<PAGE>
 
                                                               EXHIBIT 10(ii)(a)
 
                          
                            PIEDMONT BANCORP, INC.
                               STOCK OPTION PLAN


     THIS IS THE PIEDMONT BANCORP, INC. STOCK OPTION PLAN ("Plan") of Piedmont
Bancorp, Inc. (the "Corporation"), a North Carolina corporation, with its
principal office in Hillsborough, Orange County, North Carolina, adopted by the
Board of Directors of the Corporation and effective upon the approval of the
Plan by a majority of the shareholders of the Corporation and the receipt of all
necessary regulatory approvals, or as soon as practicable thereafter, under
which options may be granted from time to time to eligible directors and
employees of the Corporation, Hillsborough Savings Bank, Inc., SSB (the "Bank")
and of any corporation or other entity of which either the Corporation or the
Bank owns, directly or indirectly, not less than fifty percent (50%) of any
class of equity securities (a "Subsidiary"), to purchase shares of common stock
of the Corporation ("Common Stock"), subject to the provisions set forth as
follows:

     1.  PURPOSE.  The purpose of this Plan is to aid the Corporation, the Bank
         -------                                                               
and any Subsidiary in attracting and retaining capable directors and employees
and to provide a long range incentive for directors and employees to remain in
the management of the Corporation, the Bank or any Subsidiary, to perform at
increasing levels of effectiveness and to acquire a permanent stake in the
Corporation with the interest and outlook of an owner.  These objectives will be
promoted through the granting of options to acquire shares of Common Stock
pursuant to the terms of this Plan.

     2.  ADMINISTRATION.  The Plan shall be administered by the committee (the
         --------------                                                       
"Committee"), who are three members of the Board of Directors of the Corporation
(the "Board") who are "disinterested persons" as described in Rule 16b-
3(c)(2)(i) of the Rules and Regulations under the Securities Act of 1934 (the
"Exchange Act").  Members of the Committee shall serve at the pleasure of the
Board.  In the absence at any time of a duly appointed Committee, this Plan
shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee may designate any officers or employees of the Corporation, the
Bank or any Subsidiary to assist in the administration of the Plan and to
execute documents on behalf of the Committee and perform such other ministerial
duties as may be delegated to them by the Committee.

     Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby.  By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be granted
(except for the options described in paragraph 5), the number of shares to be
subject to each option (except for the options described in paragraph 5), the
option price, and the determination of leaves of absence which may be granted to
participants without constituting a termination of their employment for the
<PAGE>
 
purposes of the Plan; and (e) to make all other determinations necessary or
advisable for the administration of the Plan.

     It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which do not qualify as
incentive stock options and which will be given tax treatment as "nonqualified
stock options" (herein referred to collectively as "options;" however, whenever
reference is specifically made only to "incentive stock options" or
"nonqualified stock options," such reference shall be deemed to be made to the
exclusion of the other).  Any options granted which fail to satisfy the
requirements for incentive stock options shall become nonqualified stock
options.

     3.  STOCK AVAILABLE FOR OPTIONS.  The stock to be subject to options under
         ---------------------------                                           
the Plan shall be authorized but unissued shares of Common Stock or, in the
discretion of the Committee, issued shares of Common Stock which have been
reacquired by the Corporation.  The total number of shares of Common Stock for
which options may be granted under the Plan is the number of shares equal to ten
percent (10%) of the total number of shares of Common Stock issued by the
Corporation in connection with the conversion of the Bank from a North Carolina
mutual savings bank to a North Carolina stock savings bank on December 7, 1995
(the "Conversion").  Such number of shares is subject to any capital adjustments
as provided in Section 14.  In the event that an option granted under the Plan
is forfeited, expires or is terminated unexercised as to any shares covered
thereby, such shares thereafter shall be available for the granting of options
under the Plan; however, if the forfeiture, expiration or termination date of an
option is beyond the term of existence of the Plan as described in Section 19,
then any shares covered by forfeited, unexercised or terminated options shall
not reactivate the existence of the Plan and therefore may not be available for
additional grants under the Plan.  The Corporation, during the terms of the
Plan, will reserve and keep available a number of shares of Common Stock
sufficient to satisfy the requirements of the Plan.  In the discretion of the
Committee and the Board, the shares of Common Stock necessary to be delivered to
satisfy exercised options may be from authorized and unissued shares of Common
Stock or may be purchased in the open market.

     4.  ELIGIBILITY.  Options shall be granted only to individuals who meet all
         -----------                                                            
of the following eligibility requirements:

            (a)  Such individual must be an employee or a member of the Board of
      Directors of the Corporation, the Bank or a Subsidiary. For this purpose,
      an individual shall be considered to be an "employee" only if there exists
      between the Corporation, the Bank or a Subsidiary and the individual the
      legal and bona fide relationship of employer and employee. In determining
      whether such relationship exists, the regulations of the United States
      Treasury Department relating to the determination of such relationship for
      the purpose of collection of income tax at the source on wages shall be
      applied.

            (b)  Such individual must have such knowledge and experience in 
      financial and business matters that he or she is capable of evaluating the
      merits and risks of the investment involved in the exercise of the
      options.

                                       2
<PAGE>
 
             (c)  Such individual, being otherwise eligible under this Section
      4, shall have been selected by the Committee as a person to whom an option
      shall be granted under the Plan or shall have been designated in paragraph
      5 hereof.

     In determining the directors and employees to whom options shall be granted
and the number of shares to be covered by each option, the Committee shall take
into account the nature of the services rendered by respective directors and
employees, their present and potential contributions to the success of the
Corporation, the Bank and any Subsidiary and such other factors as the Committee
shall deem relevant.  A director or employee who has been granted an option
under the Plan may be granted an additional option or options under the Plan if
the Committee shall so determine.

     If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.

     5.  INITIAL GRANTS.  Subject to the provisions of this Plan, options shall
         --------------                                                        
be awarded to the directors and employees as set forth on Exhibit A.  Such
options shall be granted after the date the Plan is approved by a majority of
the Corporation's shareholders and by all necessary regulatory authorities and
execution by the optionee of a Stock Option Grant and Agreement (the "Option
Agreement") in the form attached hereto as Exhibit B as modified by the
Committee to the extent it deems such modification to be necessary or desirable.
Such options shall be granted with the intention that they will be nonqualified
or incentive stock options as denominated in the Option Agreement.  Any option
granted with the intention that it will be an incentive stock option but which
fails to satisfy a requirement for incentive stock options shall continue to be
valid and shall be treated as a nonqualified stock option.

     6.  OPTION PRICE.
         ------------ 

            (a)  The option price of each option granted under the Plan shall
      be not less than one hundred percent (100%) of the market value of the
      stock on the date of grant of the option. In the case of incentive stock
      options granted to a shareholder who owns stock possessing more than 10
      percent (10%) of the total combined voting power of all classes of stock
      of the Corporation, the Bank or a Subsidiary (a "ten percent
      shareholder"), the option price of each option granted under the Plan
      shall not be less than one hundred and ten percent (110%) of the market
      value of the stock on the date of grant of the option. If the Common Stock
      is listed on a national securities exchange (including the NASDAQ National
      Market System) on the date in question, then the market value per share
      shall be not less than the average of the highest and lowest selling price
      on such exchange on such date, or if there were no sales on such date,
      then the market price per share shall be equal to the average between the
      bid and asked price on such date. If the Common Stock is traded otherwise
      than on a national securities exchange on the date in question, then the
      market price per share shall be equal to the average between the bid and
      asked price on such date, or, if there is no bid and asked

                                       3
<PAGE>
 
price on such date, then on the next prior business day on which there was a bid
and asked price.  If no such bid and asked price is available, then the market
value per share shall be its fair market value as determined by the Committee,
in its sole and absolute discretion.   The Committee shall maintain a written
record of its method of determining such value.

            (b)  The option price shall be payable to the Corporation either
      (i) in cash or by check, bank draft or money order payable to the order of
      the Corporation, or (ii) at the discretion of the Committee, through the
      delivery of shares of the common stock of the Corporation owned by the
      optionee with a market value (determined in a manner consistent with (i)
      above) equal to the option price, or (iii) at the discretion of the
      Committee by a combination of (i) and (ii) above. No shares shall be
      delivered until full payment has been made. The Committee may not approve
      a reduction of such purchase price in any such option, or the cancellation
      of any such options and the regranting thereof to the same optionee at a
      lower purchase price, at a time when the market value of the shares is
      lower than it was when such option was granted.

     7.  EXPIRATION OF OPTIONS.  The Committee shall determine the expiration
         ---------------------                                               
date or dates of each option, but such expiration date shall be not later than
ten (10) years after the date such option is granted.  In the event an incentive
stock option is granted to a ten percent shareholder, the expiration date or
dates of each option shall be not later than five (5) years after the date such
option is granted.  The Committee, in its discretion, may extend the expiration
date or dates of an option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 7.

     8.  TERMS AND CONDITIONS OF OPTIONS.
         ------------------------------- 

            (a)  All options must be granted within ten (10) years of the 
     Effective Date of this Plan as defined in Section 18.

            (b)  The Committee may grant options which are intended to be 
     incentive stock options and nonqualified stock options, either separately
     or jointly, to an eligible employee.

            (c)  The grant of options shall be evidenced by a written instrument
     (an Option Agreement) containing terms and conditions established by the
     Committee consistent with the provisions of this Plan.

            (d)  Not less than 100 shares may be purchased at any one time 
     unless the number purchased is the total number at that time purchasable
     under the Plan.

            (e) The recipient of an option shall have no rights as a shareholder
     with respect to any shares covered by his option until payment in full by
     him for the shares being purchased. No adjustment shall be made for
     dividends (ordinary or extraordinary, whether in cash, securities or other
     property) or distributions or other rights for which the record date is
     prior to the date such stock is fully paid for, except as provided in
     Section 14.

                                       4
<PAGE>
 
            (f) The aggregate fair market value of the stock (determined as of
      the time the option is granted) with respect to which incentive stock
      options are exercisable for the first time by any participant during any
      calendar year (under all benefit plans of the Corporation, the Bank or any
      Subsidiary, if applicable) shall not exceed $100,000; provided, however,
      that such $100,000 limit of this subsection (f) shall not apply to the
      grant of nonqualified stock options. The Committee may grant options which
      are exercisable in excess of the foregoing limitations, in which case
      options granted which are exercisable in excess of such limitation shall
      be nonqualified stock options.

            (g) All stock obtained pursuant to an option which qualifies as an
      incentive stock option shall be held in escrow for a period which ends on
      the later of (i) two (2) years from the date of the granting of the option
      or (ii) one (1) year after the transfer of the stock pursuant to the
      exercise of the option. The stock shall be held by the Corporation or its
      designee. The employee who has exercised the option shall during such
      holding period have all rights of a shareholder, including but not limited
      to the rights to vote, receive dividends and sell the stock. The sole
      purpose of the escrow is to inform the Corporation of a disqualifying
      disposition of the stock within the meaning of Section 422 of the Internal
      Revenue Code of 1986, as amended, and it shall be administered solely for
      that purpose.

     9.  EXERCISE OF OPTIONS.
         ------------------- 

            (a) An optionee receiving options by virtue of his position as a
      director must remain continuously a member of the Board of Directors of
      the Corporation, the Board of Directors of the Bank or the Board of
      Directors of one or more of the Subsidiaries from the date of the grant
      until the exercise of the option except as provided in Sections 10, 11 and
      12 of this Plan. An optionee receiving options by virtue of his position
      as an employee must at all times be employed by the Corporation, the Bank
      or a Subsidiary from the date of grant until the exercise of the options
      granted except as provided in Sections 10, 11 and 12. All options granted
      under the Plan shall be exercisable in annual installments in accordance
      with the following schedule:

            twenty percent (20%) of the shares beginning 1 year after the date
            of the grant of the options;

            twenty percent (20%) of the shares beginning 2 years after the date
            of the grant of the options;

            twenty percent (20%) of the shares beginning 3 years after the date
            of the grant of the options;

            twenty percent (20%) of the shares beginning 4 years after the date
            of the grant of the options; and

            twenty percent (20%) of the shares beginning 5 years after the date
            of the grant of the options.

                                       5
<PAGE>
 
      Notwithstanding the foregoing, options shall become exercisable with
      respect to all of the shares subject thereto upon the optionee's death or
      upon the optionee's disability within the meaning of Section 22(e)(3) of
      the Internal Revenue Code of 1986, as amended.

      The right to exercise options in annual installments shall be cumulative
      and any vested installments may be exercised, in whole or in part, at the
      election of the optionee. The exercise of any option must be evidenced by
      written notice to the Corporation that the optionee intends to exercise
      his option.

      In no event shall an option be deemed granted by the Corporation or
      exercisable by a recipient prior to the mutual execution by the
      Corporation and the recipient of an Option Agreement which comports with
      the requirements of Section 5 and Section 8(c).

            (b) The inability of the Corporation or Bank to obtain approval from
      any regulatory body or authority deemed by counsel to be necessary to the
      lawful issuance and sale of any shares of Common Stock hereunder shall
      relieve the Corporation and the Bank of any liability in respect of the
      non-issuance or sale of such shares. As a condition to the exercise of an
      option, the Corporation may require the person exercising the Option to
      make such representations and warranties as may be necessary to assure the
      availability of an exemption from the registration requirements of federal
      or state securities laws.

            (c) The Committee shall have the discretionary authority to impose
      in the Option Agreements such restrictions on shares of Common Stock as it
      may deem appropriate or desirable, including but not limited to the
      authority to impose a right of first refusal or to establish repurchase
      rights or both of these restrictions.

     10.  TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - EXCEPT BY DISABILITY OR
          -------------------------------------------------------------------
DEATH.  If any optionee receiving the grant of an option by virtue of his
-----                                                                    
position as a director ceases to be a director of at least one of the
Corporation, the Bank or any Subsidiary or if any optionee receiving the grant
of an option by virtue of his position as an employee ceases to be an employee
of at least one of the Corporation, the Bank and any Subsidiary for any reason
other than death or disability (as defined in paragraph 11), he may, (i) at any
time within three (3) months after his date of termination, but not later than
the date of expiration of the option, exercise any option designated in the
Option Agreement as an incentive stock option and (ii) at any time prior to the
date of expiration of the option, exercise any option designated in the Option
Agreement as a nonqualified stock option.  However, in either such event the
optionee may exercise any option only to the extent it was vested and he or she
was entitled to exercise the option on the date of termination.  Any options or
portions of options of terminated directors or employees not so exercised shall
terminate and be forfeited.

     11.  TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DISABILITY. If any
          ------------------------------------------------------        
optionee receiving the grant of an option by virtue of his position as a
director ceases to be a director of at least one of the Corporation, the Bank or
any Subsidiary or if any employee receiving the grant of an option by virtue of
his position as an employee ceases to be employed by at least one of the
Corporation, the Bank and any Subsidiary due to his becoming disabled within the
meaning

                                       6
<PAGE>
 
of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, he may,
(i) at any time within 12 months after his date of termination, but not later
than the date of expiration of the option, exercise any option designated in the
Option Agreement as an incentive stock option with respect to all shares subject
thereto and (ii) at any time prior to the date of expiration of the option,
exercise any option designated in the Option Agreement as a nonqualified stock
option with respect to all shares subject thereto.  Any portions of options of
terminated directors or employees not so exercised shall terminate.

     12.  TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DEATH.  If an optionee
          -------------------------------------------------                 
receiving the grant of an option by virtue of his position as a director dies
while a director of the Corporation, the Bank or any Subsidiary or if any
employee receiving the grant of an option by virtue of his position as an
employee dies while in the employment of the Corporation, the Bank or a
Subsidiary, the person or persons to whom the option is transferred by will or
by the laws of descent and distribution may exercise the option at any time
until the term of the option has expired, with respect to all shares subject
thereto, to the same extent and upon the same terms and conditions the optionee
would have been entitled to do so had he lived.  Any options or portions of
options of deceased directors or employees not so exercised shall terminate.

     13.  RESTRICTIONS ON TRANSFER.  An option granted under this Plan may not
          ------------------------                                            
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.

     14.  CAPITAL ADJUSTMENTS AND OTHER CHANGES AFFECTING COMMON
          ------------------------------------------------------
          STOCK.
          ----- 

            (a) If the outstanding shares of Common Stock of the Corporation are
      increased, decreased, changed into or exchanged for a different number or
      kind of shares or other securities of the Corporation or another entity as
      a result of a recapitalization, reclassification, stock dividend, stock
      split, amendment to the Corporation's Certificate of Incorporation,
      reverse stock split, merger or consolidation, an appropriate adjustment
      shall be made in the number and/or kind of securities allocated to the
      options previously and subsequently granted under the Plan, without change
      in the aggregate purchase price applicable to the unexercised portion of
      the outstanding options but with a corresponding adjustment in the price
      for each share or other unit of any security covered by the options.

            (b) To the extent that the foregoing adjustments relate to
      particular stock or securities of the Corporation subject to option under
      this Plan, such adjustments shall be made by the Committee, whose
      determination in that respect shall be final and conclusive.

            (c) The grant of an option pursuant to this Plan shall not affect in
      any way the right or power of the Corporation to make adjustments,
      reclassifications, reorganizations or changes of its capital or business
      structure or to merge or to consolidate or to dissolve, liquidate or sell,
      or transfer all or any part of its business or assets.

                                       7
<PAGE>
 
            (d) No fractional shares of stock shall be issued under the Plan for
      any such adjustment.

            (e) Any adjustment made pursuant to this Section 14(a), shall be
      made in such manner as not to constitute a modification of any outstanding
      incentive stock options within the meaning of Section 424(h) of the
      Internal Revenue Code of 1986, as amended.

            (f) In the event the Corporation declares a special cash dividend or
      a return of capital in an amount per share which exceeds 10% of the market
      value of a share of Common Stock as of the date of declaration (with
      market value per share determined by the Committee pursuant to the method
      set forth in paragraph 6(a) hereof), the per share exercise price of all
      previously granted options which remain unexercised as of the date of such
      declaration shall be proportionately adjusted to give effect to such
      special cash dividend or return of capital as of the date of payment of
      such special cash dividend or return of capital; provided, however, that
      if such adjustment with respect to incentive stock options would be
      treated as a modification of outstanding incentive stock options with the
      effect that, for purposes of Sections 422 and 425(h) of the Internal
      Revenue Code of 1986, as amended, and the rules and regulations
      thereunder, new incentive stock options would be deemed to be granted,
      then, at the election of the Committee, no adjustment to the per share
      exercise price of outstanding incentive stock options shall be made. In
      addition, no such adjustment of the per share exercise price shall be made
      if applicable regulatory requirements prohibit such an adjustment.

     15.  INVESTMENT PURPOSE.  At the discretion of the Committee, any Option
          ------------------                                                 
Agreement may provide that the optionee shall, by accepting the option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution, and that upon each exercise of any portion of an option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation.  Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the Corporation
and its counsel may deem necessary to ensure that the optionee is not an
"underwriter" within the meaning of the regulations of the Securities Exchange
Commission.

     16.  APPLICATION OF FUNDS.  The proceeds received by the Corporation from
          --------------------                                                
the sale of Common Stock pursuant to options will be used for general corporate
purposes.

     17.  NO OBLIGATION TO EXERCISE OPTION.  The granting of an option shall
          --------------------------------                                  
impose no obligation upon the optionee to exercise such option.

     18.  EFFECTIVE DATE OF PLAN.  The Plan will become effective upon the
          ----------------------                                          
approval of the Plan by a majority of the shareholders of the Corporation as
required by regulations of the FDIC and the receipt of all necessary regulatory
approvals.

     19.  TERM OF PLAN.  Options may be granted pursuant to this Plan from time
          ------------                                                         
to time within ten (10) years from the effective date of the Plan.

                                       8
<PAGE>
 
     20.  TIME OF GRANTING OF OPTIONS.  Nothing contained in the Plan or in any
          ---------------------------                                          
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any option hereunder.  The granting of an option pursuant to the Plan shall
take place only when an Option Agreement shall have been duly executed and
delivered by and on behalf of the Corporation at the direction of the Committee.

     21.  WITHHOLDING TAXES.  Whenever the Corporation proposes or is required
          -----------------                                                   
to issue or transfer shares of stock under the Plan, the Corporation shall have
the right to require the optionee to remit to the Corporation an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the issuance of any certificate or certificates for such
shares. Alternatively, the Corporation may issue or transfer such shares of
stock net of the number of shares sufficient to satisfy the withholding tax
requirements.  For withholding tax purposes, the shares of stock shall be valued
on the date the withholding obligation is incurred.

     22.  TERMINATION AND AMENDMENT.  The Board may at any time alter, suspend,
          -------------------------                                            
terminate or discontinue the Plan, but may not, without the consent of the
holder of an option previously granted, make any alteration which would deprive
the optionee of his rights with respect thereto; provided, however, that
                                                 --------  -------      
shareholder approval of certain amendments may be necessary if it is desirable
for the Plan to continue to satisfy the requirements of Rule 16b-3 of the
Securities Exchange Commission; and provided further, that in no event shall
                                    -------- -------                        
this Plan be terminated at the time of or following any merger or consolidation
of the Corporation or the Bank, unless and until the surviving entity shall have
made provision for an equivalent benefit for all the then current option
holders.  Notwithstanding anything herein to the contrary, the Board may not
amend Section 5 hereof or any other provisions of this Plan described in Rule
16b-3(c)(2)(ii)(A) of the regulations promulgated pursuant to the Exchange Act
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.

     23.  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, and shall not serve as a basis
for interpretation or construction of, this Plan.  As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.

     24.  EXCULPATION AND INDEMNIFICATION.  In connection with this Plan, no
          -------------------------------                                   
member of the Board, no member of the Board of Directors of the Bank, and no
member of the Board of Directors of any Subsidiary, and no member of the
Committee shall be personally liable for any act or omission to act, nor for any
mistake in judgment made in good faith, unless arising out of, or resulting
from, such person's own bad faith, willful misconduct or criminal acts.  To the
extent permitted by applicable law and regulation, the Corporation shall
indemnify, defend and hold harmless the members of the Board, the members of the
Board of Directors of the Bank and the members of the Board of Directors of any
Subsidiary, and members of the Committee, and each other officer or employee of
the Bank, the Corporation or of any Subsidiary to whom any power or duty
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

                                       9
<PAGE>
 
of the Board), and any costs or expenses (including 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, willful misconduct or criminal
acts of such persons.

     25.  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.

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

     27.  OTHER PROVISIONS.  The Option Agreements authorized under this Plan
          ----------------                                                   
shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.

                                       10
<PAGE>
 
                                   EXHIBIT A
                                   ---------
<TABLE> 
<CAPTION> 
                                                     PERCENTAGE OF TOTAL
                                                   SHARES SUBJECT TO OPTION
OPTIONEE                                                   UNDER PLAN
--------                                        -------------------------------
<S>                                                        <C> 
M. Marion Clark                                             4.285%           
Robert B. Nichols, Jr.                                      4.285%
Alfred L. Carr                                              4.285%
Everett H. Kennedy                                          4.285%
Donald W. Pope                                              4.285%
James P. Ray                                                4.285%
William Larry Rogers                                        4.285%
D. Tyson Clayton                                           16.80% 
Peggy S. Walker                                            14.92%
Robert L. Pearson                                           9.52%
Gina B. Riggins                                             8.76%
Dathene Hawkins                                             1.55%
Judy Reneau                                                 1.33%
Coleen Shambley                                             1.16%
Amy Latta                                                   1.21%
Glenda Riggs                                                0.96%
Teresa Cecil                                                1.07%
Lola Miller                                                 0.95%
Robert Ward                                                 1.28%
Diane Cecil                                                 0.74%
Linda Frazier                                               0.78%
Elvira Simmons                                              0.64%
Kendell Sturdivant                                          0.97%
Brenda Sykes                                                0.74%
Cynthia Dunn                                                0.78%
Christy Clayton                                             0.57%
Corrina Ashley                                              0.43%
Toni Champion                                               0.58%
Nancy Freeman                                               0.56%
Bette Walker                                                0.52%
Jessica Robinson                                            0.47%
Jill Stephens                                               0.51%
Sue Kinsey                                                  0.39%
Susan Dean                                                  0.26%
Jennifer Overman                                            0.44%
Carolyn Compton                                             0.30%
Linward Toran                                               0.44%
Julie Thompson                                              0.37% 
</TABLE> 
<PAGE>
 
                                   EXHIBIT B
                                   ---------


                            PIEDMONT BANCORP, INC.
                               STOCK OPTION PLAN
                       STOCK OPTION GRANT AND AGREEMENT

     THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the PIEDMONT BANCORP, INC. STOCK
OPTION PLAN ("Plan"), a copy of which is attached hereto as Annex A and is
hereby incorporated by reference and made a part of this Agreement, is herein
executed and effective the _______ day of _______________, _____, between
Piedmont Bancorp, Inc. (the "Corporation") and ____________________
("Optionee"):

     1.  GRANT.  As of the above date, the Corporation hereby grants:  (i) an
         -----                                                               
incentive stock option (as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to purchase  ________ shares of
Common Stock of the Corporation to the Optionee at the price stated in this
Agreement; and/or (ii) a nonqualified stock option to purchase __________ shares
of Common Stock of the Corporation to the Optionee at the price stated in this
Agreement.

     The option(s) granted under this section and as described in this Agreement
is (are) in all respects subject to and conditioned by the terms, definitions,
and provisions of this Agreement and of the Plan.  Capitalized terms in this
Agreement which are not otherwise defined but which are defined in the Plan
shall have the same meaning given to those terms in the Plan.

     2.  PRICE.  The option price is $_____________ for each share.
         -----                                                     

     3.  EXERCISE OF OPTION.  The option(s) granted under this Agreement shall
         ------------------                                                   
be exercisable pursuant to the terms and conditions of the Plan and as set forth
below:

     (a)  Right to Exercise:  There are no other terms and conditions imposed on
          -----------------                                                     
the Optionee's right to exercise his options other than those imposed in the
Plan, except as stated below:

-------------------------------------------------------------------------------

--------------------------------------------------------------------------------

     (b)  Annual Installments:  Subject to the terms and conditions of the Plan,
          -------------------                                                   
the incentive stock options can be exercised in annual installments as follows:

        __________________ shares beginning on ______________, 19__

        __________________ shares beginning on ______________, 19__

        __________________ shares beginning on ______________, 19__
                      
        __________________ shares beginning on ______________, 19__

        __________________ shares beginning on ______________, 19__
<PAGE>
 
The nonqualified options can be exercised in annual installments as follows:

    


__________________ shares beginning on _______________, 19__

__________________ shares beginning on _______________, 19__

__________________ shares beginning on _______________, 19__

__________________ shares beginning on _______________, 19__

__________________ shares beginning on _______________, 19__


The right to exercise the option(s) in annual installments shall be cumulative.
In addition, the option(s) shall be exercisable upon disability and death as set
forth in the Plan.

     (c)  Method of Exercise:  The options under this Agreement shall be
          ------------------                                            
exercisable by a written notice to the Secretary of the Corporation which shall
include the following:

          (1)  State the election to exercise the option, the number of shares
     in respect of which it is being exercised, the person in whose name the
     stock certificate or certificates for such shares of Common Stock is to be
     registered, his or her address, and social security number;

          (2)  Contain any such representation and agreements as to Optionee's
     investment intent with respect to such shares of Common Stock as may be
     required by the Corporation;

          (3) Be signed by the person entitled to exercise the option and, if
     the option is being exercised by any person or persons other than the
     Optionee, be accompanied by proof, satisfactory to the Corporation, of the
     right of such person or persons to exercise the option in accordance with
     the Plan; and

          (4) Be accompanied by payment of the purchase price of any shares with
     respect to which the option is being exercised which payment shall be in
     form acceptable to the Committee pursuant to Section 6(b) of the Plan.

     (d)  Representations and Warranties:  In order to exercise an option, the
          ------------------------------                                      
person exercising the option must make the representations and warranties to the
Corporation as may be required by any applicable law or regulation, or as may
otherwise be required pursuant to the Plan.

     (e)  Approvals.  In order for an option to be exercised, all filings and
          ---------                                                          
approvals required by applicable law and regulations or pursuant to the Plan
must have been made and obtained.

     4.  NON-TRANSFERABILITY OF OPTION.  This option may not be transferred in
         -----------------------------                                        
any manner otherwise than by will or the laws of descent and distribution and
may be exercised during the life of the Optionee only by him or her.

                                       2
<PAGE>
 
     5.  INVESTMENT PURPOSE.  This option may not be exercised if the issuance
         ------------------                                                   
of shares upon such exercise would constitute a violation of any applicable
federal or state securities law or other law or valid regulation.

     6.  EXPIRATION OF OPTION.  This option shall expire on _____________,
         --------------------                                             
_________.

     7.  ESCROW.  All stock purchased pursuant to an incentive stock option
         ------                                                            
shall be held in escrow for a period which ends on the later of (i) two (2)
years from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the option.  The stock shall
be held by the Corporation or its designee.  The optionee who has exercised the
option shall have all rights of a stockholder, including, but not limited to,
the rights to vote, receive dividends and sell the stock.  The sole purpose of
the escrow is to inform the Corporation of a disqualifying disposition of the
stock within the meaning of Section 422 of the Code, and it shall be
administered solely for this purpose.

     8.  RESOLUTION OF DISPUTES.  Any dispute or disagreement which should arise
         ----------------------                                                 
under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement will be determined by the
Committee designated in Section 2 of the Plan.  Any determination made by such
Committee shall be final, binding, and conclusive for all purposes.

     9.  CONSTRUCTION CONTROLLED BY PLAN.  The options evidenced hereby shall
         -------------------------------                                     
be subject to all of the requirements, conditions and provisions of the Plan.
This Agreement shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event that any
provision should appear to be inconsistent therewith.

     10. SEVERABILITY.  Whenever possible, each provision of this Agreement
         ------------                                                      
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.

     11. MODIFICATION OF AGREEMENT; WAIVER.  This Agreement may be modified,
         ---------------------------------                                  
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto and only subject to the limitations set forth in the Plan.  No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision.

     12. 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, and shall not serve as a basis
for interpretation or construction, of this Agreement.  As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.

                                       3
<PAGE>
 
     13.  GOVERNING LAW; VENUE AND JURISDICTION.  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 Agreement.

     14.  BINDING EFFECT.  This Agreement shall be binding upon and shall inure
          --------------                                                       
to the benefit of the Corporation, and its successors and assigns, and shall be
binding upon and inure to the benefit of the Optionee, and his or her heirs,
legatees, personal representative, executor, administrator and permitted
assigns.

     15.  ENTIRE AGREEMENT.  This Agreement and the Plan constitute and embody
          ----------------                                                    
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.

     16.  COUNTERPARTS.  This Agreement may be executed in any number of
          ------------                                                  
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.

     IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.

ATTEST:                       PIEDMONT BANCORP, INC.


-----------------------------         By:____________________________
(Corporate Seal) 
                                         -----------------President



                                      OPTIONEE:

                                      ______________________________
                                       


(SEAL)
         
                                       4