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 JUNE 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 { }


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,  1,748,144
shares outstanding on July 20, 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......................................     20

Part II -         OTHER INFORMATION ....................................  21-22

  Item 1.  Legal Proceedings

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

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

  Item 6.  Exhibits


SIGNATURES .............................................................     23


CERTIFICATIONS........................................................... 24-27














                                       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)
                                                                                                  June 30,                 Dec. 31,
                                                                                                    2005                     2004
                                                                                                    ----                     ----
Assets
<S>                                                                                              <C>                      <C>
Cash & due from banks ............................................................               $   5,581                $   4,092
Due from banks - interest bearing ................................................                  17,100                    9,200
 Investment securities:
    Securities held to maturity ..................................................                   2,560                    3,358
    Securities available for sale ................................................                  23,439                   18,506
Loans ............................................................................                 253,471                  254,749
      Less, allowance for loan losses ............................................                  (3,000)                  (2,900)
Loans - net ......................................................................                 250,471                  251,849
Property & equipment, net ........................................................                   5,309                    5,334
Investment in FSBS Capital Trust .................................................                     155                      155
Other assets .....................................................................                   4,814                    3,936
                                                                                                 ---------                ---------
Total assets .....................................................................               $ 309,429                $ 296,430
                                                                                                 =========                =========

Liabilities
Deposits:
      Noninterest-bearing ........................................................               $  16,095                $  18,633
      Interest-bearing ...........................................................                 240,957                  229,242
                                                                                                 ---------                ---------
    Total deposits ...............................................................                 257,052                  247,875

Securities sold under repurchase agreements ......................................                   5,363                    4,700
Other borrowed funds .............................................................                  10,000                   10,000
Demand notes issued to the U.S. Treasury .........................................                     114                      417
Subordinated debt ................................................................                   5,155                    5,155
Other liabilities ................................................................                   3,333                    1,439
                                                                                                 ---------                ---------
    Total liabilities ............................................................                 281,017                  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 ................................................................                   9,085                    8,225
Accumulated other comprehensive income/(loss) ....................................                     (66)                     (19)
                                                                                                 ---------                ---------
Total shareholders' equity .......................................................               $  28,412                $  26,844
                                                                                                 =========                =========

Total liabilities and shareholders' equity .......................................               $ 309,429                $ 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 June 30,
                                                                                                  ---------------------
                                                                                        Three Months                 Six Months
                                                                                     2005         2004            2005       2004
                                                                                     ----         ----            ----       ----
                                                                                        (Dollars in thousands, except per share)
Interest income
<S>                                                                               <C>            <C>           <C>           <C>
                         Loans, including fees ............................       $ 4,669        $ 3,447       $ 9,059       $ 6,858
                         Investment securities ............................           220            118           422           237
                         Interest bearing deposits ........................           105             20           188            25
                                                                                  -------        -------       -------       -------

                         Total interest income ............................         4,994          3,585         9,669         7,120
Interest expense
                         Deposits and borrowings ..........................         1,943          1,169         3,673         2,301

Net interest income .......................................................         3,051          2,416         5,996         4,819
                         Provision for loan losses ........................           136             40           423            53
                                                                                  -------        -------       -------       -------
Net interest income after provision .......................................         2,915          2,376         5,573         4,766

Noninterest income
                         Service charges on deposit accounts ..............            84             92           155           185
                         Other income .....................................           137            251           283           371
                                                                                  -------        -------       -------       -------
                         Total noninterest income .........................           221            343           438           556

Noninterest expense
                         Salaries and benefits ............................           920            864         1,849         1,692
                         Occupancy and equipment ..........................           179            201           381           416
                         Other expense ....................................           401            415           772           781
                         Litigation Settlement ............................         1,677              -         1,677             -
                                                                                  -------        -------       -------       -------
                         Total noninterest expense ........................         3,177          1,480         4,679         2,889

Income before income taxes ................................................           (41)         1,239         1,332         2,433
                         Provision for income taxes .......................           (27)           447           472           879
                                                                                  -------        -------       -------       -------

Net income ................................................................       $   (14)       $   792       $   860       $ 1,554
                                                                                  =======        =======       =======       =======

Basic per share earnings ..................................................       $ (0.01)       $  0.47       $  0.50       $  0.97

Diluted earnings per share ................................................       $ (0.01)       $  0.44       $  0.48       $  0.91
</TABLE>


See Notes to accompanying financial statements.






                                       4
<PAGE>


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

                                                              (Unaudited)
                                                           Six Months Ended
                                                                June 30
                                                                -------
                                                           2005           2004
                                                           ----           ----
Net Income .......................................       $   860        $ 1,554

Other comprehensive  (loss):

Change in unrealized holdings gains &
    losses on available for sale securities ......           (76)          (128)

Income tax benefit on other comprehensive
    income (loss) ...............................             29             48
                                                         -------        -------

Total other comprehensive (loss) .................           (47)           (80)
                                                         -------        -------

Comprehensive income .............................       $   813        $ 1,474


 See Notes to accompanying financial statements.





















                                       5
<PAGE>


                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                               (Unaudited)
                                                                                                             Six Months Ended
                                                                                                                 June 30,
                                                                                                                 --------
                                                                                                         2005                2004
                                                                                                         ----                ----
                                                                                                          (amounts in thousands)
Operating Activities
<S>                                                                                                    <C>                 <C>
Net income .................................................................................           $    860            $  1,554

Adjustments to reconcile net income to net cash
              provided by operating activities
              Provision for loan losses ....................................................                423                  53
              Depreciation .................................................................                183                 179
              Amortization .................................................................                 10                   8
              Deferred Tax Asset ...........................................................                260                 (49)
              (Increase)/decrease in cash surrender value of life insurance ................                (15)                (16)
              Decrease (increase) in other assets ..........................................             (1,123)                (68)
              Increase (decrease) in accrued expenses and other liabilities ................              1,536                 255
                                                                                                       --------            --------

Net cash provided by operating activities ..................................................              2,134               1,916
                                                                                                       --------            --------


Investing Activities
              Purchase of securities .......................................................             (6,000)             (8,000)
              Sale/(Purchase) of restricted FHLB stock .....................................                (90)                 50
              Proceeds from MBS principal paydowns .........................................                495                 189
              Proceeds from called  securities .............................................              1,375               3,000
              Origination of loans, net of principal  collected ............................              1,378             (10,770)
              (Purchase) of premises and equipment .........................................               (195)               (113)
              Investments in and advances to subsidiaries ..................................                  -                (155)
                                                                                                       --------            --------

Net cash used in investing activities ......................................................             (3,037)            (15,799)
                                                                                                       --------            --------

Financing Activities
              Net increase in deposits .....................................................              9,177              20,276
              Net increase (decrease) in retail repurchase agreements ......................                663                (206)
              Proceeds from exercise of stock options ......................................                755                   -
              Net increase (decrease) in other borrowings ..................................               (303)             (2,028)
              Net Proceeds from Stock Issuance .............................................                  -               7,482
              Proceeds from issuance of subordinated debt ..................................                  -               5,155
                                                                                                       --------            --------

Net cash provided by financing activities ..................................................             10,292              30,679
                                                                                                       --------            --------

Net increase in cash and cash equivalents ..................................................              9,389              16,796

Cash and cash equivalents, beginning .......................................................             13,292               4,462
                                                                                                       --------            --------

Cash and cash equivalents, ending ..........................................................           $ 22,681            $ 21,258
                                                                                                       ========            ========
</TABLE>

 See Notes to accompanying financial statements.



                                       6
<PAGE>


                    FIRST SOUTH BANCORP INC., AND SUBISIDIARY
                  Statements of Changes in Shareholders' Equity
         Year-ended December 31, 2004 and Six Months Ended June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
(dollars in thousands, except per share)                                                               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 .................................                                                  860                               860

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

Net change in
unrealized gain on
available for sale
securities, net of tax .....................                                                                   (47)             (47)
                                                   ----------        ----------        ----------       ----------       ----------

Balance at June 30, 2005 ...................        1,748,144        $   19,393        $    9,085       $      (66)      $   28,412
                                                   ==========        ==========        ==========       ==========       ==========
</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
six months  ended June 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.


(Dollar amounts in thousands, except per share amounts)
                                                      Six Months   Six Months
                                                        ended        ended
                                                    June 30, 2005  June 30, 2004
                                                    -------------  -------------

Net income: As reported ..........................     $   860     $   1,554

Deduct:  Total stock-based compensation cost
             determined under the fair value
             method  net of tax ..................          60            85
                                                       -------     ---------

Pro forma ........................................     $   800     $   1,469
                                                       =======     =========


Basic earnings per share:
             As reported .........................     $   0.50     $   0.97
             Pro forma ...........................     $   0.47     $   0.91

Diluted earnings per share
            As reported ..........................     $   0.48     $   0.91
            Pro forma ............................     $   0.45     $   0.86


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  six-month  periods  ended  June 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 the
Statement of Financial Accounting Standards No. 128, Earnings Per Share. For the
quarters  ended  June 30,  2005 and  2004,  basic  earnings  per  share has been
computed based upon the weighted average common shares  outstanding of 1,703,059
and 1,607,245, respectively.

         The only  potentially  dilutive  stock of the Company as defined in the
Statement of Financial  Accounting  Standards  No. 128,  Earnings Per Share,  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 six
months ended June 30, 2005 and 2004 (in thousands, except share data):

                                                            Six Months Ended
                                                                June 30,
                                                                --------
                                                          2005           2004
                                                          ----           ----

Net Income (in thousands) ....................       $      860       $    1,554
Weighted average outstanding shares ..........        1,703,059        1,607,245

Basic Earnings Per Share .....................       $     0.50       $     0.97

Weighted average outstanding shares ..........        1,703,059        1,607,245
Dilutive effect of stock options .............           84,777           96,398
                                                     ----------       ----------

Weighted average diluted shares ..............        1,787,836        1,703,643

Diluted earnings per share ...................       $     0.48       $     0.91


Note 3 - Litigation

The  Corporation  recorded an expense of $1.7 million in the first six months 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.

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) will require companies to measure
all  employee  stock-based  compensation  awards  using a fair value  method and
record such expense in its financial  statements.  In addition,  the adoption of
SFAS No. 123(R)  requires  additional  accounting and disclosure  related to the
income  tax  and  cash  flow  effects   resulting   from   share-based   payment
arrangements.  SFAS No.  123(R) is  effective  beginning  as of the first annual
reporting  period  beginning  after  December 15, 2005. The Company 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. The cumulative effect
of  adoption,  if any,  will be measured  and  recognized  in the  statement  of
operations on the date of adoption.


In April 2005,  the  Securities  and Exchange  Commission's  Office of the Chief
Accountant and its Division of Corporation Finance has released Staff Accounting
Bulletin  (SAB) No.107 to provide  guidance  regarding the  application  of FASB
Statement  No.123 (revised 2004),  "Share-Based  Payment".  Statement  No.123(R)
covers a wide range of share-based  compensation  arrangements  including  share
options,  restricted share plans,  performance-based  awards, share appreciation
rights,  and  employee  share  purchase  plans.  SAB 107  provides  interpretive
guidance related to the interaction  between  Statement  No.123R and certain SEC
rules and  regulations,  as well as the staff's views regarding the valuation of
share-based  payment  arrangements  for public  companies.  SAB 107 also reminds
public companies of the importance of including  disclosures within filings made
with the SEC relating to the accounting for  share-based  payment  transactions,
particularly during the transition to Statement No.123R.


                                       9
<PAGE>


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

                                 Part I - Item 2

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.

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: SIX MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO THE SAME
PERIOD ENDED JUNE 30, 2004.

Net Income

For the first six months of 2005, First South Bancorp,  Inc. earned a net profit
of $860,000,  compared to $1,554,000  for the same period in 2004, a decrease of
$694,000,  or 45%.  Basic  earnings  per  share  were  $.50 in the 2005  period,
compared to $.97 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 $4,819,000 during
the first six months in 2004 to $5,996,000 during the same period in 2005, a 24%
increase.  The amount  charged to  operations  as a  provision  for loan  losses
increased from $53,000 during the first two quarters in 2004 to $423,000  during
the same period in 2005, a 698%  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 six  months of 2005 were .57% and  6.19%,  respectively.  The
declines  in ROAA and ROAE  resulted  from the  impact of the  legal  settlement
referred to above.







Table One                               Selected Earnings Ratios
                                 at or for the Periods Ending June 30,
                                        2005             2004
                                        ----             ----
Return on Average Assets ..........     0.57%           1.19%

Return on Average Equity ..........     6.19%          16.91%

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

Average Stockholders Equity
as a Percentage of Average Assets .     9.13%           7.05%


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  $1,177,000,  or 24%,  from the first  six  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 six months  increased by $44 million from
June 30, 2004 to June 30, 2005.  The earning asset yield grew by 92 basis points
from 5.70% for the June 30, 2004  period to 6.62% for the June 30, 2005  period.
Each of the three  components of average  earning assets  increased in yield and
volume  from the first six  months of 2004 to the same  period in 2005.  Average
interest  bearing due from bank  balances  grew $8.9 million with an increase in


                                       11
<PAGE>

yield of 172 basis  points.  Average  investment  securities  increased  by $9.1
million in volume and 23 basis points in yield. The highest  yielding  component
of earning assets,  loans,  increased by $25.9 million in average volume and 115
basis points in yield.  Although average interest bearing liabilities  increased
by $38.5 million and the overall cost of these liabilities increased by 77 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 15 basis  points from 3.60% during the first six months in 2004 to
3.75% 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 six months ended June 30, 2005 and 2004.

<TABLE>
<CAPTION>
Table Two                                                     Net Interest Income and Average Balance Analysis
                                                                      for the Six Months Ended June 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 ........................     $  14,125       $   5,215       $     188     $      25     2.68%     0.96%
Investments ........................................        22,552          13,408             422           237     3.77%     3.54%
Loans ..............................................       258,067         232,077           9,059         6,858     7.08%     5.93%
                                                         ---------       ---------       ---------     ---------     ----      ----
Total Interest Earning Assets ......................       294,744         250,700           9,669         7,120     6.62%     5.70%

Noninterest Earning Assets
Cash & Due From Banks ..............................         5,438           4,650
Allowance for Loan Losses ..........................        (3,069)         (2,604)
Investments: Fair Value ............................          (101)             27
Premises & Equipment ...............................         5,255           5,383
Investment in unconsolidated subsidiary ............           155             129
Interest Receivable & Other ........................         4,451           3,353
                                                         ---------       ---------
Total Noninterest Earning Assets ...................        12,129          10,938
                                                         ---------       ---------

TOTAL ASSETS .......................................     $ 306,873       $ 261,638
                                                         =========       =========

Interest Bearing Liabilities
NOW Accounts .......................................     $  38,616       $  34,062       $     448     $     271     2.34%     1.60%
Money Market & Savings .............................        52,475          47,101             610           383     2.34%     1.63%
Time Deposits & IRAs ...............................       147,835         119,104           2,200         1,320     3.00%     2.22%
Fed Funds Purchased & Repos ........................         4,308           4,626              47            11     2.20%     0.48%
Other borrowed funds ...............................        10,000          10,670             224           231     4.52%     4.34%
Subordinated debt ..................................         5,000           4,167             142            84     5.73%     4.04%
Demand Notes Issued to Treasury ....................           208             215               2             1     1.94%     0.93%
                                                         ---------       ---------       ---------     ---------     ----      ----
Total Interest Bearing Liabilities .................       258,442         219,945           3,673         2,301     2.87%     2.10%

Noninterest Bearing Liabilities
Demand Deposits ....................................        18,101          21,149
Interest Payable ...................................           663             553
Other Liabilities ..................................         1,652           1,424
                                                         ---------       ---------
Total Non Int Bearing Liabilities ..................        20,416          23,126

Stockholder's Equity ...............................        28,015          18,567
                                                         ---------       ---------

TOTAL LIABILITIES & EQUITY .........................     $ 306,873       $ 261,638
                                                         =========       =========

Net Interest Income ................................                                     $   5,996     $   4,819
                                                                                         =========     =========

  Net Yield on Earning Assets ......................                                                                 4.10%     3.85%
  Interest Rate Spread .............................                                                                 3.75%     3.60%
</TABLE>

                                       12
<PAGE>

Other Income

Total other, or noninterest,  income  decreased for the first six months of 2005
by $118,000,  or 21%,  compared to the same period in 2004.  Service  charges on
deposit accounts decreased by $30,000 primarily due to the reduction in NSF fees
by $15,000.  Commissions  and Fees decreased from $339 thousand during the first
two  quarters of 2004 to $253  thousand  during the same  period in 2005,  a 25%
decrease.  This decrease was primarily caused by the decrease of $87 thousand in
loan brokerage fees. Table Three provides a performance comparison of categories
of noninterest income for the six month periods ended June 30, 2004 and 2005.

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

                                                 2005                  2004
                                                 ----                  ----
Service Charges ............................     $155                  $185
Commissions & Fees .........................      253                   339
Other Noninterest Income ...................       30                    32
                                                 ----                  ----
Total ......................................     $438                  $556

Other Expense

Other,  or  noninterest,  expense for the first six months of 2005  increased by
$1.8 million,  or 62%, as compared to the first six months of 2004. Salaries and
Employee  Benefits  increased  from $1.7 million in June 2004 to $1.8 million in
June 2005  primarily due to an increase of 3 full time  employees from the first
six  months  of 2004 to the  same  period  in  2005.  Other  Expenses  decreased
slightly.  The net mediated  litigation  settlement of $1,677,154  accounted for
93.7% of the total increase in noninterest expense. The Corporation recorded the
litigation settlement expense of $1.7 million in the first six months 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 six month 2005 to 2004 performance  comparative of various
categories of noninterest expense.

Table Four                                 Summary of Total Noninterest Expense
                                             For the Six Months Ended June 30,
                                                       2005 and 2004
                                                  (Amounts in thousands)

                                                 2005                  2004
                                                 ----                  ----

Salaries & Employee Benefits ..............    $1,849                $1,692
Occupancy & Equipment .....................       381                   416
Other expense .............................       772                   781
Net Litigation Settlement .................     1,677                     -
                                               ------                ------
Total .....................................    $4,679                $2,889





                                       13
<PAGE>

Income Taxes

Provision  for  income  taxes for the six months  ended  June 30,  2005 was $472
thousand  as compared to $879  thousand  in 2004 during the same  period,  a 46%
decrease.  This decrease was due to the overall  decrease in income before taxes
of $1.1 million, or 46%.


CHANGES IN FINANCIAL POSITION

Investment portfolio

During the first six months of 2005,  $1,375,000 in government agency securities
with a weighted  average rate of 4.78% and a gain of $7,500 were called.  During
this same period,  $6,000,000 in government  agency  securities  with a weighted
average rate of 4.15% were purchased. A total of $12,590,717 (par) of investment
securities were pledged on June 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>

June 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 ...................       $ 5,499               $ 5,470                 $ 1,001               $ 1,000
Due from one to five years ................        13,993                13,928                     480                   651
Due from five to 10 years .................         1,000                   997                       -                     -
Due after ten years .......................         1,123                 1,128                       -                     -
Mortgage backed securities ................           887                   872                   1,079                 1,101
                                                  -------               -------                 -------               -------

                                                  $22,502               $22,395                 $ 2,560               $ 2,752
                                                  =======               =======                 =======               =======
</TABLE>

Excludes  equity  securities with no readily  determinable  market value of $954
thousand on December 31, 2004 and $1,044 thousand on June 30, 2005.




                                       14
<PAGE>


Loan portfolio

From June 30, 2004 to June 30, 2005, loans increased by $16.5 million,  or 6.9%.
As is shown in Table Six,  loans secured by real estate  continued to comprise a
substantial  percentage  of the total  loan  portfolio,  81.5%  versus  79.5% in
2004.The  Corporation's loan portfolio on June 30, 2005, as shown in Table Seven
reflects an increase of variable  rate loans as a  percentage  of the  portfolio
from 91.5% in 2004 to 93.5% in 2005.



<TABLE>
<CAPTION>
Table Six                                                                               Analysis of Loans
                                                                                         June 30 Balances
                                                                                      (Amounts in thousands)
Real Estate:                                                                  2005                                2004
                                                                              ----                                ----
<S>                                                                  <C>                <C>          <C>                    <C>
   Construction/Land Development .........................           $ 18,335            7.23%        $ 17,865                7.54%
   1-4 Family Residential Properties .....................             62,550           24.68%          60,359               25.47%
   Multifamily Residential Properties ....................              4,053            1.60%             359                0.15%
   Nonfarm Nonresidential Properties .....................            120,686           47.61%         107,964               45.55%
   Other Real Estate Loans ...............................                919            0.36%           1,903                0.80%
Commercial & Industrial ..................................             46,502           18.35%          48,146               20.31%
Consumer .................................................                426            0.17%             413                0.17%
                                                                     --------                         --------

Total ....................................................           $253,471           100.0%        $237,009               100.0%
                                                                     ========           ======        ========               ======
</TABLE>




Table Seven        Analysis of Loan Maturities and Repricing Frequency
                                   as of June 30, 2005
                                  (Amounts in thousands)

<TABLE>
<CAPTION>
                               Within   >3 Months     >1 Year    >3 Years       Over
                             3 Months   12 Months     3 Years     5 Years    5 Years       Total
                             --------   ---------     -------     -------    -------       -----
<S>                          <C>           <C>         <C>         <C>          <C>     <C>
Variable Rate Loans ......   $235,375      $    -      $    -      $    -       $  -    $235,375

Fixed Rate Loans .........      4,726       2,678       6,065       2,612        416      16,497

Total Loans ..............   $240,101      $2,678      $6,065      $2,612       $416    $251,872
</TABLE>


Excludes loans on non-accrural status of $1,599 thousand






                                       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 increase of $370,000 in loan loss provision from
the first six months of 2004 to the same period in 2005 was primarily due to the
bank's formula for  calculating  allowance for loan losses based on loan grades.
The loan portfolio during the first six months of 2005 experienced a downgrading
pertaining to a few outstanding loans in the portfolio. Table Eight provides the
results of the  year-to-date  analysis for the periods  ending June 30, 2005 and
2004, as well as the amounts  charged to the allowance as a loss and credited to
the allowance as a recovery.




Table Eight                          Analysis of the Allowance for Loan Losses
                                          for the Six Months Ended June 30

                                         2005                         2004
                                         ----                         ----
Balance at Beginning of Year ......   $2,900,000                   $2,600,000
Provision Charged to Operations ...      423,000                       53,000
Loans Charged-Off .................     (325,000)                     (57,000)
Loan Recoveries ...................        2,000                       14,000
                                      ----------                   ----------
Balance at End Of Period ..........   $3,000,000                   $2,610,000



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 June 30, 2005, the cumulative one-year
gap was a positive or asset  sensitive  $68.6  million.  At June 30,  2005,  the
cumulative five-year gap was a positive $33.6 million or 10.9 % 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  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.  Intense
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 June 30, 2005.




                                       16
<PAGE>

<TABLE>
<CAPTION>
                                             Distribution of Interest-Earning Assets and
Table Nine                                          Interest-Bearing Liabilities
                                               Repricing Schedule as of June 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 ....................................................       $ 17,100        $      -         $      -         $ 17,100
Investment Securities* ............................................          8,466          14,473            2,123           25,062
FHLB Stock ........................................................          1,044               -                -            1,044
Loans** ...........................................................        242,779           8,677              416          251,872
                                                                          ========        ========         ========         ========

Total .............................................................       $269,389        $ 23,150         $  2,539         $295,078
*Amortized Cost
**Excludes $1,599,000 in loans on non-accrural status .............

Interest Bearing Liabilities

NOW Accounts ......................................................       $ 40,651        $      -         $      -         $ 40,651
Savings & MMIA ....................................................         49,328               -                -           49,328
Time Deposits:$100 & > ............................................         27,982          16,866                -           44,848
Time Deposits: <$100m .............................................         72,341          33,789                -          106,130
Repurchase Agreements .............................................          5,363               -                -            5,363
Subordinated Debt (Trust Preferred Sec.) ..........................          5,000               -                -            5,000
Other Borrowed Funds ..............................................            114               -           10,000           10,114
                                                                          ========        ========         ========         ========

Total .............................................................       $200,779        $ 50,655         $ 10,000         $261,434

Period Gap ........................................................       $ 68,610        $(27,505)        $ (7,461)        $ 33,644

Cumulative Gap ....................................................       $ 68,610        $ 41,105         $ 33,644

Period Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..................................          134.2%           45.7%            25.4%

Cumulative Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..................................          134.2%          116.3%           112.9%
</TABLE>


                              3 Months    Over 3 Months    Over One
Time Deposits                  & Less      to 12 Months      Year       Total
                               ------      ------------      ----       -----
$100,000 and Greater ......    $8,639         $19,343      $16,866     $44,848



                                       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 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. At June
30,  2005,  core  deposits  equaled  approximately  73% of total  assets.  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, 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  that  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
June 30,  2005,  the  Corporation  had issued  commitments  to extend  credit of
$42,915,000 and standby letters of credit of $1,540,775 through various types of
commercial lending arrangements.  Approximately $42,348,000 of these commitments
to extend credit had variable rates.

Capital Resources

The $3.1  million  increase in Tier 1 capital for the Company  during the twelve
month  period  between  June 30, 2004 and 2005  primarily  resulted  from a $2.3
million increase in retained earnings and the exercise of $760 thousand in stock
options.  The difference in total risk based capital of $1.3 million between the
Bank and the Holding Company as of June 30, 2005 is due to the Board's intent to
keep $1.3 million in capital 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 June 30, 2005 the
Company and the Bank met all of the requirements to be well capitalized.

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


                                       18
<PAGE>


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

June 30, 2005
<S>                                           <C>           <C>        <C>             <C>       <C>            <C>
              Total Capital
              (To Risk Weighted Assets) ....  $35,110,000   13.61%     $20,632,400     >8.0%     $25,790,500    >10.0%
              Tier I Capital
              (To Risk Weighted Assets) ....  $27,210,000   10.55%     $10,316,200     >4.0%     $15,474,300     >6.0%
              Tier I Capital
              (To Average Assets) ..........  $27,210,000    8.81%     $12,354,200     >4.0%     $15,442,750     >5.0%

<CAPTION>
The Holding Company
(Dollar Amounts in Thousands)
                                                                                                     To Be Well
                                                                                                  Capitalized Under
                                                                             For Capital          Prompt Corrective
                                                        Actual            Adequacy Purposes       Action Provisions
                                                        ------            -----------------       -----------------
                                                 Amount       Ratio      Amount       Ratio       Amount       Ratio
                                                 ------       -----      ------       -----       ------       -----
June 30, 2005
<S>                                           <C>             <C>     <C>             <C>      <C>            <C>
              Total Capital
              (To Risk Weighted Assets) ....  $36,405,000     14.11%  $20,644,800     >8.0%    $25,806,000    >10.0%
              Tier I Capital
              (To Risk Weighted Assets) ....  $33,405,000     12.94%  $10,322,400     >4.0%    $15,483,600    >6.0%
              Tier I Capital
              (To Average Assets) ..........  $33,405,000     10.81%  $12,360,440     >4.0%    $15,450,550    >5.0%
</TABLE>

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

Net income,  including the $1.7 million expense of settling litigation,  for the
second quarter of 2005 decreased by $806,000,  or 102%,  over the same period in
2004.  Net interest  income for the three  months ended June 30, 2005,  was $3.1
million,  a 26% increase  over the $2.4 million  amount earned during the second
quarter of 2004.  Noninterest  income for the three  months ended June 30, 2005,
was $122  thousand,  or 36%,  less than the amount earned for the same period in
2004.  Noninterest  expense was  $1,697,000,  or 215%,  more than the 2004 three
month period amount. Total noninterest expense for the 2005 quarter included the
litigation settlement expense of $1,677,000. There was no similar expense in the
2004 quarter.  Net interest income increased  primarily due to growth of earning
assets and an increase in the yields of the earning assets.  Noninterest  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
increased  due to the  additional  hiring of full time  employees as well as the
$1.7 million expense to settle litigation.

<TABLE>
<CAPTION>
                                                                                         Three Months Ended June 30,
                                                                                           (Amounts in thousands)
Average Balances                                                               2005                   2004                  Change
----------------                                                               ----                   ----                  ------
<S>                                                                          <C>                    <C>                    <C>
Earning assets ................................................              $296,862               $256,952               $ 39,910
Earning assets yield ($) ......................................              $  4,994               $  3,585               $  1,409
Earning assets yield, annualized (%) ..........................                  6.75%                  5.60%                  1.15%
Interest-bearing liabilities ..................................              $261,784               $222,792               $ 38,992
Cost of funds ($) .............................................              $  1,943               $  1,169               $    774
Cost of funds, annualized (%) .................................                  2.98%                  2.10%                  0.88%
Interest Spread ($) ...........................................              $  3,051               $  2,416               $    635
Interest Spread (%) ...........................................                  3.77%                  3.50%                  0.27%
</TABLE>

                                       19
<PAGE>

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.

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.



                                       20
<PAGE>

                           PART II - OTHER INFORMATION

Item 1    - Legal Proceedings

In June,  2005, the Corporation  settled the lawsuit  described in Item 3 of the
Corporation's annual report on Form 10-KSB for the year ended December 31, 2004.
In connection  with the settlement,  the  Corporation  recorded a net expense of
$1,677,000 for the quarter ended June 30, 2005.

Item 2 -  Unregistered Sales of Equity Securities and Use of Proceeds

During the period ended June 30, 2005,  the  Registrant  issued shares of common
stock to the  following  classes of persons upon the exercise of options  issued
pursuant to the  Registrant's  1996 Incentive  Stock Option Plan. The securities
were issued pursuant to the exemption from registration provided by Section 4(2)
of the  Securities  Act of 1933  because the  issuance  did not involve a public
offering.

                                                                      Aggregate
                                                                      Exercise
Date Issued           Class of Purchasers       Number of Shares        Price
-----------           -------------------       ----------------        -----

   4/15/2005          Former employee                28,879            $347,472
   4/19/2005          Former employee                14,063             153,313
   4/28/2005          Former employee                   150               2,250
   5/27/2005          Executive Officer              10,000              73,300
   6/22/2005          Former employee                12,562             179,088



Item 4 - Submission of Matters to a Vote of Security Holders

a)       The  Corporation  held its annual  meeting of  shareholders  on May 11,
         2005.

b)       The  following  persons were  elected as directors of the  Corporation,
         each  to  serve  a  three-year   term  until  the  Annual   Meeting  of
         Shareholders in 2008.

Name
                                      Shares Voted
                                      ------------
                                                         BROKER
                            FOR          WITHHOLD        NON-VOTES
                            ---          --------        ---------

Herman E. Ratchford      1,230,033        1,200              0
David G. White           1,231,083          150              0



Other directors whose terms continued after the meeting are:

Roger A. F. Habisreutinger;  Barry L. Slider; Chandrakant V. Shanbhag; Joel C.
Griffin; and Harold E. Fleming.

c)       The table  below  lists the  results to approve  the 2005 Stock  Option
         Plan,  which  reserves  350,000  shares  of Common  Stock for  issuance
         pursuant to the  exercise of options  which may be granted  pursuant to
         the Plan.

                                                  Shares Voted
                                                                        BROKER
                              FOR         AGAINST       ABSTAIN       NON-VOTES
                              ----        -------       -------       ---------

2005 STOCK OPTION PLAN      618,628       118,322         9,150        181,766


                                       21
<PAGE>


                           PART II - OTHER INFORMATION

Item 6 - Exhibits

                  Exhibits.

Exhibit No.  Description

10       Registrant's   2005  Incentive  Stock  Option  Plan   (incorporated  by
         reference to  Registrant's  Proxy Statement for the 2005 Annual Meeting
         of Shareholders filed April 12, 2005).

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
















                                       22
<PAGE>



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
August 11, 2005                   ---------------------------------------------
                                  Barry L. Slider, President and Chief Executive
                                     Officer


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





















                                       23
<PAGE>




                                  Exhibit Index



Exhibit No.   Description



10       Registrant's   2005  Incentive  Stock  Option  Plan   (incorporated  by
         reference to  Registrant's  Proxy Statement for the 2005 Annual Meeting
         of Shareholders filed April 12, 2005).

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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