UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                    FOR QUARTERLY PERIOD ENDED MARCH 31, 2004

                             Commission File Number
                                    000-28037

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


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,  1,382,040
shares outstanding on April 15, 2004.

Transitional Small Business Disclosure Format (Check One)     YES { }   NO {X}







<PAGE>






                            FIRST SOUTH BANCORP, INC.

                                   FORM 10-QSB

                                      INDEX


PART I - FINANCIAL INFORMATION                                              Page

         Item 1.  Financial Statements

                  Consolidated Balance Sheets .................................1

                  Consolidated Statements of Operations .......................2

                  Consolidated Statements of Comprehensive Income .............3

                  Consolidated Statements of Cash Flows .......................4

                  Notes to Unaudited Consolidated Financial Statements ......5-6


         Item 2.  Management's Discussion and Analysis .....................7-16

         Item 3.  Controls and Procedures ....................................17


Part II -         OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K ...........................17


SIGNATURES ...................................................................18
















<PAGE>

                         PART I - FINANCIAL INFORMATION

                          Item 1 - Financial Statements

                          FIRST SOUTH BANCORP, INC AND
                                   SUBSIDIARY
                           Consolidated Balance Sheets
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                (Unaudited)
                                                                                                  March 31,                 Dec. 31,
                                                                                                    2004                     2003
                                                                                                    ----                     ----
Assets
<S>                                                                                              <C>                      <C>
Cash & due from banks ............................................................               $   4,386                $   4,435
Due from banks - interest bearing ................................................                   2,600                       27
 Investment securities:
    Securities held to maturity ..................................................                   3,816                    3,874
    Securities available for sale ................................................                   8,695                    9,672
Loans ............................................................................                 232,078                  227,239
      Less, allowance for loan losses ............................................                  (2,605)                  (2,600)
Loans - net ......................................................................                 229,473                  224,639
Property & equipment, net ........................................................                   5,379                    5,409
Investment in FSBS Capital Trust .................................................                     155                        -
Other assets .....................................................................                   4,000                    4,028
                                                                                                 ---------                ---------
Total assets .....................................................................               $ 258,504                $ 252,084
                                                                                                 =========                =========

Liabilities
Deposits:
      Noninterest-bearing ........................................................               $  21,839                $  18,941
      Interest-bearing ...........................................................                 198,753                  196,428
                                                                                                 ---------                ---------
    Total deposits ...............................................................                 220,592                  215,369

Securities sold under repurchase agreements ......................................                   3,439                    6,089
Other borrowed funds .............................................................                  10,000                   12,000
Demand notes issued to the U.S. Treasury .........................................                     164                      236
Subordinated debt ................................................................                   5,155                        -
Other liabilities ................................................................                   1,971                    1,981
                                                                                                 ---------                ---------
    Total liabilities ............................................................                 241,321                  235,675

Shareholders' equity
Common stock - no par value; 20,000,000 authorized,
Outstanding 1,382,040 and 1,381,170 respectively
Paid-in capital ..................................................................                  11,152                   11,152
Undivided profits ................................................................                   5,985                    5,225
Accumulated other comprehensive income/(loss) ....................................                      46                       32
                                                                                                 ---------                ---------
Total shareholders' equity .......................................................                  17,183                   16,409

Total liabilities and shareholders' equity .......................................               $ 258,504                $ 252,084
                                                                                                 =========                =========
</TABLE>



                                       1
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations



                                                               (Unaudited)
                                                           Three Months ended,
                                                                 March 31
                                                             2004        2003
                                                             ----        ----
                                                         (Dollars in thousands,
                                                            except per share)
Interest income
                Loans, including fees ..............      $ 3,411       $ 2,640
                Investment securities ..............          119           159
                Interest bearing
                deposits ...........................            5            17
                                                          -------       -------

                Total interest income ..............        3,535         2,816
Interest expense
                Deposits and borrowings ............        1,132         1,031

Net interest income ................................        2,403         1,785
                Provision for loan losses...........          (13)         (208)
                                                          -------       -------
Net interest income after provision ................        2,390         1,577

Noninterest income
                Service charges on deposit
                accounts ...........................           93            70
                Other income .......................          120           130
                                                          -------       -------
                Total noninterest income ...........          213           200

Noninterest expense
                Salaries and benefits ..............          828           707
                Occupancy and equipment ............          215           128
                Other expense ......................          366           311
                                                          -------       -------
                Total noninterest expense ..........        1,409         1,146

Income before income taxes .........................        1,194           631
                Provision for income taxes .........          432           199
                                                          -------       -------

Net income .........................................      $   762       $   432
                                                          =======       =======

Basic per share earnings ...........................      $  0.55       $  0.31

Diluted earning per share ..........................      $  0.52       $  0.30









                                       2
<PAGE>







                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                 Consolidated Statements of Comprehensive Income
                          (Dollar amounts in thousands)



                                                                (Unaudited)
                                                             Three Months ended
                                                                  March 31,
                                                             2004          2003
                                                             ----          ----
Net Income .........................................        $ 762         $ 432

Other comprehensive income (loss):

Change in unrealized holdings gains &
    losses on available for sale securities ........           23           (19)

Income tax (expense) benefit on other
    comprehensive income (loss) ....................           (9)            7
                                                            -----         -----

Total other comprehensive income (loss) ............           14           (12)
                                                            -----         -----

Comprehensive income ...............................        $ 776         $ 420
























                                       3
<PAGE>






                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                                (Unaudited)
                                                                                                            Three Months ended
                                                                                                                  March 31,
                                                                                                                  ---------
                                                                                                           2004               2003
                                                                                                           ----               ----

Operating Activities
<S>                                                                                                     <C>                <C>
Net income ...................................................................................          $    762           $    432

Adjustments to reconcile net income to net cash provided by operating activities
              Provision for loan losses ......................................................                13                208
              Depreciation ...................................................................                88                 51
              Deferred Tax Asset .............................................................                 9                (60)

              Net Amortization of Securities .................................................                10                  -
              Decrease (increase) in other assets ............................................              (104)              (317)
              Increase (decrease) in accrued expenses and other liabilities ..................                (1)                29
                                                                                                        --------           --------

Net cash provided by operating activities ....................................................               777                343
                                                                                                        --------           --------

Investing Activities
              Purchase of securities available for sale ......................................            (1,000)                 -
              Sale/(Purchase) of restricted FHLB stock .......................................                90               (100)
              Proceeds from MBS principalpaydowns ............................................                56                  -
              Proceeds from called available for sale securities .............................             2,000              4,500
              Proceeds from sale of other real estate owned ..................................                 -                625
              Origination of loans, net of principal collected ...............................            (4,839)           (16,085)
              (Purchase) of premises and equipment ...........................................               (53)              (601)
              (Increase)/decrease in cash surrender value of life insurance ..................                (8)                (9)

              Investments in and advances to subsidiaries ....................................              (155)                 -
                                                                                                        --------           --------

Net cash used in investing activities ........................................................            (3,909)           (11,670)
                                                                                                        --------           --------

Financing Activities
              Net increase in deposits .......................................................             5,223             21,302

              Net increase (decrease) in retail repurchase agreements ........................            (2,650)               598

              Net increase (decrease) in other borrowings ....................................            (2,072)              (242)
              Proceeds from issuance of subordinated debt ....................................             5,155                  -
                                                                                                        --------           --------

Net cash provided by financing activities ....................................................             5,656             21,658
                                                                                                        --------           --------

Net increase in cash and cash equivalents ....................................................             2,524             10,331

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

Cash and cash equivalents, ending ............................................................          $  6,986           $ 14,623
                                                                                                        ========           ========
</TABLE>


                                       4
<PAGE>


                   FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated  Financial Statements

Note 1.  Basis of Presentation

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-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  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 fair  presentation  have been included.  Operating results for the
three months ended March 31, 2004 are not necessarily  indicative of the results
that  may be  expected  for the  year  ended  December  31,  2004.  For  further
information,  please refer to the financial statements and footnotes thereto for
the  Corporation's  fiscal  year  ended  December  31,  2003,  contained  in the
Corporation's 2003 Annual Report on Form 10-KSB.

Note 2.  Accounting for Stock-Based Compensation

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 net income for these plans.

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

<TABLE>
<CAPTION>

(Dollar amounts in thousands, except per share amounts)                                         Three Months           Three Months
                                                                                                    ended                 ended
                                                                                               March 31, 2004         March 31, 2003
                                                                                               --------------         --------------

<S>                                                                                                  <C>                     <C>
Net income: As reported ............................................................                 $   762                 $   432

Deduct:  Total stock-based compensation cost
             determined under the fair value method
             net of tax ............................................................                      41                      22
                                                                                                     -------                 -------

Pro forma ..........................................................................                 $   721                 $   410


Basic earnings per share:
             As reported ...........................................................                 $     0.55              $  0.47
             Pro forma .............................................................                 $     0.52              $  0.45

Diluted earnings per share
            As reported ............................................................                 $     0.52              $  0.45
            Pro forma ..............................................................                 $     0.49              $  0.42
</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  used for the  three-month  periods  ended  March 31, 2004 and 2003;
dividend yield of 0%, expected  volatility of 50%,  risk-free  interest rates of
3.77%, and expected lives of 10 years for the options.



                                       5
<PAGE>

                    FIRST SOUTH BANCORP, INC. AND SUBSIDIARY

Note 3 - Earnings per Share

Earnings  per share has been  determined  under the  provisions  of statement of
Financial  Accounting  Standards No. 128,  Earnings Per Share.  For the quarters
ended March 31, 2004 and 2003,  basic earnings per share has been computed based
upon the weighted average common shares  outstanding of 1,382,040 and 1,380,863,
respectively.  The Board of  Directors  approved  a  three-for-two  split of the
Company's common stock effected in the form of a stock dividend for shareholders
of  record on March 5,  2004.  Accordingly  all share and per share  information
presented  throughout the financial  statements has been restated to reflect the
effect of the stock split.

         The only  potential  stock of the  Company as defined in  Statement  of
Financial  Accounting  Standards No. 128,  Earnings Per Share,  is stock options
granted to various directors,  officers and employees of the Bank. The following
is a summary of the diluted earnings per share  calculation for the three months
ended March 31, 2004 and 2003 (Dollars in thousands, except share data):

                                                         Three Months Ended
                                                              March 31,
                                                              ---------

                                                        2004              2003
                                                        ----              ----

Net Income ...................................       $      762       $      432

Weighted average outstanding shares ..........        1,382,040        1,380,863

Dilutive effect of stock options .............           84,553           45,525
                                                     ----------       ----------

Weighted average diluted shares ..............        1,466,593        1,426,388

Diluted earnings per share ...................       $     0.52       $     0.30

Note 4 - Impact of Recently Issued Accounting Standards


FASB  Interpretation  No. 46,  Consolidation  of Variable  Interest  Entities an
Interpretation  of ARB No. 51, as amended by FASB  Interpretation  No. 46R,  was
issued in January 2003 and addresses  consolidation  by business  enterprises of
variable  interest   entities.   In  accordance  with  the  provisions  of  this
Interpretation,  the Company has not  consolidated  its interest in FSBS Capital
Trust.

In March 2004, the Securities and Exchange  Commission  issued Staff  Accounting
Bulletin No. 105, Application of Accounting Principles to Loan Commitments. This
Staff  Accounting  Bulletin  summarizes  the  views of the staff  regarding  the
application of accounting  principles generally accepted in the United States of
America  to  loan  commitments  accounted  for as  derivative  instruments.  The
provisions of this Staff Accounting Bulletin are effective after March 31, 2004.
The Company does not expect that the adoption of this Staff Accounting  Bulletin
will have a material  impact on the  consolidated  financial  statements  of the
Company.

Note 5 - Subsequent Event

The Company concluded in May a private sale of 300,000 shares of common stock at
$25.00 per share.  It is estimated that the cost  associated with this sale will
not exceed $35,000.


                                       6
<PAGE>

                    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  and  Exchange  Act of 1934,  as amended.  Words such as  "estimate",
"project",  "intend",  "expect",  "believe",  "anticipate",  "plan", and similar
expressions  identify forward looking  statements.  The Company cautions readers
that forward looking statements, including without limitation, those relating to
the Company's new offices, future business prospects, revenues, working capital,
liquidity, capital needs, adequacy of allowance for loan losses, interest costs,
and income,  are  subject to certain  risks and  uncertainties  that could cause
actual results to differ from those indicated in forward looking statements, due
to several important factors herein  identified,  among others,  and other risks
and factors identified from time to time in the Company's reports filed with the
Securities and Exchange Commission.  These forward-looking  statements are based
on  current   expectations,   estimates  and  projections  about  our  industry,
management's  beliefs,  and  assumptions  made by management.  Such  information
includes,  without  limitation,   discussions  as  to  estimates,  expectations,
beliefs,  plans,  strategies,  and objectives  concerning  the Company's  future
financial and operating  performance.  These  statements  are not  guarantees of
future performance and are subject to risks,  uncertainties and assumptions that
are difficult to predict,  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 2003 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.

RESULTS OF  OPERATIONS:  THREE MONTH PERIOD ENDED MARCH 31, 2004 COMPARED TO THE
SAME PERIOD ENDED MARCH 31, 2003.

Net Income
For the first three  months of 2004,  First  South  Bancorp,  Inc.  earned a net
profit of approximately $762 thousand,  or $ .52 per diluted share,  compared to
approximately $432 thousand,  or $ .30 per diluted share, for the same period in


                                       7
<PAGE>

2003.  This 76% increase in net income occurred due to (i) a 35% increase in net
interest  income from $1.57  million to $2.39 million and (ii) a 94% decrease in
provision for loan losses from $208 thousand to $13 thousand due primarily to 2%
or $4.8 million in loan growth during the first three months of 2004 compared to
the 10% or $16.1  million in loan  growth  during the same  period in 2003.  The
increase of $263 thousand or 23% in  non-interest  expenses was primarily due to
the increased  overhead from the opening of a branch in Hilton Head,  SC, a loan
production  office in  Asheville,  NC, and the  completion  of a new building in
Spartanburg which houses the Financial Services division.

Profitability
Earnings of  financial  institutions  are most  commonly  measured  through ROAA
(return on average  assets)  and ROAE  (return  on  average  equity).  Return on
average assets is the income for the period, annualized,  divided by the average
assets for the  period.  Return on average  equity is the income for the period,
annualized,  divided by the average equity for the period.  As is shown in Table
One,  ROAA and  ROAE for the  first  quarter  of 2004  were  1.20%  and  18.02%,
respectively.




                                       8
<PAGE>






Table One
                                                 Selected Earnings
                                                     Ratios
                                         at or for the Quarter Ending
                                                    March 31,
                                               2004            2003
                                               ----            ----
Return on Average Assets ................     1.20%           0.90%

Return on Average Equity ................    18.02%          12.00%

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

Average Stockholders Equity
as a Percentage of Average Assets .......     6.67%           7.47%

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
first  three  months of 2004  increased  over that of the same period in 2003 by
$618 thousand, or 35%. A number of factors combined to produce the change in net
interest income.

Though growth in total earning assets of $57.3 million,  or 30.7%, was certainly
a significant  factor in the improvement in interest  income,  the change in the
earning assets mix also played a major role in the yield on earning assets.  The
category  of total  earning  assets  with the  highest  interest  yield,  loans,
increased as a percentage of total earning assets from 88.6% in 2003 to 93.8% in
2004. The combined  result of these two positive  influences on interest  income
was a $ 719 thousand, or 25.5%, increase in interest income for the period.

For the first three months of 2004, the cost of funds averaged 2.09%, a decrease
of 44 basis points from the average cost of funds rate of 2.53% in 2003. This 44
basis  points  decline in the cost of funds rate was  greater  than the 30 basis
points  decline in the earning  assets yield and that  difference  was the chief
factor in the net  interest  income  increase.  Interest  free funds  supporting
earning  assets  increased from $21.1 million in 2003 to $26.7 million or 26.5%,
which also supported the increase in net interest income.


                                       9
<PAGE>

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 three months ended March 31, 2004 and 2003.
<TABLE>
<CAPTION>

Table Two                                                     Net Interest Income and Average Balance Analysis
                                                                    for the Three Months Ended March 31,
                                                                               2004 and 2003
                                                                           (Amounts in thousands)

                                                                                        Interest              Average
                                                         Average Balance             Income/Expense         Yield/Cost
Interest-Earning Assets                                     2004          2003          2004         2003    2004   2003
                                                            ----          ----          ----         ----    ----   ----

<S>                                                     <C>           <C>             <C>          <C>      <C>    <C>
Int. Bearing Due from Banks .......................     $  1,741      $  5,876        $    5       $   17   1.15%  1.17%
Investments .......................................       13,356        15,432           119          159   3.57%  4.18%
Loans .............................................      228,730       165,209         3,411        2,640   5.98%  6.48%
                                                        --------      --------        ------       ------   -----  -----
Total Interest Earning Assets .....................      243,827       186,517         3,535        2,816   5.82%  6.12%

Noninterest-Earning Assets
Cash & Due From Banks .............................        4,172         4,210
Allowance for Loan Losses .........................      (2,601)       (1,802)
Investments: Fair Value ...........................           64           136
Premises & Equipment ..............................        5,393         3,004
Investment in unconsolidated subsidiary ...........          103             -
Interest Receivable & Other .......................        3,337         3,652
                                                        --------      --------
Total Noninterest-Earning Assets ..................       10,468         9,200
                                                        --------      --------

TOTAL ASSETS ......................................     $254,295      $195,717
                                                        ========      ========

Interest-Bearing Liabilities
NOW Accounts ......................................     $ 34,519      $ 32,960        $  136       $  153   1.58%  1.88%
Money Market & Savings ............................       45,495        24,959           186          117   1.64%  1.90%
Time Deposits & IRAs ..............................      117,943        91,913           655          639   2.23%  2.82%
Fed Funds Purchased & Repos .......................        4,557         4,511             5            7   0.44%  0.63%
Other borrowed funds ..............................       11,043        10,844           116          114   4.21%  4.26%
Subordinated debt .................................        3,338             -            34            -   4.09%
Demand Notes Issued to Treasury ...................          207           206             -            1   0.66%  1.02%
                                                        --------      --------        ------       ------   -----  -----
Total Interest-Bearing Liabilities ................      217,102       165,393         1,132        1,031   2.09%  2.53%

Noninterest-Bearing Liabilities
Demand Deposits ...................................       18,286        14,351
Interest Payable ..................................          553           510
Other Liabilities .................................        1,396           849
                                                        --------      --------
Total Non Int-Bearing Liabilities .................       20,235        15,710

Stockholder's Equity ..............................       16,958        14,614
                                                        --------      --------

TOTAL LIABILITIES & EQUITY ........................     $254,295      $195,717
                                                        ========      ========

Net Interest Income ...............................                                   $2,403       $1,785
                                                                                      ======       ======

  Net Yield on Earning Assets .....................                                                         3.91%  3.88%
  Interest Rate Spread ............................                                                         3.73%  3.59%
</TABLE>




                                       10
<PAGE>





Noninterest Income
Noninterest  income  for the  first  three  months of 2004  increased  from $200
thousand  during the first three months of 2003 to $213 thousand in 2004 or 6.5%
Service charges  contributed largely to this increase by increasing $23 thousand
during the first  three  months of 2004 or 32.9%,  over the first  three  months
total of $70 thousand in 2003.

Table Three                                 Summary of Total Noninterest Income
                                            for the Three Months Ended March 31
                                                       2004 and 2003
                                                  (Amounts in thousands)

                                                 2004                  2003
                                                 ----                  ----
Service Charges ..............................   $ 93                  $ 70
Commissions & Fees ...........................    101                   105
Other Noninterest Income .....................     19                    25
                                                 ----                  ----
Total ........................................   $213                  $200

Noninterest Expense
Noninterest  expense  for the  first  three  months  of 2004  increased  by $263
thousand,  or 22.9%,  over the first three months total of $1.1 million in 2003.
Salaries and Employee Benefits increased by $121 thousand or 17.1% and occupancy
and  equipment  increased  by $87 thousand or 68% from the three months ended in
March 2003 to March 2004.  Expansion  into the Asheville and Hilton Head markets
along with the completion of a new building in Spartanburg  created the majority
of these increases in non-interest expense.


Table Four provides a three month 2004 to 2003 comparison of various  categories
of noninterest expense.

Table Four                                 Summary of Total Noninterest Expense
                                            For the Three Months Ended March 31
                                                       2004 and 2003
                                                  (Amounts in thousands)

                                                   2004                2003
                                                   ----                ----

Salaries & Employee Benefits .................   $  828              $  707
Occupancy & Equipment ........................      215                 128
Other expense ................................      366                 311
                                                 ------              ------
Total ........................................   $1,409              $1,146




                                       11
<PAGE>

Income Taxes

Provision  for income  taxes for the three months ended March 31, 2004 were $432
thousand as compared to $199  thousand in 2003 during the same period,  a 117.1%
increase.  This increase was due to the overall  increase in income before taxes
of $563 thousand or 89%.

CHANGES IN FINANCIAL POSITION

Investment portfolio

During the first three  months of 2004,  a  $1,000,000  investment  security was
called. A $1,000,000  investment security with a 2.0% coupon maturing in October
2005 was swapped for a $1,000,000  investment  security with a 4.0% coupon until
August 2007 then increasing to 7.0% thereafter  until maturity in February 2014.
No investment securities were purchased during the first three months of 2004.
<TABLE>
<CAPTION>
Table Five                                                         Analysis of Investment Securities
                                                                         (Amounts in thousands)


December 31 ,2003                                          Available-for-Sale                             Held-for-Investment
                                                           ------------------                             -------------------

                                                        Amortized Cost  Estimated Fair          Amortized Cost  Estimated Fair Value
                                                        --------------  --------------          --------------  --------------------
<S>                                                        <C>                <C>                  <C>                 <C>
Due in one year or less ............................       $    -             $     -              $    -              $    -
Due from one to five years .........................        7,498               7,540               1,011               1,024
 Due from five to 10 years .........................        1,000               1,004                   -                   -
 Due after ten years ...............................        1,123               1,128                 853                 992
Mortgage backed securities .........................            -                   -               2,010               2,017
                                                           ------              ------              ------              ------

                                                           $9,621              $9,672              $3,874              $4,033
                                                           ======              ======              ======              ======
</TABLE>


<TABLE>
<CAPTION>
March 31 ,2004                                             Available-for-Sale                             Held-for-Investment
                                                           ------------------                             -------------------

                                                        Amortized Cost  Estimated Fair          Amortized Cost  Estimated Fair Value
                                                        --------------  --------------          --------------  --------------------
<S>                                                         <C>                 <C>                 <C>                 <C>
Due in one year or less ............................        $    -              $    -              $    -              $    -

Due from one to five years .........................         6,498               6,556               1,009               1,026
 Due from five to 10 years .........................         1,000               1,010                   -                   -
 Due after ten years ...............................         1,123               1,129                 853               1,009
Mortgage backed securities .........................             -                   -               1,953               1,982
                                                            ------              ------              ------              ------

                                                            $8,621              $8,695              $3,815              $4,017
                                                            ======              ======              ======              ======
</TABLE>

Excludes  equity  securities  with no readily  deteminable  market value of $700
thousand on December 31, 2003 and $610 thousand on March 31, 2004.




                                       12
<PAGE>


Loan portfolio

For the twelve month  period  between  March 31, 2003 and March 31, 2004,  loans
increased by $57.1 million,  or 32.6%.  The  percentage  composition of the loan
portfolio,   as  shown  in  Table   Six,   remained   relatively   stable   with
Construction/Land  Development  Loans  and  1-4  Family  Residential  Properties
increasing as a percentage of the total  portfolio by 7.9% while  commercial and
industrial loans decreased as a percentage of the total portfolio by 5.9%.

As shown in Table Seven,  Variable Rate Loans  comprised 88.7% of the total loan
portfolio.

On March 31,  2004,  there was one loan  totaling  $36  thousand  on  nonaccrual
status.
<TABLE>
<CAPTION>

Table Six                                                                               Analysis of Loans
                                                                                        March 31 Balances
                                                                                      (Amounts in thousands)


Real Estate:                                                                     2004                                2003
                                                                                 ----                                ----
<S>                                                                  <C>                 <C>           <C>                    <C>
   Construction/Land Development .........................           $ 17,054             7.35%        $  5,887                3.37%
   1-4 Family Residential Properties .....................             57,842            24.92%          36,769               21.02%
   Multifamily Residential
Properties ...............................................                604             0.26%           1,167                0.67%
   Nonfarm Nonresidential Properties .....................            104,055            44.84%          78,353               44.79%
   Other Real Estate
Loans ....................................................              1,350             0.58%           1,749                1.00%
Commercial & Industrial ..................................             50,618            21.81%          48,506               27.73%
Consumer .................................................                555             0.24%           2,470                1.41%
Other ....................................................                  -             0.00%              45                0.03%
                                                                     --------                          --------

Total ....................................................           $232,078           100.0%         $174,946              100.0%
                                                                     ========           ======         ========              ======
</TABLE>

<TABLE>
<CAPTION>
Table Seven                                                             Analysis of Loan Maturities and Repricing Frequency
                                                                                       as of March 31, 2004
                                                                                      (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 ........................................     $205,865                                                   $205,865

Fixed Rate Loans ...........................................     $  8,530      $4,543      $5,235     $5,322      $2,547    $ 26,177

Total Loans ................................................     $214,395      $4,543      $5,235     $5,322      $2,547    $232,042
</TABLE>

Excludes loans on non-accrual status of $36 thousand



                                       13
<PAGE>

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 risks associated with
various risk categories in  relationship to the current and forecasted  economic
environment.  Management  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. Table Eight provides
the results of the year-to-date  analysis for the quarters ending March 31, 2004
and 2003, as well as the amounts  charged to this reserve as a loss and credited
to this reserve as a recovery.

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

                                             2004                      2003
                                             ----                      ----
Balance at Beginning of Year .........   $2,600,000                $1,750,000
Provision Charged to Operations ......       13,000                   208,000
Loans Charged-Off ....................     (10,000)                 (216,000)
Loan Recoveries ......................        2,000                   184,000
                                         ----------                ----------
Balance at End Of Period .............   $2,605,000                $1,926,000

Interest rate risk

Financial  institutions  are  subject to  interest  rate risk to the degree that
their interest bearing liabilities (consisting principally of customer deposits)
mature or reprice more or less frequently,  or on a different basis,  than their
interest earning assets (generally consisting of intermediate or long-term loans
and  investment  securities).  The match  between the  scheduled  repricing  and
maturities of the Bank's earning assets and interest bearing  liabilities within
defined   time   periods  is   referred  to  as  "gap"   analysis.   The  Bank's
Asset/Liability  Management  Committee  is  responsible  for  managing the risks
associated  with  changing  interest  rates and their  impact on  earnings.  The
regular  evaluation  of the  sensitivity  of net  interest  income to changes in
interest  rates is an integral part of interest rate risk  management.  At March
31, 2004,  the  cumulative  one-year  gap for the Bank was a positive,  or asset
sensitive,  $ 36.4 million. At March 31, 2003, the cumulative  five-year gap for
the Bank was a positive $ 30.4  million.  A positive gap means that assets would
reprice faster than  liabilities  if interest  rates changed.  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 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 March 31, 2004.



                                       14
<PAGE>
<TABLE>
<CAPTION>
Table Nine                             Distribution of Interest-Earning Assets and Interest-Bearing Liabilities
                                                       Repricing Schedule as of March 31 ,2004
                                                                (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 ............................   $  2,600               $     -           $    -        $  2,600
Investment Securities* ....................      1,953                 7,507            2,976          12,436
FHLB Stock ................................        610                     -                -             610
Loans** ...................................    218,938                10,557            2,547         232,042
                                              ========               =======           ======        ========

Total .....................................   $224,101               $18,064           $5,523        $247,688
*Amortized Cost
**Excludes $36 thousand in loans on
non-accrural status.

Interest Bearing
Liabilities

NOW Accounts ..............................   $ 34,570              $      -         $      -        $ 34,570
Savings & MMIA ............................     47,655                     -                -          47,655
Time Deposits: $100 & > ...................     28,182                 4,603                -          32,785
Time Deposits: <$100m .....................     68,779                14,964                -          83,743
Repurchase Agreements .....................      3,439                     -                -           3,439
Other Borrowed Funds ......................      5,064                     -           10,000          15,064
                                              ========              ========         ========        ========

Total .....................................   $187,689              $ 19,567         $ 10,000        $217,256

Period Gap ................................   $ 36,412              $(1,503)         $(4,477)        $ 30,432

Cumulative Gap ............................   $ 36,412              $ 34,909         $ 30,432

Period Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..........     119.4%                 92.3%            55.2%

Cumulative Gap Ratios:
  Interest Sensitive Assets to
  Interest Sensitive Liabilities ..........     119.4%                116.8%           114.0%
</TABLE>


<TABLE>
<CAPTION>
                                              3 Months         Over 3 Months         Over One
Time Deposits                                   & Less          to 12 Months             Year           Total
                                                ------          ------------             ----           -----
<C>                                            <C>                   <C>               <C>            <C>
$100,000 and Greater ......................    $12,649               $15,533           $4,603         $32,785
</TABLE>



                                       15
<PAGE>


Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or the maturity of existing  assets or the acquisition of additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being the ability to
obtain  deposits  within the Bank's service area.  Core deposits (total deposits
less wholesale time deposits) provide a relatively stable funding base, and were
equal to 73.8% of total  assets at March 31, 2004.  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 increase its borrowings from that  institution.  The
bank also has $10 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 $7,342,000 increase in tier 1 capital during the twelve month period between
March  31,  2003 and 2004  primarily  resulted  from a  $2,436,522  increase  in
retained  earnings and issuance of  $5,000,000  of  qualifying  trust  preferred
securities. The Company formed a wholly-owned Delaware statutory business trust,
FSBS Capital  Trust 1 (the  "Trust"),  which  issued  $5,000,000  of  guaranteed
preferred beneficial  interests in the Company's junior subordinated  deferrable
interest  debentures (the "Trust Preferred  Securities").  These trust preferred
securities qualify as Tier 1 capital.

The Company and the Bank are subject to regulatory  capital adequacy  standards.
Under these standards,  financial  institutions are required to maintain certain
minimum  capital  ratios of capital to  risk-weighted  assets and average  total
assets.  Under the  provisions  of the  Federal  Deposit  Insurance  Corporation
Improvement Act of 1991, federal financial  institutions  regulatory authorities
are  required  to  implement  prescribed  "prompt  corrective  action"  upon the
deterioration  of the capital  position of a bank. If the capital position of an
affected institution were to fall below certain levels,  increasingly  stringent
regulatory  corrective  actions are mandated.  At March 31, 2004 the Company and
the Bank met or exceeded all applicable regulatory capital adequacy standards.

The Bank's March 31, 2004 capital  ratios are presented in the following  table,
compared  with  the  "well  capitalized"  and  minimum  ratios  under  the  FDIC
regulatory definitions and guidelines:

<TABLE>
<CAPTION>
                                                                                                                     To Be Well
                                                                                                                  Capitalized Under
                                                                                         For Capital             Prompt Corrective
March 31 ,200 4                                                    Actual             Adequacy Purposes          Action Provisions
                                                                   ------             -----------------          -----------------
                                                              Amount      Ratio       Amount      Ratio         Amount        Ratio
                                                              ------      -----       ------      -----         ------        -----
Total Capital
<S>                                                           <C>         <C>        <C>            <C>        <C>            <C>
(To Risk Weighted Assets) ................................    $24,645     10.89%     $18,101        8.0%       $22,626        10.0%
Tier I Capital
(To Risk Weighted Assets) ................................    $22,040      9.74%     $ 9,051        4.0%       $13,576         6.0%
Tier I Capital
(To Average Assets) ......................................    $22,040      8.67%     $10,165        4.0%       $12,707         5.0%
</TABLE>



                                       16
<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 the  effectiveness  of such controls and procedures,  as of the end of
     the period covered by this quarterly report, was adequate.

(b)  No disclosure is required under 17 C.F.R. Section 228.308(c).

                           PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

         (a)  Exhibits.

         Exhibit No.     Description

         10.1           Amended  and  Restated  Declaration  of the Trust  among
                        the  Registrant,  Wells Fargo  Delaware  Trust  Company,
                        Wells  Fargo  Bank,  National   Association,   Barry  L.
                        Slider and V.  Lewis  Shuler,  dated as of  January  30,
                        2004.

         10.2           Indenture  between  Registrant  and  Wells  Fargo  Bank,
                        National Association, dated as of January 30, 2004.

         10.3           Guarantee  Agreement  between the  Registrant  and Wells
                        Fargo Bank,  National  Association,  dated as of January
                        30, 2004.

         10.4           Registrant's Junior Subordinated Debt Security Due 2034.


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



          (b) Reports on Form 8-K : Form 8-K dated  January 2, 2004  pursuant to
         Items 7 and 12 of that form.







                                       17
<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
May 12, 2004                      ---------------------------------------------
                                  Barry L. Slider, President and Chief Executive
                                  Officer


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



















                                       18
<PAGE>



















                                  Exhibit Index



Exhibit No.   Description

10.1           Amended  and  Restated   Declaration   of  the  Trust  among  the
               Registrant, Wells Fargo Delaware Trust Company, Wells Fargo Bank,
               National Association,  Barry L. Slider and V. Lewis Shuler, dated
               as of January 30, 2004.

10.2           Indenture  between  Registrant  and Wells  Fargo  Bank,  National
               Association, dated as of January 30, 2004.

10.3           Guarantee  Agreement between the Registrant and Wells Fargo Bank,
               National Association, dated as of January 30, 2004.

10.4           Registrant's Junior Subordinated Debt Security Due 2034.


32.1     13a-14(a)/15d-14(a) Certifications of Chief Executive Officer

32.2     13a-14(a)/15d-14(a) Certifications of Chief Financial Officer

33       Section 1350 Certifications












                                       19