Select Bancorp (SLCT) 10-K 2007 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            .

COMMISSION FILE NUMBER 000-50400

NEW CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

NORTH CAROLINA	20-0218264
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

700 W. Cumberland Street, Dunn, North Carolina	28334
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone number, including area code: (910) 892-7080

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

NONE

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

COMMON STOCK, PAR VALUE $1.00 PER SHARE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  x
		(Do not check if a smaller reporting company)

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $ 73,133,225

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock as of the latest practicable date. 6,779,183 shares outstanding as of March 20, 2008

Documents Incorporated by Reference.

Definitive Proxy Statement for the 2008 Annual Meeting of Shareholders as filed pursuant to Section 14 of the

Securities Exchange Act of 1934, incorporated into Part III of this Form 10-K

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FORM 10-K CROSS-REFERENCE INDEX

PART I		FORM 10-K		PROXY STATEMENT	ANNUAL REPORT
Item 1 –	Business	X
Item 2 –	Properties	X
Item 3 –	Legal Proceedings	X
Item 4 –	Submission of Matters to a Vote of Security Holders	X
PART II
Item 5 –	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	X	��
Item 6 –	Selected Financial Data	X
Item 7 –	Management’s Discussion and Analysis of Financial Condition and Results of Operation	X
Item 7A –	Quantitative and Qualitative Disclosures About Market Risk	X
Item 8 –	Financial Statements and Supplementary Data	X
Item 9 –	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	X
Item 9A(T) – Controls and Procedures		X
Item 9B –	Other Information	X
PART III
Item 10 –	Directors, Executive Officers and Corporate Governance	X		X
Item 11 –	Executive Compensation			X
Item 12 –	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	X		X
Item 13 –	Certain Relationships and Related Transactions, and Director Independence			X
Item 14 –	Principal Accountant Fees and Services			X
PART IV
Item 15 –	Exhibits and Financial Statement Schedules	X

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PART I

ITEM 1 – BUSINESS

General

New Century Bancorp, Inc. (the “Registrant”) was incorporated under the laws of the State of North Carolina on May 14, 2003, at the direction of the Board of Directors of New Century Bank, for the purpose of serving as the bank holding company for New Century Bank and became the holding company for New Century Bank on September 19, 2003. To become New Century Bank’s holding company, the Registrant received the approval of the Federal Reserve Board as well as New Century Bank’s shareholders. Upon receiving such approval, each share of $5.00 par value common stock of New Century Bank was exchanged on a one-for-one basis for one share of $1.00 par value common stock of the Registrant.

The Registrant operates for the primary purpose of serving as the holding company for its subsidiary depository institutions, New Century Bank and New Century Bank of South (collectively, the “Banks”). The Registrant’s headquarters are located at 700 West Cumberland Street, Dunn, North Carolina 28334.

New Century Bank was incorporated on May 19, 2000 as a North Carolina-chartered commercial bank, opened for business on May 24, 2000, and is located at 700 West Cumberland Street, Dunn, North Carolina.

New Century Bank South was incorporated on December 23, 2003 as a North Carolina-chartered commercial bank, opened for business on January 2, 2004, and is located at 2818 Raeford Road, Fayetteville, North Carolina 28303.

The Board of Directors of New Century Bancorp as well as the boards of directors of New Century Bank and New Century Bank South, voted to merge the two banks in early 2008. The merged bank will be called New Century Bank and the headquarters and operations center of the merged bank will be in Dunn, North Carolina. A 15-member holding company board, which will also serve as the board of directors of the bank, will include current directors from both banks.

The Federal Deposit Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks have approved the application for merger submitted by New Century Bancorp to merge its two subsidiary banks, New Century Bank and New Century Bank South.

The Banks operate for the primary purpose of serving the banking needs of individuals, and small to medium-sized businesses in their respective market areas. The Banks offer a range of banking services including checking and savings accounts, commercial, consumer, mortgage and personal loans, and other associated financial services.

Primary Market Area

The Registrant’s market area consists of southeastern North Carolina. The Registrant’s market area has a population of over 906,000 with an average household income of over $36,800

The June 2007 total deposits in the Registrant’s market area exceeded $7.5 billion. The leading economic components of Harnett and Johnston Counties are services, manufacturing, and retail trade. In contrast, Cumberland County’s leading sector is federal military government, followed by services and retail trade. In Sampson County, leading employers include manufacturing, services, and state and local government. Wayne County’s leading sectors are federal military government, services and retail trade and agriculture. The largest employers in the Registrant’s market area include Kelly-Springfield Tires, Black & Decker, Bayer, Morganite, Inc. and the United States military.

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Competition

Commercial banking in North Carolina is extremely competitive in large part due to statewide branching. Registrant competes in its market areas with some of the largest banking organizations in the state and the country and other financial institutions, such as federally and state-chartered savings and loan institutions and credit unions, as well as consumer finance companies, mortgage companies and other lenders engaged in the business of extending credit. Many of Registrant’s competitors have broader geographic markets and higher lending limits than Registrant and are also able to provide more services and make greater use of media advertising. As of June 30, 2007 data provided by the FDIC Deposit Market Share Report indicated that, within the Registrant’s market area, there were 222 offices of 23 other commercial and savings institutions (28 in Harnett County, 40 in Johnston County, 4 in Hoke County, 65 in Cumberland County, 34 in Robeson County, 16 in Sampson County, and 35 in Wayne County).

The enactment of legislation authorizing interstate banking has caused great increases in the size and financial resources of some of Registrant’s competitors. In addition, as a result of interstate banking, out-of-state commercial banks have acquired North Carolina banks and heightened the competition among banks in North Carolina.

Despite the competition in its market areas, Registrant believes that it has certain competitive advantages that distinguish it from its competition. Registrant believes that its primary competitive advantages are its strong local identity and affiliation with the community and its emphasis on providing specialized services to small and medium-sized business enterprises, as well as professional and upper-income individuals. Registrant offers customers modern, high-tech banking without forsaking community values such as prompt, personal service and friendliness. Registrant offers many personalized services and intends to attract customers by being responsive and sensitive to their individualized needs. Registrant also relies on goodwill and referrals from shareholders and satisfied customers, as well as traditional media to attract new customers. To enhance a positive image in the community, Registrant supports and participates in local events and its officers and directors serve on boards of local civic and charitable organizations.

Employees

As of December 31, 2007, the Registrant employed 144 full time equivalent employees. None of the Registrant’s employees are covered by a collective bargaining agreement. The Registrant believes relations with its employees to be good.

REGULATION

Regulation of the Banks

The Banks 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 the business of the Registrant and the Banks.

State Law. The Banks are subject to extensive supervision and regulation by the North Carolina Commissioner of Banks (the “Commissioner”). The Commissioner 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 the Banks are required to make regular reports to the Commissioner describing in detail the resources, assets, liabilities and financial condition. Among other things, the Commissioner regulates

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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 member institutions of the FDIC, the Banks’ deposits are insured up to a per depositor maximum of $250,000 for certain retirement accounts and $100,000 for all other accounts through the Deposit Insurance Fund, administered by the FDIC. All FDIC member institutions, including the Banks, are required to pay semi-annual deposit insurance premium assessments to the FDIC. The FDIC determines the Banks’ deposit insurance assessment rates on the basis of four risk categories. The Banks’ assessments are determined by a formula that ranges from 0.02% to 0.04% at the lowest assessment category up to a maximum assessment of 0.40% of each Banks’ average deposit base, with the exact assessment determined by each Bank’s assets, its capital and the FDIC’s supervisory opinion of its operations. The insurance assessment rate may change periodically and was significantly increased for all depository institutions during 2007. Increases in the assessment rate may have an adverse effect on the Banks’ operating results. The FDIC has the authority to terminate deposit insurance.

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 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, 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, 2007, the Registrant was classified as well capitalized with Tier 1 and Total Risk-Based Capital of 13.51% and 14.77%, 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 the ability of the Banks to

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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 (the “FDIC Improvement Act”), 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. The FDIC Improvement Act 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.

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

A central feature of the FDIC Improvement Act 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 the FDIC Improvement Act, 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.

The FDIC Improvement Act 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. The FDIC Improvement Act 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.

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;

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• 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.

International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. On October 26, 2001, the USA Patriot Act of 2001 was enacted. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which sets forth anti-money laundering measures affecting insured depository institutions, broker-dealers and other financial institutions. The Act requires U.S. financial institutions to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on the operations of financial institutions. The USA Patriot Act of 2001 has not had a material impact on the Registrant’s operations.

Miscellaneous. The cash dividends that may be paid by the Banks are subject to legal limitations. In accordance with North Carolina banking law, cash dividends may not be paid by one of the Banks unless its capital surplus is at least 50% of its paid-in capital. Cash dividends may only be paid out of retained earnings.

The earnings of the Banks 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 the business and earnings of the Banks.

The Registrant cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on the Banks’ operations.

Regulation of the Registrant

Federal Regulation. The Registrant is subject to examination, regulation and periodic reporting under the Bank Holding Company Act of 1956, as administered by the Federal Reserve Board. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies on a consolidated basis.

The status of the Registrant as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

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The Registrant is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is required for the Registrant to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than five percent of any class of voting shares of such bank or bank holding company.

The merger or consolidation of the Registrant with another bank, or the acquisition by the Registrant of assets of another bank, or the assumption of liability by the Registrant to pay any deposits in another bank, will require the prior written approval of the primary federal bank regulatory agency of the acquiring or surviving bank under the federal Bank Merger Act. The decision is based upon a consideration of statutory factors similar to those outlined above with respect to the Bank Holding Company Act. In addition, in certain such cases an application to, and the prior approval of, the Federal Reserve Board under the Bank Holding Company Act and/or the North Carolina Banking Commission may be required.

The Registrant is required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Registrant’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Such notice and approval is not required for a bank holding company that would be treated as “well capitalized” under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating at its most recent bank holding company inspection by the Federal Reserve Board, and that is not the subject of any unresolved supervisory issues.

In addition, a bank holding company is prohibited generally from engaging in, or acquiring five percent or more of any class of voting securities of any company engaged in, non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking as to be a proper incident thereto are:

• making or servicing loans;

• performing certain data processing services;

• providing discount brokerage services;

• acting as fiduciary, investment or financial advisor;

• leasing personal or real property;

• making investments in corporations or projects designed primarily to promote community welfare; and

• acquiring a savings and loan association.

In evaluating a written notice of such an acquisition, the Federal Reserve Board will consider various factors, including among others the financial and managerial resources of the notifying bank holding company and the relative public benefits and adverse effects which may be expected to result from the performance of the activity by an affiliate of such company. The Federal Reserve Board may apply different standards to activities proposed to be commenceddenovo and activities commenced by acquisition, in whole or in part, of a going concern. The required notice period may be extended by the Federal Reserve Board under certain circumstances, including a notice for acquisition of a company engaged in activities not previously approved by regulation of the Federal Reserve Board. If such a proposed acquisition is not disapproved or subjected to conditions by the Federal Reserve Board within the applicable notice period, it is deemed approved by the Federal Reserve Board.

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However, with the passage of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which became effective on March 11, 2000, the types of activities in which a bank holding company may engage were significantly expanded. Subject to various limitations, the Modernization Act generally permits a bank holding company to elect to become a “financial holding company.” A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are “financial in nature.” Among the activities that are deemed “financial in nature” are, in addition to traditional lending activities, securities underwriting, dealing in or making a market in securities, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, certain merchant banking activities and activities that the Federal Reserve Board considers to be closely related to banking.

A bank holding company may become a financial holding company under the Modernization Act if each of its subsidiary banks is “well capitalized” under the Federal Deposit Insurance Corporation Improvement Act prompt corrective action provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. In addition, the bank holding company must file a declaration with the Federal Reserve Board that the bank holding company wishes to become a financial holding company. A bank holding company that falls out of compliance with these requirements may be required to cease engaging in some of its activities. The Registrant has not yet elected to become a financial holding company.

Under the Modernization Act, the Federal Reserve Board serves as the primary “umbrella” regulator of financial holding companies, with supervisory authority over each parent company and limited authority over its subsidiaries. Expanded financial activities of financial holding companies generally will be regulated according to the type of such financial activity: banking activities by banking regulators, securities activities by securities regulators and insurance activities by insurance regulators. The Modernization Act also imposes additional restrictions and heightened disclosure requirements regarding private information collected by financial institutions.

Capital Requirements. The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies. If capital falls below minimum guidelines, a bank holding company may, among other things, be denied approval to acquire or establish additional banks or non-bank businesses.

The Federal Reserve Board’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies:

• a leverage capital requirement expressed as a percentage of adjusted total assets;

• a risk-based requirement expressed as a percentage of total risk-weighted assets; and

• a Tier 1 leverage requirement expressed as a percentage of adjusted total assets.

The leverage capital requirement consists of a minimum ratio of total capital to total assets of 4%, with an expressed expectation that banking organizations generally should operate above such minimum level. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital (which consists principally of shareholders’ equity). The Tier 1 leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated companies, with minimum requirements of 4% to 5% for all others.

The risk-based and leverage standards presently used by the Federal Reserve Board are minimum requirements, and higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or

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anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.

Source of Strength for Subsidiaries. Bank holding companies are required to serve as a source of financial strength for their depository institution subsidiaries, and, if their depository institution subsidiaries become undercapitalized, bank holding companies may be required to guarantee the subsidiaries’ compliance with capital restoration plans filed with their bank regulators, subject to certain limits.

Dividends. As a bank holding company that does not, as an entity, currently engage in separate business activities of a material nature, the Registrant’s ability to pay cash dividends depends upon the cash dividends the Registrant receives from the Banks. At present, the Registrant’s only source of income is dividends paid by the Banks and interest earned on any investment securities the Registrant holds. The Registrant must pay all of its operating expenses from funds it receives from the Banks. Therefore, shareholders may receive dividends from the Registrant only to the extent that funds are available after payment of our operating expenses and the board decides to declare a dividend. In addition, the Federal Reserve Board generally prohibits bank holding companies from paying dividends except out of operating earnings where the prospective rate of earnings retention appears consistent with the bank holding company’s capital needs, asset quality and overall financial condition. We expect that, for the foreseeable future, any dividends paid by the Banks to us will likely be limited to amounts needed to pay any separate expenses of the Registrant and/or to make required payments on our debt obligations, including the debentures which underlie our trust preferred securities.

The FDIC Improvement Act requires the federal bank regulatory agencies biennially to review risk-based capital standards to ensure that they adequately address interest rate risk, concentration of credit risk and risks from non-traditional activities and, since adoption of the Riegle Community Development and Regulatory Improvement Act of 1994, to do so taking into account the size and activities of depository institutions and the avoidance of undue reporting burdens. In 1995, the agencies adopted regulations requiring as part of the assessment of an institution’s capital adequacy the consideration of (a) identified concentrations of credit risks, (b) the exposure of the institution to a decline in the value of its capital due to changes in interest rates and (c) the application of revised conversion factors and netting rules on the institution’s potential future exposure from derivative transactions.

In addition, the agencies in September 1996 adopted amendments to their respective risk-based capital standards to require banks and bank holding companies having significant exposure to market risk arising from, among other things, trading of debt instruments, (1) to measure that risk using an internal value-at-risk model conforming to the parameters established in the agencies’ standards and (2) to maintain a commensurate amount of additional capital to reflect such risk. The new rules were adopted effective January 1, 1997, with compliance mandatory from and after January 1, 1998.

Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default.

Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions imposed by the Federal Reserve Act on any extension of credit to, or purchase of assets from, or letter of credit on behalf of, the bank holding company or its subsidiaries, and on the investment in or acceptance of stocks or securities of such holding company or its subsidiaries as collateral for loans. In addition, provisions of the Federal Reserve Act and Federal Reserve Board regulations limit the amounts of, and establish required procedures and credit standards with respect to, loans and other extensions of credit to officers, directors and principal shareholders of the Banks, the Registrant, any subsidiary of the Registrant and related interests of such persons. Moreover, subsidiaries of bank holding companies are prohibited

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from engaging in certain tying arrangements (with the holding company or any of its subsidiaries) in connection with any extension of credit, lease or sale of property or furnishing of services.

Any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to a priority of payment. This priority would also apply to guarantees of capital plans under the FDIC Improvement Act.

Interstate Branching

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle Act”), the Federal Reserve Board may approve bank holding company acquisitions of banks in other states, subject to certain aging and deposit concentration limits. As of June 1, 1997, banks in one state may merge with banks in another state, unless the other state has chosen not to implement this section of the Riegle Act. These mergers are also subject to similar aging and deposit concentration limits.

North Carolina “opted-in” to the provisions of the Riegle Act. Since July 1, 1995, an out-of-state bank that did not already maintain a branch in North Carolina was permitted to establish and maintain adenovo branch in North Carolina, or acquire a branch in North Carolina, if the laws of the home state of the out-of-state bank permit North Carolina banks to engage in the same activities in that state under substantially the same terms as permitted by North Carolina. Also, North Carolina banks may merge with out-of-state banks, and an out-of-state bank resulting from such an interstate merger transaction may maintain and operate the branches in North Carolina of a merged North Carolina bank, if the laws of the home state of the out-of-state bank involved in the interstate merger transaction permit interstate merger.

Future Legislation

Registrant cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on Registrant’s operations.

ITEM 1A – RISK FACTORS

Not required for smaller reporting companies.

ITEM 1B – UNRESOLVED STAFF COMMENTS

Not required for smaller reporting companies.

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ITEM 2 – PROPERTIES

The following table sets forth the location of the main and branch offices of the Registrant’s subsidiary depository institutions, New Century Bank and New Century Bank South, as well as certain information relating to these offices.

Office Location	Year Opened	Approximate Square Footage	Owned or Leased
New Century Bank Main Office 700 West Cumberland Street Dunn, NC 28334	2001	12,600	Owned
Clinton Office 506 South East Boulevard Clinton, NC 28328	2002	2,200	Leased
Sunset Avenue Office 1519 Sunset Avenue Clinton, NC 28328	2005	2,200	Leased
Goldsboro Office 431 North Spence Avenue Goldsboro, NC 27534	2005	6,300	Owned
Lillington Office 818 McKinney Parkway Lillington, NC 27546	2007	4,500	Owned
New Century Bank South Main Office 2818 Raeford Road Fayetteville, NC 28303	2004	10,000	Owned
Ramsey Street Office 6390 Ramsey Street Fayetteville, NC 28311	2007	2,500	Owned
Lumberton Office 4400 Fayetteville Road Lumberton, NC 28358	2006	3,500	Owned
Pembroke Office 410 East Third Street Pembroke, NC 28372	2006	1,600	Owned
Raeford Office 720 Harris Avenue Raeford, NC 28376	2006	2,900	Owned

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ITEM 3 – LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Registrant, or any of its subsidiaries, is a party, or of which any of their property is the subject.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to security holders during the fourth quarter of 2007.

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Out common stock is quoted on the NASDAQ Global Market under the trading symbol “NCBC.” Howe Barnes Hoefer & Arnett, Ryan Beck & Company, Morgan Keegan, McKinnon & Company, Sandler O’Neill & Partners, L.P., and Scott & Stringfellow provide bid and ask quotes for our common stock. At December 31, 2007, there were 6,730,874 shares of common stock outstanding, which were held by 1,470 shareholders of record.

	Sales Prices(1)
	High		Low
2007
First Quarter	$	16.33	$	14.75
Second Quarter		14.90		12.42
Third Quarter		12.50		9.00
Fourth Quarter		10.87		8.25
2006
First Quarter	$	20.83	$	16.83
Second Quarter		17.50		15.75
Third Quarter		16.83		16.08
Fourth Quarter		20.06		16.04

(1) Adjusted for a 20% stock dividend in December 2006.

See Item 12 of this report for disclosure regarding securities authorized for issuance under equity compensation plans required by Item 201(d) of Regulation S-K.

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ITEM 6 – SELECTED FINANCIAL DATA

	At or for the year ended December 31,
	2007			2006			2005			2004			2003
	(Dollars in thousands, except per share data)
Operating Data:
Total interest income	$	41,598		$	35,812		$	24,679		$	15,408		$	9,360
Total interest expense		20,653			16,167			10,089			5,187			3,217
Net interest income		20,945			19,645			14,590			10,221			6,143
Provision for loan losses		5,974			2,779			2,172			1,684			1,042
Net interest income after provision for loan losses		14,971			16,866			12,418			8,537			5,101
Total non-interest income		3,870			3,278			2,496			1,692			1,134
Total non-interest expense		16,229			13,816			9,129			6,962			4,833
Income before income taxes		2,612			6,328			5,785			3,267			1,402
Provision for income taxes		953			2,358			2,164			1,173			496
Net income	$	1,659		$	3,970		$	3,621		$	2,094		$	906
Per Share Data:(1)
Earnings per share—basic	$	.25		$	.69		$	.72		$	.42		$	.22
Earnings per share—diluted		.24			.65			.66			.40			.21
Market Price
High		16.33			20.83			23.75			16.81			9.18
Low		8.25			15.75			10.56			8.02			6.89
Close		8.25			16.99			20.63			11.39			8.19
Book value		9.09			8.84			6.48			5.82			5.42
Tangible book value		7.63			7.30			6.48			5.82			5.42
Selected Year-End Balance Sheet Data:
Loans	$	442,875		$	427,948		$	321,670		$	262,750		$	151,930
Allowance for loan losses		8,314			7,496			5,298			3,598			2,355
Other interest-earning assets		100,292			87,811			96,059			51,051			31,059
Goodwill and core deposit intangible		9,834			9,988			—			—			—
Total assets		591,025			552,965			436,367			328,311			191,813
Deposits		498,122			464,117			367,003			270,230			151,971
Borrowings		29,339			28,813			34,115			27,057			11,714
Shareholders’ equity		61,173			57,439			32,974			29,444			27,266
Selected Average Balances:
Total assets	$	583,809		$	491,849		$	381,494		$	277,432		$	159,360
Loans		449,799			369,110			301,510			222,425			121,587
Total interest-earning assets		539,526			458,974			362,669			261,217			150,227
Goodwill and core deposit intangible		9,910			4,087			—			—			—
Deposits		493,989			412,077			317,648			231,510			131,852
Total interest-bearing liabilities		450,466			381,514			303,889			214,109			118,726
Shareholders’ equity		59,888			45,614			31,583			30,483			21,808
Selected Performance Ratios:
Return on average assets		.28	%		.81	%		.95	%		.75	%		.57	%
Return on average equity		2.77	%		8.70	%		11.47	%		6.87	%		4.15	%
Net interest margin(5)		3.93	%		4.33	%		4.06	%		3.95	%		4.16	%
Net interest spread(5)		3.18	%		3.62	%		3.52	%		3.51	%		3.59	%
Efficiency ratio(2)		65.40	%		60.27	%		53.43	%		58.44	%		66.41	%
Asset Quality Ratios:
Nonperforming loans to period-end loans(3)		1.13	%		.75	%		.26	%		.07	%		.08	%
Allowance for loan losses to period-end loans(4)		1.88	%		1.75	%		1.65	%		1.37	%		1.58	%
Net loan charge-offs to average loans		1.15	%		.27	%		.16	%		.20	%		.19	%

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	At or for the year ended December 31,
	2007		2006		2005		2004		2003
	(Dollars in thousands, except per share data)
Capital Ratios:
Total risk-based capital	14.77	%	14.63	%	14.54	%	16.76	%	18.61	%
Tier 1 risk-based capital	13.51	%	13.38	%	12.93	%	15.51	%	17.36	%
Leverage ratio	10.77	%	10.95	%	10.56	%	12.52	%	14.64	%
Equity to assets ratio	10.35	%	10.39	%	7.56	%	8.97	%	14.21	%
Other Data:
Number of banking offices	10		11		5		4		3
Number of full time equivalent employees	144		156		92		72		55

(1) Adjusted for all years presented to reflect the effects of a 20% stock dividend in December 2006, a three-for-two stock split in July 2005 and 10% stock dividends in June 2004 and September 2003, respectively.

(2) Efficiency ratio is calculated as non-interest expenses divided by the sum of net interest income and non-interest income.

(3) Nonperforming loans consist of non-accrual loans and restructured loans.

(4) Allowance for loan losses to period-end loans ratio excludes loans held for sale

(5) Fully taxable equivalent basis

- 15 -

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following presents management’s discussion and analysis of our financial condition and results of operations and should be read in conjunction with the financial statements and related notes contained elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of various factors, many of which are beyond our control. The following discussion is intended to assist in understanding the financial condition and results of operations of New Century Bancorp, Inc. Because New Century Bancorp, Inc. has no material operations and conducts no business on its own other than owning its consolidated subsidiaries, New Century Bank, New Century Bank South and its unconsolidated subsidiary, New Century Statutory Trust I, the discussion contained in this Management’s Discussion and Analysis concerns primarily the business of the bank subsidiaries. However, for ease of reading and because the financial statements are presented on a consolidated basis, New Century Bancorp, Inc., New Century Bank and New Century Bank South are collectively referred to herein as the Company unless otherwise noted. All references in this Annual Report to net income per share, price per share, book value per share and weighted average common and common equivalent shares outstanding have been adjusted to reflect a three-for-two stock split in July 2005 and a 20% stock dividend in December 2006.

DESCRIPTION OF BUSINESS

The Company is a commercial bank holding company that was incorporated on September 19, 2003 and has two banking subsidiaries, New Century Bank, which became a subsidiary of the Company as part of a holding company reorganization, and New Century Bank South, a de novo institution which commenced operations in January 2004 (collectively referred to as the “Banks”). In September 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of New Century Bank. New Century Statutory Trust I is not a consolidated subsidiary of the Company. The Company’s only business activity is the ownership of the Banks. Accordingly, this discussion focuses primarily on the financial condition and operating results of the Banks.

At the close of business on July 13, 2006, the Company completed an acquisition of Progressive State Bank (“Progressive”), a North Carolina chartered bank headquartered in Lumberton, NC. Under the terms of the Agreement, Progressive was merged with and into New Century Bank South. At the time of the merger, Progressive operated five offices and, based on estimated fair values, had $65.9 in total assets, $33.7 in loans and $55.8 in deposits. Pursuant to the terms of the merger agreement, shareholders of Progressive received cash in the amount of $21.30 per share. The aggregate purchase price of the transaction was $17.2 million, consisting of $16.3 million in cash payments to Progressive shareholders and $828,000 in transaction costs. The acquisition was accounted for under the purchase method of accounting and, accordingly, the assets and liabilities of Progressive were recorded based on the estimated fair values as of July 13, 2006, with the estimate of goodwill being subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of operations of Progressive since July 13, 2006.

The Board of Directors of New Century Bancorp as well as the boards of directors of New Century Bank and New Century Bank South, voted to merge the two banks in early 2008. The merged bank will be called New Century Bank and the headquarters and operations center of the merged bank will be in Dunn, North Carolina. A 15-member holding company board, which will also serve as the board of directors of the bank, will include current directors from both banks.

- 16 -

The Federal Deposit Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks have approved the application for merger submitted by New Century Bancorp to merge its two subsidiary banks, New Century Bank and New Century Bank South.

The Banks’ lending activities are oriented to the consumer/retail customer as well as to the small-to-medium sized businesses located in southeastern North Carolina. The Banks offer the standard complement of commercial, consumer, and mortgage lending products, as well as the ability to structure products to fit specialized needs. The deposit services offered by the Banks include small business and personal checking, savings accounts and certificates of deposit. The Banks concentrate on customer relationships in building their customer deposit base and compete aggressively in the area of transaction accounts.

- 17 -

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

YEARS ENDED DECEMBER 31, 2007 AND 2006

	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
	(dollars in thousands, except share and per share data)
2007
Interest Income	$	10,020	$	10,638		$	10,599		$	10,341
Interest Expense		4,883		5,153			5,289			5,329
Net Interest Income		5,137		5,485			5,310			5,012
Provision for loan losses		150		2,894			2,474			456
Net interest income after provision for loan losses		4,987		2,591			2,836			4,556
Non interest income		911		1,161			899			901
Non interest expense		3,874		4,138			4,156			4,062
Income before taxes		2,024		(386	)		(421	)		1,395
Income taxes (benefit)		755		(189	)		(147	)		534
Net income (loss)	$	1,269	$	(197	)	$	(274	)	$	861
Net income (loss) per share
Basic	$	.20	$	(.03	)	$	(.04	)	$	.13
Diluted		.19		(.03	)		(.04	)		.13
Average shares outstanding
Basic		6,500,367		6,540,736			6,639,617			6,730,874
Diluted		6,790,465		6,540,736			6,639,617			6,741,132
2006
Interest Income	$	7,652	$	8,227		$	9,741		$	10,190
Interest Expense		3,321		3,719			4,341			4,785
Net Interest Income		4,331		4,508			5,400			5,405
Provision for loan losses		408		192			519			1,659
Net interest income after provision for loan losses		3,923		4,316			4,881			3,746
Non interest income		553		678			865			1,182
Non interest expense		2,738		3,014			4,029			4,035
Income before taxes		1,738		1,980			1,717			893
Income taxes		669		709			626			354
Net income	$	1,069	$	1,271		$	1,091		$	539
Net income per share
Basic	$	0.21	$	0.25		$	0.17		$	0.08
Diluted		0.20		0.23			0.16			0.08
Average shares outstanding
Basic		5,100,461		5,109,553			6,413,652			6,492,748
Diluted		5,480,726		5,459,821			6,739,230			6,799,966

The quarterly financial data may not aggregate to annual amounts due to rounding.

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FINANCIAL CONDITION

DECEMBER 31, 2007 AND 2006

Overview

Total assets at December 31, 2007 were $591.0 million, which represents an increase of $38.1 million or 6.9% from December 31, 2006. Earning assets at December 31, 2007 totaled $543.2 million and consisted of $434.6 million in net loans, $76.5 million in investment securities, $26.7 million in overnight investments and interest-bearing deposits in other banks, $3.9 million in loans held for sale and $1.5 million in non-marketable equity securities. Total deposits and shareholders’ equity at December 31, 2007 were $498.1 million and $61.2 million, respectively.

Investment Securities

Investment securities increased to $76.5 million from $63.9 million at December 31, 2006. The Company’s investment portfolio at December 31, 2007, which consisted of U.S. government agency securities, mortgage-backed securities and bank-qualified municipal securities, aggregated $76.5 million with a weighted average yield of 4.98%. The Company also holds an investment of $1.1 million in the form of Federal Home Loan Bank Stock with a dividend yield of 6.00%. The investment portfolio increased $12.6 million in 2007, the result of $33.2 million in purchases, $21.2 million of maturities and prepayments and an increase of $644,000 in the market value of securities held available for sale and net accretion of investment discounts. There were no sales of investment securities during 2007.

The following table summarizes the securities portfolio by major classification:

Securities Portfolio Composition

(dollars in thousands)

	Amortized Cost		Fair Value		Weighted Average Yield
U. S. government agency securities:
Due within one year	$	15,302	$	15,349	4.68	%
Due after one but within five years		12,311		12,497	4.77	%
Due after five but within ten years		1,348		1,348	4.10	%
		28,961		29,194	4.69	%
Mortgage-backed securities:
Due within one year		1,062		1,075	8.10	%
Due after one but within five years		2,403		2,409	4.82	%
Due after five but within ten years		14,285		14,237	4.77	%
Due after ten years		23,088		23,220	5.62	%
		40,838		40,941	5.34	%
State and local governments:
Due within one year		—		—	—	%
Due after one but within five years		1,105		1,133	4.74	%
Due after five but within ten years		2,139		2,162	3.78	%
Due after ten years		3,118		3,079	3.95	%
		6,362		6,374	4.03	%
Total securities available for sale:
Due within one year		16,364		16,424	4.90	%
Due after one but within five years		15,819		16,039	4.77	%
Due after five but within ten years		17,772		17,747	4.60	%
Due after ten years		26,206		26,299	5.42	%
	$	76,161	$	76,509	4.98	%

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Loans Receivable

Loans receivable increased by $14.9 million, or 3.5% to $442.9 million as of December 31, 2007. The growth was primarily due to growth in our existing markets. The loan portfolio at December 31, 2007 was comprised of $334.6 million in real estate loans, $82.0 million in commercial and industrial loans, and $26.8 million in loans to individuals. Also included in loans outstanding, are $466,000 in deferred loan fees.

The following table describes our loan portfolio composition by category:

	At December 31,
	2007					2006					2005					2004					2003
	Amount			% of Total Loans		Amount			% of Total Loans		Amount			% of Total Loans		Amount			% of Total Loans		Amount			% of Total Loans
	(dollars in thousands)
Real estate loans:
One-to-four family residential	$	61,738		13.9	%	$	59,867		14.0	%	$	47,531		14.8	%	$	39,417		15.0	%	$	24,805		16.7	%
Commercial		132,649		30.0	%		113,790		26.6	%		94,051		29.2	%		70,307		26.8	%		32,782		22.0	%
Multi-family residential		13,379		3.0	%		13,399		3.1	%		15,653		4.9	%		13,616		5.2	%		5,446		3.7	%
Construction		84,795		19.1	%		79,607		18.6	%		63,000		19.6	%		43,150		16.4	%		19,403		13.0	%
Home equity lines of credit		42,016		9.5	%		42,130		9.8	%		14,554		4.5	%		12,317		4.7	%		5,161		3.5	%
Real estate loans held for sale		—		0.0	%		—		0.0	%		—		0.0	%		—		0.0	%		—		0.0	%
Total real estate loans		334,577		75.5	%		308,793		72.2	%		234,789		73.0	%		178,807		68.1	%		87,597		58.8	%
Other loans:
Commercial and industrial		81,832		18.5	%		88,626		20.7	%		66,062		20.5	%		66,071		25.1	%		50,260		33.8	%
Loans to individuals		26,756		6.0	%		30,827		7.2	%		21,104		6.6	%		18,188		6.9	%		11,189		7.5	%
Other loans held for sale		—		0.0	%		—		0.0	%		—		0.0	%		—		0.0	%		—		0.0	%
Total other loans		108,588		24.5	%		119,453		27.9	%		87,166		27.1	%		84,259		32.1	%		61,449		41.3	%
Less:
Deferred loan origination (fees) cost, net		(290	)	-0.1	%		(298	)	-0.1	%		(285	)	-0.1	%		(316	)	-0.1	%		(160	)	-0.1	%
Total loans		442,875		100.0	%		427,948		100.0	%		321,670		100.0	%		262,750		100.0	%		148,886		100.0	%
Allowance for loan losses		(8,314	)				(7,496	)				(5,298	)				(3,598	)				(2,355	)
Total loans, net	$	434,561				$	420,452				$	316,372				$	259,152				$	146,531

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The following table presents as of December 31, 2007 (i) the aggregate maturities of loans in the named categories of our loan portfolio and (ii) the aggregate amounts of such loans, by variable and fixed rates that mature within one year, after one year but within five years, and after five years:

	At December 31, 2007
	Due within one year		Due after one year but within five years		Due after five years		Total
	(dollars in thousands)
Fixed rate loans:
One-to-four family residential	$	8,820	$	31,522	$	2,424	$	42,766
Commercial real estate		9,968		65,183		6,417		81,568
Multi-family residential		110		4,489		461		5,060
Construction		5,297		15,687		1,692		22,676
Commercial and industrial		10,020		30,455		1,757		42,232
Loans to individuals		5,714		14,719		264		20,697
Total at fixed rates		39,929		162,055		13,015		214,999
Variable rate loans:
One-to-four family residential		8,731		8,192		1,122		18,045
Commercial real estate		16,638		29,609		5,611		51,858
Multi-family residential		2,177		6,411		—		8,588
Construction		42,633		16,541		2,069		61,243
Home equity lines of credit		317		229		42,277		42,823
Commercial and industrial		21,025		11,741		5,294		38,060
Loans to individuals		1,404		1,138		—		2,542
Total at variable rates		92,925		73,861		56,373		223,159
Subtotal		132,854		235,916		69,388		438,158
Non-accrual loans		576		3,683		748		5,007
Gross loans	$	133,430	$	239,599	$	70,136	$	443,165
Deferred loan origination (fees) costs, net								(290	)
Total loans							$	442,875

Past Due Loans and Nonperforming Assets

As previously reported in our 2007 quarterly filings, the Company’s management identified certain underwriting and credit administration weaknesses that existed at one of the bank subsidiaries, New Century Bank. During the year, Management and the Board have taken actions to identify problem loans and improve internal controls in the lending and credit administration areas. These actions included conducting extensive loan risk rating reviews; addressing problem loans and enhancing the credit administration department; improving loan documentation, policies and procedures; and addressing known violations of rules, regulations and policies. By the end of 2007, independent third parties had reviewed more than 60% of the New Century Bank loan portfolio.

At December 31, 2007, the Company had nearly $5.8 million in loans that were 30 days or more past due. This represented 1.31% of gross loans outstanding on that date. This is an increase from December 31, 2006 when there was $4.8 million in loans that were past due 30 days or more, or 1.12% of gross loans

- 21 -

outstanding. Non-accrual loans increased $2.3 million from December 31, 2006 to $5.0 million at December 31, 2007. Of the $5.0 million in non-accrual loans, $4.4 million were loans that were placed in non-accrual status during 2007 due to payment status being 90 days or more past due. Most (86%) of the $4.4 million is comprised of 10 relationships that total $3.8 million.

The table below sets forth, for the periods indicated, information about the Company’s non-accrual loans, loans past due 90 days or more and still accruing interest, total non-performing loans (non-accrual loans plus restructured loans), and total non-performing assets.

	As December 31,
	2007			2006			2005			2004			2003
	(dollars in thousands)
Non-accrual loans	$	5,007		$	2,657		$	823		$	190		$	116
Restructured loans		—			562			—			—			—
Total non-performing loans		5,007			3,219			823			190			116
Real estate owned		542			164			443			135			218
Repossessed assets		34			—			5			—			—
Total non-performing assets	$	5,583		$	3,383		$	1,271		$	325		$	334
Accruing loans past due 90 days or more	$	1		$	1,197		$	189		$	—		$	29
Allowance for loan losses	$	8,314		$	7,496		$	5,298		$	3,598		$	2,355
Non-performing loans to period end loans		1.13	%		0.75	%		0.26	%		0.07	%		0.08	%
Non-performing loans and accruing loans past due 90 days or more to period end loans		1.13	%		1.03	%		0.31	%		0.07	%		0.10	%
Allowance for loans losses to period end loans		1.88	%		1.75	%		1.65	%		1.37	%		1.58	%
Allowance for loan losses to non-performing loans		166	%		233	%		644	%		1894	%		2030	%
Allowance for loan losses to non-performing assets		1.49	%		222	%		417	%		1107	%		705	%
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more		149	%		164	%		363	%		1107	%		649	%
Non-performing assets to total assets		.94	%		0.61	%		0.29	%		0.10	%		0.17	%
Non-performing assets and accruing loans past due 90 days or more to total assets		.94	%		0.83	%		0.33	%		0.10	%		0.19	%

In addition to the nonperforming assets summarized above, the Company had $7.1 million in loans that were considered to be impaired for reasons other than their past due status. In total, there were $12.1 million of loans that were considered to be impaired at December 31, 2007, an increase of $.3 million from the $11.8 million at December 31, 2006. Impaired loans have been evaluated by management in accordance with SFAS 114 and $2.3 million has been included in the allowance for loan losses as of December 31, 2007 for these loans. While the total impaired balances have not changed significantly from the end of 2006 to the end of 2007, the composition of these balances has. $6.7 million of the loans that were considered impaired at December 31, 2006 were either charged-off, paid out or upgraded during 2007. Conversely, management’s efforts to identify and properly classify potential problem loans have resulted in $7.0 million in new relationships classified as impaired during 2007, 90% of which are concentrated in eleven relationships totaling $6.3 million.

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Allowance for Loan Losses

The allowance for loan losses increased 13 basis points to 1.88% of gross loans at December 31, 2007 from 1.75% at December 31, 2006. The increase resulted from increases allocable to the downgrading of loans, resulting from both internal and external loan reviews, an increase in the level of non-performing loans and net charge-offs of $5.2 million. In evaluating the adequacy of the allowance, management considers the growth, composition and industry diversification of the portfolio, historical loss experience, current delinquency levels, trends in past dues, adverse situations that may affect a borrower’s ability to repay, estimated value of underlying collateral, prevailing economic conditions and other relevant factors derived from the Company’s history of operations. During 2007, management made enhancements to the Company’s process for determining the allowance for loan losses effective December 31, 2007, including the aforementioned loan review process. Other steps taken include bi-weekly management meetings to review and monitor problem assets and improved processes for identification and measurement of impaired loans in accordance with SFAS 114.

While the Company believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making determinations regarding the allowance. While the Company believes that the allowance for loan losses has been established in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the loan portfolio, will not require adjustments to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increased provisions to the allowance will not be necessary should the quality of any loans deteriorate. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations and the value of the Company’s common stock.

Management believes the allowance for loan losses as of December 31, 2007 is appropriate in light of the risk inherent within the Company’s loan portfolio.

The following table presents the Company’s allowance for loan losses as a percentage of loans at December 31 for the years indicated.

	At December 31,
	2007		% of Total loans		2006		% of Total loans		2005		% of Total loans		2004		% of Total loans		2003		% of Total loans
	(dollars in thousands)
One-to-four family residential	$	682	13.94	%	$	133	13.99	%	$	209	14.78	%	$	99	15.00	%	$	185	16.33	%
Commercial real estate		2,135	29.95	%		2,078	26.59	%		1,786	29.24	%		816	26.76	%		478	21.58	%
Multi- family residential		64	3.02	%		241	3.13	%		196	4.87	%		170	5.18	%		95	3.58	%
Construction		586	19.15	%		1,593	18.60	%		1,235	19.59	%		867	16.43	%		340	12.77	%
Home equity lines of credit		319	9.49	%		169	9.84	%		35	4.52	%		28	4.69	%		39	3.40	%
Commercial and industrial		4,270	18.52	%		2,022	20.71	%		893	20.54	%		826	25.15	%		880	33.08	%
Loans to individuals		221	6.04	%		1,254	7.20	%		789	6.56	%		622	6.92	%		280	7.36	%
Deferred loan originations fees, net		—	(.11	)%		—	(.07	)%		—	(.09	)%		—	(0.12	%)		—	1.90	%
			100.00	%			100.00	%			100.00	%			100.00	%			100.00	%
Total allocated		8,277				7,490				5,143				3,428				2,297
Unallocated		37				6				155				170				58
Total	$	8,314			$	7,496			$	5,298			$	3,598			$	2,355

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The following table presents information regarding changes in the allowance for loan losses for the years indicated:

	As of December 31,
	2007			2006			2005			2004			2003
	(dollars in thousands)
Allowance for loan losses at beginning of year	$	7,496		$	5,298		$	3,598		$	2,355		$	1,546
Provision for loan losses		5,974			2,779			2,172			1,684			1,042
		13,470			8,077			5,770			4,039			2,588
Loans charged off:
One-to-four family residential		(471	)		(92	)		(235	)		(56	)		—
Multi-family residential and commercial		(572	)		(29	)		(61	)		—			—
Construction		(130	)		—			—			—			—
Home equity lines of credit		(127	)		—			—			(25	)		—
Commercial and industrial		(3,878	)		(835	)		(24	)		(312	)		(97	)
Loans to individuals		(626	)		(181	)		(208	)		(85	)		(136	)
Total charge-offs		(5,804	)		(1,137	)		(528	)		(478	)		(233	)
Recoveries of loans previously charged off:
One-to-four family residential		119			28			—			3			—
Multi-family residential and Commercial		37			—			—			—			—
Construction		4			—			—			—			—
Commercial and industrial		325			58			38			20			—
Loans to individuals		163			66			17			14			—
Total recoveries		648			152			56			37			—
Net charge-offs		(5,156	)		(985	)		(472	)		(441	)		(233	)
Allowance acquired from Progressive State Bank		—			404			—			—			—
Allowance for loan losses at end of year	$	8,314		$	7,496		$	5,298		$	3,598		$	2,355
Ratios:
Net charge-offs as a percent of average loans		1.15	%		0.27	%		0.16	%		0.20	%		0.19	%
Allowance for loan losses as a percent of loans at end of year		1.88	%		1.75	%		1.65	%		1.37	%		1.58	%

Other Assets

At December 31, 2007 non-earning assets totaled $47.9 million, an increase of $3.2 million from $44.7 million at December 31, 2006. The increase reflects the cost of building and opening a second office in Fayetteville and a new building for the Lillington branch during 2007 with an approximate investment of $2.9 million. Non-earning assets at December 31, 2007 consisted of: cash and due from banks $11.5 million, premises and equipment $12.0 million, goodwill $8.7 million (resulting from the Company’s acquisition of Progressive State Bank in 2006), accrued interest receivable $3.2 million, bank owned life insurance $6.9 million and others totaling $5.6 million.

The Company has an investment in bank owned life insurance of $6.9 million, which increased $.3 million from December 31, 2006. The change reflects an increase in cash surrender value. Since the income on this investment is included in non-interest income, the asset is not included in the Company’s calculation of earning assets.

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Deposits

Total deposits at December 31, 2007 were $498.1 million and consisted of $65.6 million in non-interest-bearing demand deposits, $53.4 million in money market and NOW accounts, $36.4 million in savings accounts, and $342.7 million in time deposits. Total deposits grew by $34.0 million from $464.1 million as of December 31, 2006. Non-interest-bearing demand deposits decreased by $4.6 million from $70.2 million as of December 31, 2006. Savings accounts decreased by $9.2 million due to the introduction of a premium savings account. Time deposits grew by $44.3 million during 2007, Brokered deposits totaled $2.0 million or less than 1% of year end deposits.

The following table shows historical information regarding the average balances outstanding and average interest rates for each major category of deposits:

	For the Period Ended December 31,
	2007				2006				2005				2004				2003
	Average Amount		Average Rate		Average Amount		Average Rate		Average Amount		Average Rate		Average Amount		Average Rate		Average Amount		Average Rate
	(dollars in thousands)
Savings, NOW and money market deposits	$	97,370	2.55	%	$	87,264	2.56	%	$	56,378	1.54	%	$	55,888	1.14	%	$	31,064	1.42	%
Time deposits > $ 100,000		144,039	5.01	%		107,855	4.31	%		73,238	4.12	%		39,917	3.20	%		28,376	3.33	%
Other time deposits		181,013	5.16	%		154,864	4.89	%		143,547	3.50	%		104,040	2.83	%		53,958	3.17	%
Total interest-bearing deposits		422,422	4.51	%		349,983	4.13	%		273,163	3.26	%		199,845	2.40	%		113,398	2.73	%
Noninterest-bearing deposits		71,567	—			62,094	—			44,485	—			31,665	—			18,455	—
Total deposits	$	493,989	3.85	%	$	412,077	3.51	%	$	317,648	2.80	%	$	231,510	2.07	%	$	131,853	2.35	%

Short Term and Long Term Debt

As of December 31 2007, the Company had $17.0 million in short-term debt and $12.4 million in long-term debt. Short term debt includes repurchase agreements of $17.0 million. Long-term debt consists of $12.4 million of junior subordinated debentures issued to New Century Statutory Trust I in connection with the Company’s issuance of trust preferred securities in September 2004.

Shareholders’ Equity

Total shareholders’ equity at December 31, 2007 was $61.2 million, an increase of $3.8 million from $57.4 million as of December 31, 2006. Changes in shareholders’ equity included $1.7 million in net income, an increase of $1.5 million from stock options exercised, an increase of $238,000 from stock based compensation, and $232,000 in other comprehensive income.

RESULTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Overview

During 2007, New Century Bancorp generated net income of $1.7 million compared to net income of $4.0 million for 2006, a decrease of 58%. Basic earnings per share and diluted earnings per share for the year ended December 31, 2007 were $.25 and $.24, respectively, compared with basic earnings per share of $.69 and diluted earnings per share of $.65 for 2006. The decrease in net income is primarily due to increases in the provision for loan losses that were necessitated by the identification of problem loans in the portfolio of New Century Bank. The increase in the loan loss provision was partially offset by the effect of a full year’s operating results in 2007 from the acquisition of Progressive State Bank in July of 2006.

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Net Interest Income

Like most financial institutions, the primary component of earnings for the Company is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by the average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by the levels on non-interest bearing liabilities and capital.

Net interest income increased by $1.3 million to $20.9 million for the year ended December 31, 2007. The Company’s total interest income benefited from continued growth in interest earning assets that was partially offset by a gradually declining interest rate environment. Average total interest-earnings assets were $539.5 million in 2007 compared with $459.0 million in 2006. The yield on those assets decreased by 9 basis points from 7.85% in 2006 to 7.76% in 2007. Earning asset yields were impacted by income reversed when loans went into non-accrual status. Meanwhile, average interest-bearing liabilities increased by $69.0 million from $381.5 million for the year ended December 31, 2006 to $450.5 million for the year ended December 31, 2007. Cost of funds increased by 34 basis points to 4.58% from 4.24% in 2006. In 2007, the Company’s net interest margin was 3.93% and net interest spread was 3.18%. In 2006, net interest margin was 4.33% and net interest spread was 3.62%.

Provision for Loan Losses

Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan losses, current delinquency and impairment levels, adverse situations that may affect a borrower’s ability to repay, estimated value of underlying collateral, prevailing economic conditions and other relevant factors.

The Company recorded a $6.0 million provision for loan losses in 2007, an increase of $3.2 million from the $2.8 million provision that was recorded in 2006. The 2007 provision for loan losses was significantly impacted by the downgrading of loans, resulting from both internal and external loan reviews, an increase in the level of non-performing loans and net charge-offs of $5.2 million.

Non-Interest Income

Non-interest income for the year ended December 31, 2007 was $3.9 million, an increase of $600,000 over the year ended December 31, 2006. Generally, there were increases in many categories of non-interest income due to having a full year of service charges and other fees from the loans and deposits acquired in the merger with Progressive in 2006 and from continued organic growth. Compared to last year, the Company had an increase in deposit service fees and charges of $419,000, or 30%. In addition, fees from pre-sold mortgages grew by $63,000 from $704,000 in 2006 to $767,000 in 2007.

Non-Interest Expenses

Non-interest expenses increased by $2.4 million to $16.2 million for the year ended December 31, 2007, from $13.8 million for the same period in 2006. Like non-interest income, there was an increase in all categories of non-interest expenses due to having a full year of expenses related to the additional offices acquired in the Progressive merger in 2006 and from organic growth. In October 2007, the Company consolidated the two offices in Lumberton and closed the office in Dublin in order to eliminate redundant expenses and improve efficiencies. This lowered the number of full-time equivalents on a year-to-year basis but salaries and benefits had already increased during the first nine months of the year due to the

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merger in 2006 and the opening of the second office in Fayetteville. Salaries and employee benefits increased to $9.0 million in 2007 from $8.2 million in 2006. Occupancy and equipment expenses increased by $200,000 to $1.4 million for the year ended December 31, 2007. The increase in occupancy and equipment is due to the merger and the opening of the second office in Fayetteville and the new building in Lillington. The following highlight other changes in non-interest expenses from 2006 to 2007:

• Data processing and other outsourced service expenses increased from $1.2 in 2006 to $1.4 million in 2007 due to growth in the Company.

• Professional service expenses increased from $520,000 in 2006 to $1.3 million in 2007, due to increases for audit, legal, and other outsourced services related to compliance with section 404 of the Sarbanes Oxley Act, and to the aforementioned external loan reviews.

• Other operating expense increased from $1.9 million in 2006 to $2.3 million in 2007 due to general growth of the Company and an increase of $83,000 in amortization of the core deposit intangible resulting from the acquisition of Progressive’s deposits.

Provision for Income Taxes

The Company’s effective tax rate was 36.5% in 2007 and 37.3% in 2006. The decrease is attributable to a favorable change in the mix of taxable and non-taxable revenue and expense items

RESULTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Overview

During 2006, New Century Bancorp generated net income of $4.0 million compared to net income of $3.6 million for 2005, an increase of 10%. Basic earnings per share and diluted earnings per share for the year ended December 31, 2006 were $.69 and $.65, respectively, compared with basic earnings per share of $.72 and diluted earnings per share of $.66 for 2005. The increase in net income is due to higher net interest income and higher non-interest income partially offset by a higher provision for loan losses and higher non-interest expenses. A portion of the increase in net income is due to the additional income from the acquisition of Progressive State Bank which was partially offset by $329,000 in one-time systems conversion expenses that were related to the merger but which could not be capitalized as goodwill under the purchase accounting rules.

Net Interest Income

Like most financial institutions, the primary component of earnings for the Company is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by the average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by the levels on non-interest bearing liabilities and capital.

Net interest income increased by $5.1 million to $19.6 million for the year ended December 31, 2006. The Company’s total interest income benefited from continued growth in interest earning assets and the level of interest rates throughout 2006. Average total interest-earnings assets were $459.0 million in 2006 compared with $362.7 million in 2005. The yield on those assets increased by 100 basis points from 6.80% in 2005 to 7.80% in 2006. Meanwhile, average interest-bearing liabilities increased by $77.6 million from $303.9 million for the year ended December 31, 2005 to $381.5 million for the year ended December 31, 2006. Cost of funds increased by 92 basis points to 4.24% from 3.32% in 2005. In 2006,

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the Company’s net interest margin was 4.28% and net interest spread was 3.57%. In 2005, net interest margin was 4.02% and net interest spread was 3.48%.

Provision for Loan Losses

Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan losses, current delinquency and impairment levels, adverse situations that may affect a borrower’s ability to repay, estimated value of underlying collateral, prevailing economic conditions and other relevant factors.

The Company recorded a $2.8 million provision for loan losses in 2006, an increase of $607,000 from the $2.2 million provision that was recorded in 2005. In 2006, the level of provision resulted from an increase in impaired assets of $7.8 million and loan growth of $106.3 million. A portion of the loan growth came from the Company’s acquisition of Progressive State Bank. These increases were partially offset by net charge-offs of $985,000, including $869,000 in charge-offs on one large commercial relationship. In 2005, the provision for loan losses was made principally in response to loan growth, as loans grew by $110.8 million, and an increase in the level of impaired assets.

Non-Interest Income

Non-interest income for the year ended December 31, 2006 was $3.3 million, an increase of $782,000 over the year ended December 31, 2005. Aided by the additional deposits acquired in the Progressive merger in July 2006, deposit service charges increased by $378,000 to $1.4 million in 2006. In addition to this additional income, there were increases in fees from pre-sold mortgages of $25,000, and other non-interest income of $402,000. Included in other non-interest income is income from bank-owned life insurance, which increased by $130,000 from 2005 to $211,000 in 2006 due to additional investments that were purchased by the Company at the end of 2005 and in 2006. These increases were partially offset by a decline in the commissions from the sale of loans guaranteed by the Small Business Administration.

Non-Interest Expenses

Non-interest expenses increased by $4.7 million to $13.8 million for the year ended December 31, 2006 from $9.1 million for the same period in 2005. Like non-interest income, there was a general increase in all categories of non-interest expenses due to the additional offices acquired in the Progressive merger. Salaries and benefits increased to $8.2 million in 2006 from $5.5 million in 2005 due mostly to the increase in personnel from 92 full-time equivalents at December 31, 2005 to 156 at the end of 2006. This increase in staff is due not only to the merger, but also to the opening of two new branch locations in 2006 and additional operations personnel. In addition, there was an increase of $183,000 in 401k expense due to a Board approved increase in the employer match of employee contributions and $166,000 in stock compensation expense related to the vesting of stock options in 2006. The stock option expense was recorded in accordance with the provisions of SFAS No. 123R, which was adopted on January 1, 2006 using the modified prospective method. Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as prescribed by APB Opinion No. 25 and, as a result, had not recognized compensation expense for options granted with exercise prices equal to the fair market value of the Company’s stock on the date of grant. Occupancy and equipment expenses increased by $500,000 to $1.2 million in 2006 due to the opening of the new branch location, addition of the Progressive branches and a full year of expenses related to expansion of operations facilities in August 2005. Data processing and other outsourced services expense increased from $794,000 for the year ended December 31, 2005 to $1.2 million for the year ended December 31, 2006 due to in part to $193,000 in merger-related systems conversion costs. The following highlight other changes in non-interest expenses, which grew from $2.1 million in 2005 to $3.2 million in 2006:

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• Postage, printing and office supplies increased from $277,000 in 2005 to $459,000 in 2006 due to the addition of new office and the operations center, as well as the general growth of the Company.

• Advertising and promotions expenses increased from $274,000 to $356,000 due to the new offices and a home equity campaign in 2006.

• As part of the home equity campaign, the Company paid $227,000 in closing costs in 2006, compared to $54,000 paid in 2005.

• During 2006, the Company recorded approximately $71,000 in amortization of the core deposit intangible asset acquired in the Progressive merger.

Provision for Income Taxes

The Company’s effective tax rate was 37.3% in 2006 and 37.4% in 2005.

NET INTEREST INCOME

The following table sets forth, for the periods indicated, information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Nonaccrual loans have been included in determining average loans.

	For the Years Ended December 31,
	2007							2006							2005
	(dollars in thousands)
	Average balance			Interest		Average rate		Average balance			Interest		Average rate		Average balance			Interest		Average rate
INTEREST-EARNING ASSETS:
Loans, net of allowance	$	442,171		$	36,835	8.33	%	$	363,201		$	31,311	8.62	%	$	297,045		$	22,427	7.55	%
Investment securities		59,889			3,152	5.26	%		54,003			2,692	4.98	%		33,006			1,353	4.10	%
Other interest-earning assets		37,466			1,881	5.02	%		41,770			2,046	4.90	%		32,618			1,037	3.18	%
Total interest-earning assets		539,526			41,868	7.76	%		458,974			36,049	7.85	%		362,669			24,817	6.84	%
Other assets		44,283							32,875							18,825
Total assets	$	583,809						$	491,849						$	381,494
INTEREST-BEARING LIABILITIES:
Deposits:
Savings, NOW and money market	$	97,370			2,484	2.55	%	$	87,264			2,235	2.56	%	$	56,378			869	1.54	%
Time deposits over $100,000		144,039			7,211	5.01	%		107,855			4,653	4.31	%		73,238			3,016	4.12	%
Other time deposits		181,013			9,349	5.16	%		154,864			7,566	4.89	%		143,547			5,021	3.5	%
Borrowings		28,044			1,609	5.74	%		31,531			1,713	5.43	%		30,726			1,183	3.85	%
Total interest-bearing liabilities		450,466			20,653	4.58	%		381,514			16,167	4.24	%		303,889			10,089	3.32	%
Non-interest-bearing deposits		71,567							62,094							44,485
Other liabilities		1,888							2,627							1,537
Shareholders’ equity		59,888							45,614							31,583
Total liabilities and shareholders’ equity	$	583,809						$	491,849						$	381,494
Net interest income/interest rate spread (taxable-equivalent basis)				$	21,215	3.18	%				$	19,882	3.62	%				$	14,728	3.52	%
Net interest margin (taxable-equivalent basis)						3.93	%						4.33	%						4.06	%
Ratio of interest-earning assets to interest-bearing liabilities		119.77	%						120.30	%						119.34	%
Reported net interest income
Net interest income/net interest margin (taxable-equivalent basis)				$	21,215	3.93	%				$	19,882	4.33	%				$	14,728	4.06	%
Less:
taxable-equivalent adjustment					270							237							138
Net Interest Income				$	20,945						$	19,645						$	14,590

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RATE/VOLUME ANALYSIS

The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period’s volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) has been allocated equally to both the changes attributable to volume and the changes attributable to rate.

	Year Ended									Year Ended							Year Ended
	December 31, 2007 vs. 2006									December 31, 2006 vs. 2005							December 31, 2005 vs. 2004
	Increase (Decrease) Due to									Increase (Decrease) Due to							Increase (Decrease) Due to
	Volume			Rate			Total			Volume		Rate		Total			Volume		Rate		Total
	(dollars in thousands)
Interest income:
Loans	$	6,808		$	(1,284	)	$	5,524		$	4,995	$	3,889	$	8,884		$	5,124	$	2,860	$	7,984
Investment securities		293			167			460			861		478		1,339			593		102		695
Other interest-earning assets		(211	)		46			(165	)		291		718		1,009			129		513		642
Total interest income (taxable-equivalent basis)		6,890			(1,071	)		5,819			6,147		5,085		11,232			5,846		3,475		9,321
Interest expense:
Deposits:
Savings, NOW and money market		259			(10	)		249			476		890		1,366			6		228		234
Time deposits over $100,000		1,561			997			2,558			1,426		211		1,637			1,068		669		1,737
Other time deposits		1,278			505			1,783			396		2,149		2,545			1,090		1,061		2,151
Borrowings		(189	)		85			(104	)		31		499		530			465		315		780
Total interest expense		2,908			1,578			4,486			2,329		3,749		6,078			2,629		2,273		4,902
Net interest income
Increase/(decrease) (taxable-equivalent basis)	$	3,981		$	(2,648	)		1,333		$	3,818	$	1,336		5,154		$	3,217	$	1,202		4,419
Less:
Taxable-equivalent adjustment								(33	)						(99	)						(50	)
Net interest income
Increase/(decrease)							$	1,300						$	5,055						$	4,369

LIQUIDITY

The Company’s liquidity is a measure of its ability to fund loans, withdrawals and maturities of deposits, and other cash outflows in a cost effective manner. The Company’s principal sources of liquidity are deposits, scheduled payments and prepayments of loan principal, maturities of investment securities, access to liquid deposits, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

Liquid assets (consisting of cash and due from banks, interest-earning deposits with other banks, federal funds sold and investment securities classified as available for sale) comprised 19.4% and 17.5% of total assets at December 31, 2007 and 2006 respectively.

The Company has been a net seller of federal funds, maintaining liquidity sufficient to fund new loan demand. When the need arises, the Company has the ability to sell securities classified as available for sale, sell loan participations to other banks, or to borrow funds as necessary. The Company has established credit lines with other financial institutions to purchase up to $31.1 million in federal funds. Also, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), the Company may obtain advances of up to 30% of assets, subject to our available collateral. A floating lien of $15.2 million on qualifying loans is pledged to

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FHLB to secure borrowings. As another source of short-term borrowings, the Company also utilizes securities sold under agreements to repurchase. At December 31, 2007, borrowings consisted of securities sold under agreements to repurchase of $17.0 million.

Total deposits were $498.1 million and $464.1 million at December 31, 2007 and 2006, respectively. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate sensitive. Time deposits represented 68.8% and 64.3% of total deposits at December 31, 2007 and 2006, respectively. Time deposits of $100,000 or more represented 30.5% and 27.3%, respectively, of the total deposits at December 31, 2007 and 2006. At December 31, 2007, the Company had $2.0 million in brokered time deposits. Management believes most other time deposits are relationship-oriented. While the competitive rates will need to be paid to retain these deposits at their maturities, there are other subjective factors that will determine their continued retention. Based upon prior experience, management anticipates that a substantial portion of outstanding certificates of deposit will renew upon maturity.

Management believes that current sources of funds provide adequate liquidity for the Company’s current cash flow needs.

CAPITAL

A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity (including trust preferred securities), and (2) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines that require a financial institution to maintain capital as a percent of its assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A financial institution is required to maintain, at a minimum, Tier 1 capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 capital as a percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, federal regulations require that we maintain a minimum leverage ratio (Tier 1 capital as a percentage of tangible assets) of 4.0%. The Company’s equity to assets ratio was 10.35% at December 31, 2007. As the following table indicates, at December 31, 2007, the Company and its two bank subsidiaries exceeded regulatory capital requirements.

	At December 31, 2007
	Actual Ratio		Minimum Requirement		Well-Capitalized Requirement
New Century Bancorp, Inc.
Total risk-based capital ratio	14.77	%	8.00	%	N/A
Tier 1 risk-based capital ratio	13.51	%	4.00	%	N/A
Leverage ratio	10.77	%	4.00	%	N/A
New Century Bank
Total risk-based capital ratio	13.83	%	8.00	%	10.00	%
Tier 1 risk-based capital ratio	12.57	%	4.00	%	6.00	%
Leverage ratio	9.87	%	4.00	%	5.00	%
New Century Bank South
Total risk-based capital ratio	11.89	%	8.00	%	10.00	%
Tier 1 risk-based capital ratio	11.06	%	4.00	%	6.00	%
Leverage ratio	9.64	%	4.00	%	5.00	%

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During 2004, the Company issued $12.4 million of junior subordinated debentures to a newly formed subsidiary, New Century Statutory Trust I, which in turn issued $12.0 million of trust preferred securities. The proceeds provided additional capital for the current and future expansion of the Company. Under the current applicable regulatory guidelines, all of the debentures qualify as Tier 1 capital. Management expects that the Company and both Banks will remain “well-capitalized” for regulatory purposes, although there can be no assurance that additional capital will not be required in the near future due to greater-than-expected growth, or otherwise.

ASSET/LIABILITY MANAGEMENT

The Company’s results of operations depend substantially on its net interest income. Like most financial institutions, the Company’s interest income and cost of funds are affected by general economic conditions and by competition in the marketplace.

The purpose of asset/liability management is to provide stable net interest income growth by protecting the Company’s earnings from undue interest rate risk, which arises from volatile interest rates and changes in the balance sheet mix, and by managing the risk/return relationships between liquidity, interest rate risk, market risk, and capital adequacy. The Company maintains, and has complied with, a Board approved asset/liability management policy that provides guidelines for controlling exposure to interest rate risk by utilizing the following ratios and trend analysis: liquidity, equity, volatile liability dependence, portfolio maturities, maturing assets and maturing liabilities. The Company’s policy is to control the exposure of its earnings to changing interest rates by generally endeavoring to maintain a position within a narrow range around an “earnings neutral position,” which is defined as the mix of assets and liabilities that generate a net interest margin that is least affected by interest rate changes.

When suitable lending opportunities are not sufficient to utilize available funds, the Company has generally invested such funds in securities, primarily securities issued by governmental agencies, mortgage-backed securities and municipal obligations. The securities portfolio contributes to the Company’s profits and plays an important part in overall interest rate management. However, management of the securities portfolio alone cannot balance overall interest rate risk. The securities portfolio must be used in combination with other asset/liability techniques to actively manage the balance sheet. The primary objectives in the overall management of the securities portfolio are safety, liquidity, yield, asset/liability management (interest rate risk), and investing in securities that can be pledged for public deposits.

In reviewing the needs of the Company with regard to proper management of its asset/liability program, the Company’s management estimates its future needs, taking into consideration historical periods of high loan demand and low deposit balances, estimated loan and deposit increases (due to increased demand through marketing), and forecasted interest rate changes.

The analysis of an institution’s interest rate gap (the difference between the repricing of interest-earning assets and interest-bearing liabilities during a given period of time) is a standard tool for the measurement of exposure to interest rate risk. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2007, which are projected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which reprice or mature within a particular period were determined in accordance with the contractual terms of the assets or liabilities. Loans with adjustable rates are shown as being due at the end of the next upcoming adjustment period. Money market deposit accounts and negotiable order of withdrawal or other transaction accounts are assumed to be subject to immediate repricing and depositor availability and have been placed in the shortest period. In making the gap computations, none of the assumptions sometimes made regarding prepayment rates and deposit decay rates have been used for any interest-earning assets or interest-bearing liabilities. In addition, the table does not reflect scheduled principal payments that will be received throughout the lives of the loans. The interest rate sensitivity of the Company’s assets and liabilities

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illustrated in the following table would vary substantially if different assumptions were used or if actual experience differs from that indicated by such assumptions.

	Terms to Repricing at December 31, 2007
	1 Year or Less			More Than 1 Year to 3 Years			More Than 3 Years to 5 Years			More Than 5 Years			Total
	(dollars in thousands)
Interest-earning assets:
Loans:
Adjustable rate	$	226,205		$	—		$	—		$	—		$	226,205
Fixed rate		40,058			86,233			77,325			13,344			216,960
Securities available for sale		17,424			13,595			2,444			43,046			76,509
Interest-earning deposits in other banks		748			—			—			—			748
Federal funds sold		25,981			—			—			—			25,981
Stock in FHLB of Atlanta		—			—			—			1,087			1,087
Stock in Silverton Bank		—			—			—			51			51
Total interest-earning assets	$	310,416		$	99,828		$	79,769		$	57,528		$	547,541
Interest-bearing liabilities:
Deposits:
Savings, NOW and money market	$	89,758		$	—		$	—		$	—		$	89,758
Time		166,751			23,492			436			4			190,683
Time over $100,000		134,210			16,590			1,258			—			152,058
Short term debt		16,967			—			—			—			16,967
Long term debt		12,372			—			—			—			12,372
Total interest-bearing liabilities	$	420,058		$	40,082		$	1,694		$	4		$	461,838
Interest sensitivity gap per period	$	(109,642	)	$	59,746		$	78,075		$	57,524		$	85,703
Cumulative interest sensitivity gap	$	(109,642	)	$	(49,896	)	$	28,179		$	85,703		$	85,703
Cumulative gap as a percentage of total interest-earning assets		(20.02	)%		(9.11	)%		5.15	%		15.65	%		15.65	%
Cumulative interest-earning assets as a percentage of interest-bearing liabilities		73.90	%		89.16	%		106.10	%		118.56	%		118.56	%

Loans maturing or repricing after December 31, 2007 are comprised of $176.9 million of fixed rate loans.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both very important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. The following is a summary of the Company’s most complex and judgmental accounting policies: the allowance for loan losses and accounting for goodwill impairment.

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Asset Quality and the Allowance for Loan Losses

The financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on the loan portfolio, unless a loan is placed on a non-accrual basis. Loans are placed on a non-accrual basis when there are serious doubts about the collectibility of principal or interest. Amounts received on non-accrual loans generally are applied first to principal and then to interest only after all principal has been collected. Restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal, have been granted due to the borrower’s weakened financial condition. Interest on restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur. See above for a discussion on past due loans, non-performing assets and other impaired loans.

The allowance for loan losses is maintained at a level considered appropriate in light of the risk inherent within the Company’s loan portfolio, based on management’s assessment of various factors affecting the loan portfolio, including a review of problem loans, business conditions and loss experience and an overall evaluation of the quality of the underlying collateral. The allowance is increased by provisions charged to operations and reduced by loans charged off, net of recoveries. Additional information regarding the Company’s allowance for loan losses and loan loss experience are presented above in the discussion of the allowance for loan losses and in Note D to the accompanying financial statements.

Accounting for Goodwill Impairment

Management has developed procedures to test goodwill for impairment on an annual basis, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This testing procedure evaluates possible impairment based on the following:

The test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to a reporting unit and comparing the fair value of this reporting unit to its carrying value including goodwill. The value is determined assuming a freely negotiated transaction between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Accordingly, to derive the fair value of the reporting unit, the following common approaches to valuing business combination transactions involving financial institutions are utilized by the Company: (1) the comparable transactions approach – specifically based on earnings, book, assets and deposit premium multiples received in recent sales of comparable bank franchises; and (2) the discounted cash flow approach. The application of these valuation techniques takes into account the reporting unit’s operating history, the current market environment and future prospects.

If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and no second step is required. If not, a second test is required to measure the amount of goodwill impairment. The second test of the overall goodwill impairment compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. The impairment loss shall equal the excess of carrying value over fair value.

OFF-BALANCE SHEET ARRANGEMENTS

Information about the Company’s off-balance sheet risk exposure is presented in Note N to the accompanying financial statements. During 2004 the Company formed an unconsolidated subsidiary trust to which the Company has issued $12.4 million of junior subordinated debentures (see Note J to the consolidated financial statements). Otherwise, as part of its ongoing business, the Company has not participated in, nor does it anticipate participating in, transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose

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entities (SPEs), which generally are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note B to the financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on results of operations and financial condition.

IMPACT OF INFLATION AND CHANGING PRICES

A commercial bank has an asset and liability make-up that is distinctly different from that of a company with substantial investments in plant and inventory because the major portions of a commercial bank’s assets are monetary in nature. As a result, a bank’s performance may be significantly influenced by changes in interest rates. Although the banking industry is more affected by changes in interest rates than by inflation in the prices of goods and services, inflation is a factor that may influence interest rates. However, the frequency and magnitude of interest rate fluctuations do not necessarily coincide with changes in the general inflation rate. Inflation does affect operating expenses in that personnel expenses and the cost of supplies and outside services tend to increase more during periods of high inflation.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

In the normal course of business there are various outstanding contractual obligations of the Company that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows. The following table reflects contractual obligations of the Company outstanding as of December 31, 2007.

	Payments Due by Period
Contractual Obligations	Total		On Demand Or Within 1 Year		1-3 Years		4-5 Years		After 5 Years
	(dollars in thousands)
Short term debt	$	16,967	$	16,967	$	—	$	—	$	—
Long term debt		12,372		—		—		—		12,372
Lease obligations		2,281		201		348		212		1,520
Deposits		498,122		456,341		40,081		1,696		4
Total contractual cash obligations	$	529,742	$	473,509	$	40,429	$	1,908	$	13,896

The following table reflects other commitments outstanding as of December 31, 2007.

	Amount of Commitment Expiration Per Period
	(dollars in thousands)
Other Commitments	Total Amounts Committed		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Undisbursed home equity credit lines	$	4,963	$	1,252	$	621	$	10	$	3,080
Undisbursed portion of ready reserve lines		28,181		30		297		26		27,828
Other commitments and credit lines		30,291		29,677		93		269		252
Undisbursed portion of constructions loans		24,092		16,123		5,352		2,408		209
Letters of credit		2,177		2,177		—		—		—
Total commercial commitments	$	89,704	$	49,259	$	6,363	$	2,713	$	31,369

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FORWARD-LOOKING INFORMATION

Statements contained in this annual report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary as a result of market and other factors. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the U.S. Securities and Exchange Commission from time to time. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principals, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services.

REGULATORY MATTERS

Effective December 27, 2007, the Board of Directors of New Century Bank entered into a Memorandum of Understanding with the FDIC and the North Carolina Commissioner of Banks. The Memorandum of Understanding represents an agreement between the Board of Directors of New Century Bank, the Regional Director of the FDIC’s Atlanta Regional Office and the North Carolina Commissioner of Banks and requires that New Century Bank’s management take certain actions to improve the bank’s lending function. Specifically, the Memorandum of Understanding requires the bank to address problem loans by charging off certain classified assets within 30 days and also requires that the bank accomplish the following within a 90 day time frame: formulate a proposal for the reduction or improvement of any classified lines of credit, conduct a reevaluation of the performance and abilities of the bank’s loan officers and credit administration staff; improve loan documentation, policies and procedures; and correct known violations of rules, regulations and policies. The Memorandum of Understanding also requires management to file various reports with the FDIC and the North Carolina Commissioner of Banks within 90 days, including a budget, earnings forecast and capital plan, with quarterly progress reports thereafter.

Compliance with the terms of the Memorandum of Understanding and remediation of the related material weakness that was originally identified in connection with the assessment of disclosure controls and procedures as of December 31, 2006 are high priorities for the Company. As a result, management devoted significant resources to these matters during the fiscal year ended December 31, 2007 and intends to continue to do so during 2008. Specific actions taken during 2007 included the hiring of a new Chief Credit Officer, who started in 2008, with substantial experience, evaluation and reorganization of lending and credit administration personnel, assessment and revision of lending and credit administration policies and procedures and more effective processes for identification and valuation of problem credits and consolidation of the Company’s wholly owned banking subsidiaries, New Century Bank and New Century Bank South, into one entity pursuant to a merger on March 28, 2008.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not required for smaller reporting companies.

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ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors

New Century Bancorp, Inc.

Dunn, North Carolina

We have audited the accompanying consolidated balance sheets of New Century Bancorp, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Century Bancorp, Inc. and subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

Raleigh, North Carolina

March 31, 2008

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NEW CENTURY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

	2007			2006
	(In thousands, except share and per share data)
ASSETS
Cash and due from banks	$	11,467		$	12,108
Interest-earning deposits in other banks		748			1,605
Federal funds sold		25,981			19,112
Investment securities available for sale, at fair value		76,509			63,914
Loans held for sale		3,905			1,552
Loans		442,875			427,948
Allowance for loan losses		(8,314	)		(7,496	)
NET LOANS		434,561			420,452
Accrued interest receivable		3,182			3,220
Stock in Federal Home Loan Bank of Atlanta, at cost		1,087			1,427
Stock in Silverton Bank		51			51
Foreclosed real estate		542			164
Premises and equipment		12,038			9,855
Bank owned life insurance		6,935			6,672
Goodwill		8,674			8,674
Core deposit intangible		1,160			1,314
Other assets		4,185			2,845
TOTAL ASSETS	$	591,025		$	552,965
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$	65,623		$	70,186
Savings		36,361			45,570
Money market and NOW		53,397			49,944
Time		342,741			298,417
TOTAL DEPOSITS		498,122			464,117
Short term debt		16,967			16,441
Long term debt		12,372			12,372
Accrued interest payable		844			890
Accrued expenses and other liabilities		1,547			1,706
TOTAL LIABILITIES		529,852			495,526
Shareholder’s Equity
Common stock, $1 par value, 10,000,000 shares authorized; 6,730,874 and 6,497,022 shares issued and outstanding at December 31, 2007 and 2006, respectively		6,731			6,497
Additional paid-in capital		40,651			39,177
Retained earnings		13,579			11,785
Accumulated other comprehensive income (loss)		212			(20	)
TOTAL SHAREHOLDERS’ EQUITY		61,173			57,439
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	591,025		$	552,965

See accompanying notes.

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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2007, 2006 and 2005

	2007		2006		2005
	(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	36,818	$	31,291	$	22,406
Investments		2,977		2,475		1,236
Federal funds sold and interest-earning deposits		1,803		2,046		1,037
TOTAL INTEREST INCOME		41,598		35,812		24,679
INTEREST EXPENSE
Money market, NOW and savings deposits		2,484		2,235		869
Time deposits		16,560		12,219		8,037
Short term debt		690		767		371
Long term debt		919		946		812
TOTAL INTEREST EXPENSE		20,653		16,167		10,089
NET INTEREST INCOME		20,945		19,645		14,590
PROVISION FOR LOAN LOSSES		5,974		2,779		2,172
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		14,971		16,866		12,418
NON-INTEREST INCOME
Service fees and charges		1,799		1,380		1,002
Gain on sale of loans held for sale		767		704		679
Fees from presold mortgages		460		416		439
Other		844		778		376
TOTAL NON-INTEREST INCOME		3,870		3,278		2,496
NON-INTEREST EXPENSE
Salaries and employee benefits		9,011		8,180		5,480
Occupancy and equipment		1,433		1,217		717
Data processing and other outsourced services		1,391		1,223		794
Other		4,394		3,196		2,138
TOTAL NON-INTEREST EXPENSE		16,229		13,816		9,129
INCOME BEFORE INCOME TAXES		2,612		6,328		5,785
INCOME TAXES		953		2,358		2,164
NET INCOME	$	1,659	$	3,970	$	3,621
NET INCOME PER COMMON SHARE
Basic	$	.25	$	.69	$	.72
Diluted	$	.24	$	.65	$	.66
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		6,603,631		5,784,671		5,061,791
Diluted		6,844,426		6,115,709		5,478,658

See accompanying notes.

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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
	(Amounts in thousands)
NET INCOME	$	1,659		$	3,970		$	3,621
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on investment securities available for sale arising during the year		376			392			(516	)
Tax effect		(144	)		(134	)		188
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)		232			258			(328	)
COMPREHENSIVE INCOME	$	1,891		$	4,228		$	3,293

See accompanying notes.

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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2007, 2006 and 2005

	Common stock			Additional paid-in capital			Retained earnings		Accumulated other comprehensive income (loss)			Total shareholders’ equity
	Shares	Amount
	(Amounts in thousands, except share data)
Balance at December 31, 2004	2,811,477	$	2,811	$	22,389		$	4,194	$	50		$	29,444
Net income	—		—		—			3,621		—			3,621
Other comprehensive loss	—		—		—			—		(328	)		(328	)
Stock option exercises	20,654		21		99			—		—			120
Shares issued for directors’ deferred compensation plan	2,505		2		53			—		—			55
Tax benefit from option exercises	—		—		62			—		—			62
Three-for-two stock split	1,406,404		1,407		(1,407	)		—		—			—
Balance at December 31, 2005	4,241,040		4,241		21,196			7,815		(278	)		32,974
Net income	—		—		—			3,970		—			3,970
Other comprehensive income	—		—		—			—		258			258
Sale of common stock	1,150,000		1,150		18,717			—		—			19,867
Shares issued to directors’ deferred compensation plan	1,496		2		26			—		—			28
Stock options exercises	23,090		23		115			—		—			138
Compensation expense recognized	—		—		166			—		—			166
Tax benefit from option exercises	—		—		38			—		—			38
Six-for-five stock split	1,081,396		1,081		(1,081	)		—		—			—
Balance at December 31, 2006	6,497,022		6,497		39,177			11,785		(20	)		57,439
Net income	—		—		—			1,659		—			1,659
Other comprehensive income	—		—		—			—		232			232
Stock options exercises	233,852		234		940			—		—			1,174
Compensation expense recognized	—		—		238					—			238
Tax benefit from option exercises	—		—		296			—		—			296
Adjustment related to the adoption of FASB Interpretation No. 48	—		—		—			135		—			135
Balance at December 31, 2007	6,730,874	$	6,731	$	40,651		$	13,579	$	212		$	61,173

See accompanying notes.

- 42 -

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
	(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,659		$	3,970		$	3,621
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation, amortization and accretion		464			481			392
Loss (gain) on disposal of premises and equipment		(38	)		(8	)		11
Provision for loan losses		5,974			2,779			2,172
Deferred income taxes		(128	)		(652	)		(667	)
Stock based compensation expense		238			166			—
Origination of loans held for sale		(6,587	)		(10,960	)		(16,927	)
Proceeds from the sale of loans held for sale		5,001			15,294			12,424
Gain on sale of loans held for sale		(767	)		(704	)		(679	)
Loss on sale of foreclosed real estate		108			15			14
Gain on sale of real estate held for sale		—			—			(39	)
Increase in cash surrender value of BOLI		(263	)		(211	)		(81	)
Amortization of core deposit intangible		154			71			—
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable		38			(870	)		(719	)
(Increase) decrease in other assets		(1,950	)		97			(642	)
Increase (decrease) in accrued expenses and other liabilities		(172	)		(542	)		695
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		3,731			8,926			(425	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities		(33,150	)		(27,266	)		(25,534	)
Maturities and prepayments of investment securities		21,199			15,733			8,264
Net increase in gross loans outstanding		(20,082	)		(73,190	)		(59,392	)
Purchase of bank owned life insurance		—			(600	)		(1,901	)
Sale (purchases) of Federal Home Loan Bank stock		340			(216	)		(306	)
Purchase of Silverton Bank stock		—			—			(2	)
Purchase of real estate held for sale		—			—			(58	)
Proceeds from the sale of real estate held for sale		—			—			1,025
Proceeds from sale of foreclosed real estate		209			468			41
Proceeds from the sale of premises and equipment		—			15			—
Purchases of premises and equipment		(2,877	)		(1,788	)		(1,589	)
Purchase of Progressive State Bank		—			(1,864	)		—
NET CASH USED BY INVESTING ACTIVITIES		(34,361	)		(88,708	)		(79,452	)

See accompanying notes.

- 43 -

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
	(Amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits	$	34,005		$	41,357		$	96,773
Net increase (decrease) in repurchase obligations classified as short term debt		8,526			(802	)		3,558
Proceeds from issuance of FHLB advances classified according to maturity		—			8,000			8,500
Repayments of FHLB advances classified according to maturity		(8,000	)		(12,500	)		(5,000	)
Tax benefit from stock option exercises		296			38			62
Net proceeds from issuance of common stock in secondary offering		—			19,867			—
Proceeds from stock options exercises		1,174			138			120
Proceeds from shares issued to directors’ deferred plan		—			28			55
NET CASH PROVIDED BY FINANCING ACTIVITIES		36,001			56,126			104,068
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,371			(23,656	)		24,191
CASH AND CASH EQUIVALENTS, BEGINNING		32,825			56,481			32,290
CASH AND CASH EQUIVALENTS, ENDING	$	38,196		$	32,825		$	56,481
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	20,699		$	15,763		$	9,864
Income tax paid		2,100			2,744			2,520
Net unrealized gain (loss) on investments available for sale, net of tax		232			258			(328	)
Transfer from loans to foreclosed real estate		695			97			363
Progressive State Bank Merger:
Fair value of assets acquired	$	—		$	73,797		$	—
Cash paid		—			17,177			—
Liabilities assumed	$	—		$	56,620		$	—

See accompanying notes.

44

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE A - ORGANIZATION AND OPERATIONS

New Century Bancorp, Inc. (“Company”) is a bank holding company whose principal business activity consists of ownership of New Century Bank and New Century Bank South (collectively referred to as the “Banks”). All significant intercompany transactions and balances have been eliminated in consolidation. In 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of the Company. New Century Statutory Trust I is not a consolidated subsidiary of the Company. The Company is subject to the rules and regulations of the Federal Reserve Bank and the North Carolina Commissioner of Banks.

New Century Bank was incorporated on May 15, 2000 and began banking operations on May 24, 2000. New Century Bank South began operations on January 2, 2004. The Banks are engaged in general commercial and retail banking in southeastern North Carolina and operate under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Banks undergo periodic examinations by those regulatory authorities. At the close of business on July 13, 2006, Progressive State Bank (“Progressive”) was acquired and was merged into New Century Bank South as discussed in Note F and for purposes of these consolidated financial statements, is considered to be part of New Century Bank South since that time.

The Board of Directors of New Century Bancorp as well as the boards of directors of New Century Bank and New Century Bank South, voted to merge the two banks in early 2008. The merged bank will be called New Century Bank and the headquarters and operations center of the merged bank will be in Dunn, NC. A 15-member holding company board, which will also serve as the board of directors of the bank, will include current directors from both banks.

The Federal Deposit Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks have approved the application for merger submitted by New Century Bancorp to merge its two subsidiary banks, New Century Bank and New Century Bank South.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.

Cash and Cash Equivalents

For the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet captions “Cash and due from banks,” “Interest-earning deposits in other banks,” and “Federal funds sold.”

- 45 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment Securities Available for Sale

Investment securities available for sale are reported at fair value and consist of debt instruments that are not classified as either trading securities or as held to maturity securities. Unrealized holding gains and losses, net of deferred income tax, on available for sale securities are reported as a net amount in accumulated other comprehensive income. Gains and losses on the sale of investment securities available for sale are determined using the specific-identification method. Declines in the fair value of held to maturity securities and available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. Such write-downs would be included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Loans held for sale are held at the lower of cost or fair market value until sold.

Allowance for Loan Losses

The provision for loan losses is based upon management’s estimate of the amount needed to maintain the allowance for loan losses at an adequate level. In making the evaluation of the adequacy of the allowance for loan losses, management gives consideration to current economic conditions, statutory examinations of the loan portfolio by regulatory agencies, delinquency information and management’s internal review of the loan portfolio. Loans are considered impaired when it is probable that all amounts due will not be collected in accordance with the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, or upon the fair value of the collateral if readily determinable. If the recorded investment in the loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

Foreclosed Real Estate

Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, management periodically performs valuations of the property and the real estate is carried at the lower of cost or fair value minus estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense.

- 46 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 40 years for buildings, 5 to 10 years for furniture, fixtures and equipment and 3 years for computers and related equipment. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Repairs and maintenance costs are charged to operations as incurred and additions and improvements to premises and equipment are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and any gains or losses are reflected in current operations.

Stock in Federal Home Loan Bank of Atlanta

As a requirement for membership, the Company invests in stock of the Federal Home Loan Bank of Atlanta (“FHLB”). This investment is carried at cost. Due to the redemption provisions of the FHLB, the Company estimated that fair value equals cost and that this investment was not impaired at December 31, 2007.

Stock in Silverton Bank

The Company invests in stock of The Silverton Bank. This investment is carried at the lower of cost or fair value and was not impaired as of December 31, 2007.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are also recognized for operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized.

Bank Owned Life Insurance

Bank Owned Life Insurance (“BOLI”) is carried at its cash surrender value on the balance sheet and is classified as a non-interest-earning asset. Death benefit proceeds received in excess of the policy’s cash surrender value are recognized to income. Returns on the BOLI assets are added to the carrying value and included as non-interest income in the consolidated statement of operations. Any receipt of benefit proceeds is recorded as a reduction to the carrying value of the BOLI asset. At December 31, 2007 and 2006, the Company held no policy loans against its BOLI cash surrender values or restrictions on the use of the proceeds.

- 47 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased intangible assets that can be separately distinguished from goodwill. Goodwill impairment testing is performed annually on June 30, or more frequently if events and circumstances indicate possible impairment. Management completed the annual goodwill impairment test as of June 30, 2007 and also on December 31, 2007. Both tests indicated that no impairment had occurred. Intangible assets with finite lives include core deposits and other intangibles. Intangible assets are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company’s core deposit intangible is amortized using the straight-line method over nine years. Note F contains additional information regarding goodwill and other intangible assets.

Stock-Based Compensation

The Company has certain stock-based employee compensation plans, described more fully in Note P. Effective January 1, 2006, the Company adopted SFAS 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) using the modified prospective application method and accordingly did not restate prior period amounts. SFAS 123R requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (usually the vesting period). SFAS 123R also requires the compensation cost for all awards granted after the date of adoption and any unvested awards that remained outstanding as of the date of adoption to be measured based on the fair value of the award on the grant date.

Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as prescribed by APB Opinion No. 25 and, as a result, had not recognized compensation expense for options granted with exercise prices equal to the fair market value of the Company’s stock on the date of grant.

The following table presents pro forma disclosures of net income and earnings per share for the year ended December 31, 2005 as if the fair value based method of accounting had been applied to options granted prior to January 1, 2006.

		2005
		(Amounts in thousands, except per share data)
Net income:
As reported		$	3,621
Deduct:	Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		56
Pro forma		$	3,565
Basic net income per share:
As reported		$	.72
Pro forma			.70
Diluted net income per share:
As reported		$	.66
Pro forma			.65

- 48 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income.The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses on investment securities available for sale.

Segment Information

The Company follows the provisions of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, which specifies guidelines for determining an entity’s operating segments and the type and level of financial information to be disclosed. Based on these guidelines, management has determined that the Banks’ operate as one business segment, the providing of general commercial and retail financial services to customers located in the Company’s market areas. The various products, as well as the methods used to distribute them, are those generally offered by community banks.

Stock Dividends and Stock Splits

When the Company issues stock dividends and the balance in retained earnings at the date of the dividend declaration is less than the quoted market value of the shares at the date of declaration (as adjusted to take into account the increased number of shares that would be outstanding), the Company accounts for these issuances similar to stock splits. Therefore, the Company capitalizes only the par value of the common stock issuances from its paid in capital account. This accounting treatment is based on guidance from Topic C: Accounting for Stock Dividend When There Is a Retained Earnings Deficit, from the March 2001 meeting between the SEC Staff and the AICPA SEC Regulations Committee (Topic C).The Staff’s views on Topic C state “we believe all stock dividends payable to common stockholders when retained earnings are in a deficit position should be accounted for by capitalizing only the stock’s par value from paid in capital.”

The Company applied this guidance to its situations where the capitalization of the market value of the shares to be issued from retained earnings would otherwise have resulted in a deficit balance in retained earnings.

Net Income per Common Share and Common Shares Outstanding

Basic earnings per share, represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options.

All references in these financial statements to net income per common share, weighted average common and common equivalent shares outstanding, outstanding stock options and option exercise prices have been adjusted to reflect a three-for-two stock split in July 2005 and a 20% stock dividend in December 2006.

Basic and diluted net income per share have been computed based upon net income as presented in the accompanying statements of operations divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below:

- 49 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

	2007	2006	2005
Weighted average number of common shares used in computing basic net income per share	6,603,631	5,784,671	5,061,791
Effect of dilutive stock options	240,795	331,038	416,867
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share	6,844,426	6,115,709	5,478,658

The Company had 114,301 anti-dilutive stock options as of December 31, 2007 and no anti-dilutive options outstanding as of December 31, 2006.

Recent Accounting Pronouncements

The following summarizes recent accounting pronouncements and their expected impact on the Company:

SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of SFAS No. 133 and 140” provides entities relief from the requirement to separately determine the fair value of an embedded derivative that would otherwise be bifurcated from the host contract under SFAS 133. This statement allows an irrevocable election on an instrument-by-instrument basis to measure such a hybrid financial instrument at fair value. This statement is effective for all financial instruments acquired or issued after the beginning of the fiscal years beginning after September 15, 2006. The Company adopted SFAS No. 155 on January 1, 2007 with no material impact on its financial statements.

SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of SFAS No. 140” requires that all separately recognized servicing assets and liabilities be initially measured at fair value and permits (but does not require) subsequent measurement of servicing assets and liabilities at fair value. This statement is effective for fiscal years beginning after September 15, 2006. The Company adopted SFAS No. 156 on January 1, 2007 with no material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of FAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. FAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. FAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under FAS 157, fair value measurements are disclosed by level within that hierarchy. While FAS 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. FAS 157 was originally effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

- 50 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, Effective Date of FAS 157. FAS 157-2, which was effective upon issuance, delays the effective date of FAS 157 as applicable to non-financial assets and liabilities, to fiscal years beginning after November 15, 2008. The Company adopted the provisions of FAS 157 on January 1, 2008 without a material impact on its consolidated financial statements.

EITF 06-4 – The Emerging Issues Task Force (“EITF”) reached a consensus at its September 2006 meeting regarding EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The scope of EITF 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods. Therefore, this EITF would not apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employee’s active service period with an employer. This EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. Upon the adoption of EITF 06-4 on January 1, 2008, the Company expects to record a liability, net of applicable income taxes, of $233,000. This liability will be recorded as a reduction of retained earnings. Thereafter, changes in the liability will be reflected in operating results.

EITF 06-10 – The Emerging Issues Task Force (EITF) reached a consensus at its March 2007 meeting regarding EITF 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Company adopted the provisions of EITF 06-10 on January 1, 2008 without a material impact on its consolidated financial statements.

From time to time, the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

Reclassifications

Certain amounts in the 2005 and 2006 consolidated financial statements have been reclassified to conform to the presentation adopted for 2007. These reclassifications had no effect on net income or shareholders’ equity as previously reported.

- 51 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE C - INVESTMENT SECURITIES

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follow:

	December 31, 2007
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Securities available for sale:
U.S. government securities and obligations of U.S. government agencies	$	28,961	$	247	$	14	$	29,194
Mortgage-backed securities		40,838		232		129		40,941
Municipal bonds		6,362		70		58		6,374
	$	76,161	$	549	$	201	$	76,509

	December 31, 2006
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Securities available for sale:
U.S. government securities and obligations of U.S. government agencies	$	35,750	$	76	$	141	$	35,685
Mortgage-backed securities		21,805		194		198		21,801
Municipal bonds		6,388		84		44		6,428
	$	63,943	$	354	$	383	$	63,914

Securities with a carrying value of $32.5 million and $21.8 million at December 31, 2007 and 2006, respectively, were pledged to secure public monies on deposit as required by law and customer repurchase agreements.

- 52 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE C - INVESTMENT SECURITIES (Continued)

The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of December 31, 2007 and 2006. For the 37 investment securities with unrealized losses at December 31, 2007, 4 agency securities, 6 municipal bonds and 15 mortgage backed securities had continuous unrealized losses for more than twelve months. The unrealized losses relate to debt securities that have incurred fair value reductions due to higher market interest rates since the securities were purchased. The unrealized losses are not likely to reverse unless and until market interest rates decline to the levels that existed when the securities were purchased. Since none of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption obligations and the Company has the intent and ability to hold these securities to maturity, none of the securities are deemed to be other than temporarily impaired.

	2007
	Less Than 12 Months				12 Months or More				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
	(In thousands)
Securities available for sale:
Agency securities	$	2,990	$	10	$	2,355	$	4	$	5,345	$	14
Mortgage-backed securities		9,457		6		5,340		123		14,797		129
Municipal bonds		957		6		1,860		52		2,817		58
Total temporarily impaired securities	$	13,404	$	22	$	9,555	$	179	$	22,959	$	201
	2006
	Less Than 12 Months				12 Months or More				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
	(In thousands)
Securities available for sale:
Agency securities	$	3,970	$	13	$	15,486	$	128	$	19,456	$	141
Mortgage-backed securities		1,738		9		6,970		189		8,708		198
Municipal bonds		1,871		44		—		—		1,871		44
Total temporarily impaired securities	$	7,579	$	66	$	22,456	$	317	$	30,035	$	383

- 53 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE C - INVESTMENT SECURITIES (Continued)

The following table sets forth certain information regarding the amortized costs, carrying values, and contractual maturities of the Company’s investment portfolio at December 31, 2007.

	Amortized Cost		Fair Value
	(In thousands)
Securities available for sale:
U.S. government agency securities
Due within one year	$	15,302	$	15,349
Due after one but within five years		12,311		12,497
Due after five but within ten years		1,348		1,348
		28,961		29,194
Mortgage-backed securities
Due within one year		1,062		1,075
Due after one but within five years		2,403		2,409
Due after five but within ten years		14,285		14,237
Due after ten years		23,088		23,220
		40,838		40,941
Municipal bonds
Due within one year		—		—
Due after one but within five years		1,105		1,133
Due after five but within ten years		2,139		2,162
Due after ten years		3,118		3,079
		6,362		6,374
Total securities available for sale
Due within one year		16,364		16,424
Due after one but within five years		15,819		16,039
Due after five but within ten years		17,772		17,747
Due after ten years		26,206		26,299
	$	76,161	$	76,509

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

- 54 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE D - LOANS

Following is a summary of loans at December 31, 2007 and 2006:

	2007					2006
	Amount			Percent of total		Amount			Percent of total
	(Dollars in thousands)
Real estate loans:
One to four family residential	$	61,738		13.94	%	$	59,867		13.99	%
Commercial		132,649		29.95	%		113,790		26.59	%
Multi-family residential		13,379		3.02	%		13,399		3.13	%
Construction		84,795		19.15	%		79,607		18.60	%
Home equity lines of credit		42,016		9.49	%		42,130		9.84	%
Total real estate loans		334,577		75.55	%		308,793		72.15	%
Other loans:
Commercial and industrial		81,832		18.48	%		88,626		20.71	%
Loans to individuals		26,756		6.04	%		30,827		7.20	%
Total other loans		108,588		24.52	%		119,453		27.91	%
Gross loans		443,165					428,246
Less deferred loan origination fees, net		(290	)	(.07	)%		(298	)	(.06	)%
Total loans		442,875		100.00	%		427,948		100.00	%
Allowance for loan losses		(8,314	)				(7,496	)
Total loans, net	$	434,561				$	420,452

Loans are primarily made in southeastern North Carolina. Real estate loans can be affected by the condition of the local real estate market. Commercial and installment loans can be affected by the local economic conditions.

Impaired loans at December 31, 2007 and 2006 consisted of loans of approximately $12.1 million and $11.8 million respectively. Impaired loans at December 31, 2007 were comprised of $5.0 million in non-accrual and restructured loans, $1.0 thousand in loans that were 90 days or more past due and still accruing and $7.1 million in other loans that management has classified as impaired for other reasons. Impaired loans at December 31, 2006 consisted of $3.2 million in non-accrual and restructured loans, $1.2 million in loans that were 90 days or more past due and still accruing and $7.4 million in other loans that management has classified as impaired for other reasons.

- 55 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE D - LOANS (Continued)

The average recorded investment in impaired loans was approximately $10.9 million and $5.4 million for the years ended December 31, 2007 and 2006, respectively. The allowance allocated for impaired loans for 2007 and 2006 was approximately $2.3 million and $3.2 million, respectively.

At December 31, 2006, the Company had two loans totaling $562,000 that were considered troubled debt restructures due to concessions made to reduce the rates on those loans to below market rates. At December 31, 2007, the Company had no troubled debt restructures.

At December 31, 2007 and 2006, the amount of non-accrual loans was $5.0 million and $2.7 million, respectively. The average balance of non-accrual loans was $4.4 million and $1.4 million for the years ended December 31, 2007 and 2006, respectively. In 2007, interest forgone on non-accrual loans was approximately $365,000. Non-accrual loans did not materially affect interest income for the years ended December 31, 2006 and 2005.

At December 31, 2007 and 2006, the Company had $3.9 million and $1.6 million in loans held for sale that are guaranteed by the Small Business Administration, respectively.

Following is a summary of activity in the allowance for loan losses for the years indicated:

	At December 31,
	2007			2006			2005
				(In thousands)
Allowance for loan losses at beginning of year	$	7,496		$	5,298		$	3,598
Provision for loan losses		5,974			2,779			2,172
		13,470			8,077			5,770
Loans charged-off:
Commercial and industrial		(3,878	)		(835	)		(24	)
Construction		(130	)		—			—
Home equity lines of credit		(127	)		—			—
One-to-four family residential		(471	)		(92	)		(235	)
Multi-family residential		(572	)		(29	)		(61	)
Loans to individuals		(626	)		(181	)		(208	)
Total charge-offs		(5,804	)		(1,137	)		(528	)
Recoveries of loans previously charged-off:
Commercial and industrial		325			58			38
Construction		4			—			—
One-to-four family residential		119			—			—
Multi-family residential		37			(29	)		(61	)
Loans to individuals		163			66			17
Total recoveries		648			152			56
Net charge-offs		(5,156	)		(985	)		(472	)
Allowance acquired in Progressive State Bank merger		—			404			—
Allowance for loan losses at end of year	$	8,314		$	7,496		$	5,298

- 56 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE D - LOANS (Continued)

At December 31, 2007, the Company had pre-approved but unused lines of credit totaling $89.7 million. In management’s opinion, these commitments, and undisbursed proceeds on construction loans in process reflected above, represent no more than normal lending risk to the Company and will be funded from normal sources of liquidity.

The Banks have had loan transactions with its directors and executive officers. Such loans were made in the ordinary course of business and on substantially the same terms and collateral as those for comparable transactions prevailing at the time and did not involve more than the normal risk of collectibility or present other unfavorable features. A summary of related party loan transactions, in thousands, is as follows:

Balance at January 1, 2007	$	10,928
Borrowings		12,636
Loan repayments		(5,360	)
Balance at December 31, 2007	$	18,204

At December 31, 2007, there was $3.8 million of unused lines of credit outstanding to directors and executive officers of the Company and its subsidiaries.

NOTE E - PREMISES AND EQUIPMENT

Following is a summary of premises and equipment at December 31, 2007 and 2006:

	2007		2006
	(In thousands)
Land	$	3,068	$	3,118
Buildings		8,325		5,323
Furniture and equipment		2,819		2,332
Leasehold improvements		95		123
Construction in progress		18		651
		14,325		11,547
Less accumulated depreciation		2,287		1,692
Total	$	12,038	$	9,855

Depreciation amounting to $732,096, $622,468 and $361,622 for the years ended December 31, 2007, 2006 and 2005, respectively, is included in occupancy and equipment expense, data processing and other outsourced services expense and other expenses.

- 57 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE E - PREMISES AND EQUIPMENT (Continued)

The Company has operating leases for its corporate offices and branches that expire at various times through 2027. Future minimum lease payments under the leases for years subsequent to December 31, 2007 are as follows:

2008		200,950
2009		188,800
2010		158,800
2011		115,000
2012		96,700
Thereafter		1,520,186
	$	2,280,436

During 2007, 2006, and 2005, payments under operating leases were approximately $250,000, $249,000 and $127,000, respectively.

NOTE F - PROGRESSIVE STATE BANK MERGER

At the close of business on July 13, 2006, the Company completed the acquisition of Progressive State Bank, a North Carolina chartered bank headquartered in Lumberton, NC, whereby Progressive was merged into New Century Bank South. At the time of the merger, Progressive operated five offices and, based on estimated fair values, had $65.9 million in total assets, $33.7 million in loans and $55.8 million in deposits. In order to fund this transaction and to provide additional capital for other corporate purposes, the Company entered into an underwriting agreement in June 2006 for the sale of 1,150,000 shares of common stock at $18.50 per share. Proceeds of the sale, which closed in early July, were $19.9 million, net of the underwriter’s discount and offering expenses.

Pursuant to the terms of the merger agreement, shareholders of Progressive received cash in the amount of $21.30 per share. The aggregate purchase price of the transaction was $17.2 million, consisting of $16.3 million in cash payments to Progressive shareholders and $828,000 in transaction costs. The acquisition was accounted for under the purchase method of accounting and, accordingly, the assets and liabilities of Progressive were recorded based on their estimated fair values as of July 13, 2006, with the estimate of goodwill being subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of operations of Progressive since July 13, 2006.

- 58 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE F - PROGRESSIVE STATE BANK MERGER (Continued)

The estimated fair values of the Progressive assets acquired and liabilities assumed at the date of the merger are as follows:

	July 13, 2006 (in thousands)
Cash and cash equivalents	$	15,313
Investment securities available for sale		10,243
Stock in FHLB of Atlanta		117
Loans receivable, net		33,669
Premises and equipment		2,679
Core deposit intangible		1,384
Bank owned life insurance		1,675
Other real estate owned		107
Accrued interest receivable		278
Other assets		244
Goodwill		8,674
Deposits		(55,757	)
Deferred taxes		(586	)
Other liabilities		(863	)
Total purchase price	$	17,177

The Company estimates that the core deposit intangible of $1.4 million will be amortized on a straight line basis over nine years. The core deposit intangible represents 2.83% of Progressive’s core deposits as of July 13, 2006. Goodwill will not be amortized but will be tested for impairment in accordance with SFAS No. 142. None of the goodwill is expected to be deductible for tax purposes. Discounts that resulted from recording the Progressive assets and liabilities at their respective fair values are being amortized using methods that approximate an effective yield over the life of the assets and liabilities.

NOTE G - DEPOSITS

At December 31, 2007, the scheduled maturities of time deposits are as follows:

	Less than $100,000		$100,000 or more		Total
	(In thousands)
Three months or less	$	52,520	$	42,947	$	95,467
Over three months through twelve months		114,231		91,261		205,492
Over one year through three years		23,492		16,590		40,082
Over three years		440		1,260		1,700
	$	190,683	$	152,058	$	342,741

Included in this total were brokered time deposits of $2.0 million at December 31, 2007.

- 59 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE H - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase generally mature within one to four days from the transaction date and are classified as short term debt. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. These repurchase agreements are collateralized by U. S. Government agency obligations. The following table presents certain information for securities sold under agreements to repurchase:

	2007			2006
	($ in thousands)
Balance at December 31	$	16,967		$	8,441
Weighted average interest rate at December 31		3.82	%		4.18	%
Maximum amount outstanding at any month-end during the year	$	16,967		$	9,777
Average daily balance outstanding during the year	$	11,092		$	8,383
Average annual interest rate paid during the year		4.23	%		3.84	%

NOTE I - ADVANCES FROM FEDERAL HOME LOAN BANK

At December 31, 2007, the Company had available lines of credit totaling approximately $31.1 million with various financial institutions for borrowing on a short-term basis. These lines are subject to annual renewals with varying interest rates. Also, as a member of the Federal Home Loan Bank of Atlanta, the Company may obtain advances of up to 10% of assets, subject to available collateral.

At December 31, 2007 the Company had no advances from the Federal Home Loan Bank of Atlanta. Advances at December 31, 2006 consisted of the following:

Maturity	Interest Rate		2006
			(In thousands)
December 29, 2006	4.03	%	$	—
June 28, 2007	5.72	%		2,500
July 30, 2007	5.52	%		3,500
August 24, 2007	5.30	%		2,000
			$	8,000

Pursuant to collateral agreements with the Federal Home Loan Bank, at December 31, 2006 advances are secured by loans with a carrying amount of $15.4 million, which approximates market value. Advances are considered either short term debt or long term debt based on contractual maturity.

NOTE J - JUNIOR SUBORDINATED DEBENTURES

On September 20, 2004, $12.4 million of junior subordinated debentures were issued to New Century Statutory Trust I (“the Trust”) in exchange for the proceeds of trust preferred securities issued by the Trust. All of the Trust’s common equity is owned by the Company. The junior subordinated debentures are included in long term debt and the Company’s equity interest in the Trust is included in other assets.

- 60 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE J - JUNIOR SUBORDINATED DEBENTURES (Continued)

The Company pays interest on the junior subordinated debentures at an annual rate, reset quarterly, equal to 3 month LIBOR plus 2.15%. The debentures are redeemable on September 20, 2009 or afterwards in whole or in part, on any March 20, June 20, September 20 or December 20. Redemption is mandatory at September 20, 2034. The Company has fully and unconditionally guaranteed repayment of the trust-preferred securities. The Company’s obligation under the guarantee is unsecured and subordinate to senior and subordinated indebtedness of the Company.

The trust preferred securities qualify as Tier 1 capital for regulatory capital purposes subject to certain limitations, none of which were applicable at December 31, 2007.

NOTE K - INCOME TAXES

The significant components of the provision for income taxes for the years ended December 31, 2007, 2006 and 2005 are as follows:

	2007			2006			2005
	(In thousands)
Current tax provision:
Federal	$	810		$	2,466		$	2,300
State		271			544			531
Total current tax provision		1,081			3,010			2,831
Deferred tax provision:
Federal		(110	)		(537	)		(548	)
State		(18	)		(115	)		(119	)
Total deferred tax benefit		(128	)		(652	)		(667	)
Net provision for income taxes	$	953		$	2,358		$	2,164
The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:
	2007			2006			2005
	(In thousands)
Income tax at federal statutory rate	$	888		$	2,152		$	1,967
Increase (decrease) resulting from:
State income taxes, net of federal tax effect		167			283			257
Tax-exempt interest income		(81	)		(51	)		(47	)
Income from life insurance		(89	)		(72	)		(28	)
Incentive stock option expense		81			57			—
Other permanent differences		(13	)		(10	)		15
Provision for income taxes	$	953		$	2,358		$	2,164

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2007 and 2006 are as follows:

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE K - INCOME TAXES(Continued)

	2007			2006
	(In thousands)
Deferred tax assets relating to:
Allowance for loan losses	$	2,694		$	2,321
Pre-opening costs and expenses		12			25
Deferred Compensation		279			225
Unrealized loss on available-for-sale securities		—			10
Supplemental executive retirement plan		—			101
Fair market value adjustment – loans acquired from Progressive		68			144
Other		193			164
Total deferred tax assets		3,246			2,990
Deferred tax liabilities relating to:
Premises and equipment		(820	)		(625	)
Deferred loan fees		(132	)		(146	)
Unrealized gain on available-for-sale securities		(136	)		—
Core deposit intangible		(447	)		(507	)
Other		(98	)		(83	)
Total deferred tax liabilities		(1,633	)		(1,361	)
Net recorded deferred tax asset, included in other assets	$	1,613		$	1,629

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Income Tax Uncertainties, an interpretation of FASB Statement No 109 (the “Interpretation”). This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. As a result of the initial adoption of this Interpretation, retained earnings were increased by $135,000 and accrued expenses were reduced by the same amount. As of January 1, 2007, there were no uncertain tax positions. The amount of uncertain tax positions may increase or decrease in the future for various reasons including adding amounts for current tax positions, expiration of open tax returns due to statutes of limitations, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. The Company’s policy is to report interest and penalties, if any, related to uncertain tax positions in income tax expense in the Consolidated Statements of Operations. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2004.

NOTE L - OTHER NON-INTEREST EXPENSE

The major components of other non-interest expense for the years ended December 31, 2007, 2006 and 2005 are as follows:

	2007		2006		2005
	(In thousands)
Postage, printing and office supplies	$	413	$	459	$	277
Advertising and promotion		385		356		274
Professional services		1,306		520		432
Other		2,290		1,861		1,155
Total	$	4,394	$	3,196	$	2,138

- 62 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE M - REGULATORY MATTERS

The Company is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios, as set forth in the table below. Management believes, as of December 31, 2007, that the Company meets all capital adequacy requirements to which it is subject. The Company’s significant assets are its investments in New Century Bank, New Century Bank South and New Century Statutory Trust I.

Neither of the Banks may declare or pay a cash dividend, or repurchase any of its respective capital stock, unless its capital surplus is equal to at least 50% of its paid-in capital. In addition, regulatory authorities may limit payment of dividends by any bank when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the bank. The North Carolina Commissioner of Banks and the FDIC are also authorized to prohibit the payment of dividends under certain other circumstances.

The Company’s actual capital amounts and ratios are presented in the table below as of December 31, 2007 and 2006:

	Actual				Minimum for capital adequacy purposes
	Amount		Ratio		Amount		Ratio
					(Dollars in thousands)
December 31, 2007:
Total Capital (to Risk-Weighted Assets)	$	68,999	14.77	%	$	37,384	8.00	%
Tier 1 Capital (to Risk-Weighted Assets)		63,127	13.51	%		18,692	4.00	%
Tier 1 Capital (to Average Assets)		63,127	10.77	%		23,454	4.00	%
December 31, 2006:
Total Capital (to Risk-Weighted Assets)	$	65,051	14.63	%	$	35,568	8.00	%
Tier 1 Capital (to Risk-Weighted Assets)		59,470	13.38	%		17,784	4.00	%
Tier 1 Capital (to Average Assets)		59,470	10.95	%		21,726	4.00	%

New Century Bank’s actual capital amounts and ratios are presented in the table below as of December 31, 2007 and 2006:

	Actual				Minimum for capital adequacy purposes				Minimum to be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2007:
Total Capital (to Risk-Weighted Assets)	$	40,860	13.83	%	$	23,627	8.00	%	$	29,534	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		37,130	12.57	%		11,814	4.00	%		17,720	6.00	%
Tier 1 Capital (to Average Assets)		37,130	9.87	%		15,054	4.00	%		18,818	5.00	%
December 31, 2006:
Total Capital (to Risk-Weighted Assets)	$	41,453	14.25	%	$	23,374	8.00	%	$	29,092	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		37,789	12.99	%		11,637	4.00	%		17,455	6.00	%
Tier 1 Capital (to Average Assets)		37,789	10.74	%		14,075	4.00	%		17,594	5.00	%

- 63 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE M - REGULATORY MATTERS (Continued)

New Century Bank South’s actual capital amounts and ratios are presented in the table below as of December 31, 2007 and 2006:

	Actual				Minimum for capital adequacy purposes				Minimum to be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2007:
Total Capital (to Risk-Weighted Assets)	$	21,529	11.89	%	$	14,482	8.00	%	$	18,103	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		20,030	11.06	%		7,241	4.00	%		10,862	6.00	%
Tier 1 Capital (to Average Assets)		20,030	9.64	%		8,310	4.00	%		10,388	5.00	%
December 31, 2006:
Total Capital (to Risk-Weighted Assets)	$	18,992	11.65	%	$	13,045	8.00	%	$	16,307	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		17,343	10.64	%		6,523	4.00	%		9,784	6.00	%
Tier 1 Capital (to Average Assets)		17,343	9.10	%		7,624	4.00	%		9,530	5.00	%

The reserve balance required to be maintained under the requirements of the Federal Reserve was approximately $50,000 at December 31, 2007.

Effective December 27, 2007, the board of directors of registrant’s subsidiary, New Century Bank, entered into a Memorandum of Understanding with the FDIC and the North Carolina Commissioner of Banks as a result of the joint examination by the FDIC and the North Carolina Commissioner’s Office. The Memorandum of Understanding sets forth certain actions required to be taken by management of New Century Bank to rectify unsatisfactory conditions identified by the federal and state banking regulators. The primary issues to be addressed by management relate to New Century Bank’s lending function, including conducting extensive loan risk rating reviews; addressing problem loans and enhancing the credit administration department; developing specific plans and proposals for classified credit relationships; improving loan documentation, policies and procedures; correcting all known violations of laws, rules and regulations; and developing capital and strategic plans for New Century Bank.

As of December 31, 2007 and 2006, the most recent notification from the FDIC categorized both Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Banks must maintain minimum amounts and ratios, as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Banks’ category.

NOTE N - OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

- 64 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE N - OFF-BALANCE SHEET RISK (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral obtained varies but may include real estate, stocks, bonds, and certificates of deposit.

A summary of the contract amount of the Company’s exposure to off-balance sheet credit risk as of December 31, 2007 is as follows:

	(In thousands)
Financial instruments whose contract amounts represent credit risk:
Undisbursed lines of credit	$	87,527
Letters of credit		2,177

NOTE O - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial instruments include cash and due from banks, interest-earning deposits with banks, investments, loans, deposit accounts and borrowings. Fair value estimates are made at a specific moment in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no active market readily exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Due from Banks, Interest-Earning Deposits in Other Banks and Federal Funds Sold

The carrying amounts for cash and due from banks, interest-earning deposits in other banks and federal funds sold approximate fair value because of the short maturities of those instruments.

Investment Securities Available for Sale

Fair value for investment securities available for sale equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

- 65 -

NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE O - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

Loans and Loans Held for Sale

For certain homogenous categories of loans, such as residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Stock in Federal Home Loan Bank of Atlanta and Silverton Bank

The fair value for FHLB stock approximates carrying value, based on the redemption provisions of the Federal Home Loan Bank. The fair value of stock in Silverton Bank is assumed to approximate carrying value.

Bank Owned Life Insurance

The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.

Deposits

The fair value of demand deposits is the amount payable on demand at the reporting date. The fair values of time deposits are estimated using the rates currently offered for instruments of similar remaining maturities.

Short Term Debt

The fair values of short term debt are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Long Term Debt

The fair values of long term debt are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and payable approximate fair value, because of the short maturities of these instruments.

Financial Instruments with Off-Balance Sheet Risk

With regard to financial instruments with off-balance sheet risk discussed in Note N, it is not practicable to estimate the fair value of future financing commitments.

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE O - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at December 31, 2007 and 2006.

	2007				2006
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Financial assets:
Cash and due from banks	$	11,467	$	11,467	$	12,108	$	12,108
Interest-earning deposits in other banks		748		748		1,605		1,605
Federal funds sold		25,981		25,981		19,112		19,112
Loans held for sale		3,905		3,905		1,552		1,522
Investment securities available for sale		76,509		76,509		63,914		63,914
Loans, net		434,561		435.305		420,452		421,213
Accrued interest receivable		3,182		3,182		3,220		3,220
Stock in the Federal Home Loan Bank		1,087		1,087		1,427		1,427
Stock in Silverton Bank		51		51		51		51
Bank owned life insurance		6,935		6,935		6,672		6,672
Financial liabilities:
Deposits	$	498,122	$	499,138	$	464,117	$	464,302
Short term debt		16,967		16,967		16,441		16,408
Long term debt		12,372		12,372		12,372		12,372
Accrued interest payable		844		844		890		890

NOTE P - EMPLOYEE AND DIRECTOR BENEFIT PLANS

401(k) Plan

The Company has a 401(k) Plan and substantially all employees participate in the Plan. In December 2005, the Board of Directors approved the matching of 100% of the first 6% of an employee’s compensation contributed to the plan. This increase was implemented in January of 2006. Matching contributions vest to the employee equally over a four-year period. Expenses attributable to the Plan amounted to $296,213, $266,523 and $83,894 for the years ended December 31, 2007, 2006 and 2005, respectively. Effective January 1, 2007, the Company approved an amendment to the plan to allow for immediate vesting of matching contributions.

To help offset the increased cost of the 401(k) match, the Company purchased $1.9 million in Bank owned life insurance on certain key officers in 2005 and another $600,000 in 2006 to provide funding for the increased 401(k) expense. The plan also provides for payment of a death benefit in the event an insured officer dies prior to attainment of retirement age.

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE P - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

Employment Agreements

The Company has entered into employment agreements with its six executive officers and three of its senior officers to ensure a stable and competent management base. The agreements provide for benefits as spelled out in the contracts and cannot be terminated by the Board of Directors, except for cause, without prejudicing the officers’ right to receive certain vested rights, including compensation. In the event of a change in control of the Company, as outlined in the agreements, the acquirer will be bound to the terms of those contracts.

Supplemental Executive Retirement Plans

The Company implemented a supplemental executive retirement plan for the Chief Executive Officer during 2003. Benefits will accrue and vest during the period of employment, and will be paid in monthly benefit payments over the officer’s life after retirement. Provisions of $116,000, $92,000 and $89,000 were expensed for future benefits to be provided under this plan during 2007, 2006 and 2005, respectively. In conjunction with the implementation of this plan, the Company has purchased life insurance on certain key officers to provide future funding of benefit payments. The life insurance policies provide the payment of a death benefit in the event an insured officer dies prior to attainment of retirement age. The total liability under this plan at December 31, 2007 and 2006 was $434,000 and $311,000, respectively.

As part of the acquisition of Progressive State Bank, the Company assumed a liability for the supplemental early retirement plan for Progressive’s Chief Executive Officer. At the time of the merger, a liability of $267,000 was recorded and a provision of $6,000 was expensed in 2006, resulting in a total liability of $273,000 as of December 31, 2006. A provision of $16,000 was expensed in 2007, resulting in a total liability of $289,000 as of December 31, 2007. Corresponding to this liability, Progressive had purchased a life insurance policy on certain key officers to provide future funding of benefit payments. This policy was acquired by the Company upon its acquisition of Progressive. The plan also provides for payment of a death benefit in the event an insured officer dies prior to attainment of retirement age.

Directors Deferred Compensation

The Company has instituted a Directors’ Deferral Plan whereby individual directors may elect annually to defer receipt of all or a designated portion of their fees for the coming year. Amounts so deferred are used to purchase shares of the Company’s common stock on the open market by the administrator of the Deferral Plan or to issue shares from the Company’s authorized but unissued shares, with such deferred compensation disbursed in the future as specified by the director at the time of his or her deferral election. Compensation and other expenses attributable to this plan for the years ended December 31, 2007, 2006 and 2005 were $186,000, $151,000, and $120,000, respectively.

Stock Option Plans

The Company has shareholder approved stock option plans under which options are granted to directors and employees of the Company and its subsidiary banks. Options granted to directors under the 2000 Nonqualified Plan typically vest immediately at the time of grant. During the year ended December 31, 2007, the Company granted 1,000 options to employees under the 2000 Incentive Plan. These options will vest over a three-year period with none vested at the time of grant. Also in 2007, the Company granted 16,500 options to employees under the 2004 Incentive Stock Option Plan, which vest over a five-year period with none vested at the time of grant.

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE P - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

Stock Option Plans (Continued)

The estimated fair market value of each option awarded, using the Black-Scholes option pricing model, together with the assumptions used in estimating those fair values, are displayed below:

	2007			2006			2005
Estimated fair value of options granted	$	6.55		$	7.51		$	7.43
Assumptions in estimating average option values:
Risk-free interest rate		4.58	%		4.91	%		3.96	%
Dividend yield		0	%		0	%		0	%
Volatility		30.69	%		33.38	%		62.50	%
Expected life (in years)		7.45			7.18			7.00

A summary of the Company’s option plans as of and for the year ended December 31, 2007 is as follows:

	Shares Available for Future Grants		Outstanding Options				Exercisable Options
			Number Outstanding		Weighted Average Exercise Price		Number Outstanding		Weighted Average Exercise Price
At December 31, 2006	42,965		832,329		$	7.20	685,851		$	5.70
Options authorized	—		—			—	—			—
Options granted/vesting	(17,500	)	17,500			14.77	54,165			11.25
Options exercised	—		(233,852	)		5.02	(233,852	)		5.02
Options forfeited	32,272		(32,272	)		14.41	(6,689	)		4.59
At December 31, 2007	57,737		583,705		$	7.90	499,475		$	6.60

The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2007 was $1.0 million each.

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE P - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

Stock Option Plans (Continued)

The weighted average remaining life of options outstanding and options exercisable as of December 31, 2007 is 5.61 years and 5.09 years, respectively. Information regarding the stock options outstanding at December 31, 2007 is summarized below:

Range of Exercise Prices	Number of options outstanding	Number of options exercisable
$4.59 - $ 7.07	469,404	469,381
$7.08 - $ 10.69	12,351	8,154
$10.70 - $ 16.22	101,950	21,940
Outstanding at end of year	583,705	499,475

A summary of the status of the Company’s nonvested shares as of December 31, 2007 and changes during the year ended December 31, 2007, is presented below:

Nonvested Shares	Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2007	146,478		$	6.30
Granted	17,500			6.71
Vested	(54,165	)		4.43
Forfeited	(25,583	)		7.54
Nonvested at December 31, 2007	84,230			7.22

For the years ended December 31, 2007, 2006 and 2005, the intrinsic value of options exercised was $1.2 million, $333,000, and $379,000, respectively, and the grant-date fair value of options vested was $238,000, $166,000, and $96,000, respectively. Cash received from stock option exercises for the year ended December 31, 2007 was approximately $1.2 million. The actual tax benefit in shareholders’ equity realized for the tax deductions from option exercises was approximately $296,000.

As of December 31, 2007, there was approximately $521,000 of total unrecognized compensation expense related to the Company’s stock option plans. This cost is expected to be recognized over a weighted average period of 1.77 years.

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE Q - PARENT COMPANY FINANCIAL DATA

Following are the condensed balance sheets of New Century Bancorp as of and for the years ended December 31, 2007 and 2006 and the related condensed statements of operations and cash flows for each of the years in the three-year period ended December 31, 2007 (amounts in thousands):

Condensed Balance Sheets December 31, 2007 and 2006
	2007		2006
Assets
Cash balances with New Century Bank	$	5,052	$	3,755
Investment in New Century Bank		37,260		37,734
Investment in New Century Bank South		29,946		27,367
Investment in New Century Statutory Trust I		453		424
Other asset		938		609
Total Assets	$	73,649	$	69,889
Liabilities and Shareholders’ Equity
Junior subordinated debentures	$	12,372	$	12,372
Accrued interest payable		104		78
Shareholders’ equity:
Common stock		6,731		6,497
Additional paid-in capital		40,651		39,177
Retained earnings		13,579		11,785
Accumulated other comprehensive income		212		(20	)
Total Shareholders’ Equity		61,173		57,439
Total Liabilities and Shareholders’ Equity	$	73,649	$	69,889

Condensed Statements of Operations Years Ended December 31, 2007, 2006 and 2005
	2007			2006			2005
Dividends	$	1,156		$	668		$	673
Equity in earnings of subsidiaries		1,233			3,965			3,431
Operating expense		(1,060	)		(973	)		(732	)
Income tax benefit		330			310			249
Net income	$	1,659		$	3,970		$	3,621

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NEW CENTURY BANCORP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

NOTE Q - PARENT COMPANY FINANCIAL DATA (Continued)

Condensed Statements of Cash Flows Years Ended December 31, 2007, 2006 and 2005
	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,659		$	3,970		$	3,621
Equity in undistributed earnings of subsidiaries		(1,233	)		(3,965	)		(3,431	)
Increase in other assets		(329	)		(288	)		(348	)
Increase in other liabilities		26			31			28
Net cash provided (used) by operating activities		123			(252	)		(130	)
CASH FLOW FROM INVESTING ACTIVITIES
Payments for investments in and advances to subsidiaries		—			(16,349	)		—
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock in secondary offering		—			19,867			—
Proceeds from other issuance of common stock		1,174			166			237
Tax benefit from stock option exercises		—			38			—
Net cash provided by financing activities		1,174			20,071			237
Net increase in cash and cash equivalents		1,297			3,470			107
Cash and cash equivalents at beginning of year		3,755			285			178
Cash and cash equivalents, end of year	$	5,052		$	3,755		$	285

NOTE R - RELATED PARTY TRANSACTIONS

In October 2007, New Century Bank South purchased a portion of the building that houses its Raeford Road branch from one of its directors for $1.4 million. This additional office space will be used by lending and administrative staff. New Century Bank South obtained an appraisal of the property’s value from an independent third party appraiser and the transaction was subject to prior approval by a committee of disinterested directors.

During 2006, the Company purchased various insurance policies from a company owned by one of the directors of New Century Bank. Premiums paid totaled approximately $122,000 for these policies, which include a three-year policy for directors and officers liability coverage, a three-year policy for fidelity bond coverage as well as commercial property and other insurance policies. All such policies were purchased on terms at least as favorable to the Company as could be obtained from an unaffiliated third party.

- 72 -

Item 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A(T) – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14.

Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting as described in Management’s Annual Report on Internal Control over Financial Reporting below, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for preparing the Company’s annual consolidated financial statements and for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has made a comprehensive review, evaluation and assessment of the Company’s internal control over financial reporting as of December 31, 2007. In making its assessment of internal control over financial reporting, Management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control–Integrated Framework.

Based on this assessment, Management has concluded that the Company’s internal control over financial reporting as of December 31, 2007 was not effective because of the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected in a timely basis.

- 73 -

As of December 31, 2007, the Company did not maintain effective internal controls over certain of its lending functions, specifically, loan underwriting, documentation and credit administration.

Management has taken specific action to remediate this material weakness, included the hiring of a new Chief Credit Officer with substantial experience, evaluation and reorganization of lending and credit administration personnel, assessment and revision of lending and credit administration policies and procedures and more effective processes for identification and valuation of problem credits and consolidation of the Company’s wholly owned banking subsidiaries, New Century Bank and New Century Bank South, into one entity pursuant to a merger on March 28, 2008.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a–15(f) and 15d–15(f) of the Exchange Act) during the fourth quarter of 2007. With the exception of the remedial measures undertaken to address the material weakness described above, Management has concluded that there have been no changes to the Company’s internal controls over financial reporting that occurred since the beginning of the Company’s fourth quarter of 2007 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B – OTHER INFORMATION

None.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated by reference from pages 4 through 10 and 14 through 15 of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders.

The Registrant has adopted a code of ethics that applies, among others to its principal executive offices and principal financial officer. The Registrant’s code of ethics will be provided to any person upon written request made to Ms. Brenda Bonner, New Century Bancorp, Inc., 700 W. Cumberland Street, Dunn, NC 28334.

ITEM 11 – EXECUTIVE COMPENSATION

Incorporated by reference from pages 8 through 13, of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders.

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from pages 2 through 4 of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders.

- 74 -

In 2000, the shareholders of New Century Bank approved the New Century Bank 2000 Nonqualified Stock Option Plan for Directors (the “2000 Nonqualified Plan”) and the New Century Bank 2000 Incentive Stock Option Plan (the “2000 Incentive Plan”). Both plans were adopted by the Registrant upon its organization as the holding company for New Century Bank on September 19, 2003. At the 2004 Annual Meeting of Shareholders, the shareholders approved amendments to 2000 Nonqualified Plan and the 2000 Incentive Plan and also approved the New Century Bancorp, Inc. 2004 Incentive Stock Option Plan. The maximum number of shares reserved for issuance upon the exercise of outstanding options granted under the 2000 Nonqualified Plan is 478,627 (adjusted for stock dividends). The maximum number of shares reserved for issuance upon the exercise of outstanding options granted under the 2000 Incentive Plan is 278,102 (adjusted for stock dividends). The maximum number of shares reserved for issuance upon exercise of outstanding options granted under the 2004 Incentive Plan is 75,600. Option prices for each of the plans are established at market value at the time of grant.

The following chart contains details of the grants:

Plan Category	Number of securities to be issued upon exercise of outstanding options,	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	583,705	$	7.90	57,737
Equity compensation plans not approved by security holders	None		N/A	None
Total	583,705	$	7.90	57,737

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from pages 6 and 8 of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from page 13 through 15 of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders.

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PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial statements required to be filed by Item 8 of this Form:

Report of independent registered public accounting firm

Consolidated Balance Sheets as of December 31, 2007 and 2006

Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements.

2. Financial statement schedules required to be filed by Item 8 of this Form:

None

3. Exhibits

- 76 -

Exhibits
3(i)	Articles of Incorporation of Registrant*
3(ii)	Bylaws of Registrant*
4	Form of Stock Certificate*
10(i)	2000 Incentive Stock Option Plan, a compensatory plan**
10(ii)	2000 Nonqualified Stock Option Plan for Directors, a compensatory plan**
10(iii)	Employment Agreement of John Q. Shaw, a management contract*
10(iv)	Employment Agreement of Lisa F. Campbell, a management contract*
10(v)	Salary Continuation Agreement with John Q. Shaw, a compensatory plan*
10(vi)	2004 Incentive Stock Option Plan, a compensatory plan**
10(vii)	Employment Agreement of William L. Hedgepeth II, a management contract (Filed herewith)
10(viii)	Employment Agreement of J. Daniel Fisher, a management contract (Filed herewith)
21	Subsidiaries (Filed herewith)
23	Consent of Dixon Hughes PLLC (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)	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)
32(ii)	Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)
99(i)	Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders (Filed with the Securities and Exchange Commission pursuant to Rule 14a-6)

* Incorporated by reference from the Registrant’s Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004.

** Incorporated by reference from Registrant’s Registration Statement on Form S-8 (Registration No. 333-117476), filed with the Securities and Exchange Commission on July 19, 2004.

*** Incorporated by reference from Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2006.

- 77 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	NEW CENTURY BANCORP, INC.
	Registrant
	By:	/s/ William L. Hedgepeth, II
		William L. Hedgepeth, II
Date: March 31, 2008		President and Chief Executive Officer

- 78 -

Pursuant to the Securities Exchange Act of 1934, 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/ William L. Hedgepeth, II	March 31, 2008
William L. Hedgepeth, II., President,
Chief Executive Officer and Director
/s/ Lisa F. Campbell	March 31, 2008
Lisa F. Campbell, Executive Vice President,
Chief Operating Officer and Chief Financial Officer
/s/ J. Gary Ciccone	March 31, 2008
J. Gary Ciccone, Director
/s/ John W. McCauley	March 31, 2008
John W. McCauley, Director
	March 31, 2008
Oscar N. Harris, Director
/c/ Clarence L. Tart, Jr.	March 31, 2008
Clarence L. Tart, Jr., Director
/s/ Gerald W. Hayes, Jr.	March 31, 2008
Gerald W. Hayes, Jr., Director
/s/ Thurman C. Godwin, Jr.	March 31, 2008
Thurman C. Godwin, Jr., Director
	March 31, 2008
Carlie C. McLamb, Director
	March 31, 2008
Anthony Rand, Director

- 79 -

EXHIBIT INDEX

Exhibit Number	Exhibit
3(i)	Articles of Incorporation.	*
3(ii)	Bylaws	*
4	Form of Stock Certificate	*
10(i)	2000 Incentive Stock Option Plan	**
10(ii)	2000 Nonstatutory Stock Option Plan	**
10(iv)	Employment Agreement of Lisa F. Campbell	*
10(v)	Executive Supplemental Retirement Plan Agreement With John Q. Shaw, Jr.	*
10(vi)	2004 Incentive Stock Option Plan	**
10(vii)	Employment Agreement of William L. Hedgepeth	Filed herewith
10(viii)	Employment Agreement of J. Daniel Fisher	Filed herewith
21	Subsidiaries	Filed herewith
23	Consent of Dixon Hughes PLLC	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)	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act	Filed herewith
32(ii)	Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes Oxley Act	Filed herewith
99(i)	Registrant’s Proxy Statement for the 2008 Annual Meeting of Shareholders	****

* Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004.

** Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-117476), filed with the Securities and Exchange Commission on July 19, 2004.

*** Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2006.

**** Filed with the Securities and Exchange Commission pursuant to Rule 14a-6.