EMPLOYMENT AGREEMENT

THIS AGREEMENT is entered into as of June 1, 2005, by and between SOUTHERN
COMMUNITY BANK AND TRUST, a North Carolina banking corporation (hereinafter
referred to as the “Bank”) and DAVID W. HINSHAW of North Carolina (hereinafter
referred to as the “Officer”).

For and in consideration of their mutual promises, covenants and conditions
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which hereby is acknowledged, the parties agree as follows:

1. Employment. The Bank agrees to employ the Officer and the Officer agrees to
accept employment upon the terms and conditions stated herein as an Executive
Vice President and Chief Financial Officer of the Bank. The Officer shall render
such administrative and management services to the Bank as are customarily
performed by persons situated in a similar capacity. The Officer shall promote
the business of the Bank, including being active in at least two civic or
community organizations in Forsyth County, and perform such other duties as
shall, from time to time, be reasonably assigned by the Chief Executive Officer
of the Bank. Upon the request of the Chief Executive Officer, the Officer shall
disclose all business activities or commercial pursuits in which Officer is
engaged, other than Bank duties.

2. Compensation. The Bank shall pay the Officer during the term of this
Agreement, as compensation for all services rendered by him to the Bank, a base
salary at the rate of $175,000 per annum, payable in cash not less frequently
than monthly. The rate of such salary shall be reviewed by the Bank not less
often than annually and if increased, shall not be decreased during the term of
this Agreement. Such rate of salary, or increased rate of salary, as the case
may be, may be further increased from time to time in such amounts as the Bank,
in its discretion, may decide. In determining salary increases, the Bank shall
compensate the Officer for increases in the cost of living and may also provide
for performance or merit increases. Participation in the Bank’s incentive
compensation, deferred compensation, discretionary bonus, profit-sharing,
retirement and other employee benefit plans and participation in any fringe
benefits shall not reduce the salary payable to the Officer under this
Paragraph. In the event of a Change in Control (as defined in Paragraph 10), the
Officer’s rate of salary shall be increased not less than five percent annually
during the term of this Agreement. Any payments made under this Agreement shall
be subject to such deductions as are required by law or regulation or as may be
agreed to by the Bank and the Officer.

3. Discretionary Bonuses. During the term of this Agreement, the Officer shall
be entitled, in an equitable manner with all other key management personnel of
the Bank, to such discretionary bonuses as may be authorized, declared and paid
by the Bank to key management employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Officer’s right to such
discretionary bonuses when and as declared by the Bank.

4. Participation in Retirement and Employee Benefit Plans; Fringe Benefits. The
Officer shall be entitled to participate in any plan relating to deferred
compensation, stock options, stock purchases, pension, thrift, profit sharing,
group life insurance, medical coverage, disability coverage, education, or other
retirement or employee benefits that the Bank has adopted, or may, from time to
time adopt, for the benefit of its senior officers and for employees generally,
subject to the eligibility rules of such plans.

The Officer shall also be entitled to participate in any other fringe benefits
which are now or may be or become applicable to the Bank’s senior officers,
including the payment of reasonable expenses for continuing education to
maintain professional designations, and any other benefits which are
commensurate with the duties and responsibilities to be performed by the Officer
under this Agreement. Additionally, the Officer shall be entitled to such
vacation and sick leave as shall be established under uniform employee policies
promulgated by the Bank. The Bank shall reimburse the Officer for all
out-of-pocket reasonable and necessary business expenses that the Officer may
incur in connection with his services on behalf of the Bank.

5. Term. The initial term of employment under this Agreement shall be for the
period commencing upon the effective date of this Agreement and ending three
calendar years from the effective date of this Agreement. On each anniversary of
the effective date of this Agreement, the term of this Agreement shall
automatically be extended for an additional one year period beyond the then
effective expiration date unless written notice from the Bank or the Officer is
received 90 days prior to an anniversary date advising the other that this
Agreement shall not be further extended; provided that the Chief Executive
Officer shall review the Officer’s performance annually and make a specific
determination pursuant to such review to renew this Agreement prior to the 90
days’ notice.

6. Loyalty; Noncompetition.

(a) The Officer shall devote his full efforts and entire business time to the
performance of his duties and responsibilities under this Agreement.

(b) In consideration for (i) the agreement by the parent corporation of the
Bank, Southern Community Financial Corporation, to grant the Officer 10,000
options to purchase shares of its common stock and (ii) the Officer’s employment
pursuant to the terms stated herein, during the term of this Agreement, or any
renewals thereof, and for a period of two years after termination, the Officer
agrees he will not, within the “Restricted Area,” directly or indirectly, engage
in any business that competes with the Bank or any of its subsidiaries without
the prior written consent of the Bank; provided, however, that the provisions of
this Paragraph shall not apply in the event the Officer’s employment is
unilaterally terminated by the Bank for Cause, (as such term is defined in
Paragraph 8(c) hereof) or in the event the Officer terminates his employment
with the Bank after the occurrence of a “Termination Event” (as such term is
defined in Paragraph 10(b) hereof) following a “Change of Control” (as such term
is defined in Paragraph 10(d) hereof). The Restricted Area covers the following
divisible list of territories: Forsyth, Guilford, Iredell, Rockingham, Stokes,
Surry and Yadkin Counties, North Carolina, and within 15 miles of any Bank
office operated during the term of this Agreement. The two-year restricted
period, however, does not include any period of violation or period of time
required for litigation to enforce the Officer’s agreement not to compete
against the Bank. Notwithstanding the foregoing, the Officer shall be free,
without such consent, to purchase or hold as an investment or otherwise, up to
five percent of the outstanding stock or other security of any corporation that
has its securities publicly traded on any recognized securities exchange or in
any over-the counter market.

(c) The Officer agrees he will hold in confidence all knowledge or information
of a confidential nature with respect to the business of the Bank or any
subsidiary received by him during the term of this Agreement and will not
disclose or make use of such information without the prior written consent of
the Bank. The Officer agrees that he will be liable to the Bank for any damages
caused by unauthorized disclosure of such information. Upon termination of his
employment, the Officer agrees to return all records or copies thereof of the
Bank or any subsidiary in his possession or under his control, which relate to
the activities of the Bank or any subsidiary.

(d) The Officer acknowledges that it would not be possible to ascertain the
amount of monetary damages in the event of a breach by the Officer under the
provisions of this Paragraph 6. The Officer agrees that, in the event of a
breach of this Paragraph 6, the Bank will be entitled to the following remedies:
(i) entry by a court having jurisdiction of an order granting specific
performance or temporary injunctive relief, upon the posting of any requisite
bond and the filing with the court of an appropriate pleading and affidavit
specifying each obligation breached by the Officer, but without proof of actual
monetary damage or an inadequate remedy at law; (ii) if a court having
jurisdiction determines for any reason that the Bank is not entitled to
injunctive relief, the recovery from the Officer of all profit, remuneration, or
other consideration that the Officer gains from breaching this Paragraph 6; and
(iii) reimbursement from the Officer of all costs, including attorney’s fees,
incurred by the Bank in enforcing this Paragraph 6. The Bank may exercise any of
the foregoing remedies concurrently, independently, or successively.

(e) If the scope of any restriction contained in this Paragraph 6 is determined
to be too broad by any court of competent jurisdiction, then such restriction
shall be enforced to the maximum extent permitted by law and the Officer
consents that the scope of this restriction may be modified judicially.

7. Standards. The Officer shall perform his duties and responsibilities under
this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Chief Executive Officer. The Bank will
provide the Officer with the working facilities and staff customary for similar
executives and necessary for him to perform his duties.

8. Termination and Termination Pay.

(a) The Officer’s employment under this Agreement shall be terminated upon the
death of the Officer during the term of this Agreement, in which event, the
Officer’s estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.

(b) The Officer’s employment under this Agreement may be terminated at any time
by the Officer upon 60 days’ written notice to the Chief Executive Officer. Upon
such termination, the Officer shall be entitled to receive compensation through
the effective date of such termination.

(c) The Bank may terminate the Officer’s employment at any time, but any
termination by the Bank, other than termination for Cause, shall not prejudice
the Officer’s right to compensation or other benefits under this Agreement. The
Bank shall provide written notice specifying the grounds for termination for
Cause. The Officer shall have no right to receive compensation or other benefits
for any period after termination for Cause. Termination for Cause shall include
termination because of the Officer’s personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding such termination, the obligations under Paragraph 6(c) shall
survive any termination of employment.

(d) Subject to the Bank’s obligations and the Officer’s rights under (i) Title I
of the Americans with Disabilities Act, §504 of the Rehabilitation Act, and the
Family and Medical Leave Act, and to (ii) the vacation leave, disability leave,
sick leave and any other leave policies of the Bank, the Officer’s employment
under this Agreement automatically shall be terminated in the event the Officer
becomes disabled during the term of this Agreement and it is determined by the
Bank that the Officer is unable to perform the essential functions of his job
under this Agreement for sixty (60) business days or more during any 12-month
period. Upon any such termination, the Officer shall be entitled to receive any
compensation the Officer shall have earned prior to the date of termination but
which remains unpaid, and shall be entitled to any payments provided under any
disability income plan of the Bank which is applicable to the Officer.

In the event of any disagreement between the Officer and the Bank as to whether
the Officer is physically or mentally incapacitated such as will result in the
termination of the Officer’s employment pursuant to this Paragraph 8(d), the
question of such incapacity shall be submitted to an impartial physician
licensed to practice medicine in North Carolina for determination and who will
be selected by mutual agreement of the Officer and the Bank, or failing such
agreement, by two (2) physicians (one (1) of whom shall be selected by the Bank
and the other by the Officer), and such determination of the question of such
incapacity by such physician or physicians shall be final and binding on the
Officer and the Bank. The Bank shall pay the reasonable fees and expenses of
such physician or physicians in making any determination required under this
Paragraph 8(d).

9. Additional Regulatory Requirements. Notwithstanding anything contained in
this Agreement to the contrary, it is understood and agreed that the Bank (or
any of its successors in interest) shall not be required to make any payment or
take any action under this Agreement if:

(a) the Bank is declared by any governmental agency having jurisdiction over the
Bank (hereinafter referred to as “Regulatory Authority”) to be insolvent, in
default or operating in an unsafe or unsound manner; or,

(b) in the opinion of counsel to the Bank, such payment or action (i) would be
prohibited by or would violate any provision of state or federal law applicable
to the Bank, including, without limitation, the Federal Deposit Insurance Act as
now in effect or hereafter amended, (ii) would be prohibited by or would violate
any applicable rules, regulations, orders or statements of policy, whether now
existing or hereafter promulgated, of any Regulatory Authority, or
(iii) otherwise would be prohibited by any Regulatory Authority.

10. Change in Control.

(a) In the event of a termination of the Officer’s employment in connection
with, or within twenty-four (24) months after, a “Change in Control” (as defined
in Subparagraph (d) below) of the Bank other than for Cause (as defined in
Paragraph 8), the Officer shall be entitled to receive the payment set forth in
Subparagraph (c) below. Said sum shall be payable as provided in Subparagraph
(e) below.

(b) In addition to any rights the Officer might have to terminate this Agreement
contained in Paragraph 8, the Officer shall have the right to terminate this
Agreement upon the occurrence of any of the following events (the “Termination
Events”) within twenty-four months following a Change in Control of the Bank:

(i) Officer is assigned any duties and/or responsibilities that are inconsistent
with or constitute a demotion or reduction in his position, duties,
responsibilities or status at the time of the Change in Control or with his
reporting responsibilities or titles with the Bank in effect at such time,
regardless of Officer’s resulting position; or

(ii) Officer’s annual base salary rate is reduced below the annual amount in
effect as of the effective date of a Change in Control or as the same shall have
been increased from time to time following such effective date; or

(iii) Officer’s life insurance, medical or hospitalization insurance, disability
insurance, stock options plans, stock purchase plans, deferred compensation
plans, management retention plans, retirement plans or similar plans or benefits
being provided by the Bank to the Officer as of the effective date of the Change
in Control are reduced in their level, scope or coverage, or any such insurance,
plans or benefits are eliminated, unless such reduction or elimination applies
proportionately to all salaried employees of the Bank who participated in such
benefits prior to such Change in Control; or

(iv) Officer is transferred to a location, which is an unreasonable distance
from his current principal work location without the Officer’s express written
consent.

A Termination Event shall be deemed to have occurred on the date such action or
event is implemented or takes effect.

(c) In the event that the Officer terminates this Agreement pursuant to this
Paragraph 10, the Bank will be obligated to pay or cause to be paid to Officer
liquidated damages in an amount equal to 2.99 times the Officer’s “base amount”
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended (the “Code”).

(d) For the purposes of this Agreement, the term Change in Control shall mean
any of the following events:

(i) After the effective date of this Agreement, any “person” (as such term is
defined in Section 7(j)(8)(A) of the Change in Bank Control Act of 1978),
directly or indirectly, acquires beneficial ownership of voting stock, or
acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing
twenty-five percent (25%) or more of any class of voting securities of the Bank,
or acquires control of, in any manner, the election of a majority of the Board
of Directors of the Bank; or

(ii) The Bank consolidates or merges with or into another corporation,
association or entity, or is otherwise reorganized, where the Bank is not the
surviving corporation in such transaction; or

(iii) All, or substantially all, of the assets of the Bank are sold or otherwise
transferred to or are acquired by any other corporation, association or other
person, entity or group.

Notwithstanding the other provisions of this Paragraph 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Bank agree in writing
that the same shall not be treated as a Change in Control for purposes of this
Agreement.

(e) Such amounts payable pursuant to this Paragraph 10 shall be paid, at the
option of the Officer, either in one lump sum or in equal monthly payments
following termination of this Agreement.

(f) Following a Termination Event, which gives rise to Officer’s rights
hereunder, the Officer shall have twelve (12) months from the date of occurrence
of the Termination Event to terminate this Agreement pursuant to this
Paragraph 10. Any such termination shall be deemed to have occurred only upon
delivery to the Bank (or to any successor corporation) of written notice of
termination that describes the Change in Control and the Termination Event. If
Officer does not so terminate this Agreement within such twelve-month period, he
shall thereafter have no further rights hereunder with respect to that
Termination Event, but shall retain rights, if any, hereunder with respect to
any other Termination Event as to which such period has not expired.

(g) It is the intent of the parties hereto that all payments made pursuant to
this Agreement be deductible by the Bank for federal income tax purposes and not
result in the imposition of an excise tax on the Officer. Notwithstanding
anything contained in this Agreement to the contrary, any payments to be made to
or for the benefit of the Officer which are deemed to be “parachute payments” as
that term is defined in Section 280G of the Code, shall be modified or reduced
to the extent deemed to be necessary by the Chief Executive Officer to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or the
disallowance of a deduction to the Bank under Section 280(a) of the Code.

(h) In the event any dispute shall arise between the Officer and the Bank as to
the terms or interpretation of this Agreement, including this Paragraph 10,
whether instituted by formal legal proceedings or otherwise, including any
action taken by the Officer to enforce the terms of this Paragraph 10 or in
defending against any action taken by the Bank, the Bank shall reimburse the
Officer for all costs and expenses, proceedings or actions, in the event the
Officer prevails in any such action.

11. Successors and Assigns.

(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by conversion, merger, purchase or otherwise, all or substantially
all of the assets of the Bank.

(b) Since the Bank is contracting for the unique and personal skills of the
Officer, the Officer shall be precluded from assigning or delegating his rights
or duties hereunder without first obtaining the written consent of the Bank.

12. Modification; Waiver; Amendments. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing, signed by the Officer and on behalf of the Bank by such
officer as may be specifically designated by the Chief Executive Officer. No
waiver by either party hereto, at any time, of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No amendment or addition to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.

13. Applicable Law. This Agreement shall be governed in all respects whether as
to validity, construction, capacity, performance or otherwise, by the laws of
North Carolina, except to the extent that federal law shall be deemed to apply.

14. Severability. The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.

15. Review of Agreement. The Officer agrees that he has carefully read this
Agreement, that the Bank has encouraged him to seek the assistance of counsel in
reviewing this Agreement, that he understands each provision of this Agreement,
and that he voluntarily enters into this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first hereinabove written.

SOUTHERN COMMUNITY BANK AND TRUST

By: /s/ F. Scott Bauer
F. Scott Bauer
Chairman of the Board

OFFICER

/s/ David W. Hinshaw
David W. Hinshaw