UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

(Mark One)

   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003.

   [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________.

Commission File Number: 0-22219


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


             VIRGINIA                                             56-1999749
-------------------------------                                 -------------
(State or other jurisdiction of                                 (IRS Employer
 incorporation or organization)                              Identification No.)


             1311 CAROLINA AVENUE, WASHINGTON, NORTH CAROLINA 27889
             ------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (252) 946-4178
                                 --------------
              (Registrant's telephone number, including area code)


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Number of shares of common stock outstanding as of May 6, 2003: 4,139,330

<PAGE>

                                    CONTENTS

PART I.   FINANCIAL INFORMATION                                             PAGE
          ---------------------                                             ----

Item 1.   Financial Statements

          Consolidated Statements of Financial Condition as of
          March 31, 2003 (unaudited) and December 31, 2002                     1

          Consolidated Statements of Operations for the Three
          Months Ended March 31, 2003 and 2002 (unaudited)                     2

          Consolidated Statements of Stockholders' Equity for
          the Three Months Ended March 31, 2003 (unaudited)                    3

          Consolidated Statements of Cash Flows for the Three
          Months Ended March 31, 2003 and 2002 (unaudited)                     4

          Notes to Consolidated Financial Statements (unaudited)               5

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                  8

Item 3.   Quantitative and Qualitative Disclosures About Market Risk          14

Item 4.   Controls and Procedures                                             14

PART II.  OTHER INFORMATION
          -----------------

Item 1.   Legal Proceedings                                                   15

Item 2.   Changes in Securities and Use of Proceeds                           15

Item 3.   Defaults Upon Senior Securities                                     15

Item 4.   Submission of Matters to a Vote of Security Holders                 15

Item 5.   Other Information                                                   15

Item 6.   Exhibits and Reports on Form 8-K                                    15

Signatures                                                                    16

Exhibits                                                                      19

<PAGE>

FIRST SOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                  MARCH 31         DECEMBER 31
                                                                    2003              2002
                                                               --------------    --------------
                         ASSETS                                  (UNAUDITED)

<S>                                                            <C>               <C>
Cash and due from banks                                        $   29,027,430    $   30,540,790
Interest-bearing deposits in financial institutions                 1,278,565         3,931,369
Investment securities - available for sale                         55,580,532        55,786,842
Mortgage-backed securities - available for sale                    20,112,375        23,526,435
Loans and leases receivable, net:
  Held for sale                                                    29,052,090        38,664,967
  Held for investment                                             473,341,817       452,248,942
Premises and equipment, net                                         7,690,065         7,825,003
Deferred income taxes                                                 149,845                --
Real estate owned                                                     130,795           401,632
Federal Home Loan Bank of Atlanta stock, at cost
     which approximates market                                      2,402,500         2,402,500
Accrued interest receivable                                         3,074,147         3,403,195
Goodwill                                                            4,218,576         4,218,576
Mortgage servicing rights                                           1,940,114         1,642,172
Prepaid expenses and other assets                                   4,648,963         2,544,807
Note receivable                                                     1,321,729         1,336,194
                                                               --------------    --------------

          Total assets                                         $  633,969,543    $  628,473,424
                                                               ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
  Demand                                                       $  210,587,034    $  199,615,945
  Savings                                                          19,721,250        18,950,380
  Large denomination certificates of deposit                      101,364,194        80,021,790
  Other time                                                      230,172,960       227,739,049
                                                               --------------    --------------
          Total deposits                                          561,845,438       526,327,164
Borrowed money                                                     11,017,627        38,194,727
Other liabilities                                                  11,506,750        13,851,721
                                                               --------------    --------------
          Total liabilities                                       584,369,815       578,373,612

  Common stock, $.01 par value, 8,000,000 shares authorized,
    6,545,848 shares issued                                            65,458            65,458
  Additional paid-in capital                                       48,424,564        48,466,569
  Retained earnings, substantially restricted                      37,100,141        35,086,795
  Treasury stock at cost, 2,395,247 and 2,099,561 shares          (39,480,341)      (37,317,469)
  Accumulated other comprehensive income, net                       3,489,906         3,798,459
                                                               --------------    --------------
           Total stockholders' equity                              49,599,728        50,099,812
                                                               --------------    --------------

           Total liabilities and stockholders' equity          $  633,969,543    $  628,473,424
                                                               ==============    ==============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        1
<PAGE>

FIRST SOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                                 MARCH 31
                                                       ---------------------------
                                                           2003           2002
                                                       ---------------------------
Interest income:
<S>                                                    <C>            <C>
  Interest and fees on loans                           $  7,912,639   $  7,467,416
  Interest and dividends on investments and deposits      1,228,693      1,579,994
                                                       ------------   ------------
           Total interest income                          9,141,332      9,047,410
                                                       ------------   ------------

Interest expense:
  Interest on deposits                                    2,704,429      3,351,931
  Interest on borrowings                                     37,536          9,274
                                                       ------------   ------------
           Total interest expense                         2,741,965      3,361,205
                                                       ------------   ------------

Net interest income before provision for
  possible loan losses                                    6,399,367      5,686,205
Provision for  possible loan losses                         333,919        309,000
                                                       ------------   ------------
           Net  interest income                           6,065,448      5,377,205
                                                       ------------   ------------

Noninterest income:
  Loan fees and service charges                           1,343,143      1,018,712
  Loan servicing fees                                       138,616        178,267
  Gain on sale of real estate, net                           48,629         85,147
  Gain on sale of mortgage loans                          1,016,698        305,310
  Gain on sale of mortgage-backed securities                168,938         58,288
  Other  income                                             203,992        158,455
                                                       ------------   ------------
           Total noninterest income                       2,920,016      1,804,179
                                                       ------------   ------------

Noninterest expenses:
  Compensation and fringe benefits                        2,644,781      2,189,320
  Federal insurance premiums                                 22,038         21,339
  Premises and equipment                                    362,808        309,232
  Advertising                                                48,527         61,079
  Payroll and other taxes                                   238,978        221,558
  Data processing                                           463,845        426,503
  Amortization of mortgage servicing rights                  52,194         32,004
  Other                                                     586,481        479,903
                                                       ------------   ------------
           Total noninterest expenses                     4,419,652      3,740,938
                                                       ------------   ------------

Income before income taxes                                4,565,812      3,440,446

Income taxes                                              1,722,907      1,261,871
                                                       ------------   ------------

NET INCOME                                             $  2,842,905   $  2,178,575
                                                       ============   ============

Per share data (*):
Basic earnings per share                               $       0.68   $       0.49(*)
Diluted earnings per share                             $       0.64   $       0.47(*)
Dividends per share                                    $       0.20   $       0.17(*)
Weighted average shares Basic                             4,162,358      4,438,208(*)
Weighted average shares Diluted                           4,423,319      4,641,088(*)
</TABLE>

(*)  Adjusted for April 19, 2002 three-for-two stock split.

See Notes to Consolidated Financial Statements.

                                        2
<PAGE>

FIRST SOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                 Retained                          Other
                                                Additional       Earnings,                     Comprehensive
                                   Common        Paid-in       Substantially     Treasury      Income (Loss),
                                    Stock        Capital        Restricted         Stock            Net             Total
                                  --------    -------------    ------------    -------------    -----------     ------------
<S>                               <C>         <C>              <C>             <C>              <C>             <C>
Balance December 31, 2002         $ 65,458    $  48,466,569    $ 35,086,795    $ (37,317,469)   $ 3,798,459     $ 50,099,812

Net income                                                        2,842,905                                        2,842,905

Other comprehensive income, net
  of taxes                                                                                         (308,553)        (308,553)

Exercise of stock options                           (42,005)                         265,121                         223,116

Acquisition of treasury shares                                                    (2,427,993)                     (2,427,993)

Dividends ($.20 per share)                                         (829,559)                                        (829,559)
                                  --------    -------------    ------------    -------------    -----------     ------------

Balance March 31, 2003            $ 65,458    $  48,424,564    $ 37,100,141    $ (39,480,341)   $ 3,489,906     $ 49,599,728
                                  ========    =============    ============    =============    ===========     ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

FIRST SOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                        March 31
                                                                              ----------------------------
                                                                                  2003            2002
                                                                              ------------    ------------
Operating activities:
<S>                                                                           <C>             <C>
     Net Income                                                               $  2,842,905    $  2,178,575
     Adjustments to reconcile net income to net cash provided
        in operating activities:
            Provision for loan losses                                              333,919         309,000
            Depreciation                                                           168,868         150,170
            Amortization of discounts on securities, net                           (46,632)        (46,632)
            Gain on disposal of premises and equipment and
               real estate owned                                                   (48,629)       (108,684)
            Gain on loans held for sale and mortgage-backed securities          (1,185,636)       (363,598)
            Originations of loans held for sale, net                           (32,382,838)    (18,917,738)
            Proceeds from sale of loans held for sale                           39,368,328      24,350,509
            Other operating activities                                          (4,495,319)        279,230
                                                                              ------------    ------------
               Net cash provided in operating activities                         4,554,966       7,830,832
                                                                              ------------    ------------
Investing activities:
     Proceeds from principal repayments and sales of
        mortgage-backed securities available for sale                            6,982,359       5,638,544
     Originations of loans held for investment, net of principal repayments    (21,445,578)    (20,344,268)
     Proceeds from disposal of premises and equipment and
        real estate owned                                                          338,250         590,673
     Purchases of premises and equipment                                           (33,930)       (112,713)
     Repayment of note receivable                                                   14,465           6,799
                                                                              ------------    ------------
               Net cash used in investing activities                           (14,144,434)    (14,220,965)
                                                                              ------------    ------------
Financing activities:
     Net increase in deposit accounts                                           35,518,274      13,773,346
     Proceeds from FHLB borrowings                                              58,400,000       1,000,000
     Repayments of FHLB borrowings                                             (85,400,000)     (2,000,000)
     Purchase of treasury shares                                                (2,427,993)       (559,844)
     Cash dividends paid                                                          (712,992)       (533,581)
     Proceeds from exercise of stock options                                       223,116          77,563
     Net change in repurchase agreements                                          (177,101)       (238,597)
                                                                              ------------    ------------
               Net cash provided by financing activities                         5,423,304      11,518,887
                                                                              ------------    ------------

Increase (decrease) in cash and cash equivalents                                (4,166,164)      5,128,754

Cash and cash equivalents, beginning of period                                  34,472,159      21,683,082
                                                                              ------------    ------------

Cash and cash equivalents, end of period                                      $ 30,305,995    $ 26,811,836
                                                                              ============    ============

Supplemental disclosures:
     Real estate acquired in settlement of loans                              $     18,784    $    167,399
     Exchange of loans for mortgage-backed securities                         $  3,644,085    $         --
     Dividends declared, not paid                                             $    830,120    $    518,759
</TABLE>

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. NATURE OF BUSINESS. First South Bancorp, Inc. (the "Company") was formed
for the  purpose of issuing  common  stock and owning 100% of the stock of First
South Bank (the  "Bank") and  operating  through the Bank a  commercial  banking
business.  The Bank has one  significant  operating  segment,  the  providing of
general  commercial  banking  services to its markets  located in eastern  North
Carolina.  The common  stock of the  Company  is traded on the  Nasdaq  National
Market System under the symbol "FSBK".

NOTE 2. BASIS OF PRESENTATION. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally  accepted  accounting
principles  and  with  the   instructions   to  Form  10-Q  of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments necessary for a fair presentation
of the financial  position and results of operations  for the periods  presented
have been included, none of which were other than normal recurring accruals. The
financial  statements of the Company are presented on a consolidated  basis with
those of the Bank.  The results of  operations  for the quarter  ended March 31,
2003 are not  necessarily  indicative of the results of  operations  that may be
expected for the year ended December 31, 2003.

NOTE 3. STOCK  SPLIT.  On March 28,  2002 the Company  declared a  three-for-two
stock  split,  in the form of a 50% stock  dividend,  payable  April 19, 2002 to
stockholders of record as of April 8, 2002. Stockholders received one additional
share of common  stock for every two shares held on the record  date.  All share
and per share data for the quarter  ended  March 31,  2002 has been  adjusted to
reflect the stock split.

NOTE 4. EARNINGS PER SHARE. Basic and diluted earnings per share for the quarter
ended  March 31, 2003 and 2002 are based on  weighted  average  shares of common
stock outstanding, excluding treasury shares. Diluted earnings per share include
the potentially dilutive effects of the Company's stock option plan.

NOTE 5.  DIVIDENDS  DECLARED.  On March 20,  2003,  the Company  declared a cash
dividend of $0.20 per share, payable April 18, 2003 to stockholders of record as
of April 7, 2003.  This dividend  payment  represents a payout ratio of 29.4% of
the basic  earnings per share for the quarter  ended March 31, 2003,  and is the
Company's twenty-fourth consecutive quarterly cash dividend.

NOTE 6. GOODWILL.  The Company  applies the provisions of Statement of Financial
Accounting  Standards No. 142,  "Goodwill and Other Intangible Assets" (SFAS No.
142), and Statement of Financial Accounting  Standards No. 147,  "Acquisition of
Certain Financial  Institutions" (SFAS No. 147) effective as of January 1, 2002.
SFAS No. 142 requires the Company to discontinue  the  amortization  of goodwill
associated  with  acquisitions  accounted  for  under  the  purchase  method  of
accounting.  SFAS  No.  147  requires  the  Company  to  cease  amortization  of
unidentifiable intangible assets associated with certain branch acquisitions.

As a result of applying the  provisions  of SFAS No.'s 142 and 147,  goodwill is
not amortized,  but is reviewed for potential impairment on an annual basis. The
Company has performed its annual  impairment  test and has determined that there
has been no impairment of goodwill.

                                       5
<PAGE>

NOTE 7. STOCK OPTIONS. On December 31, 2002, the Financial  Accounting Standards
Board (FASB or the "Board") issued FASB Statement No. 148 (FAS 148),  Accounting
for  Stock-Based  Compensation--Transition  and  Disclosure,  which  amends FASB
Statement No. 123 (FAS 123),  Accounting for Stock-Based  Compensation.  FAS 148
allows for three methods of transition for those  companies that adopt FAS 123's
provisions  for fair value  recognition.  The following  are two new  transition
alternatives:  Modified Prospective Approach and Limited Retrospective Approach.
Under FAS 148, the  prospective  transition  method in FAS 123  resulting in the
"ramp-up"  effect will not be available for enterprises  that elect to initially
apply the fair value method of accounting for stock-based employee  compensation
in fiscal years beginning  after December 15, 2003. In addition,  the provisions
of FAS 148 require that: the accumulated  liability or equity  balances  accrued
under APB Opinion No. 25 (APB 25),  Accounting  for Stock  Issued to  Employees,
would be reversed through additional  paid-in-capital as of the beginning of the
period that FAS 123 is adopted if those  liabilities or  contra-equity  balances
would not have been recognized under FAS 123 (e.g., variable stock option awards
under APB 25). Also, companies must disclose for each period for which an income
statement is presented an accounting  policy footnote that includes:  the method
of  accounting  for  stock  options;  total  stock  compensation  cost  that  is
recognized in the income  statement and would have been  recognized  had FAS 123
been adopted for  recognition  purposes as of its effective  date; and pro forma
net  income  and  earnings  per share  (where  applicable)  that would have been
reported had FAS 123 been adopted for  recognition  purposes as of its effective
date.

These  disclosures  would be required to be made in annual financial  statements
and in quarterly  information provided to shareholders without regard to whether
the entity has adopted FAS 123 for recognition purposes. The Company implemented
the  disclosure  provisions of SFAS No. 148 beginning with the December 31, 2002
consolidated financial statements.

For purposes of the proforma  disclosures  required for the quarter  ended March
31, 2003,  no stock option grants were made in the quarter ended March 31, 2003.
For the quarter ended March 31, 2003,  the following  table  summarizes  the net
income and stock-based compensation expense, as reported,  compared to pro forma
amounts had the fair value method been applied:

                                                       As Reported   Pro Forma
                                                       -----------   ---------
     Net income attributable to common shareholders    $2,842,905    $2,810,564
     Stock based compensation                          $        0    $   49,001
     Net income per share - basic                      $      .68    $      .68
     Net income per share - diluted                    $      .64    $      .64

NOTE 8.  RECLASSIFICATIONS.  Certain amounts reported in the quarter ended March
31, 2002 have been reclassified to conform with the presentation for the quarter
period ended March 31, 2003. These reclassifications had no effect on net income
or  shareholders'  equity for the  periods  presented,  nor did they  materially
impact trends in financial information.

NOTE 9. COMPREHENSIVE INCOME. The Company applies the provisions of Statement of
Financial  Accounting  Standards  No.  130,  "Reporting  Comprehensive  Income".
Comprehensive  income includes net income and all other changes to the Company's
equity,   with  the  exception  of  transactions   with   shareholders   ("other
comprehensive  income").  The Company's  only  component of other  comprehensive
income relates to unrealized gains and losses on available for sale securities.

                                       6
<PAGE>

Information  concerning the Company's other comprehensive income for the quarter
ended March 31, 2003 and 2002 is as follows:

                                                Quarter Ended
                                                   March 31,
                                            2003               2002
                                        ------------       ------------
Net income                              $  2,842,905       $  2,178,765
Reclassification of (gains) losses
  recognized in net income                  (168,938)           (58,288)
Gains (losses) unrealized,
  net of income taxes                       (139,615)          (626,150)
                                        ------------       ------------
Other comprehensive income (loss)           (308,553)          (684,438)
                                        ------------       ------------
Comprehensive income                    $  2,534,352       $  1,494,327
                                        ============       ============

NOTE 10. FORWARD LOOKING  STATEMENTS.  The Private Securities  Litigation Reform
Act of 1995  states  that the  disclosure  of  forward  looking  information  is
desirable  for  investors  and  encourages  such  disclosure by providing a safe
harbor for forward looking statements by corporate  management.  This Form 10-Q,
including  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations, contains forward looking statements that involve risk and
uncertainty.  In order to comply with the terms of the safe harbor,  the Company
notes that a variety of risks and  uncertainties  could cause its actual results
and  experience  to differ  materially  from the  anticipated  results  or other
expectations  expressed in the Company's forward looking  statements.  There are
risks  and   uncertainties   that  may  affect  the   operations,   performance,
development,  growth  projections  and results of the Company's  business.  They
include,  but are not limited to,  economic  growth,  interest  rate  movements,
timely  development  of  technology  enhancements  for  products,  services  and
operating  systems,  the impact of competitive  products,  services and pricing,
customer requirements,  regulatory changes and similar matters.  Readers of this
report are cautioned not to place undue reliance on forward  looking  statements
that are subject to influence by these risk  factors and  unanticipated  events.
Accordingly,   actual   results   may  differ   materially   from   management's
expectations.

                                       7
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company has engaged in no activity  other than holding the stock of the Bank
and operating  through the Bank a commercial  banking business.  Therefore,  the
discussion below focuses primarily on the Bank's results of operations.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2003 AND DECEMBER 31, 2002

Total assets  increased to $634.0  million at March 31, 2003 from $628.5 million
at December 31, 2002.  Earning  assets  increased to $581.8 million at March 31,
2003  from  $576.6  million  at  December  31,  2002,  reflecting  growth of the
commercial and consumer loan  portfolio,  as further  discussed  below.  Earning
assets  were 91.8% of total  assets at March 31,  2003 and  December  31,  2002,
respectively.

Interest-bearing  overnight deposits in financial institutions were $1.3 million
at March 31, 2003,  compared to $3.9  million at December  31,  2002.  Overnight
funds are available to fund loan originations,  liquidity management  activities
and daily operations of the Bank.

The Bank has implemented  strategies to sell certain securities and loans during
favorable  interest  rate  windows,  to maintain  its  regulatory  liquidity  at
required  levels,  and to securitize  certain  mortgage loans held for sale into
mortgage-backed  securities.  During the quarter ended March 31, 2003,  the Bank
sold $3.0  million of  mortgage-backed  securities,  compared to $1.5 million of
mortgage-backed  securities  sales during the quarter ended March 31, 2002. $3.6
million of loans were securitized  into  mortgage-backed  securities  during the
quarter  ended  March 31,  2003,  compared  to no loans  securitized  during the
quarter ended March 31, 2002. The mortgage-backed  securities portfolio declined
to $20.1  million at March 31, 2003,  compared to $23.5  million at December 31,
2002.

Loans  held for sale  declined  to $29.1  million  at March 31,  2003 from $38.7
million at December 31, 2002.  During the quarter  ended March 31, 2003 the Bank
sold $39.4 million of mortgage loans,  compared to $24.4 million of sales during
the quarter  ended  March 31,  2002.  Net loans and leases  held for  investment
increased  to $473.3  million at March 31, 2003 from $452.3  million at December
31, 2002, reflecting an 18.7% annualized growth rate during the current quarter.
This growth  reflects  the Bank's  emphasis  placed on  structuring  itself as a
commercial  banking  entity.  To support the risk associated with its commercial
and  consumer  loan  portfolio  growth,  the Bank  increased  its  reserves  for
potential  loan losses to $7.3  million at March 31,  2003 from $7.0  million at
December 31, 2002.  The ratio of reserves for loan losses to loans  outstanding,
net of loans in process and deferred  loan fees,  was 1.4% at March 31, 2003 and
December 31, 2002, respectively.

Total deposits and borrowings increased to $572.9 million at March 31, 2003 from
$564.5  million at December 31, 2002.  Deposits  increased to $561.8  million at
March 31,  2003 from $526.3  million at December  31,  2002.  Checking  accounts
increased  5.5% to $210.6  million  at March 31,  2003 from  $199.6  million  at
December 31, 2002, and represent 37.5% of total deposits at March 31, 2003, as a
result of the Bank's  efforts  to  attract  more  lower  costing  core  checking
accounts.  Time deposits increased 7.7% to $331.5 million at March 31, 2003 from
$307.8 million at December 31, 2002.

FHLB  advances  used  primarily to fund loan  originations  were $7.0 million at
March 31, 2003, compared to $34.0 million at December 31, 2002.  Borrowings,  in
the form of repurchase agreements,  were $4.0 million at March 31, 2003 compared
to $4.2 million at December 31, 2002. These  borrowings  represent funds in cash
management accounts for commercial banking customers.

                                       8
<PAGE>

Stockholders'  equity was $49.6  million at March 31,  2003,  compared  to $50.1
million at December 31, 2002.  See  "Consolidated  Statements  of  Stockholders'
Equity" for additional  information.  At March 31, 2003, the Company's equity to
assets ratio was 7.8%, compared to 8.0% at December 31, 2002.  Accumulated other
comprehensive  income  declined  to $3.5  million  at March  31,  2003 from $3.8
million at  December  31,  2002,  reflecting  the impact of the  mortgage-backed
securities sales as previously discussed.

As a North  Carolina  chartered  commercial  bank,  the Bank must  meet  various
capital standards required by federal and state banking regulatory agencies. The
Bank's stand-alone capital was $49.5 million at March 31, 2003, substantially in
excess of all  regulatory  capital  requirements.  See  "Liquidity  and  Capital
Resources" below for additional information.

On March 28, 2002, the Company declared a three-for-two stock split, in the form
of a 50% stock split,  payable  April 19, 2002 to  stockholders  of record as of
April 8, 2002. All share and per share data for the quarter ended March 31, 2002
were  adjusted  to reflect  the stock  split,  and issued  shares  increased  to
6,545,848.

During the quarter  ended March 31, 2003,  the Company  acquired $2.4 million of
its common stock through open market and private purchases,  pursuant to a stock
repurchase  plan previously  adopted by the board of directors.  Shares acquired
via the stock  repurchase plan are held as treasury stock, at cost. At March 31,
2003,  treasury shares held were 2,395,247  totaling $39.5 million,  compared to
2,099,561  shares  totaling  $37.3  million at December  31,  2002.  The Company
believes the repurchase of its outstanding  common stock will increase per share
earnings  and return on average  equity,  and decrease  the  potential  dilutive
effect caused by the exercise of stock  options.  During the quarter ended March
31, 2003, 16,150 shares were issued as a result of the exercise of stock options
compared to and 6,375 shares  (adjusted  for the stock split) during the quarter
ended March 31, 2002.

COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED MARCH 31, 2003 AND 2002

GENERAL.  Net income for the  quarter  ended  March 31,  2003 was $2.8  million,
compared to $2.2 million for the quarter  ended March 31, 2002.  Basic  earnings
per share for the quarter ended March 31, 2003 was $0.68,  compared to $0.49 per
share for the  quarter  ended  March 31,  2002,  adjusted  for the stock  split.
Diluted  earnings  per share for the quarter  ended March 31, 2003 was $0.64 per
share,  compared to $0.47 per share for the quarter March 31, 2002, adjusted for
the stock split.

INTEREST  INCOME.  Interest  income was $9.1 million for the quarter ended March
31, 2003,  compared to $9.0 million for the quarter  ended March 31, 2002.  This
increase is due to the increase in the volume of average interest-earning assets
between the  respective  periods.  Average  interest-earning  assets were $575.3
million for the quarter ended March 31, 2003, compared to $511.9 million for the
quarter ended March 31, 2002, reflecting the growth of loans and leases held for
sale as discussed above. The yield on average  interest-earning  assets was 6.4%
for the  quarter  ended  March 31,  2003,  compared  to 7.1% for 2002,  due to a
general decline in interest rates between the periods.

INTEREST EXPENSE.  Interest expense on deposits and borrowings  declined to $2.7
million for the quarter ended March 31, 2003,  from $3.4 million for the quarter
ended March 31, 2002,  reflecting the general  decline in interest rates and the
change  in the  deposit  mix  as  previously  discussed.  Average  deposits  and
borrowings were $566.3 million for the quarter ended March 31, 2003,

                                       9
<PAGE>

compared to $484.4  million for the quarter ended March 31, 2002.  The effective
cost of average deposits and borrowings was 1.9% for the quarter ended March 31,
2003, compared to 2.8% for the quarter ended March 31, 2002.

NET  INTEREST  INCOME.  Net  interest  income  increased to $6.4 million for the
quarter ended March 31, 2003,  from $5.7 million for the quarter ended March 31,
2002. The interest rate spread (the  difference  between the effective  yield on
average  earning  assets  and  the  effective  cost  of  average   deposits  and
borrowings) was 4.4% for the quarter ended March 31, 2003,  compared to 4.3% for
the quarter ended March 31, 2002. The net yield on interest-earning  assets (net
interest  income  divided by average  interest-earning  assets) was 4.5% for the
quarter  ended March 31, 2003,  compared to 4.4% for the quarter ended March 31,
2002.

PROVISION  FOR LOAN LOSSES.  During the quarter  ended March 31, 2003,  the Bank
recorded  provisions for loan losses of $334,000  compared to $309,000  recorded
during the quarter  ended March 31, 2002.  These  provisions  were  necessary to
support  the risk  associated  with the  growth in the  Bank's  loan  portfolio.
Provisions are charged to current operations and the Bank believes the resulting
allowance  for loan losses is adequate to absorb  probable  losses on loans that
may become  uncollectible.  Additions to the allowance for loan losses are based
on a review and classification of the loan portfolio and other factors,  such as
past  collection  experience,  changes  in the  nature  and  volume  of the loan
portfolio,  risk  characteristics of individual loans or groups of similar loans
and underlying collateral, overall portfolio quality and current and prospective
economic  conditions.  The Bank  believes the current  level of its reserves for
loan losses is adequate to provide for probable  future losses;  however,  there
are no assurances that probable future losses, if any, will not exceed estimated
amounts.

NONINTEREST  INCOME.  Noninterest  income was $2.9 million for the quarter ended
March 31, 2003,  compared to $1.8 million for the quarter  ended March 31, 2002.
Noninterest income consists of fees and service charges earned on loans, service
charges on  deposit  accounts,  gains  from  sales of loans and  mortgage-backed
securities  and other  miscellaneous  income.  The increase in fees and services
charges  to $1.3  million  during the  quarter  ended  March 31,  2003 from $1.0
million during the quarter ended March 31, 2002 is  attributable  to the greater
volume of loans and  checking  account  deposits  as  previously  discussed.  In
addition,  the Bank  recorded  $1.2 million of gains from the sales of loans and
mortgage-backed  securities during the quarter ended March 31, 2003, compared to
$364,000 during the quarter ended March 31, 2002.

NONINTEREST EXPENSE.  Noninterest expense was $4.4 million for the quarter ended
March 31, 2003,  compared to $3.7 million for the quarter  ended March 31, 2002.
The largest component of these expenses,  compensation and fringe benefits,  was
$2.6 million for the quarter ended March 31, 2003,  compared to $2.2 million for
the quarter ended March 31, 2002.  Full-time  equivalent  employees increased to
238 at March  31,  2003  from 212 at  March  31,  2002.  This  growth  is due to
additional  personnel resulting from opening a new full-service branch office, a
new loan  production  office and  administrative  staff  required to support the
12.7% growth in assets between the periods.

Premises and equipment and data processing  expenses have grown  proportionately
with the growth in the number of customer  accounts  and  transaction  activity,
primarily  attributable to both internal growth and the new offices opened since
March 31, 2002. Other  noninterest  expenses  including  premises and equipment,
repairs,   printing,   advertising,   and  office   supplies   have  also  grown
proportionately with the growth in full-service branch office locations.

                                       10
<PAGE>

INCOME  TAXES.  Income tax expense was $1.7 million for the quarter  ended March
31,  2003,  compared to $1.3 million for the quarter  ended March 31, 2002.  The
changes in the  amounts of income tax  provisions  reflect the changes in pretax
income  and the  estimated  income  tax rates in effect  during  the  respective
periods.

LIQUIDITY AND CAPITAL RESOURCES.  As a state chartered commercial bank, the Bank
must  meet  certain  liquidity  requirements  established  by the State of North
Carolina Office of the  Commissioner of Banks (the  "Commissioner").  The Bank's
liquidity  ratio at March 31,  2003,  as  calculated  under  such  requirements,
exceeded the requirements.  Liquidity  generally refers to the Bank's ability to
generate  adequate amounts of funds to meet its cash needs.  Adequate  liquidity
guarantees that sufficient funds are available to meet deposit withdrawals, fund
future loan commitments,  maintain adequate reserve requirements,  pay operating
expenses,  provide funds for debt service,  pay dividends to  stockholders,  and
meet other general  commitments.  At March 31, 2003, the Bank had cash, deposits
in banks,  investment  securities,  mortgage-backed  securities,  FHLB stock and
loans held for sale totaling $137.5 million, or 21.7% of total assets,  compared
to $154.9 million at December 31, 2002, or 24.6% of total assets.

The Bank  believes  it can meet future  liquidity  needs with  existing  funding
sources. The Bank's primary source of funds are deposits,  payments on loans and
mortgage-backed  securities,  maturities of investment securities,  earnings and
funds provided from operations, the ability to borrow from the Federal Home Loan
Bank of Atlanta and the  availability  of loans held for sale.  While  scheduled
repayments of loans and  mortgage-backed  securities are relatively  predictable
sources of funds,  deposit flows and general  market  interest  rates,  economic
conditions  and  competition   substantially  influence  loan  prepayments.   In
addition, the Bank attempts to manage its deposit pricing in order to maintain a
desired deposit mix.

The FDIC requires the Bank to meet a minimum  leverage  capital  requirement  of
Tier I capital (consisting of retained earnings and common stockholder's equity,
less any  intangible  assets) to assets ratio of 4%. The FDIC also  requires the
Bank to meet a ratio of total capital to risk-weighted assets of 8%, of which at
least 4% must be in the form of Tier I capital.  The  Commissioner  requires the
Bank at all times to  maintain a capital  surplus of not less than 50% of common
capital stock.  The Bank was in compliance with all capital  requirements of the
FDIC and the Commissioner at March 31, 2003 and December 31, 2002.

IMPACT OF INFLATION AND CHANGING PRICES. The consolidated  financial  statements
of the  Company  have  been  prepared  in  accordance  with  generally  accepted
accounting  principles,  which require the measurement of financial position and
operating results in terms of historical dollars without  considering the change
in relative  purchasing  power of money over time and due to  inflation.  Unlike
most industrial companies,  nearly all assets and liabilities of the Company are
monetary.  As a result,  interest  rates have  greater  impact on the  Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.  The impact of inflation upon the Company is reflected in
the cost and prices it pays for goods and services.

CRITICAL ACCOUNTING  POLICIES.  The Company has identified the policies below as
critical to its  business  operations  and the  understanding  of its results of
operations. The impact and any associated risks related to these policies on the
Company's business operations is discussed  throughout  Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results of  Operations  where such
policies affect reported and expected financial results.

                                       11
<PAGE>

     USE OF ESTIMATES.  The  preparation  of financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make  estimates and  assumptions.  Estimates  affect the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses  during the  reporting  period.  Actual  results  could
differ from those estimates.

     LOANS  IMPAIRMENT  AND  ALLOWANCE  FOR LOAN  LOSSES.  A loan is  considered
impaired,  based on current  information and events,  if it is probable that the
Bank will be unable to collect the  scheduled  payments of principal or interest
when  due   according  to  the   contractual   terms  of  the  loan   agreement.
Uncollateralized loans are measured for impairment based on the present value of
expected future cash flows discounted at the historical effective interest rate,
while all  collateral-dependent  loans are measured for impairment  based on the
fair value of the collateral.

The Bank uses several factors in determining if a loan is impaired. The internal
asset  classification  procedures include a thorough review of significant loans
and lending  relationships  and include the  accumulation  of related data. This
data includes loan payment  status,  borrowers'  financial  data and  borrowers'
operating factors such as cash flows, operating income or loss, etc.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on the Bank's  past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the  borrower's  ability  to  repay,  the  estimated  value  of  any  underlying
collateral,  and current economic conditions.  While management believes that it
has established the allowance in accordance with accounting principles generally
accepted in the United States of America and has taken into account the views of
its regulators and the current economic  environment,  there can be no assurance
that in the future  the Bank's  regulators  or risks in its  portfolio  will not
require further increases in the allowance.

     INCOME TAXES.  Deferred tax asset and liability  balances are determined by
application  to temporary  differences  of the tax rate expected to be in effect
when  taxes  will  become  payable  or  receivable.  Temporary  differences  are
differences  between the tax basis of assets and  liabilities and their reported
amounts in the  financial  statements  that will result in taxable or deductible
amounts in future years.  The effect on deferred  taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.

     OFF-BALANCE  SHEET RISK.  The Company is a party to  financial  instruments
with  off-balance  sheet  risk in the  normal  course  of  business  to meet the
financing  needs of its customers and to reduce its own exposure to fluctuations
in interest rates.  These financial  instruments  include  commitments to extend
credit and involve,  to varying  degrees,  elements of credit and interest  rate
risk in excess of the amount recognized in the balance sheet.

The  Company's  exposure to credit loss in the event of  non-performance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making  commitments  and  conditional  obligations as it
does for on-balance sheet instruments.

                                       12
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities".  This
statement addresses financial accounting and reporting for costs associated with
exit or disposal  activities  and  nullifies  Emerging  Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and  Costs  to  Exit  an  Activity   (including  Certain  Costs  Incurred  in  a
Restructuring)".  The  provisions  of SFAS  No.  146 are  effective  for exit or
disposal  activities  initiated after December 31, 2002. The application of this
statement  is  not  expected  to  have  a  material   impact  on  the  Company's
consolidated financial statements.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others".  This  interpretation  elaborates  on the  disclosures  to be made by a
guarantor in its interim and annual  financial  statements about its obligations
under certain  guarantees it has issued.  It also  clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee.  The application of
this  interpretation  is not expected to have a material impact on the Company's
consolidated financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition and Disclosure". SFAS No. 148 amends FASB Statement No.
123, "Accounting for Stock-Based  Compensation",  to provide alternative methods
of  transition  for a  voluntary  change  to the  fair  value  based  method  of
accounting for  stock-based  employee  compensation.  In addition,  SFAS No. 148
amends  the  disclosure  requirements  of  Statement  123 to  require  prominent
disclosures in both interim and annual financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results The  application  of this statement is not expected to
have a material impact on the Company's consolidated financial statements.

In January 2003,  the FASB issued FIN 46,  "Consolidation  of Variable  Interest
Entities-an  Interpretation  of  ARB  No.  51".  This  interpretation  addresses
consolidation by business enterprises of variable interest entities,  which have
the  following  characteristics:  (1)  The  equity  investment  at  risk  is not
sufficient  to permit the entity to finance its  activities  without  additional
subordinated  financial  support from other parties,  which is provided  through
other  interests  that will  absorb  some or all of the  expected  losses of the
entity, and (2) The equity investors lack one or more of the following essential
characteristics of a controlling financial interest:  (a) The direct or indirect
ability to make decisions about the entity's activities through voting rights or
similar  rights,  (b) The obligation to absorb the expected losses of the entity
if they occur, which makes it possible for the entity to finance its activities,
or (c) The right to receive the expected  residual returns of the entity if they
occur,  which is the compensation for the risk of absorbing the expected losses.
The application of this interpretation is not expected to have a material impact
on the Company's consolidated financial statements.

In April 2003, FASB issued Statement of Financial  Accounting  Standards No. 149
"Amendment of Statement 133 on Derivative  Instruments and Hedging  Activities".
FASB  Statements  No. 133  "Accounting  for Derivative  Instruments  and Hedging
Activities"  and No. 138,  "Accounting  for Certain  Derivative  Instruments and
Certain Hedging  Activities",  establish  accounting and reporting standards for
derivative   instruments  including  derivatives  embedded  in  other  contracts
(collectively referred to as derivatives) and for hedging activities.  Statement
149 amends Statement 133 for certain  decisions made by the Board as part of the
Derivatives Implementation Group (DIG) process.

                                       13
<PAGE>

This Statement  contains  amendments  relating to FASB Concepts Statement No. 7,
"Using Cash Flow Information and Present Value in Accounting Measurements",  and
FASB Statements No. 65,  "Accounting for Certain Mortgage  Banking  Activities",
No. 91 "Accounting for Nonrefundable  Fees and Costs Associated with Originating
or Acquiring  Loans and Initial Direct Costs of Leases",  No. 95,  "Statement of
Cash Flows",  and No. 126,  "Exemption from Certain Required  Disclosures  about
Financial Instruments for Certain Nonpublic Entities".  The Company is presently
evaluating the effect of this pronouncement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the possible  chance of loss from  unfavorable  changes in market
prices and rates.  These changes may result in a reduction of current and future
period net interest income, which is the favorable spread earned from the excess
of  interest  income  on  interest-earning   assets  over  interest  expense  on
interest-bearing liabilities.

The Company considers interest rate risk to be its most significant market risk,
which could  potentially  have the greatest  impact on operating  earnings.  The
structure  of  the  Company's  loan  and  deposit  portfolios  is  such  that  a
significant  decline in interest rates may have a negative  impact on net market
values and net interest income. The Company monitors whether material changes in
market risk have occurred  since December 31, 2002. The Company does not believe
that any  material  adverse  changes in market  risk  exposures  occurred  since
December 31, 2002.

The current period earnings growth reflects the Company's  success in increasing
its net interest income during an environment of declining  interest rates.  The
Company has made significant  progress in restructuring  its loan portfolio,  in
attracting  lower costing core checking  accounts and repricing  higher  costing
certificates  of deposit at lower  rates,  collectively  allowing the Company to
maintain more consistent net interest income.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the date of this  report,  the  Company  carried  out an
evaluation,  under the supervision and with the  participation  of the principal
executive officer and principal  financial officer,  of the effectiveness of the
design and operation of the Company's disclosure controls and procedures.  Based
on this  evaluation,  the principal  executive  officer and principal  financial
officer  concluded  that the Company's  disclosure  controls and  procedures are
effective  in  timely  alerting  them to  material  information  required  to be
included in its periodic SEC reports.  It should be noted that the design of any
system  of  controls  is  based  in part  upon  certain  assumptions  about  the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions,
regardless of how remote.

In addition,  the Company reviewed its internal controls, and there have been no
significant  changes in its  internal  controls or in other  factors  that could
significantly  affect  those  controls  subsequent  to  the  date  of  the  last
evaluation.

                                       14
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

The Company is currently  not engaged in any material  legal  proceedings.  From
time to  time,  the Bank is a party to legal  proceedings  within  the  ordinary
course of business wherein it enforces its security interest in loans, and other
matters of similar nature.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5.   OTHER INFORMATION

Not applicable

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     a)   Exhibits

     The following exhibit is filed herewith:

     Exhibit
     Number    Title
     ------    -----
       99      Certification  Pursuant  to 18 U.S.C.  Section  1350,  as Adopted
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     b)   Reports  on Form 8-K.  A Form 8-K was filed on  January  7, 2003 under
          Item 5: Other Events, reporting the Company had completed a previously
          announced 5% stock repurchase program and had adopted a new program to
          repurchase and additional 5% of its issued and  outstanding  shares of
          common stock, representing 209,465 shares.

                                       15
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly caused this  Quarterly  Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.

                                        FIRST SOUTH BANCORP, INC.

                                        /s/ William L. Wall
                                        -------------------
                                        William L. Wall
                                        Executive Vice President
                                        Chief Financial Officer
                                        (Principal Financial Officer)


                                        /s/ Kristie W. Hawkins
                                        ----------------------
                                        Kristie W. Hawkins
                                        Controller
                                        Treasurer
                                        (Principal Accounting Officer)

Date: May 13, 2003

                                       16
<PAGE>

                                  CERTIFICATION

I, Thomas A. Vann, President and Chief Executive Officer of First South Bancorp,
Inc., certify that:

1. I have reviewed this  Quarterly  Report on Form 10-Q of First South  Bancorp,
Inc.

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report.

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the  registrant's  board of  directors  (or persons  performing  the  equivalent
function):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls.

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: May 13, 2003                      /s/ Thomas A. Vann
                                        ------------------
                                        Thomas A. Vann
                                        President and Chief Executive Officer

                                       17
<PAGE>

                                  CERTIFICATION

I, William L. Wall,  Executive  Vice  President and Chief  Financial  Officer of
First South Bancorp, Inc., certify that:

1. I have reviewed this  Quarterly  Report on Form 10-Q of First South  Bancorp,
Inc.

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report.

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
the  registrant's  board of  directors  (or persons  performing  the  equivalent
function):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: May 13, 2003                      /s/ William L. Wall
                                        -------------------
                                        William L. Wall
                                        Executive Vice President and
                                        Chief Financial Officer

                                       18
<PAGE>