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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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ANNUAL REPORT UNDER SECTION 13 OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

Commission File Number: 000-31877



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CAROLINA BANK HOLDINGS, INC.

(Exact Name of registrant as specified in its charter)



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NORTH CAROLINA

(State of
Incorporation)

56-2215437

(I.R.S. Employer Identification No.)

528 COLLEGE ROAD

GREENSBORO, NORTH CAROLINA 27410

(Address of Principal Office)

(336) 288-1898

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(g) of the Act:

COMMON
STOCK, $1.00 PAR VALUE



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Check
whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ̈

NOTE  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from
their obligations under those Sections.

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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 ̈

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).YES ̈NO  x

The Registrants revenues for the year ended December 31, 2006 were $28,631,000.

The aggregate market value of the voting stock held by non-affiliates of the Registrant at February 23, 2007 was approximately $40,791,000.

The number of shares of the Registrants Common Stock outstanding on February 23, 2007 was 2,722,388.

Documents Incorporated by Reference:



|1. | Proxy Statement for the 2007 Annual Meeting of Shareholders (Parts II and III).
|-- | -------------------------------------------------------------------------------

Transitional Small Business Disclosure Format    YES ̈NO  x



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FORM 10-KSB CROSS-REFERENCE INDEX



|         |  |             |  |                                                                                                                                       |  |    |  |  
|-------- |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | -
|         |  | Form 10-KSB |  | Proxy Statement                                                                                                                      
|PART I   |  |             |  |                                                                                                                                      
|         |  |             |  |                                                                                                                                      
|Item 1   |  |            |  | Description of Business                                                                                                               |  | 3  |  |  
|Item 2   |  |            |  | Properties                                                                                                                            |  | 7  |  |  
|Item 3   |  |            |  | Legal Proceedings                                                                                                                     |  | 8  |  |  
|Item 4   |  |            |  | Submission of Matters to a Vote of Security Holders                                                                                   |  | 8  |  |  
|         |  |            
|PART II  |  |             |  |                                                                                                                                      
|         |  |             |  |                                                                                                                                      
|Item 5   |  |            |  | Market for Common Equity and Related Shareholder Matters                                                                              |  | 8  |  | X
|Item 6   |  |            |  | Managements Discussion & Analysis                                                                                                    |  | 8  |  | X
|Item 7   |  |            |  | Financial Statements                                                                                                                  |  | 8  |  | X
|Item 8   |  |            |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                                  |  | 8  |  |  
|Item 8A  |  |            |  | Controls and Procedures                                                                                                               |  | 8  |  |  
|Item 8B  |  |            |  | Other Information                                                                                                                     |  | 9  |  |  
|         |  |            
|PART III |  |             |  |                                                                                                                                      
|         |  |             |  |                                                                                                                                      
|Item 9   |  |            |  | Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act |  | 9  |  | X
|Item 10  |  |            |  | Executive Compensation                                                                                                                |  | 9  |  | X
|Item 11  |  |            |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters                                        |  | 9  |  | X
|Item 12  |  |            |  | Certain Relationships and Related Transactions, and Director Independence                                                             |  | 10 |  | X
|Item 13  |  |            |  | Exhibits                                                                                                                              |  | 10 |  |  
|Item 14  |  |            |  | Principal Accountant Fees and Services                                                                                                |  | 11 |  | X



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PART I



|ITEM 1: | DESCRIPTION OF BUSINESS
|------- | -----------------------

General

Carolina Bank Holdings, Inc. was incorporated under the laws of the State of North Carolina on August 19, 2000, at the direction of the Board of Directors of
Carolina Bank, for the purpose of serving as the bank holding company of Carolina Bank. The bank exchanged all of its outstanding shares of capital stock for shares of our common stock on a one-for-one basis, thereby making us its sole shareholder
and bank holding company. Our corporate office is located at 528 College Road, Greensboro, North Carolina.

Carolina Bank is a North Carolina chartered
bank, which incorporated in August 1996 and began banking operations in November 1996. The banks main banking office is located at 2604 Lawndale Drive, Greensboro, North Carolina.

At December 31, 2006, we had 69 full-time equivalent employees.

Business of Carolina Bank Holdings, Inc. and
Carolina Bank

Our only function is the ownership of all of the issued and outstanding stock of the bank and ownership of all of the issued and
outstanding common securities of Carolina Capital Trust, a Delaware business trust formed in December 2004 for the purpose of selling $10,000,000 of trust preferred securities. We do not engage in any separate lines of business other than those of
the bank. The bank engages in a general banking business in Guilford, Alamance and Randolph Counties, North Carolina. Its operations are primarily commercially oriented and directed to individuals and small to medium-sized businesses located in its
market area and its deposits and loans are derived primarily from customers in its geographic market. The bank provides most traditional commercial and consumer banking services, including personal and commercial checking and savings accounts, money
market accounts, certificates of deposit, individual retirement accounts and related business and individual banking services. The banks lending activities are concentrated in commercial lending but also include commercial loans to
small-to-medium sized businesses located primarily in its market area for various purposes, and various consumer-type loans to individuals, including installment loans, credit card products, mortgage loans and equity lines of credit. The bank does
not provide the services of a trust department, but invested in a trust bank in 2004 that provides trust services to community bank customers.

Primary
Market Area

The banks primary service area consists of the Cities of Greensboro, High Point, Burlington and Asheboro, North Carolina and the
areas immediately surrounding Greensboro, High Point, Burlington and Asheboro, all of which are located in Guilford, Alamance and Randolph Counties, North Carolina.

Competition

Commercial banking in the banks primary service area and in North Carolina as a whole is extremely
competitive with state laws permitting state-wide branching. The bank competes directly for deposits in its primary service area with other commercial banks, savings banks, credit unions, agencies issuing United States government securities and all
other organizations and institutions engaged in money market transactions. In its lending activities, the bank competes with all other financial institutions as well as consumer finance companies, mortgage companies and other lenders engaged in the
business of extending credit. In Guilford County, 25 other commercial banks operate 137 full service offices, including all of the largest banks in North Carolina. In Alamance County, 15 other commercial banks operate 49 full service branch offices.
In Randolph County, 15 other commercial banks operate 44 full service branch offices.

Interest rates, both on loans and deposits, and prices of services
are significant competitive factors among financial institutions generally. Office location, office hours, customer service, community reputation and continuity of personnel are also important competitive factors. Many of the banks competitors
have greater resources, broader geographic markets and higher lending limits, and can offer more products and better afford and make more effective



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use of media advertising, support services and electronic technology than the bank. The bank depends on its reputation as a community bank in its local
market, direct customer contact, its ability to make credit and other business decisions locally, and personalized service to counter these competitive disadvantages.

Employees

The bank employed 69 full-time equivalent employees at December 31, 2006. We do not have any officers
or employees who are not also officers or employees of Carolina Bank. None of our employees are covered by a collective bargaining agreement. We believe our relations with our employees to be good.

Regulation

We are extensively regulated under both federal and state
law. Generally, these laws and regulations are intended to protect depositors and borrowers, not shareholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable law or regulation may have a material effect on our business.

THE BANK
HOLDING COMPANY ACT. We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 (BHC Act), as amended, and are required to register as such with the Board of Governors of the Federal Reserve System. A bank
holding company is required to file annual reports and other information regarding its business operations and those of its subsidiaries with the Federal Reserve Board. It is also subject to examination by the Federal Reserve Board and is required
to obtain Federal Reserve Board approval prior to acquiring, directly or indirectly, more than 5% of the voting stock of any bank, unless it already owns a majority of the voting stock of such bank. Furthermore, a bank holding company must engage,
with limited exceptions, in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. One of the exceptions to this prohibition is the ownership of shares of a company the
activities of which the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

STATE LAW. We are subject to extensive supervision and regulation by the North Carolina Commissioner of Banks. The Commissioner of Banks oversees state laws that set specific requirements for bank capital and regulate
deposits in, and loans and investments by, banks, including the amounts, types, and in some cases, rates. The Commissioner supervises and performs periodic examinations of North Carolina-chartered banks to assure compliance with state banking
statutes and regulations, and we are required to make regular reports to the Commissioner describing, in detail, our resources, assets, liabilities and financial condition. Among other things, the Commissioner regulates mergers and consolidations of
state-chartered banks, the payment of dividends, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment of branches.

DEPOSIT INSURANCE. As a member institution of the FDIC, the banks deposits are insured up to a per depositor maximum of $250,000 for retirement accounts and $100,000 for all other accounts through the Deposit
Insurance Fund administered by the FDIC, and each member institution is required to pay semi-annual deposit insurance premium assessments to the FDIC. The Deposit Insurance Fund assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory minimum assessment.

CAPITAL REQUIREMENTS. The federal banking regulators
have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organizations operations for both transactions reported on the balance sheet as assets and transactions, such as letters of
credit, and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.

A banking organizations risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet
items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1, or core



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capital, includes common equity, qualifying noncumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries,
less goodwill and other intangibles, subject to certain exceptions. Tier 2, or supplementary capital, includes among other things, limited-life preferred stock, trust preferred securities, hybrid capital instruments, mandatory
convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. Banks and bank holding companies subject to the risk-based capital guidelines are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may set higher capital requirements when particular circumstances warrant. As of December 31, 2006, we were classified as well-capitalized with Tier 1 and
Total RiskBased Capital of 9.97% and 11.45% respectively.

The federal banking agencies have adopted regulations specifying that they will include,
in their evaluations of a banks capital adequacy, an assessment of the banks interest rate risk exposure. The standards for measuring the adequacy and effectiveness of a banking organizations interest rate risk management include a
measurement of board of director and senior management oversight, and a determination of whether a banking organizations procedures for comprehensive risk management are appropriate for the circumstances of the specific banking organization.

Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by the FDIC, as well as the measures described
under the Federal Deposit Insurance Corporation Improvement Act of 1991 below, as applicable to undercapitalized institutions. In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes
of capital adequacy. Such a change could affect our ability to grow and could restrict the amount of profits, if any, available for the payment of dividends to the shareholders.

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991, also known as FDICIA, which substantially revised
the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made significant revisions to several other federal banking statutes. FDICIA provides for, among other things:



| |  |  | publicly available annual financial condition and management reports for certain financial institutions, including audits by independent accountants,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the establishment of uniform accounting standards by federal banking agencies,
| | - |  | ------------------------------------------------------------------------------



| |  |  | the establishment of a prompt corrective action system of regulatory supervision and intervention, based on capitalization levels, with greater scrutiny
and restrictions placed on depository institutions with lower levels of capital,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional grounds for the appointment of a conservator or receiver, and
| | - |  | ------------------------------------------------------------------------



| |  |  | restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risk-based premiums.

A central feature of FDICIA is the requirement that the federal banking agencies take prompt corrective action with respect to depository institutions that
do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions that they supervise.
Under these regulations, a depository institution is classified in one of the following capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized. An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or liquidity.



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FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against
institutions which fail to comply with capital or other standards. Such action may include the termination of deposit insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the circumstances
under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver.

GRAMM-LEACH-BLILEY ACT OF 1999. Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allowed a bank holding company to qualify as a financial holding company and, as a result, be permitted to engage in a broader
range of activities that are financial in nature and in activities that are determined to be incidental or complementary to activities that are financial in nature. The Gramm-Leach-Bliley Act amended the BHC Act to include a list of
activities that are financial in nature, and the list includes activities such as underwriting, dealing in and making a market in securities, insurance underwriting and agency activities and merchant banking. The Federal Reserve Board is authorized
to determine other activities that are financial in nature or incidental or complementary to such activities. The Gramm-Leach-Bliley Act also authorizes banks to engage, through financial subsidiaries, in certain of the activities permitted for
financial holding companies.

INTERNATIONAL MONEY LAUNDERING ABATEMENT AND FINANCIAL ANTI-TERRORISM ACT OF 2001. On October 26, 2001, the USA Patriot Act
of 2001 was enacted. The act contained the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which set forth anti-money laundering measures affecting insured depository institutions, broker-dealers and other
financial institutions. The Act requires U.S. financial institutions to adopt policies and procedures to combat money laundering and granted the Secretary of the Treasury broad authority to establish regulations and to impose requirements and
restrictions on the operation of financial institutions. The act has not had a material adverse impact on our operations.

CHECK 21. On October 28,
2003, President Bush signed into law the Check Clearing for the 21st Century Act, also known as Check 21. This law gives substitute checks, such as a digital image of a check and copies made from that image, the same legal standing as
the original paper check. Some of the major provisions include:



| |  |  | allowing check truncation without making it mandatory;
| | - |  | ------------------------------------------------------



| |  |  | demanding that every financial institution communicate to accountholders in writing a description of its substitute check processing program and their rights under
the law;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legalizing substitutions for and replacements of paper checks without agreement from consumers;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | retaining in place the previously mandated electronic collection and return of checks between financial institutions only when individual agreements are in place;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring that when accountholders request verification, financial institutions produce the original check (or a copy that accurately represents the original) and
demonstrate that the account debit was accurate and valid; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring recrediting of funds to an individuals account on the next business day after a consumer proves that the financial institution has erred.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

MISCELLANEOUS. The dividends that may be paid by us are subject to legal limitations. In accordance with North Carolina banking law,
dividends may not be paid by the Bank unless its capital surplus is at least 50% of its paid-in capital.

Our earnings will be affected significantly by
the policies of the Federal Reserve Board, which is responsible for regulating the United States money supply in order to mitigate recessionary and inflationary pressures. Among the techniques used to implement these objectives are open market
transactions in United States government securities, changes in the rate paid by banks on bank borrowings, and changes in reserve requirements against bank deposits. These techniques are used in varying combinations to influence overall growth and
distribution of bank loans, investments, and deposits, and their use may also affect interest rates charged on loans or paid for deposits.

The monetary
policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of changing conditions in the national economy and money
markets, as well as the effect of actions by monetary and fiscal authorities, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or our business and earnings.



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Recent Legislative Developments

We cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on our operations.



|ITEM 2: | PROPERTIES
|------- | ----------

The following table sets forth certain information
regarding our properties:



|                                                                    |  |            |     |  |                      |     |  |          
|------------------------------------------------------------------- |  | ---------- | --- |  | -------------------- | --- |  | ---------
|OFFICE LOCATION                                                     |  | YEAROPENED |     |  | APPROX.SQUAREFOOTAGE |     |  | OWN/LEASE
|Corporate Office 528 College Road Greensboro, NC                    |  | 2005       |     |  | 9,874                |     |  | Own      
|                                                                    |  |            |    
|Main Office 2604 Lawndale Drive Greensboro, NC                      |  | 2000       |     |  | 12,000               |     |  | Own      
|                                                                    |  |            |    
|Friendly Center Office 3124 Friendly Avenue Greensboro, NC          |  | 1996       |     |  | 5,300                |     |  | Lease    
|                                                                    |  |            |    
|Jefferson Village Office 1601 Highwoods Blvd. Greensboro, NC        |  | 2001       |     |  | 3,000                |     |  | Own      
|                                                                    |  |            |    
|Asheboro Office 335 S. Fayetteville Street Asheboro, NC             |  | 2003       |     |  | 5,800                |     |  | Own      
|                                                                    |  |            |    
|Burlington Office 3057 South Church Street Suite 201 Burlington, NC |  | 2005       |     |  | 1,000                |     |  | Lease    
|                                                                    |  |            |    
|High Point Office 4010 Brian Jordan Blvd. High Point, NC            |  | 2007       |     |  | 4,500                |     |  | Own      
|                                                                    |  |            |    
|Future Branch Site 3216 South Church Street Burlington, NC          |  | 2006       | (1) |  | 5,800                | (1) |  | Own      

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|(1) | Currently under construction and anticipated to open during 2007. The Burlington office currently
located at 3057 South Church Street will be relocated to this site upon its completion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 3: | LEGAL PROCEEDINGS
|------- | -----------------

As of December 31, 2006, there were no
pending material legal proceedings to which we are a party, or of which any of our property is the subject, that, if decided adversely to us, could have a material adverse financial effect.



|ITEM 4: | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

There were no
matters submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2006.

PART II



|ITEM 5: | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | --------------------------------------------------------

Market
Summary

Our common stock is listed for quotation on the Nasdaq Capital Market under the symbol CLBH. As of February 23, 2007, we had
issued and outstanding 2,722,388 shares of common stock which were held by approximately 1,250 shareholders.

No cash dividends were paid in 2006 or 2005.

Additional information regarding our common stock, including a table which gives the high and low sale prices for our common stock in each of the calendar
quarters in 2006 and 2005, is incorporated by reference to page 20 of the Proxy Statement.

See Item 11 of this report for disclosure regarding
securities authorized for issuance and equity compensation plans required by Item 201(d) of Regulation S-B.



|ITEM 6: | MANAGEMENTS DISCUSSION AND ANALYSIS
|------- | ------------------------------------

Incorporated by
reference to pages 21-35 of the Proxy Statement.



|ITEM 7: | FINANCIAL STATEMENTS
|------- | --------------------

Incorporated by reference to pages 36-64 of
the Proxy Statement.



|ITEM 8: | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

There have been no changes in or disagreements with accountants.



|ITEM 8A: | CONTROLS AND PROCEDURES
|-------- | -----------------------

Our Chief Executive Officer and Chief
Financial Officer have conducted an evaluation of our disclosure controls and procedures as of December 31, 2006. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the
applicable Securities and Exchange Commission Rules and Forms. There was no change in our internal control over financial reporting identified in connection with the evaluation conducted by our Chief Executive Officer and Chief Financial Officer
that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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|ITEM 8B: | OTHER INFORMATION
|-------- | -----------------

We entered into an employment agreement, dated
March 13, 2007 but executed and effective as of March 19, 2007, with Daniel D. Hornfeck, our Executive Vice President and Chief Credit Officer. The employment agreement provides for an initial term of employment of three (3) years
with automatic one (1) year extensions following the expiration of the initial term, unless notice to the contrary is furnished by the Company or Mr. Hornfeck. The agreement provides for discretionary bonuses, participation in other
pension and profit-sharing retirement plans maintained on behalf of employees, as well as fringe benefits normally associated with, or typical of, Mr. Hornfecks office or made available to all other employees.

The employment agreement also includes a non-compete covenant and provides for change in control benefits equal to 2.99% of Mr. Hornfecks base
amount (as such term is defined in Section 280G of the Internal Revenue Code) in the event that he suffers a termination event (as such term is defined in the agreement) within twelve (12) months of a change in
control (as such term is defined in the agreement).

Our employment agreement with Mr. Hornfeck is filed as Exhibit 10(xiv) to this annual
report on Form 10-KSB and incorporated by reference into this Item 8B.

PART III



|ITEM 9: | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
|------- | -------------------------------------------------------------------------------------------------------------------------------------

Incorporated by reference to pages 4-9 of the Proxy Statement.

We have
adopted a Code of Ethics that applies, among others, to our principal executive officer and principal financial officer. Our Code of Ethics is available to any person, without charge, upon written request submitted to T. Allen Liles, Carolina Bank
Holdings, Inc., 528 College Road, Greensboro, North Carolina 27410.



|ITEM 10: | EXECUTIVE COMPENSATION
|-------- | ----------------------

Incorporated by reference to pages 9-13 of
the Proxy Statement



|ITEM 11: | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Incorporated by reference to pages 3-4 of the Proxy Statement.

In 1997, the Banks shareholders approved the Carolina
Bank 1997 Nonqualified Stock Option Plan for Directors (the 1997 Nonqualified Plan) and the Carolina Bank 1997 Incentive Stock Option Plan (the 1997 Incentive Plan). Both plans were adopted by us upon our organization as the
Banks holding company. An amendment to the 1997 Incentive Plan increasing by 100,000 the number of shares available for issuance upon the exercise of stock options granted under the plan was approved by the shareholders at the 2003 annual
meeting.

The maximum number of options available for grant under the 1997 Nonqualified Plan is 112,850 (adjusted for stock dividends). The maximum number
of options to purchase shares of our stock available for grant under the Incentive Plan is 256,849 (adjusted for stock dividends). Of the maximum number of options available for grant, 59,067 were outstanding under the Nonqualified Plan and 198,416
were outstanding under the Incentive Plan at December 31, 2006. Option prices for both plans are established at market value at the time of grant.

No
further stock options may be granted under the Nonqualified Plan or the 1997 Incentive Plan after May 20, 2007 pursuant to the terms of such plans. All options to purchase shares of our stock under the 1997 Nonqualified Plan have been granted.
There are currently 30,350 ungranted stock options under the Incentive Plan, however this plan has been frozen by the Board of Directors and no further stock options will be granted under it prior to its expiration on May 20, 2007. Stock
options previously granted under the 1997 plans will remain outstanding following May 20, 2007 and will expire pursuant to their original contractual terms.



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The Companys Board of Directors has approved the Carolina Bank Holdings, Inc. 2007 Incentive Stock Option Plan,
which provides for the issuance and sale of an aggregate of 30,350 shares of the Companys common stock upon the exercise of incentive stock options granted pursuant to the plan. The 2007 Incentive Stock Option Plan has been presented to the
shareholders of the Company for approval at the 2007 annual meeting. No options will be granted under the 2007 Incentive Stock Option Plan unless and until such plan has been approved by a majority of the shares of the Companys common stock
entitled to vote on the proposal.

The following chart contains details of all prior grants under the 1997 Incentive Stock Option Plan and 1997
Nonstatutory Stock Option Plan:



|                                                           |  |                                                                        |  |                                                                          |          |                                                                                                                                       |          
|---------------------------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | -------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | Number of securities to be issued upon exercise of outstanding options |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |          | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding
securitiesreflected in column (a))
|                                                           |  | (a)                                                                    |  | (b)                                                                      |          | (c)                                                                                                                                  
|Equity compensation plans approved by security holders     |  | Nonstatutory  59,067Incentive  198,416                               |  | $                                                                        | 6.249.22 |                                                                                                                                       | -0-30,350
|                                                           |  |                                                                        | 
|Equity compensation plans not approved by security holders |  | None                                                                   |  |                                                                          | N/A      |                                                                                                                                       | None     
|                                                           |  |                                                                        | 
|Total                                                      |  | 257,483                                                                |  | $                                                                        | 8.55     |                                                                                                                                       | 30,350   



|ITEM 12: | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ------------------------------------------------------------------------

Incorporated by reference to pages 6 and 13 of the Proxy Statement.



|ITEM 13: | EXHIBITS
|-------- | --------



|        |  |                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------
|3(i)    |  | Articles of Incorporation of Carolina Bank Holdings, Inc.(1)                                              
|        | 
|3(ii)   |  | Bylaws of the Carolina Bank Holdings, Inc.(1)                                                             
|        | 
|4       |  | Indenture(6)                                                                                              
|        | 
|10(i)   |  | Employment Agreement between the Bank and Robert T. Braswell, dated May 21, 1996(2)                       
|        | 
|10(ii)  |  | Employment Agreement between the Bank and T. Allen Liles, dated July 24, 2001(3)                          
|        | 
|10(iii) |  | 1997 Incentive Stock Option Plan(4)                                                                       
|        | 
|10(iv)  |  | 1997 Nonqualified Stock Option Plan(4)                                                                    
|        | 
|10(v)   |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and Robert T. Braswell(5)



10



---

|         |  |                                                                                                              
|-------- |  | -------------------------------------------------------------------------------------------------------------
|10(vi)   |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and T. Allen Liles(5)       
|         | 
|10(vii)  |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and Gunnar N.R. Fromen(5)   
|         | 
|10(viii) |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and Robert T. Braswell(5)
|         | 
|10(ix)   |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and T. Allen Liles(5)    
|         | 
|10(x)    |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and Gunnar N.R. Fromen(5)
|         | 
|10(xi)   |  | Carolina Bank Directors Deferral Plan(5)                                                                    
|         | 
|10(xii)  |  | Amended and Restated Declaration of Trust of Carolina Capital Trust(6)                                       
|         | 
|10(xiii) |  | Guarantee Agreement(6)                                                                                       
|         | 
|10(xiv)  |  | Employment Agreement between the Bank and Daniel D. Hornfeck, dated March 13, 2007                           
|         | 
|21       |  | Subsidiaries of the Registrant                                                                               
|         | 
|31(i)    |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.              
|         | 
|31(ii)   |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.             
|         | 
|32(i)    |  | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.                                            
|         | 
|99       |  | Proxy Statement for the 2007 Annual Meeting of Shareholders(7)                                               

---

|(1) | Incorporated by reference to Form 10-KSB of Carolina Bank Holdings, Inc. (Filed April 2, 2001 with
the Securities and Exchange Commission.).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Previously filed on Form F-1 of Carolina Savings Bank SSB, Inc. with the Federal Deposit Insurance
Corporation for the year ended December 31, 1996, and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Form 10-QSB of Carolina Bank Holdings, Inc. (Filed November 9, 2001
with the Securities and Exchange Commission).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Form S-8 of Carolina Bank Holdings, Inc. (Filed May 11, 2000 with the
Securities and Exchange Commission).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Form 10-KSB of Carolina Bank Holdings, Inc. (Filed March 28, 2003 with
the Securities and Exchange Commission).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to Form 8-K of Carolina Bank Holdings, Inc. (Filed January 4, 2005 with
the Securities and Exchange Commission)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(7) | As filed with the SEC pursuant to Rule 14a-6(b).
|--- | ------------------------------------------------



|ITEM 14: | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Incorporated by reference
to pages 7-8 and 17-18 of the Proxy Statement.



11



---

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CAROLINA BANK HOLDINGS, INC.(Registrant)By:

/s/ Robert T. BraswellRobert T. Braswell President and Chief
Executive OfficerDate:

March 23, 2007




12



---

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



|                                                                                          |  |               
|----------------------------------------------------------------------------------------- |  | --------------
|/s/ Robert T. Braswell Robert T.
Braswell President, Chief Executive Officer and Director |  | March 23, 2007
|                                                                                          | 
|/s/ Gary N. Brown Gary N.
Brown Vice Chairman                                             |  | March 23, 2007
|                                                                                          | 
|/s/ George E. Carr George E.
Carr Director                                                |  | March 23, 2007
|                                                                                          | 
|/s/ Marlene H. Cato Marlene H.
Cato Director                                              |  | March 23, 2007
|                                                                                          | 
|/s/ John D. Cornet John D.
Cornet Chairman of the Board of Directors                      |  | March 23, 2007
|                                                                                          | 
|/s/ James E. Hooper James E.
Hooper Director                                              |  | March 23, 2007
|                                                                                          | 
|J. Alexander S. Barrett Director                                                          |  | March 23, 2007
|                                                                                          | 
|Kenneth C. Mayer, Jr. Director                                                            |  | March 23, 2007
|                                                                                          | 
|T. Gray McCaskill Director                                                                |  | March 23, 2007
|                                                                                          | 
|Julius L. Young Director                                                                  |  | March 23, 2007
|                                                                                          | 
|/s/ T. Allen Liles T. Allen
Liles Secretary, Treasurer and Principal Accounting Officer   |  | March 23, 2007



13



---

EXHIBIT INDEX



|               |  |                                                                                                            |  |               
|-------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------------
|Exhibit Number |  | Exhibit                                                                                                    |  | Page Number   
|3(i)           |  | Articles of Incorporation                                                                                  |  | *             
|               |  |                                                                                                           
|3(ii)          |  | Bylaws                                                                                                     |  | *             
|               |  |                                                                                                           
|4              |  | Indenture                                                                                                  |  | *             
|               |  |                                                                                                           
|10(i)          |  | Employment Agreement of Robert T. Braswell                                                                 |  | *             
|               |  |                                                                                                           
|10(ii)         |  | Employment Agreement of T. Allen Liles                                                                     |  | *             
|               |  |                                                                                                           
|10(iii)        |  | 1997 Incentive Stock Option Plan                                                                           |  | *             
|               |  |                                                                                                           
|10(iv)         |  | 1997 Nonqualified Stock option Plan                                                                        |  | *             
|               |  |                                                                                                           
|10(v)          |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and Robert T. Braswell    |  | *             
|               |  |                                                                                                           
|10(vi)         |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and T. Allen Liles        |  | *             
|               |  |                                                                                                           
|10(vii)        |  | Executive Supplemental Retirement Plan Executive Agreement between Carolina Bank and Gunnar N.R. Fromen    |  | *             
|               |  |                                                                                                           
|10(viii)       |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and Robert T. Braswell |  | *             
|               |  |                                                                                                           
|10(ix)         |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and T. Allen Liles     |  | *             
|               |  |                                                                                                           
|10(x)          |  | Life Insurance Endorsement Method Split Dollar Plan Agreement Between Carolina Bank and Gunnar N.R. Fromen |  | *             
|               |  |                                                                                                           
|10(xi)         |  | Carolina Bank Directors Deferral Plan                                                                     |  | *             
|               |  |                                                                                                           
|10(xii)        |  | Amended and Restated Declaration of Trust of Carolina Capital Trust                                        |  | *             
|               |  |                                                                                                           
|10(xiii)       |  | Guarantee Agreement                                                                                        |  | *             
|               |  |                                                                                                           
|10(xiv)        |  | Employment Agreement of Daniel D. Hornfeck                                                                 |  | Filed herewith
|               |  |                                                                                                           
|21             |  | Subsidiaries of the registrant                                                                             |  | Filed herewith
|               |  |                                                                                                           
|31(i)          |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.            |  | Filed herewith
|               |  |                                                                                                           
|31(ii)         |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.           |  | Filed herewith
|               |  |                                                                                                           
|32(i)          |  | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                  |  | Filed herewith
|               |  |                                                                                                           
|99             |  | Proxy Statement for the 2007 Annual Meeting of Shareholders                                                |  | **            

---

|* | Incorporated by reference.
|- | --------------------------

|** | As filed with the SEC pursuant to Rule 14a-6(b).
|-- | ------------------------------------------------



14