Bank of the Carolinas Corporation Reports First Quarter Financial Results

For the three month period ended March 31, 2008, the Company reported a net loss of $5,000, as compared to net income of $780,000 in the first quarter of 2007. Diluted earnings per share were $0.00 for the first quarter compared to $0.20 per diluted share for the same period in 2007. First quarter results were significantly affected by the further compression of the Company's net interest margin, increased provision for loan losses and higher levels of non-interest expense versus the year ago period.

For the three months ended March 31, 2008, the Company's net interest margin declined to 2.77% compared to 3.31% for the first quarter of 2007. This decrease was due to the Federal Reserve's aggressive rate cuts during the quarter which led to a 200 basis point drop in the prime rate. Since a significant portion of the Company's loan portfolio adjusts with prime, rapidly declining rates have a negative impact on the Company's margin in the near term. Non-interest income for 2008 grew 5.4%; while non-interest expense rose $594,000 or 21.3% over the year ago quarter. Non-interest expense for the current quarter was impacted by the addition of two full service offices opened during 2007. The Company implemented cost savings measures during the last quarter of 2007 and is committed to controlling non-interest expense during 2008.

The provision for loan losses totaled $314,000 for the quarter versus $62,000 in 2007. The allowance for loan losses was 1.07% of total loans as of March 31, 2008 and annualized net charge-offs were 0.21% of average loans outstanding. Non-performing assets stood at 2.09% of assets as of March 31, 2008, compared to 1.92% three months earlier and 0.72% a year ago. Included in non-performing assets at March 31, 2008, was a $4.9 million credit which has a 75% USDA guarantee.

Total assets at March 31, 2008 amounted to $513.4 million, an increase of 8.6% when compared to the prior year amount of $472.8 million. Net loans increased 13.6% over the prior year to $401.1 million while deposits grew to $427.4 million, a 5.0% increase over the prior year. The Company remains well capitalized and raised an additional $5 million of capital during the quarter through trust preferred securities financing, which is included in Tier 1 capital.

Bank of the Carolinas Corporation is the holding company for Bank of the Carolinas, a state chartered bank headquartered inMocksville, NC with offices inAdvance,Asheboro,Cleveland,Concord,Harrisburg,King,Landis,Lexington andWinston-Salem. Common stock of the Company is traded on the NASDAQ Global 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:

    Eric E. Rhodes
    Chief Financial Officer
    Bank of the Carolinas Corporation
    (336) 751-5755



    Bank of the Carolinas Corporation
    Consolidated Balance Sheets
    (In Thousands Except Share Data)
    (Unaudited)
                                                           March  31,
                                                     2008              2007

    Assets
    Cash and Due from Banks                      $   7,909         $   5,594
    Interest-Bearing Deposits in Banks               5,049               100
    Federal Funds Sold                               3,541            27,467
    Securities Available for Sale                   61,727            58,452

    Loans                                          405,440           356,948
     Less, Allowance for Loan Losses                (4,355)           (3,735)
         Total Loans, Net                          401,085           353,213
    Properties and Equipment                        14,251            11,391
    Other Assets                                    19,795            16,626
         Total Assets                            $ 513,357         $ 472,843

    Liabilities
    Non-interest Bearing Demand Deposits         $  30,589         $  29,603
    Interest Bearing Demand Deposits                57,518            64,377
    Savings Deposits                                26,340            11,428
    Time Deposits                                  312,948           301,808
         Total Deposits                            427,395           407,216

    Borrowings                                      43,155            23,000
    Retail Repurchase Agreements                       554               994
    Other Liabilities                                1,831             3,191
         Total Liabilities                         472,935           434,401

    Shareholders' Equity
    Common Stock, Par Value $5 Per Share:
      Authorized 15,000,000 Shares;
       Issued 3,920,752
      Shares in 2008 and 3,831,692
       Shares in 2007                               19,604            19,158
    Additional Paid-In Capital                      11,721            11,471
    Retained Earnings                                8,275             7,881
    Accumulated Other Comprehensive
     Income (Loss)                                     822               (68)
         Total Shareholders' Equity                 40,422            38,442
         Total Liabilities and
          Shareholders' Equity                   $ 513,357         $ 472,843



    Bank of the Carolinas Corporation
    Consolidated Statements of Income
    (In Thousands Except Share and Per Share Data)
    (Unaudited)
                                                      Three Months Ended
                                                           March 31,
                                                     2008              2007

    Interest Income
       Interest and Fees on Loans                $   7,091         $   7,309
       Interest on Securities                          726               614
       Federal Funds Sold                               76               177
       Deposits in Other Banks                           4                 4
         Total Interest Income                       7,897             8,104

    Interest Expense
       Deposits                                      4,386             4,250
       Borrowed Funds                                  273               285
          Total Interest Expense                     4,659             4,535

    Net Interest Income                              3,238             3,569
       Provision for Loan Losses                       314                62
       Net Interest Income After
        Provision for
         Loan Losses                                 2,924             3,507

    Other Income
       Customer Service Fees                           293               236
       Mortgage Loan Broker Fees                        36                31
       Investment Services                               9                43
       Income from Bank Owned Life
        Insurance                                       88                82
       Other Income                                     26                37
         Total Other Income                            452               429

    Noninterest Expense
       Salaries and Benefits                         1,894             1,517
       Occupancy and Equipment                         499               418
       Other Noninterest Expense                       988               852
         Total Noninterest Expense                   3,381             2,787
       Income (Loss) Before Income Taxes                (5)            1,149
       Income Taxes                                      -               369
    Net Income (Loss)                            $      (5)        $     780

    Earnings Per Share
       Basic                                     $       -         $    0.20
       Diluted                                   $       -         $    0.20

    Weighted Average Shares Outstanding
       Basic                                     3,920,752         3,826,706
       Diluted                                   3,977,182         3,949,095



    Bank of the Carolinas Corporation
    Performance Ratios

                                                    As of or for the
                                              Three Months Ended March 31,
                                               2008       2007       Change*

    Financial Ratios
         Return On Average Assets **           0.00%      0.69%       (69)BP
         Return On Average Shareholders'
          Equity **                           -0.05%      8.27%      (832)
         Net Interest Margin **                2.77%      3.31%       (54)

    Asset Quality Ratios
         Net-chargeoffs to Average Loans **    0.21%      0.07%        14 BP
         Nonperforming Loans To Total
          Loans                                2.07%      0.70%       137
         Nonperforming Assets To Total
          Assets                               2.09%      0.72%       137
         Allowance For Loan Losses To
          Total Loans                          1.07%      1.05%         2

    * BP denotes basis points.
    ** Ratio annualized.

SOURCE Bank of the Carolinas Corporation

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