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): October 27, 2010

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 October 28, 2010, we issued a press release announcing our results of operations for the three and nine months ended September 30, 2010. A copy of our press release is being furnished as Exhibit 99.01 to this Report.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On October 27, 2010, the Board of Directors of our wholly-owned subsidiary, Bank of the Carolinas, based on the recommendation of the joint Corporate Governance Committee of our and the Bank’s Boards, approved a base salary of $125,000 per year for Stephen R. Talbert who, as previously reported, was appointed by the Boards on September 17, 2010, to serve as President and Chief Executive Officer of both companies.

Item 8.01. Other Events

On October 27, 2010, our Board of Directors and the Board of our wholly-owned subsidiary, Bank of the Carolinas, elected Dr. Francis W. Slate to serve as Chairman of both Boards. Dr. Slate previously had been designated by our Board as its Lead Independent Director.

Item 9.01. Financial Statements and Exhibits.

Exhibits. The following exhibit is furnished with this Report:

Exhibit No.	Exhibit Description
99.01	Copy of our press release dated October 28, 2010

Disclosures About Forward-Looking Statements

This Report and its exhibits contain statements relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts, may be forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, 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 SEC’s Internet website at www.sec.gov. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “feels,” “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. Factors that could influence the accuracy of forward-looking statements include, but are not limited to (a) pressures on our earnings, capital and liquidity resulting from current and future conditions in the credit and capital markets, (b) continued or unexpected increases in nonperforming loans and credit losses in our loan portfolio, (c) continued adverse conditions in the economy and in the real estate market in our banking markets (particularly those conditions that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of collateral that secures our loans), (d) the financial success or changing strategies of our customers, (e) actions of government regulators, or change in laws, regulations or accounting standards, that adversely affect our business,

(f) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the values of loans we make and securities we hold, (g) changes in competitive pressures among depository and other financial institutions or in our ability to compete effectively against other financial institutions in our banking markets, and (h) other developments or changes in our business that we do not expect. Although we believe that the expectations reflected in the forward-looking statements included in this Report are reasonable, they represent our management’s judgments only as of the date they are made, and we cannot guarantee future results, levels of activity, performance or achievements. As a result, readers are cautioned not to place undue reliance on these forward-looking statements. 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, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	BANK OF THE CAROLINAS CORPORATION
	(Registrant)
Date: October 29, 2010	By:	/s/ Eric E. Rhodes
		Eric E. Rhodes
		Chief Financial Officer

EX-99.01

Exhibit 99.01

PRESS RELEASE

For Immediate Release

Bank of the Carolinas Corporation Reports

Third Quarter Financial Results

MOCKSVILLE, NORTH CAROLINA, October 28, 2010 - Bank of the Carolinas Corporation (Nasdaq: BCAR) today reported financial results for the three- and nine-month periods ended September 30, 2010.

For the three-month period ended September 30, 2010, the Company reported a net income of $82,000, as compared to a net income of $782,000 in the third quarter of 2009. Excluding the effect of one-time gains on sale of the securities in the periods, the current year quarter would have been an improvement over the previous year. On a linked quarterly basis, net income of $82,000 in the third quarter of 2010 compares to net losses of $188,000 and $235,000 in the second and first quarters of 2010, respectively. After payment of dividends on preferred stock, the net loss available to common shareholders for the three months ended September 30, 2010 was $147,000, or $0.04 per common share, compared to a net income of $470,000, or $0.12 per common share, for the third quarter of 2009.

For the nine-month period ended September 30, 2010, the Company reported a net loss of $341,000, as compared to a net loss of $1,352,000 for the nine-month period of 2009. The net loss available to common shareholders for the nine months ended September 30, 2010 was $1,024,000, or $0.26 per common share, compared to a net loss of $1,763,000, or $0.45 per common share, for the nine month period of 2009.

The improvement in year-to-date 2010 results versus the previous year was driven by stronger core operating results which helped offset increased provisions for loan losses. Operating results have improved due to both an increased net interest margin and reductions in noninterest expenses. The Company’s year-to-date net interest margin increased to 3.30% in 2010 as compared to 2.43% in the previous year. Noninterest expense has been reduced throughout 2010, decreasing from $4.2 million in the first quarter to $3.8 million in the third quarter of 2010.

As of September 30, 2010, the Company’s nonperforming assets totaled $20.2 million and amounted to 3.77% of total assets, compared to total nonperforming assets of $17.5 million, or 2.86% of total assets, as of December 31, 2009, and $15.5 million, or 2.33% of total assets at September 30, 2009.

For the nine-month period ended September 30, 2010, the loan loss provision totaled $2,860,000, an increase of 16.0% from the $2,466,000 recorded in the same period 2009. The allowance for loan losses was 1.73% of total loans as of September 30, 2010, and net charge-offs for the nine-month period represented an annualized percentage of 1.67% of average loans outstanding.

Total assets at September 30, 2010 amounted to $535.5 million, a decrease of 12.3% when compared to the $610.4 million as of December 31, 2009 and a decrease of 19.4% when compared to $664.1 million as of September 30, 2009. The decrease in assets has been a successful strategic decision by the Company to improve its net interest margin and capital ratios. Loans totaled $367.0 million at September 30, 2010, a decline of 6.3% from a year earlier, and deposits fell 23.9% over the prior year to $415.0 million.

The Company continues to be well capitalized with a Tier 1 leverage ratio of 8.57% and a total capital to risk-weighted assets ratio of 12.43% as of September 30, 2010.

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

For further information contact:

Eric E. Rhodes

Chief Financial Officer

Bank of the Carolinas

(336) 998-1799 x 220

DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS

Statements in this press release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts, may be forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, 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 SEC’s Internet website at www.sec.gov. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “feels,” “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. Factors that could influence the accuracy of forward-looking statements include, but are not limited to (a) pressures on our earnings, capital and liquidity resulting from current and future conditions in the credit and capital markets, (b) continued or unexpected increases in nonperforming loans and credit losses in our loan portfolio, (c) continued adverse conditions in the economy and in the real estate market in our banking markets (particularly those conditions that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of collateral that secures our loans), (d) the financial success or changing strategies of our customers, (e) actions of government regulators, or change in laws, regulations or accounting standards, that adversely affect our business, (f) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the values of loans we make and securities we hold, (g) changes in competitive pressures among depository and other financial institutions or in our ability to compete effectively against other financial institutions in our banking markets, and (h) other developments or changes in our business that we do not expect. Although we believe that the expectations reflected in the forward-looking statements included in this press release are reasonable, they represent our management’s judgments only as of the date they are made, and we cannot guarantee future results, levels of activity, performance or achievements. As a result, readers are cautioned not to place undue reliance on these forward-looking statements. 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.

Bank of the Carolinas Corporation

Consolidated Balance Sheets

(In Thousands Except Share Data)

(Unaudited)

	September 30,
	2010			2009
Assets:
Cash and due from banks, noninterest-bearing	$	11,690		$	44,519
Temporary investments		5,557			24,136
Investment securities		113,021			165,499
Loans		367,021			391,592
Less, allowance for loan losses		(6,342	)		(6,197	)
Total loans, net		360,679			385,395
Premises and equipment, net		13,370			14,289
Other real estate owned		8,571			8,471
Bank owned life insurance		10,280			9,917
Other assets		12,321			11,875
Total Assets	$	535,489		$	664,101
Liabilities:
Noninterest bearing demand deposits	$	35,531		$	38,139
Interest-checking deposits		32,768			31,529
Savings and money market deposits		126,782			275,749
Time deposits		219,877			199,827
Total deposits		414,958			545,244
Securities sold under repurchase agreements		45,870			46,358
Federal Home Loan Bank advances		20,000			15,000
Subordinated debt		7,855			7,855
Other liabilities		1,509			1,651
Total Liabilities		490,192			616,108
Shareholders’ Equity:
Preferred stock, no par value		13,179			13,179
Discount on preferred stock		(1,056	)		(1,306	)
Common stock, $5 par value per share		19,486			19,486
Additional paid-in capital		12,989			12,972
Retained earnings (loss)		(724	)		2,304
Accumulated other comprehensive income		1,423			1,358
Total Shareholders’ Equity		45,297			47,993
Total Liabilities and Shareholders’ Equity	$	535,489		$	664,101
Preferred shares authorized		3,000,000			3,000,000
Preferred shares issued and outstanding		13,179			13,179
Common shares authorized		15,000,000			15,000,000
Common shares issued and outstanding		3,897,174			3,897,174
Book value per common share	$	8.24		$	8.93

Bank of the Carolinas Corporation

Consolidated Statements of Income

(In Thousands Except Share Data)

(Unaudited)

	Three months ended September 30						Nine months ended September 30
	2010			2009			2010			2009
Interest income
Interest and fees on loans	$	5,102		$	5,875		$	15,809		$	17,904
Interest on securities		822			1,641			2,607			4,539
Other interest income		12			13			45			56
Total interest income		5,936			7,529			18,461			22,499
Interest expense
Interest on deposits		1,181			2,657			3,839			9,843
Interest on borrowed funds		641			776			1,997			2,364
Total interest expense		1,822			3,433			5,836			12,207
Net interest income		4,114			4,096			12,625			10,292
Provision for loan losses		858			1,046			2,860			2,466
Net interest income after provision for loan losses		3,256			3,050			9,765			7,826
Noninterest income
Customer service fees		316			369			961			1,019
Increase in value of banked owned life insurance		91			92			270			272
Gains on sale of investment securities		178			1,246			368			1,341
Other income		4			8			5			31
Total noninterest income		589			1,715			1,604			2,663
Noninterest expense
Salaries and benefits		1,686			1,611			5,400			4,959
Occupancy and equipment		537			553			1,665			1,647
FDIC insurance assessments		155			217			717			932
Data processing expense		210			330			607			785
Valuation provisions and net operating costs associated with foreclosed real estate		349			297			1,061			1,759
Other		857			838			2,660			2,735
Total noninterest expenses		3,794			3,846			12,110			12,817
Income (loss) before income taxes		51			919			(741	)		(2,328	)
Provision for income taxes		(31	)		137			(400	)		(976	)
Net income (loss)	$	82		$	782		$	(341	)	$	(1,352	)
Dividends and accretion on preferred stock		(229	)		(312	)		(683	)		(411	)
Net income (loss) available to common shareholders	$	(147	)	$	470		$	(1,024	)	$	(1,763	)
Loss per common share:
Basic	$	(0.04	)	$	0.12		$	(0.26	)	$	(0.45	)
Diluted	$	(0.04	)	$	0.12		$	(0.26	)	$	(0.45	)
Weighted Average Common Shares Outstanding:
Basic		3,897,174			3,897,174			3,897,174			3,893,350
Diluted		3,897,174			3,901,735			3,897,174			3,893,350

Bank of the Carolinas Corporation

Other Financial Data

(Dollars in thousands except per share amounts)

	As of or for the three months ended September 30									As of or for the nine months ended September 30
	2010			2009			Change*			2010			2009			Change*
Average balance sheet data
Average loans	$	367,820		$	399,173			(7.85	)%	$	375,346		$	404,860			(7.29	)%
Average earning assets		486,638			594,599			(18.16	)		511,383			566,571			(9.74	)
Average total assets		537,258			669,202			(19.72	)		559,594			618,918			(9.59	)
Average common shareholders’ equity		32,703			42,907			(23.78	)		32,494			35,946			(9.60	)
Average total shareholders’ equity		45,882			56,086			(18.19	)		45,673			44,008			3.78
Period-end balance sheet data:
Total loans										$	367,021		$	391,592			(6.27	)%
Allowance for loan losses											(6,342	)		(6,197	)		2.34
Total assets											535,489			664,101			(19.37	)
Total deposits											414,958			545,244			(23.89	)
Total common shareholders’ equity											32,118			34,814			(7.74	)
Total shareholders’ equity											45,297			47,993			(5.62	)
Asset quality indicators
Net loan charge-offs	$	1,695		$	1,563			n/m	%	$	4,685		$	2,577			81.78	%
Total nonperforming loans											11,634			7,021			65.70
Total nonperforming assets											20,205			15,492			30.42
Asset quality ratios
Net-chargeoffs (recoveries) to average loans **		1.83	%		1.55	%		28	BP		1.67	%		0.85	%		82	BP
Nonperforming loans to total loans											3.17			1.79			138
Nonperforming assets to total assets											3.77			2.33			144
Nonperforming assets to loan-related assets											5.38			3.87			151
Allowance for loan losses to total loans											1.73			1.58			15
Financial ratios
Return on average assets **		0.06	%		0.46	%		(40	)BP		(0.08	)%		(0.29	)%		21	BP
Return on average common shareholders’ equity **		(1.78	)		(2.88	)		110			(4.21	)		(6.76	)		255
Net interest margin **		3.35			2.73			62			3.30			2.43			87

Per share amounts available to common shareholders
Basic earnings (loss) per common share	$	(0.04	)	$	0.12	133.33	%	$	(0.26	)	$	(0.45	)	42.22	%
Diluted earnings (loss) per common share		(0.04	)		0.12	133.33			(0.26	)		(0.45	)	42.22
Book value per common share		8.24			8.93	(7.74	)		8.24			8.93		(7.74	)

* bps denotes basis points.

** ratio annualized.