As filed with the Securities and Exchange Commission on ~~February 9,~~March 4, 2016

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to the merger described in the proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

On behalf of the boards of directors of Carolina Financial Corporation and Congaree Bancshares, Inc., we are pleased to deliver our proxy statement/prospectus for a merger involving Carolina Financial and Congaree, with Carolina Financial as the surviving corporation.

If the merger is completed, each outstanding share of Congaree common stock will be exchanged for either $8.10 in cash or 0.4806 shares of Carolina Financial common stock. Each shareholder of Congaree will have the opportunity to elect to receive cash, Carolina Financial common stock, or a combination of cash and Carolina Financial common stock in exchange for the shareholder’s Congaree shares. Elections by Congaree shareholders will be prorated such that in the aggregate 60% of Congaree’s non-dissenting shares of common stock will be converted into the right to receive shares of Carolina Financial common stock and 40% will be converted into the right to receive the cash consideration.

In addition, if (A) the average of the daily closing price of Carolina Financial common stock over a specified period prior to the anticipated closing date is less than 80% of $18.22 (the closing price on the date of the merger agreement), or $14.58 and (B) the average of the daily closing price of Carolina Financial common stock over the same specified period is down 15% more than any change in the KBW NASDAQ Regional Banking Index since the date of the merger agreement, either Carolina Financial or Congaree may provide notice of its intent to terminate the merger agreement; provided, however, in the event Congaree provides such notice, Carolina Financial may, but is not obligated to, increase the exchange ratio, and Congaree may elect to accept the increased exchange ratio or proceed with termination of the merger agreement.

The value of the Carolina Financial shares to be issued in the merger will fluctuate between now and the closing date of the merger. Carolina Financial common stock is listed on the NASDAQ Capital Market under the symbol “CARO”. Based on the $ closing price per share of Carolina Financial common stock on the NASDAQ Capital Market on , 2016, the latest practicable date before mailing out this proxy statement , the equivalent value of the merger consideration per share of Congaree common stock was approximately $ , and the aggregate merger consideration, including the cash consideration, was approximately $ million.We urge you to obtain current market quotations for Carolina Financial common stock because the value of the Carolina Financial shares to be issued in the merger will fluctuate.

The common stock of Congaree is quoted on the OTC Bulletin Board under the symbol ~~“CRNB.~~“CNRB.” Quotations on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. To the best knowledge of management of Congaree, the last trade was 100 shares at a price of $7.77 per share on February 25, 2016.

Shareholders of Congaree are being asked to approve the merger agreement. We cannot complete the merger unless we obtain this shareholder approval and the necessary regulatory agency approvals. Congaree will hold a special meeting of its shareholders to vote on the merger agreement.Your vote is important.

Whether or not you plan to attend the special shareholders’ meeting, please take the time to vote as soon as possible.

You should read this entire proxy statement/prospectus carefully because it contains important information about the merger.In particular, you should read carefully the information under the section entitled “Risk Factors,” beginning on page __.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. The shares of Carolina Financial common stock to be issued in the merger are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or any other governmental agency.

Both Carolina Financial and Congaree are subject to the information requirements of the Securities Exchange Act of 1934, which means that they are both required to file certain reports, proxy statements, and other business and financial information with the Securities and Exchange Commission (“SEC”). You may read and copy any materials that either Carolina Financial or Congaree files with the SEC at the Public Reference Room of the SEC at 100 F. Street N.E., Washington, D.C. 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov where you can access reports, proxy, information and registration statements, and other information regarding registrants that file electronically with the SEC. Such filings are also available free of charge at Carolina Financial’s website at http://www.haveanicebank.com under the “Investor Relations” heading or from Congaree’s website at http://www.congareestatebank.com under the “Investor Relations” heading. Except as specifically incorporated by reference into this document, information on those websites or filed with the SEC is not part of this document.

Carolina Financial has filed a registration statement on Form S-4, of which this document forms a part. As permitted by SEC rules, this document does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits, at the addresses set forth below. Statements contained in this document as to the contents of any contract or other documents referred to in this document are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This document incorporates by reference documents that Carolina Financial has previously filed, and that it may file through the date of the special meeting of Congaree shareholders, with the SEC. They contain important information about the company and its financial condition. For further information, please see the section entitled “Incorporation of Certain Documents by Reference.” These documents are available without charge to you upon written or oral request to Carolina Financial’s principal executive offices. The address and telephone numbers of such principal executive office is listed below.

To obtain timely delivery of these documents, you must request the information no later than , 2016, in order to receive them before Congaree’s special meeting of shareholders.

Carolina Financial common stock is traded on the NASDAQ Capital Market under the symbol “CARO.”

A special meeting of shareholders of Congaree Bancshares, Inc. (“Congaree”) will be held at , , South Carolina, on , 2016 at .m., local time, for the following purposes:

Only shareholders of record of Congaree common stock at the close of business on , 2016 will be entitled to notice of and to vote at the special meeting and at any adjournment or postponement at the special meeting. A complete list of these shareholders will be available at Congaree’s offices prior to the meeting. If your shares are held in “street name,” you will need to obtain a proxy form from the institution that holds your shares in order to vote at the special meeting.

Please use this opportunity to take part in the affairs of Congaree by voting on the business to come before this special meeting. Even if you plan to attend the meeting, we encourage you to vote as soon as possible by telephone, through the Internet, or by signing, dating and mailing your proxy card in the envelope enclosed. Telephone and Internet voting permits you to vote at your convenience, 24 hours a day, seven days a week. Detailed voting instructions are included on your proxy card. However, if your shares are held in “street name,” you will need to obtain a proxy form from the institution that holds your shares in order to vote at the special meeting. You may revoke your proxy at any time before it is voted by giving written notice of revocation to Congaree’s Secretary, or by filing a properly executed proxy of a later date with Congaree’s Secretary, at or before the meeting. You may also revoke your proxy by attending and voting your shares in person at the meeting.

CONGAREE’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CONGAREE SHAREHOLDERS VOTE “FOR” THE PROPOSALS ABOVE.

We do not know of any other matters to be presented at the special meeting but if other matters are properly presented, the persons named as proxies will vote on such matters at their discretion.

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following are some questions that you may have regarding the merger and the special shareholders’ meeting, and brief answers to those questions. We urge you to carefully read the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the special shareholders’ meeting.

What am I being asked to vote on, and how does the board recommend that I vote?

Congaree shareholders are being asked to vote “FOR” the approval of the merger agreement, thereby approving the merger. The board of directors of Congaree adopted the merger agreement, determined that the merger is in the best interests of the Congaree shareholders, and recommends that Congaree shareholders vote “FOR” approval of the merger agreement. Congaree shareholders will also be asked to consider and vote on a nonbinding proposal to approve the compensation that certain executive officers of Congaree will receive under existing agreements or arrangements in connection with the merger. In addition, Congaree shareholders are being asked to grant authority to Congaree’s board of directors to adjourn the special shareholders’ meeting to allow time for further solicitation of proxies in the event there are insufficient votes present at the special shareholders’ meeting, in person or by proxy, to approve the merger agreement.

Why is my vote important?

The merger agreement must be approved by the affirmative vote of the holders of two-thirds of the outstanding shares of Congaree common stock. Accordingly, if a Congaree shareholder fails to vote on the merger agreement, or does not instruct his or her broker how to vote any shares held for him or her in “street name,” it will have the same effect as a vote against the merger agreement.

Why is Congaree merging with Carolina Financial?

Congaree is merging with Carolina Financial because the boards of directors of both companies believe that the merger will provide shareholders of both companies with substantial benefits and will enable the combined company to better serve its customers. The combined company would have an increased presence in the Columbia, South Carolina, market. A detailed discussion of the background of and reasons for the proposed merger is contained under the headings “Background of the Merger,” “Congaree’s Reasons for the Merger; Recommendation of the Congaree Board of Directors,” and “Carolina Financial’s Reasons for the Merger,” under “Proposal No. 1 – The Merger”.

What will I receive in the merger?

Each share of Congaree common stock can be exchanged for either: (i) $8.10 in cash; (ii) 0.4806 shares of Carolina Financial common stock; or (iii) a combination of cash and shares of Carolina Financial common stock.

In addition, if (A) the average of the daily closing price of Carolina Financial common stock over a specified period prior to the anticipated closing date is less than 80% of $18.22 (the closing price on the date of the merger agreement), or $14.58 and (B) the average of the daily closing price of Carolina Financial common stock over the same specified period is down 15% more than any change in the KBW NASDAQ Regional Banking Index (“KRX”) since the date of the merger agreement, either Carolina Financial or Congaree may provide notice of its intent to terminate the merger agreement; provided, however, in the event Congaree provides such notice, Carolina Financial may, but is not obligated to, increase the exchange ratio, and Congaree may elect to accept the increased exchange ratio or proceed with termination of the merger agreement.

In total, 40% of Congaree’s non-dissenting shares of common stock outstanding will be exchanged for cash, and 60% of Congaree’s non-dissenting shares of common stock outstanding will be exchanged for shares of Carolina Financial common stock. Carolina Financial will not issue fractional shares in the merger. Instead, you will receive a cash payment, without interest, for the value of any fraction of a share of Carolina Financial common stock that you would otherwise be entitled to receive. The method for determining the value of a fractional share is described on page __ of this proxy statement/prospectus.

Each outstanding share of Carolina Financial common stock will remain outstanding after the merger.

How do I elect to receive cash, stock, or a combination of both for my Congaree common stock?

A joint election form/letter of transmittal will be sent to you shortly after the effective time of the merger, which will include instructions and the deadline date for making your election as to the form of consideration you prefer to receive in the merger. The election form will permit you to elect to receive cash, Carolina Financial common stock, or a combination of cash and Carolina Financial common stock for your shares of Congaree common stock, subject to certain limitations. Please pay special attention to these materials since failure to follow the instructions may mean that you will not receive the form of consideration you desire. An election will be properly made only if the exchange agent receives a properly executed election form by the deadline date. The election deadline has not been determined. However, the deadline will be clearly stated in the transmittal materials that will be delivered to you. Please follow the instructions provided in the joint election form/letter of transmittal to properly elect to receive cash, stock or a combination of both for your Congaree common stock.

If I am a Congaree shareholder, am I assured of receiving the exact form of consideration I elect to receive?

No. In total, 40% of Congaree’s non-dissenting shares of common stock outstanding will be exchanged for cash and 60% of Congaree’s non-dissenting shares of common stock outstanding will be exchanged for shares of Carolina Financial common stock. Therefore, the form of consideration you receive will depend in part on the elections of other Congaree shareholders so that 40% of Congaree’s non-dissenting shares of common stock outstanding will be exchanged for cash and 60% of the total outstanding non-dissenting shares of Congaree common stock will be exchanged for shares of Carolina Financial common stock. Accordingly, there is no assurance that you will receive the form of consideration you elect with respect to all of your shares of Congaree common stock. If the elections of all Congaree shareholders result in an oversubscription of cash or Carolina Financial common stock, the exchange agent will allocate the consideration you will receive between cash and Carolina Financial common stock in accordance with the proration procedures described under the heading “Proposal No. 1 – The Merger – Allocation of the Merger Consideration” beginning on page __.

If my shares are held in an individual retirement account, or “IRA,” how will my shares be voted and how will the election for cash or shares of Carolina Financial common stock be made?

The custodian of your IRA will vote your shares on the proposal to approve the merger agreement and make the election to receive cash or shares of Carolina Financial common stock in accordance with the terms of your account agreement. You should contact your IRA custodian with any questions about the terms of your account agreement.

Will Congaree shareholders be taxed on the cash and Carolina Financial common stock that they receive in exchange for their Congaree shares?

If the merger qualifies as a reorganization under Section 368(a) of the Internal Revenue Code, then we expect that Congaree shareholders will generally not recognize any gain or loss on the conversion of shares of Congaree common stock into shares of Carolina Financial common stock but will recognize gain or loss on any cash received for their shares of Congaree common stock. If the merger does not qualify as a reorganization under Section 368(a) of the Internal Revenue Code, then we expect that Congaree shareholders will recognize gain or loss on the sum of any cash and the fair market value of the Carolina Financial common stock they receive for their shares of Congaree common stock. Whether the merger qualifies as a reorganization under Section 368(a) of the Internal Revenue Code is substantially dependent on the aggregate amount of cash and the value of Carolina Financial common stock received by Congaree shareholders in the merger. The value of Carolina Financial common stock received cannot be determined at this time, as such value is dependent on the future market price of Carolina financial common stock as of a date no earlier than five (5) business days prior to the closing of the merger. See “Proposal No. 1 - The Merger – Important Federal Income Tax Consequences” beginning on page __.

If I am a Congaree shareholder, what happens if I don’t make an election for cash or shares of Carolina Financial common stock?

If you fail to make an election prior to the election deadline, the exchange agent will have the discretion to determine the type of consideration you will receive in exchange for your shares of Congaree common stock. The type of consideration you will receive will be determined by the type of consideration other Congaree shareholders elect to receive so that, in total, 40% of the outstanding non-dissenting shares of Congaree common stock will be exchanged for cash and 60% of the total outstanding non-dissenting shares of Congaree common stock will be exchanged for shares of Carolina Financial common stock. For more information concerning the merger consideration, election procedures, and allocation procedures, see “Proposal No. 1—The Merger --Merger Consideration, --Election of the Form of Payment of the Merger Consideration, and --Allocation of the Merger Consideration” beginning on page __.

What should I do now?

After you have carefully read this document, please vote your shares as soon as possible by telephone, through the Internet, or by signing, dating and mailing your proxy card in the envelope enclosed so that your shares will be represented at the special shareholders’ meeting. If you date, sign and send in a proxy card but do not indicate how you want to vote, your proxy will be voted in favor of approval of the merger agreement and in favor of the proposal to adjourn the special shareholders’ meeting to allow time for further solicitation of proxies in the event there are insufficient votes to approve the merger agreement.

If my shares are held in “street name” by my broker, will my broker vote my shares for me?

NO. Your broker will vote your shares on the proposal to approve the merger agreement only if you provide instructions on how to vote. You should instruct your broker how to vote your shares following the directions your broker provides. If you are a Congaree shareholder, failure to instruct your broker how to vote your shares will be the equivalent of voting against the merger agreement.

Can I change my vote after I have submitted my proxy?

YES. If you have not voted through your broker, there are three ways you can change your vote after you have submitted your proxy:

First, you may send a written notice to the person to whom you submitted your proxy stating that you would like to revoke your proxy.

Second, you may complete and submit a later dated proxy with new voting instructions. The latest vote actually received by Congaree prior to your special shareholders’ meeting will be your vote. Any earlier votes will be revoked.

Third, if you are a record shareholder, you may attend the special shareholders’ meeting and vote in person. Any earlier votes will be revoked. Simply attending the meeting without voting, however, will not revoke your proxy.

If you have instructed a broker to vote your shares, you must follow the directions you will receive from your broker to change or revoke your proxy.

Do I have the right to dissent and obtain the “fair value” for my shares?

Yes, if you are a Congaree shareholder. South Carolina law permits a Congaree shareholder to dissent from the merger and to obtain payment in cash of the “fair value” of his or her shares of Congaree common stock. To do this, a Congaree shareholder must follow specific procedures, including delivering written notice of his or her intent to demand payment for his or her shares if the merger is effectuated to Congaree before the shareholder vote on the merger agreement is taken and not voting his or her shares in favor of the merger agreement. If a Congaree shareholder follows the required procedures, his or her only right will be to receive the “fair value” of his or her common stock in cash. Copies of the applicable South Carolina statutes are attached to this proxy statement/prospectus asAppendix B. See “Proposal No. 1 – The Merger – Dissenters’ Rights” beginning on page __.

SUMMARY

This summary highlights material information regarding the merger and the special shareholders’ meeting contained later in this proxy statement/prospectus. This summary does not contain all of the information that may be important to you, and we urge you to carefully read this entire document, including the exhibits and appendicies, to better understand the merger and its potential impact on you before deciding how to vote. Each item in this summary includes a page reference directing you to a more complete discussion of the item.

The Companies (page ___ for Carolina Financial and page ___ for Congaree)

Carolina Financial Corporation

288 Meeting Street

Charleston, South Carolina 29401

(843) 723-7700

Attention: Jerold L. Rexroad, President and Chief Executive Officer

Carolina Financial Corporation is a Delaware corporation and a bank holding company registered under the Bank Holding Company Act of 1956. Our primary business is to serve as the holding company for CresCom Bank, a South Carolina state-chartered commercial bank with 27 branches located throughout the Carolinas, in addition to loan production offices in Wilmington, North Carolina, and Greenville, South Carolina. CresCom Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation (the “FDIC”), and providing commercial, consumer and mortgage loans to the general public. CresCom Bank operates Crescent Mortgage Company, a wholly-owned subsidiary of CresCom Bank based in Atlanta, Georgia, as a wholesale and correspondent mortgage lender for community banks in the United States. Crescent Mortgage Company lends in 45 states and has partnered with more than 2,000 community banks, credit unions, and mortgage brokers. Carolina Services Corporation of Charleston, a Delaware financial services company that provides financial processing services to, and otherwise supports the operations of, CresCom Bank and Crescent Mortgage Company, is a wholly-owned subsidiary of CresCom Bank.

Congaree Bancshares, Inc.

1201 Knox Abbott Drive

Cayce, South Carolina 29033

(803) 794-2265

Attention: Charles A. Kirby, President and Chief Executive Officer

Congaree Bancshares, Inc. is a South Carolina corporation organized in November 2005 to operate as a bank holding company pursuant to the Bank Holding Company Act of 1956, and to own and control all of the capital stock of Congaree State Bank. Congaree State Bank opened for business on October 16, 2006. Congaree State Bank currently maintains a main office located at 1201 Knox Abbott Drive, Cayce, South Carolina and a second office located at 2023 Sunset Boulevard, West Columbia, South Carolina.

The Merger (page ___)

Under the terms of the merger agreement, Congaree will merge with and into CBAC, Inc., a South Carolina corporation and wholly owned subsidiary of Carolina Financial formed for the purpose of facilitating the merger, with Congaree being the surviving corporation (we refer to this merger as the “merger”). As soon as reasonably practicable thereafter, Congaree will merge up and into Carolina Financial, with Carolina Financial as the surviving entity. Simultaneously with the merger or immediately thereafter, Congaree State Bank will merge with and into CresCom Bank, and CresCom Bank will be the surviving bank (we refer to this merger as the “bank merger”). Both Carolina Financial and CresCom Bank will continue their existence under Delaware and South Carolina law, respectively, while Congaree and Congaree State Bank will cease to exist. The merger agreement is attached asAppendix A and is incorporated into this proxy statement/prospectus by reference. We encourage you to read the merger agreement carefully as it is the legal document that governs the merger.

What Congaree Shareholders Will Receive in the Merger (page ___)

If the merger is completed, each outstanding share of Congaree common stock will be exchanged for either: (i) $8.10 in cash, (ii) 0.4806 shares of Carolina Financial common stock, or (iii) a combination of cash and shares of Carolina Financial common stock. Each shareholder of Congaree will have the opportunity to elect to the form of merger consideration that he or she prefers, or he or she may choose no preference, in which case the merger consideration to be received by him or her will be determined by the exchange agent depending on the amount of cash and shares elected by those Congaree shareholders who make an express election. Elections by Congaree shareholders are limited by the requirement that 40% of the total number of outstanding non-dissenting shares of Congaree common stock will be exchanged for cash and 60% of the outstanding non-dissenting shares of Congaree common stock will be exchanged for shares of Carolina Financial common stock. If the elections made by Congaree shareholders would result in an oversubscription for either cash or stock, then the exchange agent will prorate the amount of cash and stock to be issued to Congaree shareholders as necessary to satisfy this requirement. Therefore, the form of consideration that a Congaree shareholder receives will depend in part on the elections of other Congaree shareholders. Congaree shareholders will not receive any fractional shares of Carolina Financial common stock. Instead, they will be paid cash in an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable upon conversion multiplied by the average of the daily closing prices for Carolina Financial common stock for the 20 consecutive full trading days ending on the sixth trading day prior to the closing date of the merger.

After the merger, Carolina Financial’s existing shareholders will own approximately 96.0% of Carolina Financial’s total outstanding shares, on a fully diluted basis, and Congaree’s shareholders will own approximately 4.0% of Carolina Financial’s outstanding shares, on a fully diluted basis.

Merger Consideration Election (page ___)

Shortly after the effective time of the merger, Carolina Financial will cause the exchange agent to deliver or mail to Congaree shareholders an election form and instructions for making an election as to the form of consideration preferred to be received in the merger. The available elections, election procedures, and deadline for making elections are described under the heading “Proposal No. 1—The Merger—Election of the Form of Payment of the Merger Consideration” on page ___. To be effective, an election form must be properly completed and received by Carolina Financial’s exchange agent no later than 4:00 p.m. local time on the date set forth on the election form sent to Congaree shareholders. If a Congaree shareholder does not make an election by the election deadline, the exchange agent has the discretion to choose the consideration such shareholder will receive.

After the election deadline, the elections made by Congaree shareholders may be adjusted as necessary to ensure that Carolina Financial pays cash in exchange for 40% of the outstanding non-dissenting shares of Congaree common stock and Carolina Financial common stock in exchange for 60% of the outstanding non-dissenting shares of Congaree common stock. The merger agreement provides the method, which is described under the heading “Proposal No. 1—The Merger—Allocation of the Merger Consideration” on page ___, for allocating shares of Carolina Financial common stock and cash to be received for the shares of Congaree common stock, based on the elections made. Accordingly, a Congaree shareholder may receive less cash and more shares of Carolina Financial common stock, or more shares of Carolina Financial common stock and less cash, than elected.

Effect of the Merger on Congaree Preferred Stock

Each of the shares of Congaree’s cumulative perpetual preferred stock, series A, $0.01 par value (the “Congaree Series A Preferred Stock”) and cumulative perpetual preferred stock, series B, $0.01 par value (the “Congaree Series B Preferred Stock” and, together with the Congaree Series A Preferred Stock, the “Congaree Preferred Stock”) outstanding at the effective time of the merger will automatically be converted into the right to receive one share of the Carolina Financial preferred stock to be designated, prior to the effective time, as cumulative perpetual preferred stock, series A (the “Carolina Financial Series A Preferred Stock”) and cumulative perpetual preferred stock, series B (the “Carolina Financial Series B Preferred Stock” and, together with the Carolina Financial Series A Preferred Stock, the “Carolina Financial Preferred Stock”), respectively, and the shares of Carolina Financial Preferred Stock will otherwise have the same rights, preferences, privileges and voting powers as the Congaree Preferred Stock immediately prior to the conversion.

Effect of the Merger on Congaree Warrants

As of the date of ~~the merger agreement,~~this proxy statement/prospectus, there were outstanding warrants to purchase ~~80,000~~70,000 shares of Congaree common stock, each with an exercise price of $10.00 per share. ~~Each holder~~All were held by directors or executive officers of Congaree, ~~warrants that is a director or executive officer~~each of ~~Congaree~~whom has agreed to cancel, immediately prior to the effective time of the merger, such holder’s warrants in exchange for a nominal cash ~~payment.~~payment pursuant to warrant termination agreements.

Effect of the Merger on Congaree Stock Options

As of the date of ~~the merger agreement,~~this proxy statement/prospectus, there were outstanding options to purchase 173,437 shares of Congaree common stock, with a weighted average exercise price of $6.41 per share. ~~Each holder of Congaree stock options that is a director~~Of these, 166,512 were held by directors or executive ~~officer~~officers, each of whom has entered into stock option cancellation agreements and agreed to cancel, immediately prior to the effective time of the merger, such holder’s options in exchange for a cash payment equal to the product obtained by multiplying (1) the number of shares of Congaree common stock underlying such holder’s Congaree stock options, by (2) $8.10 less the exercise price per share under such Congaree stock options. In the event that the product obtained through this calculation is zero or a negative number, then such Congaree stock options will be cancelled for a nominal cash payment. All such unvested Congaree stock options will be accelerated immediately prior to cancellation in exchange for the cash payment. With respect to options to purchase shares of Congaree common stock held by employees who are not directors or officers, Congaree has agreed to use its reasonable best efforts to cause such employee holders to likewise enter into the stock option cancellation agreements executed by officers and directors. Options held by employees who do not enter into stock option cancellation agreements, and which are not exercised before consummation of the merger, will become fully vested upon the consummation of the merger and will be assumed by Carolina Financial. Such assumed options will be exercisable for shares of Carolina Financial common stock based on the exchange ratio in the merger.

Regulatory Approvals (page ___)

Because the merger qualifies as a “waiver transaction” under the applicable rules and regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), we are not required to file a formal merger application with the Federal Reserve and must only make a notice filing with the Federal Reserve with respect to the merger. However, for the merger of Congaree State Bank with and into CresCom Bank, we must obtain approval from the FDIC and the South Carolina Board of Financial Institutions (“SCBFI”). As of the date of this proxy statement/prospectus, we have not received any of the required regulatory approvals.

Congaree’s Special Shareholders’ Meeting (page ___)

Congaree will hold its special shareholders’ meeting on , 2016, at .m., local time at , , South Carolina.

Congaree’s Record Date and Voting (page ___)

If you owned shares of Congaree common stock at the close of business on , 2016, the record date for the Congaree special shareholders’ meeting, you are entitled to vote on the merger agreement as well as any other matters considered at the special shareholders’ meeting. On the record date, there were 1,765,939 shares of Congaree common stock outstanding. You will have one vote at the meeting for each share of common stock you owned on the record date. The affirmative vote of the holders of two-thirds of Congaree’s outstanding shares of common stock is required to approve the merger agreement. As of January 29, 2016, Congaree’s directors and executive officers and their affiliates beneficially owned approximately 20.37% of the outstanding shares of Congaree common stock. Each of Congaree’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of Congaree common stock in favor of the merger agreement.

Congaree’s Board of Directors Recommends that Congaree Shareholders Vote “FOR” the Approval of the Merger Agreement (page ___)

Congaree’s board of directors has determined that the merger, the merger agreement, and the transactions contemplated by the merger agreement are advisable and in the best interests of Congaree and its shareholders and has adopted the merger agreement. Congaree’s board of directors recommends that Congaree shareholders vote “FOR” the approval of the merger agreement. For the factors considered by Congaree’s board of directors in reaching its decision to adopt the merger agreement, see “Proposal No. 1 – The Merger—Congaree’s Reasons for the Merger; Recommendation of the Congaree Board of Directors.”

Interests of Executive Officers, Employees and Directors of Congaree that Differ from Your Interests (page ___)

When considering whether to approve the merger agreement, you should be aware that some directors and officers of Congaree have interests in the merger that differ from the interests of other Congaree shareholders, including the following:

	·	Following the merger, Carolina Financial will generally indemnify and provide liability insurance to the present directors and officers of Congaree, subject to certain exceptions;

	·	Each incumbent director of Congaree will be invited to join a Columbia regional advisory board of CresCom Bank and will receive certain advisory fees for their service;

	·	Eachoutstanding option to acquire Congaree common stock held by directors and executive officers of Congaree will be canceled immediately prior to the effective time of the merger in exchange for a cash payment, pursuant to the terms of stock option cash out agreements; and

	·	Charles A. Kirby, President and Chief Executive Officer; Charlie T. Lovering, Jr., Executive Vice President and Chief Financial Officer; and Stephen P. Nivens, Senior Vice President and Chief Business Development Officer; are anticipated to receive severance benefits pursuant to their employment agreements with Congaree following the effectuation of the merger.

Each board member was aware of these and other interests and considered them before approving and adopting the merger agreement.For a more complete description of these interests, see “Proposal No. 1 - The Merger - Interests Of Executive Officers, Employees And Directors Of Congaree In The Merger.”

Federal Income Tax Consequences (page ___)

If the merger qualifies as a reorganization under Section 368(a) of the Internal Revenue Code, Congaree’s shareholders generally will not recognize gain or loss for federal income tax purposes on the receipt of shares of Carolina Financial common stock in the merger in exchange for the shares of Congaree common stock surrendered. Congaree shareholders will be taxed, however, on any cash consideration they receive and any cash they receive instead of any fractional shares of Congaree common stock. Carolina Financial shareholders will have no direct tax consequences as a result of the merger. If the merger does not qualify as a reorganization under Section 368(a) of the Internal Revenue Code, Congaree’s shareholders will recognize gain or loss for federal income tax purposes equal to the difference between (1) the sum of the fair market value of the Carolina Financial common stock and cash received in the merger and (2) the basis in their Congaree common stock. Tax matters are complicated, and the tax consequences of the merger may vary among Congaree shareholders. We urge each Congaree shareholder to contact his or her own tax advisor to fully understand the tax implications of the merger.

Comparative Rights of Shareholders (page ___)

The rights of Congaree’s shareholders are currently governed by South Carolina corporate law and Congaree’s articles of incorporation and bylaws. The rights of Carolina Financial’s shareholders are currently governed by Delaware corporate law and Carolina Financial’s certificate of incorporation and bylaws. Upon consummation of the merger, the shareholders of Congaree will become shareholders of Carolina Financial, and Delaware corporate law, as well as the certificate of incorporation and bylaws of Carolina Financial, will govern their rights. Carolina Financial’s certificate of incorporation and bylaws differ somewhat from those of Congaree.

Conditions to Consummation (page ___)

The obligations of Congaree and Carolina Financial to consummate the merger are subject to the satisfaction or waiver (to the extent permitted) of several conditions, including, among others:

Congaree shareholders must have approved the merger agreement;

The required regulatory approvals and any other required consents must have been received;

The registration statement registering the shares of Carolina Financial common stock to be received by Congaree shareholders, of which this proxy statement/prospectus is a part, must have been declared effective by the SEC;

Carolina Financial must have filed with the NASDAQ Capital Market a notification form for the listing of the shares of Carolina Financial common stock to be received by Congaree shareholders; and

Congaree’s shareholders’ equity must not be less than $13,570,000, without giving effect to expenses incurred in connection with the merger or accumulated other comprehensive income. As of September 30, 2015, Congaree’s shareholders’ equity was approximately $13,581,000.

No assurances can be provided as to when or if all of the conditions precedent to the merger can or will be satisfied or waived by the appropriate party. As of the date of this proxy statement/prospectus, the parties know of no reason to believe that any of the conditions set forth above will not be satisfied. The conditions to consummation of the merger may be waived, in whole or in part, to the extent permissible under applicable law, by the party for whose benefit the condition has been imposed, without the approval of such parties’ shareholders.

Termination of the Merger Agreement and Termination Fee (page ____)

Notwithstanding the approval of the merger agreement by Congaree shareholders, the parties can mutually agree at any time to terminate the merger agreement before completing the merger.

Either Carolina Financial or Congaree can also terminate the merger agreement:

If the other party breaches any representation, warranty or covenant in the merger agreement which cannot be or is not cured within 30 days of notice of such breach; provided, that such breach is reasonably likely to have a material adverse effect on such breaching party or to prevent such breaching party from complying in all material respects with its covenants;

If any regulatory authority whose approval is required for consummation of the merger makes a final decision not to approve the merger, or if any final law or order permanently restrains, enjoins, or otherwise prohibits consummation of the merger; or

If the merger is not completed by June 30, 2016.

Carolina Financial can terminate the merger agreement if Congaree’s board of directors (i) withdraws or modifies its recommendation that the Congaree shareholders approve the merger agreement or approves or recommends an acquisition proposal by a third party, (ii) fails to reaffirm the merger agreement after being requested to do so following the announcement of an acquisition proposal by a third party, or (iii) otherwise fails to comply with the terms of the merger agreement regarding obtaining shareholder approval of the merger agreement and soliciting other offers for an acquisition of Congaree. In this event, Congaree must pay the $750,000 termination fee to Carolina Financial.

Congaree can also terminate the merger agreement if it receives an acquisition proposal from a third party that is superior to Carolina Financial’s proposal and concludes after receiving legal and financial advice that the board of directors would be in breach of its fiduciary duties if the board did not accept the superior proposal; provided, however, Carolina Financial would then have the opportunity to match the superior proposal in order to proceed with the merger. Congaree would pay a $750,000 termination fee to Carolina Financial if it were to terminate the merger agreement for this reason.

Finally, either Carolina Financial or Congaree can give written notice of termination to the other if, at any time on or after the fifth business day immediately prior to the date on which the effective time of the merger is to occur and prior to the effective time of the merger, (i) the quotient obtained by dividing the average of the daily closing prices of Carolina Financial common stock on the NASDAQ Capital Market for the 20 consecutive trading days ending on the trading day prior to the fifth business day immediately prior to the date on which the effective time of the merger is to occur by $18.22 (the closing price of Carolina Financial common stock on the NASDAQ Capital Market on the date of the merger agreement) is less than 0.80, and (ii) the ratio obtained in (i) is less than the number obtained by dividing the average of the daily closing prices of the KRX for the 20 consecutive trading days ending on the trading day prior to the fifth business day immediately prior to the date on which the effective time of the merger is to occur by $18.22 and subtracting 0.15 from such quotient. However, during the five-day period commencing with the receipt of such notice of termination from Congaree, Carolina Financial will have the option to increase the exchange ratio providing written notice to Congaree. Congaree will have five business days to consider such offer. If Congaree rejects the offer, the merger agreement will immediately terminate; if Congaree accepts such offer, the merger agreement will remain in effect.

Termination Fee (page ___)

In addition to the circumstances set forth above under which Congaree must pay the termination fee to Carolina Financial, if the merger agreement is terminated under certain circumstances following the communication of an acquisition proposal to Congaree, and if within one year after the termination of the merger agreement, Congaree consummates an acquisition transaction or enters into an acquisition agreement, then Congaree must also pay the $750,000 termination fee to Carolina Financial.

Accounting Treatment (page ___)

Carolina Financial will account for the merger using the acquisition method of accounting. Under this accounting method, Carolina Financial would record the acquired identifiable assets and liabilities assumed at their fair market value at the time the merger is complete. Any excess of the cost of Congaree over the sum of the fair values of tangible and identifiable intangible assets less liabilities assumed would be recorded as goodwill. Based on an assumed purchase price of $16.3 million and utilizing information as of September 30, 2015, estimated goodwill and other intangibles would total approximately $5.0 million. Carolina Financial’s reported income would include the operations of Congaree after the merger. Financial statements of Carolina Financial after completion of the merger would reflect the impact of the acquisition of Congaree. Financial statements of Carolina Financial issued before completion of the merger would not be restated retroactively to reflect Congaree’s historical financial position or results of operations.

Market Price and Dividend Information

Carolina Financial’s common stock is currently listed on the NASDAQ Capital Market under the symbol “CARO”. Congaree’s common stock is not listed on an exchange but is quoted on the OTC Bulletin Board under the symbol “CNRB”. There is no established trading market for shares of Congaree common stock. Congaree has never paid dividends on its common stock.

As of February 9, 2016, there were approximately 255 holders of record of common stock of Carolina Financial. The following table presents the closing sale price per share of Carolina Financial common stock on January 5, 2016, the last trading day before we publicly announced the merger agreement, and , 2016, the last practicable trading day prior to mailing this proxy statement/prospectus. The table also presents the equivalent value of the merger consideration per share of Congaree common stock on those dates, calculated by multiplying the closing price of Carolina Financial common stock on those dates by the exchange ratio.

Date		Carolina Financial Closing Price		Equivalent Congaree Per Share Value
	January 5, 2016	$	18.22	$	8.76
	,2016

Because the exchange ratio is fixed and because the market price of Carolina Financial common stock is subject to fluctuation, the market value of the shares of Carolina Financial common stock that Congaree shareholders may receive in the merger may increase or decrease prior to and following the merger. Congaree shareholders are urged to obtain current market quotations for Carolina Financial common stock, which are available at www.nasdaq.com.

The following table shows the high and low sales prices of Carolina Financial common stock published by the NASDAQ Capital Market since 2014. Carolina Financial paid quarterly dividends as shown below.


2016	Dividends			High		Low		Dividends			High		Low
First Quarter (through February 9, 2016)	$	0.00	*	$	18.25	$	15.87
First Quarter (through March 3, 2016)								$	0.00	*	$	18.25	$	15.26

2015	Dividends			High		Low		Dividends			High		Low
Fourth Quarter	$	0.03		$	16.90	$	14.49	$	0.03		$	16.90	$	14.49
Third Quarter		0.03			17.00		13.13		0.03			17.00		13.13
Second Quarter		0.03			14.78		10.85		0.03			14.78		10.85
First Quarter		0.03			11.88		10.83		0.03			11.88		10.83

2014	Dividends			High		Low		Dividends			High		Low
Fourth Quarter	$	0.03		$	17.88	$	10.56	$	0.03		$	17.88	$	10.56
Third Quarter		0.03			12.08		8.27		0.03			12.08		8.27
Second Quarter		0.03			8.96		8.08		0.03			8.96		8.08
First Quarter		0.03			9.79		6.41		0.03			9.79		6.41

*	On January 22, 2016, the Board of Directors of Carolina Financial declared a quarterly cash dividend of $0.03 per share payable on its common stock. The cash dividend will be payable on April 8, 2016 to stockholders of record as of March 18, 2016.

Carolina Financial is authorized to pay dividends as declared by the board of directors, provided that no such distribution results in insolvency on a going concern or balance sheet basis. On July 26, 2013, Carolina Financial’s board of directors approved the initiation of a quarterly cash dividend to the common stockholders. However, future dividends will be subject to board approval. As Carolina Financial is a legal entity separate and distinct from CresCom Bank, its principal source of funds with which it can pay dividends to its stockholders is dividends it receives from CresCom Bank. For that reason, its ability to pay dividends is subject to the limitations that apply to CresCom Bank. A South Carolina state bank may not pay dividends from capital. All dividends must be paid out of undivided profits then on hand, after deducting expenses, including reserves for losses and bad debts. Unless otherwise instructed by the South Carolina Board of Financial Institutions, CresCom Bank is generally permitted under South Carolina state banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions. In addition, under the Federal Deposit Insurance Corporation Improvement Act, CresCom Bank may not pay a dividend if, after paying the dividend, CresCom Bank would be undercapitalized. The Federal Reserve may also prevent the payment of a dividend by CresCom Bank if it determines that the payment would be an unsafe and unsound banking practice.

NASDAQ Listing

Carolina Financial will list the shares of Carolina Financial common stock to be issued to the shareholders of Congaree in connection with the merger on the NASDAQ Capital Market under the symbol “CARO”.

Resale of Carolina Financial Common Stock (page ___)

The shares of Carolina Financial common stock to be issued to the shareholders of Congaree in connection with the merger will be freely tradable by such shareholders, except that if any Congaree shareholders are deemed to be affiliates of Carolina Financial, they must abide by certain transfer restrictions under the Securities Act.

Dissenters’ Rights (page ___)

Under South Carolina law, holders of Congaree common stock will be entitled to dissent from the merger and to obtain payment in cash of the fair value of his or her shares of Congaree common stock. Set forth below is a summary of the procedures that must be followed by the holders of Congaree common stock in order to exercise their dissenters’ rights. This summary is qualified in its entirety by reference to the text of the applicable South Carolina statutes, a copy of which is attached to this proxy statement/prospectus asAppendix B.

A record holder of Congaree common stock who wishes to assert dissenters’ rights (i) must deliver to Congaree before the vote is taken on the merger agreement written notice of his intent to demand payment for his shares if the merger is effectuated, and (ii) must not vote his shares in favor of the merger agreement. A vote in favor of the merger agreement cast by the holder of a proxy solicited by Congaree shall not disqualify a shareholder from demanding payment for his shares. A shareholder who does not satisfy these requirements is not entitled to payment for his shares under the applicable South Carolina statutes.

If the merger is authorized at the Congaree special shareholders’ meeting, Congaree will deliver, no later than 10 days after the special shareholders’ meeting, a written dissenters’ notice to all Congaree shareholders who satisfied the two requirements set forth above. The written dissenters’ notice will state where the payment demand must be sent and where stock certificates must be deposited, will inform holders of uncertificated shares to what extent transfer of the shares is to be restricted after the payment demand is received, will supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed merger and requires that the person asserting dissenters’ rights certify whether or not he or, if he is a nominee asserting dissenters’ rights on behalf of a beneficial shareholder, the beneficial shareholder acquired beneficial ownership of the shares before that date, will set a date by which Congaree must receive the payment demand, which date will not be less than 30 or more than 60 days after the written dissenters’ notice is delivered, will set a date by which certificates for certificated shares must be deposited, which date will not be earlier than 20 days after the demand date, and will be accompanied by a copy of the applicable South Carolina statutes. A shareholder sent a dissenters’ notice must demand payment, certify whether he (or the beneficial shareholder on whose behalf he is asserting dissenters’ rights) acquired the beneficial ownership of the shares before the date set forth in the dissenters’ notice, and deposit his certificates in accordance with the terms of the notice. A dissenting shareholder who does not comply substantially with the requirements that he demand payment and deposit his or her share certificates where required, each by the date set in the dissenters’ notice, is not entitled to payment for his or her shares under the applicable South Carolina statutes.

As soon as the merger is consummated, or upon receipt of a payment demand, Congaree will pay to each dissenting shareholder who substantially complied with the requirements set forth above the amount Congaree estimates to be the fair value of his or her shares, plus accrued interest. The payment will be accompanied by Congaree’s balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year, and the latest available interim financial statements, if any; a statement of Congaree’s estimate of the fair value of the shares and an explanation of how the fair value was calculated; an explanation of how the interest was calculated; a statement of the dissenter’s right to demand additional payment; and a copy of the applicable South Carolina statutes. If Congaree does not consummate the proposed merger within 60 days after the date set for demanding payment and depositing share certificates, Congaree, within the same 60 day period, shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. If the shareholder believes the amount paid or offered is less than fair value of his shares or that the interest due is calculated incorrectly, or Congaree fails to make payment or offer payment within 60 days after the date set for demanding payment, or if the merger is not consummated, Congaree fails to return the deposited certificates or release transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment, he or she may notify Congaree in writing of his or her own estimate of fair value of his shares and amount of interest due and demand payment of his estimate (less the payment already received) or reject Congaree’s offer and demand payment of the fair value of his or her shares and interest due. However, a dissenting shareholder waives his or her right to demand additional payment if he or she fails to notify Congaree of his or her demand in writing within 30 days after Congaree made or offered payment for his or her shares. If a demand for additional payment remains unsettled, Congaree will commence a court proceeding within 60 days after receiving the demand for additional payment and petition the court to determine the fair value of the shares and the accrued interest. If Congaree does not commence the proceeding within the 60 day period, Congaree shall pay each dissenter whose demand remains unsettled the amount demanded.

Exercise of dissenters’ rights by holders of Congaree common stock will result in the recognition of gain or loss, as the case may be, for federal income tax purposes.

Congaree’s summary consolidated financial data is presented below as of and for the nine months ended September 30, 2015 and 2014 and as of and for the years ended December 31, 2010 through December 31, 2014. The summary consolidated financial data presented below as of or for the years ended December 31, 2010 through 2014 are derived from Congaree’s audited consolidated financial statements, which were audited by Elliott Davis Decosimo, LLC. Congaree’s audited consolidated balance sheets as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2014 are included elsewhere in this proxy statement/prospectus. Congaree’s selected consolidated financial data as of and for the nine months ended September 30, 2015 and 2014 have not been audited but, in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and the results of operations and cash flows for such periods. Congaree’s results for the nine months ended September 30, 2015, are not necessarily indicative of Congaree’s results of operations that may be expected for the year ending December 31, 2015. The following summary consolidated financial data should be read in conjunction with Congaree’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy statement/prospectus.

The following summary presents per share information for Carolina Financial and Congaree on a historical, pro forma combined and pro forma diluted equivalent basis for the periods and as of the dates indicated below. The pro forma information gives effect to the merger accounted for using the acquisition method of accounting. This information should be read in conjunction with the historical financial statements and related notes and pro forma condensed consolidatedfinancial data included elsewhere in this proxy statement/prospectus. The pro forma information should not be relied upon as being indicative of the historical results Carolina Financial and Congaree would have had if the merger had occurred before such periods or the future results that the Carolina Financial will experience after the merger.

The pro forma combined income per diluted share has been computed based on the diluted average number of shares of common stock of Carolina Financial adjusted for the additional shares to be issued in connection with the acquisition of Congaree. The merger equivalent income per diluted share of Congaree is based on the number of shares of Carolina Financial common stock into which each share and option of Congaree common stock will be converted in the merger.

The pro forma combined book value per share is based upon the pro forma combined equity of Carolina Financial divided by the pro forma number of outstanding shares of the combined companies as of September 30, 2015. The merger equivalent book value per share of Congaree is based on the 509,227 shares of Carolina Financial common stock into which the 1,765,939 shares of Congaree common stock outstanding as of September 30, 2015 will be converted in the merger. The foregoing assumes that the shares of Carolina Financial common stock to be issued will have a value of $16.85 per share, the 20-trading day average closing price of Carolina Financial common stock, as of January 4, 2016 and that 40% of the outstanding non-dissenting shares of Congaree common stock will be exchanged for cash. The actual price of Carolina Financial stock on the date of merger may be different than the price used for the pro forma.

⁽²⁾ Carolina Financial pro forma combined cash dividends and merger equivalent cash dividends are based only upon Carolina Financial’s historical amounts.

If the merger is consummated and you are a Congaree shareholder, you may receive shares of Carolina Financial common stock in exchange for your shares of Congaree common stock. An investment in Carolina Financial common stock is subject to a number of risks and uncertainties, many of which also apply to your existing investment in Congaree common stock. Risks and uncertainties relating to general economic conditions are not summarized below. Those risks, among others, are highlighted on page ___ under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

However, there are a number of other risks and uncertainties relating to Carolina Financial that you should consider in deciding how to vote on the merger agreement in addition to the risks and uncertainties associated with financial institutions generally. Many of these risks and uncertainties could affect Carolina Financial’s future financial results and may cause Carolina Financial’s future earnings and financial condition to be less favorable than Carolina Financial’s expectations. In addition to the other information, including risk factors, incorporated by reference herein from Carolina Financial’s Annual Report on Form 10-K for the year ended December 31, 2014, you should carefully read and consider the following factors in evaluating the merger and in deciding whether to elect to receive cash, shares of Carolina Financial common stock or some combination thereof in the merger.

Carolina Financial and Congaree shareholders will experience a reduction in percentage ownership and voting power of their shares as a result of the merger.

Carolina Financial shareholders and Congaree shareholders will experience a reduction in their respective percentage ownership interests and effective voting power relative to their respective percentage ownership interests in Carolina Financial and Congaree compared to their ownership interests and voting power prior to the merger. If the merger is consummated, current Carolina Financial shareholders will own approximately 96% of Carolina Financial’s outstanding common stock, on a fully diluted basis, and current Congaree shareholders will own approximately 4% of Carolina Financial’s outstanding common stock, on a fully diluted basis. Accordingly, former Congaree shareholders will own less than a majority of the outstanding voting stock of the combined company and could, as a result, be outvoted by current Carolina Financial shareholders if such current Carolina Financial shareholders voted together as a group. Shareholders of both companies willexperience a reduction in percentage ownership and voting power of their shares as a result of the merger.

Because the market price of Carolina Financial common stock will fluctuate, Congaree shareholders cannot be sure of the exact value of shares of Carolina Financial common stock they will receive.

Upon completion of the merger, each outstanding share of Congaree common stock will be converted into the merger consideration consisting of cash, shares of Carolina Financial common stock, or a combination of cash and shares of Carolina Financial common stock, as provided in the merger agreement. If a Congaree shareholder receives only cash as merger consideration, the value of the merger consideration that such Congaree shareholder receives will be independent of any fluctuations in the market price of Carolina Financial common stock, the value of such shares of Carolina Financial common stock received for each share of Congaree common stock will depend on the price per share of Carolina Financial common stock at the time the shares are actually received by a Congaree shareholder. The closing price of Carolina Financial common stock on the date that the shareholder actually receives the shares of such stock after the merger is completed and the closing price of Carolina Financial common stock the date on which the effective time of the merger is to occur may vary from each other, as well as from the closing price of Carolina Financial common stock on the date that the Carolina Financial and Congaree announced the merger, on the date that this proxy statement/prospectus is being mailed to Carolina Financial and Congaree shareholders, and on the date of the special shareholders’ meeting. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Carolina Financial’s business, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of the Carolina Financial. Accordingly, at the time of the Congaree special shareholders’ meeting, because of the above timing differences Congaree shareholders will not be able to calculate the exact value of Carolina Financial common stock they may receive upon completion of the merger.

Because the market price of Carolina Financial common stock could decline, the value of the Carolina Financial common stock received by Congaree shareholders in the merger may not satisfy Internal Revenue Service standards for the shares received to be non-taxable.

Upon completion of the merger, each outstanding share of common stock will be converted into the merger consideration consisting of cash, shares of Carolina Financial common stock, or a combination of cash and shares of Carolina Financial common stock, as provided in the merger agreement. In order to satisfy the requirements for the merger to constitute a reorganization under Section 368(a) of the Code, the value of the Carolina Financial common stock must equal 40% or more of the sum of the (i) value of the Carolina Financial common stock and (ii) the cash that is treated as received in the merger (including any cash paid to dissenting Congaree stockholders) in exchange for the shares of Congaree common stock. Carolina Financial and Congaree have agreed that the merger will be consummated, even if such requirement is not satisfied. Since the value of the Carolina Financial common stock will not be determined until no earlier than the fifth (5^th) business day immediately prior to the effective date of the merger, it is possible that the value of the Carolina Financial common stock could decline prior to the effective date of the merger to a level at which the Carolina Financial common stock does not equal 40% of the merger consideration. In such event, it could be determined that the merger did not constitute a reorganization under Section 368(a) of the Code and therefore, the sale of the Congaree common stock will constitute a fully taxable sale of common stock by the Congaree shareholders to Carolina Financial. For a discussion of the tax consequences of the merger, see “Important Federal Income Tax Consequences - Tax Consequences of the Merger and Qualification of the Integrated Merger as a Reorganization.”

The form of merger consideration Congaree shareholders ultimately receive could be different from the form elected based on the form of merger consideration elected by other Congaree shareholders.

All Congaree shareholders will be permitted to make an election as to the form of consideration to receive. Because the total amount of Carolina Financial common stock and cash to be issued in the merger is fixed, the exchange agent will be allowed, subject to limitations set forth in the merger agreement, to adjust the form of consideration that a Congaree shareholder will receive in order to ensure that 40% of the outstanding non-dissenting shares of Congaree common stock are converted into cash and 60% of the outstanding non-dissenting shares of Congaree common stock are converted into shares of Carolina Financial common stock. Consequently, if either the stock consideration or the cash consideration is oversubscribed, Congaree shareholders could receive a different form of consideration from the form they elect.

Combining the two companies may be more difficult, costly, or time consuming than Carolina Financial or Congaree expects.

The success of the merger will depend, in part, on Carolina Financial’s ability to realize the anticipated benefits and cost savings from combining the businesses of Carolina Financial and Congaree. However, to realize these anticipated benefits and cost savings, we must successfully combine the businesses of Carolina Financial and Congaree. If we are not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.

Carolina Financial and Congaree have operated, and, until completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees or disruption of each company’s ongoing business or inconsistencies in standards, controls, procedures, and policies that would adversely affect Carolina Financial’s ability to maintain relationships with clients, depositors, and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effort on each of Carolina Financial and Congaree during that transition period.

Carolina Financial and Congaree will incur significant transaction and merger-related integration costs in connection with the merger.

Carolina Financial and Congaree expect to incur significant costs associated with completing the merger and integrating the operations of the two companies. Carolina Financial and Congaree are continuing to assess the impact of these costs. Although Carolina Financial and Congaree believe that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

Carolina Financial has not previously operated in Cayce and West Columbia, South Carolina.

Congaree’s service areas are Cayce and West Columbia, South Carolina. The banking business in these areas is extremely competitive, and the level of competition may increase further. Carolina Financial has not previously participated in these markets, and there may be unexpected challenges and difficulties that could adversely affect Carolina Financial following the merger.

The fairness opinion obtained by Congaree from its financial advisors will not reflect changes in circumstances between the date of the signing of the merger agreement and the completion of the merger.

Congaree has obtained a fairness opinion dated January 5, 2016 from BSP Securities, LLC, and such opinion has not been updated as of the date of this proxy statement/prospectus and will not be updated at the time of the completion of the merger. Changes in the operations and prospects of Congaree or Carolina Financial, general market and economic conditions and other factors that may be beyond the control of Congaree and Carolina Financial, and on which the fairness opinion was based, may alter the value of Congaree or Carolina Financial or the prices of shares of Congaree common stock or Carolina Financial common stock by the time the merger is completed. The fairness opinion does not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed or as of any other date than the date of the opinion. The fairness opinion that Congaree received from its financial advisor is attached asAppendix C to this proxy statement/prospectus. For a description of the opinions, see “Proposal No. 1 – The Merger—Opinion of Congaree’s Financial Advisor”. For a description of the other factors considered by Congaree’s board of directors in determining to approve the merger, see “Proposal No. 1 – The Merger—Congaree’s Reasons for the Merger; Recommendation of the Congaree Board of Directors.”

Carolina Financial and Congaree may not receive regulatory approvals or such approvals may take longer than expected or impose conditions Carolina Financial and Congaree do not presently anticipate.

The merger of the two banks must be approved by the FDIC and the SCBFI. These regulatory agencies will consider, among other things, the competitive impact of the bank merger, each of Carolina Financial and Congaree’s financial and managerial resources, and the convenience and needs of the communities to be served. As part of that consideration, Carolina Financial and Congaree expect that the FDIC will review the capital position, safety and soundness, and legal and regulatory compliance matters and Community Reinvestment Act matters. There can be no assurance as to whether the necessary regulatory approvals will be received, the timing of such approvals, or whether any conditions will be imposed that might limit the combined company’s ability to do business after the bank merger as presently anticipated. Carolina Financial will file notice of the merger with the Federal Reserve, rather than seeking the approval of the Federal Reserve to consummate the merger, because the merger qualifies as a “waiver transaction” under the applicable rules and regulations of the Federal Reserve. However, if the Federal Reserve were to subsequently determine that the merger did not qualify as a waiver transaction, then Carolina Financial would be required to submit a formal merger application for approval of the merger by the Federal Reserve.

The merger agreement limits Congaree’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that limit Congaree’s ability to discuss competing third party proposals to acquire all or a significant part of Congaree. In addition, Congaree has agreed to pay Carolina Financial a termination fee of $750,000 if the transaction is terminated because Congaree decides to pursue another acquisition transaction, among other things. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Congaree from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger with Carolina Financial, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Congaree than it might otherwise have proposed to pay.

Congaree directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of Congaree shareholders.

Executive officers of Congaree negotiated certain terms of the merger agreement with their counterparts at Carolina Financial, and Congaree’s board of directors adopted the merger agreement and by a unanimous vote of the directors present and voting recommended that Congaree shareholders vote to approve the merger agreement and the merger on the terms set forth in the merger agreement. In considering these facts and the other information contained in this proxy statement/prospectus, Congaree shareholders should be aware that Congaree’s directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of Congaree shareholders. For example, each of the Congaree directors will be entitled to participate on a Columbia advisory board of CresCom Bank following the merger and will receive certain advisory fees for their service. These and some other additional interests of Congaree directors and executive officers may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than Congaree shareholders may view it. See “Proposal No. 1 — The Merger—Interests of Executive Officers, Employees and Directors of Congaree in the Merger” for information about these financial interests.

If the merger is not completed, Carolina Financial common stock and Congaree common stock could be materially adversely affected.

The merger is subject to customary conditions to closing, including the approval of the Congaree shareholders. In addition, Carolina Financial and Congaree may terminate the merger agreement under certain circumstances. If Carolina Financial and Congaree do not complete the merger, the market price of Carolina Financial common stock or Congaree common stock may fluctuate to the extent that the current market prices of those shares reflect a market assumption that the merger will be completed. Further, whether or not the merger is completed, Carolina Financial and Congaree will also be obligated to pay certain investment banking, legal and accounting fees, and related expenses in connection with the merger, which could negatively impact results of operations when incurred. In addition, neither company would realize any of the expected benefits of having completed the merger. If the merger is not completed, Carolina Financial and Congaree cannot assure their respective shareholders that additional risks will not materialize or not materially adversely affect the business, results of operations and stock prices of Carolina Financial and Congaree.

This proxy statement/prospectus, including information included or incorporated by reference in this document, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of each of Carolina Financial and Congaree, as well as certain information relating to the merger. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. The actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which Carolina Financial and Congaree are unsure, including many factors that are beyond their control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “contemplate,” “seek,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, those described under “Risk Factors” section beginning on page ___ and the following:

Because of these and other risks and uncertainties, Carolina Financial’s or Congaree’s actual future results may be materially different from the results indicated by any forward-looking statements. In addition, Carolina Financial’s and Congaree’s past results of operations do not necessarily indicate their future results. Therefore, both companies caution you not to place undue reliance on their forward-looking information and statements. Both companies undertake no obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

All forward-looking statements in this proxy statement/prospectus are based on information available to Carolina Financial and Congaree as of the date of this proxy statement/prospectus. Although both companies believe that the expectations reflected in our forward-looking statements are reasonable, neither company can guarantee you that these expectations will be achieved. Both companies undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

This document constitutes a proxy statement of Congaree in connection with its solicitation of proxies from its shareholders for the vote on the merger agreement and on the authorization to adjourn the special shareholders’ meeting, as well as a prospectus of Carolina Financial in connection with its issuance of shares of Carolina Financial common stock as part of the merger consideration. The proxy statement/prospectus is being mailed by Congaree and Carolina Financial to Congaree shareholders of record on or about , 2016, together with the notice of the special shareholders’ meeting and a proxy solicited by Congaree’s board of directors for use at the special shareholders’ meeting and at any adjournments or postponements of the special shareholders’ meeting.

The Congaree special shareholders’ meeting will be held at , , South Carolina, at .m., local time, on , 2016. Only holders of Congaree common stock of record at the close of business on , 2016 will be entitled to receive notice of and to vote at the special shareholders’ meeting. As of the record date, there were 1,765,939 shares of Congaree common stock outstanding and entitled to vote, with each such share entitled to one vote.

At the Congaree special shareholders’ meeting, Congaree shareholders will be asked to approve the merger agreement. Under the merger agreement, Congaree will merge with CBAC, Inc., a wholly-owned subsidiary of Carolina Financial, with Congaree surviving the merger and then merging with and into Carolina Financial. Shares of Congaree common stock will be converted into the right to receive cash, shares of common stock of Carolina Financial, or a combination of both cash and shares of common stock of Carolina Financial, at the shareholder’s election. If a shareholder elects cash, the shareholder will receive $8.10 for each share of Congaree common stock. If a shareholder elects stock, the shareholder will receive a 0.4806 shares of Carolina Financial common stock. If a shareholder elects a combination, the shareholder will receive a combination of cash and Carolina Financial common stock for each share of Congaree common stock. Elections by shareholders are limited by a requirement that 40% of the total number of outstanding non-dissenting shares of Congaree common stock will be exchanged for cash and that 60% of the total number of outstanding non-dissenting shares of Congaree common stock will be exchanged for Carolina Financial common stock. Therefore, the form of consideration you receive will depend in part on the elections of other Congaree shareholders. Carolina Financial will not issue fractional shares in the merger. Instead, you will receive a cash payment, without interest, in an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable upon conversion multiplied by the average of the daily closing prices for Carolina Financial common stock for the 20 consecutive full trading days ending on the sixth trading day prior to the closing date of the merger.

Congaree shareholders will also be asked to consider and vote on a nonbinding proposal to approve the compensation that certain executive officers of Congaree will receive under existing agreements or arrangements in connection with the merger.

Congaree shareholders will also be asked to consider a proposal to authorize the board of directors to adjourn the special shareholders’ meeting to allow time for further solicitation of proxies in the event there are insufficient votes present at the special shareholders’ meeting, in person or by proxy, to approve the merger agreement. Finally, Congaree shareholders may also be asked to consider any other business that properly comes before the special shareholders’ meeting.

Each copy of this proxy statement/prospectus mailed to Congaree shareholders is accompanied by a proxy form for use at the special shareholders’ meeting.

Approval of the merger agreement requires the affirmative vote of the holders of two-thirds of all shares of Congaree common stock entitled to vote at the Congaree special shareholders’ meeting. Approval of the proposal to authorize adjournment will require the affirmative vote of a majority of shares of common stock present in person or by proxy and entitled to vote on the matter.

On the record date, there were approximately 1,765,939 outstanding shares of Congaree common stock, each of which is entitled to one vote at the special shareholders’ meeting. On that date, the directors and executive officers of Congaree and their affiliates beneficially owned a total of approximately 20.37% of the outstanding shares of Congaree common stock. Each of Congaree’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of Congaree common stock in favor of the merger agreement. The presence, in person or by proxy, of shares of Congaree common stock representing a majority of Congaree’s outstanding shares entitled to vote at the special meeting is necessary in order for there to be a quorum at the special shareholders’ meeting. A quorum must be present in order for the vote on the merger agreement to occur.

Shares of common stock represented by properly executed proxies received at or prior to the Congaree special shareholders’ meeting will be voted at the special shareholders’ meeting in the manner specified by the holders of such shares. Properly executed proxies that do not contain voting instructions will be voted“FOR”approval of the merger agreement and the proposal to authorize adjournment.

Any record shareholder present in person or by proxy at the special shareholders’ meeting who abstains from voting will be counted for purposes of determining whether a quorum exists.

Because approval of the merger agreement requires the affirmative vote of the holders of two-thirds of all shares of Congaree common stock entitled to vote at the Congaree special shareholders’ meeting, abstentions and broker non-votes will have the same effect as negative votes. Accordingly, Congaree’s board of directors urges its shareholders to complete, date, and sign the accompanying proxy form and return it promptly in the enclosed, postage-paid envelope.

If you are a record shareholder, the grant of a proxy on the enclosed proxy card does not preclude you from voting in person or otherwise revoking your proxy. If you are a record shareholder, you may revoke a proxy at any time prior to its exercise by delivering to the Corporate Secretary of Congaree either a duly executed revocation or a proxy bearing a later date. In addition, if you are a record shareholder, you may revoke a proxy prior to its exercise by voting in person at the special shareholders’ meeting. All written notices of revocation and other communications with respect to the revocation of Congaree proxies should be addressed to Congaree Bancshares, Inc., 1201 Knox Abbott Drive, Cayce, SC 29033, Attention: Corporate Secretary. Attendance at the special shareholders’ meeting will not in and of itself constitute revocation of a proxy.

Congaree will pay all of the costs of soliciting proxies in connection with its special shareholders’ meeting, except that Carolina Financial will pay the costs of filing the registration statement with the SEC, of which this proxy statement/prospectus is a part, and one-half of the costs of printing this proxy statement/prospectus. Solicitation of proxies may be made in person or by mail, telephone, or facsimile, or other form of communication by directors, officers, and employees of Congaree who will not be specially compensated for such solicitation. Nominees, fiduciaries, and other custodians will be requested to forward solicitation materials to beneficial owners and to secure their voting instructions, if necessary, and will be reimbursed for the expenses incurred in sending proxy materials to beneficial owners.

No person is authorized to give any information or to make any representation not contained in this proxy statement/prospectus and, if given or made, such information or representation should not be relied upon as having been authorized by Congaree, Carolina Financial, or any other person. The delivery of this proxy statement/prospectus does not, under any circumstances, create any implication that there has been no change in the business or affairs of Congaree or Carolina Financial since the date of the proxy statement/prospectus.

Congaree has retained the services of Regan & Associates, Inc. (“Regan”) to assist in the solicitation of proxies under a contract providing for payment of $11,000, plus reimbursement of reasonable out of pocket expenses. In addition to solicitations by mail, Regan and regular employees of Congaree may solicit proxies in person, by mail or by telephone, but no employee of Congaree will receive any compensation for solicitation activities in addition to his or her regular compensation. Congaree will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Congaree’s common stock. The fee paid to Regan will be reduced by 20% if Regan fails to pass the merger proposal with a two-thirds of the outstanding shares affirmative vote (on time) by the scheduled meeting date.

You are requested to complete, date and sign the accompanying form of proxy and to return it promptly in the enclosed postage-paid envelope.

Congaree’s board of directors has determined that the merger agreement and the transactions contemplated by it are in the best interests of Congaree and its shareholders. The board of directors of Congaree recommends that the Congaree shareholders vote “FOR” these proposals at the special shareholders’ meeting.

In the course of reaching its decision to adopt the merger agreement and the transactions contemplated in the merger agreement, Congaree’s board of directors, among other things, consulted with its legal advisors, Smith Moore Leatherwood LLP, regarding the legal terms of the merger agreement, and with its financial advisor, BSP Securities, LLC, as to the fairness, from a financial point of view, of the consideration to be received by the holders of Congaree common stock in the merger. For a discussion of the factors considered by Congaree’s board of directors in reaching its conclusion, see “Proposal No. 1—The Merger—Background of the Merger” and “—Congaree’s Reasons for the Merger; Recommendation of the Congaree Board of Directors.”

Congaree shareholders should note that Congaree’s directors have certain interests in, and may derive benefits as a result of, the merger that are in addition to their interests as shareholders of Congaree. See “Proposal No. 1—The Merger—Interests of Executive Officers, Employees and Directors of Congaree in the Merger.”

The descriptions of the terms and conditions of the merger, the merger agreement, and any related documents in this proxy statement/prospectus are qualified in their entirety by reference to the copy of the merger agreement attached asAppendix A to this proxy statement/prospectus, to the registration statement, of which this proxy statement/prospectus is a part, and to the exhibits to the registration statement.

The Congaree board of directors is using this proxy statement/prospectus to solicit proxies from the holders of Congaree common stock for use at the Congaree special shareholders’ meeting.

At the Congaree special shareholders’ meeting, holders of Congaree common stock will be asked to vote upon the adoption of the merger agreement. The merger will not be completed unless Congaree’s shareholders adopt the merger agreement and, by doing so, approve the proposed merger.

As a part of its ongoing consideration of the valuation of Congaree’s long-term prospects and strategies, Congaree’s board of directors and senior management have from time-to-time reviewed and assessed Congaree’s business strategies and objectives, including strategic opportunities and challenges, all with the goal of enhancing shareholder value.

On October 15, 2013, Congaree’s board of directors held a strategic planning meeting at which investment bankers from BSP Securities, LLC participated. At the time of the meeting, Congaree had successfully emerged from the recession that began in 2008 with much improved financial performance, including improved profitability, increased capitalization and a significant funding shift from broker deposits to core deposits/transaction accounts. At this juncture, the directors wished to examine their strategic options for Congaree. At the meeting, strengths of Congaree noted were:

Strategic options suggested by BSP Securities at the meeting and considered by the directors included:

During 2014 and the first half of 2015, Congaree continued with its strategy to market in Lexington County to increase market share, and to reduce non-performing assets. Also, on April 14, 2014, Congaree repurchased 729 shares of the 2,129 Series A Preferred Stock outstanding at an aggregate price of $729,000, in order to save approximately $66,000 in annual dividend expense.

Having continued to evaluate its strategic alternatives, on June 17, 2015, the Congaree board had BSP Securities present at its board meeting and give a market update. Specifically discussed were the options of Congaree staying independent versus selling, and an evaluation of potential buyers and valuation guidance from BSP Securities based upon market trends.

On August 19, 2015, the board of directors of Congaree deliberated and approved hiring BSP Securities as its financial advisor. The Board instructed BSP Securities to begin marketing Congaree to a limited group of potential partners. BSP Securities and Congaree executed an engagement letter on August 24, 2015.

Between August 25 and September 21, 2015, BSP Securities gathered and reviewed due diligence materials from Congaree, loaded it into an electronic data room and prepared marketing materials.

On September 21, 2015, BSP Securities began making marketing calls to a limited group of potential partners, providing no-name information followed by prospects executing a non-disclosure agreement. Eight potential parties were contacted.

On September 22, 2015, investment bankers from BSP Securities had lunch with management of a large, acquisitive community bank located in the Carolinas to discuss a potential acquisition of Congaree.

On September 25, 2015, representatives of BSP Securities had their initial discussion with Jerry Rexroad, CEO of Carolina Financial, regarding a potential acquisition of Congaree.

On October 5, 2015, representatives of BSP Securities met with management of a third large, acquisitive community bank located in the Carolinas to discuss the acquisition of Congaree. At the conclusion of the meeting, such potential acquirer indicated that it was not interested in such an acquisition.

On October 8, 2015, representatives of BSP Securities met in person with management of Carolina Financial in Myrtle Beach to further discuss a potential acquisition of Congaree. This included discussions of financial modeling assumptions and potential pricing. Carolina Financial requested a meeting with Congaree management.

On October 23, 2015, Charlie Kirby, President and CEO of Congaree, and Mr. Rexroad, met at Congaree headquarters in Cayce for an introduction and brief discussion of both banks, followed by a market tour of Cayce and West Columbia.

On October 29, 2015, Mr. Kirby and Mr. Rexroad had a telephone call to follow up on their meeting, and agreed to continue acquisition discussions.

By the end of October 2015, all potential acquisition partners other than Carolina Financial contacted during the process had declined the opportunity to engage in acquisition discussions with Congaree or were currently unable to pursue such a transaction.

On November 6, 2015, Mr. Kirby had a telephone conversation with Mr. Rexroad to set up a face-to-face meeting in Florence, South Carolina on November 17^th, in continuance of acquisition discussions.

On November 17, 2015, Mr. Kirby, Steve Nivens, Executive Vice President of Congaree, David Morrow, President of CresCom Bank, and Mr. Rexroad met in Florence, South Carolina to discuss a potential acquisition transaction. Topics included the markets of both banks, history, culture, and the execution of a possible letter of intent.

On November 18, 2015, Carolina Financial delivered a non-binding letter of intent (the “LOI”) just prior to Congaree’s board meeting of that date with a price range of $8.00-$8.25, subject to final due diligence. The Congaree board reviewed and discussed the letter of intent, but took no action at that time. The directors decided to accept Mr. Rexroad’s offer to meet with the Congaree board before approving the LOI.

On November 23, 2015, Mr. Rexroad met with the board of directors of Congaree to discuss Carolina Financial’s history, business strategy and vision for a merger with Congaree. In a separate session, the Congaree board voted in favor of executing the LOI and entering into an exclusivity period with Carolina Financial.

Between November 24 and December 9, 2015, Carolina Financial performed final due diligence on Congaree.

On December 1, 2015, Carolina Financial issued and executed a revised LOI, which reflected a change whereby all in-the-money options would be cashed out at closing rather than being cancelled for no value. The revised LOI was accepted and signed by Congaree on December 2, 2015, following review by Congaree legal counsel.

On December 7, 2015, there was a call between the credit management departments of the banks to discuss Congaree’s loan portfolio.

On December 8, 2015, there was a call between Smith Moore Leatherwood, LLP, counsel to Congaree, and Nelson Mullins Riley and Scarborough (“Nelson Mullins”), counsel for Carolina Financial, to discuss scheduling.

On December 9, 2015, Mr. Rexroad spoke with Mr. McNorrill of BSP Securities. Mr. Rexroad communicated that a public offering of common stock launched by Carolina Financial on November 30, 2015 was going well and shares of Carolina Financial stock were trading up. He also discussed several issues that could negatively affect pricing in the Congaree transaction. He also indicated that Nelson Mullins was working on drafting the merger agreement. He further indicated that Carolina Financial was having a board meeting the following Wednesday, and he would like to get board approval subject to finalizing the agreement.

On December 9, 2015, Mr. Rexroad called Charlie Kirby, in route back from an investor presentation relating to Carolina Financial’s public offering of common stock. The two discussed the investor meeting and the process for moving forward in the transaction.

On December 10, 2015, Mr. Rexroad contacted Mr. McNorrill to inform him that after completing due diligence, Carolina Financial would pay $8.10 per Congaree share, 60% in Carolina Financial stock and 40% in cash.

On December 10, 2015, Mr. Rexroad and Mr. Kirby discussed final pricing. Mr. Rexroad explained that Carolina Financial would have to hold fast at $8.10 a share.

Also, on December 10, 2015, there was a call between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss delivery of the initial draft of the merger agreement.

On December 11, 2015, Nelson Mullins delivered the initial draft of the merger agreement to Smith Moore Leatherwood, LLP.

Also on December 11, 2015, there was a call between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss the initial draft of the merger agreement.

On December 15, 2015, Mr. Kirby called Mr. Rexroad to discuss final terms. In a response to an inquiry from Mr. Kirby for an increase in the proposed price of $8.10 per Congaree share, Mr. Rexroad confirmed that Carolina Financial was indeed firm in its price.

On December 16, 2015, Mr. Rexroad called Mr. Kirby to inform him that the Carolina Financial board had approved and granted authority to finalize the deal. He again confirmed that Carolina Financial would not increase the merger consideration in excess of $8.10, and that the split would be 60% stock and 40% cash.

Also on December 16, 2015, the Congaree board met to discuss Carolina Financial’s pricing and deal terms. The board also met with legal counsel, Smith Moore Leatherwood LLP, who briefed them on their fiduciary duties and the acquisition process.

On December 17, 2015, Mr. Kirby and Gary McNorrill of BSP Securities, had a telephone conference with Mr. Rexroad. Topics included discussion of tax treatment of allowance for loan losses, employment contracts to be paid by CresCom, as well as the possibility of a price increase in the merger consideration, which was again rejected by Mr. Rexroad.

On December 18, 2015, there was a call between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss various aspects of the merger agreement and related documents.

On December 21, 2015, Mr. Kirby had a telephone conference with Mr. Rexroad concerning any outstanding lawsuits or regulatory issues and disadvantageous third party contracts.

Also on December 21, 2015, Smith Moore Leatherwood, LLP delivered a revised draft of the merger agreement to Nelson Mullins.

Also on December 21, 2015, there was a call between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss various aspects of the merger agreement and related documents.

On December 24, 2015, Mr. Kirby had a telephone discussion with Mr. Rexroad concerning a press release. Also discussed were retention of employees and the scheduling and arrangements for a tentative employee meeting with Mr. Rexroad at Congaree.

Also on December 24, 2015, Nelson Mullins delivered a revised draft of the merger agreement to Smith Moore Leatherwood.

On December 28, 2015, Smith Moore Leatherwood, LLP delivered a revised draft of the merger agreement to Nelson Mullins.

On December 29, 2015, the Congaree board again met with legal counsel, Smith Moore Leatherwood LLP, to review in detail the latest draft of a definitive merger agreement. Representatives of BSP Securities also participated in the first half of the meeting by telephone. In addition to discussing the terms of the merger, some members of the Congaree board expressed concern as to the recent dramatic increase in Carolina Financial’s stock price and the impact on the exchange ratio and pricing. BSP Securities, at the board’s instruction, called Mr. Rexroad to discuss fixing the exchange ratio on a longer day average or as of December 28, 2015, in order to improve the average of stock prices used to calculate an exchange ratio. Mr. Rexroad indicated that Carolina Financial was firm on pricing and the exchange ratio calculation. BSP Securities reported this back to the Congaree board and legal counsel during the board meeting.

On December 30, 2015, Mr. Kirby had a telephone discussion with Mr. Rexroad, in which he agreed to not require non-executive and non-director holders of employee stock options to enter into stock option cash out agreements.

On December 31, 2015, there was a call between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss various aspects of the merger agreement and related documents.

On January 4 and 5, 2016, there were several calls between Nelson Mullins and Smith Moore Leatherwood, LLP to discuss various aspects of the merger agreement and related documents.

On January 5, 2016, Gary McNorill of BSP Securities had a telephone conversation with Mr. Rexroad concerning the stock price average used to calculate the exchange ratio at signing, as well as discussion of an escape clause which would allow both parties to terminate the merger agreement in the event Carolina Financial’s stock before closing fell dramatically both absolutely and compared to a bank stock index. Mr. McNorrill and Mr. Rexroad agreed to a stock price average, and subject to review by Carolina Financial’s legal counsel, Mr. Rexroad agreed to such an escape clause.

Also on January 5, 2016, Nelson Mullins and Smith Moore Leatherwood, LLP exchanged several drafts and the execution version of the merger agreement.

Also on January 5, 2016, the Congaree board met again to consider final approval of the definitive agreement. At the meeting, BSP Securities presented their fairness opinion and related analysis. Legal counsel reviewed changes to the merger agreement and related agreements, as well as instructed the directors again on their fiduciary duties. After deliberation, Congaree’s board of directors unanimously approved the merger agreement and the terms of the merger.

On the evening of January 5, 2016, following Congaree’s board meeting, Carolina Financial and Congaree executed the merger agreement. Prior to market open on January 6, 2016, the proposed merger was publicly announced.

Congaree’s Reasons for the Merger; Recommendation of the Congaree Board of Directors

After careful consideration, Congaree’s Board of Directors, at a meeting held on January 5, 2016, unanimously determined the merger agreement and the transactions contemplated thereby to be fair and in the best interest of Congaree and its shareholders. Accordingly, Congaree’s Board of Directors adopted and approved the merger agreement and unanimously recommends that Congaree’s shareholders vote “For” the approval of the merger agreement.

In evaluating the merger agreement and reaching its decision to adopt and approve the merger agreement and recommend that Congaree’s shareholders approve the merger agreement, Congaree’s board consulted with Congaree’s management, as well as its outside legal and financial advisors, and considered a number of factors including the following material factors (not in any relative order of importance):

Congaree’s board also considered potential risks and a variety of potential negative factors in connection with its deliberations concerning the merger agreement and the merger, including the following material factors (not in any relative order of importance):

Based on the factors described above, the board of Congaree determined that the merger with Carolina Financial and the merger of Congaree State Bank with CresCom Bank would be advisable and in the best interests of Congaree and its shareholders and other constituencies the Board was authorized by the articles of incorporation to consider, and adopted the merger agreement and resolved to recommend its approval to the shareholders of Congaree.

The foregoing discussion of the information and factors considered by Congaree’s board is not intended to be exhaustive but includes the material factors considered by Congaree’s board. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Congaree’s board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of Congaree’s board may have given different weight to different factors. Congaree’s board conducted an overall analysis of the factors described above including through discussions with, and questioning of, Congaree’s management and Congaree’s legal and financial advisors, and considered the factors overall to be favorable to, and to support, its determination.

Pursuant to its engagement, BSP Securities was requested by Congaree to render a written opinion to the Congaree board of directors as to the fairness, from a financial point of view, of the merger consideration to be paid by Carolina Financial to Congaree shareholders as set forth in the merger agreement. BSP Securities is an investment banking firm that specializes in providing investment banking services to financial institutions. BSP Securities has been involved in numerous bank-related business combinations. No limitations were imposed by Congaree upon BSP Securities with respect to rendering its opinion.

At the January 5, 2016 meeting at which the Congaree board of directors considered and approved the merger agreement, BSP Securities delivered to the board its written opinion that, as of such date, the merger consideration was fair to Congaree shareholders from a financial point of view.

The full text of BSP Securities’ opinion is attached as Appendix C to this proxy statement/prospectus of Congaree and Carolina Financial. The opinion outlines the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by BSP Securities in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. We urge you to read the entire opinion carefully in connection with your consideration of the proposed merger.

The opinion speaks only as of the date of the opinion. The opinion was directed to the Congaree board of directors and is directed only to the fairness, from a financial point of view, of the merger consideration to Congaree’s shareholders. It does not address Congaree’s underlying business decision to engage in the merger or any other aspect of the merger and is not a recommendation to any shareholder as to how such shareholder should vote at the special meeting with respect to the merger or any other matter.

For purposes of the opinion and in connection with its review of the proposed transactions, BSP Securities, among other things, did the following:

BSP Securities assumed and relied, without independent verification, upon the accuracy and completeness of all of the financial and other information that has been provided to it by Congaree, Carolina Financial, and their respective representatives, and of the publicly available information that was reviewed by BSP Securities. BSP Securities is not an expert in the evaluation of allowances for loan losses and has not independently verified such allowances, and has relied on and assumed that such allowances of Congaree and Carolina Financial were adequate to cover such losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. BSP Securities was not retained to and did not conduct a physical inspection of any of the properties or facilities of Congaree or Carolina Financial, did not make any independent evaluation or appraisal of the assets, liabilities or prospects of Congaree or Carolina Financial, was not furnished with any such evaluation or appraisal other than third party loan reviews, and did not review any individual credit files. BSP Securities’ opinion was necessarily based on economic, market, and other conditions in effect on, and the information made available to it, as of January 5, 2016.

BSP Securities, as part of its investment banking business, is regularly engaged in the valuation of banks and bank holding companies, thrifts and thrift holding companies, and various other financial services companies, in connection with mergers and acquisitions, private placements of securities, and valuations for other purposes. In rendering its fairness opinion, BSP Securities acted on behalf of the Congaree board of directors.

BSP Securities’ opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to holders of Congaree common stock in the merger and does not address the ability of the merger to be consummated, the satisfaction of the conditions precedent contained in the merger agreement, or the likelihood of the merger’s receiving regulatory approval. Although BSP Securities was retained on behalf of the Congaree board of directors, our opinion does not constitute a recommendation to any director of Congaree as to how such director or any shareholder should vote with respect to the merger agreement.

Based upon and subject to the foregoing and based on BSP Securities’ experience as investment bankers, BSP Securities’ activities as described above, and other factors BSP Securities deemed relevant, BSP Securities rendered its opinion that, as of January 5, 2016, the merger consideration to be paid to the holders of Congaree’s common stock in the merger is fair, from a financial point of view.

The following is a summary of material analyses performed by BSP Securities in connection with its opinion to the Congaree board of directors on January 5, 2016. The summary does not purport to be a complete description of the analyses performed by BSP Securities but summarizes the material analyses performed and presented in connection with such opinion.

BSP Securities reviewed the financial terms of the proposed transaction. In accordance with the terms of the merger agreement, each share of Congaree common stock issued and outstanding shall be converted into and exchanged for the right to receive either: (i) 0.4806 shares of Carolina Financial common stock, which represented the number of shares of Carolina Financial common stock resulting from dividing $8.10 by the 20-trading day average closing price of a share of Carolina Financial common stock as measured one trading day prior to the signing of the definitive agreement; or (ii) $8.10 in cash (the “Common Stock Merger Consideration”). The total number of shares of Congaree common stock to be converted to cash shall be equal to the product of (i) 40% and (ii) the number of shares of Congaree common stock issued and outstanding immediately before the effective time of the merger.

Based on the Carolina Financial 20-trading day average closing price as of January 4, 2016 of $16.85 per share, the total implied merger consideration is $16.3 million, or $8.10 per share of Congaree common stock. BSP Securities summarized the merger terms, based on Congaree’s financial information as of September 30, 2015, in the table below.

BSP Securities used publicly available information to compare selected financial information for Congaree to three peer groups of publicly announced merger transactions that BSP Securities deemed relevant for purposes of its analysis. BSP Securities compared selected operating results of Congaree to (a) 52 Southeast mergers announced since January 1, 2014 for whole banks with total assets less than $500 million and last-twelve-months return on average assets greater than 0.0% as of September 30, 2015 (“Peer Group”); (b) 18 mergers announced since January 1, 2014 for whole banks involving sellers with total assets less than $500 million headquartered in Georgia, North Carolina or South Carolina (“GA/Carolinas Group”); and (c) 59 Southeast mergers announced since January 1, 2014 for whole banks involving sellers with total assets less than $500 million (“Southeast Group”). Detailed composition of each merger peer group is available in Tables 1-4 at the end of this section.

No target company used in the selected peer merger group analysis described above is identical to Congaree. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies to which they are being compared.

BSP Securities calculated potential net present values for Congaree common stock. The purpose of the analysis was to compare the implied value of Congaree’s publicly traded common stock to the Common Stock Merger Consideration offered by Carolina Financial. Congaree’s publicly traded common stock receives no coverage by independent equity research analysts. Accordingly, BSP Securities relied on financial projections derived from Congaree’s internal forecasts and BSP Securities’ discussions with management. Specifically, BSP Securities used financial projections to estimate tangible book value per (“TBVPS”) and earnings per share (“EPS”) for fiscal year 2018, applied a range of terminal multiples as of December 31, 2018, then discounted back to the present from that date using a discount range from 11% to 15% and determined that the net present value of the Congaree common stock fell within a range of $2.11 to $7.84.

BSP Securities reviewed the relative contributions of Congaree and Carolina Financial to the pro forma combined company with respect to certain financial and operating measurements. This analysis was based on projected December 31, 2015 financials for both parties, except for dates indicated otherwise. BSP Securities then compared these contributions to the pro forma implied stock ownership interests of Congaree and Carolina Financial shareholders based on the exchange ratio.

The following table indicates what Congaree’s percentage contributions would have been on a pro forma basis to the combined company, excluding merger synergies and merger accounting adjustments, in the categories listed:

Note: Carolina Financial data based on analyst estimates; Congaree data based on company projections; Market data used to calculate Pro Forma Common Ownership as of 1/4/16

Based on the results of the various analyses described above, BSP Securities concluded that the merger consideration to be received under the terms of the merger agreement is fair, from a financial point of view, to Congaree’s shareholders.

The opinion expressed by BSP Securities was based upon market, economic and other relevant considerations as they existed and could be evaluated as of the date of the opinion. Events occurring after the date of issuance of the opinion, including but not limited to, changes affecting the securities markets, the results of operations or material changes in the assets of Congaree or Carolina Financial could materially affect the assumptions used in preparing the opinion.

As described above, BSP Securities’ opinion was among the many factors taken into consideration by the Congaree board of directors in making its determination to approve the merger agreement. For purposes of rendering its opinion, BSP Securities assumed that, in all respects material to its analyses:

BSP Securities cannot provide assurance as to when or if all of the conditions to the merger can or will be satisfied or, if applicable, waived by the appropriate party. As of the date of this proxy statement/prospectus, BSP Securities has no reason to believe that any of these conditions will not be satisfied.

BSP Securities will be paid a fee for services as Congaree’s financial advisor in connection with the merger, $20,000 of which was paid upon the signing of an engagement letter, $50,000 of which was paid upon the signing of a merger agreement, $25,000 of which was paid for the fairness opinion, and the balance of which will be paid at the closing of the merger. The balance consists of 2.00% of the total consideration received by Congaree in the merger with Carolina Financial less the $50,000 payment at signing of the merger agreement and the $25,000 fairness opinion fee. In addition, Congaree has agreed to indemnify BSP Securities and its directors, officers and employees, from liability in connection with the transaction, and to hold BSP Securities harmless from any losses, actions, claims, damages, expenses or liabilities related to any of BSP Securities’ actions or decisions made in good faith and in the best interest of Congaree.

				Transaction Price/					Seller Financials at Announcement								Transaction Price/					Seller Financials at Announcement
Buyer/ Seller	Seller State	Announce Date	Transaction Value ($mm)	LTM Earnings (x)	Tangible Book (%)	Assets (%)	Premium/ Core Deposits (%)	Premium/ Trading Price (%)	Total Assets ($000)	TCE Ratio (%)	LTM ROAA (%)	LTM ROAE (%)	NPAs/ Assets (%)	Seller State	Announce Date	Transaction Value ($mm)	LTM Earnings (x)	Tangible Book (%)	Assets (%)	Premium/ Core Deposits (%)	Premium/ Trading Price (%)	Total Assets ($000)	TCE Ratio (%)	LTM ROAA (%)	LTM ROAE (%)	NPAs/ Assets (%)
																			��
Median - Peer Group			28.5	20.2	136.6	13.4	5.5	31.2	209,636	10.2	0.64	6.39	2.13			28.5	20.2	136.6	13.4	5.5	31.2	209,636	10.2	0.64	6.39	2.13
25th Percentile - Peer Group			18.2	14.4	115.4	11.5	2.0	27.6	138,741	9.3	0.41	4.17	1.13			18.2	14.4	115.4	11.5	2.0	27.6	138,741	9.3	0.41	4.17	1.13
75th Percentile - Peer Group			48.6	26.2	148.9	16.6	8.0	48.8	351,887	11.7	0.96	7.69	3.58			48.6	26.2	148.9	16.6	8.0	48.8	351,887	11.7	0.96	7.69	3.58

Professional Holding Corp./ FirstCity Bank of Commerce	FL	12/18/15	6.8	NM	108.6	9.4	1.2	NA	72,532	8.6	0.15	1.66	2.92	FL	12/18/15	6.8	NM	108.6	9.4	1.2	NA	72,532	8.6	0.15	1.66	2.92
Franklin Financial Network, Inc./ Civic Bank & Trust	TN	12/14/15	29.7	22.8	141.6	21.1	17.8	NA	141,057	14.9	0.92	6.23	1.22	TN	12/14/15	29.7	22.8	141.6	21.1	17.8	NA	141,057	14.9	0.92	6.23	1.22
Charter Financial Corp./ CBS Financial Corp.	GA	12/03/15	58.7	14.0	231.0	16.7	12.9	NA	368,675	10.0	2.21	24.30	1.14	GA	12/03/15	58.7	14.0	231.0	16.7	12.9	NA	368,675	10.0	2.21	24.30	1.14
Entegra Financial Corp./ Oldtown Bank	NC	11/24/15	13.5	9.1	115.6	12.0	3.5	NA	112,971	10.3	1.34	13.12	2.05	NC	11/24/15	13.5	9.1	115.6	12.0	3.5	NA	112,971	10.3	1.34	13.12	2.05
Seacoast Banking Corp. of Florida/ Floridian Financial Group, Inc.	FL	11/03/15	77.4	33.5	143.9	18.3	8.4	NA	423,369	12.0	0.51	4.20	1.99	FL	11/03/15	77.4	33.5	143.9	18.3	8.4	NA	423,369	12.0	0.51	4.20	1.99
CenterState Banks, Inc./ Hometown of Homestead Banking Company	FL	10/27/15	19.2	11.8	122.1	10.3	1.4	NA	346,291	9.0	0.63	6.77	4.94	FL	10/27/15	19.2	11.8	122.1	10.3	1.4	NA	346,291	9.0	0.63	6.77	4.94
Fidelity Southern Corp./ American Enterprise Bankshares, Inc.	FL	10/26/15	26.9	NM	140.8	13.1	5.7	NA	205,398	9.1	0.59	6.59	3.62	FL	10/26/15	26.9	NM	140.8	13.1	5.7	NA	205,398	9.1	0.59	6.59	3.62
Southern BancShares (N.C.), Inc./ Heritage Bankshares, Inc.	VA	10/21/15	50.2	17.7	150.7	15.2	5.9	27.6	329,598	10.1	0.86	7.13	NA	VA	10/21/15	50.2	17.7	150.7	15.2	5.9	27.6	329,598	10.1	0.86	7.13	NA
Renasant Corp./ KeyWorth Bank	GA	10/20/15	58.7	21.1	137.0	15.1	6.4	NA	388,931	11.0	0.73	6.59	0.60	GA	10/20/15	58.7	21.1	137.0	15.1	6.4	NA	388,931	11.0	0.73	6.59	0.60
Citizens Bancshares of Batesville, Inc./ Parkway Bankshares, Inc.	AR	10/14/15	21.8	23.4	NA	16.5	25.9	NA	131,792	11.6	0.61	5.06	3.00	AR	10/14/15	21.8	23.4	NA	16.5	25.9	NA	131,792	11.6	0.61	5.06	3.00
CenterState Banks, Inc./ Community Bank of South Florida, Inc.	FL	10/05/15	66.6	31.9	145.1	13.4	6.0	68.2	495,089	9.3	0.44	4.83	6.42	FL	10/05/15	66.6	31.9	145.1	13.4	6.0	68.2	495,089	9.3	0.44	4.83	6.42
Southern States Bancshares, Inc./ Columbus Community Bank	GA	07/21/15	21.4	17.9	140.2	NA	9.3	NA	122,154	12.5	0.98	8.14	1.87	GA	07/21/15	21.4	17.9	140.2	NA	9.3	NA	122,154	12.5	0.98	8.14	1.87
HCBF Holding Company, Inc./ OGS Investments, Inc.	FL	07/20/15	23.5	NM	117.8	10.2	2.1	NA	231,135	8.8	0.39	4.74	3.40	FL	07/20/15	23.5	NM	117.8	10.2	2.1	NA	231,135	8.8	0.39	4.74	3.40
National Commerce Corp./ Reunion Bank of Florida	FL	07/07/15	42.2	24.4	160.2	15.5	8.8	NA	272,167	9.7	0.65	6.95	0.72	FL	07/07/15	42.2	24.4	160.2	15.5	8.8	NA	272,167	9.7	0.65	6.95	0.72
Premier Financial Bancorp, Inc./ First National Bankshares Corp.	WV	07/07/15	26.5	17.9	147.1	13.3	4.5	91.7	250,161	8.9	0.60	6.99	NA	WV	07/07/15	26.5	17.9	147.1	13.3	4.5	91.7	250,161	8.9	0.60	6.99	NA
Hamilton State Bancshares, Inc./ Highland Financial Services, Inc.	GA	05/15/15	20.1	24.3	143.4	15.5	7.1	NA	129,628	10.8	0.69	6.36	1.28	GA	05/15/15	20.1	24.3	143.4	15.5	7.1	NA	129,628	10.8	0.69	6.36	1.28
Management group/ Citizens Southern Bancshares, Inc.	AL	05/14/15	1.3	6.7	29.9	2.8	-17.1	NA	83,914	12.4	0.68	5.75	6.44	AL	05/14/15	1.3	6.7	29.9	2.8	-17.1	NA	83,914	12.4	0.68	5.75	6.44
River Financial Corp./ Keystone Bancshares, Inc.	AL	05/13/15	36.7	14.4	136.2	14.5	5.5	NA	252,328	11.0	1.09	10.10	1.31	AL	05/13/15	36.7	14.4	136.2	14.5	5.5	NA	252,328	11.0	1.09	10.10	1.31
Bank of the Ozarks, Inc./ Bank of the Carolinas Corp.	NC	05/06/15	64.7	2.8	137.5	16.8	7.2	0.0	385,459	12.2	0.03	0.59	2.99	NC	05/06/15	64.7	2.8	137.5	16.8	7.2	0.0	385,459	12.2	0.03	0.59	2.99
Achieva Credit Union/ Calusa Financial Corp., Inc.	FL	05/05/15	23.2	NM	136.1	14.0	4.9	NA	166,146	10.4	0.23	2.24	2.03	FL	05/05/15	23.2	NM	136.1	14.0	4.9	NA	166,146	10.4	0.23	2.24	2.03
Seacoast Banking Corp. of Florida/ Grand Bankshares, Inc.	FL	03/25/15	15.2	17.5	110.7	11.5	0.9	NA	207,976	6.1	0.41	6.42	10.46	FL	03/25/15	15.2	17.5	110.7	11.5	0.9	NA	207,976	6.1	0.41	6.42	10.46
Carolina Alliance Bank/ PBSC Financial Corp.	SC	03/24/15	23.8	25.2	118.0	15.4	4.0	NA	154,241	13.0	0.98	7.54	1.12	SC	03/24/15	23.8	25.2	118.0	15.4	4.0	NA	154,241	13.0	0.98	7.54	1.12
Sunshine Bancorp, Inc./ Community Southern Holdings, Inc.	FL	02/05/15	30.8	26.2	134.7	12.5	6.5	37.2	245,565	9.3	0.47	4.28	0.67	FL	02/05/15	30.8	26.2	134.7	12.5	6.5	37.2	245,565	9.3	0.47	4.28	0.67
Community & Southern Holdings, Inc./ Community Business Bank	GA	01/30/15	27.4	27.0	140.9	18.4	9.4	NA	149,061	13.1	0.70	5.39	0.35	GA	01/30/15	27.4	27.0	140.9	18.4	9.4	NA	149,061	13.1	0.70	5.39	0.35
Ameris Bancorp/ Merchants & Southern Banks of Florida, Inc.	FL	01/29/15	50.0	17.9	140.7	11.9	4.6	NA	472,487	9.4	1.19	12.00	1.94	FL	01/29/15	50.0	17.9	140.7	11.9	4.6	NA	472,487	9.4	1.19	12.00	1.94
United Community Banks, Inc./ MoneyTree Corp.	TN	01/27/15	53.0	20.2	136.6	12.5	4.8	NA	425,377	10.2	0.64	6.13	0.28	TN	01/27/15	53.0	20.2	136.6	12.5	4.8	NA	425,377	10.2	0.64	6.13	0.28
First Commercial Bancshares, Inc./ DeSoto County Bank	MS	01/26/15	10.8	14.0	112.4	13.1	2.8	NA	82,247	11.7	0.95	8.43	3.79	MS	01/26/15	10.8	14.0	112.4	13.1	2.8	NA	82,247	11.7	0.95	8.43	3.79
Ironhorse Financial Group, Inc./ Benefit Bank	AR	12/29/14	32.2	35.6	160.4	17.2	11.2	NA	187,485	10.7	0.74	7.03	4.62	AR	12/29/14	32.2	35.6	160.4	17.2	11.2	NA	187,485	10.7	0.74	7.03	4.62
First Peoples Bankshares, Inc./ Meriwether Bank Shares, Inc.	GA	12/09/14	4.9	37.7	105.9	18.9	1.4	NA	25,746	16.2	0.37	2.53	0.00	GA	12/09/14	4.9	37.7	105.9	18.9	1.4	NA	25,746	16.2	0.37	2.53	0.00
First Horizon National Corp./ TrustAtlantic Financial Corp.	NC	10/22/14	81.1	20.2	165.8	18.0	11.8	NA	451,519	10.2	0.98	8.99	0.96	NC	10/22/14	81.1	20.2	165.8	18.0	11.8	NA	451,519	10.2	0.98	8.99	0.96
ServisFirst Bancshares, Inc./ Metro Bancshares, Inc.	GA	10/20/14	41.2	37.4	153.8	19.5	11.1	NA	211,296	11.7	0.59	4.67	2.29	GA	10/20/14	41.2	37.4	153.8	19.5	11.1	NA	211,296	11.7	0.59	4.67	2.29
Grand Bancorp, Inc./ Decatur State Bank	AR	10/14/14	6.0	NM	39.0	4.2	-14.4	NA	143,716	10.7	0.02	0.24	8.35	AR	10/14/14	6.0	NM	39.0	4.2	-14.4	NA	143,716	10.7	0.02	0.24	8.35
NewBridge Bancorp/ Premier Commercial Bank	NC	10/09/14	19.8	9.3	113.3	11.5	2.7	NA	172,502	10.1	1.28	13.03	0.85	NC	10/09/14	19.8	9.3	113.3	11.5	2.7	NA	172,502	10.1	1.28	13.03	0.85
American National Bankshares Inc./ MainStreet BankShares, Inc.	VA	08/25/14	24.2	27.6	97.4	14.5	-0.6	30.1	166,281	14.9	0.53	3.74	2.38	VA	08/25/14	24.2	27.6	97.4	14.5	-0.6	30.1	166,281	14.9	0.53	3.74	2.38
Stonegate Bank/ Community Bank of Broward	FL	08/25/14	61.2	20.5	150.6	12.6	5.9	NA	487,470	8.3	0.62	7.04	7.24	FL	08/25/14	61.2	20.5	150.6	12.6	5.9	NA	487,470	8.3	0.62	7.04	7.24
Home BancShares, Inc./ Broward Financial Holdings, Inc.	FL	07/30/14	34.0	19.9	198.6	20.2	16.7	NA	168,483	11.7	1.08	9.27	0.65	FL	07/30/14	34.0	19.9	198.6	20.2	16.7	NA	168,483	11.7	1.08	9.27	0.65
Magnolia Banking Corp./ First National Bancshares of Hempstead County, Inc.	AR	07/14/14	31.3	NM	134.7	10.1	3.8	NA	308,936	10.0	0.43	4.09	1.08	AR	07/14/14	31.3	NM	134.7	10.1	3.8	NA	308,936	10.0	0.43	4.09	1.08
BNC Bancorp/ Harbor Bank Group, Inc.	SC	06/05/14	51.6	23.3	156.4	16.9	9.2	NA	305,866	10.8	0.78	7.05	1.39	SC	06/05/14	51.6	23.3	156.4	16.9	9.2	NA	305,866	10.8	0.78	7.05	1.39
Community & Southern Holdings, Inc./ Alliance Bancshares, Inc.	GA	05/16/14	15.5	NM	136.2	9.9	5.1	NA	156,762	9.5	0.65	7.01	2.57	GA	05/16/14	15.5	NM	136.2	9.9	5.1	NA	156,762	9.5	0.65	7.01	2.57
First American Bank Corp./ Bank of Coral Gables	FL	05/05/14	7.5	27.7	116.2	7.3	1.9	NA	102,733	6.3	0.26	4.33	5.82	FL	05/05/14	7.5	27.7	116.2	7.3	1.9	NA	102,733	6.3	0.26	4.33	5.82
Commerce Union Bancshares, Inc./ Reliant Bank	TN	04/28/14	48.1	14.8	127.5	12.5	NA	NA	384,575	9.8	0.72	6.95	2.59	TN	04/28/14	48.1	14.8	127.5	12.5	NA	NA	384,575	9.8	0.72	6.95	2.59
State Bank Financial Corp./ Atlanta Bancorp., Inc.	GA	04/28/14	25.2	4.1	98.6	12.7	-0.5	NA	198,314	12.7	3.34	29.15	4.45	GA	04/28/14	25.2	4.1	98.6	12.7	-0.5	NA	198,314	12.7	3.34	29.15	4.45
Heritage Financial Group, Inc./ Alarion Financial Services, Inc.	FL	04/22/14	29.6	31.1	167.0	10.6	5.9	NM	279,531	6.3	0.20	2.61	2.85	FL	04/22/14	29.6	31.1	167.0	10.6	5.9	NM	279,531	6.3	0.20	2.61	2.85
Home BancShares, Inc./ Florida Traditions Bank	FL	04/17/14	43.0	14.0	146.3	13.8	5.9	NA	312,005	9.4	1.04	9.19	1.31	FL	04/17/14	43.0	14.0	146.3	13.8	5.9	NA	312,005	9.4	1.04	9.19	1.31
Simmons First National Corp./ Delta Trust & Banking Corp.	AR	03/24/14	66.5	15.6	164.7	15.4	9.1	NA	431,378	9.2	1.01	10.86	2.21	AR	03/24/14	66.5	15.6	164.7	15.4	9.1	NA	431,378	9.2	1.01	10.86	2.21
Xenith Bankshares, Inc./ Colonial Virginia Bank	VA	03/21/14	9.6	17.7	79.2	8.4	-3.3	31.2	114,921	10.6	0.47	4.51	6.32	VA	03/21/14	9.6	17.7	79.2	8.4	-3.3	31.2	114,921	10.6	0.47	4.51	6.32
First Citizens Bancshares, Inc./ Southern Heritage Bancshares, Inc.	TN	03/20/14	32.7	12.0	162.9	18.1	7.6	NA	236,853	12.6	1.18	9.39	1.05	TN	03/20/14	32.7	12.0	162.9	18.1	7.6	NA	236,853	12.6	1.18	9.39	1.05
Ameris Bancorp/ Coastal Bankshares, Inc.	GA	03/11/14	37.3	NM	192.1	14.2	5.9	NA	432,787	10.2	0.32	3.09	5.54	GA	03/11/14	37.3	NM	192.1	14.2	5.9	NA	432,787	10.2	0.32	3.09	5.54
First Bancshares, Inc./ BCB Holding Company, Inc.	AL	03/06/14	3.9	NM	115.2	5.7	1.1	NA	78,679	7.0	0.06	0.80	2.91	AL	03/06/14	3.9	NM	115.2	5.7	1.1	NA	78,679	7.0	0.06	0.80	2.91
HomeTrust Bancshares, Inc./ Bank of Commerce	NC	03/04/14	10.0	NM	118.5	21.8	2.5	48.8	129,315	6.5	0.34	3.63	1.08	NC	03/04/14	10.0	NM	118.5	21.8	2.5	48.8	129,315	6.5	0.34	3.63	1.08
HomeTrust Bancshares, Inc./ Jefferson Bancshares, Inc.	TN	01/23/14	51.2	28.6	97.9	12.3	-0.3	22.5	498,565	10.5	0.35	3.37	3.46	TN	01/23/14	51.2	28.6	97.9	12.3	-0.3	22.5	498,565	10.5	0.35	3.37	3.46
TriSummit Bancorp, Inc./ Community National Bank of the Lakeway Area	TN	01/14/14	9.4	NM	86.7	8.8	-2.1	NM	107,108	10.1	0.05	0.51	1.93	TN	01/14/14	9.4	NM	86.7	8.8	-2.1	NM	107,108	10.1	0.05	0.51	1.93

Carolina Financial’s board of directors believes that the completion of the merger presents a unique opportunity for Carolina Financial to further its strategic plan by expanding its franchise and banking operations in the Columbia, South Carolina market, which Carolina Financial believes is an attractive market area in South Carolina, contiguous to its existing markets in Charleston and Greenville, South Carolina. Carolina Financial’s board of directors also noted that the merger furthered Carolina Financial’s strategic growth plan, would add a solid core deposit base, diversify its loan portfolio composition, be immediately accretive to earnings and be a good cultural fit.

The terms of the merger, including the merger consideration, are the result of arm’s-length negotiations between representatives of Carolina Financial and Congaree. In reaching its decision to approve the merger, Carolina Financial’s board of directors consulted with its legal advisors regarding the terms of the transaction and with management of Carolina Financial. In approving the entry into the merger agreement, Carolina Financial’s board of directors considered the following material factors:

Carolina Financial’s board of directors also considered potential risks associated with the merger in connection with its deliberations of the proposed transaction, including the challenges of integrating Congaree’s business, operations, and workforce with those of Carolina Financial, the potential negative impact on Carolina Financial’s stock price and the need to obtain shareholder and regulatory approvals in order to complete the transaction.

Carolina Financial’s board of directors considered all of these factors as a whole and, on balance, Carolina Financial’s board of directors believes that the opportunities created by the merger to increase the value of Carolina Financial’s franchise more than offset any integration or other risks inherent in the merger.

The foregoing discussion of the information and factors considered by Carolina Financial’s board of directors is not exhaustive, but includes the material factors considered by Carolina Financial’s board of directors. In view of the wide variety of factors considered by Carolina Financial’s board of directors in connection with its evaluation of the merger and the complexity of these matters, Carolina Financial’s board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual members of Carolina Financial’s board of directors may have given different weights to different factors.

On the basis of these considerations, Carolina Financial’s entry into the merger agreement was unanimously approved by Carolina Financial’s board of directors on December 16, 2015.

Under the merger agreement, Congaree shareholders will receive one of the following forms of payment of merger consideration in exchange for each of their shares of Congaree common stock (subject to the limitations and adjustments discussed below):

The merger agreement provides that Carolina Financial will issue shares of Carolina Financial common stock for 60% of the non-dissenting shares of Congaree common stock outstanding on the effective date of the merger and pay cash for the remaining 40% of the non-dissenting shares of Congaree common stock outstanding. Congaree shareholders are entitled to elect to receive the cash consideration, the stock consideration, or the mixed consideration, in whole share increments, with respect to the holders’ shares of Congaree common stock. In other words, by promptly completing and timely delivering the election form, you can elect to receive cash for your shares of Congaree common stock, shares of Carolina Financial common stock for your shares of Congaree common stock, or cash and shares of Carolina Financial common stock in such proportions as you choose for your shares of Congaree common stock. As discussed below, however, you may not receive the type of merger consideration you elect.

If shareholders of Congaree in the aggregate elect the form of consideration so that either cash would be paid as merger consideration for more than 40% of the outstanding non-dissenting shares of Congaree common stock or shares of Carolina Financial common stock would be issued as merger consideration for more than 60% of the outstanding non-dissenting shares of Congaree common stock, the merger agreement provides a method to reallocate cash or stock so that the merger consideration will not exceed either threshold. For a description of the reallocation method, see “Proposal No. 1—The Merger—Allocation of the Merger Consideration.” Accordingly, you may receive less cash and more shares, or more shares and less cash than you elect. Either of these events is likely to result in different tax consequences from those that would have resulted had you received the exact form of merger consideration you elected.

No fractional shares of Carolina Financial common stock will be issued in connection with the merger. Instead, cash will be paid for any fraction of a share of Carolina Financial common stock to which any Congaree shareholder would otherwise be entitled upon completion of the merger. The cash paid will be an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable upon conversion multiplied by the average of the daily closing prices of Carolina Financial common stock on the NASDAQ Capital Market for the 20 consecutive trading days ending on the trading day prior to the fifth business day immediately prior to the date on which the effective time of the merger is to occur.

Neither Congaree nor Carolina Financial (or their respective boards of directors) nor Congaree’s financial advisor make any recommendation as to whether you should choose the cash consideration, stock consideration, or mixed consideration for your shares of Congaree common stock. You should consult with your own financial and tax advisors about this decision.

Shares of Carolina Financial common stock are listed for trading on the NASDAQ Capital Market under the symbol “CARO.” On January 5, 2016, which was the last trading day before the announcement of the merger, the price of a share of Carolina Financial common stock closed at $18.22 per share, and on , 2016, the latest practicable date before mailing out this proxy statement/prospectus, the price of a share of Carolina Financial common stock closed at $ per share. You should be aware that the market value of shares of Carolina Financial common stock will fluctuate, and neither Carolina Financial nor Congaree can give you any assurance as to what the price of shares of Carolina Financial common stock will be when the merger becomes effective. We urge you to obtain information on the market value of shares of Carolina Financial common stock that is more recent than that provided in the proxy statement/prospectus. See “Summary—Market Price and Dividend Information” on page ___.

The following table illustrates calculations of consideration at different prices for Carolina Financial common stock that would be received by a holder of 100 shares of Congaree common stock depending on whether the shareholder elected the cash consideration, the stock consideration, or a mixed consideration. These calculations do not take into consideration the effects of taxation. See “Proposal No. 1—The Merger—Important Federal Income Tax Consequences” on page ___.

The assumed closing values of the shares of Carolina Financial common stock set forth in the table have been included for representative purposes only and are based on the high and low closing values for the shares of Carolina Financial common stock from October 1, 2015 to December 1, 2015 and the closing values for the shares of Carolina Financial common stock on January 5, 2016, the last trading day prior to the announcement of the merger. The closing value at the time the merger becomes effective may be less than $18.22 or more than $18.22. We cannot predict what the closing value for shares of Carolina Financial common stock will be or what the value of the shares of Carolina Financial common stock to be issued in the merger will be at or following the merger becoming effective.

(Assuming various cash/share elections and Carolina Financial common stock closing values)

Shortly after the effective time of the merger, Carolina Financial will deliver or mail to Congaree shareholders an election form and instructions for making an election as to the form of merger consideration preferred to be received in the merger, subject to the allocation procedures described below. Upon receipt of the election form, each Congaree shareholder should complete, date, and sign the election form and return it promptly in the prepaid, pre-addressed envelope provided with the election form. If any Congaree shareholders do not make an election by 4:00 pm local time on the date set forth in the instructions on the election form, such shareholders will be deemed not to have made an election and the exchange agent will choose the type of merger consideration constituting the per share purchase price to distribute to such non-electing shareholders according to the allocation procedures.

Elections will be properly made if the election form is accompanied by one or more certificates representing the shares of Congaree common stock covered by the election form, or the guaranteed delivery of such certificates. Elections may be revoked or changed upon written notice to the exchange agent before the election deadline. If a Congaree shareholder revokes the election form and does not properly make a new election by the election deadline, the Congaree shareholder will be deemed to have not made an election with respect to the shares covered by the revoked election form, and the exchange agent will determine the type of consideration to be received.

The exchange agent will have reasonable discretion to determine whether any election, revocation, or change has been properly or timely made and to disregard immaterial defects in the election form, and any good faith decision of the exchange agent regarding such matters will be conclusive and binding.Neither Carolina Financial nor the exchange agent is obligated to notify any person of any defect in an election form.

The merger agreement limits the aggregate number of shares of Congaree common stock which Carolina Financial will exchange for cash to 40% of the total outstanding non-dissenting shares of Congaree common stock. The merger agreement also limits the aggregate number of shares of Congaree common stock which Carolina Financial will exchange for shares of Carolina Financial common stock to 60% of the total outstanding non-dissenting shares of Congaree common stock.

If the stock consideration elected by Congaree shareholders in the aggregate exceeds 60% of the total outstanding non-dissenting shares of Congaree common stock, then shareholders choosing cash consideration and shareholders who did not make an election will receive cash consideration, and each shareholder who chose the stock consideration will receive (i) a number of shares of Carolina Financial common stock equal to the exchange ratio times the product obtained by multiplying the number of shares of Congaree common stock as to which the shareholder chose the stock election by a fraction, the numerator of which is 60% of the total outstanding non-dissenting shares of Congaree common stock and the denominator of which is the aggregate number of shares of Congaree common stock elected by all Congaree shareholders to be converted into shares of Carolina Financial common stock, and (ii) cash for the remaining amount of shares of Congaree common stock held by the shareholder.

If the cash consideration elected by Congaree shareholders in the aggregate exceeds 40% of the total outstanding non-dissenting shares of Congaree common stock, then shareholders choosing stock consideration and shareholders who did not make an election will receive the stock consideration, and each shareholder who chose the cash consideration will receive (i) $8.10 times the product obtained by multiplying the number of shares of Congaree common stock as to which the shareholder chose the cash election by a fraction, the numerator of which is 40% of the total outstanding non-dissenting shares of Congaree common stock and the denominator of which is the aggregate number of shares of Congaree common stock elected by all Congaree shareholders to be converted into cash, and (ii) shares of Carolina Financial common stock for the remaining amount of shares of Congaree common stock held by the shareholder.

If the stock consideration elected by the Congaree shareholders in the aggregate does not exceed 60% of the total outstanding non-dissenting shares of Congaree common stock and the cash consideration elected by the Congaree shareholders in the aggregate does not exceed 40% of the total outstanding non-dissenting shares of Congaree common stock, then shareholders electing the cash consideration will receive all cash in exchange for their shares of Congaree common stock, shareholders electing the stock consideration will receive all stock in exchange for their shares of Congaree common stock, shareholders electing the mixed consideration will receive a combination of cash consideration and stock consideration in exchange for their shares of Congaree common stock, and the shareholders making no election will receive either the cash consideration, stock consideration, or mixed consideration such that the aggregate number of shares of Congaree common stock to be exchanged for cash is 40% of the total outstanding non-dissenting shares of Congaree common stock and the aggregate number of shares of Congaree common stock to be exchanged for stock is 60% of the total outstanding non-dissenting shares of Congaree common stock.

Conversion of Congaree Common Stock.At the effective time of the merger, each share of Congaree common stock outstanding generally will be converted into and exchanged for the right to receive either (i) $8.10 in cash; (ii) 0.4806 shares of Carolina Financial common stock; or (iii) a combination of both cash and stock. In addition, if (A) the average of the daily closing price of Carolina Financial common stock over a specified period prior to the anticipated closing date is less than 80% of $18.22 (the closing price on the date of the merger agreement), or $14.576, and (B) the average of the daily closing price of Carolina Financial common stock over the same specified period is down 15% more than any change in the KBW NASDAQ Regional Banking Index (“KRX”) since the date of the merger agreement, either Carolina Financial or Congaree may provide notice of its intent to terminate the merger agreement; provided, however, in the event Congaree provides such notice, Carolina Financial may, but is not obligated to, increase the exchange ratio, and Congaree may elect to accept the increased exchange ratio or proceed with termination of the merger agreement.

Cash will also be exchanged for any fractional shares. Any Congaree shareholder who would otherwise have been entitled to receive a fraction of a share of Carolina Financial common stock in the merger will receive, in lieu thereof, cash (without interest) in an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable upon conversion multiplied by the average of the daily closing prices of Carolina Financial common stock on the NASDAQ Capital Market for the 20 consecutive trading days ending on the trading day prior to the fifth business day immediately prior to the date on which the effective time of the merger is to occur.

Some shares of Congaree common stock may not be converted in the merger. Each outstanding share of Congaree common stock owned by Carolina Financial, Congaree, or their respective subsidiaries (in each case other than shares of Congaree common stock held on behalf of third parties or as a result of debts previously contracted) will be canceled at the effective time of the merger and will cease to be outstanding. In addition, shares of Congaree common stock held by Congaree shareholders properly exercising their dissenters’ rights will not be converted in the merger.

Warrants.As of the date of this proxy statement/prospectus, there were outstanding warrants to purchase 70,000 shares of Congaree common stock, each with an exercise price of $10.00 per share, all of which were held by directors or executive officers of Congaree. Immediately prior to the effective time, all ~~rights with respect~~of these warrants to purchase shares of Congaree common stock ~~pursuant to warrants issued by Congaree held by directors and executive officers of Congaree~~ will be cancelled for nominal ~~consideration.~~consideration pursuant to Warrant Termination Agreements.

Stock Options.As of the date of this proxy statement/prospectus, there were outstanding options to purchase 173,437 shares of Congaree common stock, with a weighted average exercise price of $6.41 per share, 166,512 of which were held by directors or executive officers of Congaree. Immediately prior to the effective time, all ~~rights with respect~~stock options to purchase shares of Congaree common stock ~~pursuant to stock options granted by Congaree~~ held by directors and executive officers of Congaree will be cancelled in exchange for a cash payment at closing equal to the product obtained by multiplying (1) the number of shares of Congaree common stock underlying such person’s stock options, by (2) $8.10 less the exercise price per share under such stock options, ~~by entering into a~~pursuant to Stock Option Cash-Out ~~Agreement~~Agreements prior to the effective time. In the event that the product obtained by the prior sentence is zero or a negative number, then the stock options will be cancelled for nominal consideration. All such unvested stock options will be accelerated immediately prior to cancellation in exchange for the cash payment at closing. With respect to options to purchase shares of Congaree common stock held by employees who are not directors or officers, Congaree has agreed to use its reasonable best efforts to cause such employee holders to likewise enter into the stock option cancellation agreements executed by officers and directors. Options held by employees who do not enter into stock option cancellation agreements, and which are not exercised before consummation of the merger, will become fully vested upon the consummation of the merger and will be assumed by Carolina Financial. Such assumed options will be exercisable for shares of Carolina Financial common stock based on the exchange ratio in the merger.

If the merger agreement is approved by the requisite vote of the shareholders of Congaree and all other required governmental and other consents and approvals are received, and if the other conditions to the obligations of the parties to consummate the merger are satisfied or waived (as permitted), the merger will be consummated and effected on the date and at the time the articles of merger reflecting the merger are filed with the Secretary of State of South Carolina. Unless otherwise mutually agreed upon in writing by Carolina Financial’s and Congaree’s chief executive officers, both parties will use their reasonable efforts to cause the effective time of the merger to occur within five business days of the last of the following dates to occur:

Assuming satisfaction of all of the conditions to consummation of the merger, the merger is expected to be made effective by the end of the second quarter of 2016.

Either party may terminate the merger agreement prior to the effective time, under several circumstances. See “Proposal No. 1—The Merger—Conditions to Consummation” and “— Amendment, Waiver, and Termination.”

Shortly after the effective time of the merger, Carolina Financial will mail the election form and instructions to each record holder of Congaree common stock for use in effecting the surrender and cancellation of those certificates in exchange for cash and/or Carolina Financial common stock, which will be issued in uncertificated “book entry” form. Risk of loss and title to the certificates will remain with the holder until proper delivery of such certificates to Carolina Financial or its exchange agent by former Congaree shareholders.Congaree shareholders should not surrender their certificates for exchange until they receive the election form and instructions from Carolina Financial. Shortly after the effective time of the merger, and per the instructions of Carolina Financial’s exchange agent, each holder of shares of Congaree common stock, issued and outstanding at the effective time must surrender the certificate or certificates representing their shares to Carolina Financial. As soon as reasonably practicable after the effective time of the merger, Congaree shareholders will receive the consideration to which they are entitled under the merger agreement, together with any undelivered dividends or distributions in respect of such shares (without interest). Carolina Financial will not be obligated to deliver the consideration to which any former holder of Congaree common stock is entitled until the holder surrenders the certificate or certificates representing his or her shares for exchange and until the effective time of the merger. The certificate or certificates so surrendered must be duly endorsed as Carolina Financial may require. Carolina Financial will not be liable to a holder of Congaree common stock for any property delivered in good faith to a public official pursuant to any applicable abandoned property law.

If you do not timely submit the election form along with your certificates of Congaree common stock, Carolina Financial’s exchange agent will mail to you a letter of transmittal with instructions for submitting your Congaree common stock certificate in exchange for Carolina Financial common stock or the cash consideration of $8.10 per share. At that time, you will need to carefully review the instructions, complete the materials enclosed with the instructions and return the materials along with your Congaree stock certificate(s). Whether you will receive Carolina Financial common stock and/or cash will depend on the election of other Congaree shareholders. (See “The Merger—Terms of the Merger—Allocation of Carolina Financial Common Stock and Cash,” below.) As soon as reasonably practicable after receipt of the properly completed the election form and your Congaree stock certificate(s), Carolina Financial’s exchange agent will mail a statement of a book entry of Carolina Financial common stock or a check (or a book entry statement and a check) for the merger consideration. No interest will be paid on any cash payment.

Carolina Financial or its exchange agent will maintain a book entry list of Carolina Financial common stock to which each former Congaree shareholder is entitled. Certificates evidencing Carolina Financial common stock into which the shareholder’s Congaree common stock has been converted will not be issued. Carolina Financial’s exchange agent will deliver a statement of such book entry and other information as required by law within a reasonable time following the surrender of a Congaree certificate.

After the effective time of the merger, record holders of certificates that represented outstanding Congaree common stock immediately prior to the effective time of the merger will have no rights with respect to the certificates other than the right to surrender the certificates and receive in exchange the aggregate number of whole shares of Carolina Financial common stock (issued in book entry form) and the cash consideration to which the holder is entitled pursuant to the merger agreement.

Book entry shares representing shares of Carolina Financial common stock will be dated the effective date of the merger and will entitle the holders to dividends, distributions, and all other rights and privileges of a Carolina Financial shareholder from the effective date. Until the certificates representing Congaree common stock are surrendered for exchange, holders of such certificates will not receive the cash and/or stock consideration or dividends or distributions on Carolina Financial common stock into which such shares have been converted. When the certificates are surrendered to the exchange agent, any unpaid dividends or other distributions will be paid without interest. Carolina Financial has the right to withhold dividends or any other distributions on its shares until the Congaree stock certificates are surrendered for exchange.

In addition, holders of certificates that represented outstanding Congaree common stock immediately prior to the effective time of the merger will be entitled to vote after the effective time of the merger at any meeting of Carolina Financial shareholders the number of whole shares of Carolina Financial common stock into which such shares have been converted, even if such holder has not surrendered such certificates for exchange as set forth above.

Carolina Financial shareholders will not be required to exchange certificates representing their shares of Carolina Financial common stock or otherwise take any action after the merger is completed.

The shares of Carolina Financial common stock to be issued to shareholders of Congaree under the merger agreement will be freely tradable by such shareholders without restriction, except that if any Congaree shareholders are deemed to be affiliates of Carolina Financial, they must abide by certain transfer restrictions under the Securities Act.

Under South Carolina law, holders of Congaree common stock will be entitled to dissent from the merger and to obtain payment in cash of the fair value of his or her shares of Congaree common stock. Set forth below is a summary of the procedures that must be followed by the holders of Congaree common stock in order to exercise their dissenters’ rights of appraisal. This summary is qualified in its entirety by reference to the text of the applicable South Carolina statutes, a copy of which is attached to this proxy statement/prospectus asAppendix B.

If the merger is approved at the Congaree special shareholders’ meeting, Congaree will deliver, no later than 10 days after the special shareholders’ meeting, a written dissenters’ notice to all Congaree shareholders who satisfied the two requirements set forth above. The written dissenters’ notice will state where the payment demand must be sent and where stock certificates must be deposited, will include a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the merger and requires that the person asserting dissenters’ rights certify whether or not he or, if he is a nominee asserting dissenters’ rights on behalf of a beneficial shareholder, the beneficial shareholder acquired beneficial ownership of the shares before that date, and will set a date by which Congaree must receive the payment demand, which date will not be less than 30 or more than 60 days after the written dissenters’ notice is delivered. A dissenting shareholder who does not demand payment or deposit his or her share certificate as required by the dissenters’ notice will not be entitled to payment for his or her shares, and such shareholder’s shares of Congaree common stock will be converted into the right to receive the merger consideration in connection with the merger.

As soon as the merger is consummated, or upon receipt of a payment demand, Congaree will pay to each dissenting shareholder who properly demanded payment the amount Congaree estimates to be the fair value of his or her shares, plus accrued interest. If the shareholder believes the amount of the payment is less than fair value or that the interest is calculated incorrectly or Congaree fails to make payment within 60 days after the date set for demanding payment, or if the merger is not consummated, Congaree fails to return the deposited certificates within 60 days after the date set for demanding payment, he or she may notify Congaree in writing of his or her own estimate of fair value and amount of interest due and demand payment of his estimate (less the payment already received). However, a dissenting shareholder waives his or her right to demand additional payment if he or she fails to notify Congaree of his or her demand in writing within 30 days after Congaree made payment for his or her shares. If a demand for payment remains unsettled, Congaree will commence a court proceeding to determine the fair value of the shares and the accrued interest.

Exercise of dissenters’ rights by holders of Congaree common stock will result in the recognition of gain or loss, as the case may be, for federal income tax purposes.

In the opinion of ~~Nelson Mullins Riley & Scarborough LLP and in the opinion of~~ Smith Moore Leatherwood LLP, the following section summarizes the anticipated material U.S. federal income tax considerations of the merger generally applicable to U.S. holders (as defined below) of Congaree common stock. These opinions and the following discussion are based on, and subject to, the Internal Revenue Code, the treasury regulations promulgated under the Internal Revenue Code, existing interpretations, court decisions, and administrative rulings, all of which are in effect as of the date of this statement, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of the discussion.

This summary only addresses the material U.S. federal income tax consequences of the merger to the Congaree shareholders that hold Congaree common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. This summary does not address all aspects of U.S. federal income taxation that may be applicable to Congaree stockholders in light of their particular circumstances or to Congaree shareholders subject to special treatment under U.S. federal income tax law, such as:

For purposes of this summary, the term “U.S. holder” means a beneficial holder of Congaree common stock that is:

If a partnership (including any entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) holds Congaree common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisors about the tax consequences of the merger to them.

Based upon the terms as currently provided in the merger agreement, the merger will be treated as if you sold your Congaree common stock to Carolina Financial in a fully taxable transaction, unless the merger (whereby Congaree becomes a wholly-owned subsidiary of Carolina Financial) and the second-step merger (whereby Congaree is merged into Carolina Financial) are viewed as one single merger for U.S. federal income tax purposes (the “Integrated Merger”) because all of the requirements, including the “40% continuity of shareholder interest requirement” (explained below), for qualification as a reorganization as that term is defined in Section 368(a) of the Internal Revenue Code are satisfied as of the closing date of the merger. If the requirements of a reorganization are satisfied as of the closing date of the merger, then the tax consequences of the Integrated Merger will be as set forth below beginning with the heading “Qualification of the Integrated Merger as a Reorganization”and the ensuing discussions thereafter.

If the requirements for qualification as a “tax-free” reorganization are not met, the merger will be characterized as a taxable sale of your Congaree common stock and the amount of gain or loss you will recognize as a result of the merger will be equal to the difference between the total consideration received in the merger (which will equal the sum of any cash received and the fair market value of the Carolina Financial stock you receive in the merger) and your tax basis in the shares of Congaree common stock surrendered in the merger. The gain or loss generally will be capital gain or loss, and will qualify as long-term capital gain or loss if you have held your Congaree common stock for more than one year. In the case of Congaree common stock held by an individual (and certain other taxpayers such as a trust), long-term capital gain is taxed currently at a maximum rate of 20% for regular U.S. federal income tax purposes, plus an additional 3.8% Medicare Tax on net investment income if the shareholder’s net investment income and modified adjusted gross income exceed certain threshold amounts. Short-term capital gains are taxed the same as ordinary income. The ability of a taxpayer to utilize capital loss (irrespective of the holding period) is currently limited. In the case of an individual (and certain other taxpayers such as a trust), capital loss can be used only to offset capital gains recognized by the taxpayer and then to offset up to $3,000 of ordinary income. Capital loss recognized by a corporation can only be used to offset capital gains.

You are urged to consult your own tax advisor regarding the manner in which gain or loss should be calculated among different blocks of Congaree common stock surrendered in the merger. The aggregate tax basis in the shares of Carolina Financial common stock received pursuant to the merger will be equal to the fair market value of such Carolina Financial common stock as of the closing date of the merger. The holding period of such shares of Carolina Financial common stock will begin on the day immediately following the closing date of the merger.

Upon completion of the merger, at which point Congaree will become a wholly-owned subsidiary of Carolina Financial, the merger agreement provides for the second-step merger, whereby Congaree merges with and into Carolina Financial, with Carolina Financial as the survivor of the second-step merger and Congaree’s corporate existence is terminated. The Internal Revenue Service has ruled that a subsequent merger of a target corporation (i.e., the second-step merger) into an acquiring corporation (such as the merger of Congaree into Carolina Financial) pursuant to an integrated plan can be viewed as if the target corporation was merged directly into the acquiring corporation initially (i.e., as if only the second-step merger occurred and the merger of Congaree and CBAC, Inc. never took place), so long as (1) there are no facts present that preclude the application of the step transaction doctrine to the two mergers, and (2) the requirements of Section 368(a) of the Internal Revenue Code for treatment as a reorganization are satisfied when the transaction is viewed from the perspective that target corporation was merged directly into the acquiring corporation in a deemed single step, instead of two steps. Rev. Rul. 2001-46, 2001-2 C.B. 321.

In order to constitute a reorganization under Section 368(a) of the Internal Revenue Code, one of the requirements for qualification is the value of the Carolina Financial common stock that is delivered in the merger in exchange for shares of Congaree common stock that are outstanding prior to the effective time of the merger must, under guidelines set forth in treasury regulations, equal 40% or more of the sum of the (i) value of the Carolina Financial common stock and (ii) the cash that is treated as received in the merger (including any cash paid to dissenting Congaree stockholders) in exchange for those shares of Congaree common stock.

Whether the 40% continuity of shareholder interest requirement will be met will depend on certain conditions, including, the number of shares of Carolina Financial common stock that is to be delivered in the merger and the value of the Carolina Financial common stock on the closing date of the merger. Based on the terms currently provided in the merger agreement, the number of shares of Carolina Financial common stock that is to be delivered in the merger cannot be determined earlier than the fifth (5^th) business day immediately prior to the effective date of the merger (which is the end of the measurement period set forth in the merger agreement). Accordingly, it is uncertain at this time as to whether the 40% continuity of stockholder interest requirement will be met and the reorganization will satisfy the requirements for characterization as a reorganization for U.S. federal income tax purposes. Carolina Financial’s and Congaree’s obligations to complete the merger are not conditioned upon the merger qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Thus, in the event that either the 40% continuity of shareholder interest requirement and/or one of the other requirements for qualification as a reorganization is not met as of the effective time of the merger, the merger will proceed as currently contemplated in the merger agreement and will constitute a fully taxable sale of common stock by the Congaree shareholders to Carolina Financial, the income tax consequences of which are set out under the section entitled“Tax Consequences of the Merger”above.

If the 40% continuity of shareholder interest requirement and the other requirements for qualification as a reorganization are met as of the effective time of the merger, it is intended that, on or shortly after the effective time of the merger, ~~each of Carolina Financial and~~ Congaree will obtain an opinion from ~~Nelson Mullins Riley & Scarborough LLP and~~ Smith Moore Leatherwood LLP, ~~respectively, each~~ dated as of the closing date, to the effect that, on the basis of the facts, representations, and assumptions set forth in the opinions, that the Integrated Merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, that each of Carolina Financial and Congaree will be a party to that reorganization within the meaning of Section 368(b) of the Internal Revenue Code, and that the material U.S. federal income tax consequences to Carolina Financial, Congaree, and the Congaree shareholders will be as generally described below. Carolina Financial and Congaree further intend to make an announcement to the Congaree shareholders of the receipt of the ~~opinions~~opinion and the tax consequences thereof, if such ~~opinions are~~opinion is received.

The opinions of counsel described above will be based on the then-existing law, will assume the absence of changes in existing facts, will rely on customary assumptions and may rely on representations contained in certificates executed by officers of Carolina Financial and Congaree. Such opinions neither bind the IRS nor preclude the IRS from adopting a contrary position, and it is possible that the IRS may successfully assert a contrary position in litigation or other proceedings. Neither Carolina Financial not Congaree intends to obtain a ruling from the IRS with respect to the tax consequences of the merger.

Tax Implications to Congaree Shareholders that are U.S. Holders if the Integrated Merger Qualifies as a Reorganization

The following discussion summarizes the material U.S. federal income tax consequences of the merger to U.S. holders of Congaree common stock, assuming the Integrated Merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. You generally will recognize gain, but not loss, as a result of the exchange of your Congaree common stock for a combination of Carolina Financial common stock and cash pursuant to the merger in an amount equal to the lesser of: (1) the amount of cash you receive in exchange for your Congaree common stock in the merger (excluding any cash received in lieu of fractional shares of Carolina Financial common stock and (2) the excess, if any, of (a) the sum of the amount of cash treated as received in exchange for Congaree common stock in the merger (excluding any cash received in lieu of fractional shares of Carolina Financial common stock) plus the fair market value of Carolina Financial common stock (including the fair market value of any fractional share) received in the merger, over (b) your tax basis in the Congaree common stock exchanged. If you acquired different blocks of Congaree common stock at different times or at different prices, you should consult your individual tax advisor regarding the manner in which gain or loss should be determined. Any recognized gain will generally be long-term capital gain if, as of the effective date of the merger, your holding period with respect to the surrendered Congaree common stock exceeds one year. The aggregate tax basis of the Carolina Financial common stock you receive as a result of the merger will be the same as your aggregate tax basis in Congaree common stock you surrender in the merger, decreased by the amount of cash you receive in exchange for such Congaree common stock (excluding any cash received in lieu of a fractional share of Carolina Financial common stock) and increased by the amount of gain, if any, you recognize in the exchange (excluding any gain recognized with respect to fractional share of Carolina Financial common stock deemed sold in the merger). The holding period of the Carolina Financial common stock you receive as a result of the exchange will include the holding period of Congaree common stock you surrendered in the merger.

If you receive cash in the merger instead of a fractional share interest in Carolina Financial common stock, you will be treated as having received such fractional share in the merger, and then as having received cash in exchange for such fractional share. Gain or loss would be recognized in an amount equal to the difference between the amount of cash received and your adjusted tax basis allocable to such fractional share. Except as described in the section entitled “Dividend Treatment” below, this gain or loss will generally by a capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, you have held your shares of Congaree common stock for more than one year.

There are certain circumstances in which all or part of the gain recognized by you will be treated as a dividend rather than as capital gains. In general, such determination depends on whether, and to what extent, the merger reduces your percentage share ownership interest in Carolina Financial that you actually and constructively own in comparison to the percentage interest you actually and constructively would have owned in Carolina Financial had you received only Carolina Financial common stock (and no cash) in the merger. Because the possibility of dividend treatment depends primarily upon your particular circumstances, including the application of certain constructive ownership rules, you should consult your own tax advisor regarding the potential income tax treatment by you of any gain recognized in connection with the merger.

If you perfect your dissenters’ rights with respect to your shares of Congaree common stock, you will generally recognize capital gain or loss equal to the difference between your tax basis in those shares and the amount of cash received in exchange for those shares. The tax consequences of cash received may vary depending upon your individual circumstances. Each holder of Congaree common stock who contemplates exercising statutory dissenters’ rights should consult its tax advisor as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.

Tax Implications to Congaree and Carolina Financial if the Merger is a Reorganization

No gain or loss will be recognized by Congaree or Carolina Financial in connection with the second-step merger if the Integrated Merger qualifies as a reorganization as that term is defined in Section 368(a) of the Internal Revenue Code. Carolina Financial’s tax basis and holding period in the Congaree assets acquired by Carolina Financial in connection with the Integrated Merger will be equal to Congaree’s tax basis in and will include Congaree’s holding period with respect to such assets immediately prior to the time of the merger, and Carolina Financial will succeed to and take into account Congaree’s other historic tax attributes that otherwise exist immediately prior to the effective time of the merger.

In general, information reporting requirements may apply to the cash payments made to you in connection with the merger, unless an exemption applies. Backup withholding may be imposed on the above payments at a rate of 28% if a U.S. holder or non-U.S. holder (1) fails to provide a taxpayer identification number or appropriate certificates or (2) otherwise fails to comply with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to you under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against your applicable U.S. federal income tax liability, provided the required information is furnished to the IRS. Both U.S. and non-U.S. holders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability and procedure for obtaining an exemption from backup withholding.

THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS, CONGAREE SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF NON-U.S., FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS, AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.

At the effective time of the merger, CBAC, Inc. will merge with and into Congaree, with Congaree surviving the merger and then merging with and into Carolina Financial. After the merger, the current directors of Carolina Financial will continue to serve as directors of the combined company.

Jerold L. Rexroad will continue to serve as President and Chief Executive Officer of Carolina Financial. David Morrow will continue to serve as Executive Vice President of Carolina Financial. William A. Gehman, III will continue to serve as Executive Vice President and Chief Financial Officer. M. J. Huggins, III will continue to serve as Executive Vice President and Secretary.

Interests of Executive Officers, Employees and Directors of Congaree in the Merger

General.Some of the executive officers, employees and directors of Congaree may be deemed to have interests in the merger in addition to their interests as shareholders of Congaree generally. These interests include, among others, change in control payments under the executive officer’s employment agreements with Congaree, proposed employee benefits for those who become employees of Carolina Financial or a Carolina Financial subsidiary after the merger, entry into retention bonus agreements with Congaree and Carolina Financial, the appointment of certain Congaree directors to the Columbia Advisory Board of CresCom Bank, lump sum payments in exchange for the cancellation of outstanding Congaree warrants and stock options, insurance coverage and indemnification for Congaree’s directors and officers, as described below.

Advisory Board.It is anticipated that the directors of Congaree in office immediately prior to the effective time shall serve as CresCom Bank’s Columbia Advisory Board and shall be entitled to receive a fee of approximately $250 for each advisory board meeting attended.

Retention Bonus Agreements.Carolina Financial intends to enter into retention bonus agreements with certain non-executive employees of Congaree in the form attached as Exhibit G to the merger agreement which is included asAppendix A to this prospectus/proxy statement. The total of all payments under such agreements is estimated to aggregate $60,000.

Employee Benefits.The merger agreement generally provides that Carolina Financial will furnish to those employees of Congaree who become employees of Carolina Financial or a Carolina Financial subsidiary after the effective time of the merger benefits on the same basis as it provides coverage to other Carolina Financial employees, and Carolina Financial will use commercially reasonable efforts to cause any pre-existing condition, eligibility waiting period, or other limitation or exclusion otherwise applicable under such plans to new employees not to apply to a continuing employee or his or her covered dependents who were covered under a similar Congaree plan at the effective time of the merger. For purposes of eligibility and vesting under Carolina Financial’s employee benefit plans, service with Congaree prior to the effective time of the merger will be treated as service with Carolina Financial or its subsidiaries. Carolina Financial will use commercially reasonable efforts to cause any successor Carolina Financial employee benefit plan providing health coverage to give credit towards satisfaction of any annual deductible limitation and out-of-pocket maximum applied under such successor plan for any deductible, co-payment and other cost-sharing amounts previously paid by a Congaree employee respecting his or her participation in the corresponding Congaree benefit plan during the plan year prior to the transition effective date.

Change in Control Payments under Existing Employment Agreements of Congaree Executives. Three executives of Congaree have employment agreements containing provisions requiring payment of certain benefits upon a change in control, such as the merger. These severance provisions are described below:

Insurance and Indemnification.Carolina Financial has agreed to provide directors’ and officers’ insurance coverage for directors and officers of Congaree and Congaree State Bank, by purchasing or directing Congaree to purchase, at Carolina Financial’s election, continuation coverage under Congaree’s current policy for directors and officers for a period of not less than six years after the effective time of the merger. Carolina Financial has also agreed to indemnify the present and former directors, officers, and employees of Congaree and Congaree State Bank against all liabilities and damages for all acts or omissions arising out of service for Congaree or, at Congaree’s request, for another entity, occurring at or prior to the merger to the fullest extent permitted under Delaware corporate law, South Carolina corporate law, Section 402 of the Sarbanes-Oxley Act, the federal securities laws and FDIC Regulations Part 359, the rules and regulations of any other regulatory authority, and by Congaree’s articles of incorporation and bylaws.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 or otherwise may be permitted to directors, officers, and controlling persons pursuant to the foregoing provisions, Carolina Financial has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Warrants.As described above under the caption “Proposal No. 1—The Merger—Conversion of Stock; Treatment of Warrants and Stock Options,” each outstanding warrant to acquire Congaree common stock granted pursuant to certain warrant agreements entered into by Congaree and the directors and executive officers of Congaree will be cancelled immediately prior to the effective time of the merger in exchange for a nominal cash payment pursuant to the terms of a warrant termination agreement with Congaree. All director and executive officers holders of Congaree warrants have delivered a warrant termination agreement with respect to any warrants they hold.

Stock Options.The directors and executive officers of Congaree held options to purchase an aggregate of 155,812 shares of common stock as of January 31, 2016, of which 51,332 were unvested. Pursuant to the Congaree Bancshares, Inc. 2007 Stock Incentive Plan, all stock options outstanding at the time of a corporate transaction such as the merger, shall vest and become fully exercisable immediately prior to the effective date of such corporate transaction.

As described above under the caption “Proposal No. 1—The Merger—Conversion of Stock; Treatment of Warrants and Stock Options,” each outstanding, whether or not exercisable, option to acquire Congaree common stock granted pursuant to certain stock option agreements entered into by Congaree and the directors and executive officers of Congaree will be cancelled immediately prior to the effective time of the merger in exchange for a cash payment equal to the product obtained by multiplying (1) the number of shares of Congaree common stock underlying such holder’s Congaree stock options, by (2) $8.10 less the exercise price per share under such Congaree stock options, pursuant to the terms of a stock option cash-out agreement with Congaree.In the event that the product obtained by the prior sentence is zero or a negative number, then the stock options will be cancelled for nominal consideration. All director and executive officers holders of Congaree stock options have delivered a stock option cash-out agreement with respect to any stock options they hold.

The following table sets forth the total number of Congaree stock options held by each of the executive officers and non-employee directors of Congaree, the number of those options that are vested as of January 31, 2016, the number of options that will accelerate and vest as a result of the merger, and the estimated value of the total payment for the executive’s or non-employee director’s options in connection with the merger. The estimated value of the payments is based on the relevant merger consideration value of $8.10.

⁽¹⁾Reflects option to purchase 28,671 shares at $10.00 a share, which will be cancelled upon the merger in exchange for $500.

⁽²⁾ Reflects option to purchase 50,141 shares at $10.00 a share, which will be cancelled upon the merger in exchange for $500.

⁽³⁾ Neither Mr. Corley nor Mr. White is a current member of Congaree’s board of directors, but each is included in the table above because he was a director for a portion of fiscal year 2015. Mr. Corley died on May 18, 2015. Mr. White resigned from Congaree’s board on October 15, 2015.

Quantification of Payments and Benefits to the Congaree Named Executive Officers. The following table and related footnotes is intended to comply with Item 402(t) of Regulation S-K under the Exchange Act, which requires disclosure of information about the payments and benefits that each of the Congaree “named executive officers,” as determined for the purposes of Congaree’s most recent Annual Report on Form 10-K, will or may receive that are based on or otherwise relate to the merger, assuming the merger was completed on January 31, 2016.

⁽¹⁾These amounts represent aggregate severance benefits payable pursuant to the terms of Mr. Kirby’s, Mr. Lovering’s and Mr. Nivens’ respective employment agreements with Congaree (as described in greater detail above). These payments are subject to a double-trigger arrangement, in that following a change in control, the named executive officers will be paid their severance benefits if they terminate their employment for good reason within a 90-day period beginning on the 30th day after the occurrence of the change of control or within a 90-day period beginning on the one year anniversary of the occurrence of a change in control or if their employment is terminated without cause within two years after a change in control.

⁽²⁾This amount represents the value of the named executive officer’s accelerated vesting of outstanding stock options. These amounts represent single trigger benefits because the outstanding stock options vest upon the consummation of the merger without regard of whether the named executive officer terminates employment or has his employment terminated. The estimated value of the payments relating to equity awards are equal to the difference between the exercise price and the per share cash merger consideration value of $8.10. The stock options will be cashed out in connection with the closing of the merger.

The obligations of Congaree and Carolina Financial to consummate the merger are subject to the satisfaction or waiver (to the extent permitted) of several conditions, including:

The conditions to consummation of the merger may be waived, in whole or in part, to the extent permissible under applicable law, by the party for whose benefit the condition has been imposed, without the approval of such parties’ shareholders.

Representations and Warranties Made by Carolina Financial and Congaree in the Merger Agreement

Carolina Financial and Congaree have made certain customary representations and warranties to each other in the merger agreement. For information on these representations and warranties, please refer to the merger agreement attached asAppendix A. If either party materially violates any of its representations or warranties and fails to cure such violation, the other party may terminate the merger agreement.

Carolina Financial is responsible for filing all applications necessary to obtain any required regulatory approvals of the transactions contemplated by the merger agreement as soon as reasonably practicable after the date thereof.

Completion of the merger between Carolina Financial and Congaree is subject to the prior receipt of all consents or approvals of, or the provision of notices to, federal and state authorities required to complete the merger. The merger is subject to the provision of notice to the Federal Reserve because the merger qualifies as a “waiver transaction” under applicable Federal Reserve rules and regulations. Carolina Financial intends to file notice with the Federal Reserve after the FDIC has had time to review the proposed bank merger. Accordingly, as of the date of this proxy statement/prospectus, the Federal Reserve had not yet advised Carolina Financial of its non-objection to characterization of the merger as a “waiver transaction.”

Under the merger agreement, it is contemplated that Congaree State Bank will be merged with and into CresCom Bank immediately following the consummation of the merger of Congaree and Carolina Financial. The bank merger is subject to the prior approvals of the FDIC and the SCBFI. CresCom Bank filed the applications with the FDIC and with the SCBFI on , 2016. As of the date of this proxy statement/prospectus, neither the FDIC nor the SCBFI had granted its approval. FDIC approval or possible approval of the combination: (i) reflects only the view that the transaction does not contravene applicable competitive standards imposed by law and is consistent with regulatory policies relating to safety and soundness; (ii) is not an opinion that the proposed combination is financially favorable to the shareholders or that the FDIC has considered the adequacy of the terms of the transaction; and (iii) is not an endorsement of, or recommendation for, the combination.

To the extent permitted by law, Congaree and Carolina Financial, with the approval of their respective boards of directors, may amend the merger agreement by written agreement at any time without the approval of Congaree shareholders or Carolina Financial shareholders. However, after the approval of the merger by Congaree shareholders, no amendment may decrease or modify the consideration to be received without the further approval of Congaree shareholders.

Prior to or at the effective time of the merger, either Congaree or Carolina Financial may waive any default in the performance of any term of the merger agreement by the other party, may waive or extend the time for the fulfillment by the other party of any of its obligations under the merger agreement, and may waive any of the conditions precedent to the obligations of such party under the merger agreement, except any condition that, if not satisfied, would result in the violation of an applicable law.

The merger agreement may be terminated, and the merger abandoned, at any time prior to its effective time, by mutual consent of the boards of directors of Congaree and Carolina Financial. In addition, the merger agreement may be terminated, and the merger abandoned, prior to the effective time of the merger by either Congaree or Carolina Financial if:

Carolina Financial may terminate the merger prior to the approval by the requisite vote of the Congaree shareholders if:

In this event, Congaree must pay Carolina Financial a termination fee of $750,000.

Congaree can also terminate the merger agreement if it receives an acquisition proposal from a third party that is superior to Carolina Financial’s proposal and concludes after receiving legal and financial advice that the board of directors would be in breach of its fiduciary duties if the board of directors did not accept the superior proposal; provided, however, Carolina Financial would then have the opportunity to match the superior proposal in order to proceed with the merger. In this event, Congaree must pay Carolina Financial a termination fee of $750,000.

In addition, if (i) an acquisition proposal with respect to Congaree is communicated to the shareholders, senior management, or board of directors of Congaree or any person publicly announces an intention to make an acquisition proposal with respect to Congaree after the date of the merger agreement, (ii) the merger agreement is then terminated due to a failure to obtain the Congaree shareholder vote, a material breach of the merger agreement by Congaree, or failure to close the merger by June 30, 2016, and (iii) within one year after the termination of the merger agreement, Congaree consummates an acquisition transaction or enters into an acquisition agreement, then it must pay the $750,000 termination fee to Carolina Financial.

Under the merger agreement, both parties have agreed, except as otherwise contemplated by the merger agreement or with the prior written consent of the other party, to:

In addition, Congaree has agreed, except as otherwise contemplated by the merger agreement or with the prior written consent of Carolina Financial, to:

In addition, Congaree has agreed in the merger agreement not to take certain actions relating to the operation of its business pending consummation of the merger without the prior consent of Carolina Financial. Such actions include, among others:

In addition, Congaree has agreed that neither it, nor its affiliates or representatives, will solicit an acquisition proposal (generally, a tender offer or proposal for a merger, asset acquisition, or other business combination), other than the transactions contemplated by the merger agreement. Pursuant to the merger agreement, except to the extent necessary to comply with the fiduciary duties of their board of directors, neither Congaree, nor any affiliate or representative of such party, will, prior to the shareholder vote on the merger agreement and subject to certain exceptions, furnish any non-public information that it is not legally obligated to furnish, or negotiate with respect to, or enter into any contract with respect to, any acquisition proposal. In the merger agreement, Congaree also agreed to terminate any existing negotiations with any other parties with respect to any of the foregoing and agreed to use its reasonable efforts to cause its representatives to comply with any of the foregoing.

The merger agreement provides that each party will be responsible for its own direct costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated by the merger agreement, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel.

The merger agreement provides for the payment of a $750,000 termination fee to Carolina Financial, if (i) the board of directors of Congaree withdraws, qualifies, or modifies, or proposes publicly to withdraw, quality or modify, in a manner adverse to Carolina Financial, its recommendation that the Congaree shareholders approve the merger agreement, or approves or recommends, or proposes publicly to approve or recommend an acquisition proposal by any other person; (ii) the board of directors of Congaree fails to reaffirm its recommendation that the Congaree shareholders approve the merger agreement within 10 business days after Carolina Financial requests such reaffirmation at any time following the public announcement of an acquisition proposal by any other person; or (iii) Congaree fails to comply in all material aspects with Section 7.1 (Shareholder Approvals) or 7.3 (Other Offers, etc.) of the merger agreement regarding obtaining shareholder approval for the merger agreement and solicitation of other offers for an acquisition of Congaree. In addition, Congaree must pay Carolina Financial the $750,000 termination fee to Carolina Financial if it terminates the merger agreement following receipt of an acquisition proposal from a third party that is superior to Carolina Financial’s proposal and concludes after receiving legal and financial advice that the board of directors would be in breach of its fiduciary duties if the board of directors did not accept the superior proposal. Also, if (i) an acquisition proposal with respect to Congaree is communicated to the shareholders, senior management, or board of directors of Congaree or any person publicly announces an intention to make an acquisition proposal with respect to Congaree after the date of the merger agreement, (ii) the merger agreement is then terminated due to a failure to obtain the Congaree shareholder vote, a material breach of the merger agreement by Congaree, or failure to close the merger by June 30, 2016, and (iii) within one year after the termination of the merger agreement, Congaree consummates an acquisition transaction or enters into an acquisition agreement, then it must pay the $750,000 termination fee to Carolina Financial.

The merger will be accounted for under the acquisition method of accounting within generally accepted accounting principles. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Congaree as of the effective date of the merger will be recorded at their respective fair values and added to those of Carolina Financial. Any excess of purchase price over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Financial statements of Carolina Financial issued after the merger will reflect these fair values and will not be restated retroactively to reflect the historical financial position or results of operations of Congaree before the effective date of the merger.

At the effective time of the merger, holders of Congaree common stock who elect to receive Carolina Financial common stock as merger consideration, or who otherwise receive Carolina Financial common stock due to the proration of their cash merger consideration election as described elsewhere in this proxy statement/prospectus, will become holders of Carolina Financial common stock. The following is a summary of the material differences between the rights of holders of Carolina Financial common stock and the rights of holders of Congaree common stock. Since Carolina Financial is organized under the laws of the State of Delaware and Congaree is organized under the laws of the State of South Carolina, differences in the rights of holders of Carolina Financial common stock and those of holders of Congaree common stock arise from differing provisions of the Delaware General Corporation Law (“DGCL”) and the South Carolina Business Corporation Act (“SCBCA”), in addition to differing provisions of their respective certificate or articles of incorporation and bylaws.

This summary does not purport to be a complete description of the provisions affecting and differences between the rights of Carolina Financial shareholders and Congaree shareholders. The identification of specific provisions or differences is not meant to indicate that other equally or more significant differences do not exist. This summary is qualified in its entirety by reference to the DGCL and the SCBCA and to the governing corporate documents of Carolina Financial and Congaree, to which the shareholders of Congaree are referred.

Carolina Financial is authorized to issue 16,000,000 shares of capital stock, consisting of 1,000,000 shares of preferred stock, par value $0.01 per share, of which no shares were issued and outstanding as of February 9, 2016, and 15,000,000 shares of common stock, par value $0.01 per share, of which 12,043,115 shares were issued and outstanding as of February 9, 2016, and of which 79,085 shares are reserved for issuance pursuant to outstanding Carolina Financial options. Carolina Financial’s stockholders do not have preemptive rights. All of the issued and outstanding shares of common stock of Carolina Financial are duly and validly issued and outstanding and are fully paid and non-assessable.

Congaree is authorized to issue (a) 10,000,000 shares of voting common stock, par value $0.01 per share, of which 1,765,939 shares were issued and outstanding as of January 29, 2016, and of which 173,437 shares are reserved for issuance pursuant to outstanding Congaree options and 80,000 are reserved for issuance pursuant to outstanding Congaree warrants, and (b) 10,000,000 shares of preferred stock, par value $0.01 per share, of which 3,285 shares are designated as “Fixed Rate Cumulative Perpetual Preferred Stock, Series A” and 1400 shares were issued and outstanding as of January 29, 2016, and of which 164 shares are designated as “Fixed Rate Cumulative Perpetual Preferred Stock, Series B” and 164 shares were issued and outstanding as of January 29, 2016. Congaree’s shareholders do not have preemptive tights. All of the issued and outstanding shares of common stock of Congaree are duly and validly issued and outstanding and are fully paid and non-assessable.

Carolina Financial’s restated certificate of incorporation provides that the number of directors shall be fixed from time to time exclusively by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directorships (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the board for adoption) (the “Whole Board”). Carolina Financial’s board of directors is currently comprised of 13 persons, and following the merger, the board of directors will continue to be comprised of 13 persons.

Congaree’s bylaws provide that the number of directors of Congaree is that number fixed from time to time by resolution of the board of directors, but in no event shall the number be less than five or greater than 25. The number of directors can be increased or decreased within the foregoing range at any time by the board of directors. The Congaree board of directors currently has 10 members.

Carolina Financial’s restated certificate of incorporation divides the board of directors into three classes with staggered terms so that the terms of only approximately one-third of the board members expire at each annual meeting. Each director serves for a three year term ending on the date of the third annual meeting following the meeting at which such director was elected with each director to hold office until his or her successor shall have been duly elected and qualified.

Congaree’s articles of incorporation provide that, at any time that the board has six or more members, the board will be divided into three classes, with each class accounting for one-third of the total number of directors. Directors are elected for a term of three years to succeed those whose terms expire.

Carolina Financial’s bylaws provide that all elections of directors shall be determined by a plurality of the votes cast at each annual meeting, with the nominees receiving the highest number of votes being elected as directors.

Congaree’s bylaws provide that directors are elected by a plurality of vote of the shareholders. The nominees receiving the highest number of votes are elected as directors.

Carolina Financial’s restated certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock then outstanding, any director or the entire board of directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all the then-outstanding shares of capital stock entitled to vote generally in the election of directors after giving effect to the voting limit described above), voting together as a single class.

Congaree’s bylaws provide that directors may be removed with or without cause by the affirmative vote of the holders of at least a majority of the shares entitled to vote at an election of directors, such vote being taken at a meeting of the shareholders called for that purpose at which a quorum is present.

Carolina Financial’s restated certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires.

Congaree’s bylaws provide that a vacancy occurring in the board of directors (including a vacancy resulting from an increase in the authorized number of directors, or from the failure of the shareholders to elect the full number of authorized directors) may be filled for the unexpired term, unless the shareholders have elected a successor, by a majority vote of the remaining directors. Shareholders have the right to fill a vacancy at any special meeting called for that purpose prior to action by the board of directors. A vacancy in the board of directors may result from the death, resignation, or removal of any director, or the board of directors may declare vacant the office of a director if (i) the director is declared incompetent, (ii) an action is filed by or against the director, or any entity of which the director is employed as his principal business activity, under the bankruptcy laws of the United States, (iii) in the sole opinion of the board of directors, the director becomes incapacitated by illness or other infirmity so that the director is unable to perform his duties for a period of six months or longer, (iv) he participates in a willful or a grossly negligent act, or the willful or grossly negligent omission to act by him, including but not limited to any crime involving dishonesty, moral turpitude or fraud that is reasonably likely to cause material harm to the company (including harm to its business reputation), or (v) the director ceases at any time to have the qualifications required by law, the articles of incorporation or these bylaws.

Carolina Financial’s restated certificate of incorporation provides that advance notice of stockholder nominations for the election of directors shall be given in the manner as provided in the bylaws.

Carolina Financial’s bylaws provide that nominations of persons for election to the board of directors may be made at a meeting of stockholders at which directors are to be elected only: (i) by or at the direction of the board of directors or; (ii) by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in the bylaws. Such nominations, other than those made by or at the direction of the board of directors, shall be made by timely notice in writing to the secretary of the corporation. To be timely, a stockholder’s notice shall be delivered or mailed to and received at the principal executive offices of the corporation not less than 90 days prior to the date of the meeting., provided, however, that in the event that less than 100 days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice must set forth: (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving notice of (x) the name and address, as they appear on the corporation’s books, of such stockholder and (y) the class and number of shares of the corporation’s capital stock that are beneficially owned by such stockholder. At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with advance notice provisions. The officer of the corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall declare to the meeting and the defective nomination shall be disregarded.

Congaree’s bylaws provide that nominations of persons to serve as directors of Congaree, other than those made by or on behalf of the board of directors, must be made in writing and shall be delivered either by personal delivery or by United States mail, postage prepaid, return receipt requested, to the Congaree’s corporate secretary no later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting; and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each notice shall set forth: (i) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the shareholder is a holder of record of stock of Congaree entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission relating to the election of directors; and (v) the consent of each nominee to serve as a director of Congaree if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. The chairman of any such meeting, for good cause shown and with proper regard for the orderly conduct of business at the meeting, may waive in whole or in part these requirements.

Notwithstanding the above, if Congaree or any banking subsidiary of Congaree is subject to the requirements of Section 914 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, then no person may be nominated by a shareholder for election as a director at any meeting of shareholders unless the shareholder furnishes the written notice required as described above to Congaree’s corporate secretary at least 90 days prior to the date of the meeting and the nominee has received regulatory approval to serve as a director prior to the date of the meeting.

Carolina Financial’s restated certificate of incorporation provides that stockholder action by written consent in lieu of a meeting is permitted only if such consent is unanimous.

Under the SCBCA, action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if the action is taken by all shareholders entitled to vote on the action. The action must be evidenced by one or more written consents bearing the date of signature and describing the action taken, signed by shareholders entitled to take action without a meeting, and delivered to the company for inclusion in the minutes or filing with the corporate records. Congaree must provide shareholders with written notice of actions taken without a meeting as required by the SCBCA.

Carolina Financial’s restated certificate of incorporation and bylaws provide that, subject to the rights of the holders of any class or series of preferred stock of the corporation, special meetings of stockholders of the corporation may be called only by the board of directors pursuant to a resolution adopted by a majority of the Whole Board or as otherwise provided in the bylaws.

Congaree’s bylaws provide that special meetings of shareholders may be called at any time by the chief executive officer, the chairman or the vice chairman of the board of directors, or a majority of the board of directors and must be called if the holders of at least 10% of the voting power of the then-outstanding securities sign, date and deliver to the secretary of Congaree a written demand for the meeting. The written demand must be delivered to the secretary by certified mail, return receipt requested, sent to the secretary of Congaree, and set forth as to each matter the shareholders propose to be presented at the special meeting (i) a description of the purpose or purposes for which the meeting is to be held (including the specific proposal(s) to be presented); (ii) the name and record address of the shareholders proposing such business; (iii) the class and number of shares of Congaree that are owned of record by the shareholders as of a date within 10 days of the delivery of the demand; (iv) the class and number of shares of Congaree that are held beneficially by the shareholders as of a date within 10 days of the delivery of the demand; and (v) any interest of the shareholders in such business. Any such special shareholders’ meeting shall be held at a location designated by the board of directors. The board of directors may set such rules for any such meeting as it may deem appropriate, including when the meeting will be held (subject to any requirements of the SCBCA), the agenda for the meeting (which may include any proposals made by the board of directors), who may attend the meeting in addition to shareholders of record and other such matters.

Carolina Financial’s restated certificate of incorporation provides that Carolina Financial shall indemnify and hold harmless, to the fullest extent provided by the DGCL, all directors and officers of the corporation and any person who, at the corporation’s request, is or was serving as director, officer, employee, or agent of another corporation or entity, against all expense, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection with such indemnitee’s service in the foregoing capacity, provided that the corporation shall indemnify any such indemnitee in connection with a proceeding initiated by such indemnitee only if such proceeding was authorized by the board of directors of the corporation. The foregoing right to indemnification includes the right to an “advancement of expenses;” provided, however, that if the indemnitee is a director or officer of the corporation, he or she shall deliver an undertaking to the corporation to repay all amount so advanced if it is ultimately determined by final adjudication that such indemnitee is not entitled to indemnification. The corporation may, as authorized by the board of directors, grant the rights to indemnification and to the advancement of expenses to any employee or agent of the corporation.

Congaree’s bylaws provide that Congaree shall indemnify and hold harmless, to the fullest extent permitted by application law, any person who or is party, or is threatened to be made a party to, any proceeding because he or she is or was a director, officer, agent or employee of Congaree, against any liability incurred with respect to a proceeding, if (i) the director conducted himself in good faith, (ii) the director reasonably believed (A) in the case of conduct in the director’s official capacity with Congaree, that the director’s conduct was in its best interest, and (B) in all other cases, that the director’s conduct was at least not opposed to its best interest, and (iii) in the case of any criminal proceeding, the director had no reasonable cause to believe the director’s conduct was unlawful. Congaree will, to the fullest extent permitted by applicable law, pay for or reimburse the director’s reasonable expenses in advance of final disposition of the proceeding if (a) the director furnishes Congaree a written affirmation of the director’s good faith belief that the director has met the standard of conduct described above, (b) the director furnishes Congaree a written undertaking to repay the advance if it is ultimately determined that the director did not meet such standard of conduct, and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification. An officer of Congaree is also entitled to the same indemnification and advancement of expenses rights, and the board of directors has the power to cause Congaree to indemnify and advance expenses to any officer, employee, or agent of Congaree.

Carolina Financial’s restated certificate of incorporation provides that a director of Carolina Financial shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL for unlawful distributions, or (iv) for any transaction from which the director derived an improper personal benefit.

Congaree’s articles of incorporation provide that no director shall be personally liable to Congaree or its shareholders for monetary damages for a breach of the duty of care or any other duty as a director, except that such liability shall not be eliminated for (i) any breach of the director’s duty of loyalty to Congaree or its shareholders, (ii) acts or omissions not in good faith or which involve gross negligence, intentional misconduct, or a knowing violation of law, (iii) liability under Section 33-8-330 of the SCBCA for unlawful distributions, and (iv) any transaction from which the director received an improper personal benefit.

The DGCL provides that a Delaware corporation’s certificate of incorporation generally may be amended only upon approval by (i) a majority of the outstanding stock entitled to vote on the amendment, and (ii) a majority of the outstanding stock of each class entitled to vote on the amendment as a class. Carolina Financial’s restated certificate of incorporation also provides that the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors (after giving effect to the provisions of voting limit described above), voting together as a single class, shall be required to amend or repeal Article TWELFTH (amendment of the certificate of incorporation), Section C of Article FOURTH (voting limit), Sections C or D of Article FIFTH (stockholder meetings), Article SIXTH (directors), Article SEVENTH (amendment of the bylaws), Article EIGHTH (business combinations with interested stockholders), or Article TENTH (indemnification).

The SCBCA provides that a South Carolina corporation’s articles of incorporation may be amended by (1) two-thirds of the votes entitled to be cast on the amendment, regardless of the class or voting group to which the shares belong, and (2) two-thirds of the votes entitled to be cast on the amendment within each voting group entitled to vote as a separate voting group on the amendment, unless the SCBCA, the articles of incorporation, or the board of directors acting pursuant to its authority to condition the effectiveness of a proposed amendment require a greater vote or a vote by voting groups.

Carolina Financial’s restated certificate of incorporation provides that the board of directors shall have the concurrent power with the stockholders to adopt, amend, or repeal the bylaws of Carolina Financial. The board of directors may amend the bylaws upon the affirmative vote of a majority of the directors of the Whole Board. The stockholders may amend the bylaws only upon the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors (after giving effect to the provisions of voting limit described above), voting together as a single class, in addition to any vote of the holders of any class or series of stock of the corporation required by law or otherwise under the restated certificate of incorporation.

Congaree’s bylaws provide that the board of directors may alter, amend, or repeal the bylaws or adopt new bylaws at any meeting of the board of directors at which a quorum is present by the affirmative vote of a majority of the directors then in office. The bylaws also provide the shareholders may alter, amend, or repeal the bylaws or adopt new bylaws at any meeting of the shareholders at which a quorum is present by the affirmative vote of the holders of a majority of each class of shares entitled to vote thereon. Upon adoption of any new bylaw by the shareholders, the shareholders may provide expressly that the board of directors may not adopt, amend or repeal that bylaw or any bylaw on that subject.

Section 35-2-101 et seq. of the SCBCA contains a control share acquisition statute that, in general terms, provides that where a shareholder acquires issued and outstanding shares of a corporation’s voting stock (referred to as control shares) within one of several specified ranges (one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority or more), approval of the control share acquisition by the corporation’s shareholders must be obtained before the acquiring shareholder may vote the control shares. The required shareholder vote is a majority of all votes entitled to be cast, excluding “interested shares,” defined as shares held by the acquiring person, officers of the corporation and employees who are also directors of the corporation. A corporation may, however, opt-out of the control share statute through a charter or bylaw provision. Congaree has specifically opted out of coverage of the control share acquisition provisions of South Carolina law, and therefore, the SCBCA control share acquisition statute does not apply to acquisitions of shares of Congaree common stock.

Carolina Financial’s restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of the voting power of all the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a separate class, to approve certain business combinations involving an interested stockholder, except in the case of any business combination that does not involve any cash or other consideration being received by the stockholders of the Company solely in their capacity as stockholders of the Company, where the business combination has been approved a majority of the disinterested directors, or in the case of any other business combination, where the business combination has been approved by a majority of the disinterested directors or certain conditions with respect to the consideration to be received by some or all of the Company’s stockholders are satisfied.

Section 35-2-201, et seq. of the SCBCA prohibits specified “business combinations” with “interested shareholders” unless certain conditions are satisfied. The act defines an “interested shareholder” as any person (other than the corporation or any of its subsidiaries) that (i) beneficially owns 10% or more of the corporation’s outstanding voting shares or (ii) at any time within the preceding two-year period beneficially owned 10% of the voting power of the corporation’s outstanding shares and is an affiliate or associate of the corporation.

Covered business combinations with interested shareholders or an affiliate or associate of an interested shareholder include, among other transactions:

Covered business combinations are prohibited for two years after an interested shareholder becomes interested unless a majority of the disinterested members of the board of directors of the corporation approved of the business combination before the interested party became interested. Congaree is subject to the business combination provisions of South Carolina law.

The dissenters’ rights of Carolina Financial shareholders are governed in accordance with the DGCL. Under the DGCL, a stockholder of a Delaware corporation generally has appraisal rights in connection with certain mergers or consolidations in which the corporation is participating, subject to specified procedural requirements. The DGCL does not confer appraisal rights, however, if the corporation’s stock is either (1) listed on a national securities exchange, or (2) held of record by more than 2,000 holders. Even if a corporation’s stock meets these requirements, the DGCL still provides appraisal rights if stockholders of the corporation are required to accept for their stock in certain mergers or consolidations anything other than:

The dissenters’ rights of Congaree shareholders are governed in accordance with the SCBCA. Under South Carolina law, holders of Congaree common stock will be entitled to dissent from the merger and to obtain payment in cash of the fair value of his or her shares of Congaree common stock. A record holder of Congaree common stock who wishes to assert dissenters’ rights (i) must deliver to Congaree before the vote is taken on the merger agreement written notice of his intent to demand payment for his shares if the merger is effectuated, and (ii) must not vote his shares in favor of the merger agreement. A vote in favor of the merger agreement case by the holder of a proxy solicited by Congaree shall not disqualify a shareholder from demanding payment for his shares. A shareholder who does not satisfy these requirements is not entitled to payment for his shares under the applicable South Carolina statutes.

If the merger is authorized at the Congaree shareholders’ meeting, Congaree will deliver, no later than 10 days after the shareholders’ meeting, a written dissenters’ notice to all Congaree shareholders who satisfied the two requirements set forth above. The written dissenters’ notice will state where the payment demand must be sent and where stock certificates must be deposited, will inform holders of uncertificated shares to what extent transfer of the shares is to be restricted after the payment demand is received, will supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed merger and requires that the person asserting dissenters’ rights certify whether or not he or, if he is a nominee asserting dissenters’ rights on behalf of a beneficial shareholder, the beneficial shareholder acquired beneficial ownership of the shares before that date, will set a date by which Congaree must receive the payment demand, which date will not be less than 30 or more than 60 days after the written dissenters’ notice is delivered, will set a date by which certificates for certificated shares must be deposited, which date will not be earlier than 20 days after the demand date, and will be accompanied by a copy of the applicable South Carolina statutes. A shareholder sent a dissenters’ notice must demand payment, certify whether he (or the beneficial shareholder on whose behalf he is asserting dissenters’ rights) acquired the beneficial ownership of the shares before the date set forth in the dissenters’ notice, and deposit his certificates in accordance with the terms of the notice. A dissenting shareholder who does not comply substantially with the requirements that he demand payment and deposit his or her share certificates where required, each by the date set in the dissenters’ notice, is not be entitled to payment for his or her shares under the applicable South Carolina statutes.

Section 951 of the Dodd-Frank Act and Rule 14a-21(c) under the Exchange Act require that Congaree seek a non-binding advisory vote from its shareholders to approve certain compensation that its named executive officers will receive from Congaree and Congaree State Bank in connection with the merger. Congaree is presenting this proposal, which gives Congaree shareholders the opportunity to express their views on such merger-related compensation by voting for or against the following resolution:

“RESOLVED, that the compensation that may become payable to Congaree’s named executive officers by Congaree and Congaree State Bank in connection with the completion of the merger, as disclosed in the section captioned “Proposal No. 1 — The Plan of Merger — Interests of Executive Officers, Employees and Directors of Congaree in the Merger” and the related tables and narrative, is hereby approved.”

The proposal to approve the compensation that will become payable to Congaree’s named executive officers in connection with the merger is advisory and non-binding on Congaree, Carolina Financial and their respective boards of directors, and is not a condition to completion of the merger. Therefore, if the merger is approved by the Congaree shareholders and completed, the merger-related compensation will be paid whether or not Congaree’s shareholders vote to approve the compensation.

If the votes cast in favor of the proposal exceed the votes cast against the proposal, the proposal will be deemed to have been approved by Congaree’s shareholders, though, as noted above, it will not be binding on Congaree, Carolina Financial, or their respective boards of directors. Abstentions and broker non-votes will have no effect on the results.Your broker, bank or other nominee is not permitted to vote your shares with respect to this proposal without receiving instructions from you.

The Congaree board of directors unanimously recommends that shareholders approve the merger-related compensation arrangements described in this document by voting “FOR” the above proposal. Proxies solicited by Congaree’s board of directors will be voted“FOR” this proposal unless otherwise instructed on the proxy card.

At the special shareholders’ meeting, Congaree shareholdersare being asked to consider and vote on a proposal to authorize management to adjourn the meeting to allow time for further solicitation of proxies if there are insufficient votes present at the meeting, in person or by proxy, to approve the merger agreement.

Congaree’s board of directors recommends that Congaree shareholders vote “FOR” the proposal to authorize management to adjourn the special meeting to allow time for the further solicitation of proxies to approve the merger agreement.

Financial and other information about Carolina Financial is set forth on Carolina Financial’s Form 10-K for the year ended December 31, 2014, which includes certain provisions of Carolina Financial’s proxy statement for its 2015 annual meeting, and the Forms 10-Q for the quarters ended March 31, June 30, and September 30, 2015, which are incorporated herein by reference.

Carolina Financial’s certificate of incorporation authorizes it to issue up to 15,000,000 shares of common stock, $0.01 par value per share, and 1,000,000 shares of preferred stock, $0.01 par value per share. As of February 9, 2016, Carolina Financial had 12,043,115 shares of common stock and no shares of preferred stock issued and outstanding. Please refer to Carolina Financial’s certificate of incorporation for more detailed information.

The description of Carolina Financial’s capital stock below is qualified in its entirety by reference to its restated certificate of incorporation.

General. Each share of common stock has the same relative rights as, and is identical in all respects to, each other share of common stock. All outstanding shares of our common stock are fully paid and nonassessable. Carolina Financial’s common stock is listed on the NASDAQ Capital Market under the symbol “CARO”.

Voting Rights. Each outstanding share of Carolina Financial’s common stock entitles the holder to one vote on all matters submitted to a vote of common stockholders, including the election of directors. The holders of Carolina Financial’s common stock possess exclusive voting power, except as otherwise provided by law or by a certificate of amendment establishing any series of our preferred stock.

There is no cumulative voting in the election of directors. The holders of a majority of the votes cast by Carolina Financial’s common stockholders can elect all of the directors then standing for election by the common stockholders. When a quorum is present at any meeting, questions brought before the meeting will be decided by the vote of the holders of a majority of the shares present and voting on such matter, whether in person or its restated proxy, except when the meeting concerns matters requiring the vote of a greater number of affirmative votes under applicable DGCL or our certificate of incorporation. Carolina Financial’s restated certificate of incorporation contains certain provisions that may limit stockholders’ ability to effect a change in control as described under the section below entitled “Anti-Takeover Effects of Certain Certificate of Incorporation Provisions.”

Dividends, Liquidation and Other Rights. Holders of shares of Carolina Financial’s common stock are entitled to receive dividends only when, as and if approved by its board of directors from funds legally available for the payment of dividends. Carolina Financial’s ability to pay dividends will be dependent on its earnings and financial conditions and subject to certain restrictions imposed by state and federal laws.

Carolina Financial’s stockholders are entitled to share ratably in its assets legally available for distribution to stockholders in the event of liquidation, dissolution or winding up, voluntarily or involuntarily, after payment of, or adequate provision for, all of known debts and liabilities. These rights are subject to the preferential rights of any series of preferred stock that may then be outstanding.

Holders of shares of Carolina Financial’s common stock have no preference, conversion, exchange, sinking fund or redemption rights and have no preemptive rights to subscribe for any of its securities. All outstanding shares of Carolina Financial’s common stock are fully paid, nonassessable, and noncallable.

Certain Ownership Restrictions. Carolina Financial is a bank holding company. A holder of common stock (or group of holders acting in concert) that (i) directly or indirectly owns, controls or has the power to vote more than 5% of the total voting power of Carolina Financial, (ii) directly or indirectly owns, controls or has the power to vote 10% or more of any class of voting securities of Carolina Financial, (iii) directly or indirectly owns, controls or has the power to vote 25% or more of the total equity of Carolina Financial, or (iv) is otherwise deemed to “control” Carolina Financial under applicable regulatory standards may be subject to important restrictions, such as prior regulatory notice or approval requirements.

Carolina Financial’s board of directors is authorized, without stockholder approval and subject to any limitations prescribed by law, to provide for the issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations, or restrictions thereof. Accordingly, Carolina Financial’s board of directors, without stockholder approval, may authorize the issuance of one or more series of preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of common stock and, under certain circumstances, discourage an attempt by others to gain control of Carolina Financial. The creation and issuance of any additional series of preferred stock, and the relative rights, designations, and preferences of each such series, if and when established, will depend on, among other things, future capital needs, then existing market conditions, and other factors that, in the judgment of Carolina Financial’s board of directors, might warrant the issuance of preferred stock.

The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the common stock, without a vote of the holders of the preferred stock, or of any series thereof, unless a vote of any such holders is required by the terms of any preferred stock designation.

General.Carolina Financial’s restated certificate of incorporation and bylaws, as well as the DGCL, contain certain provisions designed to enhance the ability of Carolina Financial’s board of directors to deal with attempts to acquire control of the company. These provisions may be deemed to have an anti-takeover effect and may discourage takeover attempts which have not been approved by the board of directors (including takeovers which certain stockholders may deem to be in their best interest). This summary does not purport to be complete and is qualified in its entirety by reference to the laws and documents referenced. With respect to Carolina Financial’s charter documents, while such provisions might be deemed to have some “anti-takeover” effect, the principal effect of these provisions is to protect stockholders generally and to provide the board and stockholders a reasonable opportunity to evaluate and respond to such unsolicited acquisition proposals.

Authorized but Unissued Stock. The authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future private or public offerings to raise additional capital, corporate acquisitions, and employee benefit plans. The existence of authorized but unissued and unreserved shares of common stock and preferred stock may enable the board of directors to issue shares to persons friendly to current management, which could render more difficult or discourage any attempt to obtain control of Carolina Financial by means such as a proxy contest, tender offer, or merger, and thereby protect the continuity of the company’s management.

Number and Classification of Directors, Carolina Financial’s restated certificate of incorporation and bylaws provide that the number of directors shall be fixed from time to time exclusively by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directorships (whether or not there exist any vacancies in previously authorized directorships at the time any such resolutions is presented to the board), except that in the absence of any such designation, the number shall be 14. The board of directors is divided into three classes so that each director serves for a term expiring at the third succeeding annual meeting of stockholders after their election with each director to hold office until his or her successor is duly elected and qualified. The classification of directors, together with the provisions in Carolina Financial’s restated certificate of incorporation and bylaws described below that limit the ability of stockholders to remove directors and that permit the remaining directors to fill any vacancies on the board of directors, have the effect of making it more difficult for stockholders to change the composition of the board of directors. As a result, at least two annual meetings of stockholders may be required for the stockholders to change a majority of the directors, whether or not a change in the board of directors would be beneficial and whether or not a majority of stockholders believe that such a change would be desirable, and three meetings, rather than one, would be required to replace the entire board.

Removal of Directors and Filling Vacancies, Carolina Financial’s restated certificate of incorporation provides that any director, or the entire board of directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a separate class. Carolina Financial’s restated bylaws provide that all vacancies on the board may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director’s successor shall have been duly elected and qualified.

Advance Notice Requirements for Stockholder Proposals. Carolina Financial’s restated bylaws establish advance notice procedures with regard to stockholder nominations for the election of directors and for business to be brought by stockholders for any meeting of the stockholders of the company. For stockholder nominations, written notice generally must be received by the company not less than 90 days prior to the meeting and must set forth certain information regarding the person such stockholder proposes to nominate for election and regarding the stockholder himself. For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action, and the stockholder must have given timely notice in writing to the secretary of the company, which means that, generally, it must be received by the company not less than 90 days prior to the date of the meeting. The notice must also set forth a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, as well as certain information regarding the stockholder. Carolina Financial may reject a stockholder proposal that is not made in accordance with such procedures.

Stockholder Vote Required to Approve Business Combinations with Interested Stockholders.Carolina Financial’s restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of the voting power of all the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a separate class, to approve certain business combinations involving an interested stockholder, except in the case of any business combination that does not involve any cash or other consideration being received by the stockholders of the company solely in their capacity as stockholders of the company, where the business combination has been approved a majority of the disinterested directors, or in the case of any other business combination, where the business combination has been approved by a majority of the disinterested directors or certain conditions with respect to the consideration to be received by some or all of the company’s stockholders are satisfied.

Factors to be Considered in Certain Transactions. Carolina Financial’s restated certificate of incorporation grants the board of directors the discretion, when considering whether a proposed merger or similar transaction is in the best interests of the company and our stockholders, to give due consideration to all relevant factors, including, without limitation, the social and economic effect of acceptance of such offer on the company’s present and future customers and employees and those of its subsidiaries, the communities in which the company and its subsidiaries operate or are located, the ability of the company to fulfill its corporate objectives as a bank holding company, and on the ability of CresCom Bank to fulfill the objectives of a bank under applicable statutes and regulations.

The following table shows how many shares of common stock in Carolina Financial are owned by the directors, the named executive officers, owners of more than 5% of the outstanding common stock, and all directors and executive officers as a group as of February 9, 2016. Unless otherwise indicated, the mailing address for each beneficial owner is care of Carolina Financial Corporation, 288 Meeting Street, Charleston, South Carolina 29401.

In this section, Congaree is referred to as “Congaree”, “we” and “our” and Congaree State Bank is referred to as “Congaree State Bank” or the “Bank”.

Congaree is a South Carolina corporation organized in November 2005 to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956 and to own and control all of the capital stock of Congaree State Bank. Congaree State Bank opened for business on October 16, 2006. Congaree State Bank currently maintains a main office located at 1201 Knox Abbott Drive, Cayce, South Carolina and a second office located at 2023 Sunset Boulevard, West Columbia, South Carolina.

Our assets consist primarily of our investment in the Bank and liquid investments. Our primary activities are conducted through the Congaree State Bank. At September 30, 2015, Congaree had total consolidated assets of approximately $116.7 million, total consolidated deposits of approximately $95.8 million, total consolidated net loans of approximately $80.5 million, and consolidated shareholders’ equity of approximately $13.6 million.

Our net income is dependent primarily on our net interest income, which is the difference between the interest income earned on loans, investments, and other interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. To a lesser extent, our net income also is affected by our noninterest income derived principally from service charges and fees and income from the sale and/or servicing of financial assets such as loans and investments, as well as the level of noninterest expenses such as salaries, employee benefits and occupancy costs.

Our operations are significantly affected by prevailing economic conditions, competition, and the monetary, fiscal, and regulatory policies of governmental agencies. Lending activities are influenced by a number of factors, including the general credit needs of individuals and small and medium-sized businesses in our market areas, competition among lenders, the level of interest rates, and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily the rates paid on competing investments, account maturities, and the levels of personal income and savings in our market areas.

Congaree State Bank is a locally-owned and operated bank organized to serve consumers and small- to medium-sized businesses and professional concerns. A primary reason for operating Congaree State Bank lies in our belief that a community-based bank with a personal focus can better identify and serve local relationship banking needs than can a branch or subsidiary of larger outside banking organizations. We believe that we can be successful by offering a higher level of customer service and a management team more focused on the needs of the community than most of our competitors. We believe that this approach is enthusiastically supported by the community. Our foundation is to remain true to our values.

Our principal executive offices consist of approximately 4,100 square feet of space at 1201 Knox Abbot Drive, Cayce, South Carolina, which we had previously owned prior to entering into a sale-leaseback transaction in 2010 and subsequently repurchased during 2013. We have a leased branch located at 2023 Sunset Boulevard, West Columbia, South Carolina. We believe these premises will be adequate for present and anticipated needs and that we have adequate insurance to cover our premises. We believe that upon expiration of the lease we will be able to extend the lease on satisfactory terms or relocate to another acceptable location.

Our primary service area consists of Lexington and Richland Counties, South Carolina, with a primary focus on an area within a 15 mile radius of our main office in West Columbia, South Carolina. Our Sunset office is located in West Columbia on a major artery that connects Columbia with Lexington. The office is located approximately one mile east of the Lexington Medical Center and provides excellent visibility for Congaree State Bank.

Congaree State Bank is primarily engaged in the business of accepting demand and time deposits and providing commercial, consumer and mortgage loans to the general public. Deposits in Congaree State Bank are insured by the FDIC (the “FDIC”) up to the maximum amount allowed by law. Other services which Congaree State Bank offers include online banking, commercial cash management, remote deposit capture, safe deposit boxes, bank official checks, traveler’s checks, and wire transfer capabilities. All of Congaree Bank’s products and services are directly or indirectly related to the business of community banking and all activity is reported as one segment of operations. All revenue, profit and loss, and total assets are reported in one segment and represent Congaree Bank’s entire operations.

We emphasize a range of lending services, including real estate, commercial, and equity-line and consumer loans to individuals, small- to medium-sized businesses, and professional concerns that are located in or conduct a substantial portion of their business in our Bank’s primary service area. We compete for these loans with competitors who are well established in our service area and have greater resources and lending limits. As a result, we may have to charge lower interest rates to attract borrowers. At December 31, 2014, we had gross loans of $78,426,868, representing 69.5% of our total assets.

Loan Approval and Review. Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment risks by adhering to internal credit policies and procedures. The Bank’s loan approval policies provide for various levels of officer lending authority. When the amount of aggregate loans to a single borrower exceeds any individual officer’s lending authority, the loan request is considered and approved by an officer with a higher lending limit or the board of directors’ loan committee. The Bank’s lending staff and credit administration meets on a regular basis to help identify and discuss potential problem loans. The Bank does not make any loans to any related person unless the loan is approved by the board of directors of the Bank and is made on terms not more favorable to the person than would be available to a person not affiliated with the Bank. The Bank currently adheres to Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guidelines in its mortgage loan review process, but may choose to alter this policy in the future. The Bank sells residential mortgage loans that it originates in the secondary market.

Allowance for Loan Losses. We maintain an allowance for loan losses, which we establish through a provision for loan losses charged against income. We charge loans against this allowance when we believe that the collectibility of the principal is unlikely. The allowance is an estimated amount that we believe is adequate to absorb losses inherent in the loan portfolio based on evaluations of its collectability. As of December 31, 2014, our allowance for loan losses was approximately 1.28% of the average outstanding balance of our loans, based on our consideration of several factors, including regulatory guidelines, mix of our loan portfolio, and evaluations of local economic conditions as well as peer data. Over time, we will periodically determine the amount of the allowance based on our consideration of several factors, including:

Lending Limits.The Bank’s lending activities are subject to a variety of lending limits imposed by federal law. In general, the Bank is subject to a legal limit on loans to a single borrower equal to 15% of the Bank’s capital and unimpaired surplus. Different limits may apply based on the type of loan or the nature of the borrower, including the borrower’s relationship to the Bank. These limits will increase or decrease as the Bank’s capital increases or decreases. Unless the Bank is able to sell participations in its loans to other financial institutions, the Bank will not be able to meet all of the lending needs of loan customers requiring aggregate extensions of credit above these limits.

Credit Risk. The principal credit risk associated with each category of loans is the creditworthiness of the borrower. Borrower creditworthiness is affected by general economic conditions and the strength of the manufacturing, services, and retail market segments. General economic factors affecting a borrower’s ability to repay include interest, inflation, and employment rates and the strength of local and national economy, as well as other factors affecting a borrower’s customers, suppliers, and employees.

Real Estate Loans.One of the primary components of our loan portfolio is loans secured by first or second mortgages on real estate. As of December 31, 2014, loans secured by first or second mortgages on real estate made up approximately $66,810,711, or 85% of our loan portfolio. These loans will generally fall into one of two categories, commercial real estate and residential home equity lines of credit, but also include residential real estate. These categories are discussed in more detail below, including their specific risks. Interest rates for all categories may be fixed or adjustable, and will more likely be fixed for shorter-term loans. The Bank will generally charge an origination fee for each loan.

Real estate loans are subject to the same general risks as other loans. Real estate loans are also sensitive to fluctuations in the value of the real estate securing the loan. On first and second mortgage loans we typically do not advance more than regulatory limits. Loans originated which exceed supervisory guidelines are typically limited to borrowers that exhibit a capacity for repayment that exceeds bank policy. While the bank can advance funds in excess of supervisory guidelines, there are regulatory limits on those advances. The aggregate amount of all loans in excess of the supervisory loan-to-value limits should not exceed 100% of total capital. Within the aggregate limit, total loans for all commercial, agricultural, multifamily or other non-1-to-4 family residential properties should not exceed 30% of total capital. An institution will come under increased supervisory scrutiny as the total of such loans approaches these levels. As of December 31, 2014 non-1-to-4 family residential loans equaled 22.6% of total capital and all loans in excess of supervisory guidelines equaled 28.5% of total capital. We will require a valid mortgage lien on all real property loans along with a title lien policy which insures the validity and priority of the lien. We will also require borrowers to obtain hazard insurance policies and flood insurance, if applicable. Additionally, certain types of real estate loans have specific risk characteristics that vary according to the collateral type securing the loan and the terms and repayment sources for the loan.

We will have the ability to originate some real estate loans for sale into the secondary market. We can limit our interest rate and credit risk on these loans by locking the interest rate for each loan with the secondary investor and receiving the investor’s underwriting approval prior to originating the loan.

We attempt to reduce risk by obtaining personal guarantees where possible, and by keeping the loan-to-value ratio of the completed project below specified percentages. We may also reduce risk by selling participations in larger loans to other institutions when possible. At December 31, 2014, total construction, land development, and other land loans amounted to $7,973,835, or 10% of our loan portfolio.

Commercial Loans. The Bank makes loans for commercial purposes in various lines of businesses. We focus our efforts on commercial loans of less than $1,000,000. Equipment loans will typically be made for a term of five years or less at fixed or variable rates, with the loan fully amortized over the term and secured by the financed equipment. Working capital loans typically have terms not exceeding one year and are usually secured by accounts receivable, inventory, or personal guarantees of the principals of the business. For loans secured by accounts receivable or inventory, principal is typically repaid as the assets securing the loan are converted into cash, and in other cases principal is typically due at maturity. Trade letters of credit, standby letters of credit, and foreign exchange are handled through a correspondent bank as agent for the Bank. Commercial loans primarily have risk that the primary source of repayment, the borrowing business, will be unable to service the debt. Often this occurs as the result of changes in local economic conditions or in the industry in which the borrower operates which impact cash flow or collateral value.

We also offer small business loans utilizing government enhancements such as the Small Business Administration’s 7(a) and SBA’s 504 programs. These loans are typically partially guaranteed by the government which may help to reduce the Bank’s risk. Government guarantees of SBA loans will not exceed 90% of the loan value, and will generally be less. At December 31, 2014, commercial loans amounted to $10,308,132, or 13% of our loan portfolio.

Consumer Loans. The Bank makes a variety of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit such as credit cards. Installment loans typically carry balances of less than $50,000 and are amortized over periods up to 60 or more months. Consumer loans may be offered on a single maturity basis where a specific source of repayment is available. Revolving loan products typically require monthly payments of interest and a portion of the principal.

Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because the value of the secured property may depreciate rapidly, they are often dependent on the borrower’s employment status as the sole source of repayment, and some of them are unsecured. To mitigate these risks, we analyze selective underwriting criteria for each prospective borrower, which may include the borrower’s employment history, income history, credit bureau reports, and debt to income ratios. If the consumer loan is secured by property, such as an automobile loan, we also attempt to offset the risk of rapid depreciation of the collateral with a shorter loan amortization period. Despite these efforts to mitigate our risks, consumer loans have a higher rate of default than real estate loans. For this reason, we also attempt to reduce our loss exposure to these types of loans by limiting their sizes relative to other types of loans. Consumer loans which are not secured by real estate amounted to $1,308,025 or 2% of our loan portfolio.

Relative Risks of Loans. Each category of loan has a different level of credit risk. Real estate loans are generally safer than loans secured by other assets because the value of the underlying security, real estate, is generally ascertainable and does not fluctuate as much as some other assets. However, certain real estate loans are less risky than others. Residential real estate loans are generally the least risky type of real estate loan, followed by commercial real estate loans and construction and development loans. Commercial loans, which can be secured by real estate or other assets, or which can be unsecured, are generally more risky than real estate loans, but less risky than consumer loans. Finally, consumer loans, which can also be secured by real estate or other assets, or which can also be unsecured, are generally considered to be the most risky of these categories of loans. Any type of loan which is unsecured is generally more risky than secured loans. These levels of risk are general in nature, and many factors including the creditworthiness of the borrower or the particular nature of the secured asset may cause any type of loan to be more or less risky than another. Additionally, these levels of risk are limited to an analysis of credit risk, and they do not take into account other risk factors associated with making loans such as the interest rate risk inherent in long-term, fixed-rate loans.

We offer a full range of deposit services that are typically available in most banks and savings and loan associations, including checking accounts, NOW accounts, commercial accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are typically tailored to our primary service area at competitive rates. In addition, we offer certain retirement account services, including IRAs. We solicit these accounts from individuals, businesses, and other organizations.

We offer safe deposit boxes, cashier’s checks, banking by mail, direct deposit of payroll and social security checks, U.S. Savings Bonds, and traveler’s checks. The Bank is associatedwith the Intercept Switch, Pulse, Maestro, MasterCard, Cirrus and Plus ATM networks that may be used by the Bank’s customers throughout the country.We believe that, by being associated with a shared network of ATMs, we are better able to serve our customers and will be able to attract customers who are accustomed to the convenience of using ATMs.We also offer a debit card and credit card services through a correspondent bank as an agent for the Bank. We do not expect the Bank to exercise trust powers during its next few years of operation.

As of December 31, 2014, we had 22 full-time employees and five part-time employees. We believe that our relations with our employees are good.

In the ordinary course of operations, we may be a party to various legal proceedings from time to time. We are not aware of any pending or threatened proceeding against us which we expect to have a material effect on our business, results of operations, or financial condition.

Both Congaree Bancshares, Inc. and Congaree State Bank are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect depositors and not shareholders. The following summary is qualified by reference to the statutory and regulatory provisions discussed and is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on our operations. It is intended only to briefly summarize some material provisions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) impacts financial institutions in numerous ways, including:

There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. While some have been issued, many remain to be issued. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.

Basel Capital Standards. The Basel Committee on Banking Supervision, an international forum for cooperation on banking supervisory matters, promulgates capital standards for banking organizations. In July 2013, the federal bank regulatory agencies issued a final rule that will revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”) and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more (which does not include the Company) and top-tier savings and loan holding companies. The final rule became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions), and all of the requirements in the final rule will be fully phased in by January 1, 2019.

Effective January 1, 2015, the final rule requires the Bank to comply with the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the current requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from current requirement); and (iv) a leverage ratio of 4.0% of total assets. These are the initial capital requirements, which will be phased in over a five-year period. When fully phased in on January 1, 2019, the rule will require the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The final rule also revised the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.

The new capital requirements also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.

If the new minimum capital ratios described above had been effective as of December 31, 2014, based on management’s interpretation and understanding of the new rules, the Bank would have remained “well capitalized” as of such date.

Volcker Rule. Section 619 of the Dodd-Frank Act, known as the “Volcker Rule,” prohibits any bank, bank holding company, or affiliate (referred to collectively as “banking entities”) from engaging in two types of activities: “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds.” On December 10, 2013, our primary federal regulators, the Federal Reserve Board and the FDIC, together with other federal banking agencies, the SEC and the Commodity Futures Trading Commission, finalized a regulation to implement the Volcker Rule. The deadline for compliance with the Volcker Rule is July 21, 2015. At December 31, 2014, the Company has evaluated our securities portfolio and has determined that we do not hold any covered funds.

We own 100% of the outstanding capital stock of the Bank, and therefore we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the Bank Holding Company Act and its regulations promulgated thereunder. Moreover, as a bank holding company of a bank located in South Carolina, we also are subject to the South Carolina Banking and Branching Efficiency Act.

Permitted Activities. Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities:

Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

As a bank holding company, we also can elect to be treated as a “financial holding company,” which would allow us to engage in a broader array of activities. In sum, a financial holding company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, securities underwriting and dealing and making merchant banking investments in commercial and financial companies. We have not sought financial holding company status, but may elect such status in the future as our business matures. If we were to elect in writing for financial holding company status, each insured depository institution we control would have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (discussed below).

The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

Change in Control. The Bank Holding Company Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of a bank holding company. Control will be rebuttably presumed to exist if a person acquires more than 33% of the total equity of a bank or bank holding company, of which it may own, control or have the power to vote not more than 15% of any class of voting securities.

Source of Strength. There are a number of obligations and restrictions imposed by law and regulatory policy on bank holding companies with regard to their depository institution subsidiaries that are designed to minimize potential loss to depositors and to the FDIC insurance funds in the event that the depository institution becomes in danger of defaulting under its obligations to repay deposits. Under a policy of the Federal Reserve, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDIC Improvement Act”), to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

The Federal Reserve also has the authority under the Bank Holding Company Act to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal law grants federal bank regulatory authorities additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The FDIC’s claim for damages is superior to claims of shareholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or shareholder. This provision would give depositors a preference over general and subordinated creditors and shareholders in the event a receiver is appointed to distribute the assets of our bank.

Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the Bank Holding Company Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to the Bank and are described below under “Congaree State Bank—Prompt Corrective Action.” Subject to our capital requirements and certain other restrictions, we are able to borrow money to make a capital contribution to the Bank, and these loans may be repaid from dividends paid from the Bank to the Company. Our ability to pay dividends depends on the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Congaree State Bank—Dividends.” We are also able to raise capital for contribution to the Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

Dividends. Since the Company is a bank holding company, its ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. In addition, under the prompt corrective action regulations, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

In addition, since the Company is legal entity separate and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank to pay dividends to it, which is also subject to regulatory restrictions as described below in “Congaree State Bank – Dividends.”

South Carolina State Regulation. As a South Carolina bank holding company under the South Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or merger and to regulation by the South Carolina Board of Financial Institutions. We are not required to obtain the approval of the South Carolina Board of Financial Institutions prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days prior to doing so. We must receive the Board’s approval prior to engaging in the acquisition of a South Carolina state chartered bank or another South Carolina bank holding company.

The Bank operates as a state chartered bank incorporated under the laws of the State of South Carolina and is subject to examination by the South Carolina Board of Financial Institutions. Deposits in the Bank are insured by the FDIC up to a maximum amount, which is currently $250,000.

The South Carolina Board of Financial Institutions and the FDIC regulate or monitor virtually all areas of the Bank’s operations, including:

The South Carolina Board of Financial Institutions requires the Bank to maintain specified capital ratios and imposes limitations on the Bank’s aggregate investment in real estate, bank premises, and furniture and fixtures. The South Carolina Board of Financial Institutions also requires the Bank to prepare quarterly reports on the Bank’s financial condition in compliance with its minimum standards and procedures.

All insured institutions must undergo regular on site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC, their federal regulatory agency, and their state supervisor when applicable. The FDIC has developed a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or any other report of any insured depository institution. The FDIC Improvement Act also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to the following:

Prompt Corrective Action.As an insured depository institution, the Bank is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the regulations under it, which set forth five capital categories, each with specific regulatory consequences. Under current regulations, the categories are as noted below. Beginning in January 2015, however, the minimum capital levels for each prompt corrective action category will be increased pursuant to the new capital regulations adopted in July 2013, described above under “Supervision and Regulation –Basel Capital Standards.” The following is a list of the current criteria for each prompt corrective action category:

If the FDIC determines, after notice and an opportunity for hearing, that the Bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the Bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If the Bank is not well capitalized, it cannot accept brokered deposits without prior FDIC approval. Even if approved, rate restrictions apply governing the rate the bank may be permitted to pay on the brokered deposits. In addition, a bank that is undercapitalized cannot offer an effective yield in excess of 75 basis points over the “national rate” paid on deposits (including brokered deposits, if approval is granted for the bank to accept them) of comparable size and maturity. The “national rate” is defined as a simple average of rates paid by insured depository institutions and branches for which data are available and is published weekly by the FDIC. Institutions subject to the restrictions that believe they are operating in an area where the rates paid on deposits are higher than the “national rate” can use the local market to determine the prevailing rate if they seek and receive a determination from the FDIC that it is operating in a high-rate area. Regardless of the determination, institutions must use the national rate to determine conformance for all deposits outside their market area.

Moreover, if the Bank becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the FDIC. The Bank also would become subject to increased regulatory oversight, and is increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution also must provide a limited guarantee that the institution will comply with its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the Bank to become undercapitalized, it could not pay a management fee or dividend to us.

As of December 31, 2014, the Bank’s ratios were sufficient for the Bank to be considered “well-capitalized” under the regulatory framework for prompt corrective action.

As further described under “Supervision and Regulation –Basel Capital Standards,” in July 2013, the federal bank regulatory agencies issued a final rule that will revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by Basel III and certain provisions of the Dodd-Frank Act. The final rule became effective on January 1, 2015 and applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more (which does not include the Company) and top-tier savings and loan holding companies. It is management’s belief that, as of December 31, 2014, the Bank would have met all capital adequacy requirements under Basel III on a fully phased-in basis if such requirements were effective at that time.

Standards for Safety and Soundness. The Federal Deposit Insurance Act also requires the federal banking regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if the FDIC determines that the Bank fails to meet any standards prescribed by the guidelines, the agency may require the Bank to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDIC. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Insurance of Accounts and Regulation by the FDIC. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC insured institutions. It also may prohibit any FDIC insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the insurance fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the bank’s regulator an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

FDIC insured institutions are required to pay a Financing Corporation assessment to fund the interest on bonds issued to resolve thrift failures in the 1980s. The Financing Corporation quarterly assessment for the fourth quarter of 2014 equaled 1.75 basis points for each $100 of average consolidated total assets minus average tangible equity. These assessments, which may be revised based upon the level of deposits, will continue until the bonds mature in the years 2017 through 2019.

The FDIC may terminate the deposit insurance of any insured depository institution, including the bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is not aware of any practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

Transactions with Affiliates and Insiders. The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company or its non-bank subsidiaries. The Company and the Bank are subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.

Section 23A of the Federal Reserve Act places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited in amount, as to any one affiliate, to 10% of the Bank’s capital and surplus and, as to all affiliates combined, to 20% of the Bank’s capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. The Bank is forbidden from purchasing low quality assets from an affiliate.

The Dodd-Frank Act expanded the definition of affiliate for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a depository institution or its affiliates. The Dodd-Frank Act will apply Section 23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to derivative transactions, repurchase agreements and securities lending and borrowing transactions that create credit exposure to an affiliate or an insider. Any such transactions with affiliates must be fully secured. The current exemption from Section 23A for transactions with financial subsidiaries will be eliminated. The Dodd Frank Act will additionally prohibit an insured depository institution from purchasing an asset from or selling an asset to an insider unless the transaction is on market terms and, if representing more than 10% of capital, is approved in advance by the disinterested directors.

Section 23B of the Federal Reserve Act, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve decides to treat these subsidiaries as affiliates. The regulation also limits the amount of loans that can be purchased by a bank from an affiliate to not more than 100% of the bank’s capital and surplus.

The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

Branching.Under current South Carolina law, the Bank may open branch offices throughout South Carolina with the prior approval of the South Carolina Board of Financial Institutions. In addition, with prior regulatory approval, the Bank is able to acquire existing banking operations in South Carolina. Furthermore, federal legislation permits interstate branching, including out-of-state acquisitions by bank holding companies, interstate branching by banks, and interstate merging by banks. The Dodd-Frank Act removes previous state law restrictions on de novo interstate branching in states such as South Carolina. This change permits out-of-state banks to open de novo branches in states where the laws of the state where the de novo branch to be opened would permit a bank chartered by that state to open a de novo branch.

Anti-Tying Restrictions.Under amendments to the Bank Holding Company Act and Federal Reserve regulations, a bank is prohibited from engaging in certain tying or reciprocity arrangements with its customers. In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these on the condition that (i) the customer obtain or provide some additional credit, property, or services from or to the bank, the bank holding company or subsidiaries thereof or (ii) the customer may not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. Certain arrangements are permissible: a bank may offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products; and certain foreign transactions are exempt from the general rule. A bank holding company or any bank affiliate also is subject to anti-tying requirements in connection with electronic benefit transfer services.

Community Reinvestment Act. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, a financial institution’s primary regulator, which is the FDIC for the bank, shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on our Bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

The Gramm-Leach-Bliley Act (the “GLBA”) made various changes to the Community Reinvestment Act. Among other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the GLBA may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination.

Consumer Protection Regulations.Activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the:

Anti-Money Laundering.Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. The Company and the Bank are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and “knowing your customer” in their dealings with foreign financial institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and recent laws provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering obligations have been substantially strengthened as a result of the USA Patriot Act, enacted in 2001 and renewed in 2006. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications. The regulatory authorities have been active in imposing “cease and desist” orders and money penalty sanctions against institutions found to be violating these obligations.

USA PATRIOT Act.The USA PATRIOT Act became effective on October 26, 2001, amended, in part, the Bank Secrecy Act, and provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (i) requiring standards for verifying customer identification at account opening; (ii) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (iii) reports by nonfinancial trades and businesses filed with the Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; and (iv) filing suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws and regulations and requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

Under the USA PATRIOT Act, the Federal Bureau of Investigation (“FBI”) can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The Bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact the FBI.

The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S. Department of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

Privacy and Credit Reporting.Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers. It is the Bank’s policy not to disclose any personal information unless required by law.

Like other lending institutions, the Bank utilizes credit bureau data in its underwriting activities. Use of such data is regulated under the Federal Credit Reporting Act on a uniform, nationwide basis, including credit reporting, prescreening, sharing of information between affiliates, and the use of credit data. The Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) authorizes states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of the FACT Act.

Payment of Dividends. The Company’s principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends it receives from the Bank. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company. As a South Carolina chartered bank, the Bank is subject to limitations on the amount of dividends that it is permitted to pay. Unless otherwise instructed by the South Carolina Board of Financial Institutions, the Bank is generally permitted under South Carolina state banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions. Under the Federal Deposit Insurance Corporation Improvement Act, the Bank may not pay a dividend if, after paying the dividend, the Bank would be undercapitalized. The FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances.

Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

The Columbia/West Columbia/Lexington market is highly competitive, with all of the largest banks in the state, as well as super regional banks, represented. The competition among the various financial institutions is based upon a variety of factors, including interest rates offered on deposit accounts, interest rates charged on loans, credit and service charges, the quality of services rendered, the convenience of banking facilities and, in the case of loans to large commercial borrowers, relative lending limits. In addition to banks and savings associations, we compete with other financial institutions including securities firms, insurance companies, credit unions, leasing companies and finance companies. Many of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Size gives larger banks certain advantages in competing for business from large corporations. These advantages include higher lending limits and the ability to offer services in other areas of South Carolina. As a result, we do not generally attempt to compete for the banking relationships of large corporations, but concentrate our efforts on small- to medium-sized businesses and individuals. We believe we will compete effectively in this market by offering quality and personal service.

The following table shows how much common stock of Congaree is owned by the directors, the named executive officers, owners of more than 5% of the outstanding common stock, and all directors and executive officers as a group as of January 29, 2016. Unless otherwise indicated, the mailing address for each beneficial owner is care of Congaree Bancshares, Inc., 1201 Knox Abbott Drive, Cayce, South Carolina 29033.

In this section, Congaree is referred to as “Congaree”, “we” and “our” and Congaree Bank is referred to as the “Congaree” or the “Bank.”

Congaree is a South Carolina corporation organized in November 2005 to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956 and the South Carolina Bank Holding Company Act, and to own and control all of the capital stock of Congaree State Bank (the “Bank”). Congaree State Bank opened for business on October 16, 2006. Congaree State Bank currently maintains a main office located at 1201 Knox Abbott Drive, Cayce, South Carolina and a second office located at 2023 Sunset Boulevard, West Columbia, South Carolina.

The following discussion describes our results of operations for the years ended December 31, 2014 and 2013, analyzes our financial condition as of December 31, 2014 and identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in this report.

Our net income was $1,357,740 and $1,022,759 for the years ended December 31, 2014 and 2013, respectively. Net income before income tax benefit was $501,315 for the year ended December 31, 2014, a decrease of $79,797, compared to income before tax benefit of $581,112 for the year ended December 31, 2013. The reversal of the deferred tax asset valuation allowance at December 31, 2014 and 2013 contributed $856,425 and $441,647 to our net income, respectively. The decrease in net income before income taxes in 2014 resulted from a decrease of $142,907 in noninterest income and a decrease of $204,988 in net interest income. Noninterest expense decreased from $3,975,975 for the year ended December 31, 2013 to $3,754,877 for the year ended December 31, 2014. We also recorded a provision for loan losses of $358,000 and $405,000 for the years ended December 31, 2014 and 2013, respectively.

At December 31, 2014, total assets were $112,922,086 compared to $112,538,793 at December 31, 2013, for an increase of $383,293, or 0.34%. The increase in assets resulted from an increase in our loan portfolio of $464,407 in 2014. Interest-earning assets comprised approximately 91% and 92.7% of total assets at December 31, 2014 and December 31, 2013, respectively. Gross loans totaled $78,426,868 at December 31, 2014, an increase of $464,407, or 0.59%, from $77,962,461 at December 31, 2013. In addition, we transferred loans in the amount of $788,921 to other real estate owned during the year ended December 31, 2014, compared to $251,386 in the year ended December 31, 2013. Investment securities were $25,339,059 at December 31, 2014, a decrease of $2,335,358, or 8.4%, from $27,674,417 at December 31, 2013. There was no investment in overnight federal funds at December 31, 2014 and 2013.

Deposits totaled $87,958,312 at December 31, 2014, a $3,172,145, or 3.48%, decrease from $91,130,457 at December 31, 2013. Shareholders’ equity was $13,344,948 and $12,408,617 at December 31, 2014 and December 31, 2013, respectively.

Like most community banks, we derive the majority of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits, also known as net interest margin. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is referred to as net interest spread.

We have included a number of tables to assist in our description of these measures. For example, the “Average Balances, Income and Expenses, and Rates” tables show for the periods indicated the average balance for each category of our assets and liabilities, as well as the average yield we earned or the average rate we paid with respect to each category. A review of these tables show that our loans historically have provided higher interest yields than our other types of interest-earning assets, which is why we have invested a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” table helps demonstrate the impact of changing interest rates and changing volume of assets and liabilities during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included “Interest Sensitivity Analysis” tables to help explain this. Finally, we have included a number of tables that provide detail about our investment securities, our loans, our deposits and other borrowings.

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the “Loans” and “Provision and Allowance for Loan Losses” sections, we have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our clients. We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.

Like many financial institutions across the United States and in South Carolina, our operations have been adversely affected by the economic downturn beginning in the latter half of 2007. At that time, we recognized that construction, acquisition, and development real estate projects were slowing, guarantors were becoming financially stressed, and increasing credit losses were surfacing. Portfolio-wide delinquencies remained at an elevated level throughout 2013 but declined throughout 2014. Congaree State Bank’s management continues to aggressively manage the level and number of delinquent borrowers. Delinquencies were evenly distributed across portfolios and non-accruing loans were primarily concentrated in real estate loans.

As of December 31, 2014, approximately 85% of our loans had real estate as a primary or secondary component of collateral. Included in our loans secured by real estate, we have approximately $7,973,835 of construction, land development and other land loans as of December 31, 2014, most of which are on properties located within the Columbia MSA and consist primarily of loans to individuals or closely held real estate holding companies where the borrower was holding property for current and/or future personal use. Additionally, $1,631,904 of all construction, land development, and other land loans are single family residential construction loans intended for use as a primary residence.

Non-performing assets decreased during the year ended December 31, 2014. As of December 31, 2014, our non-performing assets equaled $2,595,086, or 2.29% of assets, as compared to $2,800,181, or 2.48% of assets, as of December 31, 2013. For the year ended December 31, 2014, we recorded a provision for loan losses of $358,000 and net loan charge-offs of $663,517, or 0.80% of average loans, as compared to a $405,000 provision for loan losses and net loan charge-offs of $387,742, or 0.50% of average loans, for the year ended December 31, 2013.

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in footnote 1 to our audited consolidated financial statements as of December 31, 2014, included herein. Management has discussed these critical accounting policies with the audit committee.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from management’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

We use assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reported on the financial statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the Internal Revenue Code, or assessments made by the Internal Revenue Service. We are subject to potential adverse adjustments, including, but not limited to, an increase in the statutory federal or state income tax rates, the permanent non deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets.

Our primary source of revenue is net interest income. Net interest income is the difference between income earned on interest-earning assets and interest paid on deposits and borrowings used to support such assets. The level of net interest income is determined by the balances of interest-earning assets and interest-bearing liabilities and corresponding interest rates earned and paid on those assets and liabilities, respectively. In addition to the volume of and corresponding interest rates associated with these interest-earning assets and interest-bearing liabilities, net interest income is affected by the timing of the repricing of these interest-earning assets and interest-bearing liabilities.

Net interest income was $4,181,782 for the year ended December 31, 2014, a decrease of $204,988 or 4.67% over net interest income of $4,386,770 for the year ended December 31, 2013. Interest income of $4,584,468 for the year ended December 31, 2014 included $3,915,092 on loans, $644,834 on investment securities and $24,542 on federal funds sold and nonmarketable equity securities. Loan interest and related fees decreased $274,258, or 6.55%, during 2014, due to a decrease in the loan portfolio volume and interest rates. Total interest expense of $402,686 for the year ended December 31, 2014 included $345,220 related to deposit accounts and $57,466 on federal funds purchased and FHLB borrowings. Interest expense on deposits decreased $79,062, or 18.63%, during 2014 due to the decrease in deposit rates and volume during 2014.

The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. The net amount of capitalized loan fees is amortized into interest income over the life of the loans.

Our consolidated net interest margin for the year ended December 31, 2014 was 3.99%, a decrease of twelve basis points from the net interest margin of 4.11% for the year ended December 31, 2013. The net interest margin is calculated by dividing net interest income by year-to-date average earning assets. This decrease can be attributed to the earning asset yield on loans declining due to competition. We rely on a higher volume of money market and time deposits to fund our loan portfolio and, as they mature, these deposits are being replaced at lower interest rates. Earning assets averaged $104,710,000 for the year ended December 31, 2014, decreasing from $106,710,000 for the year ended December 31, 2013. Our net interest spread was 3.91% for the year ended December 31, 2014. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. In pricing deposits, we consider our liquidity needs, the direction and levels of interest rates and local market conditions. As such, higher rates than local competitors have been paid initially to attract deposits.

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following table sets forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates had on changes in net interest income for the comparative periods presented. Changes attributed to both rate and volume, have been allocated on a pro rata basis.

We have established an allowance for loan losses through a provision for loan losses charged as a non-cash expense to our statement of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under “Provision and Allowance for Loan Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Our provision for loan losses for the year ended December 31, 2014 was $358,000, a decrease of $47,000 or 11.6% over our provision of $405,000 for the year ended December 31, 2013. The allowance as a percentage of gross loans decreased from 1.68% as of December 31, 2013 to 1.28% as of December 31, 2014 due to management’s evaluation of the adequacy of the reserve for possible loan losses given the size, mix, and quality of the current loan portfolio. Management also relies on our history of past-dues and charge-offs, as well as peer data, to determine our loan loss allowance.

Noninterest income for the year ended December 31, 2014 was $432,410 compared to $575,317 for the year ended December 31, 2013. This decrease is primarily related to a decrease in gains on sales of securities available-for-sale which totaled $71,145 for the year ended December 31, 2014, compared to $222,297 in 2013. This decrease compared to 2013 was primarily due to restructuring the investment portfolio to shorten the duration in 2014. For the year ended December 31, 2014, mortgage loan origination fees were $31,150, a decrease of $38,104, or 55.02%, from 2013, due to the decrease in the volume of mortgage loans originated.

The following table sets forth information related to our noninterest expenses for the year ended December 31, 2014 and 2013.

Noninterest expense was $3,754,877 for the year ended December 31, 2014, compared to $3,975,975 for the year ended December 31, 2013. The most significant component of noninterest expense is compensation and benefits, which totaled $1,896,824 for the year ended December 31, 2014, compared to $1,810,856 for the year ended December 31, 2013. The increase is primarily related to an increase in salaries due to employee performance. Occupancy and equipment expense of $669,519 in 2014 decreased from $832,211 in 2013 mainly due to the repurchase of the Knox Abbott property. Legal and audit fees increased from $179,851 in 2013 to $241,047 in 2014 as a result of increased legal fees related to work out of problem loans and increase in audit fees. Net cost of operations of other real estate expenses decreased from $257,643 in 2013 to $32,316 in 2014 as a result of a decrease in writedowns of real estate owned during the year. Regulatory fees and FDIC insurance decreased from $131,430 in 2013 to $124,558 in 2014, primarily due to a decrease in the asset base used by the FDIC insurance assessments base used to calculate the fees.

The Company had taxable income for the years ended December 31, 2014 and 2013. Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. Management has determined that a partial valuation allowance was needed at December 31, 2013. Management’s judgment is based on estimates concerning future income earned and historical earnings for the year ended December 31, 2014. Management has concluded that sufficient positive evidence exists to overcome any and all negative evidence in order to meet the “more likely than not” standard regarding the realization of its net deferred tax assets. Therefore, the majority of the valuation allowance was reduced by $1,142,949 in 2014 and $812,237 in 2013.

At December 31, 2014, our available for sale investment securities portfolio was $21,173,560 and represented approximately 18.7% of our total assets. Available for sale investment securities decreased $2,471,680 from $23,645,240 at December 31, 2013. Our portfolio consisted of Small Business Administration Securities of $8,700,577, mortgage-backed securities of $1,948,933, state, county and municipal investment securities of $3,129,037, U.S. government sponsored agencies of $6,596,536, and corporate bonds of $798,477.

The amortized costs and fair values of investment securities at December 31, 2014, by contractual maturity, are shown in the following chart. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Callable securities and mortgage-backed securities are included in the year of their contractual maturity date.

At December 31, 2014 and 2013, we had $3,444,699 and $3,475,977, respectively, in held to maturity investment securities portfolio.

We believe, based on industry analyst reports and credit ratings, the deterioration in fair values of individual investment securities available-for-sale is attributed to changes in market interest rates and not in the credit quality of the issuer and, therefore, these losses are not considered other-than-temporary. We have the ability and intent to hold these securities until such time as the value recovers or the securities mature.

Investment securities with market values of approximately $10,119,786 and $9,267,270 at December 31, 2014 and 2013, respectively, were pledged to secure public deposits, as required by law.

Proceeds from sales of available-for-sale securities during 2014 and 2013 were $13,568,814 and $8,509,386, respectively. Net gains of $71,145 and $222,297 were recognized on these sales in 2014 and 2013, respectively.

We held $720,800 of non-marketable equity securities, which consisted of FHLB stock of $618,800 and Pacific Coast Bankers Bank stock of $102,000, at December 31, 2014. These investments are carried at cost, which approximates fair market value.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.

Since loans typically provide higher interest yields than other interest-earning assets, it is our goal to ensure that the highest percentage of our earning assets is invested in our loan portfolio. Gross loans outstanding at December 31, 2014 were $78,426,868, or 75.5% of interest-earning assets and 69.4% of total assets, compared to $77,962,461, or 73.8% of interest-earning assets and 69.3% of total assets, at December 31, 2013. Due to the economic environment, Congaree State Bank made selective decisions related to originating loans in 2014. Loans originated in 2014 typically had debt service coverage ratios, debt to income ratios, loan to value ratios, and credit quality indicators that meet policy minimums. Management’s selectivity resulted in an increase of loan originations in for the year ended December 31, 2014. In addition, as Congaree State Bank moved into its eighth year of operations, Congaree State Bank experienced the attrition of loans due to refinancing and/or payoffs from borrowers.

Loans secured by real estate mortgages comprised approximately 85% of loans outstanding at December 31, 2014 and 86% at December 31, 2013. Most of our real estate loans are secured by residential and commercial properties. We do not generally originate traditional long term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 85%.

Commercial loans and lines of credit represented approximately 13% of our loan portfolio at December 31, 2014 and 12% at December 31, 2013.

Our construction, land development, and other land loans represented approximately 10% and 11% of our loan portfolio at December 31, 2014 and 2013, respectively.

The following table summarizes the composition of our loan portfolio as of December 31, 2014 and 2013:

The information in the following table is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

The following table summarizes the loan maturity distribution by composition and interest rate types at December 31, 2014.

We have established an allowance for loan losses through a provision for loan losses charged to expense on our consolidated statement of operations. The allowance for loan losses was $1,006,794 and $1,312,311 as of December 31, 2014 and December 31, 2013, respectively, and represented 1.28% of outstanding loans at December 31, 2014 and 1.68% of outstanding loans at December 31, 2013. The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons. We adjust the amount of the allowance periodically based on changing circumstances as a component of the provision for loan losses.

We calculate the allowance for loan losses for specific types of loans and evaluate the adequacy on an overall portfolio basis utilizing our credit grading system which we apply to each loan. We combine our estimates of the reserves needed for each component of the portfolio, including loans analyzed on a pool basis and loans analyzed individually. The allowance is divided into two portions: (1) an amount for specific allocations on significant individual credits and (2) a general reserve amount.

We analyze individual loans within the portfolio and make allocations to the allowance based on each individual loan’s specific factors and other circumstances that affect the collectability of the credit. Significant individual credits classified as doubtful or substandard/special mention within our credit grading system require both individual analysis and specific allocation, if necessary.

Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity. Loans in the doubtful category exhibit the same weaknesses found in the substandard loan; however, the weaknesses are more pronounced. These loans, however, are not yet rated as loss because certain events may occur which could salvage the debt such as injection of capital, alternative financing, or liquidation of assets.

In these situations where a loan is determined to be impaired (primarily because it is probable that all principal and interest due according to the terms of the loan agreement will not be collected as scheduled), the loan is excluded from the general reserve calculations described below and is assigned a specific reserve. These reserves are based on a thorough analysis of the most probable source of repayment which is usually the liquidation of the underlying collateral, but may also include discounted future cash flows or, in rare cases, the market value of the loan itself.

Generally, for larger collateral dependent loans, current market appraisals are ordered to estimate the current fair value of the collateral. However, in situations where a current market appraisal is not available, management uses the best available information (including recent appraisals for similar properties, communications with qualified real estate professionals, information contained in reputable trade publications and other observable market data) to estimate the current fair value. The estimated costs to sell the subject property are then deducted from the estimated fair value to arrive at the “net realizable value” of the loan and to determine the specific reserve on each impaired loan reviewed. The credit risk management group periodically reviews the fair value assigned to each impaired loan and adjusts the specific reserve accordingly.

We calculate our general reserve based on a percentage allocation for each of the effective categories of unclassified loan types. We apply our historical trend loss factors to each category and adjust these percentages for qualitative or environmental factors, as discussed below. The general estimate is then added to the specific allocations made to determine the amount of the total allowance for loan losses.

We also maintain a general reserve in our assessment of the loan loss allowance. This general reserve considers qualitative or environmental factors that are likely to cause estimated credit losses including, but not limited to, changes in delinquent loan trends, trends in risk grades and net charge offs, concentrations of credit, trends in the nature and volume of the loan portfolio, general and local economic trends, collateral valuations, the experience and depth of lending management and staff, lending policies and procedures, the quality of loan review systems, and other external factors.

In addition, the recent downturn in the real estate market has resulted in an increase in loan delinquencies, defaults and foreclosures, and we believe these trends may continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and our ability to sell the collateral upon foreclosure, and there is a risk that this trend will continue. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses. Based on present information and an ongoing evaluation, management considers the allowance for loan losses to be adequate to meet presently known and inherent losses in the loan portfolio. Management’s judgment about the adequacy of the allowance is based upon a number of assumptions about future events which it believes to be reasonable but which may or may not be accurate. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required, especially considering the overall weakness in the commercial real estate market in our market areas. Management believes estimates of the level of allowance for loan losses required have been appropriate and our expectation is that the primary factors considered in the provision calculation will continue to be consistent with prior trends.

The Company identifies impaired loans through its normal internal loan review process. Loans on the Company’s potential problem loan list are considered potentially impaired loans. These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected. Loans are not considered impaired if a minimal payment delay occurs and all amounts due, including accrued interest at the contractual interest rate for the period of delay, are expected to be collected. Management has determined that the Company had $2,658,476 and $4,448,601 in impaired loans at December 31, 2014 and December 31, 2013, respectively. At December 31, 2014, most of the impaired loans identified by management are collateral dependent loans and therefore the valuation allowance amounts on such loans were recorded as a charge-off. Our valuation allowance related to impaired loans totaled $232,144 and $456,133 at December 31, 2014 and December 31, 2013, respectively.

We have retained an independent consultant to review our loan files on a test basis to assess the grading of samples of loans. In addition, various regulatory agencies review our allowance for loan losses through periodic examinations, and they may require us to record additions to the allowance for loan losses based on their judgment about information made available to them at the time of their examination. Our losses may vary from our estimates, and there is the possibility that charge-offs in future periods will exceed the allowance for loan losses that we have estimated.

The following table presents a summary related to our allowance for loan losses for the years ended December 31, 2014 and 2013:

The following table presents an allocation of the allowance for loan losses at the end of each of the past two years. The allocation is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount is available to absorb losses occurring in any category of loans.

The following table summarizes non-performing assets and the income that would have been reported on non-accrual loans as of December 31, 2014 and 2013:

Congaree State Bank had net charge-offs on loans in the amount of $663,517 for the year ended December 31, 2014, compared to $387,742 charged off in 2013. At December 31, 2014, there were six loans in non-accrual status totaling $1,153,991 compared to 13 loans in nonaccrual status that totaling $1,255,947 at December 31, 2013. There were no loans contractually past due 90 days or more still accruing interest at December 31, 2014 and December 31, 2013. There were six loans restructured or otherwise impaired totaling $1,761,190 not already included in nonaccrual status at December 31, 2014. At December 31, 2014 and 2013, impaired loans totaled $2,658,476 and $4,448,601, respectively. Management believes that the allowance has been appropriately funded for additional losses on existing loans, based on currently available information. The Company will continue to monitor nonperforming assets closely and make changes to the allowance for loan losses when necessary.

Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful.A payment of interest on a loan that is classified as nonaccrual is applied against the principal balance.During the years ended December 31, 2014 and 2013, we received approximately $23,883 and $23,739 in interest income in relation to loans on non-accrual status, respectively, and forgone interest income related to loans on non-accrual status was approximately $56,591 and $66,814, respectively.

Management believes that the amount of nonperforming assets could continue to have a negative effect on the Company’s condition if current economic conditions do not improve. Management believes the Company has credit quality review processes in place to identify problem loans quickly. Management will work with customers that are having difficulties meeting their loan payments. The last resort is foreclosure.

Potential problem loans consist of loans that are generally performing in accordance with contractual terms but for which we have concerns about the ability of the borrower to continue to comply with repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these loans closely and reviews performance on a regular basis. As of December 31, 2014 and 2013, potential problem loans that were not already categorized as nonaccrual totaled $2,015,148 and $2,837,041, respectively. These loans are considered in determining management’s assessment of the adequacy of the allowance for loan losses.

Our primary source of funds for our loans and investments is our deposits. Total deposits as of the years ended December 31, 2014 and 2013 were $87,958,312 and $91,130,457, respectively. In trying to attract local deposits and increase our core deposits, we did not renew some wholesale deposits and instead focused on customer relationships with Congaree State Bank. The following table shows the average balance outstanding and the average rates paid on deposits during 2014 and 2013.

Core deposits, which exclude time deposits of $100,000 or more and wholesale certificates of deposit,provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $75,759,021 at December 31, 2014, compared to $75,762,335 at December 31, 2013. Our loan-to-deposit ratio was 89.2% and 85.6% at December 31, 2014 and 2013, respectively. Due to the current interest rate environment in our market, we did not renew any internet certificates of deposit as a funding source when we were able to procure funds in the local market. We did not have any brokered certificates of deposit purchased at December 31, 2014 and December 31, 2013.

The maturity distribution of our time deposits of $100,000 or more time deposits at December 31, 2014 was as follows:

At December 31, 2014, Congaree State Bank had short-term lines of credit with correspondent banks to purchase a maximum of $5,800,000 in unsecured federal funds on a one to 14 day basis and $6,750,000 in unused federal funds on a one to 20 day basis for general corporate purposes. The interest rate on borrowings under these lines is the prevailing market rate for federal funds purchased. These accommodation lines of credit are renewable annually and may be terminated at any time at the correspondent banks’ sole discretion. At December 31, 2014 and 2013 we had no borrowings outstanding on these lines. At December 31, 2013, we had $1,768,000 outstanding in federal funds purchased.

We are a member of the FHLB of Atlanta, from which applications for borrowings can be made. The FHLB requires that investment securities or qualifying mortgage loans be pledged to secure advances from them. We are also required to purchase FHLB stock in a percentage of each advance. At December 31, 2014 and December 31, 2013, we had $11,500,000 and $7,000,000 outstanding, respectively. Congaree State Bank borrowed the funds to reduce the cost of funds on money used to fund loans. Congaree State Bank has remaining credit availability of $11,120,000 at the FHLB. We believe that our existing stable base of core deposits along with continued growth in this deposit base will enable us to successfully meet our long term liquidity needs. The following table shows the amount outstanding, grant date, maturity date, and interest rate.

Like all banks, we are subject to the FHLB’s credit risk rating policy which assigns member institutions a rating which is reviewed quarterly. The rating system utilizes key factors such as loan quality, capital, liquidity, profitability, etc. Our ability to access our available borrowing capacity from the FHLB in the future is subject to our rating and any subsequent changes based on our financial performance as compared to factors considered by the FHLB in their assignment of our credit risk rating each quarter. In addition, the Federal Reserve Bank of Richmond as well as our correspondent banks review our financial results and could limit our credit availability based on their review.

Total shareholders’ equity was $13,344,948 at December 31, 2014, an increase of $936,331 from $12,408,617 at December 31, 2013. The increase is primarily due to net income of $1,357,740, offset by a $451,317 increase in unrealized income on investment securities available for sale during 2014 and dividends paid on preferred stock of $149,046.

The Federal Reserve and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. The Federal Reserve guidelines contain an exemption from the capital requirements for “small bank holding companies”, which in 2006 were amended to cover most bank holding companies with less than $500 million in total assets that do not have a material amount of debt or equity securities outstanding registered with the SEC. Although our class of common stock is registered under Section 12 of the Securities Exchange Act of 1934, we believe that because our stock is not listed on any exchange or otherwise actively traded, the Federal Reserve will interpret its new guidelines to mean that we qualify as a small bank holding company. Nevertheless, our Bank remains subject to these capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Congaree State Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Congaree State Bank must meet specific capital guidelines that involve quantitative measures of Congaree State Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Congaree State Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.

At the subsidiary bank level, we are subject to various regulatory capital requirements administered by the federal banking agencies. Under the regulations adopted by the federal regulatory authorities, a bank will be categorized as:

In addition, an institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of a bank’s overall financial condition or prospects for other purposes.

The following table sets forth Congaree State Bank’s capital ratios at December 31, 2014 and 2013. As of December 31, 2014 and 2013, Congaree State Bank was considered “well capitalized”.

On January 9, 2009, we entered into the CPP Purchase Agreement with the Treasury, pursuant to which the company issued and sold to Treasury (i) 3,285 shares of our Series A Preferred Stock, and (ii) a ten-year warrant to purchase 164 shares of our Series B Preferred Stock, for an aggregate purchase price of $3,285,000 in cash. The Series A and Series B Preferred Stock qualifies as Tier 1 capital under Federal Reserve guidelines.

On October 31, 2012, the Treasury sold its Series A and Series B Preferred Stock of the Company through a private offering structured as a modified Dutch auction. The Company bid on a portion of the Series A Preferred Stock in the auction after receiving approval from its regulators to do so. The clearing price per share for the Series A Preferred Stock was $825.26 (compared to a stated value of $1,000 per share) and the clearing price per share for the Series B Preferred Stock was $801.00 (compared to a stated value of $1,000 per share). The Company was successful in repurchasing 1,156 shares of the 3,285 shares of Series A Preferred Stock outstanding through the auction process. The remaining 2,129 shares of Series A Preferred Stock and 164 shares of Series B Preferred Stock of the Company held by Treasury were sold to unrelated third-parties through the auction process. The net balance sheet impact was a reduction to shareholders’ equity of $954,000 which is comprised of a decrease in preferred stock of $1,135,000 and a $181,000 increase to retained earnings related to the discount on the shares repurchased.

On April 14, 2014, the Company repurchased 729 shares of the 2,129 shares of Series A Preferred Stock outstanding at par. The repurchase will save the Company approximately $66,000 in dividend expenses annually. As of December 31, 2014, 1,400 shares of Series A Preferred Stock and 164 shares of Series B Preferred Stock were outstanding. The outstanding shares of preferred stock will receive preferential treatment in the event of liquidation, dissolution or winding up of the Company.

As noted under “Supervision and Regulation –Basel Capital Standards,” in July 2013, the federal bank regulatory agencies approved a final rule to implement the Basel III regulatory capital reforms among other changes required by the Dodd-Frank Act. The framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, taking into account the impact of risk. The approved rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% as well as a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking institutions. For the largest, most internationally active banking organizations, the rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. In terms of quality of capital, the final rule emphasizes common equity tier 1 capital and implements strict eligibility criteria for regulatory capital instruments. It also changes the methodology for calculating risk-weighted assets to enhance risk sensitivity. The final rule became effective on January 1, 2015 and applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more (which does not include the Company) and top-tier savings and loan holding companies. It is management’s belief that, as of December 31, 2014, Congaree State Bank would have met all capital adequacy requirements under Basel III on a fully phased-in basis if such requirements were effective at that time.

The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (average equity divided by average total assets) for the years ended December 31, 2014 and 2013.

The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with accounting principles generally accepted in the United States of America.

Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. We attempt to manage the relationships between interest-sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

Through Congaree State Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our clients at predetermined interest rates for a specified period of time. We evaluate each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes. At December 31, 2014, we had issued commitments to extend credit of approximately $13,267,000 through various types of lending arrangements. There were two standby letters of credit included in the commitments for $48,000. Fixed rate commitments were $272,000 and variable rate commitments were $12,995,000.

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. A significant portion of the unfunded commitments relate to consumer equity lines of credit and commercial lines of credit. Based on historical experience, we anticipate that a portion of these lines of credit will not be funded.

Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

At December 31, 2014, our liquid assets, consisting of cash and due from banks, amounted to $3,034,889, or approximately 2.69% of total assets. Our investment securities available for sale at December 31, 2014 amounted to $21,173,560, or approximately 18.7% of total assets. Unpledged investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner. At December 31, 2014, $10,119,786 of our investment securities were pledged to secure public entity deposits.

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments and the generation of deposits. In addition, we will receive cash upon the maturities and sales of loans and maturities, calls and prepayments on investment securities. We maintain federal funds purchased lines of credit with correspondent banks totaling $12,550,000. Availability on these lines of credit was $12,550,000 at December 31, 2014. We are a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that investment securities or qualifying mortgage loans be pledged to secure advances from them. We are also required to purchase FHLB stock in a percentage of each advance. At December 31, 2014, we had borrowed $11,500,000 from FHLB.

We believe that our existing stable base of core deposits and borrowing capabilities will enable us to successfully meet our long-term liquidity needs.

Market risk is the risk of loss from adverse changes in market prices and rates, which principally arise from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.

We actively monitor and manage our interest rate risk exposure principally by measuring our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. We generally would benefit from increasing market rates of interest when we have an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are liability-sensitive. The Company is cumulatively liability sensitive over the three-month to twelve month period and asset sensitive over all periods greater than one year. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by us as significantly less interest-sensitive than market-based rates such as those paid on noncore deposits. Net interest income may be affected by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

~~Asset-liability management is~~Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the ~~process by~~carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we ~~monitor~~believe to be reasonable under the circumstances. Because of the nature of the judgment and ~~control~~assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the ~~mix and maturities~~carrying values of our assets and ~~liabilities.~~liabilities and our results of operations.

Our primary source of revenue is net interest income. Net interest income is the difference between income earned on interest-earning assets and interest paid on deposits and borrowings used to support such assets. The ~~essential purposes~~level of ~~asset-liability management are to ensure adequate liquidity~~net interest income is determined by the balances of interest-earning assets and ~~to maintain an appropriate balance between~~interest-bearing liabilities and corresponding interest ~~sensitive~~rates earned and paid on those assets and liabilities, respectively. In addition to the volume of and corresponding interest rates associated with these interest-earning assets and interest-bearing liabilities, net interest income is affected by the timing of the repricing of these interest-earning assets and interest-bearing liabilities.

Net interest income was $4,181,782 for the year ended December 31, 2014, a decrease of $204,988 or 4.67% over net interest income of $4,386,770 for the year ended December 31, 2013. Interest income of $4,584,468 for the year ended December 31, 2014 included $3,915,092 on loans, $644,834 on investment securities and $24,542 on federal funds sold and nonmarketable equity securities. Loan interest and related fees decreased $274,258, or 6.55%, during 2014, due to a decrease in ~~order~~the loan portfolio volume and interest rates. Total interest expense of $402,686 for the year ended December 31, 2014 included $345,220 related to ~~minimize potentially adverse impacts~~deposit accounts and $57,466 on ~~earnings~~federal funds purchased and FHLB borrowings. Interest expense on deposits decreased $79,062, or 18.63%, during 2014 due to the decrease in deposit rates and volume during 2014.

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following table sets forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates had on changes in ~~market~~net interest ~~rates.~~ income for the comparative periods presented. Changes attributed to both rate and volume, have been allocated on a pro rata basis.

Our ~~asset-liability management committee monitors~~provision for loan losses for the year ended December 31, 2014 was $358,000, a decrease of $47,000 or 11.6% over our provision of $405,000 for the year ended December 31, 2013. The allowance as a percentage of gross loans decreased from 1.68% as of December 31, 2013 to 1.28% as of December 31, 2014 due to management’s evaluation of the adequacy of the reserve for possible loan losses given the size, mix, and ~~considers methods~~quality of ~~managing exposure~~the current loan portfolio. Management also relies on our history of past-dues and charge-offs, as well as peer data, to ~~interest rate risk. The asset-liability management committee~~determine our loan loss allowance.

Noninterest income for the year ended December 31, 2014 was $432,410 compared to $575,317 for the year ended December 31, 2013. This decrease is ~~responsible~~primarily related to a decrease in gains on sales of securities available-for-sale which totaled $71,145 for ~~maintaining~~ the ~~level~~year ended December 31, 2014, compared to $222,297 in 2013. This decrease compared to 2013 was primarily due to restructuring the investment portfolio to shorten the duration in 2014. For the year ended December 31, 2014, mortgage loan origination fees were $31,150, a decrease of ~~interest rate sensitivity~~$38,104, or 55.02%, from 2013, due to the decrease in the volume of ~~our interest sensitive assets and liabilities within board-approved limits.~~mortgage loans originated.

The following table sets forth information related to our noninterest expenses for the year ended December 31, 2014 and 2013.

At December 31, 2014, our ~~rate sensitivity,~~available for sale investment securities portfolio was $21,173,560 and represented approximately 18.7% of our total assets. Available for sale investment securities decreased $2,471,680 from $23,645,240 at December 31, 2013. Our portfolio consisted of Small Business Administration Securities of $8,700,577, mortgage-backed securities of $1,948,933, state, county and municipal investment securities of $3,129,037, U.S. government sponsored agencies of $6,596,536, and corporate bonds of $798,477.

At December 31, 2014 and 2013, we had $3,444,699 and $3,475,977, respectively, in held to maturity investment securities portfolio.

Investment securities with market values of approximately $10,119,786 and $9,267,270 at December 31, 2014 and 2013, respectively, were pledged to secure public deposits, as required by law.

Commercial loans and lines of credit represented approximately 13% of our loan portfolio at December 31, 2014 and 12% at December 31, 2013.

Our construction, land development, and other land loans represented approximately 10% and 11% of our loan portfolio at December 31, 2014 and 2013, respectively.

The following table summarizes the composition of our loan portfolio as of December 31, 2014 ~~at each~~and 2013:

Maturities and Sensitivity of ~~the time intervals.~~ Loans to Changes in Interest Rates

The information in the following table ~~may not be indicative of our rate sensitivity position at other points in time. In addition, the repricing distribution indicated in the table differs from~~is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

The following table summarizes the loan maturity distribution by composition and interest rate types at December 31, 2014.

Loans in the substandard category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity. Loans in the doubtful category exhibit the same weaknesses found in the substandard loan; however, the weaknesses are more pronounced. These loans, however, are not yet rated as loss because certain ~~interest-earning~~events may occur which could salvage the debt such as injection of capital, alternative financing, or liquidation of assets.

The following table presents a summary related to our allowance for loan losses for the years ended December 31, 2014 and 2013:

The following table summarizes non-performing assets and ~~interest-bearing liabilities presented~~the income that would have been reported on non-accrual loans as of December 31, 2014 and 2013:

Congaree State Bank had net charge-offs on loans in the amount of $663,517 for the year ended December 31, 2014, compared to $387,742 charged off in 2013. At December 31, 2014, there were six loans in non-accrual status totaling $1,153,991 compared to 13 loans in nonaccrual status that totaling $1,255,947 at December 31, 2013. There were no loans contractually past due 90 days or more still accruing interest at December 31, 2014 and December 31, 2013. There were six loans restructured or otherwise impaired totaling $1,761,190 not already included in nonaccrual status at December 31, 2014. At December 31, 2014 and 2013, impaired loans totaled $2,658,476 and $4,448,601, respectively. Management believes that the allowance has been appropriately funded for additional losses on existing loans, based on currently available information. The Company will continue to ~~consideration~~monitor nonperforming assets closely and make changes to the allowance for loan losses when necessary.

Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of ~~prepayment speeds under various~~the loan is doubtful.A payment of interest on a loan that is classified as nonaccrual is applied against the principal balance.During the years ended December 31, 2014 and 2013, we received approximately $23,883 and $23,739 in interest income in relation to loans on non-accrual status, respectively, and forgone interest income related to loans on non-accrual status was approximately $56,591 and $66,814, respectively.

Core deposits, which exclude time deposits of $100,000 or more and wholesale certificates of deposit,provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $75,759,021 at December 31, 2014, compared to $75,762,335 at December 31, 2013. Our loan-to-deposit ratio was 89.2% and 85.6% at December 31, 2014 and 2013, respectively. Due to the current interest rate ~~change scenarios~~environment in our market, we did not renew any internet certificates of deposit as a funding source when we were able to procure funds in the ~~application~~local market. We did not have any brokered certificates of deposit purchased at December 31, 2014 and December 31, 2013.

The maturity distribution of our time deposits of $100,000 or more time deposits at December 31, 2014 was as follows:

The following table sets forth Congaree State Bank’s capital ratios at December 31, 2014 and 2013. As of December 31, 2014 and 2013, Congaree State Bank was considered “well capitalized”.

We believe that our existing stable base of core deposits and borrowing capabilities will enable us to successfully meet our long-term liquidity needs.

~~As of and For the Nine and Three Months Ended September 30, 2015 and 2014~~

~~2014 was~~Market risk is the risk of loss from adverse changes in market prices and rates, which principally arise from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.

We actively monitor and manage our interest rate risk exposure principally by measuring our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a ~~very challenging year~~given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available for ~~Congaree State Bank,~~sale, replacing an asset or liability at maturity, or adjusting the ~~banking industry,~~interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in this same time interval helps to hedge the ~~U.S. economy in general,~~risk and ~~these challenges~~minimize the impact on net interest income of rising or falling interest rates. We generally would benefit from increasing market rates of interest when we have ~~continued in 2015.~~an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are liability-sensitive. The ~~impact~~Company is cumulatively liability sensitive over the three-month to twelve month period and asset sensitive over all periods greater than one year. The analysis presents only a static view of the ~~recession is continuing to be felt by the banking industry as~~timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a ~~whole and~~substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by us as ~~well.~~significantly less interest-sensitive than market-based rates such as those paid on noncore deposits. Net interest income may be affected by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

Accordingly, our focus has been and continues to be centered on managing through the effects of these economic times to position Congaree State Bank to continue being profitable as the economy continues to recover. It is our expectation that our hard work, reduced operating expenses, and the eventual improvement in the economy and the real estate markets will help our borrowers and us weather this storm and continue our road to recovery. Our primary focus has been and will continue to be to increase our net interest margin. We are reducing our reliance on wholesale deposits and placing emphasis on acquiring core deposits, specifically small business operating accounts. Additionally, we are taking steps to increase noninterest income through allocating resources to mortgage loan production, insurance income and investment referrals. Reducing our level of nonperforming assets will also lower our operating costs, thus increasing Congaree State Bank’s profitability.

The Company recorded net income of $232,406 and net income available to common shareholders of $126,836 for the nine months ended September 30, 2015 compared to net income of $361,032 and net income available to common shareholders of $244,397 for the nine months ended September 30, 2014. Basic and diluted income per common share were $0.07 for the first nine months of 2015 compared to basic and diluted income per common share of $0.14 in the first nine months of 2014. The decrease in net income for the first nine months of 2015 as compared to the first nine months of 2014 is primarily attributable to the increase in professional fees expense and cost of operation of other real estate owned of $290,707. As a result of the full reversal of the valuation allowance in 2014, income tax expense is now being booked against the valuation allowance with income tax expense for the first nine months of $115,828. For the nine month period ended September 30, 2015, our net interest margin was 4.09% compared to 3.98% at September 30, 2014.

The Company recorded net income, after tax provision, of $52,053 and net income available to common shareholders of $16,863 for the three months ended September 30, 2015, compared to net income, after tax provision, of $152,893 and net income available to common shareholders of $113,252 for the three months ended September 30, 2014. The decrease in net income for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 is primarily attributable to the income tax expense of $44,776 and increase in professional fees expense of $69,346 for 2015 as compared to three months ended September 30, 2014. Basic and diluted earnings per share were $0.01 and $0.06 for the third quarter of 2015 and 2014, respectively.

At September 30, 2015, total assets were $116,689,145, compared to $112,922,086 at December 31, 2014, an increase of $3,767,059 or 3.34%. Interest-earning assets comprised approximately 90.68% and 91% of total assets at September 30, 2015 and December 31, 2014, respectively. Gross loans totaled $81,579,138, federal funds sold were $3,707,000, and investment securities were $20,527,361 at September 30, 2015, compared to gross loans of $78,426,868 and investment securities of $25,339,059 at December 31, 2014.

Deposits totaled $95,826,644 at September 30, 2015 and $87,958,312 at December 31, 2014. FHLB advances were $7,000,000 at September 30, 2015 and $11,500,000 at December 31, 2014. Shareholders’ equity was $13,581,614 and $13,344,948 at September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015, Congaree State Bank’s ratios are sufficient to satisfy the standard regulatory criteria for being a “well capitalized” bank. Management has developed a plan to increase and preserve our capital with the goal of developing and maintaining a strong capital position. These initiatives include, among other things, restructuring Congaree State Bank’s balance sheet by controlling new loan activity and aggressively attempting to sell other real estate owned. Additionally, we are actively evaluating a number of capital sources and balance sheet management strategies to ensure that our projected level of regulatory capital can support our balance sheet and meet or exceed minimum requirements.