U.S. Securities and Exchange Commission

Washington, D.C. 20549



Form 10-Q



xQuarterly
Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934



For the quarterly period ended June
30, 2012

or

 ̈Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934



For the transition period ended 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          |  | (I.R.S. Employer Identification No.)
|incorporation or organization)           |  |                                     
|                                         |  |                                     
|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



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. YesxNo ̈



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.



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



Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ̈Nox



As of August 1, 2012, the Registrant had
outstanding 6,913,636 shares of Common Stock, $1 par value per share.











|         |                                                                                       | Page No.
|-------- | ------------------------------------------------------------------------------------- | --------
|         |                                                                                       |         
|Part I.  | FINANCIAL INFORMATION                                                                 |         
|         |                                                                                       |         
|Item 1 - | Financial Statements (Unaudited)                                                      |         
|         |                                                                                       |         
|         | Consolidated Balance Sheets                                                           |         
|         | June 30, 2012 and December 31, 2011                                                   | 3       
|         |                                                                                       |         
|         | Consolidated Statements of Operations                                                 |         
|         | Three Months and Six Months Ended June 30, 2012 and 2011                              | 4       
|         |                                                                                       |         
|         | Consolidated Statements of Comprehensive Income (Loss)                                |         
|         | Three Months and Six Months Ended June 30, 2012 and 2011                              | 5       
|         |                                                                                       |         
|         | Consolidated Statements of Changes in Shareholders’ Equity                            |         
|         | Six Months Ended June 30, 2012 and 2011                                               | 6       
|         |                                                                                       |         
|         | Consolidated Statements of Cash Flows                                                 |         
|         | Six Months Ended June 30, 2012 and 2011                                               | 7       
|         |                                                                                       |         
|         | Notes to Consolidated Financial Statements                                            | 9       
|         |                                                                                       |         
|Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42      
|         |                                                                                       |         
|Item 4 - | Controls and Procedures                                                               | 53      
|         |                                                                                       |         
|Part II. | OTHER INFORMATION                                                                     |         
|         |                                                                                       |         
|Item 4 - | Mine Safety Disclosures                                                               | 54      
|         |                                                                                       |         
|Item 6 - | Exhibits                                                                              | 54      
|         |                                                                                       |         
|         | Signatures                                                                            | 55      
|         |                                                                                       |         
|         | Exhibit Index                                                                         | 56      



- 2 -







|Part I. Financial Information
|-----------------------------
|Item 1 - Financial Statements
|NEW CENTURY BANCORP, INC.    
|CONSOLIDATED BALANCE SHEETS  



|                                                                                                                                                                     |  | June 30, 2012               |         |   | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------ | -
|                                                                                                                                                                     |  | (Unaudited)                 |         |   | 2011*        |  
|                                                                                                                                                                     |  | (In thousands, except share |        
|                                                                                                                                                                     |  | and per share data)         |        
|ASSETS                                                                                                                                                               |  |                             |         |   |              |  
|Cash and due from banks                                                                                                                                              |  | $                           | 15,731  |   |              | $
|Interest-earning deposits in other banks                                                                                                                             |  |                             | 56,558  |   |              |  
|Federal funds sold                                                                                                                                                   |  |                             | 3,028   |   |              |  
|Investment securities available for sale, at fair value                                                                                                              |  |                             | 71,808  |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|Loans                                                                                                                                                                |  |                             | 390,403 |   |              |  
|Allowance for loan losses                                                                                                                                            |  |                             | (8,510  | ) |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|NET LOANS                                                                                                                                                            |  |                             | 381,893 |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|Accrued interest receivable                                                                                                                                          |  |                             | 1,628   |   |              |  
|Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost                                                                                                         |  |                             | 1,034   |   |              |  
|Other non-marketable securities                                                                                                                                      |  |                             | 1,075   |   |              |  
|Foreclosed real estate                                                                                                                                               |  |                             | 3,859   |   |              |  
|Premises and equipment held for sale                                                                                                                                 |  |                             | -       |   |              |  
|Premises and equipment, net                                                                                                                                          |  |                             | 11,096  |   |              |  
|Bank Owned Life Insurance (“BOLI”)                                                                                                                                   |  |                             | 8,106   |   |              |  
|Core deposit intangible                                                                                                                                              |  |                             | 356     |   |              |  
|Other assets                                                                                                                                                         |  |                             | 7,510   |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|TOTAL ASSETS                                                                                                                                                         |  | $                           | 563,682 |   |              | $
|                                                                                                                                                                     |  |                             |         |   |              |  
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                 |  |                             |         |   |              |  
|Deposits:                                                                                                                                                            |  |                             |         |   |              |  
|Demand                                                                                                                                                               |  | $                           | 72,683  |   |              | $
|Savings                                                                                                                                                              |  |                             | 23,985  |   |              |  
|Money market and NOW                                                                                                                                                 |  |                             | 95,374  |   |              |  
|Time                                                                                                                                                                 |  |                             | 279,142 |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|TOTAL DEPOSITS                                                                                                                                                       |  |                             | 471,184 |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|Short-term debt                                                                                                                                                      |  |                             | 22,953  |   |              |  
|Long-term debt                                                                                                                                                       |  |                             | 12,372  |   |              |  
|Accrued interest payable                                                                                                                                             |  |                             | 281     |   |              |  
|Accrued expenses and other liabilities                                                                                                                               |  |                             | 3,938   |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|TOTAL LIABILITIES                                                                                                                                                    |  |                             | 510,728 |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|Shareholders’ Equity                                                                                                                                                 |  |                             |         |   |              |  
|Common stock, $1 par value, 25,000,000 shares authorized; 6,913,636 and 6,860,367 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively |  |                             | 6,914   |   |              |  
|Additional paid-in capital                                                                                                                                           |  |                             | 41,985  |   |              |  
|Retained earnings (accumulated deficit)                                                                                                                              |  |                             | 2,820   |   |              |  
|Accumulated other comprehensive income                                                                                                                               |  |                             | 1,235   |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|TOTAL SHAREHOLDERS’ EQUITY                                                                                                                                           |  |                             | 52,954  |   |              |  
|                                                                                                                                                                     |  |                             |         |   |              |  
|TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                           |  | $                           | 563,682 |   |              | $



* Derived from audited consolidated financial
statements.





See accompanying notes.





- 3 -







|NEW CENTURY BANCORP, INC.                        
|-------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



|                                                                |  | Three Months Ended                              |           |   | Six Months Ended |  
|--------------------------------------------------------------- |  | ----------------------------------------------- | --------- | - | ---------------- | -
|                                                                |  | June 30,                                        |           |   | June 30,         |  
|                                                                |  | 2012                                            |           |   | 2011             |  
|                                                                |  | (In thousands, except share and per share data)
|INTEREST INCOME                                                 |  |                                                 |           |   |                  |  
|Loans                                                           |  | $                                               | 5,887     |   |                  | $
|Federal funds sold and interest-earning deposits in other banks |  |                                                 | 36        |   |                  |  
|Investments                                                     |  |                                                 | 402       |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|TOTAL INTEREST INCOME                                           |  |                                                 | 6,325     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|INTEREST EXPENSE                                                |  |                                                 |           |   |                  |  
|Money market, NOW and savings deposits                          |  |                                                 | 127       |   |                  |  
|Time deposits                                                   |  |                                                 | 1,451     |   |                  |  
|Short-term debt                                                 |  |                                                 | 26        |   |                  |  
|Long-term debt                                                  |  |                                                 | 80        |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|TOTAL INTEREST EXPENSE                                          |  |                                                 | 1,684     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|NET INTEREST INCOME                                             |  |                                                 | 4,641     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|PROVISION (RECOVERY) FOR LOAN LOSSES                            |  |                                                 | (649      | ) |                  |  
|                                                                |  |                                                 |           |   |                  |  
|NET INTEREST INCOME AFTER                                       |  |                                                 |           |   |                  |  
|PROVISION (RECOVERY) FOR LOAN LOSSES                            |  |                                                 | 5,290     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|NON-INTEREST INCOME                                             |  |                                                 |           |   |                  |  
|Fees from pre-sold mortgages                                    |  |                                                 | 75        |   |                  |  
|Service charges on deposit accounts                             |  |                                                 | 291       |   |                  |  
|Gain on branch sale                                             |  |                                                 | 557       |   |                  |  
|Other fees and income                                           |  |                                                 | 276       |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|TOTAL NON-INTEREST INCOME                                       |  |                                                 | 1,199     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|NON-INTEREST EXPENSE                                            |  |                                                 |           |   |                  |  
|Personnel                                                       |  |                                                 | 2,047     |   |                  |  
|Occupancy and equipment                                         |  |                                                 | 311       |   |                  |  
|Deposit insurance                                               |  |                                                 | 187       |   |                  |  
|Professional fees                                               |  |                                                 | 470       |   |                  |  
|Information systems                                             |  |                                                 | 368       |   |                  |  
|Foreclosure-related expenses                                    |  |                                                 | 521       |   |                  |  
|Other                                                           |  |                                                 | 744       |   |                  |  
|TOTAL NON-INTEREST EXPENSE                                      |  |                                                 | 4,648     |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|INCOME BEFORE                                                   |  |                                                 |           |   |                  |  
|INCOME TAX (BENEFIT)                                            |  |                                                 | 1,841     |   |                  |  
|INCOME TAX (BENEFIT)                                            |  |                                                 | 683       |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|NET INCOME (LOSS)                                               |  | $                                               | 1,158     |   |                  | $
|                                                                |  |                                                 |           |   |                  |  
|NET INCOME (LOSS) PER COMMON SHARE                              |  |                                                 |           |   |                  |  
|Basic                                                           |  | $                                               | .17       |   |                  | $
|Diluted                                                         |  | $                                               | .17       |   |                  | $
|                                                                |  |                                                 |           |   |                  |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                      |  |                                                 |           |   |                  |  
|                                                                |  |                                                 |           |   |                  |  
|Basic                                                           |  |                                                 | 6,913,636 |   |                  |  
|Diluted                                                         |  |                                                 | 6,913,636 |   |                  |  





See accompanying notes.





- 4 -







|NEW CENTURY BANCORP, INC.                                        
|-----------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(Unaudited)





|                                            |  | Three Months Ended |       |   | Six Months Ended |  
|------------------------------------------- |  | ------------------ | ----- | - | ---------------- | -
|                                            |  | June 30,           |       |   | June 30,         |  
|                                            |  | 2012               |       |   | 2011             |  
|                                            |  | (In thousands)     |      
|                                            |  |                    |       |   |                  |  
|Net income (loss)                           |  | $                  | 1,158 |   |                  | $
|                                            |  |                    |       |   |                  |  
|Other comprehensive income (loss):          |  |                    |       |   |                  |  
|Unrealized gain (loss) on investment        |  |                    |       |   |                  |  
|securities available for sale               |  |                    | (50   | ) |                  |  
|Tax effect                                  |  |                    | 19    |   |                  |  
|                                            |  |                    | (31   | ) |                  |  
|                                            |  |                    |       |   |                  |  
|Reclassification adjustment for gain (loss) |  |                    |       |   |                  |  
|included in net income                      |  |                    | 65    |   |                  |  
|Tax effect                                  |  |                    | (25   | ) |                  |  
|                                            |  |                    | 40    |   |                  |  
|                                            |  |                    |       |   |                  |  
|Total                                       |  |                    | 9     |   |                  |  
|                                            |  |                    |       |   |                  |  
|Total comprehensive income (loss)           |  | $                  | 1,167 |   |                  | $





See accompanying notes.





- 5 -







|NEW CENTURY BANCORP, INC.                                             
|----------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)



|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  | Retained   |        |  | Accumulated   |   |        |        | 
|------------------------------- |  | ----------------------------------------- | --------- |  | ------ | - | ----- | ---------- |  | - | ------------ | - |  | ---------- | ------ |  | ------------- | - | ------ | ------ | 
|                                |  |                                           |           |  |        |   |       | Common     |  |   | Additional   |   |  | earnings   |        |  | other com-    |   |        | Total  | 
|                                |  | Common stock                              |           |  | stock  |   |       | paid-in    |  |   | (accumulated |   |  | prehensive |        |  | shareholders’ |  
|                                |  | Shares                                    |           |  | Amount |   |       | receivable |  |   | capital      |   |  | Deficit)   |        |  | income        |   |        | equity | 
|                                |  | (Amounts in thousands, except share data) |          
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Balance at December 31, 2010    |  |                                           | 6,913,636 |  |        | $ | 6,914 |            |  | $ | -            |   |  | $          | 41,887 |  |               | $ | (286   | )      | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Net loss                        |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | -      |  |               |   | (740   | )      | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Common stock receivable         |  |                                           | -         |  |        |   | -     |            |  |   | (242         | ) |  |            | -      |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Other comprehensive income, net |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | -      |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Stock based compensation        |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | 185    |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Balance at June 30, 2011        |  |                                           | 6,913,636 |  |        | $ | 6,914 |            |  | $ | (242         | ) |  | $          | 42,072 |  |               | $ | (1,026 | )      | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Balance at December 31, 2011    |  |                                           | 6,860,367 |  |        | $ | 6,860 |            |  | $ | -            |   |  | $          | 41,851 |  |               | $ | (450   | )      | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Net income                      |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | -      |  |               |   | 3,270  |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Sale of common stock            |  |                                           | 53,269    |  |        |   | 54    |            |  |   | -            |   |  |            | 111    |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Other comprehensive loss, net   |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | -      |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Stock based compensation        |  |                                           | -         |  |        |   | -     |            |  |   | -            |   |  |            | 23     |  |               |   | -      |        | 
|                                |  |                                           |           |  |        |   |       |            |  |   |              |   |  |            |        |  |               |   |        |        | 
|Balance at June 30, 2012        |  |                                           | 6,913,636 |  |        | $ | 6,914 |            |  | $ | -            |   |  | $          | 41,985 |  |               | $ | 2,820  |        | 





See accompanying notes.





- 6 -







|NEW CENTURY BANCORP, INC.                        
|-------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                                         |  | Six Months Ended |        
|---------------------------------------------------------------------------------------- |  | ---------------- | -------
|                                                                                         |  | June 30,         |        
|                                                                                         |  | 2012             |        
|                                                                                         |  | (In thousands)   |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |  |                  |        
|Net income (loss)                                                                        |  | $                | 3,270  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                  |        
|Provision (recovery) for loan losses                                                     |  |                  | (2,785 
|Depreciation and amortization of premises and equipment                                  |  |                  | 286    
|Amortization and accretion of investment securities                                      |  |                  | 281    
|Amortization of deferred loan fees and costs                                             |  |                  | (96    
|Amortization of core deposit intangible                                                  |  |                  | 57     
|Stock-based compensation                                                                 |  |                  | 23     
|Net gain on branch sale                                                                  |  |                  | (557   
|Increase in cash surrender value of bank owned life insurance                            |  |                  | (125   
|Net loss on sale and write-downs of foreclosed real estate                               |  |                  | 545    
|Net (gains) loss on sale of investments                                                  |  |                  | 123    
|Change in assets and liabilities:                                                        |  |                  |        
|Net change in accrued interest receivable                                                |  |                  | 373    
|Net change in other assets                                                               |  |                  | 1,916  
|Net change in accrued expenses and other liabilities                                     |  |                  | 1,745  
|                                                                                         |  |                  |        
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                |  |                  | 5,056  
|                                                                                         |  |                  |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |  |                  |        
|Redemption of FHLB stock                                                                 |  |                  | 214    
|Purchase of investment securities available for sale                                     |  |                  | (19,372
|Maturities of investment securities available for sale                                   |  |                  | 8,021  
|Mortgage-backed securities pay-downs                                                     |  |                  | 6,417  
|Sale of investment securities available for sale                                         |  |                  | 500    
|Net cash payment on branch sale                                                          |  |                  | (13,001
|Net change in loans outstanding                                                          |  |                  | 24,602 
|Proceeds from sale of foreclosed real estate                                             |  |                  | 2,265  
|Purchases of premises and equipment                                                      |  |                  | (109   
|                                                                                         |  |                  |        
|NET CASH PROVIDED BY INVESTING ACTIVITIES                                                |  |                  | 9,537  





See accompanying notes.





- 7 -









|NEW CENTURY BANCORP, INC.                                    
|-------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)



|                                                                                  |  | Six Months Ended |        
|--------------------------------------------------------------------------------- |  | ---------------- | -------
|                                                                                  |  | June 30,         |        
|                                                                                  |  | 2012             |        
|                                                                                  |  | (In thousands)   |        
|                                                                                  |  |                  |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                  |        
|Net change in deposits                                                            |  | $                | (15,613
|Proceeds from short-term debt                                                     |  |                  | 3,424  
|Repayments on short-term debt                                                     |  |                  | (2,348 
|Repayments on long-term debt                                                      |  |                  | (2,000 
|Proceeds from sale of common stock                                                |  |                  | 165    
|                                                                                  |  |                  |        
|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                  |  |                  | (16,372
|                                                                                  |  |                  |        
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                           |  |                  | (1,779 
|                                                                                  |  |                  |        
|CASH AND CASH EQUIVALENTS, BEGINNING                                              |  |                  | 77,096 
|                                                                                  |  |                  |        
|CASH AND CASH EQUIVALENTS, ENDING                                                 |  | $                | 75,317 
|                                                                                  |  |                  |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                 |  |                  |        
|Cash paid during the period for:                                                  |  |                  |        
|Interest paid                                                                     |  | $                | 3,506  
|                                                                                  |  |                  |        
|Non-cash transactions:                                                            |  |                  |        
|Unrealized gains (losses) on investment securities available for sale, net of tax |  |                  | (50    
|Transfers from loans to foreclosed real estate                                    |  |                  | 3,638  
|Common stock receivable                                                           |  |                  | -      





See accompanying notes.





- 8 -







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE A - BASIS OF PRESENTATION



New Century Bancorp, Inc. (the “Company”)
is a bank holding company whose principal business activity consists of ownership of New Century Bank (the “Bank”).
The Bank is engaged in general commercial and retail banking and operates 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 Bank undergoes periodic
examinations by those regulatory authorities.



All significant inter-company transactions
and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited,
reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial
information as of and for the three and six month periods ended June 30, 2012 and 2011, in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).



The preparation of consolidated financial
statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could
differ from those estimates. Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31, 2012.



The organization and business of the Company,
accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements
filed as part of the Company’s 2011 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”)
on
March 28, 2012. This quarterly report should be read in conjunction with the Annual Report.



NOTE B - PER SHARE RESULTS



Basic net income per share is computed
based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes
the dilutive effect of stock options outstanding during the period. At June 30, 2012 and 2011 there were 371,883 and 431,274 anti-dilutive
options for each three month period and 372,883 and 428,878 anti-dilutive options for each six month period, respectively.



|                                                              |  | Three Months Ended |           |  | Six Months Ended | 
|------------------------------------------------------------- |  | ------------------ | --------- |  | ---------------- | 
|                                                              |  | June 30,           |           |  | June 30,         | 
|                                                              |  | 2012               |           |  | 2011             | 
|Weighted average shares used for basic net income per share   |  |                    | 6,913,636 |  |                  | 
|                                                              |  |                    |           |  |                  | 
|Effect of dilutive stock options                              |  |                    | -         |  |                  | 
|                                                              |  |                    |           |  |                  | 
|Weighted average shares used for diluted net income per share |  |                    | 6,913,636 |  |                  | 











- 9 -







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS



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



Accounting Standards Update (“ASU”)
No. 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.
ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and
obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment
of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial
assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance
guidance related to that criterion. ASU 2011-03 became effective for the Company on January 1, 2012 and did not have
a significant impact on the Company’s financial statements.



ASU 2011-04, Fair Value Measurement
(Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04
amends Topic 820, Fair Value Measurements and Disclosures, to add both additional clarifications to existing fair value
measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to
the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity’s shareholders’
equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to
existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of
premiums and discounts included measurement of financial instruments managed within a portfolio, the application of premiums and
discounts in fair value measurement, and additional disclosures related to fair value measurements. ASU 2011-04 became effective
for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s financial
statements.



ASU 2011-05, Comprehensive Income (Topic
220) - Presentation of Comprehensive Income.ASU 2011-05 amends Topic 220, Comprehensive Income, to require
that all non-owner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive
income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face
of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net
income in the statement or statements where the components of net income and the components of other comprehensive income are presented.
The option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity
was eliminated. ASU 2011-05 became effective for annual periods beginning after December 15, 2011. The Company has adopted
the standard and the adoption of ASU 2011-05 did not have an impact on the Company’s financial condition, results of operations,
or cash flows.





- 10 -







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
(continued)



ASU 2011-12, Comprehensive Income (Topic
220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income.ASU 2011-12 amends Topic 220 to allow the Financial Accounting Standards Board (“FASB”) time
to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated
other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other
requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either
in a single continuous financial statement or in two separate but consecutive financial statements. Public entities are required
to apply these requirements for fiscal years, and interim periods within those years beginning after December 15, 2011. The Company
has adopted the standard and the adoption of ASU 2011-12 did not have an impact on the Company’s financial condition, results
of operations, or cash flows.



Other accounting standards that have been
issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.



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.



NOTE D – FAIR VALUE MEASUREMENTS



Accounting Standards Codification (“ASC”)
820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged
since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be
ranked based on the relative reliability of the inputs used in the valuation.



Financial instruments include cash and
due from banks, interest-earning deposits with banks, investments, loans, BOLI, 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:











- 11 -







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE D – FAIR VALUE MEASUREMENTS
(continued)



Fair Value Hierarchy

The Company groups assets and liabilities
at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value. These levels are:











| | · | Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Level 2 – Valuation is based upon
        quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are
        not active and model-based valuation techniques for which all significant assumptions are observable in the market.                                                                                        
| | · | Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flows models and similar techniques.



The following is a description of valuation
methodologies used for assets and liabilities recorded at fair value on a recurring basis.



Investment Securities Available-for-Sale(“AFS”)

Investment securities available-for-sale
are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices
are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as
the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors
such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange,
U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level
2 securities include U.S. government agencies, mortgage-backed securities issued by government sponsored entities, and municipal
bonds. There have been no changes in valuation techniques for the quarter ended June 30, 2012. Valuation techniques are consistent
with techniques used in prior periods.



- 12 -













|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE D – FAIR VALUE MEASUREMENTS
(continued)



The following tables summarize quantitative
disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of June
30, 2012 and December 31, 2011 (dollars in thousands):



|                                                                         |  |            |        |  | Quoted Prices in |   |   | Significant      |  |   |                  | 
|------------------------------------------------------------------------ |  | ---------- | ------ |  | ---------------- | - | - | ---------------- |  | - | ---------------- | 
|Investment securities                                                    |  |            |        |  | Active Markets   |   |   | Other            |  |   | Significant      | 
|available for sale                                                       |  |            |        |  | for Identical    |   |   | Observable       |  |   | Unobservable     | 
|June 30, 2012                                                            |  | Fair value |        |  | Assets (Level 1) |   |   | Inputs (Level 2) |  |   | Inputs (Level 3) | 
|U.S. government agencies                                                 |  | $          | 32,631 |  |                  | $ | - |                  |  | $ | 32,631           | 
|Mortgage-backed securities - Government Sponsored- Enterprises (“GSE’s”) |  |            | 32,594 |  |                  |   | - |                  |  |   | 32,594           | 
|Municipal bonds                                                          |  |            | 6,583  |  |                  |   | - |                  |  |   | 6,583            | 
|Total                                                                    |  | $          | 71,808 |  |                  | $ | - |                  |  | $ | 71,808           | 



|                                   |  |            |        |  | Quoted Prices in |   |   | Significant      |  |   |                  | 
|---------------------------------- |  | ---------- | ------ |  | ---------------- | - | - | ---------------- |  | - | ---------------- | 
|Investment securities              |  |            |        |  | Active Markets   |   |   | Other            |  |   | Significant      | 
|available for sale                 |  |            |        |  | for Identical    |   |   | Observable       |  |   | Unobservable     | 
|December 31, 2011                  |  | Fair value |        |  | Assets (Level 1) |   |   | Inputs (Level 2) |  |   | Inputs (Level 3) | 
|U.S. government agencies           |  | $          | 26,412 |  |                  | $ | - |                  |  | $ | 26,412           | 
|Mortgage-backed securities - GSE’s |  |            | 35,169 |  |                  |   | - |                  |  |   | 35,169           | 
|Municipal bonds                    |  |            | 6,273  |  |                  |   | - |                  |  |   | 6,273            | 
|Total                              |  | $          | 67,854 |  |                  | $ | - |                  |  | $ | 67,854           | 



13









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE D – FAIR VALUE MEASUREMENTS
(continued)



The following is a description of valuation
methodologies used for assets recorded at fair value on a non-recurring basis.



Loans

The Company does not record loans at fair
value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established.
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms
of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment
in accordance with ASC 310, “Receivables”. The fair value of impaired loans is estimated using one of several methods,
including collateral value, market value of similar debt, enterprise value, or liquidation value and discounted cash flows. Those
impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed
the recorded investments in such loans. At June 30, 2012 and December 31, 2011, substantially all of the total impaired loans
were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value
of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable
market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value
is not available or management determines the fair value of the collateral is further impaired below the appraised value and there
is no observable market price, the Company records the impaired loan as non-recurring Level 3. There were no transfers between
levels from the prior reporting periods. There have been no changes in valuation techniques for the quarter ended June 30, 2012.
Valuation techniques are consistent with techniques used in prior periods.



Foreclosed Real Estate

Foreclosed real estate are properties recorded
at the balance of the loan or an estimated fair value less estimated selling costs, whichever is less. Inputs include appraised
values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real
estate is classified within Level 3 of the hierarchy. There have been no changes in valuation techniques for the quarter ended
June 30, 2012. Valuation techniques are consistent with techniques used in prior quarters.



Premises and Equipment Held for Sale

Premises and equipment held for sale are
stated at book value which approximates fair market value.



14









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE D – FAIR VALUE MEASUREMENTS
(continued)



The following tables summarize quantitative
disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of June
30, 2012 and
December 31, 2011 (dollars in thousands):



|                       |  |            |        |  | Quoted Prices in |   |   | Significant      |  |   |                  | 
|---------------------- |  | ---------- | ------ |  | ---------------- | - | - | ---------------- |  | - | ---------------- | 
|                       |  |            |        |  | Active Markets   |   |   | Other            |  |   | Significant      | 
|Asset Category         |  |            |        |  | for Identical    |   |   | Observable       |  |   | Unobservable     | 
|June 30, 2012          |  | Fair value |        |  | Assets (Level 1) |   |   | Inputs (Level 2) |  |   | Inputs (Level 3) | 
|                       |  |            |        |  |                  |   |   |                  |  |   |                  | 
|Impaired loans         |  | $          | 11,394 |  |                  | $ | - |                  |  | $ | -                | 
|Foreclosed real estate |  |            | 3,859  |  |                  |   | - |                  |  |   | -                | 
|                       |  |            |        |  |                  |   |   |                  |  |   |                  | 
|Total                  |  | $          | 15,253 |  |                  | $ | - |                  |  | $ | -                | 



Of the $11.4 million in impaired loans
at June 30, 2012 there were $3.1 million in loans with specific reserves of $520,000 along with $8.8 million in loans without specific
reserves which had been partially charged-off.



|                                     |  |            |        |  | Quoted Prices in |   |   | Significant      |  |   |                  | 
|------------------------------------ |  | ---------- | ------ |  | ---------------- | - | - | ---------------- |  | - | ---------------- | 
|                                     |  |            |        |  | Active Markets   |   |   | Other            |  |   | Significant      | 
|Asset Category                       |  |            |        |  | for Identical    |   |   | Observable       |  |   | Unobservable     | 
|December 31, 2011                    |  | Fair value |        |  | Assets (Level 1) |   |   | Inputs (Level 2) |  |   | Inputs (Level 3) | 
|                                     |  |            |        |  |                  |   |   |                  |  |   |                  | 
|Impaired loans                       |  | $          | 13,353 |  |                  | $ | - |                  |  | $ | -                | 
|Foreclosed real estate               |  |            | 3,031  |  |                  |   | - |                  |  |   | -                | 
|Premises and equipment held for sale |  |            | 1,113  |  |                  |   | - |                  |  |   | -                | 
|                                     |  |            |        |  |                  |   |   |                  |  |   |                  | 
|Total                                |  | $          | 17,497 |  |                  | $ | - |                  |  | $ | -                | 







Of the $13.4 million in impaired loans at December 31, 2011 there were $9.6 million in loans with specific reserves of $1.5 million along with $5.3 million in loans without specific reserves which had been partially charged-off.



15









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)







NOTE E – FAIR VALUE OF FINANCIAL INSTRUMENTS



The following table presents the carrying values and estimated fair values of the Company's financial instruments at June 30, 2012 and December 31, 2011:



|                                         |  | June 30, 2012  |        
|---------------------------------------- |  | -------------- | -------
|                                         |  | Carrying       |        
|                                         |  | Amount         |        
|                                         |  | (In thousands) |        
|Financial assets:                        |  |                |        
|Cash and due from banks                  |  | $              | 15,731 
|Interest-earning deposits in other banks |  |                | 56,558 
|Federal funds sold                       |  |                | 3,028  
|Investment securities available for sale |  |                | 71,808 
|Loans, net                               |  |                | 381,220
|Accrued interest receivable              |  |                | 1,628  
|Stock in the FHLB                        |  |                | 1,034  
|Other non-marketable securities          |  |                | 1,075  
|                                         |  |                |        
|Financial liabilities:                   |  |                |        
|Deposits                                 |  | $              | 471,184
|Short-term debt                          |  |                | 22,953 
|Long-term debt                           |  |                | 12,372 
|Accrued interest payable                 |  |                | 281    



16









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



|                                         |  | December 31, 2011 |        
|---------------------------------------- |  | ----------------- | -------
|                                         |  | Carrying          |        
|                                         |  | Amount            |        
|                                         |  | (In thousands)    |        
|Financial assets:                        |  |                   |        
|Cash and due from banks                  |  | $                 | 18,478 
|Interest-earning deposits in other banks |  |                   | 55,590 
|Federal funds sold                       |  |                   | 3,028  
|Investment securities available for sale |  |                   | 67,854 
|Loans, net                               |  |                   | 407,590
|Premises and equipment held for sale     |  |                   | 1,113  
|Accrued interest receivable              |  |                   | 2,003  
|Stock in the FHLB                        |  |                   | 1,248  
|Other non-marketable securities          |  |                   | 1,080  
|                                         |  |                   |        
|Financial liabilities:                   |  |                   |        
|Deposits                                 |  | $                 | 501,377
|Short-term debt                          |  |                   | 21,877 
|Long-term debt                           |  |                   | 14,372 
|Accrued interest payable                 |  |                   | 330    



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 prices quoted for similar investments or quoted market prices obtained from independent pricing services.



Loans Held for Sale



Loans held for sale are carried at fair value which is determined by offers to purchase or expected value of future cash flows. Unrealized losses on loans held for sale are included in losses on sales of loans and leases in the consolidated statement of operations.



17







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



Loans



The fair value 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. However, the values likely do not represent exit prices due to distressed market conditions.



Stock in Federal Home Loan Bank of Atlanta and Other Non-marketable Securities



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 other non-marketable securities is assumed to approximate carrying value.



Premises and Equipment Held for Sale



Premises and equipment held for sale are stated at book value which approximates fair market value.



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 (sweep accounts that re-price daily and short-term FHLB advances) 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, it is not practicable to estimate the fair value of future financing commitments.



18









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE F - INVESTMENT SECURITIES



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



|                                  |  | June 30, 2012  |       
|--------------------------------- |  | -------------- | ------
|                                  |  |                |       
|                                  |  | Amortized      |       
|                                  |  | cost           |       
|                                  |  | (In thousands) |       
|Securities available for sale:    |  |                |       
|U.S. government agencies          |  |                |       
|Within 1 year                     |  | $              | 12,021
|After 1 year but within 5 years   |  |                | 20,391
|                                  |  |                |       
|Mortgage-backed securities-GSE’s  |  |                |       
|Within 1 year                     |  |                | 1,196 
|After 1 year but within 5 years   |  |                | 24,747
|After 5 years but within 10 years |  |                | 5,281 
|                                  |  |                |       
|Municipal bonds                   |  |                |       
|Within 1 year                     |  |                | 352   
|After 1 year but within 5 years   |  |                | 2,358 
|After 5 years but within 10 years |  |                | 1,846 
|After 10 years                    |  |                | 1,601 
|                                  |  |                |       
|                                  |  | $              | 69,793



As of June 30, 2012, accumulated other comprehensive income included unrealized net gains of $2.0 million, net of deferred income taxes of $780,000.



For the second quarter 2012 and 2011, sales of securities available for sale resulted in gross realized gains of $3,000 and $5,000, respectively, and realized losses of $49,000 and $20,000, respectively for each period. These investment sales generated $3.5 million and $2.6 million in proceeds during these respective periods. For the six months ended June 30, 2012 and 2011, sales of securities available for sale resulted in gross realized gains of $6,000 and $12,000, respectively, and realized losses of $129,000 and $38,000, respectively, for each period. These investment sales generated $6.9 million and $5.8 million in proceeds during these respective periods.



19









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE F- INVESTMENT SECURITIES (continued)



|                                  |  | December 31, 2011 |       
|--------------------------------- |  | ----------------- | ------
|                                  |  |                   |       
|                                  |  | Amortized         |       
|                                  |  | cost              |       
|                                  |  | (In thousands)    |       
|Securities available for sale:    |  |                   |       
|U.S. government agencies          |  |                   |       
|Within 1 year                     |  | $                 | 13,508
|After 1 year but within 5 years   |  |                   | 12,577
|                                  |  |                   |       
|Mortgage-backed securities-GSE’s  |  |                   |       
|Within 1 year                     |  |                   | 1,858 
|After 1 year but within 5 years   |  |                   | 29,584
|After 5 years but within 10 years |  |                   | 2,429 
|                                  |  |                   |       
|Municipal bonds                   |  |                   |       
|Within 1 year                     |  |                   | -     
|After 1 year but within 5 years   |  |                   | 1,369 
|After 5 years but within 10 years |  |                   | 2,691 
|After 10 years                    |  |                   | 1,747 
|                                  |  |                   |       
|                                  |  | $                 | 65,763



As of December 31, 2011, accumulated other comprehensive income included unrealized net gains of $2.1 million, net of deferred income taxes of $800,000.



20









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE F- INVESTMENT SECURITIES (continued)



The following tables show investments’ 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, at June 30, 2012 and December 31, 2011.



|                                      |  | June 30, 2012       |      
|------------------------------------- |  | ------------------- | -----
|                                      |  | Less Than 12 Months |      
|                                      |  | Fair                |      
|                                      |  | value               |      
|                                      |  | (In thousands)      |      
|Securities available for sale:        |  |                     |      
|U.S. government agencies              |  | $                   | 8,357
|Municipal bonds                       |  |                     | 669  
|                                      |  |                     |      
|Total temporarily impaired securities |  | $                   | 9,026



At June 30, 2012, the Company had no AFS securities with an unrealized loss for twelve or more consecutive months. Seven U.S. government agencies and one municipal bond had unrealized losses for less than twelve months totaling $21,000 at June 30, 2012. All unrealized losses are attributable to the general trend of interest rates.



|                                      |  | December 31, 2011   |      
|------------------------------------- |  | ------------------- | -----
|                                      |  | Less Than 12 Months |      
|                                      |  | Fair                |      
|                                      |  | value               |      
|                                      |  | (In thousands)      |      
|Securities available for sale:        |  |                     |      
|Mortgage-backed securities- GSE’s     |  | $                   | 7,207
|Total temporarily impaired securities |  | $                   | 7,207



At December 31, 2011, the Company had no AFS securities with an unrealized loss for twelve or more consecutive months. Seven GSE’s had unrealized losses for less than twelve months totaling $18,000 at December 31, 2011. All unrealized losses are attributable to the general trend of interest rates.



21







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE G - LOANS



Following is a summary of loans at June
30, 2012 and December 31, 2011:



|                                         |  | 2012           |         |   | 2011     | 
|---------------------------------------- |  | -------------- | ------- | - | -------- | 
|                                         |  |                |         |   | Percent  | 
|                                         |  | Amount         |         |   | of total | 
|                                         |  | (In thousands) |        
|Real estate loans:                       |  |                |         |   |          | 
|1-to-4 family residential                |  | $              | 48,487  |   |          | 
|Commercial real estate                   |  |                | 193,221 |   |          | 
|Multi-family residential                 |  |                | 19,501  |   |          | 
|Construction                             |  |                | 54,716  |   |          | 
|Home equity lines of credit (“HELOC”)    |  |                | 36,771  |   |          | 
|                                         |  |                |         |   |          | 
|Total real estate loans                  |  |                | 352,696 |   |          | 
|                                         |  |                |         |   |          | 
|Other loans:                             |  |                |         |   |          | 
|Commercial and industrial                |  |                | 31,044  |   |          | 
|Loans to individuals & overdrafts        |  |                | 7,070   |   |          | 
|Total other loans                        |  |                | 38,114  |   |          | 
|                                         |  |                |         |   |          | 
|Gross loans                              |  |                | 390,810 |   |          | 
|                                         |  |                |         |   |          | 
|Less deferred loan origination fees, net |  |                | (407    | ) |          | 
|                                         |  |                |         |   |          | 
|Total loans                              |  |                | 390,403 |   |          | 
|                                         |  |                |         |   |          | 
|Allowance for loan losses                |  |                | (8,510  | ) |          | 
|                                         |  |                |         |   |          | 
|Total loans, net                         |  | $              | 381,893 |   |          | 



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



At June 30, 2012, the Company had pre-approved
but unused lines of credit for customers totaling $60.0 million. In management’s opinion, these commitments, and undisbursed
proceeds on loans reflected above, represent no more than normal lending risk to the Company and will be funded from normal sources
of liquidity.







22







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



A description of the various loan products
provided by the Bank is presented below.



1-to-4 Family Residential Loans

Residential 1-to-4 family loans are mortgage
loans that typically convert from construction loans into permanent financing and are secured by properties within the Bank’s
market areas.



Commercial Real Estate Loans

Commercial real
estate loans are underwritten based on the borrower’s ability to generate adequate cash flow to repay the subject debt within
reasonable terms. Commercial real estate loans typically include both owner and non-owner occupied properties with higher principal
loan amounts and the repayment of these loans is generally dependent on the successful management of the property. Commercial real
estate loans are sensitive to market and general economic conditions.Repayment analysis must be performed and consists
of an identified primary/cash flow source of repayment and a secondary/liquidation source of repayment. The
primary source of repayment is cash flow from income generated from rental or lease of the property. However, the cash flow can
be supplemented with the borrower's and guarantor's global cash flow position. Other credit issues such as the business fundamentals
and financial strength of the borrower/guarantor can be considered in determining adequacy of repayment ability. The
secondary source of repayment is liquidation of the collateral, supplemented by a liquidation cushion provided by the financial
assets of the borrower/guarantor. Management monitors and evaluates commercial real estate loans based on collateral, market area,
and risk grade.



Multi-family Residential Loans

Multi-family residential loans are typically
non-farm properties with 5 or more dwelling units in structures which include apartment buildings used primarily to accommodate
households on a more or less permanent basis. Successful performance of these types of loans is primarily dependant on occupancy
rates, rental rates, and property management.



Construction Loans

Construction
loans are non-revolving extensions of credit secured by real property of which the proceeds are used to acquire and develop land
and to construct commercial or residential buildings.The primary source of repayment for these types of loans is the sale
of the improved property or permanent financing in which case the property is expected to generate the cash flow necessary for
repayment on a permanent loan basis. Property cash flow may be supplemented with financial support from the borrowers/guarantors.
Proper underwriting of a construction loan consists of the initial process of obtaining, analyzing,
and approving various aspects of information pertaining to: theanalysis of the permanent financing
source, creditworthiness of the borrower and guarantors, ability of contractor to perform under the terms of the contract, and
thefeasibility, marketability, and valuation of the project.



Also much
consideration needs to be given to thecost of the project and sources of funds needed to complete
construction as well as identifying any sources of equity funding.Construction loans are traditionally
considered to be higher risk loans involving technical and legal requirements inherently different from other types of loans; however
with thorough credit underwriting, proper loan structure, and diligent loan servicing, these risks can often be mitigated.Some examples of risks inherent in this type of lending include: underestimated costs, inflation of material and labor costs,
site difficulties (i.e. rock, soil), project not built to plans, weather delays and natural disasters, borrower/contractor/subcontractor
disputes which prompt liens, interest rates increasing beyond budget.



23







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Home Equity Lines of Credit

Home equity lines of credit are consumer-purpose
revolving extensions of credit which are secured by first or second liens on owner-occupied residential real estate. Appropriate
risk management and compliance practices are exercised to ensure that loan-to-value, lien perfection, and compliance risks are
addressed and managed within the Bank’s established guidelines. The degree of utilization of revolving commitments within
this loan segment is reviewed periodically to identify changes in the behavior of this borrowing group.



Commercial and Industrial Loans

Commercial and industrial loans are underwritten
after evaluating and understanding the borrower’s ability to generate positive cash flow, operate profitably and prudently
expand its business. Underwriting standards are designed to promote relationships to include a full range of loan, deposit, and
cash management services. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower
and secondarily on the underlying collateral provided by the borrower and the guarantors. The cash flows of the borrower, however,
may not be as expected and the collateral securing these loans may fluctuate in value. In the case of loans secured by accounts
receivable, the availability of funds for repayment can be impacted by the borrower’s ability to collect amounts due from
its customers.



Loans to Individuals & Overdrafts

Consumer loans
are approved using Bank policies and procedures established to evaluate each credit request. All lending decisions and credit risks
are clearly documented. Several factors are considered in making these decisions such as credit score, adjusted net worth, liquidity,
debt ratio, disposable income, credit history, and loan-to-value of the collateral. This process combined with the relatively smaller
loan amounts spreads the risk among many individual borrowers.Overdrafts on customer accounts are classified
as loans for reporting purposes.



The following tables present an age analysis
of past due loans, segregated by class of loans as of June 30, 2012 and December 31, 2011, respectively:



|                                  |  | June 30, 2012  |      
|--------------------------------- |  | -------------- | -----
|                                  |  | 30+            |      
|                                  |  | Days           |      
|                                  |  | Past Due       |      
|                                  |  | (In thousands) |      
|                                  |  |                |      
|Commercial and industrial         |  | $              | 1,923
|Construction                      |  |                | 366  
|Multi-family residential          |  |                | 43   
|Commercial real estate            |  |                | 63   
|Loans to individuals & overdrafts |  |                | 18   
|1-to-4 family residential         |  |                | 472  
|HELOC                             |  |                | 113  
|Deferred loan (fees) cost, net    |  |                |      
|                                  |  | $              | 2,998



At June 30, 2012 there were no loans that
were more than 90 days past due and still accruing interest.



24









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



|                                  |  | December 31, 2011 |      
|--------------------------------- |  | ----------------- | -----
|                                  |  | 30+               |      
|                                  |  | Days              |      
|                                  |  | Past Due          |      
|                                  |  | (In thousands)    |      
|                                  |  |                   |      
|Commercial and industrial         |  | $                 | 48   
|Construction                      |  |                   | 568  
|Multi-family residential          |  |                   | 1,540
|Commercial real estate            |  |                   | 1,013
|Loans to individuals & overdrafts |  |                   | 10   
|1-to-4 family residential         |  |                   | 735  
|HELOC                             |  |                   | 333  
|Deferred loan (fees) cost, net    |  |                   |      
|                                  |  | $                 | 4,247



At December 31, 2011 there were three loans
totaling $108,000 that were 90 days or more past due and still accruing interest.



Impaired Loans



The
following tables present information on loans that were considered to be impaired as of
June 30, 2012 and December 31, 2011:



|                                    |  |                |        |  |             |   |        |           |  |   | Three months ended |  |  | Six months ended |       
|----------------------------------- |  | -------------- | ------ |  | ----------- | - | ------ | --------- |  | - | ------------------ |  |  | ---------------- | ------
|                                    |  |                |        |  |             |   |        |           |  |   | June 30, 2012      |  |  | June 30, 2012    |       
|                                    |  |                |        |  | Contractual |   |        |           |  |   |                    |  |  | Interest Income  |       
|                                    |  |                |        |  | Unpaid      |   |        |           |  |   | Average            |  |  | Recognized on    |       
|                                    |  | Recorded       |        |  | Principal   |   |        | Related   |  |   | Recorded           |  |  | Impaired         |       
|                                    |  | Investment     |        |  | Balance     |   |        | Allowance |  |   | Investment         |  |  | Loans            |       
|                                    |  | (In thousands) |       
|With no related allowance recorded: |  |                |        |  |             |   |        |           |  |   |                    |  |  |                  |       
|Commercial and  industrial          |  | $              | 512    |  |             | $ | 777    |           |  | $ | -                  |  |  | $                | 480   
|Construction                        |  |                | 2,312  |  |             |   | 2,915  |           |  |   | -                  |  |  |                  | 2,134 
|Commercial real  estate             |  |                | 13,683 |  |             |   | 15,187 |           |  |   | -                  |  |  |                  | 12,810
|Loans to individuals & overdrafts   |  |                | 121    |  |             |   | 138    |           |  |   | -                  |  |  |                  | 149   
|Multi-family residential            |  |                | 1,508  |  |             |   | 1,508  |           |  |   | -                  |  |  |                  | 1,524 
|1 to 4 family residential           |  |                | 1,683  |  |             |   | 1,932  |           |  |   | -                  |  |  |                  | 1,776 
|HELOC                               |  |                | 1,336  |  |             |   | 1,556  |           |  |   | -                  |  |  |                  | 1,193 
|Subtotal:                           |  |                | 21,155 |  |             |   | 24,013 |           |  |   | -                  |  |  |                  | 20,066
|With an allowance recorded:         |  |                |        |  |             |   |        |           |  |   |                    |  |  |                  |       
|Commercial and  industrial          |  |                | 7      |  |             |   | 7      |           |  |   | 2                  |  |  |                  | 64    
|Construction                        |  |                | 1,192  |  |             |   | 1,192  |           |  |   | 167                |  |  |                  | 1,443 
|Commercial real  estate             |  |                | 852    |  |             |   | 1,114  |           |  |   | 75                 |  |  |                  | 1,744 
|Loans to individuals  & overdrafts  |  |                | 15     |  |             |   | 16     |           |  |   | 7                  |  |  |                  | 35    
|Multi-family residential            |  |                | 43     |  |             |   | 43     |           |  |   | 10                 |  |  |                  | 21    
|1 to 4 family residential           |  |                | 810    |  |             |   | 1,133  |           |  |   | 162                |  |  |                  | 792   
|HELOC                               |  |                | 181    |  |             |   | 181    |           |  |   | 97                 |  |  |                  | 258   
|Subtotal:                           |  |                | 3,100  |  |             |   | 3,686  |           |  |   | 520                |  |  |                  | 4,357 
|Totals:                             |  |                |        |  |             |   |        |           |  |   |                    |  |  |                  |       
|Commercial                          |  |                | 20,109 |  |             |   | 22,743 |           |  |   | 254                |  |  |                  | 20,220
|Consumer                            |  |                | 136    |  |             |   | 154    |           |  |   | 7                  |  |  |                  | 184   
|Residential                         |  |                | 4,010  |  |             |   | 4,802  |           |  |   | 259                |  |  |                  | 4,019 
|Grand Total:                        |  | $              | 24,255 |  |             | $ | 27,699 |           |  | $ | 520                |  |  | $                | 24,423



25







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Impaired Loans (continued)



|                                    |  |                |        |  |             |   |        |           |  |   | December 31, 2011 | 
|----------------------------------- |  | -------------- | ------ |  | ----------- | - | ------ | --------- |  | - | ----------------- | 
|                                    |  |                |        |  | Contractual |   |        |           |  |   | Year to Date      | 
|                                    |  |                |        |  | Unpaid      |   |        |           |  |   | Average           | 
|                                    |  | Recorded       |        |  | Principal   |   |        | Related   |  |   | Recorded          | 
|                                    |  | Investment     |        |  | Balance     |   |        | Allowance |  |   | Investment        | 
|                                    |  | (In thousands) |       
|With no related allowance recorded: |  |                |        |  |             |   |        |           |  |   |                   | 
|Commercial and industrial           |  | $              | 478    |  |             | $ | 808    |           |  | $ | -                 | 
|Construction                        |  |                | 1,011  |  |             |   | 1,166  |           |  |   | -                 | 
|Commercial real estate              |  |                | 9,195  |  |             |   | 10,085 |           |  |   | -                 | 
|Loans to individuals & overdrafts   |  |                | 217    |  |             |   | 234    |           |  |   | -                 | 
|Multi-family residential            |  |                | 1,540  |  |             |   | 1,540  |           |  |   | -                 | 
|1-to-4 family residential           |  |                | 2,100  |  |             |   | 2,930  |           |  |   | -                 | 
|HELOC                               |  |                | 730    |  |             |   | 823    |           |  |   | -                 | 
|Subtotal:                           |  |                | 15,271 |  |             |   | 17,586 |           |  |   | -                 | 
|With an allowance recorded:         |  |                |        |  |             |   |        |           |  |   |                   | 
|Commercial and industrial           |  |                | -      |  |             |   | -      |           |  |   | -                 | 
|Construction                        |  |                | 3,365  |  |             |   | 4,085  |           |  |   | 674               | 
|Commercial real estate              |  |                | 5,039  |  |             |   | 5.929  |           |  |   | 498               | 
|Loans to individuals & overdrafts   |  |                | 16     |  |             |   | 16     |           |  |   | 15                | 
|Multi-family residential            |  |                | -      |  |             |   | -      |           |  |   | -                 | 
|1-to-4 family residential           |  |                | 736    |  |             |   | 774    |           |  |   | 170               | 
|HELOC                               |  |                | 408    |  |             |   | 435    |           |  |   | 158               | 
|Subtotal:                           |  |                | 9,564  |  |             |   | 11,239 |           |  |   | 1,515             | 
|Totals:                             |  |                |        |  |             |   |        |           |  |   |                   | 
|Commercial                          |  |                | 20,628 |  |             |   | 23,613 |           |  |   | 1,172             | 
|Consumer                            |  |                | 233    |  |             |   | 250    |           |  |   | 15                | 
|Residential                         |  |                | 3,974  |  |             |   | 4,962  |           |  |   | 328               | 
|                                    |  |                |        |  |             |   |        |           |  |   |                   | 
|Grand Total:                        |  | $              | 24,835 |  |             | $ | 28,825 |           |  | $ | 1,515             | 



Loans are placed on non-accrual status
when it has been determined that all contractual principal and interest will not be received. Any payments received on these loans
are applied to principal first and then to interest only after all principal has been collected. In the case of an impaired loan
that is still on accrual basis, payments are applied to both principal and interest.



26









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Troubled Debt Restructurings



The following table presents loans that
were modified as troubled debt restructurings (“TDRs”) for which there was a payment default together with a breakdown
of the types of concessions made by loan class during the previous twelve months:



|                                  |  | Twelve months ended June 30, 2012 |   
|--------------------------------- |  | --------------------------------- | --
|                                  |  |                                   |   
|                                  |  |                                   |   
|                                  |  |                                   |   
|                                  |  | Number                            |   
|                                  |  | of loans                          |   
|                                  |  | (Dollars in thousands)            |   
|                                  |  |                                   |   
|Below market interest rate:       |  |                                   |   
|Commercial and industrial         |  |                                   | - 
|Construction                      |  |                                   | - 
|Commercial real estate            |  |                                   | - 
|Loans to individuals & overdrafts |  |                                   | - 
|1-to-4 family residential         |  |                                   | - 
|HELOC                             |  |                                   | - 
|Total                             |  |                                   | - 
|                                  |  |                                   |   
|Extended payment terms:           |  |                                   |   
|Commercial and industrial         |  |                                   | 2 
|Construction                      |  |                                   | 2 
|Commercial real estate            |  |                                   | 5 
|Loans to individuals & overdrafts |  |                                   | - 
|1-to-4 family residential         |  |                                   | 2 
|HELOC                             |  |                                   | - 
|Total                             |  |                                   | 11
|                                  |  |                                   |   
|Forgiveness of principal:         |  |                                   |   
|Commercial and industrial         |  |                                   | - 
|Construction                      |  |                                   | - 
|Commercial real estate            |  |                                   | - 
|Loans to individuals & overdrafts |  |                                   | - 
|1- to-4 family residential        |  |                                   | - 
|HELOC                             |  |                                   | - 
|Total                             |  |                                   | - 
|                                  |  |                                   |   
|Total                             |  |                                   | 11



27









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Troubled Debt Restructurings (continued)



The following table presents loans that
were modified as TDRs with a breakdown of the types of concessions made by loan class during the three months and six months ended
June 30, 2012:



|                                    |  | Three months ended     |   |  | Six months ended |  
|----------------------------------- |  | ---------------------- | - |  | ---------------- | -
|                                    |  | June 30, 2012          |   |  | June 30, 2012    |  
|                                    |  | Number                 |   |  | Recorded         |  
|                                    |  | of loans               |   |  | investment       |  
|                                    |  | (Dollars in thousands) |  
|Below market interest rate:         |  |                        |   |  |                  |  
|Commercial and industrial           |  |                        | - |  |                  | $
|Construction                        |  |                        | - |  |                  |  
|Commercial real estate              |  |                        | - |  |                  |  
|Loans to individuals & overdrafts   |  |                        | - |  |                  |  
|1-to-4 family residential           |  |                        | - |  |                  |  
|HELOC                               |  |                        | - |  |                  |  
|Total                               |  |                        | - |  |                  |  
|                                    |  |                        |   |  |                  |  
|Extended payment terms:             |  |                        |   |  |                  |  
|Commercial and industrial           |  |                        | - |  |                  |  
|Construction                        |  |                        | - |  |                  |  
|Commercial real estate              |  |                        | - |  |                  |  
|Loans to individuals & overdrafts   |  |                        | - |  |                  |  
|1-to-4 family residential           |  |                        | - |  |                  |  
|HELOC                               |  |                        | - |  |                  |  
|Total                               |  |                        | - |  |                  |  
|                                    |  |                        |   |  |                  |  
|Forgiveness of principal:           |  |                        |   |  |                  |  
|Commercial and industrial           |  |                        | - |  |                  |  
|Construction                        |  |                        | - |  |                  |  
|Commercial real estate              |  |                        | - |  |                  |  
|Loans to individuals and overdrafts |  |                        | - |  |                  |  
|1-to-4 family residential           |  |                        | - |  |                  |  
|HELOC                               |  |                        | - |  |                  |  
|Total                               |  |                        | - |  |                  |  
|                                    |  |                        |   |  |                  |  
|Other:                              |  |                        |   |  |                  |  
|Commercial and industrial           |  |                        | - |  |                  |  
|Construction                        |  |                        | - |  |                  |  
|Commercial real estate              |  |                        | 2 |  |                  |  
|Loans to individuals and overdrafts |  |                        | - |  |                  |  
|1-to-4 family residential           |  |                        | 4 |  |                  |  
|HELOC                               |  |                        | - |  |                  |  
|Total                               |  |                        | 6 |  |                  |  
|                                    |  |                        |   |  |                  |  
|Total                               |  |                        | 6 |  |                  | $



28









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Troubled Debt Restructurings (continued)



All loans extended to borrowers that are
considered TDRs and have characteristics that are not within the normal lending guidelines and practices when extending credit
are included in the Other category.



The following table presents the successes
and failures of the types of modifications within the previous six months as of June 30, 2012:



|                           |  | Paid in full   |   |  | Paying as restructured |   |   | Converted to non-accrual |  |  | Foreclosure/Default | 
|-------------------------- |  | -------------- | - |  | ---------------------- | - | - | ------------------------ |  |  | ------------------- | 
|                           |  | Number         |   |  | Recorded               |   |   | Number                   |  |  | Recorded            | 
|                           |  | of loans       |   |  | Investment             |   |   | of loans                 |  |  | Investment          | 
|                           |  | (In thousands) |  
|                           |  |                |   |  |                        |   |   |                          |  |  |                     | 
|Below market interest rate |  |                | - |  |                        | $ | - |                          |  |  | -                   | 
|Extended payment terms     |  |                | - |  |                        |   | - |                          |  |  | 2                   | 
|Forgiveness of principal   |  |                | - |  |                        |   | - |                          |  |  | -                   | 
|Other                      |  |                | - |  |                        |   | - |                          |  |  | 6                   | 
|                           |  |                |   |  |                        |   |   |                          |  |  |                     | 
|Total                      |  |                | - |  |                        | $ | - |                          |  |  | 8                   | 



At June 30, 2012, the Company had 31 loans
with a balance of $9.0 million that were considered to be troubled debt restructurings. Of those TDRs, 14 loans with a balance
totaling $1.9 million were still accruing as of June 30, 2012. The remaining 17 TDRs with a balance totaling $7.1 million as of
June 30, 2012 were in non-accrual status.



Credit Quality Indicators



As part of the on-going monitoring of the
credit quality of the loan portfolio, management utilizes a risk grading matrix to assign a risk grade to each of the Company’s
loans. All non-consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of these nine different
risk grades is as follows:

| | · | Risk Grade 1 (Superior) - Credits in this category are virtually risk-free and are well-collateralized
by cash-equivalent instruments. The repayment program is well-defined and achievable. Repayment sources are numerous. No material
documentation deficiencies or exceptions exist.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 2 (Very Good) - This grade is reserved for loans secured
by readily marketable collateral, or loans within guidelines to borrowers with liquid financial statements. A liquid financial
statement is a financial statement with substantial liquid assets relative to debts. These loans have excellent sources of repayment,
with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards,
and Federal and State regulations (no exceptions of any kind).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 3 (Good) - These loans have excellent sources of repayment,
with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and
State regulations (no exceptions of any kind).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



29







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Credit Quality Indicators (continued)



| | o | Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that
can be supplemented with verifiable cash flow from other sources.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation
of collateral, or liquidation value to the net worth of the borrower or guarantor.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 4 (Acceptable) - This grade is given to acceptable loans.
These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will
demonstrate the following characteristics:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | General conformity to the Bank's policy requirements, product guidelines and underwriting standards,
with limited exceptions. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated
by other factors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that
can be supplemented with verifiable cash flow from other sources.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation
of collateral, or liquidation value to the net worth of the borrower or guarantor
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 5 (Acceptable With Care) -
This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but
have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this grade may demonstrate
some or all of the following characteristics:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards
that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater,
all exceptions have been properly mitigated by other factors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Unproven, insufficient or marginal primary sources of repayment that appear sufficient to service
the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected
(not historic) performance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation
of collateral and liquidation value to the net worth of the borrower or guarantor.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 6 (Watch List
or Special Mention) – Loans in this category can have the following characteristics:
| | - | -------------------------------------------------------------------------------------------------------------

30







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Credit Quality Indicators (continued)



| | o | Loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors.
| | - | ----------------------------------------------------------------------------------------------



| | o | Extending loans that are currently performing satisfactorily but with potential weaknesses that
may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are
the result of deviations from prudent lending practices.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Loans where adverse economic conditions that develop subsequent to the loan origination that don't
jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected
by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard
must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected.Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized
by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified
Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because
certain events may occur which would salvage the debt.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | · | Risk
Grade 9 (Loss) - Loans classified as Loss are considered uncollectable and of such little value that
their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery
or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may
be affected in the future.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consumer loans are graded on a scale of
1 to 9. A description of the general characteristics of the nine risk grades is as follows:



| | · | Risk Grades 1 – 5 (Pass) – The loans in this category range from loans secured by cash
with no risk of principal deterioration (Risk Grade 1) to loans that show signs of weakness in either adequate sources of repayment
or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss (Risk Grade 5).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 6 (Watch List or Special Mention) - Watch List or Special
Mention loans include the following characteristics:
| | - | -------------------------------------------------------------------------------------------------------------------------



| | o | Loans within guideline tolerances or with exceptions of any kind that have not been mitigated by
other economic or credit factors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                   

31







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Credit Quality Indicators (continued)



| | o | Extending loans that are currently performing satisfactorily but with potential weaknesses that
may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are
the result of deviations from prudent lending practices.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Loans where adverse economic conditions that develop subsequent to the loan origination that don't
jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected
by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard
must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified
Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because
certain events may occur which would salvage the debt.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Risk Grade 9 (Loss) - Loans classified Loss are considered uncollectable
and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the
asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless
loan even though partial recovery may be affected in the future.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



The following tables present information
on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of June 30, 2012 and December 31, 2011,
respectively:





|June 30, 2012       
|--------------------
|Commercial          
|Credit              
|Exposure By         
|Internally          
|Assigned Grade      
|(In thousands)      
|                    
|Superior            
|Very good           
|Good                
|Acceptable          
|Acceptable with care
|Special mention     
|Substandard         
|Doubtful            
|Loss                
|                    



|Consumer Credit |  |               |        |  |       |  
|--------------- |  | ------------- | ------ |  | ----- | -
|Exposure By     |  |               |        |  |       |  
|Internally      |  | 1-to-4 family |        |  |       |  
|Assigned Grade  |  | residential   |        |  | HELOC |  
|                |  |               |        |  |       |  
|Pass            |  | $             | 41,324 |  |       | $
|Special mention |  |               | 3,528  |  |       |  
|Substandard     |  |               | 3,635  |  |       |  
|                |  | $             | 48,487 |  |       | $



|Consumer Credit |  |               |      
|--------------- |  | ------------- | -----
|Exposure Based  |  | Loans to      |      
|On Payment      |  | individuals & |      
|Activity        |  | overdrafts    |      
|                |  |               |      
|Pass            |  | $             | 6,888
|Non –pass       |  |               | 182  
|                |  | $             | 7,070





33









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



|December 31, 2011   
|--------------------
|Commercial          
|Credit              
|Exposure By         
|Internally          
|Assigned Grade      
|(In thousands)      
|                    
|Superior            
|Very good           
|Good                
|Acceptable          
|Acceptable with care
|Special mention     
|Substandard         
|Doubtful            
|Loss                
|                    



|Consumer Credit |  |               |        |  |       |  
|--------------- |  | ------------- | ------ |  | ----- | -
|Exposure By     |  |               |        |  |       |  
|Internally      |  | 1-to-4 family |        |  |       |  
|Assigned Grade  |  | residential   |        |  | HELOC |  
|                |  |               |        |  |       |  
|Pass            |  | $             | 43,647 |  |       | $
|Special mention |  |               | 2,925  |  |       |  
|Substandard     |  |               | 5,610  |  |       |  
|                |  | $             | 52,182 |  |       | $



|Consumer Credit |  |               |      
|--------------- |  | ------------- | -----
|Exposure Based  |  | Loans to      |      
|On Payment      |  | individuals & |      
|Activity        |  | overdrafts    |      
|                |  |               |      
|Pass            |  | $             | 7,447
|Non-pass        |  |               | 224  
|                |  | $             | 7,671



Non-performing assets at June 30, 2012
and December 31, 2011 consist of the following:



|                            |  | June 30, 2012  |        |  | December 31, 2011 |  
|--------------------------- |  | -------------- | ------ |  | ----------------- | -
|                            |  | (In thousands) |       
|                            |  |                |        |  |                   |  
|Non-accrual loans           |  | $              | 14,676 |  |                   | $
|Accruing TDRs               |  |                | 1,903  |  |                   |  
|Total non-performing loans  |  |                | 16,579 |  |                   |  
|Foreclosed real estate      |  |                | 3,859  |  |                   |  
|Total non-performing assets |  | $              | 20,438 |  |                   | $

34









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Allowance for Loan Losses

The allowance for loan losses is a reserve
established through provisions for loan losses charged to income and represents management’s best estimate of probable loans
losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary
to reserve for estimated losses and risk inherent in the loan portfolio. The Company’s allowance for loan loss methodology
is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific
loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate
level of reserves is designed to account for changes in credit quality as they occur. The provision for loan losses reflect loan
quality trends, including the levels of and trends related to past due loans and economic conditions at the local and national
levels. It also considers the quality and risk characteristics of the Company’s loan origination and servicing policies and
practices.



Individual reservesare calculated
according to ASC Section 310-10-35 against loans evaluated individually and deemed to most likely be impaired.  All loans
in non-accrual status and all substandard loans that are deemed to be collateral dependent are assessed for impairment.



Loans are deemed uncollectible at the discretion
of the Chief Credit Officer, based on a variety of credit, collateral, documentation and other issues. In the case of uncollectible
receivables, the collateral is considered unsecured and therefore fully charged off.



35









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Allowance for Loan Losses (Continued)



The following tables present a roll forward
of the Company’s allowance for loan losses by loan class for the three month and six month periods ended June 30, 2012 and
June 30, 2011, respectively:



|                                                      |  | Three months ended |       
|----------------------------------------------------- |  | ------------------ | ------
|                                                      |  | June 30, 2012      |       
|                                                      |  | Commercial         |       
|                                                      |  | and                |       
|Allowance for loan losses                             |  | industrial         |       
|                                                      |  | (In thousands)     |       
|                                                      |  |                    |       
|Balance, beginning of period 3/31/2012                |  | $                  | 555   
|Provision (recovery) for loan losses                  |  |                    | (409  
|Loans charged-off                                     |  |                    | (4    
|Recoveries                                            |  |                    | 244   
|                                                      |  |                    |       
|Balance, end of period 6/30/2012                      |  | $                  | 386   
|                                                      |  |                    |       
|Ending balance: individually evaluated for impairment |  | $                  | 2     
|Ending balance: collectively evaluated for impairment |  | $                  | 384   
|                                                      |  |                    |       
|Loans:                                                |  |                    |       
|Ending balance                                        |  | $                  | 31,044
|Ending balance: individually evaluated for impairment |  | $                  | 519   
|Ending balance: collectively evaluated for impairment |  | $                  | 30,525



36









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Allowance for Loan Losses (Continued)



|                                                      |  | Six months ended |       
|----------------------------------------------------- |  | ---------------- | ------
|                                                      |  | June 30, 2012    |       
|                                                      |  | Commercial       |       
|                                                      |  | and              |       
|Allowance for loan losses                             |  | industrial       |       
|                                                      |  | (In thousands)   |       
|                                                      |  |                  |       
|Balance, beginning of period 1/1/2012                 |  | $                | 719   
|Provision (recovery) for loan losses                  |  |                  | (2,956
|Loans charged-off                                     |  |                  | (51   
|Recoveries                                            |  |                  | 2,674 
|                                                      |  |                  |       
|Balance, end of period 6/30/2012                      |  | $                | 386   
|                                                      |  |                  |       
|Ending balance: individually evaluated for impairment |  | $                | 2     
|Ending balance: collectively evaluated for impairment |  | $                | 384   
|                                                      |  |                  |       
|Loans:                                                |  |                  |       
|Ending balance                                        |  | $                | 31,044
|Ending balance: individually evaluated for impairment |  | $                | 519   
|Ending balance: collectively evaluated for impairment |  | $                | 30,525



During the six months ended June 30, 2012
the Company recorded recoveries on loans previously charged-off in the amount of $3.3 million. These recoveries were primarily
a result of a $2.4 million recovery on commercial and industrial loans. These recoveries combined with the decrease in total loans
outstanding at June 30, 2012 resulted in a $2.8 million recovery in the provision for loan losses.

37









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Allowance for Loan Losses (continued)

|                                                      |  | December 31, 2011 |       
|----------------------------------------------------- |  | ----------------- | ------
|                                                      |  | Commercial        |       
|                                                      |  | and               |       
|Allowance for loan losses                             |  | industrial        |       
|                                                      |  | (In thousands)    |       
|Loans:                                                |  |                   |       
|Ending Balance                                        |  | $                 | 33,146
|Ending Balance: individually evaluated for impairment |  | $                 | 478   
|Ending Balance: collectively evaluated for impairment |  | $                 | 32,668



38







|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)





NOTE G - LOANS (continued)



Allowance for Loan Losses (continued)



|                                                      |  | Three months ended |       
|----------------------------------------------------- |  | ------------------ | ------
|                                                      |  | June 30, 2011      |       
|                                                      |  | Commercial         |       
|                                                      |  | and                |       
|Allowance for loan losses                             |  | industrial         |       
|                                                      |  | (In thousands)     |       
|                                                      |  |                    |       
|Balance, beginning of period 3/31/2011                |  | $                  | 1,081 
|Provision (recovery) for loan losses                  |  |                    | 203   
|Other                                                 |  |                    | -     
|Loans charged-off                                     |  |                    | (3,880
|Recoveries                                            |  |                    | 3,648 
|                                                      |  |                    |       
|Balance, end of period 6/30/2011                      |  | $                  | 1,052 
|                                                      |  |                    |       
|Ending balance: individually evaluated for impairment |  | $                  | 191   
|Ending balance: collectively evaluated for impairment |  | $                  | 861   
|                                                      |  |                    |       
|Loans:                                                |  |                    |       
|Ending balance                                        |  | $                  | 40,646
|Ending balance: individually evaluated for impairment |  | $                  | 538   
|Ending balance: collectively evaluated for impairment |  | $                  | 40,108



39









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE G - LOANS (continued)



Allowance for Loan Losses (continued)



|                                                      |  | Six months ended |       
|----------------------------------------------------- |  | ---------------- | ------
|                                                      |  | June 30, 2011    |       
|                                                      |  | Commercial       |       
|                                                      |  | and              |       
|Allowance for loan losses                             |  | industrial       |       
|                                                      |  | (In thousands)   |       
|                                                      |  |                  |       
|Balance, beginning of period 1/1/2011                 |  | $                | 1,052 
|Provision (recovery) for loan losses                  |  |                  | 160   
|Other                                                 |  |                  | -     
|Loans charged-off                                     |  |                  | (3,880
|Recoveries                                            |  |                  | 3,720 
|                                                      |  |                  |       
|Balance, end of period 6/30/2011                      |  | $                | 1,052 
|                                                      |  |                  |       
|Ending balance: individually evaluated for impairment |  | $                | 191   
|Ending balance: collectively evaluated for impairment |  | $                | 861   
|                                                      |  |                  |       
|Loans:                                                |  |                  |       
|Ending balance                                        |  | $                | 40,646
|Ending balance: individually evaluated for impairment |  | $                | 538   
|Ending balance: collectively evaluated for impairment |  | $                | 40,108



40









|NEW CENTURY BANCORP, INC.                             
|------------------------------------------------------
|Notes to Consolidated Financial Statements (Unaudited)



NOTE H –BRANCH SALE



On April 6, 2012, the Bank sold all deposits
and selected assets associated with two branch offices located in Pembroke and Raeford, North Carolina. The transaction was consummated
pursuant to a definitive purchase and assumption agreement with Lumbee Guaranty Bank, Pembroke, North Carolina, which was entered
into on December 20, 2011. The purchase price under the terms of the purchase and assumption agreement was $1.8 million which included
$1.1 million for all real property and equipment and $688,000 for a deposit premium. The deposit premium was offset by the write-off
of a core deposit intangible of $131,000 on these deposits resulting in a net gain of $557,000 for the Company from this transaction.
Lumbee Guarantee Bank assumed $14.6 million in deposits plus accrued interest of $5,000 from the Bank and took assignment of all
real property and equipment associated with the two branch offices, which totaled $1.1 million at April 6, 2012. The Bank retained
all loans associated with the two branches except for approximately $338,000 plus accrued interest of $2,000 in loans associated
with deposit accounts which included overdraft protection loans and time deposit loans. There was a separate payment for the loans
purchased that was not included in the $1.8 million purchase price.



41







Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations



Management’s discussion and analysis
is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of New Century
Bancorp, Inc. (the “Company”). This report contains “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995 relating to, without limitation, our future economic performance, plans and
objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, as well
as assumptions made by and information currently available to us. The words “may,” “will,” “anticipate,”
“should,” “would,” “believe,” “contemplate,” “could,” “project,”
“predict,” “expect,” “estimate,” “continue,” and “intend,” as well
as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results,
performance or achievements may differ materially from the results expressed or implied by our forward-looking statements. Factors
that could influence actual results, performance or achievements include changes in national, regional and local market conditions,
legislative and regulatory conditions, and the interest rate environment.



Overview



The Company is a commercial bank holding
company and has one banking subsidiary, New Century Bank (referred to as the “Bank”) and one unconsolidated subsidiary,
New Century Statutory Trust I, which issued trust preferred securities in 2004 to provide additional capital for general corporate
purposes. The Company’s only business activity is the ownership of the Bank and New Century Statutory Trust I. This discussion
focuses primarily on the financial condition and operating results of the Bank.



The Bank’s lending activities are
oriented to the consumer/retail customer as well as to the small-to medium-sized businesses located in Harnett, Cumberland, Johnston,
Pitt, Robeson, Sampson, and Wayne counties in North Carolina. The Bank offers 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 Bank include small business and personal checking accounts, savings accounts and certificates of deposit. Deposit services
are not offered in Pitt County. The Bank concentrates on customer relationships in building its customer deposit base and competes
aggressively in the area of transaction accounts.



Comparison of Financial Condition
at

June 30, 2012 and December 31, 2011



During the first six months of 2012, total
assets decreased by $26.0 million to $563.7 million as of June 30, 2012. Earning assets at June 30, 2012 totaled $515.4 million
and consisted of $381.9 million in net loans, $71.8 million in investment securities, $59.6 million in overnight investments and
interest-bearing deposits in other banks and $2.1 million in non-marketable equity securities. Total deposits and shareholders’
equity at the end of the second quarter of 2012 were $471.2 million and $53.0 million, respectively. In the second quarter of 2012
the Company completed the sale of two branches which resulted in decreases of $14.6 million in deposits, $338,000 in loans, and
$1.1 million in real property and equipment which resulted in a net decrease in cash of $13.0 million.



Since the end of 2011, gross loans have
decreased by $27.2 million to $390.4 million as of June 30, 2012 due to continued soft loan demand and efforts to reduce concentration
levels within certain loan categories.. Gross loans consisted of $31.0 million in commercial and industrial loans, $193.2 million
in commercial real estate loans, $19.5 million in multi-family residential loans, $7.1 million in consumer loans, $48.5 million
in residential real estate, $36.8 million in HELOC, and $54.7 million in construction loans. Deferred loan fees, net of costs,
on these loans were $407,000.



42







At June 30, 2012 and December 31, 2011,
the Company held $3.0 million in federal funds sold. Interest-earning deposits in other banks were $56.6 million at June 30, 2012,
a $1.0 million increase from December 31, 2011. The Company’s investment securities at June 30, 2012 were $71.8 million,
an increase of $3.9 million from December 31, 2011. The investment portfolio as of June 30, 2012 consisted of $32.6 million in
government agency debt securities, $32.6 million in mortgage-backed securities and $6.6 million in municipal securities. The net
unrealized gain on these securities was $2.0 million.



At June 30, 2012, the Company also held
an investment of $1.0 million in the form of Federal Home Loan Bank (“FHLB”) stock a decrease of $214,000 from December
31, 2011 due to redemptions during the second quarter of 2012. Also, the Company had $1.1 million in other non-marketable securities,
which was approximately the same at December 31, 2011.



At June 30, 2012, non-earning assets were
$48.3 million, which reflects a decrease of $5.0 million from the $53.3 million as of December 31, 2011. Non-earning assets as
of June 30, 2012 included $15.7 million in cash and due from banks, bank premises and equipment of $11.1 million, core deposit
intangible of $356,000, accrued interest receivable of $1.6 million, foreclosed real estate of $3.9 million, and other assets which
consisted of $8.1 million in Bank Owned Life Insurance (“BOLI”), $5.2 million in deferred tax assets, and $2.3 million
in all other assets. Since the income on BOLI is included in non-interest income, this asset is not included in the Company’s
calculation of earning assets. During the second quarter of 2012 the Company experienced a decrease in cash and cash equivalents
of $6.1 million due to the previously mentioned branch sale.



Total deposits at June 30, 2012 were $471.2
million and consisted of $72.7 million in non-interest-bearing demand deposits, $95.4 million in money market and NOW accounts,
$24.0 million in savings accounts, and $279.1 million in time deposits. Total deposits decreased by $30.2 million from $501.4 million
as of December 31, 2011. Of this decrease, $14.6 million is related to the previously mentioned branch sale. The Bank had $498,000
in brokered demand deposits and no brokered time deposits as of June 30, 2012.



As of June 30, 2012, the Company had $23.0
million in short-term debt and $12.4 million in long-term debt. Short-term debt consisted of $21.0 million of repurchase agreements
with local customers and $2.0 million of FHLB advances. Long-term debt consisted of $12.4 million of junior subordinated debentures
that were issued in September 2004.



Total shareholders’ equity at June
30, 2012 was $53.0 million, an increase of $3.5 million from $49.5 million as of December 31, 2011. Accumulated other comprehensive
income relating to available for sale securities decreased $50,000 for the six months ended June 30, 2012. Other changes in shareholders’
equity included increases of $23,000 in stock-based compensation, net income of $3.3 million for the six months ending June 30,
2012, and $165,000 from the proceeds of the sale of common stock.



Past Due Loans, Non-performing Assets,
and Asset Quality



At June 30, 2012, the Company had $3.0
million in loans that were 30 to 89 days past due. This represented 0.77% of gross loans outstanding on that date. This is a decrease
from December 31, 2011 when there were $4.2 million in loans that were 30-89 days past due and $108,000 in loans that were 90 days
or more past due and still accruing. This represented 1.01% of gross loans outstanding. Non-accrual loans decreased from $17.6
million at December 31, 2011 to $14.7 million for the period ended June 30, 2012.



The percentage of non-performing loans
(non-accrual loans and accruing troubled debt restructurings) to total loans decreased 45 basis points from 4.70% at December 31,
2011 to 4.25% at June 30, 2012.



The Company had fourteen
loans totaling $1.9 million that were considered troubled debt restructurings (“TDRs”) that were still in accruing
status at June 30, 2012 with the remaining TDRs included in non-accrual loans. All TDRs are considered non-performing loans regardless
of accrual status.



43







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 accruing TDRs), and total non-performing assets.



|                                                                                               |  | For Periods Ended      |       
|---------------------------------------------------------------------------------------------- |  | ---------------------- | ------
|                                                                                               |  | June 30,               |       
|                                                                                               |  | 2012                   |       
|                                                                                               |  | (Dollars in thousands) |       
|                                                                                               |  |                        |       
|Non-accrual loans                                                                              |  | $                      | 14,676
|Accruing TDRs                                                                                  |  |                        | 1,903 
|Total non-performing loans                                                                     |  |                        | 16,579
|Foreclosed real estate                                                                         |  |                        | 3,859 
|Repossessed assets                                                                             |  |                        | -     
|Total non-performing assets                                                                    |  | $                      | 20,438
|                                                                                               |  |                        |       
|Accruing loans past due 90 days or more                                                        |  | $                      | -     
|Allowance for loan losses                                                                      |  | $                      | 8,510 
|                                                                                               |  |                        |       
|Non-performing loans to period end loans                                                       |  |                        | 4.25  
|Non-performing loans and accruing loans past due 90 days  or more to period end loans          |  |                        | 4.25  
|Allowance for loans losses to period end  loans                                                |  |                        | 2.18  
|Allowance for loan losses to non-performing loans                                              |  |                        | 51.33 
|Allowance for loan losses to non-performing assets                                             |  |                        | 41.64 
|Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more |  |                        | 41.64 
|Non-performing assets to total assets                                                          |  |                        | 3.63  
|Non-performing assets and accruing loans past due 90 days  or more to total assets             |  |                        | 3.63  



The total non-performing assets (non-accrual
loans, accruing TDRs, and foreclosed real estate), at June 30, 2012 and December 31, 2011 were $20.4 million and $22.7 million.
The allowance for loan losses at June 30, 2012 represented 41.64% of non-performing assets compared to 44.27% at December 31, 2011.



Total impaired loans at June 30, 2012 were
$24.3 million, this includes $14.7 million in loans that were classified as impaired because they were in non-accrual and $9.6
million in loans that were determined to be impaired for other reasons. Of these loans, $3.1 million required a specific reserve
of $520,000 at June 30, 2012. Total impaired loans at December 31, 2011 were $24.8 million. This includes $17.6 million in loans
that were considered to be impaired due to being in non-accrual status and $7.2 million in loans that were deemed to be impaired
for other reasons. Of these loans, $9.6 million required a specific reserve of $1.5 million at December 31, 2011.



The allowance for loan losses was $8.5
million at June 30, 2012 or 2.18% of gross loans outstanding. This is a decrease of 22 basis points from the 2.40% of gross loans
at December 31, 2011. The allowance for loan losses at June 30, 2012 represented 35.09% of impaired loans compared to 40.40% at
December 31, 2011. This decrease in the allowance for the six months of 2012 resulted primarily from
net recoveries of $1.3 million which included a $2.4 million recovery on commercial and industrial loans during the first quarter
of 2012, management’s concerted effort to charge off impairments on collateral dependant impaired loans, and an overall decrease
in loan balances. It is management’s assessment that the allowance for loan losses as of June 30, 2012 is appropriate
in light of the risk inherent within the Company’s loan portfolio. No assurances, however, can be made that further adjustments
to the allowance for loan losses may not be deemed necessary.



44







Other Lending Risk Factors



Besides monitoring non-performing loans
and past due loans, Management also monitors trends in the loan portfolio that may indicate more than normal risk. A discussion
of other risk factors follows. Some loans or groups of loans may contain one or more of these individual loan risk factors. Therefore,
an accumulation of the amounts or percentages of the individual loan risk factors may not necessarily be an indication of the cumulative
risk in the total loan portfolio.



Regulatory Loan to Value



The Company monitors its exposure to loans
that exceed the guidelines established by regulators for loan to value (“LTV”) ratios.



At June 30, 2012 and December 31, 2011
the Company had $10.1 million and $13.3 million in non 1-to-4 family residential loans that exceeded the regulatory LTV limits,
respectively. At June 30, 2012 and December 31, 2011 the Company had $10.3 million and $12.5 million of 1-to-4 family residential
loans that exceeded the regulatory LTV limits, respectively. The total amount of these loans represented 32.6% and 43.8% of total
risk based capital as of June 30, 2012 and December 31, 2011, which is less than the 100% maximum allowed. These loans may provide
more than ordinary risk to the Company if the real estate market continues to weaken in terms of both market activity and collateral
valuations.



Business Sector Concentrations



Loan concentrations in certain business
sectors impacted by lower than normal retail sales, higher unemployment, higher vacancy rates, and weakened real estate market
values may also pose additional risk to the Company’s capital position. The Company has established an internal commercial
real estate guideline of 40% of risk-based capital for any single product line.



The tables below set forth, for the periods
indicated, information about the Company’s business sector concentrations.



|                     |  | At             |        |  |            | 
|-------------------- |  | -------------- | ------ |  | ---------- | 
|                     |  | June 30,       |        |  | % of       | 
|                     |  | 2012           |        |  | Risk Based | 
|                     |  | (In thousands) |        |  | Capital    | 
|1-to-4 Family Rental |  | $              | 19,554 |  |            | 
|Office Building      |  | $              | 29,565 |  |            | 



At June 30, 2012 the Company exceeded this
guideline in the Office Buildings product type. The Office Buildings were 47% of risk-based capital or $29.6 million. All other
commercial real estate groups were under the 40% threshold. The reduced concentration within these categories from December 31,
2011 to June 30, 2012 resulted from the increase in capital combined with reduced loan balances.





|                     |  | At             |        |  |            | 
|-------------------- |  | -------------- | ------ |  | ---------- | 
|                     |  | December 31,   |        |  | % of       | 
|                     |  | 2011           |        |  | Risk Based | 
|                     |  | (In thousands) |        |  | Capital    | 
|1-to-4 Family Rental |  | $              | 26,992 |  |            | 
|Office Building      |  | $              | 30,265 |  |            | 



At December 31, 2011 the Company had two
product type groups which exceeded this guideline; 1-to-4 Family Rental and Office Buildings. The 1-to-4 Family Rental group represented
42% of risk-based capital, or $27.0 million, and Office Buildings were 47% of risk-based capital or $30.3 million. All other commercial
real estate groups were under the 40% threshold.



45







Acquisition, Development, and Construction
Loans (“ADC”)



The table below sets forth construction
loans the Company originates for the purpose of acquisition, development, and construction of both residential and commercial properties.





ADC Loans

As of June 30, 2012

(Dollars in thousands)





|                          |  |              |        |   | Land and Land |   |        |       | 
|------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | ----- | 
|                          |  | Construction |        |   | Development   |   |        | Total | 
|                          |  |              |        |   |               |   |        |       | 
|Total ADC loans           |  | $            | 37,272 |   |               | $ | 17,444 |       | 
|                          |  |              |        |   |               |   |        |       | 
|Average Loan Size         |  | $            | 138    |   |               | $ | 311    |       | 
|                          |  |              |        |   |               |   |        |       | 
|Percentage of total loans |  |              | 9.55   | % |               |   | 4.47   | %     | 
|                          |  |              |        |   |               |   |        |       | 
|Non-accrual loans         |  | $            | 210    |   |               | $ | 2,189  |       | 



At June 30, 2012, total ADC loans represented
14.02%, or $54.7 million, of the total loan portfolio, of which $2.4 million of the ADC loan portfolio is in non-accrual status.
This represents 4.4% of all ADC loans. Management monitors the ADC portfolio as to collateral value, funding based on project completeness,
and the performance of similar loans in the Company’s market area.





ADC Loans

As of December 31, 2011

(Dollars in thousands)





|                          |  |              |        |   | Land and Land |   |        |       | 
|------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | ----- | 
|                          |  | Construction |        |   | Development   |   |        | Total | 
|                          |  |              |        |   |               |   |        |       | 
|Total ADC loans           |  | $            | 49,958 |   |               | $ | 20,888 |       | 
|                          |  |              |        |   |               |   |        |       | 
|Average Loan Size         |  | $            | 174    |   |               | $ | 307    |       | 
|                          |  |              |        |   |               |   |        |       | 
|Percentage of total loans |  |              | 11.96  | % |               |   | 5.00   | %     | 
|                          |  |              |        |   |               |   |        |       | 
|Non-accrual loans         |  | $            | 596    |   |               | $ | 3,172  |       | 



At December 31, 2011, total ADC loans represented
16.96%, or $70.8 million, of the total loan portfolio, of which $3.8 million of the ADC portfolio is in non-accrual status. This
represents 5.3% of all ADC loans. Management monitors the ADC portfolio as to collateral value, funding based on project completeness,
and the performance of similar loans in the Company’s market area.



46







Geographic Concentrations



Certain risks exist arising from the geographic
location of specific types of higher than normal risk real estate loans. Below is a table showing geographic concentrations for
ADC and HELOC loans at June 30, 2012.



|                    |  | ADC Loans              |        |  | Percent |  |       | HELOC |  |   | Percent | 
|------------------- |  | ---------------------- | ------ |  | ------- |  | ----- | ----- |  | - | ------- | 
|                    |  | (Dollars in thousands) |       
|                    |  |                        |       
|Harnett County      |  | $                      | 6,224  |  |         |  | 11.4  | %     |  | $ | 7,301   | 
|Cumberland County   |  |                        | 16,452 |  |         |  | 30.1  | %     |  |   | 7,768   | 
|Johnston County     |  |                        | 749    |  |         |  | 1.4   | %     |  |   | 584     | 
|Pitt County         |  |                        | 3,784  |  |         |  | 6.9   | %     |  |   | 25      | 
|Robeson County      |  |                        | 1,755  |  |         |  | 3.2   | %     |  |   | 3,458   | 
|Sampson County      |  |                        | 733    |  |         |  | 1.3   | %     |  |   | 1,464   | 
|Wayne County        |  |                        | 3,045  |  |         |  | 5.6   | %     |  |   | 5,586   | 
|Hoke County         |  |                        | 2,907  |  |         |  | 5.3   | %     |  |   | 250     | 
|All other locations |  |                        | 19,067 |  |         |  | 34.8  | %     |  |   | 10,335  | 
|                    |  |                        |        |  |         |  |       |       |  |   |         | 
|Total               |  | $                      | 54,716 |  |         |  | 100.0 | %     |  | $ | 36,771  | 



Below is a table showing geographic concentrations
for ADC and HELOC loans at December 31, 2011.



|                    |  | ADC Loans              |        |  | Percent |  |       | HELOC |  |   | Percent | 
|------------------- |  | ---------------------- | ------ |  | ------- |  | ----- | ----- |  | - | ------- | 
|                    |  | (Dollars in thousands) |       
|                    |  |                        |        |  |         |  |       |       |  |   |         | 
|Harnett County      |  | $                      | 5,637  |  |         |  | 8.0   | %     |  | $ | 7,432   | 
|Cumberland County   |  |                        | 18,424 |  |         |  | 26.0  | %     |  |   | 6,652   | 
|Johnston County     |  |                        | 1,410  |  |         |  | 2.0   | %     |  |   | 622     | 
|Pitt County         |  |                        | 4,631  |  |         |  | 6.5   | %     |  |   | -       | 
|Robeson County      |  |                        | 2,021  |  |         |  | 2.9   | %     |  |   | 3,377   | 
|Sampson County      |  |                        | 730    |  |         |  | 1.0   | %     |  |   | 1,645   | 
|Wayne County        |  |                        | 4,474  |  |         |  | 6.3   | %     |  |   | 5,769   | 
|Hoke County         |  |                        | 2,626  |  |         |  | 3.7   | %     |  |   | 111     | 
|All other locations |  |                        | 30,893 |  |         |  | 43.6  | %     |  |   | 13,094  | 
|                    |  |                        |        |  |         |  |       |       |  |   |         | 
|Total               |  | $                      | 70,846 |  |         |  | 100.0 | %     |  | $ | 38,702  | 



Interest Only Payments



Another risk factor that exists in the
total loan portfolio pertains to loans with interest only payment terms. At June 30, 2012, the Company had $97.6 million in loans
that had terms permitting interest only payments. This represented 25.0% of the total loan portfolio. At December 31, 2011, the
Company had $125.8 million in loans that had terms permitting interest only payments. This represented 30.1% of the total loan
portfolio. Recognizing the risk inherent with interest only loans, it is customary and general industry practice that loans in
the ADC portfolio permit interest only payments during the acquisition, development, and construction phases of such projects.



Large Dollar Concentrations



Concentrations of high dollar loans or
large customer relationships may pose additional risk in the total loan portfolio. The Company’s ten largest loans or lines
of credit totaled $51.2 million or 13.1% of total loans at June 30, 2012 compared to $48.6 million or 11.6% of total loans at December
31, 2011. The Company’s ten largest customer relationships totaled $75.2 million or 19.3% of total loans at June 30, 2012
compared to $68.3 million or 16.4% of total loans at December 31, 2011. Deterioration or loss in any one or more of these high
dollar loan or customer concentrations could have an immediate, significant adverse impact on the Company’s capital position.



47







Comparison of Results of Operations
for the

Three months ended June 30,
2012 and 2011



General. During the second quarter
of 2012, the Company had net income of $1.2 million as compared with net loss of ($861,000) for the same quarter in 2011. Net income
per share for the second quarter of 2012 was $0.17, basic and diluted, compared with net loss per share of ($0.13), basic and diluted,
for the second quarter of 2011. Results of operations for the second quarter of 2012 were primarily impacted by a recovery in the
provision for loan losses of $649,000 due to a reduction in loan balances and lower loan charge-offs. The Company experienced a
decrease in net interest margin of 21 basis points to 3.68% in the second quarter of 2012from the same period in 2011.



Net Interest Income. Net interest
income decreased by $964,000 to $4.6 million for the second quarter of 2012. The Company’s total interest income was affected
by a reduction in the yield on interest-earning assets combined with a decrease in those assets. Average total interest-earning
assets were $511.9 million in the second quarter of 2012 compared with $582.2 million during the same period in 2011 and the yield
on those assets decreased 40 basis points from 5.40% to 5.00%. Total interest income reversed on loans transferred to non-accrual
status for the three months ended June 30, 2012 and 2011 was $20,000 and $58,000, respectively, or approximately 1 basis point
on average interest-earning assets for both periods mentioned.



The Company’s average interest-bearing
liabilities decreased by $66.3 million to $435.0 million for the quarter ended June 30, 2012 from $501.3 million for the same period
one year earlier and the cost of those funds decreased from 1.75% to 1.56%, or 19 basis points. During the second quarter of 2012,
the Company’s net interest margin was 3.68% and net interest spread was 3.44%. For the
quarter ended June 30, 2011, net interest margin was 3.89% and net interest spread was 3.65%



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 loss experience, current delinquency levels, adverse situations that may affect a borrower’s
ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. During
the second quarter, the Company recorded a recovery for loan losses of $649,000 which is a decrease of $3.2 million from the provision
that was recorded in the second quarter of 2011. This decrease in the allowance for the three months ended June 30, 2012 resulted
primarily from an overall decrease in loan balances and net charge-offs of $408,000.



Non-Interest Income. Non-interest
income for the quarter ended June 30, 2012 was $1.2 million, an increase of $287,000 from the second quarter of 2011. This increase
was primarily due to a $557,000 gain on the sale of two branches during the second quarter of 2012. Service charges on deposit
accounts decreased $85,000 to $291,000 for the quarter ended June 30, 2012 as compared to $376,000 for the same period in 2011.
Mortgage fee income increased $14,000 to $75,000 for the quarter ended June 30, 2012 compared to the same period in 2011. Other
non-deposit fees and income decreased $199,000 to $256,000 as compared to the same period in 2011.



Non-Interest Expenses. Non-interest
expenses decreased by $710,000 to $4.6 million for the quarter ended June 30, 2012, from $5.3 million for the same period in 2011.
The following are highlights of the significant differences in non-interest expenses during the second quarter of 2012 versus the
second quarter of 2011:

| | · | Personnel expenses decreased $237,000
to $2.0 million in the second quarter of 2012 due to a decrease in staff size to 111 at June 30, 2012 from 125 at June 30, 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Deposit insurance expense was $187,000
for the quarter ended June 30, 2012 down from $235,000.
| | - | ----------------------------------------------------------------------------------------------

| | · | Professional fees decreased $33,000 to
$470,000 for the quarter ended June 30, 2012 from to $503,000 for the quarter ended June 30, 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | · | Foreclosure-related expenses decreased
by $179,000 to $521,000 for the quarter ending June 30, 2012 compared to the same period for 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



48







Provision for Income Taxes. The
Company’s effective tax rate was 37.1% for the quarter ended June 30, 2012 and (37.8%) for the
quarter ended June 30, 2011 as a result of permanent tax differences that were in excess of taxable income resulting in
lower effective tax rates.



As of June 30, 2012, the Company had a
recorded net deferred tax asset in the amount of $5.2 million, compared to $4.9 million at June 30, 2011. In evaluating whether
the Company will realize the full benefit of the net deferred tax asset, management considered both positive and negative evidence,
including among other things recent earnings trends, projected earnings, and asset quality. As of June 30, 2012 and June 30, 2011,
management concluded that the net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax
assets closely to evaluate whether the full benefit of the net deferred tax asset will require a valuation allowance. Significant
negative trends in credit quality or losses from operations, among other trends, could impact the realization of the deferred tax
asset in the future.



Comparison of Results of Operations
for the

Six months ended June 30, 2012
and 2011



General. During the first six months
of 2012, the Company had net income of $3.3 million compared with net loss of ($740,000) for the same period in 2011. Net income
per share for the first two quarters of 2012 was $0.47 per share, basic and diluted, compared with net loss per share of ($0.11),
basic and diluted, for the same period in 2011. Results of operations for the first six months of 2012 were primarily impacted
by a recovery in the provision for loan losses of $2.8 million, which was a $6.5 million decrease from the same period in 2011.
The Company experienced a decrease in net interest margin of 26 basis points to 3.68% for the first six months of 2012 from 3.94%
for the same period in 2011.



Net Interest Income. Net interest
income decreased by $1.8 million to $9.5 million for the six month period ended June 30, 2012. The Company’s total interest
income was affected by a reduction in the yield on interest-earning assets combined with a decrease in those assets. Average total
interest-earning assets were $522.4 million in the first six months of 2012 compared with $582.5 million during the same period
in 2011 and the yield on those assets decreased 46 basis points from 5.47% to 5.01%. Total interest income reversed on loans transferred
to non-accrual status for the six months ended June 30, 2012 and 2011 was $98,000 and $130,000, respectively, or approximately
1 basis point on average interest-earning assets for both periods mentioned.



The Company’s average interest-bearing
liabilities decreased by $56.7 million to $446.0 million for the two quarters ended June 30, 2012 from $502.7 million for the same
period one year earlier and the cost of those funds decreased from 1.78% to 1.56%, or 22 basis points. During the first six months
of 2012, the Company’s net interest margin was 3.68% and net interest spread was 3.45%.
For the same period in 2011, net interest margin was 3.94% and net interest spread was 3.70%



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 loss experience, current delinquency levels, adverse situations that may affect a borrower’s
ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors including
net recoveries. The decrease in the allowance for loan losses for the six months ended June 30, 2012 of $1.5 million resulted primarily
from net recoveries of $1.3 million which included a $2.4 million recovery on commercial and industrial
loans during the first quarter of 2012, management’s concerted effort to charge off impairments on collateral dependant impaired
loans, and an overall decrease in loan balances.



49







Non-Interest Income. Non-interest
income for the six months ended June 30, 2012 was $1.8 million, an increase of $273,000 from the same period in 2011. This increase
was primarily due to a $557,000 gain on the sale of two branches during the second quarter of 2012. Service charges on deposit
accounts decreased $149,000 to $609,000 for the two quarters ended June 30, 2012 from $758,000 for the two quarters ended June
30, 2011. Mortgage fee income increased $26,000 to $113,000 for the two quarters ended June 30, 2012 compared to the same period
in 2011. Other non-deposit fees and income decreased $161,000 to $527,000 for the two quarters ended June 30, 2012 compared to
the same period in 2011.



Non-Interest Expenses. Non-interest
expenses decreased by $1.6 million to $8.8 million for the six months ended June 30, 2012, from $10.4 million for the same period
in 2011. The following are highlights of the significant differences in non-interest expenses during the first six months of 2012
versus the same period in 2011:

| | · | Personnel expenses decreased $667,000
to $4.0 million for the two quarters ended June 30, 2012 due to a decrease in staff size to 111 at June 30, 2012 from 125 at June
30, 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Deposit insurance expense was $381,000
for the two quarters ended June 30, 2012 down from $497,000 for the same period in 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | Professional fees decreased $193,000 to
$940,000 for the two quarters ended June 30, 2012 from $1.1 million.
| | - | ------------------------------------------------------------------------------------------------------------

| | · | Foreclosure-related expenses decreased
by $358,000 to $545,000 for the six months ended June 30, 2012 compared to the same period for 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



Provision for Income Taxes. The
Company’s effective tax rate was 37.5% for the two quarters ended June 30, 2012 as a result of permanent tax differences
that were in excess of taxable income and (43.5%) for the same period in 2011.



As of June 30, 2012, the Company had a
recorded net deferred tax asset in the amount of $5.2 million. In evaluating whether the Company will realize the full benefit
of the net deferred tax asset, management considered both positive and negative evidence, including among other things recent earnings
trends, projected earnings, and asset quality. As of June 30, 2012, management concluded that the net deferred tax assets were
fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether the full benefit of the
net deferred tax asset will require a valuation allowance. Significant negative trends in credit quality or losses from operations,
among other trends, could impact the realization of the deferred tax asset in the future.



50







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 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 26.10% of total assets at June 30, 2012.



The Company has been a net seller of federal
funds since its inception and strives to maintain a position of liquidity sufficient to fund future loan demand and to satisfy
fluctuations in deposit levels. Should the need arise the Company would have the capability to sell securities classified as available
for sale or to borrow funds as necessary. As of June 30, 2012 the Company had existing credit lines with other financial institutions
to purchase up to $44.0 million in federal funds. Also, as a member of the FHLB of Atlanta, the Company may obtain advances of
up to 10% of total assets, subject to available collateral. A floating lien of $30.4 million of qualifying loans is pledged to
the FHLB to secure borrowings. At June 30, 2012, the Company had $2.0 million outstanding in FHLB advances. Another source of short-term
borrowings is securities sold under agreements to repurchase. At June 30, 2012, total borrowings consisted of securities sold under
agreements to repurchase of $23.0 million and junior subordinated debentures of $12.4 million.



Total deposits were $471.2 million at June
30, 2012. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate
sensitive. Time deposits represented 59.24% of total deposits at June 30, 2012. Time deposits of $100,000 or more represented 30.49%
of the Company’s total deposits at June 30, 2012. At quarter-end, the Company had no brokered time deposits and $498,000
in brokered demand deposits. Management believes most other time deposits are relationship-oriented. While the Bank will need to
pay competitive rates to retain these deposits at their maturities, there are other subjective factors that will determine their
continued retention. Based upon prior experience, the Company 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 Bank’s current cash flow needs. New Century Bancorp
maintains minimal cash balances at the parent holding company level.
Management believes that the current cash balances plus taxes receivable will provide adequate liquidity for the Company’s
current cash flow needs.



51







Capital Resources



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, 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, which require a financial institution
to maintain capital as a percentage of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors
(risk-adjusted assets). The Company’s equity to assets ratio was 9.39% at June 30, 2012.



Effective June 10, 2011, the Board of Directors
of New Century Bank entered into a Memorandum of Understanding(“MOU”) with the Federal Deposit Insurance Corporation
(“FDIC”) and the North Carolina Commissioner of Banks. The MOU represents an informal 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. The Memorandum also requires the Bank to maintain minimum Tier 1 Leverage and Total Risk Based Capital Ratios of
8.0% and 11.5%, respectively, during the life of the Memorandum.  The Memorandum also restricts the ability of the Bank
to grow its total assets at a rate in excess of 10% per year or to declare cash dividends without the prior approval of the Commissioner
and the FDIC.



The Bank intends to comply fully with all terms of the
MOU.



As the following table indicates, at June
30, 2012, the Company and related Bank subsidiary both exceeded minimum regulatory capital requirements as specified in the tables
below.



|                                |  | Actual |       |   | Minimum     | 
|------------------------------- |  | ------ | ----- | - | ----------- | 
|New Century Bancorp, Inc.       |  | Ratio  |       |   | Requirement | 
|                                |  |        |       |   |             | 
|Total risk-based capital ratio  |  |        | 14.95 | % |             | 
|Tier 1 risk-based capital ratio |  |        | 13.69 | % |             | 
|Leverage ratio                  |  |        | 10.42 | % |             | 



|                                |  |        |       |   | Regulatory  |  |       |                  | 
|------------------------------- |  | ------ | ----- | - | ----------- |  | ----- | ---------------- | 
|                                |  | Actual |       |   | Minimum     |  |       | Well-Capitalized | 
|New Century Bank                |  | Ratio  |       |   | Requirement |  |       | Requirement      | 
|                                |  |        |       |   |             |  |       |                  | 
|Total risk-based capital ratio  |  |        | 14.57 | % |             |  | 11.50 | %                | 
|Tier 1 risk-based capital ratio |  |        | 13.31 | % |             |  | 8.00  | %                | 
|Leverage ratio                  |  |        | 10.13 | % |             |  | 8.00  | %                | 



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 from the sale of the trust preferred securities provided additional capital for the
growth and expansion of the Bank. Under the current applicable regulatory guidelines, all of the proceeds from the issuance of
these trust preferred securities qualify as Tier 1 capital as of June 30, 2012. The Company is currently required to obtain prior
regulatory approval before making interest payments on its outstanding junior subordinated debentures.



Management expects that the Company and
the Bank will remain “well-capitalized” for regulatory purposes, although there can be no assurance that additional
capital will not be required in the near future.



52







Legal Proceedings



The Company is not currently engaged in,
nor are any of its properties subject to, any material legal proceedings.  From time to time, the Bank is a party to
legal proceedings in the ordinary course of business wherein it attempts to collect loans, enforce its security interest in loans,
or other matters of similar nature.



Item 4. Controls and Procedures



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-15.



Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were 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.



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 second quarter of 2012. In connection with such evaluation, the Company has determined
that there have been no changes in internal control over financial reporting during the second quarter that have materially affected
or are reasonably likely to materially affect, the Company's internal control over financial reporting.



53







Part II.	    OTHER
INFORMATION



Item
4.    Mine Safety Disclosures



None.



Item 6.    Exhibits





|Exhibit |                                                                                                                
|------- | ---------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                         
|        |                                                                                                                
|        |                                                                                                                
|31.1    | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith)
|        |                                                                                                                
|31.2    | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith)
|        |                                                                                                                
|32.1    | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)
|        |                                                                                                                
|32.2    | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)







54







SIGNATURES



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



|                      | NEW CENTURY BANCORP, INC.
|--------------------- | -------------------------
|                      |                          
|Date: August 10, 2012 | By:                      
|                      |                          
|                      |                          
|                      |                          
|Date: August 10, 2012 | By:                      
|                      |                          
|                      |                          





55









Exhibit
Index



|Exhibit Number |  | Description of Exhibit                                                                                         
|-------------- |  | ---------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                
|               |  |                                                                                                                
|31.1           |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act (Filed herewith)
|               |  |                                                                                                                
|31.2           |  | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act (Filed herewith)
|               |  |                                                                                                                
|32.1           |  | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act (Filed herewith)
|               |  |                                                                                                                
|32.2           |  | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act (Filed herewith)
|               |  |                                                                                                                









56