GUARANTEE AGREEMENT

                            First South Bancorp, Inc.

                          Dated as of January 30, 2004



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                                Table of Contents

                                                                            Page

                                    ARTICLE I
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1.  Definitions and Interpretation...................................1

                                   ARTICLE II
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

SECTION 2.1.  Powers and Duties of the Guarantee Trustee.......................4

SECTION 2.2.  Certain Rights of the Guarantee Trustee..........................5

SECTION 2.3.  Not Responsible for Recitals or Issuance of Guarantee............7

SECTION 2.4.  Events of Default; Waiver........................................7

SECTION 2.5.  Events of Default; Notice........................................8

                                   ARTICLE III
                              THE GUARANTEE TRUSTEE

SECTION 3.1.  The Guarantee Trustee; Eligibility...............................8

SECTION 3.2.  Appointment, Removal and Resignation of the Guarantee Trustee....9

                                   ARTICLE IV
                                    GUARANTEE

SECTION 4.1.  Guarantee........................................................9

SECTION 4.2.  Waiver of Notice and Demand.....................................10

SECTION 4.3.  Obligations Not Affected........................................10

SECTION 4.4.  Rights of Holders...............................................11

SECTION 4.5.  Guarantee of Payment............................................11

SECTION 4.6.  Subrogation.....................................................11

SECTION 4.7.  Independent Obligations.........................................12

SECTION 4.8.  Enforcement.....................................................12



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                                Table of Contents
                                   (continued)
                                                                            Page


                                    ARTICLE V
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 5.1.  Limitation of Transactions......................................12

SECTION 5.2.  Ranking.........................................................13

                                   ARTICLE VI
                                   TERMINATION

SECTION 6.1.  Termination.....................................................13

                                   ARTICLE VII
                                 INDEMNIFICATION

SECTION 7.1.  Exculpation.....................................................14

SECTION 7.2.  Indemnification.................................................14

SECTION 7.3.  Compensation; Reimbursement of Expenses.........................15

                                  ARTICLE VIII
                                  MISCELLANEOUS

SECTION 8.1.  Successors and Assigns..........................................16

SECTION 8.2.  Amendments......................................................16

SECTION 8.3.  Notices.........................................................16

SECTION 8.4.  Benefit.........................................................17

SECTION 8.5.  Governing Law...................................................17

SECTION 8.6.  Counterparts....................................................17




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                               GUARANTEE AGREEMENT

         This  GUARANTEE  AGREEMENT (the  "Guarantee"),  dated as of January 30,
2004, is executed and delivered by First South Bancorp,  Inc.,  incorporated  in
South Carolina (the "Guarantor"),  and Wells Fargo Bank, National Association, a
national  banking  association with its principal place of business in the State
of  Delaware,  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 FSBS  Capital  Trust I, a  Delaware  statutory  trust  (the
"Issuer").

         WHEREAS,  pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"),  dated as of January 30, 2004,  among the trustees named therein
of the Issuer, First South Bancorp,  Inc., 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 securities, having an aggregate liquidation
amount  of  up  to  $5,000,000,  designated  the  TP  Securities  (the  "Capital
Securities"); and

         WHEREAS,   as  incentive  for  the  Holders  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 and Sections are to
     Articles and Sections of this Guarantee, unless otherwise specified;

          (e) terms  defined in the  Declaration  as of 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




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

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

         "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 919  Market  Street,  Suite  700,
Wilmington, DE 19801.

         "Covered Person" means any Holder of Capital Securities.

         "Debentures"  means the junior  subordinated  debentures of First South
Bancorp, Inc., designated the Junior Subordinated Debt Securities due 2034, held
by the Institutional Trustee (as defined in the Declaration) of the Issuer.

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

         "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 has funds available in the Property Account (as defined in
the Declaration) therefor at such time, (ii) the Redemption Price (as defined in
the  Indenture)  to the extent the Issuer has funds  available  in the  Property
Account therefor at such time, with respect to any Capital Securities called for
redemption by the Issuer,  (iii) the Special Redemption Price (as defined in the
Indenture) to the extent the Issuer has funds available in the Property  Account
therefor at such time, with respect to Capital  Securities called for redemption
upon the occurrence of a Special Event (as defined in the  Indenture),  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 has funds  available  in the Property
Account  therefor  at such  time,  and (b) the  amount of  assets of the  Issuer
remaining  available for  distribution  to Holders in  liquidation of the Issuer
after  satisfaction  of  liabilities  to  creditors of the Issuer as required by
applicable law (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.

         "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.

         "Indemnified  Person"  means the  Guarantee  Trustee  (including in its
individual  capacity),  any Affiliate of the Guarantee Trustee, or any officers,


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directors,   shareholders,   members,  partners,   employees,   representatives,
nominees, custodians or agents of the Guarantee Trustee.

         "Indenture" means the Indenture,  dated as of January 30, 2004, 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.

         "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,
but excluding, 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  officer's  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.

         "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 any matters relating to this Guarantee,


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including any vice president,  any assistant vice president,  any secretary, any
assistant secretary,  the treasurer,  any assistant treasurer, any trust officer
or  other  officer  of the  Corporate  Trust  Office  of the  Guarantee  Trustee
customarily  performing functions similar to those performed by any of the above
designated officers and also means, with 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.

         "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 THE 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 of the Guarantee  Trustee 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 the  curing or  waiving of 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  cured or
         waived  pursuant  to  Section  2.4(b))  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 Events of Default  that
                  may have occurred:



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                                    (A)  the  duties  and   obligations  of  the
                           Guarantee  Trustee shall be determined  solely by the
                           express   provisions  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  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, if the Guarantee Trustee shall have reasonable grounds
                  for  believing  that  the  repayment  of  such  funds  is  not
                  reasonably assured to it under the terms of this Guarantee, or
                  security  and  indemnity,   reasonably   satisfactory  to  the
                  Guarantee  Trustee,  against  such  risk or  liability  is not
                  reasonably assured to it.

SECTION 2.2. Certain Rights of the 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.

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                  (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 other writing
         (or any rerecording, refiling or reregistration thereof).

                  (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 be taken to 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


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         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 (A) may request instructions from the
         Holders of a Majority in liquidation amount of the Capital  Securities,
         (B) may  refrain  from  enforcing  such  remedy or right or taking such
         other  action  until such  instructions  are  received and (C) 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  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
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,


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<PAGE>

         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,  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 charged with knowledge
         of any  Event of  Default  unless  the  Guarantee  Trustee  shall  have
         received  written  notice thereof 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 actual
         knowledge thereof.

                                  ARTICLE III
                              THE GUARANTEE TRUSTEE

SECTION 3.1. The 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   or  national   association
                  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  or  national  association  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  purposes  of this  Section
                  3.1(a)(ii),   the   combined   capital  and  surplus  of  such
                  corporation or national  association 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 forth in
         Section 3.2(c).



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                  (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 the 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  60  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.

                                   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 as defense of payment by the Issuer),  right of
         set-off  or  counterclaim  that  the  Issuer  may have or  assert.  The


                                       9
<PAGE>

         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 terms and 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 Guarantee is intended to be for the  Beneficiaries
         who 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 the payment of the  Distributions,  Redemption Price,  Special
         Redemption Price,  Liquidation  Distribution or other sums 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;



                                       10
<PAGE>

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

                  (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 Sections 2.1 and 2.2)
         the  Guarantee  Trustee  shall  have the right to decline to follow any
         such  direction  if the  Guarantee  Trustee  shall  determine  that the
         actions so directed  would be unjustly  prejudicial  to the Holders not
         taking part in such direction or if the Guarantee Trustee being advised
         by legal 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  committee or a trust
         committee of directors or trustees  and/or  Responsible  Officers shall
         determine  that the action or proceeding 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 applicable  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


                                       11
<PAGE>

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.

         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  paid  to  the
Beneficiaries by the Guarantor under this Guarantee; provided, however, that the
Guarantor shall not (except to the extent  required by applicable  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  Guarantee,  if,  after  giving  effect to such
payment, any amounts are due and unpaid under this Guarantee.

                                   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 (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 may not (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  capital  stock 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  that rank pari passu in all respects with or junior
in interest to the  Debentures  (other than (i) payments  under this  Guarantee,
(ii) repurchases,  redemptions or other  acquisitions of shares of capital stock
of the Guarantor (A) 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,  (B)  in  connection  with  a  dividend
reinvestment  or stockholder  stock purchase plan or (C) 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 or the
applicable   Extension   Period,   (iii)   as  a   result   of   any   exchange,


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<PAGE>

reclassification,  combination  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, (iv) 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,
(v) any  declaration of a dividend in connection with any  stockholder's  rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (vi)
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).

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  thereunder.  This  Guarantee  does not
limit the  incurrence  or issuance  of other  secured or  unsecured  debt of the
Guarantor,  including Senior Indebtedness of the Guarantor,  under any indenture
or agreement 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 the Special  Redemption  Price,  as the
case  may  be,  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.



                                       13
<PAGE>

                                  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 of 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.

                  (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


                                       14
<PAGE>

         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
         satisfactory to the Indemnified Person. Notwithstanding the Guarantor's
         election to appoint counsel to represent the Indemnified  Person in any
         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 (and local
         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  Persons  which are  different  from or additional to those
         available to the Guarantor, (iii) the Guarantor shall not have employed
         counsel  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
         as may be 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.



                                       15
<PAGE>

                                  ARTICLE VIII
                                  MISCELLANEOUS

SECTION 8.1. Successors and Assigns.

         All guarantees and  agreements  contained in this Guarantee  shall bind
the  successors,   assigns,  receivers,  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 not less  than 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  shall  apply  equally  with  respect  to
amendments of the Guarantee.

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):

                           Wells Fargo Bank, National Association
                           919 Market Street
                           Suite 700
                           Wilmington, DE 19801
                           Attention: Corporate Trust Division
                           Telecopy: 302-575-2006
                           Telephone: 302-575-2005

                                       16
<PAGE>

                  (b) 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):

                           First South Bancorp, Inc.
                           1450 John B. White, Sr. Blvd.
                           Spartanburg, S.C. 29306
                           Attention: V. Lewis Shuler
                           Telecopy: (864) 587-2781
                           Telephone: (864) 595-0455

                  (c) 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.

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.

SECTION 8.5. Governing Law.

         THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAW OF THE STATE OF NEW YORK,  WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
THEREOF.

SECTION 8.6. Counterparts.

         This  Guarantee may contain more than one  counterpart of the signature
page and this  Guarantee may be executed by the affixing of the signature of the
Guarantor and the Guarantee Trustee to any of such counterpart  signature pages.
All of such  counterpart  signature  pages shall be read as though one, and they
shall have the same force and effect as though all of the  signers  had signed a
single signature page.




                                       17
<PAGE>


         THIS GUARANTEE is executed as of the day and year first above written.


                              [SIGNATURES OMITTED]






















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