SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended
December 31, 1995 Commission File: 0-17939
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CAROLINA FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

North Carolina 56-1655882
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(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)

402 East Main Street, Lincolnton, N.C. 28093
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(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (704) 732-2222
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $2.50 per share
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Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---

The aggregate market value of the common stock held by non-affiliates of
registrant as of March 7, 1996: $41,680,579 based on the last sale price on
March 7, 1996, using beneficial ownership of stock rules adopted pursuant to
Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned
by directors and certain executive officers, some of whom may not be held to be
affiliates upon judicial determination.

As of March 15, 1996, there were issued and outstanding 1,635,220 shares
of the registrant's $2.50 par value common stock.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the 1995 Annual Report to Shareholders for the year ended
December 31, 1995 (Part II, Item 5, 6, 7 and 8; Part IV, Item 14)

2. Portions of the definitive Proxy Statement, dated March 20, 1996 for
the Annual Meeting of Shareholders to be held on April 16, 1996, filed with the
Securities and Exchange Commission pursuant to Regulation 14A (Part III, Items
10, 11, 12, and 13).

FORM 10-K CROSS-REFERENCE INDEX

PAGES OF
PAGE 1995 ANNUAL
OF 10-K REPORT
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Part I

Item 1. Business I-1 --

Item 2. Properties I-12 --

Item 3. Legal Proceedings I-12 --

Item 4. Submission of Matters to a Vote of Security Holders I-12 --

Part II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters II-1 36

Item 6. Selected Financial Information II-1 1

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-1 4-15

Item 8. Financial Statements and Supplementary Data II-1 17-31

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-1 --

PAGES OF
PAGE PROXY
OF 10-K STATEMENT
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Part III

Item 10. Directors and Executive Officers of the Registrant III-1 2-4

Item 11. Executive Compensation III-1 6-8

Item 12. Security Ownership of Certain Beneficial Owners III-1 1-10

Item 13. Certain Relationships and Related Transactions III-1 10

PAGES OF
PAGE 1995 ANNUAL
OF 10-K REPORT
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Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K IV-1 --

Documents filed:
(a) (1)List of Financial Statements IV-1 --

Consolidated Balance Sheets at December 31, 1995 and
1994 -- 17

Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 -- 18

Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994 and
1993 -- 19

Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 -- 20

Notes to Consolidated Financial Statements -- 21-31

Independent Auditors' Report -- 16

(a) (2)List of Financial Statement Schedules IV-1 --

(a) (3)Listing of Exhibits IV-1 --

PAGES OF
PAGE 1995 ANNUAL
OF 10-K REPORT
------- -----------

(b) Reports on Form 8-K IV-2 --

(d) Financial Statement Schedules IV-2 --

Part I

ITEM 1. BUSINESS

Carolina First BancShares, Inc. (the "Company"), a North Carolina
corporation, is registered as a bank holding company with the Board of
Governors of the Federal Reserve System ("Federal Reserve") under the Bank
Holding Company Act of 1956, as amended ("BHC Act"). Carolina First was
incorporated on November 8, 1988, for purposes of becoming a bank holding
company and acquiring Lincoln Bank of North Carolina ("Lincoln Bank"), a North
Carolina state chartered bank that is not a member of the Federal Reserve
System. The holding company formation was completed on June 6, 1989. The
Company owns all the outstanding common stock of Cabarrus Bank of North
Carolina ("Cabarrus Bank"), a North Carolina state bank that is not a member of
the Federal Reserve System. Cabarrus Bank opetes as a separate entity in the
market it currently serves. Through Lincoln Bank and Cabarrus Bank (the
"Banks") and their 15 branch offices, the Company provides a broad range of
banking and financial services in the greater Charlotte, North Carolina area,
including Lincoln County, southeastern Catawba County, Iredell County, Cabarrus
County and north Mecklenburg County, all in the western Piedmont area of North
Carolina. The Banks are the Company's principal subsidiaries and are North
Carolina banking corporations engaged in general commercial banking business.
Lincoln Bank and Cabarrus Bank are both members of the Federal Deposit
Insurance Corporation ("FDIC"), and their deposits are insured by the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"),
respectively. Lincoln Bank purchased the insured deposits of Crown National
Bank in May 1993 from the FDIC. These deposits were insured under the BIF.
Jointly, the Banks own a mortgage company, Carolina First Mortgage Corp., which
originates mortgage loans for resale in the secondary market, and a financial
services company, Carolina First Financial Services Corporation, ("Financial
Services"), which offers, as an agent for its customers, mutual funds and
annuity products. In November 1994, the Company invested $1,375,000 to
purchase approximately 17% of the total common stock of a de novo commercial
bank, First Gaston Bank of North Carolina, Gastonia, North Carolina ("First
Gaston"), which is just west of Charlotte and south of Lincolnton. The
Company's chairman was an organizer of First Gaston, which is located in a
market contiguous to others served by Lincoln Bank. First Gaston opened in
July of 1995 and operates in a market not currently served by the Company.
Certain operational functions are provided for First Gaston by the Company.
The Federal Reserve, in approving this investment, under the BHC Act, has
required the Company to enter into a commitment to serve as a "source of
strength" for First Gaston. See "Supervision, Regulation and Effects of
Governmental Policies." The Company engages in no significant operations other
than the ownership of its subsidiaries.

The Company maintains its principal executive offices at 402 East Main
Street, P.O. Box 657, Lincolnton, North Carolina 28093, and its telephone
number is (704) 732-2222.

GENERAL BANKING BUSINESS

The Banks provide a wide range of commercial banking products and
services. Services include checking accounts, NOW accounts, savings and other
time deposits of various types, including retirement accounts and certificates
of deposit. Loan services include mortgage loan originations, loans for
business, real estate, personal and household purposes, lines of credit and
credit cards. Considering the volatility of quality loan demand, the Company
maintains an investment portfolio. Other services include safe deposit boxes,
wire transfer facilities, and electronic banking facilities. In 1994, Lincoln
Bank exercised its trust powers and had 11 active trust accounts in 1994 with
assets under management of $7.8 million. In 1995, Lincoln Bank had 26 active
trust accounts with assets under management of $22.3 million.

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INVESTMENT SECURITIES

The Company has an investment portfolio that consists primarily of U. S.
Treasury and government agency securities and state, county and municipal
securities. Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which prescribes the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Securities that the
Company has the positive intent and ability to hold to maturity are classified
as held to maturity and reported at cost. Securities held for current resale
are classified as trading securities and reported at fair value, with
unrealized gains and losses included in income. Securities not classified as
held to maturity or trading securities are classified as available for sale and
reported at fair value, with unrealized gains and losses net of the related tax
effect excluded from income and reported as a separate component of
shareholders' equity. The effect of the foregoing will cause fluctuations in
shareholders' equity based on changes in values of debt and equity securities.
The classification of securities as held to maturity, trading or available for
sale is determined at the date of purchase. Prior to January 1, 1994, debt
securities included in securities held to maturity were carried at amortized
cost adjusted for amortization of premiums and accretion of discounts, whereas
debt securities included in securities available for sale were carried at the
lower of cost or market value. The mutual fund investments and other
marketable equity securities were carried at the lower of cost or market value
with any unrealized loss shown as a reduction of shareholders' equity.
Realized gains or losses on the sale of securities are recognized when realized
using the specific identification method.

LENDING ACTIVITIES

The Banks offer a range of lending services, including commercial, real
estate and consumer loans. The Banks consider individual consumers and small
to medium businesses to be their primary market for business loans and
deposits. The Banks have no concentration of loans to particular borrowers and
no loans to foreign entities. At December 31, 1995, the Banks had no
agricultural loan balances in their loan portfolios.

The Board of Directors of the Company recognizes that the extension of
credit is an integral banking function. Accordingly, it is the Board's desire
to grant sound, profitable loans that will benefit the area economy, provide a
reasonable return on our shareholder's investment, and promote the growth of
the Banks. When allocating resources for loans, primary consideration is given
to customers within the Banks' trade areas and to those customers and
prospective customers whose overall relationships generate the greatest level
of profitability, measured against risk. Management strives to maintain
quality in the loan portfolio and to accept only those risks which meet the
Banks' standards.

The Company grants loans throughout its market area for all legitimate and
worthwhile purposes. The Banks generally will extend the following types of
credit:

COMMERCIAL LOANS

The Banks will consider loans to business concerns on a short-term basis
supported by satisfactory balance sheet and earnings statements. Personal
guarantees and financial statements of guarantors generally also are obtained
on non-public company credits. Any loan request for a period longer than
twelve (12) months generally must have monthly or quarterly principal
reductions.

REAL ESTATE LOANS

COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans are secured
principally by a mortgage on a commercial property. Maturities generally do not
exceed ten years, but longer maturities up to 15 years may be considered.
Variable rate pricing is preferable on loans with longer maturities. Repayment
sources are specified and will generally be from the borrower's cash flow, or
if the source is to be from the liquidation of an asset, that asset generally
also is taken as collateral. The Banks' loan-to-value ratio on these types of
loans generally will not

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exceed the lower of 80% of appraised value or 80% of cost (or in the case of
unimproved land, the lower of 75% of appraised value or 75% of cost).

REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans are
interim loans made to finance the initial construction period. Construction
loans generally have a maturity of one year or less, have a permanent take-out
commitment, and collect interest monthly on the outstanding balance. Progress
inspection reports are required to be documented prior to disbursing advances.
The maximum loan-to-value ratio will be the lower of 80% of appraised value or
80% of cost.

RESIDENTIAL REAL ESTATE LOANS. Residential real estate loans are secured
by first and second mortgages on one-to-four family residences. Loans held in
the portfolio are usually for a term of 15 years or less, with a maximum
loan-to-market-value ratio of 80%. However, loans conforming to certain
Federal National Mortgage Association ("FNMA") guidelines are also made and
subsequently sold in the secondary market on a servicing released basis.

HOME EQUITY LINES. Equity lines are secured by first or second mortgages
on a borrower's primary residence and are open-end revolving lines of credit
scheduled for interest payments only for ten years and then converted to a
five-year term loan. Because of these terms, special consideration is given to
the borrower's capacity to repay the loan. Debt to income ratios are
calculated using a payment amount sufficient to repay the debt in ten years.
Care is taken to ensure that the loan-to-value ratio does not exceed 80%,
including prior liens.

UNSECURED CONSUMER LOANS

Installment and short-term personal loans may be granted to persons of
good character with reliable income and satisfactory credit records. A
complete application is required for each request. A current financial
statement is required when the total direct or indirect unsecured credit
exceeds $5,000. Total unsecured credit generally does not exceed 10% of the
applicant's net worth.

Normally, unsecured loans do not exceed 36 months. Any loan requests for
a maturity longer than one year generally are made subject to monthly or
quarterly principal and interest payments. Loans with maturities of one year
or less must show a source of repayment and interest generally is collected
monthly, quarterly or semi-annually.

Unsecured home improvement loans may not exceed 50% of the owner's equity
in the house and payment terms will not exceed five years. Unsecured loans for
the purpose of making a down payment generally are not granted.

SECURED CONSUMER LOANS

In granting loans secured by collateral, the evaluation of the borrower
remains the same as for an unsecured borrower; character, purpose of loan,
credit history, capacity to repay and collateral are all considered, and a
current financial statement generally is obtained prior to making the loan if
the total exposure of the borrower exceeds $25,000.

AUTO LOANS. For new cars, the loan amount generally does not exceed 80%
of the window price of a foreign-made auto and 75% of the window price for an
American-made auto. Loans generally are not to be made on automobiles which
are five years older than current models. Maximum terms: 1 year old - 42
months; 2-3 years old - 36 months; 4 years old - 30 months; 5 years old - 24
months.

BOAT AND CAMPER LOANS. Loans to finance the purchase of boats and campers
are granted using the following guidelines: New Boats and Campers, 60 months -
25% down payment; New Boats and Campers, 36 months - 20% down payment; 1 year
old, 36 months - 20% down payment; 2 years old, 30 months - 20% down

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payment. If the amount of the loan is $15,000 or greater, the term of the loan
may be increased to eight years. Any extension of credit in excess of seven
years requires at least a five year call provision.

MOTOR HOMES. Motor homes usually call for special handling due to the
high cost of the unit. The maximum term is 60 months with a 25% down payment.
Financial statements are required to show ability to repay.

MOBILE HOMES. When possible a deed of trust is placed on the property
where the mobile home will be located. When real estate is not part of the
collateral, a landlord waiver is required. Second mortgage or second liens
generally are not taken as collateral. All units to be financed must be
underpinned, and a landlord waiver must be obtained prior to disbursing any
funds. Any mobile home over seven years old will be considered unacceptable as
collateral.

SAVINGS ACCOUNTS/TIME DEPOSITS. A loan secured by the Banks' savings
instruments may be advanced to 100% of its face value. The interest rate
generally will be not less than 2% higher than the effective yield on the
instrument held as collateral on loans of $2,500 or over, and market rates on
loans under $2,500. The maturity of the loan should not exceed the maturity of
the collateral. Loans secured by other financial institution's savings
accounts or certificates are priced by market conditions. These financial
institutions must be federally insured.

BONDS. Loans secured by bonds must comply with the following guidelines:
US Government & Federal Agencies - 90% of Current Market Value; Corporate Bonds
(Investment grade or better) - 80% of current market value; Municipal Bonds
(Investment grade or better) - 60% of current market value.

STOCKS. Loans secured by corporate stock certificates must comply with
the following guidelines: NYSE and AMEX traded securities - 70% of market
value; Actively traded over-the-counter (NASDAQ) securities - 70% of market
value; Local Pink Sheet (actively traded and have two or more market makers) -
70% of market value. Loans secured by stock of closely held corporations must
have the prior approval of the Finance Committee.

CASH SURRENDER VALUE OF LIFE INSURANCE

Loans secured by the pledge of life insurance policies with cash surrender
values may not exceed 90% of the cash surrender value of the policy.

COMPETITION

Commercial banking is highly competitive. The Banks compete with other
financial institutions located in metropolitan Charlotte and elsewhere in North
Carolina. Other competitors include banks, savings and loan associations,
finance companies, credit unions, mortgage bankers, pension trusts,
out-of-state banks and other institutions that provide loan and investment
services and money market funds. Competition between commercial banks and
thrift institutions has intensified significantly as a result of the
elimination of many previous distinctions between the various types of
financial institutions. The Banks also compete for interest-bearing funds with
a number of other financial intermediaries and investment alternatives,
including mutual funds, brokerage firms, governmental and corporate bonds, and
other securities.

The Banks compete for deposits, loans and other business with a number
of major banks and bank holding companies which have numerous offices and
affiliates operating over wide geographic areas. Other competitors such as
thrifts, credit unions, mortgage companies, and other local and nonlocal
financial institutions also compete with the Banks. Among the advantages
certain of these institutions may have compared to the Company, are the ability
to finance extensive advertising campaigns, and their ability to allocate and
diversify their assets among loans and securities of the highest yield in
locations with the greatest demand. Some of such competitors are subject to
less regulation and more favorable tax treatment than the Company.

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Many of the major commercial banks in the Company's service area or their
affiliates offer services such as international banking investment which are
not offered directly by the Banks. Such competitors, because of their greater
capitalization, also have substantially higher lending limits than the Banks
and are better able to absorb risk.

SUPERVISION, REGULATION AND EFFECTS OF GOVERNMENTAL POLICIES

Bank holding companies and banks are extensively regulated under federal
and state law. This discussion is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the status or regulations
applicable to the Company's and the Banks' business. Supervision, regulation,
and examination of the Company and its bank and nonbank subsidiaries by the
bank regulatory agencies is intended primarily for the protection of depositors
rather than holders of Company capital stock. Any change in applicable law or
regulation may have a material effect on the Company's business.

BANK HOLDING COMPANY REGULATION. The Company, as a bank holding
company, is subject to supervision and regulation by the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the BHC Act. The
Company is required to file with the Federal Reserve periodic reports and such
other information as the Federal Reserve may request. The Federal Reserve
examines the Company, and may examine the Company's subsidiaries.

The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC
Act prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or
bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or performing services for
its authorized subsidiaries. A bank holding company, may, however, engage in
or acquire an interest in a company that engages in activities which the
Federal Reserve had determined by regulation or order to be so closely related
to banking or managing or controlling banks to be a proper incident thereto.

The Company is a legal entity separate and distinct from the Banks 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 Banks also are subject to Section 23A of the Federal Reserve
Act. Section 23A defines "covered transactions," which includes extensions of
credit, and limits a bank's covered transactions with any affiliate to 10% of
such bank's capital and surplus. All covered and exempt transactions between a
bank and its affiliates must be on terms and conditions consistent with safe
and sound banking practices, and banks and their subsidiaries are prohibited
from purchasing low-quality assets from the bank's affiliates. Finally,
Section 23A requires that all of a bank's extensions of credit to an affiliate
be appropriately secured by acceptable collateral, generally United States
government or agency securities, The Company and the Banks also are subject to
Section 23B of the Federal Reserve Act, which generally limits covered and
other transactions among affiliates to terms and under circumstances, including
credit standards, that are substantially the same or at least as favorable to
the bank or its subsidiary as prevailing at the time for transactions with
unaffiliated companies.

The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company and any other bank holding company located in
North Carolina may now acquire a bank located in any other state, and any bank
holding company located outside North Carolina may lawfully acquire any bank
based in another state, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states, By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate

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branching is permissible or "opt out" and prohibit interstate branching
altogether. North Carolina has adopted legislation opting into interstate
branching effective July 1, 1995, including de novo interstate branching prior
to July 1, 1997 with states where reciprocal branching is permitted and
thereafter without limit.

Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measure to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible for any losses to
the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated
depository institution's failure. As a result, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or
other instruments which qualify as capital under regulatory rules. However,
any loans from the holding company to such subsidiary banks likely will be
unsecured and subordinated to such bank's depositors and perhaps to other
creditors of the bank. In November 1994, the Company invested $1,375,000 to
purchase approximately 17% of the total common stock of a de novo commercial
bank, First Gaston Bank of North Carolina, Gastonia, North Carolina ("First
Gaston"), which is just west of Charlotte and south of Lincolnton. The
Company's Chairman was an organizer of First Gaston, which is located in a
market contiguous to others served by Lincoln Bank. First Gaston opened in
July of 1995 and operates in a market not currently served by Carolina First.
Certain operational functions are provided for First Gaston by Carolina First.
The Federal Reserve, in approving this investment, under the BHC Act, has
required Carolina First to enter into a commitment to serve as a source of
strength for First Gaston.

BANK AND BANK SUBSIDIARY REGULATION GENERALLY. The Banks are subject
to supervision, regulation, and examination by the FDIC and the North Carolina
Commissioner of Banking (the "Commissioner"), which monitor all areas of the
operations of the Banks, including reserves, loans, mortgages, issuance of
securities, payment of dividends, establishment of branches, and capital. The
Banks are members of the FDIC, and their deposits are insured by the FDIC to
the maximum extent provided by law. Lincoln Bank's deposits are insured by the
FDIC's Bank Insurance Fund ("BIF"), and Cabarrus Bank's deposits are primarily
insured by the Savings Association Insurance Fund ("SAIF"). See "FDIC
Insurance Assessments."

Under present North Carolina law, the Bank currently may establish and
operate branches throughout the State of North Carolina, subject to the
maintenance of adequate capital for each branch and the receipt of the
necessary approvals of the FDIC and the Commissioner.

COMMUNITY REINVESTMENT ACT. The Company and the Banks are subject to
the provisions of the Community Reinvestment Act of 1977, as amended (the "CRA")
and the federal banking agencies' regulations thereunder. Under the CRA, all
banks and thrifts have a continuing and affirmative obligation, consistent with
its safe and sound operation to help meet the credit needs for their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirement or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits; (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application.

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Under new CRA regulations, effective January 1, 1996, the process-based
CRA assessment factors have been replaced with a new evaluation system that
rates institutions based on their actual performance in meeting community
credit needs. The evaluation system used to judge an institution's CRA
performance consists of three tests: a lending test; an investment test; and a
service test. Each of these tests will be applied by the institution's primary
federal regulator taking into account such factors as: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii) the
institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders. The new
lending test - the most important of the three tests for all institutions
other than wholesale and limited purpose (e.g., credit card) banks - will
evaluate an institution's lending activities as measured by its home mortgage
loans, small business and farm loans, community development loans, and, at the
option of the institutions, its consumer loans.

Each of these lending categories will be weighed to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test will include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low-to-moderate income individuals and
neighborhoods. At the election of an institution, or if particular
circumstances so warrant, the banking agencies will take into account in making
their assessments lending by the institution's affiliates as well as community
development loans made by the lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions will be required to report data on their small business and small
farm loans as well as their home mortgage loans, which are currently required
to be reported under the Home Mortgage Disclosure Act.

The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified
investments, its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.

The service test evaluates an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs., (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be
applied to wholesale or limited purpose financial institutions.

Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. The Company and the Banks are
eligible for these streamlined criteria at this time. In addition, a financial
institution will have the option of having its CRA performance evaluated based
on a strategic plan of up to five years in length that it had developed in
cooperation with local community groups. In order to be rated under a
strategic plan, the institution will be required to obtain the prior approval
of its federal regulator.

The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial
non-compliance. An institution will receive a certain number of points for its
rating on each test, and the points are combined to produce an overall composite
rating of either outstanding, satisfactory, needs to improve, or substantial
noncompliance. Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an overall
rating of at least "satisfactory", and no institution can receive an overall
rating of

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"satisfactory" unless it receives a rating of at least "low satisfactory" on
its lending test. In addition, evidence of discriminatory or other illegal
credit practices would adversely affect an institution's overall rating. Under
the new regulations, an institution's CRA rating would continue to be taken
into account by its primary federal regulator in considering various types of
applications. As a result of the Banks' most recent CRA examinations in March
13, 1995 and June 28, 1995, Lincoln Bank and Cabarrus Bank have CRA ratings of
"2" and "1", respectively.

The Banks are also subject, among other things, to the provisions of the
Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"),
both of which prohibit discrimination based on race or color, religion,
national origin, sex, and familial status in any aspect of a consumer or
commercial credit or residential real estate transaction. Bases on recently
heightened concerns that some prospective home buyers and other borrowers may
be experiencing discriminatory treatment in their efforts to obtain loans, the
Department of Housing and Urban Development, the Department of Justice (the
"DOJ"), and all of the federal banking agencies in April 1994 issued an
Interagency Policy Statement on Discrimination in Lending in order to provide
guidance to financial institutions as to what the agencies consider in
determining whether discrimination exists, how the agencies will respond to
lending discrimination, and what steps lenders might take to prevent
discriminatory lending practices. The DOJ has also recently increased its
efforts to prosecute what it regards as violators of the ECOA and FHA.

PAYMENTS OF DIVIDENDS. The Company is a legal entity separate and
distinct from its banking and other subsidiaries. The prior approval of the
FDIC is required if the total of all dividends declared by a state non-member
bank (such as the Banks) in any calendar year will exceed the sum of such
bank's net profits for the year and its retained net profits for the preceding
two calendar years, less any required transfers to surplus. North Carolina law
also prohibits any state non-member bank from paying dividends that would be
greater than such bank's undivided profits after deducting statutory bad debt
in excess of such bank's allowance for loan losses.

In addition, the Company and Banks are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital. The appropriate federal
regulatory authority is authorized to determine under certain circumstances
relating to the financial condition of a national or state member bank or a
bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof. The FDIC has indicated that
paying dividends that deplete a state bank's capital base to an inadequate
level would be an unsound and unsafe banking practice. The FDIC and the
Federal Reserve have each indicated that depository institutions and their
holdings should generally pay dividends only out of current operating
earnings.

CAPITAL. The Federal Reserve and the FDIC have adopted final
risk-based capital guidelines for bank holding companies and state non-member
banks. As fully phased-in at the end of 1992, the guideline for a minimum
ratio of capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the
total capital must consist of common equity, retained earnings and a limited
amount of qualifying preferred stock, less goodwill ("Tier 1 capital"). The
remainder may consist of subordinated debt, non qualifying preferred stock and
a limited amount of any loan loss allowance ("Tier 2 capital" and, together
with Tier 1 capital, "Total Capital").

In addition, the federal agencies have established minimum leverage
ratio guidelines for bank holding companies and state non-member banks, which
provide for a minimum leverage ratio of Tier 1 capital to adjusted average
quarterly assets ("leverage ratio") equal to 3%, plus an additional cushion of
100 to 200 basis points (i.e., 1%-2%) if the institution has less than the
highest regulatory rating. The guidelines also provide that institutions
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Furthermore the Federal
Reserve's guidelines indicate that the Federal Reserve will continue to consider
a "tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. The Federal Reserve, the FDIC and the
Commissioner have not advised the Company or either Bank of any specific minimum
leverage ratio or tangible Tier 1 leverage ratio applicable to them.

I-8

The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" regarding depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository
institution's capital tier will depend upon how its capital levels compare to
various relevant capital measures and certain other factors, as established by
regulation.

All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 capital ratio, and the leverage
ratio. Under the regulations, a state non-member bank will be (i) well
capitalized if is has a Total Capital ratio of 10% or greater, a Tier 1 capital
ratio of 6% or greater, and leverage ratio of 5% or greater and is not subject
to any order or written directive by a federal bank regulatory agency to meet
and maintain a specific capital level for any capital measure, (ii) adequately
capitalized if is has a Total Capital ratio of 8% or greater, a Tier 1 capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (3% in certain
circumstances), (iii) undercapitalized if it has a Total Capital ratio of less
than 8%, a Tier 1 capital ratio of less than 4% (3% in certain circumstances),
or (iv) critically undercapitalized if its tangible equity is equal to or less
than 2% of average quarterly tangible assets.

As of December 31, 1995, the consolidated capital ratios of the Company
and Banks were as follows:

Regulatory Lincoln Cabarrus
Minimum Company Bank Bank
---------- ------- ---- ----

Tier 1 capital ratio 4.0% 12.58% 10.57% 9.21%
Total capital ratio 8.0% 13.72% 11.82% 10.55%
Leverage ratio 3.0 - 5.0% 9.28% 7.86% 7.50%

FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan for
approval. For a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution comply
with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of 5% of the depository institution's
total assets at the time it became undercapitalized and the amount necessary to
bring the institution into compliance with applicable capital standards. If a
depository institution fails to submit an acceptable plan, it is treated as if
is significantly undercapitalized. If the controlling holding company fails to
fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank
holding company.

Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirement to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.

Because the Company and the Banks exceed applicable capital requirements,
the respective managements of the Company and the Banks do not believe that the
capital adequacy provisions of FDICIA have had any material impact on the
Company and the Bank or their respective operations.

Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add
an interest rate-risk component to risk-based capital requirements.

I-9
14

FDICIA. FDICIA directs that each federal banking regulatory agency
prescribe standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit system, loan documentation, credit underwriting, interest rate exposure,
asset growth compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value
to book value for publicly traded shares, and such other standards as the
agency deems appropriate. These standards are not expected to have material
effect on the Company and the Banks.

FDICIA also contains a variety of other provisions that may affect the
operations of the Company and Banks, including new reporting requirements,
regulatory standards for estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch, and prohibition
on the acceptance or renewal of brokered deposits by depository that are not
well capitalized or are adequately capitalized and have not received a waiver
from the FDIC. Under regulations relating to brokered deposits, the Banks are
well capitalized and not restricted.

ENFORCEMENT POLICIES AND ACTIONS. FIRREA and subsequent federal
legislation significantly increased the enforcement authorities of the FDIC and
other federal depository institution regulators, and authorizes the imposition
of civil money penalties of up to $1 million per day. Persons who are
affiliated with depository institutions can be removed from any office held in
such institution and banned for life from participating in the affairs of any
such institution. The banking regulators have not hesitated to use the new
enforcement authorities provided under FIRREA.

DEPOSITOR PREFERENCE. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expensed and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.

FISCAL AND MONETARY POLICY. Banking is a business which depends on
interest rate differentials. In general, the difference between the interest
paid by a bank on its deposits and it other borrowings, and interest received
by a bank on its loans and securities holdings, constitutes the major portion
of a bank's earnings. Thus, the earnings and growth of the Company and the
Banks are subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate at
which banks may borrow from the Federal Reserve, and the reserve requirements
on deposits. The nature and timing of any changes in such policies and their
effect on the Company and its subsidiaries cannot be predicted.

FDIC INSURANCE ASSESSMENTS. The Banks are subject to FDIC deposit
insurance assessments. Lincoln Bank's deposits are primarily insured by the
FDIC's BIF. Having converted from a thrift charter, Cabarrus Bank's deposits
are insured by the FDIC's SAIF. In 1995, the FDIC adopted a new risk-based
premium schedule which decreased the assessment rates for BIF depository
institutions. Under this schedule, which took effect for assessment periods
after June 1, 1995, the premiums range from $.04 to $.12 for every $100 of
deposits. Prior to June 1, 1995, the premiums ranged from $.23 to $.31 for
every $100 of deposits. Each financial institution is assigned to one of three
capital groups - well capitalized, adequately or undercapitalized - and further
assigned to one of three subgroups within a capital group, on the basis of
supervisory evaluations by the institution's primary federal and, if applicable,
state regulators and other information relevant to the institution's financial
condition and the risk posed to the applicable insurance fund. The actual
assessment rate applicable to particular institution will, therefore, depend in
part upon the risk assessment classification so assigned to the institution by
the FDIC. SAIF-insured deposits are assessed premiums for the SAIF which have
remained unchanged at $.23 to $.31 per $100 of deposits, based upon the
institution's assigned risk category and supervisory evaluation. During the
year ended December 31, 1994 and 1995, Lincoln Bank paid $699,840 and $161,156
in BIF deposit insurance premiums. Cabarrus Bank paid SAIF deposit insurance
premiums of $261,325 and $143,622 in 1994 and 1995, respectively.

I-10
15

BIF and SAIF assessment rates are designed to increase the reserve
ratios (i.e., the ratios of reserves to insured deposits) of these funds to
1.25%. During 1995, the BIF reached 1.25%. As a result, the FDIC refunded BIF
premiums in September 1995, and reduced BIF premiums to almost zero as of
January 1, 1996, with a nominal payment of $2,000 per year for the best-rated
banks. However, SAIF's reserve ratio was 0.47% on December 31, 1995, and its
premiums remain at $.23 to $.31 for every $100 of deposits. The level of all
deposit insurance assessments may be affected by consideration of the levels of
deposit premiums assessed on SAIF members and the much lower levels of reserves
held by the FDIC's SAIF. The reduction in BIF premiums could be adversely
affected by the low levels of SAIF reserves, especially if BIF and SAIF are
combined, as various legislators have considered. Other legislative proposals
generally include a one-time "special assessment" of approximately 0.85% on
SAIF deposits, and as a result, the annual SAIF assessment presumably would be
reduced. See "Legislative and Regulatory Changes."

COMMUNITY DEVELOPMENT ACT. The Community Development Act has
several titles. Title I provides for the establishment of community development
financial institutions to provide equity investments, loans and development
services to financially undeserved communities. A portion of this Title also
contains various provisions regarding reverse mortgages, consumer protections
for qualifying mortgages and hearings for home equity lending, among other
things. Title II provides for small business loan securitization and
securitizations of other loans, including authorizing a study on the impact of
additional securities based on pooled obligations. Small business capital
enhancement is also provided. Title III of the Act provides for paperwork
reduction and regulatory improvement, including certain examination and call
report issues, as well as changes in certain consumer compliance requirements,
certain audit requirements and real estate appraisals, and simplification and
expediting processing of bank holding company applications, merger applications
and securities filings, among other things. It also provides for commercial
mortgage-related securities to be added to the definition of a
"mortgage-related security" in the Exchange Act. This will permit commercial
mortgages to be pooled and securitized, and permit investment in such
instruments without limitation by insured depository institutions. It also
pre-empts state legal investment and blue sky laws related to qualifying
commercial mortgage securities. Title IV deals with money laundering and
currency transaction reports, and Title V reforms the national flood insurance
laws and requirements.

LEGISLATIVE AND REGULATORY CHANGES. Various changes have been
proposed with respect to restructuring and changing the regulation of the
financial services industry. FIRREA required a study of the deposit insurance
system. On February 5, 1991, the Department of the Treasury released
"Modernizing the Financial System; Recommendations for Safer, More Competitive
Banks." Among other matters, this study analyzed and made recommendations
regarding reduced bank competitiveness and financial strength, overextension of
deposit insurance, the fragmented regulatory system and the under capitalized
deposit insurance fund. It proposed restoring competitiveness by allowing
banking organizations to participate in a full range of financial service
outside of insured commercial banks. Deposit insurance coverage would be
narrowed to promote market discipline. Risk based deposit insurance premiums
were proposed with feasibility tested through an FDIC demonstration project
using private reinsurers to provide market pricing for risk based premiums.

Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including North
Carolina. Among other items under consideration are the recapitalization of the
FDIC's SAIF and a possible combination of BIF and SAIF, changes in or repeal of
the Glass-Steagall Act which separates commercial banking form investment
banking and changes in the BHC Act to broaden the powers of "financial services"
companies to own and control depository institutions and engage in activities
not closely related to banking. The United States House of Representatives has
passed a bill freezing the adoption of new regulations. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. It cannot be predicted whether any of these
proposals will be adopted, and, if adopted, how these proposals will affect the
Company and the Banks.

I-11
16

PERSONNEL

As of December 31, 1995, the Company and its subsidiaries employed 181
full-time equivalent employees, none of whom are represented by a collective
bargaining unit. Management of the Company considers relations with its
employees to be excellent.

ITEM 2. PROPERTIES.

The Company's principal executive office is located at 402 East Main
Street, Lincolnton, North Carolina. The Company leases two branch offices of
Cabarrus Bank and two branch office buildings of Lincoln Bank; however, the
Company owns all other branch locations and the Company's operation center.
The buildings of Lincoln Bank were purchased beginning in 1983 and have been
renovated as necessary to accommodate the Company's needs. The buildings of
Cabarrus Bank were acquired as a result of the acquisition of Cabarrus Savings
Bank on January 30, 1992. For Cabarrus Bank, the Kannapolis branch building is
leased from Atlantic American Properties, Inc. in Kannapolis, and the Super-K
branch is leased from International Banking Technologies, Inc. For Lincoln
Bank, the SouthPark branch building is leased from Colony Associates Limited
Partnership, and the Troutman branch is leased from Vernon and Jackie Overcash.
At December 31, 1995, the Company had book values of $2,419,093 for land,
$4,625,449 for buildings and improvements and $1,527,502 for furniture,
fixtures and equipment.

ITEM 3. LEGAL PROCEEDINGS.

The Company's subsidiaries are subject to claims and suits arising
in the ordinary course of business. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1995.

I-12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.

Stock Prices and Dividends

Carolina First BancShares, Inc.'s common stock trades infrequently in
the local Charlotte, North Carolina over-the-counter market (pink sheets)
under the symbol CAFP. Its stock is listed in the The Charlotte Observer
under the Interdealer stock section. The following table sets forth the high
and low bid quotations for the common stock and the cash dividends per share
of common stock paid by the Company for the indicated periods. Such
quotations reflect interdealer prices without markup, markdown, or
commissions and may not necessarily represent actual transactions.

Cash
Dividends
Quarter Ended High Low Per Share
===============================================================================

March 31, 1994 $15.19 $14.29 $.10
June 30, 1994 $16.32 $15.19 $.10
September 30, 1994 $17.23 $16.32 $.10
December 31, 1994 $19.52 $17.23 $.11

March 31, 1995 $20.48 $19.52 $.11
June 30, 1995 $20.95 $20.18 $.11
September 30, 1995 $22.86 $20.95 $.11
December 31, 1995 $27.00 $22.86 $.12

ITEM 6. SELECTED FINANCIAL INFORMATION.

The information contained in the table captioned "Financial
Highlights" on page 1 of the Company's 1995 Annual Report to Shareholders
is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The information contained under the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth on pages 4 through 15 of the Company's 1995 Annual Report to Shareholders
is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION.

The report of KPMG Peat Marwick LLP, independent certified public
accountants, and the consolidated financial statements of the Company, set
forth on pages 16 through 31 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.

Supplementary information is not applicable.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

II - 1

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

The information contained under the heading "Proposal I, Election of
Directors" in the Company's definitive Proxy Statement, dated March 20, 1996
for the 1996 Annual Meeting of Shareholders to be held on April 16, 1996, (the
"Proxy Statement"), filed with the Commission pursuant to Regulation 14A, is
incorporated herein by reference. The information required by this item with
respect to executive officers is set forth above in Part I, Item 4A of this
Annual Report on Form 10-K.

The following list contains certain information regarding the executive
officers of the Company.

D. Mark Boyd, III, age 58, is the Chairman of the Board and Chief
Executive Officer of the Company. He also serves as Chairman of the Board of
Lincoln Bank, a position he has held since its organization. Mr. Boyd served
as interim President of the Bank from November 1989 to June 1990. In addition,
Mr. Boyd has been President of Times Oil Corporation, a fuel and heating oil
distributor, since 1965 and a director of Kentucky Fried Chicken of Lincolnton,
Inc., a fast-food restaurant franchise, since 1968. Since 1974, Mr. Boyd has
served as a director of Carolina Mills, Inc., a manufacturer of yarn, cloth and
furniture in Maiden, N.C.

James E. Burt, III, age 58, has been President of the Company and
Lincoln Bank and Chief Executive Officer of Lincoln Bank since 1990 and
Director of Cabarrus Bank since 1993. Mr. Burt previously served as President
and Chief Executive Officer of Commercial National Bank in Shreveport,
Louisiana from 1980 to 1989.

James A. Atkinson, age 39, has served as Vice President and Auditor
of the Company since April 1992. Mr. Atkinson has served in various bank audit
positions since 1978.

Jan H. Hollar, age 40, has served as the Treasurer of the Company since
December 1990 and Secretary of the Company since October 1995. In addition,
Ms. Hollar has served as the Chief Financial Officer of Lincoln Bank since
November 1990 and principal accounting officer at Cabarrus Bank since January
1993.

ITEM 11. EXECUTIVE COMPENSATION.

The information contained under the heading "Executive Compensation" in
the Company's definitive Proxy Statement, filed with the Commission pursuant to
Regulation 14A, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information contained under the headings "Principal Shareholders"
and "Election of Directors" in the Company's definitive Proxy Statement, filed
with the Commission pursuant to Regulation 14A, is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information contained under heading "Executive Compensation -
Compensation Committee Interlocks and Insider Participation" and "Executive
Compensation - Certain Transactions" in the Company's definitive Proxy
Statement, filed with the Commission pursuant to Regulation 14A, is
incorporated herein by reference.

III - 1
19

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.

Page(s) in
Annual Report*
--------------

(a) The following documents are filed as part of this report:

(1) Financial Statements

Consolidated Balance Sheets at
December 31, 1995 and 1994 17
Consolidated Statements of Income
for the years ended December 31,
1995, 1994 and 1993 18
Consolidated Statements of Changes
in Shareholders' Equity for the
years ended December 31, 1995,
1994 and 1993 19
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993 20
Notes to Consolidated Financial
Statements 21-31
Independent Auditor's Report 16

* Incorporated by reference from the indicated pages of
the 1995 Annual Report.

(2) Financial Statement Schedules N/A

(3) The following Exhibits are filed as part of this report in 14(c).

Exhibit No. Description of Exhibit
- ----------- ----------------------

3.0 Articles of Incorporation of the Registrant, incorporated herein by
reference to Registrant's Registration Statement No. 33-26861.

3.1 Bylaws of the Registrant, incorporated herein by reference to
Registrant's Registration Statement No. 33-26861.

4.0 Specimen of Common Stock certificate of the Registrant, incorporated
herein by reference to Registrant's Registration Statement No. 33-26861.

10.0 Lincoln Bank of North Carolina Deferred Compensation Plan for
Directors, incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.

10.1 Lincoln Bank of North Carolina 1988 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration Statement
No. 33-26861.

IV - 1
20

10.2 Lincoln Bank of North Carolina 1983 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration Statement
No. 33-26861.

10.3 Profit Sharing Plan of Lincoln Bank of North Carolina, incorporated
herein by reference to Registrant's Registration Statement No. 33-26861.

10.4 Registrant's 1990 Stock Option and Stock Appreciation Rights Plan, as
amended incorporated herein by reference to Registrant's Registration
Statement No. 33-43037.

10.5 Employment Agreement and Deferred Compensation Agreement dated July 1,
1992 by and between Carolina First BancShares, Inc. and James E. Burt,
III, incorporated herein by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992, No. 0-17939.

10.6 Employment Agreement dated September 8, 1992 by and between
Lincoln Bank of North Carolina and James R. Beam, incorporated
herein by reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, No. 0-17939.

10.7 Employment Agreement dated September 8, 1992 by and between
Lincoln Bank of North Carolina and Stephen S. Robinson,
incorporated herein by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992, No. 0-17939.

10.8 Employment Agreement dated October 19, 1993 by and between
Lincoln Bank of North Carolina and Carroll G. Heavner,
incorporated herein in reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, No. 0-17939.

11 Calculation of earnings per share.

13 Registrant's 1995 Annual Report to Shareholders.

21 List of Subsidiaries of the Registrant, incorporated herein by
reference to Registrant's Registration Statement No. 33-26861.

(b) Reports on Form 8-K. NONE

(d) Financial Statement Schedules. N/A

23 Consent of Independent Auditors.

27 Financial Data Schedule

IV - 2
21

INDEX TO EXHIBITS

Sequential
Exhibit No. Description of Exhibit
- ----------- ----------------------
Number Pages
- ------------

3.0 Articles of Incorporation of the Registrant, incorporated herein
by reference to Registrant's Registration Statement No. 33-26861.

3.1 Bylaws of the Registrant, incorporated herein by reference to
Registrant's Registration Statement No. 33-26861.

4.0 Specimen of Common Stock certificate of the Registrant,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.

10.0 Lincoln Bank of North Carolina Deferred Compensation Plan for
Directors, incorporated herein by reference to Registrant's
Registration Statement No. 33-26861.

10.1 Lincoln Bank of North Carolina 1988 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.

10.2 Lincoln Bank of North Carolina 1983 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.

10.3 Profit Sharing Plan of Lincoln Bank of North Carolina,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.

10.4 Registrant's 1990 Stock Option and Stock Appreciation Rights Plan,
as amended incorporated herein by reference to Registration
Statement No. 33-43037.

10.5 Employment Agreement and Deferred Compensation Agreement dated
July 1, 1992 by and between Carolina First BancShares, Inc. and
James E. Burt, III, incorporated herein by Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, No.
0-17939.

10.8 Employment Agreement dated October 19, 1993 by and between Lincoln
Bank of North Carolina and Carroll G. Heavner, incorporated herein
by reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993, No. 0-17939.

11 Calculation of earnings per share.

13 Registrant's 1995 Annual Report to Shareholders.

21 List of Subsidiaries of the Registrant.

23 Consent of Independent Auditors

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Lincolnton, State of North Carolina, on the 28th day of March, 1996.

CAROLINA FIRST BANCSHARES, INC.

By: /s/ D. Mark Boyd, III
--------------------------------
D. Mark Boyd, III
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:

Signatures Title Date
----------------------------- --------------------- --------------

Principal Executive Officers:

/s/ D. Mark Boyd, III
----------------------------- Chairman of the Board March 28, 1996
of Directors and Chief
D. Mark Boyd, III Executive Officer

/s/
------------------------------- President and Director March 28, 1996
James E. Burt, III

Principal Financial Officer and
Principal Accounting Officer:

/s/ Jan H. Hollar
------------------------------- Treasurer March 28, 1996
Jan H. Hollar

Directors:

/s/ John R. Boger, Jr.
------------------------------- Director March 28, 1996
John R. Boger, Jr.

/s/ Samuel C. King, Jr.
------------------------------- Director March 28, 1996
Samuel C. King, Jr.

/s/ Harry D. Ritchie
------------------------------- Director March 28, 1996
Harry D. Ritchie

/s/ L. D. Warlick, Jr.
------------------------------- Director March 28, 1995
L. D. Warlick, Jr.

/s/ Estus B. White
------------------------------- Director March 28, 1995
Estus B. White