EXHIBIT 10.4







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                               GUARANTEE AGREEMENT

                                 by and between

                        SOUTHCOAST FINANCIAL CORPORATION

                                       and

                     WELLS FARGO BANK, NATIONAL ASSOCIATION

                             Dated as of May 3, 2002



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                               GUARANTEE AGREEMENT

         This GUARANTEE AGREEMENT (this  "Guarantee"),  dated as of May 3, 2002,
is executed and delivered by Southcoast Financial Corporation,  a South Carolina
corporation (the "Guarantor"),  and Wells Fargo Bank,  National  Association,  a
national  banking  association  incorporated  and existing under the laws of the
United States of America, as trustee (the "Guarantee Trustee"),  for the benefit
of the Holders (as defined  herein) from time to time of the Capital  Securities
(as defined  herein) of Southcoast  Capital Trust I, a Delaware  statutory trust
(the "Issuer").

         WHEREAS,  pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"),  dated as of the date hereof  among  Wells Fargo Bank,  National
Association, not in its individual capacity but solely as institutional trustee,
Wells Fargo Delaware Trust Company, not in its individual capacity but solely as
Delaware Trustee,  the administrative  trustees of the Issuer named therein, the
Guarantor, as sponsor, and the holders from time to time of undivided beneficial
interests in the assets of the Issuer,  the Issuer is issuing on the date hereof
those undivided beneficial interests,  having an aggregate liquidation amount of
$4,000,000 (the "Capital Securities"); and

         WHEREAS,  as incentive for the Holders (as defined  herein) to purchase
the Capital Securities, the Guarantor desires irrevocably and unconditionally to
agree,  to the  extent  set forth in this  Guarantee,  to pay to the  Holders of
Capital  Securities  the  Guarantee  Payments  (as  defined  herein) and to make
certain other payments on the terms and conditions set forth herein;

         NOW, THEREFORE,  in consideration of the purchase by each Holder of the
Capital Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of
the Holders.

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

         Section 1.1 Definitions and Interpretation.  In this Guarantee,  unless
the context otherwise requires:

         (a)  capitalized  terms used in this  Guarantee  but not defined in the
preamble  above have the  respective  meanings  assigned to them in this Section
1.1;

         (b) a term  defined  anywhere in this  Guarantee  has the same  meaning
throughout;

         (c) all references to "the  Guarantee" or "this  Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;

         (d) all references in this Guarantee to "Articles" or "Sections" are to
Articles or Sections of this Guarantee, unless otherwise specified;

         (e) terms  defined in the  Declaration  as at the date of  execution of
this  Guarantee  have the same  meanings  when  used in this  Guarantee,  unless
otherwise  defined in this Guarantee or unless the context  otherwise  requires;
and

         (f) a reference to the singular includes the plural and vice versa.


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         "Affiliate"  has the same  meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.

         "Beneficiaries"  means any  Person to whom the  Issuer is or  hereafter
becomes indebted or liable.

         "Capital  Securities" has the meaning set forth in the recitals to this
Guarantee.

         "Common Securities" means the common securities issued by the Issuer to
the Guarantor pursuant to the Declaration.

         "Corporate  Trust Office" means the office of the Guarantee  Trustee at
which the  corporate  trust  business of the  Guarantee  Trustee  shall,  at any
particular  time,  be  principally  administered,  which  office  at the date of
execution of this  Guarantee  is located at 210 North  University  Drive,  Coral
Springs, FL 33071, Attention: Manager - Corporate Trust Administration.

         "Covered Person" means any Holder of Capital Securities.

         "Debentures" means the debt securities of the Guarantor  designated the
Floating Rate Junior  Subordinated  Deferrable Interest Debentures due 2032 held
by the Institutional Trustee (as defined in the Declaration) of the Issuer.

         "Declaration  Event of Default"  means an "Event of Default" as defined
in the Declaration.

         "Event of Default" has the meaning set forth in Section 2.4(a).

         "Guarantee  Payments"  means the following  payments or  distributions,
without duplication,  with respect to the Capital Securities,  to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration)  which are required to be paid on such Capital Securities to
the extent the Issuer shall have funds available  therefor,  (ii) the Redemption
Price to the extent the Issuer has funds available therefor, with respect to any
Capital  Securities  called for  redemption  by the  Issuer,  (iii) the  Special
Redemption  Price to the extent the Issuer has funds  available  therefor,  with
respect to Capital  Securities  redeemed upon the occurrence of a Special Event,
and (iv) upon a voluntary or involuntary liquidation, dissolution, winding-up or
termination  of the Issuer (other than in connection  with the  distribution  of
Debentures  to the Holders of the  Capital  Securities  in exchange  therefor as
provided in the Declaration), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid Distributions on the Capital Securities to the
date of payment,  to the extent the Issuer shall have funds available  therefor,
and (b) the amount of assets of the Issuer remaining  available for distribution
to Holders in  liquidation  of the Issuer  (in  either  case,  the  "Liquidation
Distribution").

         "Guarantee Trustee" means Wells Fargo Bank, National Association, until
a  Successor  Guarantee  Trustee  has  been  appointed  and  has  accepted  such
appointment  pursuant to the terms of this Guarantee and  thereafter  means each
such Successor Guarantee Trustee.

         "Guarantor"  means  Southcoast  Financial  Corporation  and each of its
successors and assigns.

         "Holder"  means any holder,  as  registered on the books and records of
the Issuer, of any Capital Securities;  provided,  however, that, in determining
whether the Holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor.



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         "Indemnified  Person"  means the  Guarantee  Trustee  (including in its
individual  capacity),  any Affiliate of the Guarantee Trustee, or any officers,
directors,   shareholders,   members,  partners,   employees,   representatives,
nominees, custodians or agents of the Guarantee Trustee.

         "Indenture" means the Indenture dated as of the date hereof between the
Guarantor  and Wells Fargo Bank,  National  Association,  not in its  individual
capacity but solely as trustee, and any indenture  supplemental thereto pursuant
to which the  Debentures  are to be issued to the  institutional  trustee of the
Issuer.

         "Issuer"  has the meaning set forth in the  opening  paragraph  to this
Guarantee.

         "Liquidation  Distribution" has the meaning set forth in the definition
of "Guarantee Payments" herein.

         "Majority  in  liquidation  amount  of the  Capital  Securities"  means
Holder(s) of outstanding  Capital  Securities,  voting together as a class,  but
separately  from the  holders  of  Common  Securities,  of more  than 50% of the
aggregate  liquidation amount (including the stated amount that would be paid on
redemption,  liquidation or otherwise,  plus accrued and unpaid Distributions to
the date upon  which the  voting  percentages  are  determined)  of all  Capital
Securities then outstanding.

         "Obligations"  means  any  costs,  expenses  or  liabilities  (but  not
including  liabilities related to taxes) of the Issuer other than obligations of
the  Issuer to pay to  holders  of any Trust  Securities  the  amounts  due such
holders pursuant to the terms of the Trust Securities.

         "Officer's   Certificate"   means,   with  respect  to  any  Person,  a
certificate  signed by one  Authorized  Officer of such  Person.  Any  Officer's
Certificate  delivered  with respect to compliance  with a condition or covenant
provided for in this Guarantee shall include:

         (a) a statement that each officer signing the Officer's Certificate has
         read the covenant or condition and the definitions relating thereto;

         (b) a brief  statement  of the nature and scope of the  examination  or
         investigation  undertaken  by each officer in rendering  the  Officer's
         Certificate;

         (c) a statement  that each such  officer has made such  examination  or
         investigation as, in such opinion,  is necessary to enable such officer
         to express an  informed  opinion as to whether or not such  covenant or
         condition has been complied with, and

         (d) a  statement  as to whether,  in the opinion of each such  officer,
         such condition or covenant has been complied with.

          "Person" means a legal person, including any individual,  corporation,
estate, partnership,  joint venture,  association,  joint stock company, limited
liability  company,  trust,  unincorporated  association,  or  government or any
agency or political subdivision thereof, or any other entity of whatever nature.

          "Redemption Price" has the meaning set forth in the Indenture.

          "Responsible  Officer" means,  with respect to the Guarantee  Trustee,
any officer  within the  Corporate  Trust Office of the  Guarantee  Trustee with
direct  responsibility  for the  administration of this Guarantee  including any
Vice President, Assistant Vice President,  Secretary, Assistant Secretary or any
other officer of the Guarantee Trustee customarily  performing functions similar
to those  performed  by any of the above  designated  officers  and  also,  with


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respect to a particular  corporate trust matter,  any other officer to whom such
matter is referred  because of that officer's  knowledge of and familiarity with
the particular subject.

          "Special Event" has the meaning set forth in the Indenture.

          "Special Redemption Price" has the meaning set forth in the Indenture.

          "Successor  Guarantee  Trustee"  means a successor  Guarantee  Trustee
possessing the qualifications to act as Guarantee Trustee under Section 3.1.

          "Trust   Securities"  means  the Common  Securities  and  the  Capital
          Securities.

                                   ARTICLE II

                          POWERS, DUTIES AND RIGHTS OF
                                GUARANTEE TRUSTEE

         Section 2.1 Powers and Duties of the Guarantee Trustee.

         (a) This  Guarantee  shall  be held by the  Guarantee  Trustee  for the
benefit of the  Holders of the Capital  Securities,  and the  Guarantee  Trustee
shall not  transfer  this  Guarantee  to any  Person  except a Holder of Capital
Securities  exercising  his or her rights  pursuant  to  Section  4.4(b) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its  appointment to act as Successor  Guarantee  Trustee.  The right,  title and
interest of the  Guarantee  Trustee  shall  automatically  vest in any Successor
Guarantee  Trustee,  and such vesting and  cessation of title shall be effective
whether or not conveyancing  documents have been executed and delivered pursuant
to the appointment of such Successor Guarantee Trustee.

         (b) If an Event of Default actually known to a Responsible  Officer has
occurred and is continuing,  the Guarantee  Trustee shall enforce this Guarantee
for the benefit of the Holders of the Capital Securities.

         (c) The  Guarantee  Trustee,  before  the  occurrence  of any  Event of
Default and after  curing all Events of Default  that may have  occurred,  shall
undertake  to perform  only such  duties as are  specifically  set forth in this
Guarantee,  and no implied  covenants shall be read into this Guarantee  against
the Guarantee  Trustee.  In case an Event of Default has occurred  (that has not
been waived  pursuant to Section  2.4) and is  actually  known to a  Responsible
Officer of the Guarantee  Trustee,  the Guarantee Trustee shall exercise such of
the rights and powers vested in it by this Guarantee, and use the same degree of
care and skill in its exercise  thereof,  as a prudent  person would exercise or
use under the circumstances in the conduct of his or her own affairs.

         (d) No  provision of this  Guarantee  shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

                  (i) prior to the  occurrence of any Event of Default and after
         the  curing or  waiving  of all such  Events of  Default  that may have
         occurred:

                           (A)  the  duties  and  obligations  of the  Guarantee
                  Trustee shall be determined  solely by the express  provisions


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                  of this  Guarantee,  and the  Guarantee  Trustee  shall not be
                  liable  except  for  the   performance   of  such  duties  and
                  obligations as are  specifically  set forth in this Guarantee,
                  and no implied  covenants  or  obligations  shall be read into
                  this Guarantee against the Guarantee Trustee; and

                           (B) in the  absence  of bad  faith on the part of the
                  Guarantee  Trustee,  the  Guarantee  Trustee may  conclusively
                  rely, as to the truth of the statements and the correctness of
                  the  opinions  expressed  therein,  upon any  certificates  or
                  opinions  furnished to the Guarantee Trustee and conforming to
                  the  requirements  of this  Guarantee;  but in the case of any
                  such certificates or opinions that by any provision hereof are
                  specifically   required  to  be  furnished  to  the  Guarantee
                  Trustee,  the  Guarantee  Trustee  shall  be  under  a duty to
                  examine  the same to  determine  whether  or not on their face
                  they conform to the requirements of this Guarantee;

                  (ii) the  Guarantee  Trustee shall not be liable for any error
         of  judgment  made  in  good  faith  by a  Responsible  Officer  of the
         Guarantee  Trustee,  unless  it shall be proved  that such  Responsible
         Officer of the Guarantee Trustee or the Guarantee Trustee was negligent
         in ascertaining the pertinent facts upon which such judgment was made;

                  (iii) the  Guarantee  Trustee shall not be liable with respect
         to any  action  taken or  omitted  to be  taken by it in good  faith in
         accordance with the written direction of the Holders of not less than a
         Majority in liquidation  amount of the Capital  Securities  relating to
         the time,  method and place of conducting any proceeding for any remedy
         available to the Guarantee  Trustee,  or exercising  any trust or power
         conferred upon the Guarantee Trustee under this Guarantee; and

                  (iv)  no  provision  of  this  Guarantee   shall  require  the
         Guarantee  Trustee to expend or risk its own funds or  otherwise  incur
         personal financial liability in the performance of any of its duties or
         in the exercise of any of its rights or powers.

         Section 2.2 Certain Rights of Guarantee Trustee.

         (a) Subject to the provisions of Section 2.1:

                  (i) The Guarantee Trustee may conclusively  rely, and shall be
         fully   protected  in  acting  or  refraining  from  acting  upon,  any
         resolution,   certificate,   statement,  instrument,  opinion,  report,
         notice,  request,  direction,  consent,  order, bond, debenture,  note,
         other evidence of indebtedness  or other paper or document  believed by
         it to be genuine  and to have been  signed,  sent or  presented  by the
         proper party or parties.

                  (ii) Any  direction or act of the  Guarantor  contemplated  by
         this  Guarantee  shall  be  sufficiently   evidenced  by  an  Officer's
         Certificate.

                  (iii) Whenever,  in the administration of this Guarantee,  the
         Guarantee  Trustee  shall deem it desirable  that a matter be proved or
         established before taking,  suffering or omitting any action hereunder,
         the Guarantee  Trustee  (unless other  evidence is herein  specifically
         prescribed)  may, in the absence of bad faith on its part,  request and
         conclusively rely upon an Officer's Certificate of the Guarantor which,
         upon  receipt  of such  request,  shall be  promptly  delivered  by the
         Guarantor.

                  (iv) The  Guarantee  Trustee  shall have no duty to see to any
         recording,   filing  or   registration   of  any   instrument  (or  any
         re-recording, refiling or re-registration thereof).



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                  (v) The  Guarantee  Trustee  may consult  with  counsel of its
         selection,  and the advice or opinion of such  counsel  with respect to
         legal matters shall be full and complete  authorization  and protection
         in respect of any action taken,  suffered or omitted by it hereunder in
         good faith and in accordance with such advice or opinion.  Such counsel
         may be  counsel  to the  Guarantor  or any of its  Affiliates  and  may
         include any of its  employees.  The  Guarantee  Trustee  shall have the
         right at any time to seek instructions concerning the administration of
         this Guarantee from any court of competent jurisdiction.

                  (vi) The  Guarantee  Trustee  shall be under no  obligation to
         exercise any of the rights or powers vested in it by this  Guarantee at
         the request or direction  of any Holder,  unless such Holder shall have
         provided  to  the  Guarantee   Trustee  such  security  and  indemnity,
         reasonably  satisfactory to the Guarantee  Trustee,  against the costs,
         expenses  (including  attorneys'  fees and expenses and the expenses of
         the Guarantee Trustee's agents, nominees or custodians) and liabilities
         that  might  be  incurred  by it in  complying  with  such  request  or
         direction,  including such  reasonable  advances as may be requested by
         the Guarantee  Trustee;  provided,  however,  that nothing contained in
         this Section 2.2(a)(vi) shall relieve the Guarantee  Trustee,  upon the
         occurrence  of an Event of Default,  of its  obligation to exercise the
         rights and powers vested in it by this Guarantee.

                  (vii)  The  Guarantee  Trustee  shall not be bound to make any
         investigation  into the  facts or  matters  stated  in any  resolution,
         certificate,  statement,  instrument, opinion, report, notice, request,
         direction,  consent,  order, bond,  debenture,  note, other evidence of
         indebtedness or other paper or document,  but the Guarantee Trustee, in
         its  discretion,  may make such further inquiry or  investigation  into
         such facts or matters as it may see fit.

                  (viii) The Guarantee  Trustee may execute any of the trusts or
         powers  hereunder or perform any duties hereunder either directly or by
         or through agents, nominees, custodians or attorneys, and the Guarantee
         Trustee shall not be  responsible  for any  misconduct or negligence on
         the  part of any  agent  or  attorney  appointed  with  due  care by it
         hereunder.

                  (ix) Any action taken by the  Guarantee  Trustee or its agents
         hereunder  shall bind the  Holders of the Capital  Securities,  and the
         signature  of the  Guarantee  Trustee  or its  agents  alone  shall  be
         sufficient  and  effective to perform any such  action.  No third party
         shall be  required  to inquire  as to the  authority  of the  Guarantee
         Trustee  to so act or as to its  compliance  with any of the  terms and
         provisions  of this  Guarantee,  both of which  shall  be  conclusively
         evidenced by the Guarantee Trustee's or its agent's taking such action.

                  (x)  Whenever  in the  administration  of this  Guarantee  the
         Guarantee Trustee shall deem it desirable to receive  instructions with
         respect to  enforcing  any  remedy or right or taking any other  action
         hereunder,  the Guarantee Trustee (i) may request instructions from the
         Holders of a Majority in liquidation amount of the Capital  Securities,
         (ii) may  refrain  from  enforcing  such remedy or right or taking such
         other action until such  instructions are received,  and (iii) shall be
         protected in conclusively  relying on or acting in accordance with such
         instructions.

                  (xi) The Guarantee  Trustee shall not be liable for any action
         taken,  suffered,  or omitted to be taken by it in good faith,  without
         negligence,  and  reasonably  believed by it to be authorized or within
         the discretion or rights or powers conferred upon it by this Guarantee.

         (b) No provision of this  Guarantee  shall be deemed to impose any duty
or obligation  on the  Guarantee  Trustee to perform any act or acts or exercise
any  right,  power,  duty or  obligation  conferred  or  imposed  on it,  in any


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jurisdiction  in which it shall be  illegal  or in which the  Guarantee  Trustee
shall be unqualified or incompetent in accordance with applicable law to perform
any such act or acts or to exercise any such right,  power,  duty or obligation.
No permissive  power or authority  available to the  Guarantee  Trustee shall be
construed to be a duty.

         Section 2.3 Not Responsible for Recitals or Issuance of Guarantee.  The
recitals  contained in this  Guarantee  shall be taken as the  statements of the
Guarantor,  and the  Guarantee  Trustee does not assume any  responsibility  for
their  correctness.  The  Guarantee  Trustee makes no  representation  as to the
validity or sufficiency of this Guarantee.

         Section 2.4 Events of Default; Waiver.

         (a) An Event of  Default  under  this  Guarantee  will  occur  upon the
failure of the  Guarantor  to perform  any of its  payment or other  obligations
hereunder.

         (b) The  Holders of a Majority  in  liquidation  amount of the  Capital
Securities may, voting or consenting as a class, on behalf of the Holders of all
of the Capital Securities, waive any past Event of Default and its consequences.
Upon such waiver,  any such Event of Default shall cease to exist,  and shall be
deemed to have been  cured,  for every  purpose of this  Guarantee,  but no such
waiver shall extend to any  subsequent  or other  default or Event of Default or
impair any right consequent thereon.

         Section 2.5 Events of Default; Notice.

         (a) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default,  transmit  by mail,  first class  postage  prepaid,  to the
Holders of the Capital  Securities and the  Guarantor,  notices of all Events of
Default actually known to a Responsible Officer of the Guarantee Trustee, unless
such  defaults  have been  cured  before the  giving of such  notice,  provided,
however,  that the  Guarantee  Trustee  shall be protected in  withholding  such
notice if and so long as a Responsible  Officer of the Guarantee Trustee in good
faith  determines that the withholding of such notice is in the interests of the
Holders of the Capital Securities.

         (b) The Guarantee  Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written notice
from the  Guarantor  or a Holder of the  Capital  Securities,  or a  Responsible
Officer  of the  Guarantee  Trustee  charged  with  the  administration  of this
Guarantee shall have obtained actual knowledge thereof.

                                  ARTICLE III

                                GUARANTEE TRUSTEE

         Section 3.1 Guarantee Trustee; Eligibility.

         (a) There shall at all times be a Guarantee Trustee which shall:

                  (i) not be an Affiliate of the Guarantor, and

                  (ii) be a corporation  organized and doing  business under the
         laws of the United States of America or any State or Territory  thereof
         or of the District of Columbia, or Person authorized under such laws to
         exercise corporate trust powers,  having a combined capital and surplus
         of at least 50  million  U.S.  dollars  ($50,000,000),  and  subject to
         supervision or examination by Federal,  State,  Territorial or District
         of  Columbia  authority.  If  such  corporation  publishes  reports  of
         condition at least annually,  pursuant to law or to the requirements of
         the supervising or examining authority referred to above, then, for the


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         purposes of this Section  3.l(a)(ii),  the combined capital and surplus
         of such  corporation  shall be deemed to be its  combined  capital  and
         surplus  as set  forth  in its  most  recent  report  of  condition  so
         published.

         (b) If at any time the Guarantee  Trustee shall cease to be eligible to
so act under Section 3.1(a),  the Guarantee Trustee shall immediately  resign in
the manner and with the effect set out in Section 3.2(c).

         (c) If the  Guarantee  Trustee has or shall  acquire  any  "conflicting
interest"  within the meaning of Section 310(b) of the Trust  Indenture Act, the
Guarantee  Trustee shall either  eliminate such interest or resign to the extent
and in the manner provided by, and subject to this Guarantee.

         Section 3.2 Appointment, Removal and Resignation of Guarantee Trustee.

         (a) Subject to Section 3.2(b),  the Guarantee  Trustee may be appointed
or removed without cause at any time by the Guarantor  except during an Event of
Default.

         (b) The  Guarantee  Trustee  shall not be  removed in  accordance  with
Section  3.2(a) until a Successor  Guarantee  Trustee has been appointed and has
accepted  such  appointment  by written  instrument  executed by such  Successor
Guarantee Trustee and delivered to the Guarantor.

         (c) The Guarantee Trustee appointed to office shall hold office until a
Successor  Guarantee  Trustee shall have been  appointed or until its removal or
resignation.  The  Guarantee  Trustee may resign from office  (without  need for
prior or subsequent  accounting)  by an  instrument  in writing  executed by the
Guarantee  Trustee and delivered to the Guarantor,  which  resignation shall not
take effect  until a Successor  Guarantee  Trustee  has been  appointed  and has
accepted such appointment by an instrument in writing executed by such Successor
Guarantee  Trustee and delivered to the  Guarantor  and the resigning  Guarantee
Trustee.

         (d) If no Successor  Guarantee  Trustee  shall have been  appointed and
accepted  appointment  as  provided  in this  Section  3.2  within 45 days after
delivery of an  instrument  of removal or  resignation,  the  Guarantee  Trustee
resigning or being removed may petition any court of competent  jurisdiction for
appointment of a Successor  Guarantee Trustee.  Such court may thereupon,  after
prescribing  such  notice,  if any, as it may deem  proper,  appoint a Successor
Guarantee Trustee.

         (e) No Guarantee  Trustee  shall be liable for the acts or omissions to
act of any Successor Guarantee Trustee.

         (f) Upon termination of this Guarantee or removal or resignation of the
Guarantee  Trustee  pursuant to this Section 3.2, the Guarantor shall pay to the
Guarantee  Trustee all amounts owing to the Guarantee Trustee under Sections 7.2
and 7.3 accrued to the date of such termination, removal or resignation.



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                                   ARTICLE IV

                                    GUARANTEE

         Section 4.1 Guarantee.

         (a) The Guarantor irrevocably and unconditionally agrees to pay in full
to  the  Holders  the  Guarantee   Payments  (without   duplication  of  amounts
theretofore  paid by the  Issuer),  as and when due,  regardless  of any defense
(except the defense of payment by the Issuer),  right of set-off or counterclaim
that the  Issuer  may  have or  assert.  The  Guarantor's  obligation  to make a
Guarantee  Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.

         (b) The Guarantor  hereby also agrees to assume any and all Obligations
of the Issuer and in the event any such Obligation is not so assumed, subject to
the conditions  hereof,  the Guarantor  hereby  irrevocably and  unconditionally
guarantees to each Beneficiary the full payment, when and as due, of any and all
Obligations  to such  Beneficiaries.  This  Agreement  is intended to be for the
benefit of, and to be  enforceable  by, all such  Beneficiaries,  whether or not
such Beneficiaries have received notice hereof.

         Section 4.2 Waiver of Notice and Demand.  The  Guarantor  hereby waives
notice of acceptance of this  Guarantee and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first  against  the Issuer or any other  Person  before  proceeding  against the
Guarantor,  protest,  notice  of  nonpayment,  notice  of  dishonor,  notice  of
redemption and all other notices and demands.

         Section 4.3  Obligations  Not  Affected.  The  obligations,  covenants,
agreements and duties of the Guarantor  under this Guarantee  shall in no way be
affected or impaired by reason of the happening  from time to time of any of the
following:

         (a) the release or waiver,  by  operation of law or  otherwise,  of the
performance  or  observance  by the Issuer of any express or implied  agreement,
covenant,  term or condition  relating to the Capital Securities to be performed
or observed by the Issuer,

         (b) the  extension  of time for the payment by the Issuer of all or any
portion  of the  Distributions,  Redemption  Price,  Special  Redemption  Price,
Liquidation  Distribution  or any  other  sums  payable  under  the terms of the
Capital  Securities  or the extension of time for the  performance  of any other
obligation under,  arising out of or in connection with, the Capital  Securities
(other than an extension of time for payment of Distributions, Redemption Price,
Special  Redemption  Price,  Liquidation  Distribution or other sum payable that
results from the extension of any interest  payment  period on the Debentures or
any  extension  of  the  maturity  date  of  the  Debentures  permitted  by  the
Indenture);

         (c) any  failure,  omission,  delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;

         (d) the voluntary or involuntary liquidation,  dissolution, sale of any
collateral, receivership,  insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization,  arrangement, composition or readjustment of debt of,
or other similar proceedings  affecting,  the Issuer or any of the assets of the
Issuer;

         (e) any  invalidity  of,  or  defect  or  deficiency  in,  the  Capital
Securities;



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<Page>

         (f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

         (g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable  discharge or defense of a guarantor,  it being the intent of
this  Section  4.3 that the  obligations  of the  Guarantor  hereunder  shall be
absolute and unconditional under any and all circumstances.

         There  shall be no  obligation  of the  Holders  to give  notice to, or
obtain  consent of, the  Guarantor  with respect to the  happening of any of the
foregoing.

         Section 4.4 Rights of Holders.

         (a) The  Holders of a Majority  in  liquidation  amount of the  Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee  Trustee in respect of this
Guarantee  or to direct the  exercise of any trust or power  conferred  upon the
Guarantee  Trustee  under this  Guarantee;  provided,  however,  that subject to
Section 2.1, the Guarantee Trustee shall have the right to decline to follow any
such direction if the Guarantee Trustee being advised by counsel determines that
the  action  or  proceeding  so  directed  may not  lawfully  be taken or if the
Guarantee Trustee in good faith by its board of directors or trustees, executive
committees  or a trust  committee of directors  or trustees  and/or  Responsible
Officers  shall  determine  that action or proceedings so directed would involve
the Guarantee Trustee in personal liability.

         (b) Any Holder of Capital  Securities may institute a legal  proceeding
directly  against the Guarantor to enforce the Guarantee  Trustee's rights under
this Guarantee, without first instituting a legal proceeding against the Issuer,
the  Guarantee  Trustee or any other Person.  The Guarantor  waives any right or
remedy to require that any such action be brought first against the Issuer,  the
Guarantee Trustee or any other Person before so proceeding  directly against the
Guarantor.

         Section 4.5 Guarantee of Payment. This Guarantee creates a guarantee of
payment and not of collection.

         Section 4.6  Subrogation.  The Guarantor shall be subrogated to all (if
any) rights of the Holders of Capital  Securities  against the Issuer in respect
of any  amounts  paid to such  Holders by the  Guarantor  under this  Guarantee;
provided,  however,  that the Guarantor shall not (except to the extent required
by  mandatory  provisions  of law) be entitled to enforce or exercise  any right
that it may acquire by way of  subrogation or any  indemnity,  reimbursement  or
other agreement,  in all cases as a result of payment under this Guarantee,  if,
after giving  effect to any such  payment,  any amounts are due and unpaid under
this Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding  sentence,  the Guarantor  agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders,

         Section 4.7 Independent  Obligations.  The Guarantor  acknowledges that
its obligations  hereunder are independent of the obligations of the Issuer with
respect to the  Capital  Securities  and that the  Guarantor  shall be liable as
principal and as debtor  hereunder to make  Guarantee  Payments  pursuant to the
terms of this Guarantee  notwithstanding the occurrence of any event referred to
in subsections (a) through (g), inclusive, of Section 4.3 hereof.

         Section 4.8 Enforcement by a Beneficiary. A Beneficiary may enforce the
obligations of the Guarantor  contained in Section 4.1(b)  directly  against the
Guarantor  and the  Guarantor  waives  any right or remedy to  require  that any
action be  brought  against  the  Issuer or any  other  person or entity  before
proceeding  against the  Guarantor.  The  Guarantor  shall be  subrogated to all
rights (if any) of any Beneficiary  against the Issuer in respect of any amounts


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<Page>

paid to the  Beneficiaries  by the  Guarantor  under this  Agreement;  provided,
however,  that the  Guarantor  shall  not  (except  to the  extent  required  by
mandatory  provisions of law) be entitled to enforce or exercise any rights that
it may acquire by way of subrogation or any  indemnity,  reimbursement  or other
agreement,  in all cases as a result of payment under this Agreement,  if at the
time of any such payment,  and after giving effect to such payment,  any amounts
are due and unpaid under this Agreement.

                                   ARTICLE V

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

         Section  5.1  Limitation  of  Transactions.  So  long  as  any  Capital
Securities  remain  outstanding,  if  (a)  there  shall  have  occurred  and  be
continuing  an Event of  Default  or a  Declaration  Event of Default or (b) the
Guarantor shall have selected an Extension Period as provided in the Declaration
and  such  period,  or  any  extension  thereof,  shall  have  commenced  and be
continuing,  then the Guarantor  shall not and shall not permit any Affiliate to
(x)  declare or pay any  dividends  or  distributions  on, or redeem,  purchase,
acquire,  or make a liquidation  payment with respect to, any of the Guarantor's
or  such  Affiliate's  capital  stock  (other  than  payments  of  dividends  or
distributions  to the Guarantor) or make any guarantee  payments with respect to
the foregoing or (y) make any payment of principal of or interest or premium, if
any, on or repay,  repurchase or redeem any debt  securities of the Guarantor or
any Affiliate that rank pari passu in all respects with or junior in interest to
the  Debentures  (other  than,  with  respect to clauses (x) and (y) above,  (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Guarantor in  connection  with any  employment  contract,  benefit plan or other
similar arrangement with or for the benefit of one or more employees,  officers,
directors  or  consultants,  in  connection  with  a  dividend  reinvestment  or
stockholder  stock  purchase plan or in connection  with the issuance of capital
stock of the Guarantor (or securities  convertible  into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the  occurrence  of the Event of  Default,  Declaration  Event of  Default or
Extension Period, as applicable,  (ii) as a result of any exchange or conversion
of any class or series of the Guarantor's capital stock (or any capital stock of
a  subsidiary  of the  Guarantor)  for any class or  series  of the  Guarantor's
capital stock or of any class or series of the Guarantor's  indebtedness for any
class or  series  of the  Guarantor's  capital  stock,  (iii)  the  purchase  of
fractional  interests in shares of the Guarantor's capital stock pursuant to the
conversion or exchange  provisions  of such capital stock or the security  being
converted or exchanged,  (iv) any  declaration of a dividend in connection  with
any  stockholders'  rights  plan,  or the  issuance  of  rights,  stock or other
property under any stockholders' rights plan, or the redemption or repurchase of
rights  pursuant  thereto,  (v) any  dividend  in the form of  stock,  warrants,
options or other  rights  where the dividend  stock or the stock  issuable  upon
exercise of such warrants,  options or other rights is the same stock as that on
which the  dividend  is being  paid or ranks  pari  passu with or junior to such
stock and any cash  payments in lieu of  fractional  shares issued in connection
therewith, or (vi) payments under this Guarantee).

         Section 5.2  Ranking.  This  Guarantee  will  constitute  an  unsecured
obligation  of the Guarantor  and will rank  subordinate  and junior in right of
payment  to all  present  and  future  Senior  Indebtedness  (as  defined in the
Indenture) of the Guarantor. By their acceptance thereof, each Holder of Capital
Securities  agrees to the foregoing  provisions of this  Guarantee and the other
terms set forth herein.

         The right of the Guarantor to participate in any distribution of assets
of  any  of  its  subsidiaries  upon  any  such   subsidiary's   liquidation  or
reorganization  or otherwise is subject to the prior claims of creditors of that
subsidiary,  except to the extent the  Guarantor  may itself be  recognized as a
creditor of that subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee  will  be  effectively   subordinated   to  all  existing  and  future
liabilities of the Guarantor's  subsidiaries,  and claimants should look only to
the assets of the  Guarantor for payments  hereunder.  This  Guarantee  does not
limit the  incurrence  or issuance  of other  secured or  unsecured  debt of the


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<Page>

Guarantor,  including Senior Indebtedness of the Guarantor,  under any indenture
that the Guarantor may enter into in the future or otherwise.

                                   ARTICLE VI

                                   TERMINATION

         Section 6.1  Termination.  This  Guarantee  shall  terminate  as to the
Capital  Securities  (i) upon full  payment of the  Redemption  Price or Special
Redemption  Price of all  Capital  Securities  then  outstanding,  (ii) upon the
distribution  of all of the  Debentures  to the  Holders  of all of the  Capital
Securities or (iii) upon full payment of the amounts  payable in accordance with
the Declaration upon dissolution of the Issuer.  This Guarantee will continue to
be  effective  or will be  reinstated,  as the case  may be,  if at any time any
Holder of Capital  Securities  must  restore  payment of any sums paid under the
Capital Securities or under this Guarantee.

                                  ARTICLE VII

                                 INDEMNIFICATION

         Section 7.1 Exculpation.

         (a) No Indemnified  Person shall be liable,  responsible or accountable
in damages or  otherwise to the  Guarantor  or any Covered  Person for any loss,
damage or claim  incurred by reason of any act or omission  performed or omitted
by such  Indemnified  Person in good faith in accordance with this Guarantee and
in a manner that such Indemnified  Person  reasonably  believed to be within the
scope of the authority conferred on such Indemnified Person by this Guarantee or
by law,  except that an  Indemnified  Person  shall be liable for any such loss,
damage or claim incurred by reason of such  Indemnified  Person's  negligence or
willful misconduct with respect to such acts or omissions.

         (b) An Indemnified  Person shall be fully  protected in relying in good
faith upon the records of the Issuer or the Guarantor and upon such information,
opinions,  reports or statements presented to the Issuer or the Guarantor by any
Person as to matters the Indemnified Person reasonably  believes are within such
other Person's  professional  or expert  competence and who, if selected by such
Indemnified  Person,  has been selected with reasonable care by such Indemnified
Person, including information,  opinions,  reports or statements as to the value
and amount of the  assets,  liabilities,  profits,  losses,  or any other  facts
pertinent  to the  existence  and amount of assets from which  Distributions  to
Holders of Capital Securities might properly be paid.

         Section 7.2 Indemnification.

         (a) The Guarantor agrees to indemnify each Indemnified  Person for, and
to hold each Indemnified Person harmless against,  any and all loss,  liability,
damage,  claim or expense incurred without  negligence or willful  misconduct on
the part of the  Indemnified  Person,  arising out of or in connection  with the
acceptance or administration of the trust or trusts  hereunder,  including,  but
not  limited to, the costs and  expenses  (including  reasonable  legal fees and
expenses) of the Indemnified Person defending itself against,  or investigating,
any claim or liability in connection  with the exercise or performance of any of
the Indemnified Person's powers or duties hereunder. The obligation to indemnify
as set forth in this Section 7.2 shall survive the resignation or removal of the
Guarantee Trustee and the termination of this Guarantee.



                                       12
<Page>

         (b) Promptly after receipt by an Indemnified  Person under this Section
7.2 of notice of the commencement of any action,  such Indemnified  Person will,
if a claim in respect  thereof is to be made  against the  Guarantor  under this
Section 7.2, notify the Guarantor in writing of the  commencement  thereof;  but
the failure so to notify the Guarantor  (i) will not relieve the Guarantor  from
liability  under paragraph (a) above unless and to the extent that the Guarantor
did  not  otherwise  learn  of such  action  and  such  failure  results  in the
forfeiture  by the  Guarantor of  substantial  rights and defenses and (ii) will
not, in any event, relieve the Guarantor from any obligations to any Indemnified
Person  other than the  indemnification  obligation  provided in  paragraph  (a)
above.  The Guarantor  shall be entitled to appoint  counsel of the  Guarantor's
choice at the  Guarantor's  expense to represent the  Indemnified  Person in any
action for which  indemnification  is sought (in which case the Guarantor  shall
not thereafter be responsible for the fees and expenses of any separate  counsel
retained  by the  Indemnified  Person or  Persons  except  as set forth  below);
provided,  however,  that such counsel shall be reasonably  satisfactory  to the
Indemnified Person.  Notwithstanding the Guarantor's election to appoint counsel
to represent the Guarantor in an action,  the Indemnified  Person shall have the
right to employ separate counsel  (including  local counsel),  and the Guarantor
shall bear the reasonable  fees,  costs and expenses of such separate counsel if
(i) the use of counsel  chosen by the  Guarantor  to represent  the  Indemnified
Person would  present such counsel with a conflict of interest,  (ii) the actual
or  potential  defendants  in, or targets of, any such action  include  both the
Indemnified  Person and the  Guarantor  and the  Indemnified  Person  shall have
reasonably  concluded  that there may be legal  defenses  available to it and/or
other  Indemnified  Person(s)  which are  different  from or additional to those
available to the Guarantor,  (iii) the Guarantor shall not have employed counsel
reasonably  satisfactory to the Indemnified  Person to represent the Indemnified
Person within a reasonable  time after notice of the  institution of such action
or (iv) the Guarantor shall authorize the Indemnified  Person to employ separate
counsel at the expense of the  Guarantor.  The Guarantor  will not,  without the
prior  written  consent of the  Indemnified  Persons,  settle or  compromise  or
consent to the entry of any judgment  with respect to any pending or  threatened
claim,  action,  suit or  proceeding  in  respect  of which  indemnification  or
contribution may be sought hereunder (whether or not the Indemnified Persons are
actual or  potential  parties to such claim or action)  unless such  settlement,
compromise  or consent  includes an  unconditional  release of each  Indemnified
Person from all liability arising out of such claim, action, suit or proceeding.

         Section 7.3  Compensation;  Reimbursement  of Expenses.  The  Guarantor
agrees:

         (a) to pay to the Guarantee Trustee from time to time such compensation
for all services  rendered by it  hereunder  as the parties  shall agree to from
time to time (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust); and

         (b) except as otherwise  expressly  provided  herein,  to reimburse the
Guarantee  Trustee upon request for all reasonable  expenses,  disbursements and
advances  incurred  or made  by it in  accordance  with  any  provision  of this
Guarantee   (including  the  reasonable   compensation   and  the  expenses  and
disbursements of its agents and counsel), except any such expense,  disbursement
or advance to the extent attributable to its negligence or willful misconduct.

         The  provisions  of this Section 7.3 shall survive the  resignation  or
removal of the Guarantee Trustee and the termination of this Guarantee.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         Section 8.1  Successors  and Assigns.  All  guarantees  and  agreements
contained  in this  Guarantee  shall bind the  successors,  assigns,  receivers,


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<Page>

trustees and  representatives of the Guarantor and shall inure to the benefit of
the Holders of the Capital  Securities  then  outstanding.  Except in connection
with any merger or consolidation of the Guarantor with or into another entity or
any sale, transfer or lease of the Guarantor's assets to another entity, in each
case, to the extent permitted under the Indenture,  the Guarantor may not assign
its rights or delegate its  obligations  under this Guarantee  without the prior
approval  of the  Holders of at least a Majority  in  liquidation  amount of the
Capital Securities.

         Section 8.2 Amendments.  Except with respect to any changes that do not
adversely affect the rights of Holders of the Capital Securities in any material
respect (in which case no consent of Holders will be required),  this  Guarantee
may be amended  only with the prior  approval  of the Holders of not less than a
Majority in liquidation amount of the Capital Securities.  The provisions of the
Declaration  with  respect  to  amendments  thereof  apply to the giving of such
approval.

         Section 8.3 Notices.  All notices  provided for in this Guarantee shall
be in  writing,  duly  signed  by the party  giving  such  notice,  and shall be
delivered, telecopied or mailed by first class mail, as follows:

         (a) If given  to the  Guarantee  Trustee,  at the  Guarantee  Trustee's
mailing address set forth below (or such other address as the Guarantee  Trustee
may give notice of to the Holders of the Capital Securities and the Guarantor):

                  Wells Fargo Bank, National Association
                  210 North University Drive
                  Coral Springs, FL  33071
                  Attention:  Manager - Corporate Trust Administration
                  Telecopy:  (954) 575-8269

                   If given to the Guarantor, at the Guarantor's mailing address
         set forth below (or such other address as the Guarantor may give notice
         of to  the  Holders  of the  Capital  Securities  and to the  Guarantee
         Trustee):

                  Southcoast Financial Corporation
                  530 Johnnie Dodds Boulevard
                  Mt. Pleasant, SC 29464
                  Telecopier:  (843) 884-2886
                  Telephone:  (843) 884-0504
                  Attention:  L. Wayne Pearson

         (b) If given to any Holder of the  Capital  Securities,  at the address
set forth on the books and records of the Issuer.

         All such  notices  shall be deemed to have been given when  received in
person,  telecopied  with  receipt  confirmed,  or mailed by first  class  mail,
postage  prepaid,  except that if a notice or other document is refused delivery
or cannot be  delivered  because  of a changed  address  of which no notice  was
given,  such notice or other  document shall be deemed to have been delivered on
the date of such refusal or inability to deliver. Notwithstanding the foregoing,
with respect to the Guarantee Trustee,  all such notices shall be deemed to have
been given when actually received by it at its Corporate Trust Office.

         Section 8.4  Benefit.  This  Guarantee is solely for the benefit of the
Holders  of the  Capital  Securities  and,  subject to  Section  2.1(a),  is not
separately transferable from the Capital Securities.



                                       14
<Page>

         Section 8.5  Governing  Law. THIS  GUARANTEE  SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE  WITH, THE LAW OF THE STATE OF DELAWARE,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

         Section 8.6 Counterpart.  This Guarantee may be executed in one or more
counterparts,  each of  which  shall  be an  original,  but all of  which  taken
together shall constitute one and the same instrument.

         Section  8.7  Separability.  In  case  one or  more  of the  provisions
contained in this Guarantee shall for any reason be held to be invalid,  illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other  provisions  of this  Guarantee,  but this  Guarantee
shall be construed as if such invalid or illegal or unenforceable  provision had
never been contained herein.

                              [Signatures Omitted]



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