8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 1, 2008

BANK OF THE CAROLINAS CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina	000-52195	20-4989192
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

135 Boxwood Village Drive Mocksville, North Carolina	27028
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (336) 751-5755

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

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

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

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

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

Item 2.02. Results of Operations and Financial Condition.

On August 1, 2008, we distributed a press release announcing our results of operations for the three and six months ended June 30, 2008. A copy of our press release is being furnished as Exhibit 99.1 to this Report.

Item 9.01. Financial Statements and Exhibits.

Exhibits. The following Exhibit is being furnished with this Report.

Exhibit No.	Exhibit Description
99.1	Copy of our press release dated August 1, 2008

Disclosures About Forward Looking Statements

This Report and its exhibits contain statements relating to our financial condition, results of operations, plans, strategies, trends, results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts. Those statements, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of our management about future events. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors discussed in our Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission from time to time. Copies of those reports are available directly through the Commission’s website at www.sec.gov. Other factors that could influence the accuracy of such forward-looking statements include, but are not limited to, (a) changes in competitive pressures among depository and other financial institutions or in our ability to compete successfully against the larger financial institutions in our banking markets; (b) the financial success or changing strategies of our customers; (c) actions of government regulators, or changes in laws, regulations or accounting standards that adversely affect our business; (d) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the volumes and values of loans we make and securities we hold; (e) changes in general economic or business conditions and real estate values in our banking market (particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan collateral); and (f) the impact on financial institutions in general of recent adverse conditions in the banking industry and the credit and securities markets. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements in this paragraph. We have no obligation, and do not intend, to update these forward-looking statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, we have duly caused this Report to be signed on our behalf by the undersigned thereunto duly authorized.

	BANK OF THE CAROLINAS CORPORATION
		(Registrant)
Date: August 4, 2008	By:	/S/    Robert E. Marziano
		Robert E. Marziano
		Chairman and Chief Executive Officer

EX-99.1

Exhibit 99.1

PRESS RELEASE

For Immediate Release

Bank of the Carolinas Corporation Reports Second Quarter Financial Results

MOCKSVILLE, NORTH CAROLINA, August 1, 2008 — Bank of the Carolinas Corporation (Nasdaq Capital Market: BCAR), today reported financial results for the three and six months ended June 30, 2008.

For the three-month period ended June 30, 2008, the Corporation incurred a net loss of $259,000, as compared to net income of $592,000 in the second quarter of 2007. Diluted income (loss) per share was ($.07) for the second quarter of 2008 compared to income of $.15 for the comparable quarter of 2007. For the six-month period ended June 30, 2008, the Bank reported a net loss of $264,000 compared to net income of $1,372,000 for the same six-month period of 2007. Diluted income (loss) per share amounted to ($.07) for the six-month period ended June 30, 2008 compared to income of $.35 per diluted share for the same period of 2007.

In discussing the Company’s results, Robert Marziano, President and CEO, stated, “We are very disappointed with our results, not only for the second quarter, but year-to-date in 2008. This is a trying economic environment, and our results reflect that. Along with many of our peers, Bank of the Carolinas has experienced increased levels of non-performing assets over the last year. However, based on our best determination of current market values, our bank has written down these assets to realizable amounts, reserved for potential losses and we remain well-capitalized. While excessive land development and construction credits have proven troublesome to the industry, these loans at Bank of the Carolinas remain relatively stable at a modest 14.6% of our portfolio.”

Addressing liquidity and expense control, Marziano continued, “As evidenced by a $19.7 million increase in our savings balances at June 30, 2008 compared to June 30, 2007, a key focal point for our bank is to increase core funding so that we are less dependent on volatile liabilities and, therefore, less sensitive to interest rate swings. Additionally, we have reduced and will continue to reduce costs where doing so does not adversely impact our ability to serve our loyal customers. We regard our customers as our greatest asset.”

The Company’s non-performing assets were $14.4 million at June 30, 2008, or 3.6% of outstanding loans. While the reported amount is at a historically high level, it is inflated by the inclusion of one credit relationship of approximately $4.9 million for which 75% of any loss incurred by the Bank is guaranteed by the US Department of Agriculture. Presently the Bank expects no significant loss with regard to that particular credit. Excluding this credit, non-performing assets would amount to $9.5 million, or 2.3% of outstanding loans.

Principal factors leading to the decrease in net income for the three and six-month periods ended in 2008, relative to 2007, were a decline in the Company’s net interest income, an increase in the provision for loan losses and increased non-interest expense. For the six-month period ended in 2008, the net interest margin declined to 2.75% from 3.35% in 2007. For the six-month period ended June

30, 2008, approximately $197,000 or 15.0% of the decline in our net interest margin was attributable to the loss of income associated with non-accrual loans. The increase in the provision for loan losses of $621,000 for the six-months ended June 30, 2008 relative to 2007 was related to additions to specific reserves for impaired loans the Company identified. While non-interest expense overall was stable from the first to second quarters of 2008, for the comparable six-month periods, 2008 non-interest expense increased approximately $1.1 million over 2007 levels. Salaries and benefits increased $761,000, occupancy expense increased $141,000 and other non-interest expense increased $204,000 for the current year period. The increased salary and benefit and occupancy expense levels are comprised of normal salary adjustments plus increased staffing and occupancy costs associated with two banking offices opened in mid-2007. The Company experienced growth in non-interest income of 9.7% and 7.7%, respectively, for the three and six month periods in 2008 versus 2007.

Total assets at June 30, 2008 amounted to $511.9 million, an increase of 12.1% when compared to the June 30, 2007 amount of $456.9 million. Net loans increased 14.1% over the prior year to $402.2 million, while deposits grew to $414.3 million, a 7.1% increase. The allowance for loan losses was 1.12% of total loans as of June 30, 2008, and the ratio of annualized net charge-offs to average loans was 0.40%.

Bank of the Carolinas Corporation is the holding company for Bank of the Carolinas, a state chartered bank headquartered in Mocksville, NC with offices in Advance, Asheboro, Cleveland, Concord, Harrisburg, King, Landis, Lexington and Winston-Salem. Common stock of the Company is traded on the NASDAQ Capital Market under the symbol BCAR.

This press release contains forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current projections. Bank of the Carolinas Corporation undertakes no obligation to revise these statements following the date of this press release.

For further information contact:

Michelle L. Clodfelter

Principal Financial Officer

Bank of the Carolinas

(336) 751-5755

Bank of the Carolinas Corporation

Consolidated Balance Sheets

(In Thousands, Except Share Data)

(Unaudited)

	June 30
	2008			2007
Assets
Cash and Due from Banks	$	8,047		$	5,364
Interest-Bearing Deposits in Banks		7,834			3,418
Federal Funds Sold		—			969
Securities Held to Maturity		1,000			—
Securities Available for Sale		57,448			64,564
Loans		406,713			355,750
Less, Allowance for Loan Losses		(4,538	)		(3,425	)
Total Loans, Net		402,175			352,325
Properties and Equipment		15,181			12,303
Other Assets		20,228			17,910
Total Assets	$	511,913		$	456,853
Liabilities
Non-interest Bearing Demand Deposits	$	32,683		$	30,613
Interest Bearing Demand Deposits		59,408			62,296
Savings Deposits		31,672			12,012
Time Deposits		290,582			282,072
Total Deposits		414,345			386,993
Borrowings		46,155			26,500
Fed Funds Purchased and Repurchase Agreements		10,203			2,111
Other Liabilities		1,446			2,556
Total Liabilities		472,149			418,160
Shareholders’ Equity
Common Stock, Par Value $5 Per Share:
Authorized 15,000,000 Shares; Issued 3,987,374 Shares in 2008 and 3,852,992 Shares in 2007		19,937			19,265
Additional Paid-In Capital		11,828			11,505
Retained Earnings		7,816			8,281
Accumulated Other Comprehensive Income (Loss)		183			(358	)
Total Shareholders’ Equity		39,764			38,693
Total Liabilities and Shareholders' Equity	$	511,913		$	456,853

Bank of the Carolinas Corporation

Consolidated Statements of Operation

(In Thousands, Except Share and Per Share Data)

(Unaudited)

	Three Months Ended June 30					Six Months Ended June 30
	2008			2007		2008			2007
Interest Income
Interest and Fees on Loans	$	6,603		$	7,285	$	13,694		$	14,594
Interest on Securities		710			699		1,436			1,313
Federal Funds Sold		38			184		114			361
Deposits in Other Banks		2			1		6			5
Total Interest Income		7,353			8,169		15,250			16,273
Interest Expense
Deposits		3,808			4,311		8,194			8,561
Borrowed Funds		388			303		661			588
Total Interest Expense		4,196			4,614		8,855			9,149
Net Interest Income		3,157			3,555		6,395			7,124
Provision for Loan Losses		781			412		1,095			474
Net Interest Income After Provision for Loan Losses		2,376			3,143		5,300			6,650
Other Income
Customer Service Fees		347			266		639			502
Mortgage Loan Broker Fees		31			31		67			62
Investment Services		6			56		15			99
Increase in CSV of Life Insurance		92			86		180			168
Other Income		42			33		69			70
Total Other Income		518			472		970			901
Noninterest Expense
Salaries and Benefits		1,802			1,418		3,696			2,935
Occupancy and Equipment		481			421		980			839
Other Noninterest Expense		1,008			940		1,996			1,792
Total Noninterest Expense		3,291			2,779		6,672			5,566
Income (Loss) Before Income Taxes		(397	)		836		(402	)		1,985
Income Taxes		(138	)		244		(138	)		613
Net Income (Loss)	$	(259	)	$	592	$	(264	)	$	1,372
Net Income (Loss) Per Share
Basic	$	(0.07	)	$	0.15	$	(0.07	)	$	0.36
Diluted	$	(0.07	)	$	0.15	$	(0.07	)	$	0.35
Weighted Average Shares Outstanding
Basic		3,967,400			3,837,533		3,944,205			3,833,146
Diluted		3,967,400			3,943,364		3,944,205			3,947,383

Bank of the Carolinas Corporation

Performance Ratios

	As of or for the Six Months Ended June 30
	2008		2007		Change*
Financial Ratios
Return On Average Assets **	-0.10	%	0.60	%	(70	) BP
Return On Average Shareholders’ Equity **	-1.33	%	7.18	%	(851	)
Net Interest Margin **	2.75	%	3.35	%	(60	)
Asset Quality Ratios
Net-chargeoffs to Average Loans **	0.40	%	0.44	%	(4	) BP
Nonperforming Loans To Total Loans	2.95	%	0.95	%	200
Nonperforming Assets To Total Assets	2.82	%	0.96	%	186
Allowance For Loan Losses To Total Loans	1.12	%	0.96	%	16

* BP denotes basis points

** Ratio Annualized