CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
                     --------------------------------------

     THIS AGREEMENT entered into this 15th day of November, 2001 (the "Effective
Date"), by and between First South Bank (the "Bank"),  First South Bancorp, Inc.
(the "Company"), and Jack L. Ashley (the "Employee").

     WHEREAS,  the  Employee  has  heretofore  been  employed  by the Bank as an
executive  officer,  and the Bank deems it to be in its best  interest  to enter
into this Agreement as an additional incentive to the Employee to continue as an
executive employee of the Bank; and

     WHEREAS,   the  parties   desire  by  this   writing  to  set  forth  their
understanding  as to their  respective  rights  and  obligations  in the event a
change of control occurs with respect to the Bank or the Company.

     NOW, THEREFORE, the undersigned parties agree as follows:

     1.   Defined Terms
          -------------

     When used anywhere in the  Agreement,  the  following  terms shall have the
meaning set forth herein.

          (a) "Change in Control"  shall mean any one of the  following  events:
(i) the acquisition of ownership,  holding or power to vote more than 25% of the
voting stock of the Bank or the Company,  (ii) the acquisition of the ability to
control the  election of a majority  of the Bank's or the  Company's  directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or of the  Company by any  person or by persons  acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive  years,  individuals  (the "Continuing
Directors")  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Bank or of the Company  (the  "Existing  Board")  cease for any
reason to constitute at least two-thirds  thereof,  provided that any individual
whose  election or nomination for election as a member of the Existing Board was
approved by a vote of at least  two-thirds of the  Continuing  Directors then in
office shall be considered a Continuing Director. Notwithstanding the foregoing,
the Company's  ownership of the Bank shall not of itself  constitute a Change in
Control for purposes of the Agreement.  For purposes of this paragraph only, the
term  "person"  refers to an individual or a  corporation,  partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.

          (b) "Code"  shall mean the Internal  Revenue Code of 1986,  as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.

          (c) "Code Section 280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code Section 280G(b)(3).

          (d) "Good Reason" shall mean any of the  following  events,  which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee

<PAGE>

move his personal residence, or perform his principal executive functions,  more
than thirty  (30) miles from his primary  office as of the date of the Change in
Control;  (ii) a material  reduction in the Employee's  base  compensation as in
effect on the date of the Change in Control or as the same may be increased from
time to time;  (iii) the  failure  by the Bank or the  Company  to  continue  to
provide the Employee with  compensation and benefits provided for on the date of
the Change in Control,  as the same may be increased  from time to time, or with
benefits  substantially  similar  to  those  provided  to him  under  any of the
employee  benefit  plans  in which  the  Employee  now or  hereafter  becomes  a
participant,  or the taking of any action by the Bank or the Company which would
directly or  indirectly  reduce any of such  benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the Change in Control;
(iv) the  assignment to the Employee of duties and  responsibilities  materially
different from those  normally  associated  with his position;  (v) a failure to
elect or  reelect  the  Employee  to the Board of  Directors  of the Bank or the
Company,  if the  Employee is serving on such Board on the date of the Change in
Control;   (vi)  a  material   diminution   or  reduction   in  the   Employee's
responsibilities  or  authority   (including   reporting   responsibilities)  in
connection with his employment with the Bank or the Company; or (vii) a material
reduction in the secretarial or other administrative support of the Employee.

          (e) "Just Cause" shall mean,  in the good faith  determination  of the
Bank's Board of Directors,  the Employee's  personal  dishonesty,  incompetence,
willful  misconduct,   breach  of  fiduciary  duty  involving  personal  profit,
intentional failure to perform stated duties, willful violation of any law, rule
or  regulation  (other than  traffic  violations  or similar  offenses) or final
cease-and-desist  order,  or material breach of any provision of this Agreement.
The Employee shall have no right to receive  compensation  or other benefits for
any period after  termination  for Just Cause. No act, or failure to act, on the
Employee's part shall be considered  "willful" unless he has acted, or failed to
act,  with an absence of good faith and  without a  reasonable  belief  that his
action or failure to act was in the best interest of the Bank and the Company.

          (f)  "Protected  Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.

          (g) "Trust"  shall mean a grantor trust  designed in  accordance  with
Revenue  Procedure  92-64 and having a trustee  independent  of the Bank and the
Company.

     2.   Trigger Events
          --------------

     The Employee shall be entitled to collect the severance  benefits set forth
in Section 3 of this  Agreement in the event that (i) the  Employee  voluntarily
terminates  employment  either for any reason within the 30-day period beginning
on the date of a Change in Control,  (ii) the  Employee  voluntarily  terminates
employment  within 90 days of an event that both  occurs  during  the  Protected
Period and  constitutes  Good Reason,  or (iii) the Bank, the Company,  or their
successor(s)  in interest  terminate the  Employee's  employment  for any reason
other than Just Cause during the Protected Period.

                                       2
<PAGE>

     3.   Amount of Severance Benefit
          ---------------------------

     If the Employee becomes entitled to collect severance  benefits pursuant to
Section 2 hereof,  the Bank shall pay the Employee a severance  benefit equal to
two times the Employee's base annual salary in effect when the Protected  Period
begins. In no event, however, will this amount exceed the difference between (i)
the Code Section 280G Maximum and (ii) the sum of any other "parachute payments"
(as defined under Code Section 280G(b)(2)) that the Employee receives on account
of the Change in Control. Said sum shall be paid in one lump sum within ten (10)
days of the later of the date of the Change in Control and the  Employee's  last
day of employment with the Bank or the Company.

     In the event that the  Employee  and the Bank agree that the  Employee  has
collected an amount  exceeding  the Code Section 280G  Maximum,  the parties may
jointly  agree in writing  that such excess shall be treated as a loan ab initio
                                                                       -- ------
which the Employee  shall repay to the Bank,  on terms and  conditions  mutually
agreeable to the parties,  together with interest at the applicable federal rate
provided for in Section 7872(f)(2)(B) of the Code.

     4.   Funding of Grantor Trust upon Change in Control
          -----------------------------------------------

     Not later than ten business days after a Change in Control,  the Bank shall
(i) deposit in a Trust an amount equal to the amount of the severance benefit as
defined  in Section 3 hereof,  unless the  Employee  has  previously  provided a
written release of any claims under this Agreement, and (ii) provide the trustee
of the Trust with a written  direction  to hold said  amount and any  investment
return thereon in a segregated  account for the benefit of the Employee,  and to
follow the  procedures set forth in the next paragraph as to the payment of such
amounts  from the Trust.  Upon the earlier of the Trust's  final  payment of all
amounts due under the following paragraph or the date 27 months after the Change
in Control,  the  trustee of the Trust shall pay to the Bank the entire  balance
remaining in the segregated  account maintained for the benefit of the Employee.
The Employee shall thereafter have no further interest in the Trust.

     During the  27-consecutive  month  period  after a Change in  Control,  the
Employee may provide the trustee of the Trust with a written  notice  requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable  pursuant to this Agreement.  Within three business days after receiving
said  notice,  the  trustee of the Trust  shall send a copy of the notice to the
Bank via overnight and registered  mail return receipt  requested.  On the fifth
(5th)  business day after  mailing  said notice to the Bank,  the trustee of the
Trust  shall pay the  Employee  the amount  designated  therein  in  immediately
available  funds,  unless  prior  thereto the Bank  provides  the trustee with a
written  notice  directing the trustee to withhold  such payment.  In the latter
event,  the  trustee  shall  submit  the  dispute  to   non-appealable   binding
arbitration for a determination  of the amount payable to the Employee  pursuant
to this Agreement,  and the costs of such arbitration shall be paid by the Bank.
The  trustee  shall  choose  the  arbitrator  to settle  the  dispute,  and such
arbitrator shall be bound by the rules of the American  Arbitration  Association
in making his  determination.  The parties and the trustee shall be bound by the
results  of the  arbitration  and,  within  3 days of the  determination  by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee  and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.

                                       3
<PAGE>

     5.   Term of the Agreement
          ---------------------

     This  Agreement  shall  remain in effect for the period  commencing  on the
Effective  Date and ending on the  earlier  of (i) the date 24 months  after the
Effective  Date, and (ii) the date on which the Employee  terminates  employment
with the Bank;  provided that the  Employee's  rights  hereunder  shall continue
following  the  termination  of this  employment  with the Bank under any of the
circumstances  described  in  Section 2  hereof.  Additionally,  on each  annual
anniversary  date from the Effective  Date, the term of this Agreement  shall be
extended for an additional one-year period beyond the then effective  expiration
date  provided the Board of Directors of the Bank  determines  in a duly adopted
resolutions  that the performance of the Employee has met the  requirements  and
standards of the Board, and that this Agreement shall be extended.

     6.   Termination or Suspension Under Federal Law
          -------------------------------------------

          (a) Any payments made to the Employee  pursuant to this Agreement,  or
otherwise,  are subject to and conditioned  upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.

          (b) If the  Employee is removed  and/or  permanently  prohibited  from
participating  in the  conduct of the Bank's  affairs by an order  issued  under
Sections  8(e)(4) or 8(g)(1) of the Federal  Deposit  Insurance Act ("FDIA") (12
U.S.C.  1818(e)(4) or (g)(1)),  all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.

          (c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA),
all obligations  under this Agreement shall terminate as of the date of default;
however, this Paragraph shall not affect the vested rights of the parties.

          (d) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Employee
from participating in the conduct of the Bank's affairs,  the Bank's obligations
under this Agreement  shall be suspended as of the date of such service,  unless
stayed by appropriate  proceedings.  If the charges in the notice are dismissed,
the  Bank  may in its  discretion  (i)  pay  the  Employee  all or  part  of the
compensation  withheld while its contract  obligations were suspended,  and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.

     7.   Expense Reimbursement
          ---------------------

     In the event that any dispute  arises  between the Employee and the Bank as
to the terms or interpretation of this Agreement,  whether  instituted by formal
legal proceedings or otherwise,  including any action that the Employee takes to
enforce the terms of this Agreement or to defend against any action taken by the
Bank or the  Company,  the  Employee  shall  be  reimbursed  for all  costs  and
expenses,  including  reasonable  attorneys'  fees,  arising from such  dispute,
proceedings  or  actions,  provided  that  the  Employee  shall  obtain  a final
judgement in favor of the Employee in a court of  competent  jurisdiction  or in
binding  arbitration  under the rules of the American  Arbitration  Association.
Such reimbursement  shall be paid within ten (10) days of Employee's  furnishing
to the Bank or the Company  written  evidence,  which may be in the form,  among
other things, of a cancelled check or receipt, of any costs or expenses incurred
by the Employee.

                                       4
<PAGE>

     8.   Successors and Assigns
          ----------------------

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

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

     9.   Amendments
          ----------

     No amendments or additions to this  Agreement  shall be binding unless made
in  writing  and  signed  by all of the  parties,  except  as  herein  otherwise
specifically provided.

     10.  Applicable Law
          --------------

     Except to the extent  preempted  by federal  law,  the laws of the State of
North Carolina  shall govern this  Agreement in all respects,  whether as to its
validity, construction, capacity, performance or otherwise.

     11.  Severability
          ------------

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

     12.  Entire Agreement
          ----------------

     This Agreement, together with any understanding or modifications thereof as
agreed to in writing  by the  parties,  shall  constitute  the entire  agreement
between the parties hereto.

                                       5
<PAGE>

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


ATTEST:                                 FIRST SOUTH BANK


/s/ William L. Wall                     By: /s/ Thomas A. Vann
------------------------------------        ------------------------------------
Secretary                                   Its President


ATTEST:                                 FIRST SOUTH BANCORP, INC.


/s/ William L. Wall                     By: /s/ Thomas A. Vann
------------------------------------        ------------------------------------
Secretary                                   Its President



WITNESS:                                EMPLOYEE


/s/ Janet B. Wollard                    /s/ Jack L. Ashley
------------------------------------        ------------------------------------
                                            Jack L. Ashley