425

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): June 9, 2017

CAROLINA FINANCIAL CORPORATION

(Exact Name of Registrant As Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

000-19029	57-1039673
(Commission File Number)	(I.R.S. Employer Identification No.)
288 Meeting Street, Charleston, South Carolina	29401
(Address of Principal Executive Offices)	(Zip Code)

(843) 723-7700

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☒ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01 Other Events

On June 9, 2017, Carolina Financial Corporation, a Delaware corporation (the “Company”), and First South Bancorp, Inc., a Virginia corporation (“First South”), issued a joint press release announcing the execution of an Agreement and Plan of Merger and Reorganization, dated as of June 9, 2017, by and between the Company and First South (the “Merger Agreement”), pursuant to which, subject to the terms and conditions set forth therein, First South will merge with and into the Company (the “Merger”), with the Company as the surviving corporation in the Merger. The Merger Agreement provides that immediately following the Merger, First South’s wholly-owned bank subsidiary, First South Bank, a North Carolina-chartered bank, will merge with and into the Company’s wholly owned bank subsidiary, CresCom Bank, a South Carolina-chartered bank (the “Bank Merger”), with CresCom Bank as the surviving entity in the Bank Merger. A copy of the press release containing the announcement is attached hereto as Exhibit 99.1 and incorporated by reference herein.

Item 7.01 Regulation FD Disclosure

A conference call will be held at 11:00 a.m., Eastern Time on June 12, 2017. The conference call can be accessed by dialing (855) 218-6998 or (615) 247-5963 and requesting the Carolina Financial Corporation merger call. The conference ID number is 37059206. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations.”

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” shortly following the call. A replay of the conference call can be accessed approximately three hours after the call by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 37059206.

A copy of the investor presentation prepared for use by executive management during the investor conference call is furnished as Exhibit 99.2.

The information included in the preceding paragraphs, as well as in Exhibit 99.2 referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act nor shall it be deemed incorporated by reference in filings under the Securities Act.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
99.1	News Release dated June 12, 2017
99.2	Investor Presentation

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CAROLINA FINANCIAL CORPORATION,
Registrant
By:	/s/ William A. Gehman, III
	William A. Gehman, III
	Executive Vice President and
	Chief Financial Officer

Dated: June 12, 2017

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EX-99.1

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Carolina Financial Corporation Announces
Agreement to Acquire First South Bancorp, Inc.

Expands Presence in North Carolina

Charleston, S.C. & Washington, N.C., June 12, 2017 – Carolina Financial Corporation (Nasdaq: CARO) (“Carolina Financial”) and First South Bancorp, Inc. (Nasdaq: FSBK), the parent company of First South Bank (together, “First South”) announced today the signing of a definitive merger agreement.

First South, which is headquartered in Washington, North Carolina, currently operates 28 banking locations across the Research Triangle and eastern regions of North Carolina. As of March 31, 2017, First South reported assets of $1.0 billion, gross loans of $730 million and deposits of $920 million.

“We are excited about the opportunity to enhance our scale in North Carolina and to enter Raleigh and Durham, two of the fastest growing markets in the Southeast, as a result of this partnership,” said Jerry Rexroad, Chief Executive Officer of Carolina Financial.

Upon completion of the acquisition, the combined company will have approximately $3.2 billion in assets, $2.2 billion in loans and $2.5 billion in deposits. This transaction will further solidify Carolina Financial’s position as one of the largest Carolinas-based community banks. The transaction provides core funding and economy of scale benefits in attractive markets throughout North Carolina. First South is a franchise that has developed long-term relationships over the course of its 100+ year history.

Bruce Elder, President and Chief Executive Officer of First South, commented, “We are excited about partnering with a high-performing company like Carolina Financial. First South shareholders and customers will be rewarded as the combination of these two banks will provide superior financial performance along with an exceptional customer experience. We will leverage the new resources and products available to us through CresCom Bank to attract new customers and expand our existing relationships.”

Bruce Elder will be named President of North Carolina Banking for Carolina Financial’s bank subsidiary, CresCom Bank.

The merger agreement has been unanimously approved by the boards of directors of each company. The transaction is expected to close in the fourth quarter of 2017 and is subject to customary conditions, including both regulatory and shareholder approvals. Subject to the terms of the merger agreement, First South shareholders will receive 0.52 shares of Carolina Financial common stock for each share of First South’s common stock, which equates to an aggregate deal value of $162 million based on Carolina Financial Corporation’s closing stock price of $32.49 as of June 9, 2017.

Keefe, Bruyette & Woods, Inc. served as financial advisor and Nelson Mullins Riley & Scarborough LLP provided legal counsel to Carolina Financial. Raymond James served as financial advisor and Wyrick Robbins Yates & Ponton LLP served as legal counsel to First South.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on June 12, 2017. The conference call can be accessed by dialing (855) 218-6998 or (615) 247-5963 and requesting the Carolina Financial Corporation merger call. The conference ID number is 37059206. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations.”

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” shortly following the call. A replay of the conference call can be accessed approximately three hours after the call by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 37059206.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ: CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of March 31, 2017, Carolina Financial Corporation had approximately $2.2 billion in total assets and Crescent Mortgage Company was licensed to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers. During 2014, CresCom Bank completed two branch acquisitions and grew from 11 to 26 branch locations. In addition, in 2014 the Company added loan production offices in Greenville, SC, and Wilmington, NC. In August 2015, the Company opened a full-service branch in Greenville, SC.  On December 14, 2015, the Company closed a public offering of approximately 2.26 million shares of its common stock with net proceeds of approximately $32.2 million, net of related expenses. On June 11, 2016, Carolina Financial completed its acquisition of Congaree Bancshares Inc. On January 5, 2017, the Company closed a public offering of approximately 1.8 million shares of its common stock with net proceeds of approximately $47.7 million, net of related expenses. On March 18, 2017, Carolina Financial completed its acquisition of Greer Bancshares Incorporated.

About First South Bancorp, Inc.

First South Bancorp, Inc. (NASDAQ: FSBK) is a Virginia corporation that serves as the holding company for First South Bank, a North Carolina-chartered commercial bank. The Company was originally incorporated as a Delaware corporation in 1996. In 1999, FSBK changed its state of incorporation from Delaware to Virginia. First South Bank has one significant operating segment, the providing of general commercial banking services to its markets located in the state of North Carolina.

Forward-Looking Statements

Certain statements in this news release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective.  Such forward-looking statements include but are not limited to statements with respect to plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions.  Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Although the parties making such statements believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.  Therefore, neither Carolina Financial nor First South provides any assurance that the results contemplated in the forward-looking statements will be realized.  The inclusion of this forward-looking information should not be construed as a representation by Carolina Financial, First South or any other person that the future events, plans, or expectations contemplated will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:  the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between Carolina Financial and First South; the outcome of any legal proceedings that may be instituted against Carolina Financial or First South; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Carolina Financial and First South do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; Carolina Financial’s ability to complete the acquisition and integration of First South successfully; credit risk associated with commercial real estate, commercial business and construction lending; interest risk involving the effect of a change in interest rates on both of Carolina Financial’s and First South’s earnings and the market value of the portfolio equity; liquidity risk affecting each bank’s ability to meet its obligations when they come due; price risk focusing on changes in market factors that may affect the value of traded instruments; transaction risk arising from problems with service or product delivery; compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards; strategic risk resulting from adverse business decisions or improper implementation of business decisions; reputation risk that adversely affects earnings or capital arising from negative public opinion; cybersecurity risk related to the dependence of Carolina Financial and First South on internal computer systems and the technology of outside service providers, as well as the potential impacts of third-party security breaches, which subjects each company to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events.  For a discussion of some of the other risks and factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to the filings made by Carolina Financial and First South in their respective reports filed with the SEC, including each company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K available at the SEC’s Internet site (http://www.sec.gov).  All subsequent written and oral forward-looking statements concerning Carolina Financial, First South or any person acting on either company’s behalf are expressly qualified in their entirety by the cautionary statements above.  Neither Carolina Financial nor First South undertakes any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

2

Additional Information About the Acquisition and Where to Find It

Carolina Financial and First South will file relevant documents concerning the transaction with the Securities and Exchange Commission (the “SEC”), including a Registration Statement on Form S-4 which will include a joint proxy statement of Carolina Financial and First South and a prospectus of Carolina Financial, as well as other relevant documents concerning the proposed transaction.  The proposed transaction will be submitted to First South’s shareholders and Carolina Financial’s stockholders for their consideration. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

SHAREHOLDERS OF FIRST SOUTH AND STOCKHOLDERS OF CAROLINA FINANCIAL ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY ARE FILED WITH THE SEC, as well as any amendments or supplements to those documents WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION.

Shareholders of First South and stockholders of Carolina Financial will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Carolina Financial and First South, at the SEC’s internet site (http://www.sec.gov).  Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to:  Carolina Financial Corporation, 288 Meeting Street, Charleston, South Carolina 29401, Attention:  William A. Gehman, III, Executive Vice President and Chief Financial Officer or First South Bancorp, Inc., 1311 Carolina Avenue, Washington, NC 27889, Attention: Scott C. McLean, Executive Vice President and Chief Financial Officer.

Participants in the Solicitation

Carolina Financial, First South and certain of their respective directors, executive officers and employees and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction.  Information regarding Carolina Financial’s directors and executive officers is available in its definitive proxy statement (form type DEF 14A) which was filed with the SEC on March 20, 2017, and certain of its Current Reports on Form 8-K. Information regarding First South’s directors and executive officers is available in its definitive proxy statement (form type DEF 14A) which was filed with the SEC on June 2, 2017, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

3

EX-99.2

Investor Presentation N A S D A Q : C A RO June 12, 201 7 Acquisition of First South Bancorp Inc. (FSBK) by Carolina Financial Corporation (CARO)

2 Disclaimer Certain statements in this presentation contain “forward - looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 , such as statements relating to future plans and expectations, and are thus prospective . Such forward - looking statements include but are not limited to statements with respect to plans, objectives, expectations, and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions . Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward - looking statements . Although we believe that the assumptions underlying the forward - looking statements are reasonable, any of the assumptions could prove to be inaccurate . Therefore, we can give no assurance that the results contemplated in the forward - looking statements will be realized . The inclusion of this forward - looking information should not be construed as a representation by Carolina Financial Corporation (“Carolina Financial” or the “Company”) or any person that such future events, plans, or expectations will occur or be achieved . In addition to factors previously disclosed in the reports filed by Carolina Financial with the Securities and Exchange Commission (the “SEC”), additional risks and uncertainties may include, but are not limited to : the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between Carolina Financial and First South ; the outcome of any legal proceedings that may be instituted against Carolina Financial or First South ; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all ; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Carolina Financial and First South do business ; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events ; diversion of management’s attention from ongoing business operations and opportunities ; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction ; Carolina Financial’s ability to complete the acquisition and integration of First South successfully ; credit risk associated with commercial real estate, commercial business and construction lending ; interest risk involving the effect of a change in interest rates on both of Carolina Financial’s and First South’s earnings and the market value of the portfolio equity ; liquidity risk affecting each bank’s ability to meet its obligations when they come due ; price risk focusing on changes in market factors that may affect the value of traded instruments ; transaction risk arising from problems with service or product delivery ; compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards ; strategic risk resulting from adverse business decisions or improper implementation of business decisions ; reputation risk that adversely affects earnings or capital arising from negative public opinion ; cybersecurity risk related to the dependence of Carolina Financial and First South on internal computer systems and the technology of outside service providers, as well as the potential impacts of third - party security breaches, which subjects each company to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events . Additional factors that could cause our results to differ materially from those described in the forward - looking statements can be found in the reports (such as our Annual Report on Form 10 - K, Quarterly Reports on Form 10 - Q and Current Reports on Form 8 - K) filed with the SEC and available at the SEC’s Internet site (http : //www . sec . gov) . All subsequent written and oral forward - looking statements concerning the Company or any person acting on its behalf is expressly qualified in its entirety by the cautionary statements above . We do not undertake any obligation to update any forward - looking statement to reflect circumstances or events that occur after the date the forward - looking statements are made .

3 North Carolina 44% South Carolina 56% North Carolina 14% South Carolina 86% Overview of Pro Forma Franchise Source: SNL Financial Financial data as of or for the three months ended 3/31/17; deposit data as of 6/30/16; pricing data as of 6/9/17 (1) Community bank defined as an institution with total assets less than $10.0 billion (2) Excludes purchase accounting adjustments Pro Forma Highlights (1 ) Deposit Composition by State (2) CARO Standalone CARO + FSBK • Highly attractive opportunity that expands upon current footprint and M&A strategy • Creates the premier Carolinas Community Banking Franchise ‒ 2 nd largest Community Bank (1) • Ability to leverage solid core funding base ‒ FSBK MRQ cost of deposits: 0.34% ‒ CARO MRQ cost of deposits: 0.51% North Carolina South Carolina Wilmington Myrtle Beach Winston-Salem Greensboro Asheville Charlotte Raleigh Florence Columbia Greenville Augusta Savannah Charleston Branch Loan Production Office First South Bancorp, Inc. Total Assets $3.2bn Gross Loans 2.2 Total Deposits 2.5 Market Cap 0.7 Branches 62

4 Transaction Terms Consideration Mix Implied Price / TBV (%) Required Approvals $161.8 million (1)(2) 100% stock CARO and FSBK Shareholder vote and customary regulatory approvals Implied Aggregate Transaction Value FSBK Board Representation Expected Closing Fourth quarter 2017 Retention of key members of Management to include Bruce W. Elder 192% $16.89 (1) Indicative Price per Share 0.52 (1) shares of CARO stock for each share of FSBK stock Stock Consideration First South Bancorp, Inc. (Nasdaq: FSBK) Seller Carolina Financial Corporation (Nasdaq: CARO) Acquirer Implied Price / LTM EPS (x) 21.7x Data as of or for the twelve months ended 3/31/17 (1) Based on CARO’s stock price of $32.49 as of 6/9/17 and a fixed exchange ratio of 0.52 (2) Based on FSBK common shares outstanding of 9,508,181 and 116,000 in - the - money options with a weighted average strike price of $7 .24 Management Retention 2 seats to FSBK, pro forma Board of 14

5 • Low double digit EPS accretion in 2019 • Minimal tangible book value dilution, earned back under 2.5 years • Enhances operating metrics • Pro forma institution to remain well capitalized • Comprehensive due diligence completed by senior CARO team • Approximately 47% of total portfolio reviewed • Comparable cultures and customer bases • Mature franchise with long term relationships • Limited integration risk due to CARO’s knowledge of the NC market • Market extension that provides core funding and economy of scale benefits • Creates 2 nd largest Community Bank (1) headquartered in the Carolinas • Experienced management team with deep ties to the local community • Builds on existing presence in attractive North Carolina markets • Combined entity operates in seven of the top 25 fastest growing Southeast MSAs Transaction Rationale Low Risk Financially Attractive Strategic Rationale (1) Community bank defined as an institution with total assets less than $10.0 billion

6 Key Factors in a Successful M&A Transaction Conservative and Achievable Results Retention of Key Employees with Minimal Turnover Material, Immediate and Lasting EPS Accretion TBV Earn back Period under 2.5 years x x x x Well Capitalized Pro Forma Company x

7 Expanding A Valuable Franchise Data as of 3/31/17; deposit data as of 6/30/16, pro forma for announced transactions Note: Community Banks in the Carolinas includes all banks and thrifts headquartered in North Carolina or South Carolina (1) Pro forma for recent acquisition; excludes purchase accounting assumptions (2) Excludes purchase accounting adjustments (3) Community bank defined as an institution with total assets less than $10.0 billion Community Banks in the Carolinas (3) Combined Counties Deposit Market Share Community Bank Deposits Market Rank Rank (3) Institution ($mm) Share Branches 1 -- Wells Fargo & Co. $19,089 20.03% 175 2 -- BB&T Corp. 15,889 16.67 199 3 -- Bank of America Corp. 10,267 10.77 90 4 -- First Citizens BancShares Inc. 7,860 8.25 132 5 -- PacWest Bancorp 4,419 4.64 1 6 -- PNC Financial Services Group Inc. 4,357 4.57 67 7 -- SunTrust Banks Inc. 3,023 3.17 64 8 -- South State Corp. 2,931 3.07 54 Pro Forma 2,391 2.51 62 9 -- F.N.B. Corp. 2,299 2.41 28 10 -- Toronto-Dominion Bank 2,155 2.26 34 11 -- First Horizon National Corp. 1,662 1.74 25 12 1 Carolina Financial Corp. 1,564 1.64 34 13 -- Synovus Financial Corp. 1,356 1.42 17 14 -- Pinnacle Financial Partners Inc. 1,254 1.32 29 15 2 Live Oak Bancshares Inc. 1,165 1.22 1 16 -- TowneBank 1,093 1.15 4 17 -- United Community Banks Inc. 1,092 1.15 24 18 3 Southern BancShares (N.C.) Inc. 1,076 1.13 35 19 4 Southern First Bancshares Inc. 1,020 1.07 9 20 5 First Bancorp 912 0.96 32 21 6 CNB Corp. 876 0.92 16 22 7 First South Bancorp Inc. 826 0.87 28 23 8 North State Bancorp 711 0.75 7 24 9 Select Bancorp Inc. 591 0.62 11 25 10 Travelers Rest Bancshares Inc. 552 0.58 10 Assets Rank Institution ($mm) 1 First Bancorp (1) 5,246 Pro Forma (2) 3,223 2 HomeTrust Bancshares, Inc. 3,165 3 Southern BancShares (N.C.), Inc. 2,534 4 Carolina Financial Corporation (1) 2,184 5 Live Oak Bancshares, Inc. 1,932 6 Fidelity BancShares (N.C.), Inc. 1,895 7 Southern First Bancshares, Inc. 1,468 8 Entegra Financial Corp. 1,384 9 Peoples Bancorp of North Carolina, Inc. 1,110 10 CNB Corporation 1,103 11 First Community Corporation (1) 1,068 12 First South Bancorp, Inc. 1,039 13 Select Bancorp, Inc. 879 14 Security Federal Corporation 848 15 North State Bancorp 821 16 Four Oaks Fincorp, Inc. 734 17 Carolina Alliance Bank 669 18 Travelers Rest Bancshares Inc. 660 19 First Palmetto Financial Corporation 645 20 Anderson Brothers Bank 623

8 Top 25 Markets in the Southeast 9.8% 8.7% 8.7% 8.3% 8.2% 8.0% 7.9% 7.4% 7.2% 7.1% 7.1% 7.0% 6.9% 6.9% 6.8% 6.7% 6.7% 6.7% 6.5% 6.3% 6.1% 6.1% 5.8% 5.7% 5.5% 3.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Projected Population Growth (%) Source: SNL Financial Includes MSAs within the Southeast with a minimum population of 250,000 Note: Red bars denote market of operation for the pro forma company 2017 – 2022 Projected Population Growth (%)

9 FSBK Markets of Operation (1) FSBK Market FSBK Top 10 Deposits Deposits Market Total Rank NC MSA Rank ($mm) ($mm) Share Branches Businesses Washington 2 $201 $906 22.2 % 3 2,048 Rocky Mount 7 104 1,876 5.5 2 5,458 Fayetteville 8 86 3,166 2.7 3 12,557 New Bern 5 58 1,420 4.1 2 5,038 Greenville 9 52 2,006 2.6 3 6,520 Goldsboro 8 41 1,432 2.9 2 4,028 Kinston 5 41 760 5.4 1 2,567 Kill Devil Hills 8 40 1,119 3.6 2 3,648 Lumberton 6 34 979 3.5 1 3,948 Durham-Chapel Hill 16 29 12,231 0.2 1 19,083 Wilmington 15 24 5,900 0.4 1 12,655 Wilson 8 20 1,106 1.8 1 3,279 Elizabeth City 9 17 811 2.1 1 2,523 Raleigh 26 16 27,589 0.1 1 45,485 Morehead City 8 16 1,043 1.5 1 3,736 Presence in Top North Carolina Markets x x x x x x x x x x x x • The Research Triangle (Raleigh - Durham - Chapel Hill) is a prominent technology hub with more than 200 companies and over 50,000 workers • Three major research universities are located in the Research Triangle, with industries investing more than $296 million in R&D in the region’s universities each year • The Wilmington and Greenville, NC MSAs are supported by vibrant and growing economies, with C&I businesses accounting for 17% and 19% of total businesses, respectively • North Carolina is ranked as the #1 Top Competitive State, #2 Best State for Business, and the #1 for Lowest State and Local Business Tax Burden • Opportunity to gain market share through continued consolidation in North Carolina Research Triangle Other Markets of Operation (2) Leading Area Employers Source: SNL Financial, Forbes, Ernst & Young, Site Selection, North Carolina Economic Development Partnership of North Caroli na Deposit data as of 6/30/16 (1) Excludes branches located outside of a MSA; FSBK has 1 branch in each of the following counties Duplin, Bladen, and Martin wh ich are not included in a MSA (2) Other markets of operation include FSBK markets of operation and surrounding areas

10 Expected Financial Impact (1) Tangible book value earn back period calculated using the crossover method Assumptions / Current Estimates Financial Impact • 1.8% gross loan credit mark • 26% in cost savings • $23.7 million pre - tax one - time transaction costs • Revenue synergies identified but not modeled • Low double digit EPS accretion with full realization of cost savings • Tangible book value earn back under 2.5 years (1) • Pro forma capital ratios will remain well capitalized • IRR greater than 20.0%

11 Credit Due Diligence Credit Due Diligence Process • Experienced credit review team of CARO bankers, comprised of CARO senior management • Reviewed 47% of FSBK’s total loan portfolio ‒ Reviewed 69% of loans greater than $300 thousand (60% of total loan portfolio) ‒ Reviewed 51% of non accrual loans (less than 0.5% of total loan portfolio) ‒ Reviewed 59% of watchlist and criticized loans, excluding nonaccrual loans (6% of total loan portfolio) • FSBK has OREO totaling $3.1 million as of 3/31/17

12 Summary • Creates significant value to CARO and FSBK shareholders through economies of scale • Establishes the 2 nd largest Community Bank (1) headquartered in the Carolinas • Carolina Financial will have strong banking teams in seven of the fastest growing markets in the Southeast • Complimentary community banking overarching philosophies • Financially attractive combination • Premier core deposit franchise (1) Community bank defined as an institution with total assets less than $10.0 billion

13 Appendix

14 Overview of First South Bancorp, Inc. First South Bancorp, Inc. Financial Highlights Dollars in millions Source: SNL Financial, Company documents Data as of or for the three months ended 3/31/17 FSBK Branch Balance Sheet ($mm) Assets $1,039 Loans 730 Deposits 920 Tangible Common Equity 84 Loans / Deposits 79.3 % Asset Quality NPAs / Loans + OREO 0.81% Loan Loss Reserves / Gross Loans 1.23 Profitability Core ROAA 0.75% Net Interest Margin 3.74 Efficiency Ratio 74.9 Capital Ratios TCE / TA 8.08% Leverage Ratio 8.89 Corporate Data Date Established 1902

15 C&D 14% 1 - 4 Family 26% Multifamily 4% Owner - Occupied CRE 21% Non Owner - Occupied CRE 22% C&I 8% Consumer & Other 6% C&D 11% 1 - 4 Family 34% Multifamily 2% Owner - Occupied CRE 15% Non Owner - Occupied CRE 23% C&I 11% Consumer & Other 3% C&D 10% 1 - 4 Family 38% Multifamily <1% Owner - Occupied CRE 13% Non Owner - Occupied CRE 24% C&I 12% Consumer & Other 2% Pro forma Loan and Deposit Composition CARO FSBK Pro Forma (1) Loan Portfolio Composition Deposit Portfolio Composition Dollars in millions Source: SNL Financial and Company documents; data as of 3/31/17 (1) Excludes purchase accounting adjustments Noninterest Bearning 19% Interest Bearning 46% Time Deposits 35% Noninterest Bearning 22% Interest Bearning 49% Time Deposits 29% Noninterest Bearning 20% Interest Bearning 47% Time Deposits 33%