Interest-Bearing Liabilities
NOW Accounts ..........................................     $  27,476      $  31,896         $ 752     $    838       3.66%    3.51%
Money Market & Savings ................................        63,003         51,849         2,194        1,670       4.66%    4.31%
Time Deposits & IRAs ..................................       199,387        193,741         7,808        6,262       5.24%    4.32%
Fed Funds and Purchased and Repos .....................         1,584          4,817            50          150       4.22%    4.16%
Other Borrowed Funds ..................................        10,707          7,542           342          270       4.27%    4.79%
Subordinated Debt .....................................         5,155          5,000           309          298       8.01%    7.97%
Demand Notes Issued to Treasury .......................           182            187             6            6       4.41%    4.29%
                                                            ---------      ---------      --------     --------
Total Interest-Bearing Liabilities ....................       307,494        295,032        11,461        9,494       4.98%    4.30%

Noninterest-Bearing Liabilities
Demand Deposits .......................................        13,819         15,053
Interest Payable ......................................         1,149            990
Other Liabilities .....................................           740          1,701
                                                            ---------      ---------
Total Noninterest-Bearing Liabilities .................        15,708         17,744

Stockholders' Equity ..................................        37,488         33,039
                                                            ---------      ---------

TOTAL LIABILITIES & EQUITY ............................     $ 360,690      $ 345,815
                                                            ---------      ---------

Net Interest Income ...................................                                   $ 10,521     $ 11,110
                                                                                          --------     --------

  Net Yield on Earning Assets .........................                                                               4.05%    4.46%
  Interest Rate Spread ................................                                                               3.48%    3.97%
</TABLE>

(1) Annualized

                                       12
<PAGE>

Noninterest Income

Noninterest  income for the third quarter of 2007 decreased  $114  thousand,  or
35.4%, to $208 thousand for the third quarter of 2007 from $322 thousand for the
third  quarter of 2006.  The decrease is primarily  composed of a $135  thousand
decrease in mortgage and loan brokerage  fees offset by a $63 thousand  increase
in brokerage  service  commissions  in the third quarter of 2007 compared to the
third  quarter in 2006.  The Loan  Brokerage  department  was  terminated  as of
December 2006, therefore no income from this activity has been reported in 2007.

Noninterest income for the first nine months of 2007 decreased $325 thousand, or
31.5%,  from the $1.032 million amount  recorded during the first nine months in
2006.  This  decrease  is the net effect of an  increase in Gain on Sale of Bank
Owned Assets of $139 thousand, a decrease in Commission & Fees of $451 thousand,
and a $38 thousand decrease in Service Charges.  The decrease in Commissions and
Fees is  predominately  a decrease  in  Brokerage  Service  Commissions  of $104
thousand and Loan Brokerage  Commissions  of $250  thousand.  The Loan Brokerage
department  was  terminated as of December  2006,  therefore no income from this
activity  has been  reported in 2007.  As shown in Table Three,  service  charge
income decreased by $38 thousand from $210 thousand during the first nine months
of 2006 to $172 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 resulted in a larger credit
to business  accounts as an offset against  service charges  determined  through
full account analysis.

Table Three  provides a three and nine month 2007 to 2006  comparison of various
categories of noninterest income.
<TABLE>
<CAPTION>
Table Three                                                                         Summary of Total Noninterest Income
                                                                       for the Three Months Ended          for the Nine Months Ended
                                                                              September 30,                     September 30,
                                                                          (Amounts in thousands)            (Amounts in thousands)

                                                                         2007              2006              2007              2006
                                                                         ----              ----              ----              ----
<S>                                                                     <C>               <C>               <C>               <C>
Service Charges ............................................            $   58            $   75            $  172            $  210
Commissions & Fees .........................................               125               229               272               723
Gain on sale of bank owned assets ..........................                 4                 -               186                47
Other Non-interest Income ..................................                21                18                77                52
                                                                        ------            ------            ------            ------
Total ......................................................            $  208            $  322            $  707            $1,032
</TABLE>


Noninterest Expense

Noninterest expense for the third quarter of 2007 increased by $120 thousand, or
6.0% compared to the third quarter of 2006. The increase consisted  primarily of
a $143 thousand  increase in salaries and benefits,  a $12 thousand decrease for
loss on sale of bank owned assets,  and a $19 thousand decrease in other outside
services.  As  discussed  below  increases in salary and benefits are related to
increases in the number of personnel at the end of the third  quarter of 2007 as
compared to the end of the third quarter in 2006.

Noninterest  expense  for  the  first  nine  months  of 2007  increased  by $571
thousand, or 9.9%, over the first nine months total in 2006 of $5.8 million. The
increase in salaries and employee  benefits  combined with the increase in other
noninterest  expenses  were the  primary  reasons  for the  overall  increase in
noninterest  expense.  Salaries and benefits increased 11.0% from the first nine
months 2006 total of $3.6 million.  This increase was primarily the result of an
increase  in the number of  employees  from 62 to 69 during  the  period  ending
September  30,  2006 to  September  30,  2007.  The  increase  in  employees  is
consistent  with  the  Bank's  efforts  regarding  future  growth  plans.  Other
noninterest expenses increased 8.3% from the first nine months of 2006, total of
$1.5  million.  This increase is primarily the result of an increase in internet
banking  expenses of $91 thousand,  an increase in FDIC insurance  assessment of
$77 thousand  combined with a decrease in other outside  services expense of $47
thousand for the first nine months of 2007 from the first nine months of 2006.



                                       13
<PAGE>


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



<TABLE>
<CAPTION>
Table Four                                                                         Summary of Total Noninterest Expense
                                                                     for the Three Months Ended          for the Nine Months Ended
                                                                         September 30,                           September 30,
                                                                     (Amounts in thousands)                (Amounts in thousands)

                                                                      2007               2006               2007              2006
                                                                      ----               ----               ----              ----

<S>                                                                  <C>                <C>                <C>                <C>
Salaries & Employee Benefits ...........................             $1,393             $1,250             $3,974             $3,580
Occupancy & Equipment ..................................                238                250                743                690
Other noninterest expense ..............................                479                490              1,613              1,489
                                                                     ------             ------             ------             ------
Total ..................................................             $2,110             $1,990             $6,330             $5,759
</TABLE>


Income Taxes

Provision for income taxes for the three month period ending  September 30, 2007
decreased $145 thousand,  or 21.3%,  to $537 thousand  compared to $682 thousand
for the three month period  ending  September 30, 2006.  This decrease  resulted
from the corresponding  decrease in income before tax of $404 thousand, or 21.3%
between the third  quarter of 2007 and 2006.  Provision for income taxes for the
nine months ended  September  30, 2007 was $1.423  million as compared to $2.096
million in 2006 during the same period, a 32.1% decrease.  This decrease was due
to the overall  decrease in income before taxes of $1.872 million,  or 32.2%, in
2007 as compared to that of 2006.

CHANGES IN FINANCIAL POSITION

Investment portfolio

In the investment portfolio, during the first nine months of 2007, there were $8
million in purchases,  $5 million in maturities,  and $287 thousand of paydowns.
There  were no calls of  investment  portfolio  holdings  during  the first nine
months of 2007. As compared to the same period in 2006,  the annual yield of the
investment  portfolio during the first nine months of 2007 increased by 68 basis
points to 5.31% from 4.63%.



                                       14
<PAGE>

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


December 31, 2006                                                 Available-for-Sale                      Held-for-Investment
                                                                  ------------------                      -------------------

                                                                               Estimated Fair       Amortized       Estimated Fair
                                                          Amortized Cost          Value               Cost              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                 482              632
Mortgage backed securities .........................              597                 583                 421              425
                                                              -------             -------             -------          -------

                                                              $22,713             $22,553             $ 9,902          $10,072
                                                              =======             =======             =======          =======
</TABLE>


<TABLE>
<CAPTION>
September 30, 2007                                               Available-for-Sale                        Held-for-Investment
                                                                 ------------------                        -------------------

                                                                             Estimated Fair         Amortized      Estimated Fair
                                                             Amortized            Value                Cost             Value
                                                             ---------            -----                ----             -----
<S>                                                          <C>                 <C>                 <C>               <C>
Due in one year or less ............................         $ 2,000             $ 1,994             $     -           $     -
Due from one to five years .........................           7,495               7,488               4,000             4,004
Due from five to 10 years ..........................          11,500              11,585               4,999             5,039
Due after ten years ................................           4,123               4,110                 483               628
Mortgage backed securities .........................             457                 458                 274               276
                                                             -------             -------             -------           -------

                                                             $25,575             $25,635             $ 9,756           $ 9,947
                                                             =======             =======             =======           =======
</TABLE>
Excludes  equity  securities  with no readily  deteminable  market value of $740
thousand on December 31, 2006 and $1.311 million on September 30, 2007.


Loan portfolio

From  December  31,  2006 to  September  30,  2007 total  loans grew from $296.5
million to $320.5  million,  or 8.09%.  The  percentage  composition of the loan
portfolio,  as shown in Table Six,  changed  slightly as the  percentage of real
estate loans increased by .23% of the total portfolio from 82.8% on December 31,
2006 to 83.0% on September 30, 2007.  Commercial and industrial  loans decreased
by .27% as a percentage of the loan  portfolio  from 17.05% on December 31, 2006
to 16.78% as of September 30, 2007.

As shown in Table Seven,  Variable Rate Loans  comprised 73.9% of the total loan
portfolio.

On September 30, 2007 and 2006, there were ten and sixteen loans totaling $2.038
million and $3.465 million on non-accrual status, respectively.



                                       15
<PAGE>

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


Real Estate:                                                             September 30, 2007                   December 31, 2006
                                                                         ------------------                   -----------------
<S>                                                                  <C>                <C>            <C>                   <C>
   Construction/Land Development .........................           $ 37,466            11.69%        $ 29,634               10.00%
   1-4 Family Residential Properties .....................             68,074            21.24%          67,063               22.62%
   Multifamily Residential Properties ....................              5,694             1.78%           6,987                2.36%
   Nonfarm Nonresidential Properties .....................            151,849            47.37%         138,752               46.80%
   Other Real Estate Loans ...............................              3,106             0.97%           3,078                1.04%
Commercial & Industrial ..................................             53,766            16.78%          50,556               17.05%
Consumer .................................................                555             0.17%             395                0.13%
                                                                     --------           ------         --------              ------

Total ....................................................           $320,510           100.00%        $296,465              100.00%
                                                                     ========           ======         ========              ======
</TABLE>






<TABLE>
<CAPTION>
Table Seven                                               Analysis of Loan Maturities and Repricing Frequency
                                                                       as of September 30, 2007
                                                                        (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 ................        $235,443        $      -        $      -        $      -        $      -        $235,443

Fixed Rate Loans ...................           3,235          13,409          35,985          25,537           4,863        $ 83,029
                                            --------        --------        --------        --------        --------        --------

Total Loans ........................        $238,678        $ 13,409        $ 35,985        $ 25,537        $  4,863        $318,472
                                            --------        --------        --------        --------        --------        --------
</TABLE>


Excludes loans on non-accrual status of $2.038 million




                                       16
<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 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 $958 thousand  provision  amount credited to the loan loss reserve during
the first nine months of 2007, $703 thousand or 73.3%, of the total was credited
as a replacement of reserves covering the amount of net loans charged off during
the period.  $255 thousand,  or 26.7%,  of the total  provision  amount credited
during the first nine months was made to cover loan growth. Table Eight provides
the results of the  year-to-date  analysis for the nine months ending  September
30, 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 Nine Months Ended September 30,
                             (Amounts in thousands)

                                                        2007             2006
                                                        ----             ----
Balance at Beginning of Year .................         $ 3,275          $ 3,000
Provision Charged to Operations ..............             958              571
Loans Charged-Off ............................            (736)            (305)
Loan Recoveries ..............................              33               24
                                                       -------          -------
Balance at End Of Period .....................         $ 3,530          $ 3,290
                                                       =======          =======


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
September  30,  2007 and  2006,  the  cumulative  one-year  gap for the Bank was
negative, or liability sensitive, $47.9 million and $14.8 million, respectively.
At September 30, 2007,  the  cumulative  five-year gap for the Bank was positive
$38.0  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  the  relationship
between  interest-bearing  assets and interest-bearing  liabilities at September
30, 2007.


                                       17
<PAGE>


<TABLE>
<CAPTION>
Table Nine                                                 Distribution of Interest-Earning Assets and Interest-Bearing Liabilities
                                                                       Repricing Schedule as of September 30, 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 ......................................          $   6,684           $       -           $       -          $   6,684
Investment Securities* ..............................              2,000              11,495              21,835             35,330
FHLB Stock ..........................................              1,311                   -                   -              1,311
Loans** .............................................            252,087              61,522               4,863            318,472
                                                               ---------           ---------           ---------          ---------

Total ...............................................          $ 262,082           $  73,017           $  26,698          $ 361,797


Interest Bearing Liabilities

NOW Accounts ........................................          $  27,252           $       -           $       -          $  27,252
Savings & MMIA ......................................             70,055                   -                   -             70,055
Time Deposits:$100 & > ..............................             75,541               4,891                   -             80,432
Time Deposits: <$100m ...............................            115,060               8,898                   -            123,958
Repurchase Agreements ...............................              1,612                   -                   -              1,612
Other Borrowed Funds *** ............................             20,464                   -                   -             20,464
                                                               ---------           ---------           ---------          ---------

Total ...............................................          $ 309,984           $  13,789           $       -          $ 323,773

Period Gap ..........................................          $ (47,902)          $  59,228           $  26,698          $  38,024

Cumulative Gap ......................................          $ (47,902)          $  11,326           $  38,024


Period Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ....................                                 -84.5%               529.5%               0.0%

Cumulative Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ....................                                 -84.5%               103.5%             111.7%
</TABLE>



<TABLE>
<CAPTION>
                                                              3 Months          Over 3 Months       Over One
Time Deposits                                                  & Less           to 12 Months          Year                Total
                                                               ------           ------------          ----                -----
<S>                                                           <C>                  <C>               <C>                 <C>
$100,000 and Greater ...........................              $23,764              $51,777           $ 4,891             $80,432
</TABLE>


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


                                       18
<PAGE>

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 62.6% of total  assets  at  September  30,  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 $15
million for the first six months of 2007.  These  borrowings  consisted  of a 10
year $10 million one year convertible  advance at 4.115% issued on April 5, 2007
and a 10 year $5 million six month convertible  advance at 4.06% issued on April
5, 2007.  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 nine month  period
between  December 31, 2006 and  September  30, 2007 resulted from a $2.5 million
increase in retained  earnings and the exercised  stock options in the amount of
$74.4 thousand. The most significant contributors to the difference between Tier
1 Capital  between the Company and the Bank at September  30,  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  $1.826
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 September 30, 2007 the Company
and the Bank met all of their applicable capital requirements.

The Bank's and Company's  September 30, 2007 capital ratios are presented in the
following table,  compared with the "well  capitalized" and minimum ratios under
the FDIC regulatory definitions and guidelines:

                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                   To Be Well
                                                                                                               Capitalized Under
                                                                                     For Capital               Prompt Corrective
The Bank                                                                          Adequacy Purposes            Action Provisions
As of September 30, 2007                                  Actual                       Minimum                       Minimum
                                                          ------                       -------                       -------
                                                  Amount          Ratio         Amount          Ratio        Amount            Ratio
                                                  ------          -----         ------          -----        ------            -----

Total Capital
<S>                                              <C>              <C>           <C>             <C>          <C>             <C>
(To Risk Weighted Assets) ..............         $45,323          13.87%        $26,141         8.00%        $32,676         10.00%
Tier 1 Capital
(To Risk Weighted Assets) ..............         $36,893          11.29%        $13,070         4.00%        $19,606          6.00%
Tier 1 Capital
(To Average Assets) ....................         $36,893           9.91%        $14,892         4.00%        $18,615          5.00%

</TABLE>


The Company
As of September 30, 2007                     Actual               Minimum
                                             ------               -------
                                         Amount    Ratio     Amount      Ratio
                                         ------    -----     ------      -----

Total Capital
(To Risk Weighted Assets) .........     $47,176    14.43%    $26,155     8.00%
Tier 1 Capital
(To Risk Weighted Assets) .........     $43,646    13.35%    $13,077     4.00%
Tier 1 Capital
(To Average Assets) ...............     $43,646    12.10%    $14,428     4.00%


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 September
30, 2007, the Bank had issued  commitments to extend credit of $70.9 million and
standby  letters  of credit  of $3  million  through  various  types of  lending
arrangements.  Of these commitments,  59.7%, or $42.3 million, expire within one
year,  and 40.3 %, or $28.6  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.



                                       20
<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 September  30,  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.




                                       21
<PAGE>

Item 4.T - 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
November 14, 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


























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