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): July 22, 2011

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 No.)	(IRS Employer Identification number)
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 July 22, 2011, Bank of the Carolinas Corporation (the “Registrant”) issued a press release announcing its results of operations for the three- and six-month periods ended June 30, 2011. A copy of the Registrant’s press release is attached as exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.

The information contained in Item 2.02 of this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description of Exhibit
99.1	Press Release dated July 22, 2011, regarding the Registrant’s results of operations for the three- and six-month periods ended June 30, 2011

This Current Report on Form 8-K (including information included or incorporated by reference herein) may contain, among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, (i) statements regarding certain of Registrant’s goals and expectations with respect to earnings, income per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by, or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or similar expressions. These statements are based upon the current belief and expectations of Registrant’s management and are subject to significant risks and uncertainties that are subject to change based on various factors (many of which are beyond Registrant’s control).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

BANK OF THE CAROLINAS CORPORATION
By:	/s/ Eric E. Rhodes
	Eric E. Rhodes
	Executive Vice President and Chief Financial Officer

Dated: July 27, 2011

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1	Press Release dated July 22, 2011, regarding the Registrant’s results of operations for the three- and six-month periods ended June 30, 2011

EX-99.1

Exhibit 99.1

PRESS RELEASE

For Immediate Release

Bank of the Carolinas Corporation Reports

Second Quarter Financial Results

MOCKSVILLE, NORTH CAROLINA, July 22, 2011 - Bank of the Carolinas Corporation (Nasdaq: BCAR) today reported financial results for the three- and six-month periods ended June 30, 2011.

For the three-month period ended June 30, 2011, the Company reported a net loss available to common shareholders of $9.9 million as compared to a net loss of $3.4 million for the first quarter of 2011 and a net loss of $415,000 for the second quarter of 2010. The net loss per diluted common share was $2.53 for the second quarter of 2011 compared with a net loss per share of $0.88 for the first quarter of 2011 and a net loss per share of $0.11 for the second quarter of 2010.

Second quarter results were significantly impacted by increased provisions for loan losses and by valuation provisions related to foreclosed real estate. The continued decline in real estate values related to non-performing collateral dependent loans led to the provision for loan losses increasing to $6.6 million in the second quarter of 2011 as compared to $2.3 million in the first quarter of 2011 and $1.1 million in the second quarter a year ago. Additionally, the Company did an extensive revaluation of its foreclosed real estate resulting in valuation provisions of $2.4 million in the second quarter of 2011. Also during the second quarter, the Company took a $273,000 charge in connection with the prepayment of a $10.0 million long-term borrowing as part of a balance sheet restructuring that will be accretive to the Company’s capital ratios, earnings, and net interest margin on a prospective basis starting in the third quarter.

For the six-month period ended June 30, 2011, the Company reported a net loss available to common shareholders of $13.3 million or $3.41 per common share, compared to a net loss of $877,000 or $0.23 per common share for the six month period of 2010.

The Company’s net interest margin was 2.69% in the second quarter of 2011. Excluding the one-time prepayment charge on the long-term borrowing referenced above, the net interest margin would have been 2.92% for the second quarter, down slightly from 3.02% in the previous quarter of 2011 and down from 3.39% in the second quarter in 2010.

Noninterest expense year to date, excluding the costs related to foreclosed real estate, only increased 1.1% in 2011 versus 2010 and for the three month periods increased 7.4% in the second quarter of 2011 versus 2010. The increase quarter over quarter was mainly driven by increased FDIC premiums and costs related to the Company’s compliance with the regulatory consent order put in place in the second quarter.

As of June 30, 2011, the Company’s nonperforming assets decreased to $33.1 million and amounted to 6.35% of total assets as compared to $37.2 million or 6.93% of total assets as of the previous sequential quarter-end and compared to $20.8 million, or 3.86% of total assets as of June 30, 2010. The allowance for loan losses was 1.93% of total loans as of June 30, 2011. Net loan charge-offs amounted to $8.2 million for the second quarter of 2011, an increase from $894,000 in the first quarter of 2011 and $957,000 in the second quarter of 2010.

Total assets at June 30, 2011 amounted to $521.0 million, a decrease of 3.5% when compared to $539.9 million as of June 30, 2010. Loans totaled $345.6 million at June 30, 2011, a decline of 6.3% from a year earlier, and deposits increased 2.9% over the prior year to $426.1 million.

The Company’s banking subsidiary had a Tier 1 leverage capital ratio and Tier 1 capital to risk-weighted assets ratio of 5.95% and 7.92% respectively, while its total capital to risk-weighted assets ratio was 9.17% as of June 30, 2011.

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

Executive Vice President and Chief Financial Officer

Bank of the Carolinas Corporation

(336) 998-1799 x 2231

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)

	June 30,
	2011			2010
Assets:
Cash and due from banks, noninterest-bearing	$	10,172		$	3,467
Temporary investments		12,431			7,462
Investment securities		118,534			121,916
Loans		345,617			368,843
Less, allowance for loan losses		(6,685	)		(7,180	)
Total loans, net		338,932			361,663
Premises and equipment, net		12,681			13,496
Other real estate owned		6,066			9,181
Bank owned life insurance		10,549			10,189
Other assets		11,678			12,482
Total Assets	$	521,043		$	539,856
Liabilities:
Noninterest bearing demand deposits	$	38,176		$	37,581
Interest-checking deposits		37,139			34,765
Savings and money market deposits		107,717			141,834
Time deposits		243,066			199,807
Total deposits		426,098			413,987
Securities sold under repurchase agreements		45,710			45,755
Federal Home Loan Bank advances		10,000			25,000
Subordinated debt		7,855			7,855
Other liabilities		2,235			1,797
Total Liabilities		491,898			494,394
Shareholders’ Equity:
Preferred stock, no par value		13,179			13,179
Discount on preferred stock		(856	)		(1,121	)
Common stock, $5 par value per share		19,486			19,486
Additional paid-in capital		12,983			12,990
Retained earnings (loss)		(16,571	)		(576	)
Accumulated other comprehensive income		924			1,504
Total Shareholders’ Equity		29,145			45,462
Total Liabilities and Shareholders’ Equity	$	521,043		$	539,856
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	$	4.10		$	8.28

Bank of the Carolinas Corporation

Consolidated Statements of Income

(In Thousands Except Share Data)

(Unaudited)

	Three months ended June 30						Six months ended June 30
	2011			2010			2011			2010
Interest income
Interest and fees on loans	$	4,489		$	5,324		$	9,139		$	10,707
Interest on securities		845			851			1,599			1,785
Other interest income		15			16			26			33
Total interest income		5,349			6,191			10,764			12,525
Interest expense
Interest on deposits		1,176			1,209			2,330			2,658
Interest on borrowed funds		891			684			1,504			1,356
Total interest expense		2,067			1,893			3,834			4,014
Net interest income		3,282			4,298			6,930			8,511
Provision for loan losses		6,572			1,086			8,917			2,002
Net interest income after provision for loan losses		(3,290	)		3,212			(1,987	)		6,509
Noninterest income
Customer service fees		328			330			633			645
Increase in value of banked owned life insurance		89			90			178			179
Gains on investment securities		6			94			6			190
Other income (loss)		2			(2	)		10			1
Total noninterest income		425			512			827			1,015
Noninterest expense
Salaries and benefits		1,604			1,799			3,190			3,714
Occupancy and equipment		527			533			1,069			1,128
FDIC insurance assessments		334			263			604			562
Data processing expense		224			191			436			397
Valuation provisions and net operating costs associated with foreclosed real estate		2,747			343			2,997			712
Other		1,323			952			2,386			1,803
Total noninterest expenses		6,759			4,081			10,682			8,316
Loss before income taxes		(9,624	)		(357	)		(11,842	)		(792	)
Provision for income taxes		—			(169	)		996			(369	)
Net loss	$	(9,624	)	$	(188	)	$	(12,838	)	$	(423	)
Dividends and accretion on preferred stock		(232	)		(227	)		(464	)		(454	)
Net loss available to common shareholders	$	(9,856	)	$	(415	)	$	(13,302	)	$	(877	)
Loss per common share:
Basic	$	(2.53	)	$	(0.11	)	$	(3.41	)	$	(0.23	)
Diluted	$	(2.53	)	$	(0.11	)	$	(3.41	)	$	(0.23	)
Weighted Average Common Shares Outstanding:
Basic		3,897,174			3,897,174			3,897,174			3,897,174
Diluted		3,897,174			3,897,174			3,897,174			3,897,174

Bank of the Carolinas Corporation

Other Financial Data

(Dollars in thousands except per share amounts)

	As of or for the six months ended June 30
	2011				2010				Change*
Average balance sheet data
Average loans	$	359,073			$	379,172				(5.30	)	%
Average earning assets		489,116				523,961				(6.65	)
Average total assets		539,518				570,948				(5.50	)
Average common shareholders’ equity		25,818				32,387				(20.28	)
Average total shareholders’ equity		38,997				45,566				(14.42	)
Period-end balance sheet data:
Total loans	$	345,617			$	368,843				(6.30	)	%
Allowance for loan losses		(6,685	)			(7,180	)			(6.89	)
Total assets		521,043				539,856				(3.48	)
Total deposits		426,098				413,987				2.93
Total common shareholders’ equity		15,966				32,283				(50.54	)
Total shareholders’ equity		29,145				45,462				(35.89	)
Asset quality indicators
Net loan charge-offs	$	9,095			$	2,989				204.23		%
Total nonperforming loans		27,032				11,642				132.21
Total nonperforming assets		33,098				20,822				58.96
Asset quality ratios
Net-chargeoffs (recoveries) to average loans **		5.11		%		1.59		%		352		BP
Nonperforming loans to total loans		7.82				3.16				467
Nonperforming assets to total assets		6.35				3.86				250
Nonperforming assets to loan-related assets		9.41				5.51				390
Allowance for loan losses to total loans		1.93				1.95				(1	)
Financial ratios
Return on average assets **		(4.80	)	%		(0.15	)	%		(465	)	BP
Return on average common shareholders’ equity **		(103.90	)			(5.46	)			(9,844	)
Net interest margin **		2.86				3.28				(42	)
Per share amounts available to common shareholders
Basic earnings (loss) per common share	$	(3.41	)		$	(0.23	)			(1,382.61	)	%
Diluted earnings (loss) per common share		(3.41	)			(0.23	)			(1,382.61	)
Book value per common share		4.10				8.28				(50.54	)

* bps denotes basis points.

** ratio annualized.

Bank of the Carolinas Corporation

Other Financial Data (continued)

(Dollars in thousands except per share amounts)

	As of or for the three months ended June 30
	2011				2010				Change*
Average balance sheet data
Average loans	$	353,685			$	372,571				(5.07	)	%
Average earning assets		488,919				508,996				(3.94	)
Average total assets		538,516				555,762				(3.10	)
Average common shareholders’ equity		23,075				32,376				(28.73	)
Average total shareholders’ equity		36,254				45,555				(20.42	)
Asset quality indicators
Net loan charge-offs	$	8,200			$	957				757.26		%
Asset quality ratios
Net-chargeoffs (recoveries) to average loans **		9.30		%		1.03		%		827		BP
Financial ratios
Return on average assets **		(7.17	)	%		(0.14	)	%		(703	)	BP
Return on average common shareholders’ equity **		(171.32	)			(5.14	)			(16,618	)
Net interest margin **		2.69				3.39				(70	)
Per share amounts available to common shareholders
Basic earnings (loss) per common share	$	(2.53	)		$	(0.11	)			(2,200.00	)	%
Diluted earnings (loss) per common share		(2.53	)			(0.11	)			(2,200.00	)
Book value per common share		4.10				8.28				(50.54	)

* bps denotes basis points.

** ratio annualized.