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Carolina Financial buying First South for $162M in stock

Carolina Financial Corp. of Charleston, S.C., will acquire Washington, N.C.-based First South Bancorp Inc. in an all-stock deal valued at $16.89 per share, or $161.8 million in total, based on the buyer's June 9 closing price of $32.49.

Under the merger's terms, which are still subject to regulatory and shareholder approvals, First South Bancorp stockholders may exchange each share held for 0.52 Carolina Financial common share.

First South Bancorp's First South Bank had $1.04 billion in assets at the end of March, according to SNL data. Carolina Financial's CresCom Bank had $2.18 billion. If the deal closes as expected in the fourth quarter, the combined company will have approximately $3.2 billion in assets, $2.2 billion in loans and $2.5 billion in deposits. First South Bancorp also brings to the merger its 28 banking locations across the Research Triangle and eastern regions of North Carolina.

The deal is projected to be accretive to EPS in the low double digits in 2019, with tangible book value dilution earned back in less than 2.5 years. Cost saves are estimated at 26%; the internal rate of return is expected to be more than 20.0%. One-time transaction costs are pegged at $23.7 million, pretax.

On a per-share basis, SNL calculates that the deal value is 179.8% of book, 192.2% of tangible book, 21.7x earnings, and 21.4x last-12-month core earnings. The price is 17.59% of deposits and 15.56% of assets, and the tangible book premium to core deposits ratio is 9.98%. It carries a one day premium of 17.73% based on First South Bancorp's June 8 closing price of $14.35, and a one-month premium of 26.93% based on the May 9 closing price of $13.31.

For comparison, SNL valuations for bank and thrift targets in the Southeast region between June 9, 2016 and June 9, 2017, averaged 172.11% of book, 189.83% of tangible book, and had a median of 22.28x last-12-month earnings, on a per-share basis.

SNL data shows that Carolina Financial will expand in North Carolina by 28 branches to be ranked No. 18 with a 0.30% share of approximately $347.37 billion in total market deposits.

First South Bancorp President and CEO Bruce Elder will become CresCom's president of North Carolina banking. Cornelius Sullivan will be senior vice president and Raleigh area executive. Two First South Bancorp directors will join Carolina Financial's board.

The deal is Carolina Financial's first announced acquisition for 2017. It announced two in 2016 — those of Greer Bancshares Inc. and Congaree Bancshares Inc., both of South Carolina.

First South Bancorp, meanwhile, has been under pressure to sell by a shareholder activist, with a related proposal to be voted upon at the June 29 shareholder meeting. The company's board had recommended that shareholders vote against the proposal.

Keefe Bruyette & Woods Inc. and Nelson Mullins Riley & Scarborough LLP served as Carolina Financial's financial adviser and legal counsel, respectively. For First South Bancorp, it was Raymond James and Wyrick Robbins Yates & Ponton LLP.

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SNL data is an offering of S&P Global Market Intelligence.

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