STATE OF NORTH CAROLINA
COUNTY OF HALIFAX
                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT  AGREEMENT (the  "Agreement") is entered into as of the
15th day of May, 1998 (the "Effective  Date"),  by and between SOUTHERN BANK AND
TRUST COMPANY ("Southern") and WATSON N. SHERROD, JR. ("Employee").

                              W I T N E S S E T H:


         WHEREAS,  Employee heretofore has been employed as President of ENFIELD
SAVINGS  BANK,  INC.,  SSB  ("Enfield"),  and  in  such  position  has  provided
leadership  and guidance in the growth and  development  of Enfield's  business;
and,

         WHEREAS,  as of the  Effective  Date,  Enfield  has  been  merged  into
Southern; and,

         WHEREAS,  Employee's  experience and knowledge of Enfield's operations,
customers  and affairs,  and his  knowledge of and  standing and  reputation  in
Enfield's  market area,  would be of benefit to Southern in its  continuation of
Enfield's business;  and, for that reason, Southern desires to retain Employee's
services as an employee of Southern for the Term of Employment  specified below,
and Employee desires to become an employee of Southern, all subject to the terms
and conditions provided herein; and,

         WHEREAS, for that purpose, Southern and Employee have agreed and desire
to enter into this Agreement to set forth the terms and conditions of Employee's
employment with Southern.

         NOW,  THEREFORE,  in consideration of the premises and mutual promises,
covenants and conditions  hereinafter set forth, and for other good and valuable
considerations,  the receipt and  sufficiency of which hereby are  acknowledged,
Southern and Employee hereby agree as follows:

         1. Employment. Southern agrees to employ Employee, and Employee accepts
employment with Southern, all upon the terms and conditions stated herein. As an
employee  of  Southern,  Employee  will (I) serve as Senior  Vice  President  of
Southern,  (ii) provide such assistance and advice to Southern as it may request
from time to time regarding matters involving the former customers and employees
of Enfield, loan quality control and review,  product conversion and other tasks
relating to the former  operations of Enfield and the transition of control over
such operations to Southern,  (iii) promote Southern and its business and engage
in business  development  activities  on Southern's  behalf in Enfield's  former
market areas, and (iv) have such other duties and  responsibilities  as shall be
assigned to him by Southern.

                  In connection  with the  performance of his duties  hereunder,
Employee's  office and principal  employment  location shall be at such place or
places as Southern shall designate;  provided,  however,  that Employee's office
and principal  employment location shall not be outside of Halifax County, North
Carolina, without Employee's consent.  Notwithstanding anything contained herein
to the contrary,  required business travel (including  overnight travel) outside
Halifax  County in  connection  with his duties under this  Agreement  shall not
constitute a violation of this Agreement.
<PAGE>
         2. Term.  Unless sooner  terminated as provided in this Agreement,  and
subject to the right of either  Employee  or Southern  to  terminate  Employee's
employment at any time as provided  herein,  the term of  Employee's  employment
with Southern  under this Agreement  (the "Term of  Employment")  shall be for a
period of three (3) years  commencing on the Effective  Date and  terminating at
the close of Southern's business on May 14, 2001 (the "Expiration Date").

         3.  Compensation.  For all  services  rendered  by Employee to Southern
under  this  Agreement,  including  any  services  as a member  of the  Board of
Directors of Southern and/or of Southern's parent company,  Southern  BancShares
(N.C.),  Inc.  ("BancShares"),  Southern  shall pay  Employee  base salary at an
annual rate of One Hundred  Twenty-Two  Thousand Two Hundred and No/100  Dollars
($122,200)  during  the Term of  Employment.  Employee's  Base  Salary  shall be
increased  annually  during the Term of Employment by a percentage  equal to the
average  of the  percentage  increases  during  the  preceding  12 months in the
salaries  of  Southern's  officers  having the title  Senior Vice  President  or
higher.  Base  salary  paid  under  this  Agreement  shall be  payable  not less
frequently  than monthly in  accordance  with  Southern's  payroll  policies and
procedures. All compensation hereunder shall be subject to customary withholding
taxes and such other employment taxes as are required by law.

         4.  Participation  in Retirement  and Employee  Benefit  Plans;  Fringe
Benefits.  Employee  shall be eligible to  participate  in any and all  employee
benefit programs  maintained by or for Southern that are generally  available to
and  which  cover  all   Southern's   officers  at   Employee's   job  level  or
classification,  subject  to the  rules  applicable  to such  plans or  programs
prevailing from time to time. Except as otherwise  specifically provided herein,
Employee's  participation  in such plans and programs shall be subject to and in
accordance with the terms and conditions (including eligibility requirements) of
such plans and programs,  resolutions  of Southern's (or  BancShares')  Board of
Directors establishing such programs and plans, and Southern's (and BancShares')
normal practices and established policies regarding such plans and programs.

                  Employee  shall receive  credit for past full years of service
with Enfield prior to the Effective Date for purposes of (i)  participation  and
vesting in Southern's  defined  benefit  pension plan (the  "Pension  Plan") and
Section 401(k) savings plan (the "Savings  Plan"),  and (ii) except as described
below,  for all  purposes  under all other  Southern  benefit  plans  (including
coverage under Southern's  health insurance plan and entitlement to vacation and
sick leave);  provided,  however, that in no event shall Employee be entitled to
or be given credit for past service with Enfield for purposes of the calculation
or  determination of benefits under the Pension Plan. For purposes of Southern's
health  insurance  plan,  Employee's  participation  will be  without  regard to
pre-existing  condition  requirements  under that plan,  provided  that any such
pre-existing  condition at the Effective  Time would have been covered under the
health insurance plan of Enfield.  Notwithstanding  anything contained herein to
the contrary,  if Southern  shall believe in good faith that the granting of any
such  past  service  credit  would  not  be  permissible  under  the  terms  and
requirements of the Employee Retirement Income Security Act of 1974, as amended,
the  Internal  Revenue  Code  of  1986,  as  amended,  any  governmental  rules,
regulations and policies thereunder,  or any other law or regulations applicable
to the operation of any such plan or program, or otherwise would expose any such
plan or program or Southern or  Bancshares to any penalty,  then Southern  shall
not be required to give Employee any such credit for past service with Enfield.
<PAGE>
                  For  calendar  year 1998,  Southern  will grant to  Employee a
number of days of sick leave and vacation  leave,  respectively,  equal, in each
case,  to (i) the full number of such days to which  Employee  would be entitled
during  1998,  based on his  credited  years of service and in  accordance  with
Southern's  standard leave policies,  less (ii) the number of days of sick leave
and vacation used by Employee as an employee of Enfield during 1998 prior to the
Effective Date. Employee will be permitted to carry over accrued and unused sick
leave and vacation leave to the extent such carryover  would be consistent  with
and would not exceed limitations imposed by Southern's leave policies.

                  Employee   acknowledges  that  the  terms  and  provisions  of
Southern's employee benefit plans and programs may be determined only by reading
the  actual  plan  documents  under  which  Southern,  BancShares  or  the  plan
administrator,  as applicable,  may make certain  administrative  determinations
with discretion, and that Southern and BancShares reserve the right to modify or
terminate each plan or program and any benefits provided thereunder.

         5. Standards of Performance and Conduct. During the Term of Employment,
Employee  faithfully and diligently  shall discharge his obligations  under this
Agreement  and shall  perform  the  duties  associated  with his  position  with
Southern in a manner which is competent and reasonably satisfactory to Southern,
and Employee  shall use his best efforts to  implement  Southern's  policies and
procedures  currently  in  effect  or as are  established  from  time to time by
Southern.

                  Employee, in the execution of his duties under this Agreement,
at all times and in all material  respects shall comply with  Southern's Code of
Conduct  as the  same is in  effect  as of the  Effective  Date and as it may be
amended or supplemented from time to time subsequent thereto
 (the "Code of Conduct"), and with all applicable federal and state statutes and
all rules,  regulations,  administrative orders,  statements of policy and other
pronouncements or standards promulgated thereunder.

         6. Termination of Previous Employment Agreement.  Employee and Southern
specifically  agree  that this  Agreement  supersedes  that  certain  Employment
Agreement dated September 22, 1995,  between  Employee and Enfield (the "Enfield
Agreement"),  and, as additional  consideration  for  Southern's  agreements and
obligations under this Agreement, Employee hereby waives any and all rights, and
releases Enfield and Southern from any and all obligations (including all rights
and  obligations  under Section 10 thereof  pertaining to "changes in control"),
under the Enfield  Agreement  and agrees that the  Enfield  Agreement  hereby is
terminated and shall be of no further force or effect.

         7.       Noncompetition; Confidentiality.

                  (a) General.  Employee hereby acknowledges and agrees that (i)
Enfield has made a significant  investment in the development of its business in
the  geographic  area  identified  below as the  "Relevant  Market" and that, by
virtue of Southern's acquisition of substantially all Enfield's assets, Southern
has acquired a valuable economic interest in Enfield's  business in the Relevant
Market  which it is entitled to protect;  (ii) in the course of his past service
on behalf of Enfield  and future  service as an  employee  of  Southern,  he has
gained and will continue to gain  substantial  knowledge of and familiarity with
Enfield's  and  Southern's  customers and their  dealings  with them,  and other
information  concerning  Enfield's  and  Southern's  businesses,  all  of  which
constitute  valuable assets and privileged  information;  and, (iii) in order to
protect Southern's interest in and to assure it the benefit of its succession to
Enfield's business, it is reasonable and necessary to place certain restrictions
on  Employee's  ability to compete  against  Southern and on his  disclosure  of
information  about  Southern's and Enfield's  business and  customers.  For that
purpose,  and  in  consideration  of  Southern's  agreements  contained  herein,
Employee covenants and agrees as provided below.
<PAGE>
                  (b) Covenant Not to Compete. During a period (the "Restriction
Period")  commencing  on the date of this  Agreement  and ending on the date one
year  following  the  Expiration  Date of the  Term  of  Employment  under  this
Agreement or, if earlier,  the effective  date of any  termination of Employee's
employment hereunder pursuant to Paragraph 8 below,  Employee will not "Compete"
(as defined below), directly or indirectly, with Southern in the geographic area
(the "Relevant Market")  consisting of Halifax County,  North Carolina,  and any
county of North Carolina  contiguous  thereto  (including without limitation the
counties of Warren, Nash, Edgecombe, Bertie and Northampton).

                  For purposes of this  Paragraph 7, the  following  terms shall
have the meanings set forth below:

                  Compete.  The term "Compete" means: (i) soliciting or securing
deposits  from any Person  residing  in the  Relevant  Market for any  Financial
Institution;  (ii)  soliciting  any Person  residing in the  Relevant  Market to
become a borrower  from any  Financial  Institution,  or  assisting  (other than
through  the  performance  of  ministerial  or clerical  duties)  any  Financial
Institution  in making loans to any such  Person;  (iii)  soliciting  any Person
residing in the Relevant  Market to obtain any other service or product from any
Financial Institution,  (iv) inducing or attempting to induce any Person who was
a Customer of Enfield at the time of its  acquisition by Southern,  or who was a
Customer of Southern on the date of  termination of Employee's  employment  with
Southern,  to change any depository,  loan and/or other banking  relationship of
the Customer  from  Enfield or Southern to another  Financial  Institution;  (v)
acting  as a  consultant,  officer,  director,  advisory  director,  independent
contractor,  or  employee  of any  Financial  Institution  that  has its main or
principal office in the Relevant Market, or, in acting in any such capacity with
any other  Financial  Institution,  to  maintain  an office or be employed at or
assigned to or to have any direct  involvement in the  management,  supervision,
business, marketing activities, solicitation of business for or operation of any
office of such Financial  Institution  located in the Relevant  Market;  or (vi)
communicating  to any  Financial  Institution  the  names  or  addresses  or any
financial information concerning any Person who was a Customer of Enfield at the
time of its  acquisition  by Southern,  or who was a Customer of Southern at the
date of termination of this Agreement or Employee's employment with Southern for
any reason.

                  Customer. The term "Customer of Enfield" means any Person with
whom Enfield has or has had a  depository  or loan  relationship  and/or to whom
Enfield has provided  any other  service or product,  and the term  "Customer of
Southern"  means any Person who or which is a resident of or located  within the
Relevant  Market  (as  defined  above)  with  whom  Southern  has or  has  had a
depository or loan  relationship  and/or to whom Southern has provided any other
service or product.

                  Financial Institution.  The term "Financial Institution" means
(i) any  federal  or  state  chartered  bank,  savings  bank,  savings  and loan
association or credit union,  (ii) any holding company for, or corporation  that
owns or controls,  any such entity,  (iii) any subsidiary or service corporation
of any such entity or holding  company,  or any entity  controlled in any way by
any such  entity or holding  company,  or (iv) any other  Person  engaged in the
business  of  making  loans of any  type,  soliciting  or  taking  deposits,  or
providing  any other  service or product  that is provided by Southern or one of
its affiliated corporations.
<PAGE>
                  Person.  The term  "Person"  means any  natural  person or any
corporation,  partnership,  proprietorship,  joint  venture,  limited  liability
company,  trust,  estate,  governmental  agency or  instrumentality,  fiduciary,
unincorporated association or other entity.

                  (c)  Confidentiality  Covenant.  Employee covenants and agrees
that any and all data, figures,  projections,  estimates, lists, files, records,
documents,  manuals or other such materials or information (whether financial or
otherwise,   and   including   any  files,   data  or   information   maintained
electronically,  on microfiche or otherwise) relating to Enfield or Southern and
their  respective  lending  and  deposit  operations  and  related   businesses,
regulatory  examinations,  financing  sources,  financial results and condition,
Customers  (including  lists of Customers and former  customers and  information
regarding  their  accounts and  business  dealings  with  Enfield or  Southern),
prospective  customers,   contemplated  acquisitions  (whether  of  business  or
assets), ideas, methods, marketing investigations,  surveys, research,  policies
and procedures, computer systems and software, shareholders, employees, officers
and  directors   (herein   referred  to  as  "Confidential   Information")   are
confidential  and  proprietary to Southern and are valuable,  special and unique
assets of Southern's business which are not directly reproducible from any other
source  and to which  Employee  has had  access as an officer  and  employee  of
Enfield and will have  access  during his  employment  with  Southern.  Employee
agrees that (i) all such  Confidential  Information shall be considered and kept
as the confidential, private and privileged records and information of Southern,
and  (ii)  during  the  Term  of  Employment  and at  all  times  following  the
termination of this  Agreement or his  employment for any reason,  and except as
shall be required in the course of the  performance by Employee of his duties on
behalf of Southern or otherwise pursuant to the direct, written authorization of
Southern,  Employee will not: divulge any such  Confidential  Information to any
other  Person;  remove  any such  Confidential  Information  in written or other
recorded  form from  Southern's  premises;  or make any use of any  Confidential
Information  for his own  purposes or for the  benefit of any Person  other than
Southern.  However,  following the  termination  of Employee's  employment  with
Southern,  this Paragraph 7(c) shall not apply to any  Confidential  Information
which then is in the public domain  (provided that Employee was not responsible,
directly or indirectly,  for permitting such  Confidential  Information to enter
the public domain without Southern's consent),  or which is obtained by Employee
from a  third  party  which  or  who is not  obligated  under  an  agreement  of
confidentiality  with respect to such  information  and who did not acquire such
Confidential  Information  in a manner  which  constituted  a  violation  of the
covenants  contained in this Paragraph 7(c) or which otherwise breached any duty
of confidentiality.  Further, the above obligations of confidentiality shall not
prohibit the disclosure of any such Confidential  Information by Employee to the
extent such disclosure is required by subpoena or order of a court or regulatory
authority of competent  jurisdiction  or to the extent that,  in the  reasonable
opinion of legal counsel to Employee, disclosure otherwise is required by law.

                  (d) Reasonableness of Restrictions. If any of the restrictions
set  forth  in this  Paragraph  7  shall  be  declared  invalid  for any  reason
whatsoever by a court of competent jurisdiction, the validity and enforceability
of the remainder of such restrictions  shall not thereby be adversely  affected.
Employee  acknowledges  that Enfield has had a substantial  business presence in
the Relevant Market, that Southern,  through its purchase of Enfield's business,
has acquired a legitimate economic interest of Enfield in those geographic areas
which this  Paragraph  7  specifically  is  intended  to  protect,  and that the
<PAGE>
Relevant  Market and  Restriction  Period are limited in scope to the geographic
territory and period of time reasonably necessary to protect Southern's economic
interest and otherwise are reasonable and proper.  In the event the  Restriction
Period or any other such time limitation is deemed to be unreasonable by a court
of competent jurisdiction, Employee hereby agrees to submit to such reduction of
the  Restriction  Period as the court  shall deem  reasonable.  In the event the
Relevant  Market  is  deemed  by  a  court  of  competent   jurisdiction  to  be
unreasonable,  Employee  hereby agrees that the Relevant Market shall be reduced
by excluding any  separately  identifiable  and  geographically  severable  area
necessary to make the  remaining  geographic  restriction  reasonable,  but this
Paragraph 7 shall be enforced  as to all other  areas  included in the  Relevant
Market which are not so excluded.

                  (e) Remedies for Breach. Employee understands and acknowledges
that a  breach  or  violation  by him of  any  of  the  covenants  contained  in
Paragraphs 7(b) and 7(c) shall be deemed a material breach of this Agreement and
will cause substantial,  immediate and irreparable injury to Southern,  and that
Southern will have no adequate  remedy at law for such breach or  violation.  In
the  event of  Employee's  actual  or  threatened  breach  or  violation  of the
covenants  contained  in either such  Paragraph,  Southern  shall be entitled to
bring  a  civil  action  seeking,  and  shall  be  entitled  to,  an  injunction
restraining  Employee  from  violating or continuing to violate such covenant or
from any  threatened  violation  thereof,  or for any other  legal or  equitable
relief  relating to the breach or violation of such  covenant.  Employee  agrees
that, if Southern  institutes any action or proceeding  against Employee seeking
to enforce  any of such  covenants  or to recover  other  relief  relating to an
actual or  threatened  breach or  violation of any of such  covenants,  Employee
shall be deemed  to have  waived  the  claim or  defense  that  Southern  has an
adequate  remedy at law and shall not urge in any such action or proceeding  the
claim or defense  that such a remedy at law  exists.  However,  the  exercise by
Southern  of any such  right,  remedy,  power or  privilege  shall not  preclude
Southern  or its  successors  or  assigns  from  pursuing  any  other  remedy or
exercising  any other  right,  power or  privilege  available to it for any such
breach or  violation,  whether at law or in equity,  including  the  recovery of
damages,  all of which shall be cumulative  and in addition to all other rights,
remedies, powers or privileges of Southern.

                  Notwithstanding  anything  contained  herein to the  contrary,
Employee  agrees that the  provisions of Paragraphs  7(b) and 7(c) above and the
remedies  provided in this  Paragraph  7(e) for a breach by Employee shall be in
addition  to, and shall not be deemed to  supersede  or to  otherwise  restrict,
limit or impair  the  rights of  Southern  under  any  state or  federal  law or
regulation  dealing  with or  providing  a remedy for the  wrongful  disclosure,
misuse or misappropriation of trade secrets or other proprietary or confidential
information.

                  (f) Survival of Covenants. Employee's covenants and agreements
and  Southern's  rights and  remedies  provided  for in this  Paragraph  7 shall
survive  and  remain  fully  in  effect  following  expiration  of the  Term  of
Employment  or any actual  termination  of Employee's  employment  with Southern
during the Term of Employment).

         8.       Termination and Termination Pay.

                  (a) By Employee.  Employee's  employment  under this Agreement
may be terminated  at any time by Employee upon sixty (60) days' written  notice
to  Southern.  Upon such  termination,  Employee  shall be  entitled  to receive
compensation through the effective date of such termination.
<PAGE>
                  (b) Death or  Retirement.  Employee's  employment  under  this
Agreement  automatically  shall be terminated  upon his death during the Term of
Employment or upon the effective date of Employee's  retirement  with Southern's
consent  or  under  the  terms  of  Southern's   pension  plan.  Upon  any  such
termination, Employee (or, in the case of Employee's death, his estate) shall be
entitled to receive any  compensation  Employee  shall have earned  prior to the
date of termination but which remains unpaid.

                  (c) By Southern.  Southern may terminate Employee's employment
at any time during the Term of Employment for "Cause" (as defined  below).  Upon
any such termination by Southern under this Paragraph 8(c),  Employee shall have
no  further  rights  under  this  Agreement  (including  any  right  to  receive
compensation or other benefits for any period after such termination).

                  Notwithstanding  anything  contained  herein to the  contrary,
before  Southern may terminate  Employee's  employment for a Cause  described in
Paragraph  8(c)(i)  below,  Southern  first  shall give  Employee  ten (10) days
written  notice  of the  facts or  circumstances  constituting  such  Cause  for
termination,  and, if during such period  Employee  shall cure such Cause to the
reasonable  satisfaction of Southern, then Employee's employment shall continue;
provided however,  that, in the event of any reoccurrence or further  occurrence
of the same  Cause,  Southern  shall have no  obligation  to give  Employee  any
further or additional  notice or opportunity to cure prior to the termination of
Employee's employment.  Except as specifically provided above, no such notice or
opportunity  to cure shall be required in the case of  termination of Employee's
employment for any Cause.

                  For  purposes  of this  Paragraph  8(c),  Southern  shall have
"Cause" to terminate Employee's employment upon:

                  (i) A determination by Southern,  in good faith, that Employee
(A) has breached in any material  respect any of the terms or conditions of this
Agreement or of the Code of Conduct,  (B) has failed in any material  respect to
perform or discharge his duties or  responsibilities of employment in the manner
provided  herein,  or (C) is engaging or has  engaged in willful  misconduct  or
conduct which is detrimental in any material  respect to the business  prospects
of Southern or which has had or likely  will have a material  adverse  effect on
Southern's business or reputation;

                  (ii) The  violation by Employee of any  applicable  federal or
state law, or any  applicable  rule,  regulation,  order or  statement of policy
promulgated by any  governmental  agency or authority having  jurisdiction  over
Southern or any of its affiliates or  subsidiaries  (a "Regulatory  Authority"),
including  but not limited to the Federal  Deposit  Insurance  Corporation,  the
North  Carolina   Banking   Commissioner,   the  North  Carolina  State  Banking
Commission,  the Federal  Reserve  Board or any other banking  regulator,  which
results from  Employee's  gross  negligence,  willful  misconduct or intentional
disregard of such law, rule,  regulation,  order or policy statement and results
in any  substantial  damage,  monetary or  otherwise,  to Southern or any of its
affiliates or subsidiaries or to Southern's reputation;

                  (iii) The  commission in the course of  Employee's  employment
with  Southern  of an act of  fraud,  embezzlement,  theft  or  proven  personal
dishonesty  (whether or not such act or charge  results in criminal  indictment,
charges, prosecution or conviction);
<PAGE>
                  (iv) The  conviction of Employee of any felony or any criminal
offense involving  dishonesty or breach of trust, or the occurrence of any event
described in Section 19 of the Federal Deposit  Insurance Act or any other event
or  circumstance  which  disqualifies  Employee  from  serving as an employee or
executive officer of, or a party affiliated with, Southern or BancShares; or, in
the  event  Employee  becomes  unacceptable  to,  or is  removed,  suspended  or
prohibited  from  participating  in the  conduct of  Southern's  or  BancShares'
affairs (or if proceedings  for that purpose are  commenced),  by any Regulatory
Authority; or,

                  (v) The  exclusion  of Employee by the carrier or  underwriter
from coverage  under  Southern's  then current  "blanket bond" or other fidelity
bond or insurance policy covering its directors,  officers or employees,  or the
occurrence of any event which Southern  believes,  in good faith, will result in
Employee  being excluded from such coverage,  or having  coverage  limited as to
Employee as compared to other  covered  officers or  employees,  pursuant to the
terms and  conditions of such "blanket bond" or other fidelity bond or insurance
policy.

                  (d) Except as otherwise  provided  below,  upon the earlier of
the  Expiration  Date of the Term of  Employment  or the  effective  date of any
actual  termination of Employee's  employment with Southern under this Agreement
for any reason, the provisions of this Agreement likewise shall terminate and be
of no further  force or  effect.  However,  Employee's  covenants  contained  in
Paragraph 7 above,  and Southern's  obligations  for continued  payments of Cash
Compensation  under Paragraph 8(b) above,  shall survive and remain in effect in
accordance  with  their  terms  following  the  Expiration  Date  or any  actual
termination of Employee's employment.

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

                  (a)  Southern is declared by any  Regulatory  Authority  to be
insolvent, in default or operating in an unsafe or unsound manner; or,

                  (b) in the  opinion  of counsel to  Southern  such  payment or
action (i) would be  prohibited  by or would  violate any  provision of state or
federal law  applicable to Southern,  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.      Successors and Assigns.

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

                  (b) Southern is contracting for the unique and personal skills
of Employee. Therefore, Employee shall be precluded from assigning or delegating
his rights or duties  hereunder  without first  obtaining the written consent of
Southern.
<PAGE>
         11. 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 and signed by the parties hereto. 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  amendments or
additions  to this  Agreement  shall be binding  unless in writing and signed by
both parties, except as herein otherwise provided.

         12.  Applicable  Law. The parties  hereto agree that without  regard to
principles  of  conflicts  of  laws,  the  internal  laws of the  State of North
Carolina shall govern and control the validity, interpretation,  performance and
enforcement  of this  Agreement  and that any suit or  action  relating  to this
Agreement  shall be  instituted  and  prosecuted  in the Courts of Wayne County,
North  Carolina,  and each party  hereto  hereby does waive any right or defense
relating to such  jurisdiction and venue,  except to the extent that federal law
shall be deemed to apply.

         13.  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.

         14.  Headings.  The section and  paragraph  headings  contained in this
Agreement  are for  reference  purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

         15. Notices.  Except as otherwise may be provided herein,  all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given when hand delivered or
sent by facsimile  transmission  by one party to the other, or when deposited by
one party with the United States Postal Service,  postage prepaid, and addressed
to the other party as follows:

         If to Southern:                             If to Employee:

            Southern Bank and Trust Company             Watson N. Sherrod, Jr.
            121 East Main St.                           Post Office 486
            Mt. Olive, N.C.  28365                      Enfield, N.C.  27823
            Attention: David A. Bean

         16.  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  and each such  counterpart  hereof  shall be  deemed an  original
instrument,  but  all  such  counterparts  together  shall  constitute  but  one
agreement.

         17.  Entire  Agreement.  This  Agreement  and the  Exhibits  and  other
documents  attached  hereto and  incorporated  herein by  reference  contain the
entire  understanding and agreement of the parties, and there are no agreements,
promises,  warranties,  covenants or undertakings other than those expressly set
forth or referred to herein.
<PAGE>

                  IN WITNESS  WHEREOF,  Southern has caused this Agreement to be
executed by its duly authorized  officer in pursuance of authority duly given by
its Board of  Directors,  and  Employee has set hereunto his hand and adopted as
his seal the typewritten  word "SEAL"  appearing  beside his name, all as of the
day and year first above written.

                           SOUTHERN BANK AND TRUST COMPANY



                           By:          /s/ John C. Pegram, Jr.
                                        -----------------------
                                        John C. Pegram, Jr.
                                        President




                                        /s/ Watson N. Sherrod, Jr.        (SEAL)
                                        --------------------------
                                        Watson N. Sherrod, Jr.