EXHIBIT 10.4

                       SUPPLEMENTAL INCOME PLAN AGREEMENT

THIS  AGREEMENT  made and entered into as of the 18th day of October,  2006 (the
"Effective  Date") by and between First South Bank, a commercial  bank organized
and existing  under the laws of the State of North  Carolina (the  "Bank"),  and
Robert E. Branch (the "Employee").

                                   WITNESSETH:

WHEREAS, the Employee is employed by the Bank;

WHEREAS,  the Bank recognizes the valuable services heretofore  performed for it
by the Employee and wishes to encourage his continued employment;

WHEREAS, the Employee wishes to be assured that he will be entitled to a certain
amount of  additional  compensation  for some  definite  period of time from and
after the  termination of his employment  with the Bank and that his beneficiary
will be entitled to a death benefit from and after the Employee's death;

WHEREAS,  the parties hereto wish to provide the terms and conditions upon which
the Bank  shall  pay such  additional  compensation  to the  Employee  after the
termination  of his  employment  with  the  Bank or such  death  benefit  to his
beneficiary after the Employee's death.

NOW,  THEREFORE,  in  consideration  of the premises and of the mutual  promises
herein contained, the parties hereto agree as follows:

Section  1.  Retirement  Benefits.  Except as  otherwise  specifically  provided
herein,  if the  Employee  shall remain in the  employment  of the Bank until he
attains the age of 65 (the "Retirement  Date"),  the Bank shall pay the Employee
the sum of ten thousand dollars  ($10,000.00) per annum for a period of five (5)
years,  payable  in  equal  monthly  installments,  commencing  on a date  to be
determined  by the Bank,  but in no event  later than the first day of the sixth
calendar month following the calendar month in which the Retirement Date occurs.

Section 2. Post-Retirement Death Benefits. In the event that the Employee should
die after becoming  entitled to receive  payments under Section I but before all
such payments have been made, the Bank will make all remaining  payments to such
beneficiary  or  beneficiaries  as the  Employee has  designated  to the Bank in
writing  (the  "Beneficiaries').  In the  event  of  death  of the  last  living
Beneficiary  before  all unpaid  payments  have been  made,  the  balance of any
payments which remain unpaid at the time of the death of such Beneficiary  shall
be commuted on the basis of six percent (6%) per annum  compounded  interest and
shall be paid in a single sum to the estate of the last  Beneficiary  to die. In
the absence of such beneficiary designation,  any amount remaining unpaid at the
Employee's  death shall be  commuted on the basis of six percent  (6%) per annum
compounded interest and shall be paid in a single sum to the Employee's estate.

Section  3.  Pre-Retirement  Death  Benefits.  In the  event of the death of the
Employee  while  employed by the Bank and before the  Retirement  Date, the Bank
shall make the payments described in Section I above to the  Beneficiaries,  and
the amount of such  payments  shall be determined as if the date of death of the
Employee was his Retirement  Date. The first monthly  payment shall be made on a
date to be determined  by the Bank,  but in no event later than the first day of
the sixth calendar month  following the month in which the Employee died. In the
event of death of the last living  Beneficiary before all the payments have been
made,  the  balance  of any  payments  which  remain  unpaid at the time of such
Beneficiary's death shall be commuted on the basis of six percent (6%) per annum
compounded  interest and shall be paid in a single sum to the estate of the last
Beneficiary to die. In the absence of any  beneficiary  designation  made by the
Employee  pursuant  to Section  2,  above,  or if no  Beneficiary  survives  the
Employee,  the payments to be made  hereunder  shall be commuted on the basis of
six percent (6%) per annum compounded interest and shall be paid in a single sum
to the Employee's estate. Notwithstanding the foregoing, if the Employee dies as
result of suicide on or before the two-year  anniversary of the Effective  Date,
no benefits of whatever nature shall be payable to the Beneficiaries  under this
Agreement.

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<PAGE>

Section 4. Termination Benefits.  Except as otherwise provided in Section 6 with
respect to termination of employment in certain circumstances, in the event that
the employment of the Employee terminates prior to the time he is first entitled
to receive  payments  under this  Agreement for any reason other than his death,
the Employee or his Beneficiaries,  as applicable,  shall be entitled,  upon the
occurrence  of the  Employee's  65th  birthday  or prior  death,  to receive the
percentage  of the  applicable  annual  payment  described  in  Section  I above
determined  by Exhibit A attached  hereto an  incorporated  herein by reference.
Such  payments  shall  be made in equal  monthly  installments,  with the  first
monthly installment commencing on a date to be determined by the Bank, but in no
event  later  than the first  day of the  sixth  calendar  month  following  the
calendar month of the Employee's 65th birthday or death, as applicable, occurs.

Section 5. Benefits Not Transferable.  Neither the Employee, any Beneficiary nor
any other person claiming any right or interest under this Agreement through the
Employee  or any other  Beneficiary  shall  have any right to  commute,  assign,
transfer or otherwise convey the right to receive any benefits hereunder.

Section 6. Binding Upon  Successors.  This Agreement and the Bank's  obligations
hereunder shall be binding upon the Bank's successors and permitted assigns. The
Bank may not assign its right or obligations  under this  Agreement  without the
Employee's prior written consent. In addition, the Bank shall not enter into any
agreement  proving  for the  merger of the Bank with and into  another  business
entity or the sale of more  than a  majority  of the  Bank's  assets to  another
business entity,  person or group of persons that does not specifically  provide
that such successor by merger or purchaser(s) of assets shall assume and satisfy
each and every  obligation of the Bank to the Employee under this Agreement.  In
the case of an asset  sale,  such  assumption  shall not relieve the Bank of its
liability to fulfill such obligations.

Except as otherwise provided in Sections 1, 2 or 3, above, as applicable, in the
event that, on or before the  occurrence of the  Employee's  Retirement  Date, a
"Termination of Protected Employment" occurs following a "Change in Control" (as
these terms are defined below),  the Employee shall be deemed to have retired as
of his  Retirement  Date  and  the  provisions  of  Section  I shall  be  deemed
applicable,  except that the Retirement Date shall be deemed to be the date that
such Change in Control shall occur.

For purposes of this  Agreement,  "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 First South Bancorp,  Inc. (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.

                                       2
<PAGE>

For purposes of this Agreement,  a "Termination of Protected  Employment"  shall
occur if: (i) the Employee is terminated  without Just Cause,  with "Just Cause"
meaning, 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, or rule or regulation (other than traffic
violations or similar offenses) or final  cease-and-desist  order; provided that
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 interests
of the Bank or of the  Company;  or (ii)  the  Employee  voluntarily  terminates
employment for an event that constitutes  "Good Reason," which shall mean any of
the following events,  that has not been consented to in advance by the Employee
in writing:  (a) the requirement that the Employee move his personal  residence,
or  perform  his  principal  executive  functions,  more than 30 miles  from his
primary  office  as of the  later of the  Effective  Date  and the  most  recent
voluntary relocation by the Employee; (b) a material reduction in the Employee's
base  compensation  in effect  on the date of the  Change  in  Control;  (c) the
failure by the Bank to continue to provide the Employee  with  compensation  and
benefits  in  effect  on the date of the  Change in  Control,  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 which would  directly or indirectly  reduce any
of such benefits or deprive the Employee of any material  fringe benefit enjoyed
by him;  (d) the  assignment  to the  Employee  of duties  and  responsibilities
materially  different from those normally  associated  with his position;  (e) a
failure to reelect the Employee to the Board of  Directors  of the Bank,  if the
Employee has served on such Board at any time during the term of the  Agreement;
(f) a material  diminution or reduction in the  Employee's  responsibilities  or
authority  (including   reporting   responsibilities)  in  connection  with  his
employment  with the Bank;  or (g) a material  reduction in the  secretarial  or
other administrative support of the Employee.

Section 7.  Benefits  Payable  Only from  General  Corporate  Assets;  Unsecured
General Creditor Status of Employee.

The payments to the Employee or his  Beneficiaries  hereunder shall be made from
assets,  which  shall  continue  for all  purposes,  to be a part of the general
unrestricted  assets of the Bank;  no person shall have nor acquire any interest
in any such assets by virtue of the  provisions  of this  Agreement.  The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future.  To the extent that the  Employee or any person  acquires a right to
receive payments from the Bank under the provisions hereof,  such right shall be
no greater than the right of any unsecured general creditor of the Bank; no such
person shall have nor require any legal or equitable right, interest or claim in
or to any property or assets of the Bank.

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<PAGE>

In the event that, in its discretion,  the Bank purchases an insurance policy or
policies  insuring the life of the Employee (or any other  property) in order to
allow the Bank to recover the cost of providing  the benefits,  in whole,  or in
part, hereunder,  neither the Employee nor any beneficiary shall have the rights
whatsoever  therein or in the  proceeds  there from.  The Bank shall be the sole
owner and beneficiary of any such policy or policies and, as such, shall possess
and, may exercise all incidents of ownership therein.

Notwithstanding  any other  provision of this  Agreement that may be contrary or
inconsistent  herewith,  not  later  than ten  business  days  after a Change in
Control,  the Bank shall (i) deposit in a grantor  trust (the  "Trust")  that is
designed  in  accordance  with  Revenue   Procedure  92-64  and  has  a  trustee
independent  of the Bank,  the Company and any successor to their  interest,  an
amount equal to the present value of all benefits that may become  payable under
this Agreement, 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.

At any time or from time to time following a Change in Control, the Employee may
provide  the  trustee of the Trust with a written  schedule  directing  that the
trustee pay to the  Employee  the amounts  designated  in the  schedule 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
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 (including any attorneys' fees incurred by the
Employee)  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 three
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.

Upon the  receipt of the  Employee's  written  release of all claims  under this
Agreement,  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 pursuant to
this Agreement.

Section 8.  Additional  Benefits.  The benefits and rights  provided  under this
Agreement are in addition to, and  independent  of, those rights and benefits of
the  Employee  provided  under  other  agreements  with the Bank,  and shall not
affect,  reduce or diminish the right of Employee to  participate in any current
or future retirement plan or in any supplemental compensation arrangement.

Section  9. No  Contract  of  Employment.  Nothing  contained  herein  shall  be
construed to be a contract of employment or as conferring  upon the Employee the
right to continue to be employed by the Bank. It is expressly  understood by the
parties   hereto  that  this   Agreement   relates   exclusively  to  additional
compensation  for the  Employee's  services,  payable after  termination  of his
employment with the Bank, and is not intended to be an employment agreement.

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<PAGE>

Section 10.  Claims and Review Procedures.


      A.    General.  For the purposes of implementing a claims  procedure under
            this  Agreement  as  required  by  the  Employee  Retirement  Income
            Security Act of 1974 ("ERISA") (but not for any other purpose),  the
            Bank  is  hereby   designated  as  the  named   fiduciary  and  Plan
            Administrator of this unfunded,  nonqualified  deferred compensation
            plan.  If any  person  believes  he is being  denied  any  rights or
            benefits  under  the  Agreement,  such  person  may  file a claim in
            writing with the Plan  Administrator  for  resolution  in accordance
            with the provisions of Paragraph B of this Section 10.

      B.    Claims  Procedure.  If  any  claim  filed  hereunder  is  wholly  or
            partially denied, the Plan Administrator will notify the claimant of
            its  decision in  writing.  Such  notification  will be written in a
            manner calculated to be understood by the claimant and will contain:

            (i)   specific reasons for the denial,

            (ii)  specific reference to pertinent provisions of the Agreement on
                  which the Plan Administrator based its denial,

            (iii) a  description  of  any  additional  material  or  information
                  necessary  for the  claimant  to  perfect  such  claim  and an
                  explanation  of why such material or information is necessary,
                  and

            (iv)  information as to the steps to be taken if the claimant wishes
                  to submit a request for review.

                  Such  notification will be given within ninety (90) days after
                  the claim is received by the Plan Administrator (or within 180
                  days,  if special  circumstances  require an extension of time
                  for  processing  the  claim,  and if  written  notice  of such
                  extension and  circumstances  is given to the claimant  within
                  the initial ninety (90) day period).  If such  notification is
                  not given  within such  period,  the claim will be  considered
                  denied as of the last day of such period and the  claimant may
                  request a review of his claim in accordance with Section 10.C.
                  hereof.

      C.    Review  Procedure.  Within sixty (60) days after the date on which a
            claimant  received  a  written  notice  of a denied  claim  (or,  if
            applicable,  within  sixty  (60) days  after the date on which  such
            denial is  considered  to have  occurred)  the claimant (or his duly
            authorized representative) may:

            (i)   file a  written  request  with  the Plan  Administrator  for a
                  review of his denied claim and of pertinent documents; and

            (ii)  submit written issues and comments to the Plan Administrator.

                  The  plan  Administrator  will  notify  the  claimant  of  its
                  decision in writing.  Such  notification  will be written in a
                  manner  calculated  to be  understood by the claimant and will
                  contain  specific reasons for the decision as well as specific
                  references  to  pertinent  provisions  of the  Agreement.  The
                  decision on review  will be made within  sixty (60) days after
                  the request  for review is received by the Plan  Administrator
                  (or  within  one  hundred   twenty  (120)  days,   if  special
                  circumstances  require an extension of time for processing the
                  request (such as an election by the Plan Administrator to hold
                  a  hearing),  and if  written  notice  of such  extension  and
                  circumstances  is given to the  claimant  within  the  initial
                  sixty (60) day period.

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<PAGE>

Section 11. Amendment.  This Agreement may not be amended,  altered or modified,
except by a written  instrument signed by the parties hereto or their respective
successors, and may not be otherwise terminated except as provided herein.

Section  12.  Governing  Law.  This  Agreement,  and the  rights of the  parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of North Carolina.

IN WITNESS WHEREOF,  the parties have executed this  Supplemental Plan Agreement
as of the day and year first written above.

                                                    FIRST SOUTH BANK

         Attest:                                    By: /s/ Thomas A. Vann
                                                        ------------------
                                                    Thomas A. Vann
                                                    President and
         /s/ William L. Wall                        Chief Executive Officer
         -------------------
         William L. Wall
         Secretary
         {Corporate Seal}

                                                    EMPLOYEE:

                                                    /s/ Robert E. Branch
                                                    --------------------
                                                    Robert E. Branch

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<PAGE>


                                    EXHIBIT A
                                       TO
                       SUPPLEMENTAL INCOME PLAN AGREEMEENT
                                       FOR
                                ROBERT E. BRANCH

FULL YEARS OF EMPLOYMENT
                              AFTER EFFECTIVE DATE
                  1
                  2
                  3
                  4
                  5
                  6
                  7
                  8
                  9
                  10

PERCENTAGE OF THE ANNUAL INSTALLMENT PAYMENTS
STATED IN SECTION 1 OF THIS
AGREEMENT TO WHICH THE
                              EMPLOYEE IS ENTITLED
                  10
                  20
                  30
                  40
                  50
                  60
                  70
                  80
                  90
                  100

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