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                                                                     EXHIBIT 4.2

                    SOUTHERN COMMUNITY FINANCIAL CORPORATION
                       1997 NONSTATUTORY STOCK OPTION PLAN

         Southern Community Financial Corporation, a North Carolina corporation
(the "Corporation"), does herein set forth the terms of its 1997 Nonstatutory
Stock Option Plan (the "Plan"), which was adopted by the Board of Directors (the
"Board") of the Corporation and the Corporation's shareholders.

         1.       PURPOSE OF THIS PLAN. The purpose of this Plan is to provide
for the grant of Nonstatutory Stock Options (the "Options" or singularly,
"Option") to employees and directors of the Corporation ("Eligible Individuals")
who wish to invest in the Corporation's common stock, no par value (the "Common
Stock"). The Board believes the existence of this Plan will make it possible for
the Corporation to attract capable individuals to serve with the Corporation or
any of its subsidiaries and on the Board.

         2.       ADMINISTRATION OF THIS PLAN. (a) This Plan shall be
administered by the Board. The Board shall have full power and authority to
construe, interpret and administer this Plan. All actions, decisions,
determinations, or interpretations of the Board shall be final, conclusive, and
binding upon all parties.

                  (b) The Board may designate any officers or employees of the
Corporation to assist in the administration of this Plan. The Board may
authorize such individuals to execute documents on its behalf and may delegate
to them such other ministerial and limited discretionary duties as the Board may
see fit.

         3.       SHARES OF COMMON STOCK SUBJECT TO THIS PLAN. The number of
shares of Common Stock that shall be available initially for Options under this
Plan is eight hundred thirty three thousand five hundred seventy four (833,574),
subject to adjustment as provided in Paragraph 12. Common Stock subject to
Options which expire or terminate prior to exercise of the Options shall lapse
and such shares shall again be available for future grants of Options under this
Plan.

         4.       ELIGIBILITY. (a) Options under this Plan may be granted to any
employee or director as determined by the Board. An individual may hold more
than one Option under this or other plans adopted by the Corporation.

                  (b) Upon the forfeiture of an Option for whatever reason prior
to the expiration of the Option Period (as defined in Paragraph 8 hereof) the
shares of Common Stock covered by a forfeited Option shall be available for the
granting of additional Options during the remaining term of this Plan upon such
terms and conditions and to such Eligible Individuals as may be determined by
the Board.

         5.       OPTION PRICE. (a) The price per share of each Option granted
under this Plan (the "Option Price") shall be determined by the Board as of the
effective date of grant of such Option. In no event shall such Option Price be
less than 100% of the fair market value of the Common Stock on the date of the
grant. An Option shall be considered as granted on the later of (i) the date the
Board acts to grant such Option, or (ii) such later date as the Board shall
specify in an Option Agreement (as hereinafter defined).

                  (b) The fair market value of a share of Common Stock shall be
determined as follows:

                  (i) If on the date as of which such determination is being
made, the Common Stock is admitted to trading on a securities exchange or
exchanges for which actual sale prices are regularly reported, or actual sale
prices are otherwise regularly published, the fair market value of a share of
the Common Stock shall be deemed to be equal to the mean of the closing sale
price as reported for each of


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the five (5) trading days immediately preceding the date as of which such
determination is made; provided, however, that, if a closing sale price is not
reported for each of the five (5) trading days immediately preceding the date as
of which such determination is made, then the fair market value shall be equal
to the mean of the closing sale prices on those trading days for which such
price is available.

                  (ii) If on the date as of which such determination is made,
quotations for the Common Stock are regularly listed on the National Association
of Securities Dealers Nasdaq system or another comparable system, the fair
market value of a share of Common Stock shall be deemed to be equal to the mean
of the average of the closing bid and asked prices for the Common Stock quoted
on such system on each of the five (5) trading days preceding the date as of
which such determination is made. If a closing bid and asked price is not
available for each of the five (5) trading days, then the fair market value
shall be equal to the mean of the average of the closing bid and asked prices on
those trading days during the five-day period for which such prices are
available.

                  (iii) If no such quotations are available, the fair market
value of a share of Common Stock shall be deemed to be the average of the
closing bid and asked prices furnished by a professional securities dealer
making a market in such shares, as selected by the Board, for the trading date
first preceding the date as of which such determination is made.

         If the Board determines that the price as determined above does not
represent the fair market value of a share of Common Stock, the Board may then
consider such other factors as it deems appropriate and then fix the fair market
value for the purposes of this Plan.

         6.       PAYMENT OF OPTION PRICE. Payment for shares subject to an
Option may be made either in cash or, with the approval of the Board, in other
stock of the Corporation owned by the person to whom such Option was granted or
such other person as may be entitled to exercise such Option (the "Optionee").
Any shares of the Corporation's stock that are delivered in payment of the
aggregate Option Price shall be valued at their fair market value, as determined
by the Board, on the date of the exercise of such Option.

         7.       TERMS AND CONDITIONS OF GRANT OF OPTIONS. Each Option granted
pursuant to this Plan shall be evidenced by a written Nonstatutory Stock Option
Agreement (the "Option Agreement") with each employee or director to whom an
Option is granted. The Option Agreement shall be in the form the Board shall
adopt and may contain such terms and conditions as the Board may determine.

         8.       OPTION PERIOD. Each Option Agreement shall set forth a period
during which such Option may be exercised (the "Option Period")' provided,
however, that the Option Period shall not exceed ten (10) years after the date
of grant of such Option as specified in an Option Agreement.

         9.       EXERCISE OF OPTIONS. (a) An Option shall be exercised by
written notice to the Board signed by an Optionee or by such other person as may
be entitled to exercise such Option or to surrender such Option. The written
notice shall state the number of shares with respect to which an Option is being
exercised and shall either be accompanied by the payment of the aggregate Option
Price for such shares or shall fix a date (not more than ten (10) business days
after the date of such notice) by which the payment of the aggregate Option
Price will be made. An Optionee shall not exercise an Option to purchase less
than 100 shares, unless the Board otherwise approves or unless the partial
exercise is for the remaining shares available under such Option.

                  (b) A certificate or certificates for the shares of Common
Stock purchased by the exercise of an Option shall be issued in the regular
course of business following the receipt of the notice of exercise of such
Option and the payment therefor. During the Option Period, no person entitled to
exercise any Option granted under this Plan shall have any of the rights or
privileges of a shareholder with respect to any shares of the Common Stock
issuable upon exercise of such Option, until certificates


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representing such shares shall have been issued and delivered and the
individual's name entered as a shareholder of record on the books of the
Corporation for such shares.

         10.      EFFECT OF LEAVING THE CORPORATION OR DEATH. (a) In the event
that an Optionee terminates the relationship with the Corporation for any reason
other than retirement, disability, or death, any Option granted to the Optionee
under this Plan, to the extent not previously exercised or surrendered by the
Optionee or expired, shall immediately terminate.

                  (b) In the event of an Optionee's retirement, such Optionee
shall have the right to exercise an Option granted under this Plan, to the
extent that it has not previously been exercised or surrendered by the Optionee
or expired, for such period of time as may be determined by the Board and
specified in the Option Agreement, but in no event may any Option be exercised
later than the end of the Option Period provided in the Option Agreement.
Notwithstanding any other provision contained this Plan, or in any Option
Agreement, upon retirement, any Option then held by an Optionee shall be
exercisable immediately in full. For purposes of this Plan, the term
"retirement" for a Director shall mean termination of a Director's membership on
the Board (i) at any time after attaining age 65 with the approval of the Board;
or (ii) at the election of the Director, at any time after not less than five
(5) years service as a member of the Board.

                  (c) In the event of an Optionee's disability, such Optionee
shall have the right to exercise an Option granted under this Plan, to the
extent that it has not previously been exercised or surrendered by the Optionee
or expired, for such period of time as may be determined by the Board and
specified in the Option Agreement, but in no event may any Option be exercised
later than the end of the Option Period provided in the Option Agreement.
Notwithstanding any other provision contained this Plan, or in any Option
Agreement, upon an Optionee's disability, any Option then held by the Optionee
shall be exercisable immediately in full. For purposes of this Plan, the term
"disability" shall be defined as may be determined by the Board.

                  (d) In the event that an Optionee should die while serving on
the Board or as an employee during the Option Period, an Option granted under
this Plan, to the extent that it has not previously been exercised or
surrendered by the Optionee or expired, shall vest and shall be exercisable, in
accordance with the terms of the Option Agreement, by the personal
representative of such Optionee, the executor or administrator of such
Optionee's estate, or by any person or persons who acquired such Option by
bequest or inheritance from such optionee, notwithstanding any limitations
placed on the exercise of such Option by this Plan or the Option Agreement, at
any time within twelve (12) months after the date of death of such Optionee. In
no event may an Option be exercised later than the end of the Option Period
provided in the Option Agreement. Any references herein to an Optionee shall be
deemed to include any person entitled to exercise an Option after the death of
such Optionee under the terms of this Plan.

         11.      EFFECT OF PLAN ON STATUS WITH CORPORATION. The fact that an
Optionee has been granted an Option under this Plan shall not confer on such
Optionee any right to continued service on the Board, nor shall it limit the
right of the Corporation to remove such Optionee from service with the
Corporation at any time.

         12.      ADJUSTMENT UPON CHANGES IN CAPITALIZATION; DISSOLUTION OR
LIQUIDATION.
                  (a) In the event of a change in the number of shares of Common
Stock outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment
prior to the termination of an Optionee's rights under this Plan, equitable
proportionate adjustments shall be made by the Board in (i) the number and kind
of shares which remain available under this Plan and (ii) the number, kind, and
the Option Price of shares subject to the unexercised portion of an Option under
this Plan. The adjustments to be made shall be determined by the Board and shall
be consistent with such change or changes in the Corporation's total number of


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outstanding shares; provided, however, that no adjustment shall change the
aggregate Option Price for the exercise of Options granted under this Plan.

                  (b) The grant of Options under this Plan shall not affect in
any way the right or power of the Corporation or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's capital structure or its business, or any merger or
consolidation of the Corporation, or to issue bonds, debentures, preferred or
other preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Corporation, or any sale or
transfer of all or any part of the Corporation's assets or business.

                  (c) Upon the effective date of the dissolution or liquidation
of the Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or the transfer of all or substantially all of the
assets or shares of the Corporation to another person or entity, or a tender
offer approved by the Board (any such transaction being hereinafter referred to
as an "Acceleration Event"), this Plan and any Options granted hereunder shall
terminate unless provision is made in writing in connection with such
Acceleration Event for the continuance of this Plan and for the assumption of
Options granted hereunder, or the substitution for such Options of new options
for the shares of the successor corporation, or a parent or a subsidiary
thereof, with such appropriate adjustments as may be determined or approved by
the Board, or the successor to the Corporation, to the number, kind and Option
Price of shares subject to such substituted options. In such event, this Plan
and Options granted hereunder, or the new options substituted therefore, shall
continue in the manner and under the terms so provided, but any vesting periods
or other restrictions on exercise that would otherwise apply shall no longer be
applicable. Upon the occurrence of any Acceleration Event in which provision is
not made for the continuance of this Plan and for the assumption of Options
granted hereunder, or the substitution for such Options of new options for the
shares of a successor corporation or a parent or a subsidiary thereof, each
Optionee to whom an Option has been granted under this Plan (or such person's
personal representative, the executor or administrator of such person's estate,
or any person who acquired the right to exercise such Option from such person by
bequest or inheritance) shall be entitled, prior to the effective date of the
Acceleration Event, (i) to exercise, in whole or in part, the Optionee's rights
under any Option granted to the Optionee without any regard to any restrictions
on exercise that would otherwise apply, or (ii) to surrender any such Option to
the Corporation in exchange for receipt of cash equivalent to the amount by
which the fair market value of the shares of Common Stock such person would have
received had such person exercised the Option in full immediately prior to
consummation of the Acceleration Event exceeds the applicable aggregate Option
Price. To the extent that a person, pursuant to this Subparagraph 12(c) has a
right to exercise or surrender any Option on account of an Acceleration Event
which such person otherwise would not have had at that time, such right shall be
contingent upon the consummation of the Acceleration Event.

         13.      LIMITED STOCK APPRECIATION RIGHTS. (a) In connection with the
grant of any Option under this Plan, the Board may, in its discretion, by
written notice provide an Optionee with the right (herein sometimes referred to
as "Limited Stock Appreciation Rights"), following a "change in control" of the
Corporation and without regard to any restrictions on exercise that would
otherwise apply, to surrender any unexercised portion of such Option as such
Optionee then may have for a cash payment equal to the amount by which the fair
market value (as determined by the Board) of the number of shares of Common
Stock then subject to such Option exceeds the aggregate Option Price therefor.

                  (b) When used herein, the phrase "change in control" refers to
(i) the acquisition by any person, group of persons or entity of the beneficial
ownership or power to vote more than twenty (20%) percent of the Corporation's
outstanding stock or (ii) during any period of two (2) consecutive years, a
change in the majority of the Board unless the election of each new Director was
approved by at least two-thirds of the Directors then still in office who were
Directors at the beginning of such two (2) year period.


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                  (c) Limited Stock Appreciation Rights shall be exercised by
written notice to the Corporation as provided in Paragraph 11 hereof at any time
prior to the earlier of (i) the date which is thirty (30) days after the date of
notice of a change in control or (ii) the last day of the Option Period provided
in the Option Agreement, but in no event shall the expiration date be more than
ten (10) years after the date of grant of an Option as specified in the Option
Agreement.

                  (d) Limited Stock Appreciation Rights may be exercised only
when the aggregate market value of Common Stock subject to an Option exceeds the
aggregate Option Price.

         14.      NON-TRANSFERABILITY. An Option granted under this Plan shall
not be assignable or transferable except, in the event of the death of an
Optionee, by will or by the laws of descent and distribution. In the event of
the death of an Optionee, his personal representative, the executor or the
administrator of such Optionee's estate, or the person or persons who acquired
by bequest or inheritance the rights to exercise or to surrender such Options,
may exercise or surrender any Option or portion thereof to the extend not
previously exercisable or surrendered by an Optionee or expired, in accordance
with the terms of the Option Agreement, prior to the expiration of the exercise
period as specified in Subparagraph 10(d) hereof.

         15.      TAX WITHHOLDING. The Corporation shall have the right to
deduct or otherwise effect a withholding or payment of any amount required by
federal or state laws to be withheld or paid with respect to the grant, exercise
or surrender for cash of any Option or the sale of stock acquired upon the
exercise of an Option in order for the Corporation or any of its subsidiaries to
obtain a tax deduction otherwise available as a consequence of such grant,
exercise, surrender for cash, or sale, as the case may be.

         16.      LISTING AND REGISTRATION OF OPTION SHARES. Any Option granted
under this Plan shall be subject to the requirement that if at any time the
Board shall determine, in its sole discretion, that the listing, registration,
or qualification of the shares covered thereby upon any securities exchange or
under any state or federal law or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issuance or purchase of shares
thereunder, such Option may not be exercised in whole or in part unless and
until such listing, registration, qualification, consent, or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.

         17.      EXCULPATION AND INDEMNIFICATION. In connection with this Plan,
no member of the Board shall be personally liable for any act or omission to act
in such person's capacity as a member of the Board, nor for any mistake in
judgment made in good faith, unless arising out of, or resulting from, such
person's own bad faith, gross negligence, willful misconduct, or criminal acts.
To the extent permitted by applicable law and regulation, the Corporation shall
indemnify and hold harmless the members of the Board, and each other officer or
employee of the Corporation to whom any duty or power relating to the
administration or interpretation of this Plan may be assigned or delegated, from
and against any and all liabilities (including any amount paid in settlement of
a claim with the approval of the Board) and any costs or expenses (including
reasonable counsel fees) incurred by such persons arising out of, or as a result
of, any act or omission to act in connection with the performance of such
person's duties, responsibilities, and obligations under this Plan, other than
such liabilities, costs, and expenses as may arise out of, or result from, the
bad faith, gross negligence, willful misconduct, or criminal acts of such
persons.

         18.      AMENDMENT AND MODIFICATION OF THIS PLAN. The Board may at any
time, and from time to time, amend or modify this Plan in any respect; provided,
however, that no amendment or modification


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shall be made that increases the total number of shares covered by this Plan or
effects any change in the category of persons who may receive Options under this
Plan or materially increases the benefits accruing to Optionees under this Plan
unless such change is approved by the holders of a majority of the outstanding
shares of the Common Stock. Any amendment or modification of this Plan shall not
materially reduce the benefits under any Option therefore granted to an Optionee
under this Plan without the consent of such Optionee or any permitted
transferee.

         19.      TERMINATION AND EXPIRATION OF THIS PLAN. This Plan may be
abandoned, suspended, or terminated at any time by the Board; provided, however,
that abandonment, suspension, or termination of this Plan shall not affect any
Options then outstanding under this Plan. No Option shall be granted pursuant to
this Plan after ten (10) years from May 15, 1997, the effective date of this
Plan.

         20.      CAPTIONS AND HEADINGS; GENDER AND NUMBER. Captions and
paragraph headings used herein are for convenience only, do not modify or affect
the meaning of any provision herein, are not a part hereof, and shall not serve
as a basis for interpretation or in construction of this Plan. As used herein,
the masculine gender shall include the feminine and neuter, the singular number,
the plural, and vice versa, whenever such meanings are appropriate.

         21.      EXPENSES OF ADMINISTRATION OF PLAN. All costs and expenses
incurred in the operation and administration of this Plan shall be borne by the
Corporation.

         22.      GOVERNING LAW. Without regard to the principles of conflicts
of laws, the laws of the State of North Carolina shall govern and control the
validity, interpretation, performance, and enforcement of this Plan.

         23.      INSPECTION OF PLAN. A copy of this Plan, and any amendments
thereto or modifications thereof, shall be maintained by the Secretary of the
Corporation and shall be shown to any proper person making inquiry about it.