##### Table of Contents

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U.S. Securities and Exchange Commission

Washington, D.C. 20549



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Form 10-Q



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|x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



| ̈ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------



For the transition period ended



Commission File Number 000-50400



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New Century Bancorp, Inc.

(Exact name of Registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|North Carolina                                                 |  | 20-0218264                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                              |  |           
|--------------------------------------------- |  | ----------
|700 W. Cumberland Street Dunn, North Carolina |  | 28334     
|(Address of principal executive offices)      |  | (Zip Code)



Registrants
telephone number, including area code (910) 892-7080



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Securities Registered Pursuant to Section 12(g) of the Exchange Act:

Common Stock, $1 Par Value



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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.    Yes  x    No ̈



Indicate by check mark whether or not the
Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).    Yes ̈No  x



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



As of November 10, 2005, the Registrant had outstanding 4,225,475 shares of Common Stock, $1 par value.



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##### Table of Contents

|         |  |                                                                                                     |  |         
|-------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                     |  | Page No.
|Part I.  |  | FINANCIAL INFORMATION                                                                               |  |         
|         |  |                                                                                                    
|Item 1 - |  | Consolidated Financial Statements (Unaudited)                                                       |  |         
|         |  |                                                                                                    
|         |  | Consolidated Balance SheetsSeptember 30, 2005 and December 31, 2004                                 |  | 3       
|         |  |                                                                                                    
|         |  | Consolidated Statements of OperationsThree Months and Nine Months Ended September 30, 2005 and 2004 |  | 4       
|         |  |                                                                                                    
|         |  | Consolidated Statements of Cash FlowsNine Months Ended September 30, 2005 and 2004                  |  | 5       
|         |  |                                                                                                    
|         |  | Notes to Consolidated Financial Statements                                                          |  | 6       
|         |  |                                                                                                    
|Item 2 - |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 9       
|         |  |                                                                                                    
|Item 3 - |  | Quantitative and Qualitative Disclosures about Market Risk                                          |  | 15      
|         |  |                                                                                                    
|Item 4 - |  | Controls and Procedures                                                                             |  | 16      
|         |  |                                                                                                    
|Part II. |  | Other Information                                                                                   |  |         
|         |  |                                                                                                    
|Item 6 - |  | Exhibits                                                                                            |  | 17      



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1 - Financial Statements



NEW CENTURY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                                         |  | September 30, 2005(Unaudited)                   |         |   | December 31, 2004* |  
|                                                                                                                                                                                         |  | (In thousands, except share and per share data) |        
|ASSETS                                                                                                                                                                                   |  |                                                 |         |   |                    |   |         |  
|                                                                                                                                                                                         |  |                                                
|Cash and due from banks                                                                                                                                                                  |  | $                                               | 7,454   |   |                    | $ | 6,955   |  
|Interest-earning deposits in other banks                                                                                                                                                 |  |                                                 | 3,342   |   |                    |   | 335     |  
|Federal funds sold                                                                                                                                                                       |  |                                                 | 21,956  |   |                    |   | 25,000  |  
|Investment securities available for sale, at fair value                                                                                                                                  |  |                                                 | 39,462  |   |                    |   | 24,879  |  
|                                                                                                                                                                                         |  |                                                
|Loans held for sale                                                                                                                                                                      |  |                                                 | 2,139   |   |                    |   |        |  
|Loans                                                                                                                                                                                    |  |                                                 | 318,556 |   |                    |   | 262,750 |  
|Allowance for loan losses                                                                                                                                                                |  |                                                 | (5,095  | ) |                    |   | (3,598  | )
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|NET LOANS                                                                                                                                                                                |  |                                                 | 315,600 |   |                    |   | 259,152 |  
|Accrued interest receivable                                                                                                                                                              |  |                                                 | 1,935   |   |                    |   | 1,353   |  
|Stock in Federal Home Loan Bank of Atlanta, at cost                                                                                                                                      |  |                                                 | 1,094   |   |                    |   | 788     |  
|Stock in The Bankers Bank, at cost                                                                                                                                                       |  |                                                 | 51      |   |                    |   | 49      |  
|Foreclosed real estate                                                                                                                                                                   |  |                                                 | 135     |   |                    |   | 135     |  
|Premises and equipment                                                                                                                                                                   |  |                                                 | 5,847   |   |                    |   | 4,801   |  
|Bank owned life insurance                                                                                                                                                                |  |                                                 | 2,265   |   |                    |   | 2,204   |  
|Other assets                                                                                                                                                                             |  |                                                 | 2,379   |   |                    |   | 2,660   |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|TOTAL ASSETS                                                                                                                                                                             |  | $                                               | 401,520 |   |                    | $ | 328,311 |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                     |  |                                                 |         |   |                    |   |         |  
|                                                                                                                                                                                         |  |                                                
|Deposits:                                                                                                                                                                                |  |                                                 |         |   |                    |   |         |  
|Demand                                                                                                                                                                                   |  | $                                               | 47,832  |   |                    | $ | 34,748  |  
|Savings                                                                                                                                                                                  |  |                                                 | 3,059   |   |                    |   | 2,825   |  
|Money market and NOW                                                                                                                                                                     |  |                                                 | 52,927  |   |                    |   | 53,839  |  
|Time                                                                                                                                                                                     |  |                                                 | 232,392 |   |                    |   | 178,818 |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|TOTAL DEPOSITS                                                                                                                                                                           |  |                                                 | 336,210 |   |                    |   | 270,230 |  
|Short term borrowings                                                                                                                                                                    |  |                                                 | 9,352   |   |                    |   | 5,685   |  
|Long term borrowings                                                                                                                                                                     |  |                                                 | 22,372  |   |                    |   | 21,372  |  
|Accrued interest payable                                                                                                                                                                 |  |                                                 | 415     |   |                    |   | 261     |  
|Accrued expenses and other liabilities                                                                                                                                                   |  |                                                 | 1,232   |   |                    |   | 1,319   |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|TOTAL LIABILITIES                                                                                                                                                                        |  |                                                 | 369,581 |   |                    |   | 298,867 |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|Commitments (Note B)                                                                                                                                                                     |  |                                                 |         |   |                    |   |         |  
|                                                                                                                                                                                         |  |                                                
|Shareholders equity                                                                                                                                                                      |  |                                                 |         |   |                    |   |         |  
|Common stock, $1 par value, 10,000,000 shares authorized; 4,224,237 shares issued and outstanding at September 30, 2005 and 4,217,216
shares issued and outstanding at December 31, 2004 |  |                                                 | 4,224   |   |                    |   | 4,217   |  
|Additional paid-in capital                                                                                                                                                               |  |                                                 | 21,032  |   |                    |   | 20,983  |  
|Retained earnings                                                                                                                                                                        |  |                                                 | 6,804   |   |                    |   | 4,194   |  
|Accumulated other comprehensive income (loss)                                                                                                                                            |  |                                                 | (121    | ) |                    |   | 50      |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                                               |  |                                                 | 31,939  |   |                    |   | 29,444  |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                               |  | $                                               | 401,520 |   |                    | $ | 328,311 |  
|                                                                                                                                                                                         |  |                                                 |         |   |                    |   |         |  

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|* | Derived from audited consolidated financial statements.
|- | -------------------------------------------------------



See accompanying notes.



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##### Table of Contents

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|--------------------------------------------------------------- |  | ----------------------------------------------- | --------- | ------------------------------ | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                |  | Three Months EndedSeptember 30,                 |           | Nine Months EndedSeptember 30,
|                                                                |  | 2005                                            |           | 2004                           |   | 2005      |  | 2004
|                                                                |  | (In thousands, except share and per share data)
|INTEREST INCOME                                                 |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Loans                                                           |  | $                                               | 5,917     |                                | $ | 3,922     |  | $    | 15,989    |  | $ | 10,093   
|Federal funds sold and interest-earning deposits in other banks |  |                                                 | 257       |                                |   | 124       |  |      | 676       |  |   | 208      
|Investments                                                     |  |                                                 | 346       |                                |   | 140       |  |      | 860       |  |   | 381      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|TOTAL INTEREST INCOME                                           |  |                                                 | 6,520     |                                |   | 4,186     |  |      | 17,525    |  |   | 10,682   
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|INTEREST EXPENSE                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Money market, NOW and savings deposits                          |  |                                                 | 209       |                                |   | 166       |  |      | 555       |  |   | 454      
|Time deposits                                                   |  |                                                 | 2,208     |                                |   | 1,212     |  |      | 5,677     |  |   | 2,847    
|Short term borrowings                                           |  |                                                 | 61        |                                |   | 17        |  |      | 104       |  |   | 37       
|Long term borrowings                                            |  |                                                 | 262       |                                |   | 67        |  |      | 725       |  |   | 169      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|TOTAL INTEREST EXPENSE                                          |  |                                                 | 2,740     |                                |   | 1,462     |  |      | 7,061     |  |   | 3,507    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NET INTEREST INCOME                                             |  |                                                 | 3,780     |                                |   | 2,624     |  |      | 10,464    |  |   | 7,175    
|PROVISION FOR LOAN LOSSES                                       |  |                                                 | 770       |                                |   | 310       |  |      | 1,702     |  |   | 1,389    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES             |  |                                                 | 3,010     |                                |   | 2,414     |  |      | 8,762     |  |   | 5,786    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NON-INTEREST INCOME                                             |  |                                                 | 579       |                                |   | 410       |  |      | 1,745     |  |   | 1,107    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NON-INTEREST EXPENSE                                            |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Personnel                                                       |  |                                                 | 1,413     |                                |   | 1,022     |  |      | 3,900     |  |   | 2,973    
|Occupancy and equipment                                         |  |                                                 | 223       |                                |   | 135       |  |      | 556       |  |   | 389      
|Marketing and advertising                                       |  |                                                 | 56        |                                |   | 72        |  |      | 169       |  |   | 131      
|Professional fees                                               |  |                                                 | 98        |                                |   | 60        |  |      | 279       |  |   | 185      
|Information systems                                             |  |                                                 | 209       |                                |   | 158       |  |      | 594       |  |   | 433      
|Other operating expense                                         |  |                                                 | 369       |                                |   | 338       |  |      | 1,075     |  |   | 945      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|TOTAL NON-INTEREST EXPENSE                                      |  |                                                 | 2,368     |                                |   | 1,785     |  |      | 6,573     |  |   | 5,056    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|INCOME BEFORE INCOME TAXES                                      |  |                                                 | 1,221     |                                |   | 1,039     |  |      | 3,934     |  |   | 1,837    
|                                                                |  |                                                 |           |                               
|INCOME TAXES                                                    |  |                                                 | 409       |                                |   | 378       |  |      | 1,323     |  |   | 656      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NET INCOME                                                      |  | $                                               | 812       |                                | $ | 661       |  | $    | 2,611     |  | $ | 1,181    
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|NET INCOME PER COMMON SHARE                                     |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Basic                                                           |  | $                                               | .19       |                                | $ | .16       |  | $    | .62       |  | $ | .28      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Diluted                                                         |  | $                                               | .18       |                                | $ | .15       |  | $    | .58       |  | $ | .27      
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                      |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Basic                                                           |  |                                                 | 4,224,237 |                                |   | 4,193,732 |  |      | 4,218,159 |  |   | 4,193,732
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          
|Diluted                                                         |  |                                                 | 4,549,438 |                                |   | 4,450,050 |  |      | 4,475,183 |  |   | 4,405,356
|                                                                |  |                                                 |           |                                |   |           |  |      |           |  |   |          



See accompanying notes.



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##### Table of Contents

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                                  |  |                                |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2005                           |         |   | 2004 |  
|                                                                                  |  | (In thousands)                 |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                                |         |   |      |   |          |  
|Net income                                                                        |  | $                              | 2,611   |   |      | $ | 1,181    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |          |  
|Provision for loan losses                                                         |  |                                | 1,702   |   |      |   | 1,389    |  
|Depreciation and amortization                                                     |  |                                | 290     |   |      |   | 429      |  
|Loss on retirement of premises and equipment                                      |  |                                | 12      |   |      |   |         |  
|Origination of loans held for sale                                                |  |                                | (7,093  | ) |      |   |         |  
|Proceeds from sale of loans held for sale                                         |  |                                | 5,159   |   |      |   | 709      |  
|Gain on sale of SBA loans                                                         |  |                                | (205    | ) |      |   |         |  
|Loss on sale of foreclosed real estate                                            |  |                                |        |   |      |   | 12       |  
|Gain on sale of real estate held for sale                                         |  |                                | (39     | ) |      |   |         |  
|Change in assets and liabilities:                                                 |  |                                |         |   |      |   |          |  
|Increase in accrued interest receivable                                           |  |                                | (582    | ) |      |   | (272     | )
|Increase in other assets                                                          |  |                                | (602    | ) |      |   | (640     | )
|Decrease in accrued expenses and other liabilities                                |  |                                | 67      |   |      |   | 358      |  
|                                                                                  |  |                                |         |   |      |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  |                                | 1,320   |   |      |   | 3,166    |  
|                                                                                  |  |                                |         |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                                |         |   |      |   |          |  
|Purchase of FHLB stock                                                            |  |                                | (306    | ) |      |   |         |  
|Purchase of Bankers Bank stock                                                    |  |                                | (2      | ) |      |   |         |  
|Purchases of investment securities available for sale                             |  |                                | (20,101 | ) |      |   | (11,122  | )
|Maturities and prepayments of investment securities available for sale            |  |                                | 5,215   |   |      |   | 1,934    |  
|Net increase in gross loans outstanding                                           |  |                                | (56,012 | ) |      |   | (100,137 | )
|Proceeds from sale of foreclosed real estate                                      |  |                                |        |   |      |   | 206      |  
|Purchase of real estate held for sale                                             |  |                                | (58     | ) |      |   |         |  
|Proceeds from sale of real estate held for sale                                   |  |                                | 1,025   |   |      |   |         |  
|Investment in New Century Statutory Trust I                                       |  |                                |        |   |      |   | (372     | )
|Purchases of premises and equipment                                               |  |                                | (1,322  | ) |      |   | (1,606   | )
|                                                                                  |  |                                |         |   |      |   |          |  
|NET CASH USED BY INVESTING ACTIVITIES                                             |  |                                | (71,561 | ) |      |   | (111,097 | )
|                                                                                  |  |                                |         |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                                |         |   |      |   |          |  
|Increase in deposits                                                              |  |                                | 65,980  |   |      |   | 115,063  |  
|Increase in short term borrowings                                                 |  |                                | 1,167   |   |      |   | 3,412    |  
|Proceeds from long term borrowings                                                |  |                                | 3,500   |   |      |   | 12,372   |  
|Proceeds from the exercise of stock options                                       |  |                                | 56      |   |      |   |         |  
|                                                                                  |  |                                |         |   |      |   |          |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |  |                                | 70,703  |   |      |   | 130,847  |  
|                                                                                  |  |                                |         |   |      |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                                | 462     |   |      |   | 22,916   |  
|                                                                                  |  |                               
|CASH AND CASH EQUIVALENTS, BEGINNING                                              |  |                                | 32,290  |   |      |   | 21,997   |  
|                                                                                  |  |                                |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, ENDING                                                 |  | $                              | 32,752  |   |      | $ | 44,913   |  
|                                                                                  |  |                                |         |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                 |  |                                |         |   |      |   |          |  
|Interest paid                                                                     |  | $                              | 6,907   |   |      | $ | 3,427    |  
|Income taxes paid                                                                 |  |                                | 1,934   |   |      |   | 778      |  
|Unrealized loss on investment securities available for sale, net of tax           |  |                                | (171    | ) |      |   | (44      | )



See accompanying notes.



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##### Table of Contents

NOTE A - BASIS OF PRESENTATION



New Century Bancorp, Inc. (Company) is a bank holding company whose principal business activity consists of ownership of New
Century Bank and New Century Bank of Fayetteville (collectively referred to as the Banks). New Century Bank was incorporated on May 15, 2000 and began banking operations on May 24, 2000. New Century Bank of Fayetteville began
operations on January 2, 2004. The Banks are engaged in general commercial and retail banking in Harnett, Cumberland, Johnston, Sampson, and Wayne counties and operate under the banking laws of North Carolina and the rules and regulations of
the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Banks undergo periodic examinations by those regulatory authorities.



All significant intercompany 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 nine month periods ended September 30, 2005 and 2004, in
conformity with accounting principles generally accepted in the United States of America.



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 nine month periods ended September 30, 2005 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2005.



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 2004 Annual Report on Form 10-KSB, filed
with the Securities and Exchange Commission. This quarterly report should be read in conjunction with the Annual Report.



NOTE B - LOAN COMMITMENTS



At September 30, 2005, loan commitments were $68,946,000.



NOTE C - 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. There were no anti-dilutive options outstanding during the periods. A summary of shares outstanding follows:



|                                                              |  |                                 |  |                                |  |           |  |          
|------------------------------------------------------------- |  | ------------------------------- |  | ------------------------------ |  | --------- |  | ---------
|                                                              |  | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|                                                              |  | 2005                            |  | 2004                           |  | 2005      |  | 2004     
|Weighted average shares used for basic net income per share   |  | 4,224,237                       |  | 4,193,732                      |  | 4,218,159 |  | 4,193,732
|Incremental shares from assumed exercise of stock options     |  | 325,201                         |  | 256,318                        |  | 257,024   |  | 211,624  
|                                                              |  |                                 |  |                                |  |           |  |          
|Weighted average shares used for diluted net income per share |  | 4,549,438                       |  | 4,450,050                      |  | 4,475,183 |  | 4,405,356
|                                                              |  |                                 |  |                                |  |           |  |          



See accompanying notes.



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##### Table of Contents

NOTE C - PER SHARE RESULTS (Continued)



On July 13, 2005 the Board of Directors of the Company declared a 3-for-2 stock split which was payable to shareholders of record as of
July 27, 2005 and resulted in the issuance of 1,405,975 additional common shares. All references to shares, average shares outstanding and net income per share have been adjusted to reflect this stock split. The effects of the stock split have
also been reflected in the Companys consolidated balance sheets as of December 31, 2004 and September 30, 2005.



NOTE D - STOCK COMPENSATION PLANS



Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Companys stock
option plans have no intrinsic value at the grant date and, under Opinion No. 25, no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has
provided pro forma disclosures of net income and earnings per share and other disclosures as if the fair value based method of accounting had been applied.



|                                                                                                                                      |  |                                               |     |                                |   |      |  |      |       |  |   |      
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                                                                                                                                      |  | Three Months EndedSeptember 30,               |     | Nine Months EndedSeptember 30,
|                                                                                                                                      |  | 2005                                          |     | 2004                           |   | 2005 |  | 2004
|                                                                                                                                      |  | (Amounts in thousands, except per share data)
|Net income:                                                                                                                           |  |                                               |     |                                |   |      |  |      |       |  |   |      
|As reported                                                                                                                           |  | $                                             | 812 |                                | $ | 661  |  | $    | 2,611 |  | $ | 1,181
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax
effects |  |                                               | 15  |                                |   | 9    |  |      | 41    |  |   | 213  
|Pro forma                                                                                                                             |  | $                                             | 797 |                                | $ | 652  |  | $    | 2,570 |  | $ | 968  
|Basic earnings per share:                                                                                                             |  |                                               |     |                                |   |      |  |      |       |  |   |      
|As reported                                                                                                                           |  | $                                             | .19 |                                | $ | .16  |  | $    | .62   |  | $ | .28  
|Pro forma                                                                                                                             |  |                                               | .19 |                                |   | .16  |  |      | .61   |  |   | .23  
|Diluted earnings per share:                                                                                                           |  |                                               |     |                                |   |      |  |      |       |  |   |      
|As reported                                                                                                                           |  | $                                             | .18 |                                | $ | .15  |  | $    | .58   |  | $ | .27  
|Pro forma                                                                                                                             |  |                                               | .18 |                                |   | .15  |  |      | .57   |  |   | .22  



In December 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement requires an entity to recognize
the cost of employee services received in share-based payment transactions and measure the cost on a grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide



See accompanying notes.



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##### Table of Contents

service in exchange for the award. The provisions of SFAS No. 123 (revised 2004) will be effective for the financial
statements issued for years beginning after June 15, 2005. We anticipate adopting the provisions of this statement January 1, 2006. The methodology has not yet been determined, but we anticipate that the results will not vary materially
from the pro-forma fair value numbers that have been presented in the table above.



NOTE E - COMPREHENSIVE INCOME



A summary of comprehensive
income is as follows:



|                                                                                                  |  |                                 |     |                                |      |   |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------- | --- | ------------------------------ | ---- | - | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                  |  | Three Months EndedSeptember 30, |     | Nine Months EndedSeptember 30, |     
|                                                                                                  |  | 2005                            |     |                                | 2004 |   | 2005 |  |   | 2004  |  
|                                                                                                  |  | (Amounts in thousands)          |    
|Net income                                                                                        |  | $                               | 812 |                                |      | $ | 661  |  | $ | 2,611 |   |  | $ | 1,181 |  
|Other comprehensive income (loss):                                                                |  |                                 |     |                                |      |   |      |  |   |       |   |  |   |       |  
|Net increase (decrease) in the fair value of investment securities available for sale, net of tax |  |                                 | (28 | )                              |      |   | 94   |  |   | (171  | ) |  |   | (44   | )
|                                                                                                  |  |                                 |     |                                |      |   |      |  |   |       |   |  |   |       |  
|Total comprehensive income                                                                        |  | $                               | 784 |                                |      | $ | 755  |  | $ | 2,440 |   |  | $ | 1,137 |  
|                                                                                                  |  |                                 |     |                                |      |   |      |  |   |       |   |  |   |       |  



See accompanying notes.



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##### Table of Contents

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 may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and other business of the Company that are subject to
various factors which could cause actual results to differ materially from those estimates. Factors that could influence the estimates 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 that was incorporated on
September 19, 2003 and has two banking subsidiaries, New Century Bank, which was acquired as part of the Banks holding company reorganization, and New Century Bank of Fayetteville, a de novo institution which was formed in January 2004
(collectively referred to as the Banks). In September 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and
future expansion of New Century Bank. The Companys only business activity is the ownership of the Banks. Accordingly, this discussion focuses primarily on the financial condition and operating results of the Banks.



New Century Bank opened for business on May 24, 2000 as a North Carolina-chartered
banking corporation. On June 17, 2003, New Century Bank opened an office in Fayetteville, which operated as a branch of New Century Bank until New Century Bank of Fayetteville received its charter on January 2, 2004. At that time, the
Fayetteville office was sold to New Century Bank of Fayetteville. On January 22, 2004, New Century Bank opened an office in Goldsboro, North Carolina.



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



On July 13, 2005, the Board of Directors of the Company declared a
3-for-2 stock which was payable to shareholders of record as of July 27, 2005. All references to average shares outstanding and net income per share have been adjusted to reflect this stock split.



Comparison of Financial Condition at

September 30, 2005 and December 31, 2004



During the first nine months of 2005, total assets grew by $73.2 million from $328.3 million at December 31, 2004 to $401.5 million at September 30, 2005.
Earning assets at September 30, 2005 totaled $386.6 million and consisted of $320.7 million in gross loans, $40.6 million in investment securities and $25.3 million in overnight investments and interest-bearing deposits in other banks. Total
deposits and shareholders equity at September 30, 2005 were $336.2 million and $31.9 million, respectively.



See accompanying notes.



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##### Table of Contents

Since the end of 2004, gross loans have grown $57.9 million to $320.7 million as of September 30, 2005. Gross loans
as of September 30, 2005 consisted of $73.6 million in commercial and industrial loans, $169.2 million in commercial real estate loans, $16.6 million in consumer loans, $61.6 million in residential real estate and construction loans and
$301,000 of deferred loan fees. As of quarter end, there were $2.1 million of loans held for sale. At September 30, 2005, there were fifty-three loans with an aggregate principal balance of $3.2 million that were 30 days or more past due. This
includes sixteen loans with an aggregate balance of $675,000 that were more than 90 days past due and on a non-accrual basis. At December 31, 2004, there were twenty-eight loans with an aggregate principal balance of $862,000 that were more
than 30 days past due. Three of these loans with a combined balance of $190,000 were in non-accrual status. The allowance for loan losses of $3.6 million represented 1.37% of gross loans outstanding as of December 31, 2004. The allowance for
loan losses increased 22 basis points to 1.59% of gross loans at September 30, 2005. Management attributes the increase in the allowance to three factors. First, an increase in asset quality indicators, as past dues increased from .33% of total
loans as of December 31, 2004 to 1.00% of total loans at September 30, 2005. Secondly, a portion of the increase in the allowance percentage was due to a large relationship of just over $2.1 million that was downgraded to substandard in
the allowance for loan and lease loss model. Management is assessing the risk inherent in that relationship and will make any further adjustments in the rating and the allowance if necessary. Thirdly, management has implemented an internal credit
review department and that has led to a better identification of risk and an increase in the Banks adversely classified loans. Management believes that the allowance for loan losses as of September 30, 2005 is adequate to absorb probable
losses inherent in the loan portfolio as of that date.



Management strives to
maintain a position of liquidity sufficient to fund future loan demand and to satisfy fluctuations in deposit levels. This is achieved primarily in the form of federal funds sold on an overnight basis and an investment portfolio that includes a
laddered maturity schedule. At September 30, 2005, federal funds sold were $21.9 million, a decrease of nearly $3.0 million from the $25.0 million held as of December 31, 2004. Interest-earning deposits in other banks increased from
$335,000 at December 31, 2004 to $3.3 million as of September 30, 2005. The Banks investment securities as of September 30, 2005 were $39.5 million, an increase of $14.6 million from December 31, 2004. The investment
portfolio as of September 30, 2005 consisted of $26.4 million in government agency debt securities, $10.2 million in mortgage-backed securities and $3.0 million in municipal securities. The unrealized loss on these securities at
September 30, 2005 was $184,000. Also included in earning assets is bank owned life insurance of $2.3 million.



At September 30, 2005, non-earning assets were $17.7 million, which reflects an increase of $1.8 million from the $15.9 million as of December 31, 2004.
Non-earning assets as of September 30, 2005 included $7.5 million in cash and due from correspondent banks, $5.8 million in premises and equipment, accrued interest receivable of $1.9 million, deferred tax assets of $1.5 million and other
assets of $1.0 million. During 2004, New Century Bank of Fayetteville constructed a three-story office building and entered into an agreement with two of its directors whereby New Century Bank of Fayetteville would sell a portion of the building to
these directors. During the first quarter of 2005, this sale was completed and New Century Bank of Fayetteville received a total of $1,025,000 from two directors for 48.3% of the office building, resulting in a gain on the sale of approximately
$39,000.



Total deposits at September 30, 2005 were $336.2 million and
consisted of $47.8 million in non-interest-bearing demand deposits, $52.9 million in money market and NOW accounts, $3.1 million in savings accounts, and $232.4 million in time deposits. Total deposits grew by $65.9 million from $270.2 million as of
December 31, 2004. Money market and NOW accounts decreased by $912,000 and time deposits grew by $53.6 million during the first nine months of 2005. Non-interest-bearing demand deposits increased by $13.1 million from $34.7 million as of
December 31, 2004. Time deposit growth has come from several promotions that have been offered by the Banks throughout the year.



See accompanying notes.



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##### Table of Contents

As of September 30, 2005, the Company has $9.4 million in short-term borrowings and $22.4 million in long-term
borrowings. Short term borrowings include repurchase agreements of $6.9 million and a $2.5 million advance outstanding on a line of credit with the Federal Home Loan Bank (FHLB) of Atlanta that is due in June 2006. Long-term borrowings include FHLB
advances of $4.0 million due in February 2006, $2.5 million due in December 2006, and $3.5 million due in July 2006. The FHLB advances are collateralized by a lien on 1-4 family first mortgage loans. Also included in long-term borrowings is $12.4
million of junior subordinated debentures issued in September 2004. The proceeds of the junior subordinated debentures will provide additional capital for the current and future expansion of New Century Bank.



Total shareholders equity at September 30, 2005 was $31.9 million, an increase of
$2.5 million from $29.4 million as of December 31, 2004. This increase was due to $2.6 million in net income that was partially offset by a decrease of $171,000, net of tax, in the fair value of the Companys investment securities
available for sale.



Comparison of Results of Operations
for the

Three months ended September 30, 2005 and 2004



Net Income. During the third quarter of 2005, the Company generated net income of
$812,000 compared with net income of $661,000 for the third quarter of 2004. Net income per share for the quarter ended September 30, 2005 was $.19 per share-basic and $.18 per share-diluted, compared with net income per share of $.16 per
share-basic and $.15 per share-diluted, for the third quarter of 2004. The increase in net income is due to higher net interest income and higher non-interest income, which were partially offset by a higher provision for loan losses and an increase
in non-interest expenses.



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



Net interest income increased by nearly $1.1 million to $3.8 million for the quarter ended September 30, 2005. The Companys total interest income benefited
from strong growth in interest-earning assets. Average total interest-earning assets were $379.4 million in the third quarter of 2005 compared with $296.3 million during the same period one year earlier, while the yield on those assets increased 114
basis points from 5.62% to 6.76%. The Companys average interest-bearing liabilities grew by $70.3 million to $312.9 million as compared to September 30, 2004, while the cost of those funds increased from 2.40% to 3.47% or 107 basis
points. For the quarter ended September 30, 2005, the Companys net interest margin was 3.95% and our net interest spread was 3.75%. For the quarter ended September 30, 2004, net interest margin was 3.66% and net interest spread was
3.52%.



Provision for Loan Losses.The Company recorded a $770,000
provision for loan losses in the third quarter of 2005, representing an increase of $460,000 from the $310,000 provision made in the same period of 2004. 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



See accompanying notes.



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##### Table of Contents

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. In the third quarter of 2005, the level of provision for loan losses resulted from net loan charge-offs of $108,000, the downgrading of a $2.1
million relationship to substandard and accommodation for loan growth of $20.1 million. In the third quarter of 2004, the level of provision for loan losses resulted from loan charge-offs of $117,000 and accommodation for loan growth of $17.8
million. At September 30, 2005, the allowance for loan losses was $5.1 million, representing 1.59% of gross loans outstanding. At December 31, 2004, the allowance for loan losses was $3.6 million, or 1.37% of gross loans outstanding. There
were $675,000 of nonaccrual loans at quarter end September 30, 2005, compared to $190,000 at December 31, 2004.



Non-Interest Income.Non-interest income for the quarter ended September 30, 2005 was $579,000, an increase of $169,000 over the third quarter of 2004. This
increase is primarily due to increases in deposit service fees and charges of $44,000, gains on the sale of loans guaranteed by the Small Business Administration of $64,000, and an increase in other fees and income of $4,000. These gains also
included an increase in other lending related income of $66,000, primarily due to higher fees from presold mortgages. The growth in fees and service charges is directly related to the growth in loans and transaction accounts during 2005.



Non-Interest Expenses. Non-interest expenses increased by $583,000 to $2.4 million
for the quarter ended September 30, 2005, from $1.8 million for the quarter ended September 30, 2004. Because of the growth in non-interest expenses, the Companys ratio of non-interest expenses to average total assets increased from
2.32% in the third quarter of 2004 to 2.44% in the third quarter of 2005. Salaries and employee benefits increased to $1.4 million in the third quarter of 2005 from $1.0 million in the same quarter of 2004 due mostly to the increase of Company
personnel from 68 full-time equivalent employees at September 30, 2004 to 85 full-time equivalent employees at September 30, 2005. Occupancy and equipment expenses increased by $88,000 to $223,000 for the quarter ended September 30,
2005 due to the addition of the new bank building in Fayetteville in December 2004, the addition of a new bank building in Goldsboro in August 2005 and an office to house accounting and deposit and loan operations, which opened in the third quarter
of 2005. Marketing and advertising expenses decreased by $16,000 to $56,000 for the third quarter of 2005, due to fewer advertising campaigns. Professional fees increased by $38,000 to $98,000 in third quarter 2005, up from $60,000 in the third
quarter 2004, due to higher internal audit services fees and Sarbanes-Oxley compliance work. Information systems expenses increased $51,000 to $209,000 for the quarter ended September 30, 2005, due to growth in accounts from the Fayetteville
and Goldsboro markets. Other operating expenses increased to $369,000 in the third quarter of 2005 compared with $338,000 for the same period of 2004 due to the general growth of the Banks since September 2004.



Provision for Income Taxes. The Companys effective tax rate was 33% and 36% for
the quarters ended September 30, 2005 and 2004, respectively. The effective tax rate has declined due to an increase in the Companys investment in tax exempt United States Agency Securities during the first nine months of 2005.



Comparison of Results of Operations for the

Nine months ended September 30, 2005 and 2004



Net Income. During the first nine months of 2005, the Company generated net income of $2.6 million compared with net income of $1.2
million for the first nine months of 2004. Net income per share for the nine months ended September 30, 2005 was $.62 per share-basic and $.58 per share-diluted, compared with net income per share of $.28 per share-basic and $.27 per
share-diluted, for the third quarter of 2004. The increase in net income is due to higher net interest income, higher non-interest income and a higher provision for loan losses, which were partially offset by an increase in non-interest expenses.



See accompanying notes.



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##### Table of Contents

Net Interest Income.Net interest income increased approximately $3.3 million to $10.5 million for the nine months
ended September 30, 2005. The Companys total interest income benefited from strong growth in interest-earning assets. Average total interest-earning assets were $355.7 million in the first nine months of 2005 compared with $248.8 million
during the same period one year earlier, while the yield on those assets increased 91 basis points from 5.68% to 6.59%. The Companys average interest-bearing liabilities grew by $95.6 million to $295.1 million as compared to September 30,
2004, while the cost of those funds increased from 2.35% to 3.20% or 85 basis points. For the nine month period ended September 30, 2005, the Companys net interest margin was 3.93% and our net interest spread was 3.79%. For the nine month
period ended September 30, 2004, net interest margin was 3.85% and net interest spread was 3.69%.



Provision for Loan Losses.The Company recorded a $1.7 million provision for loan losses in the first nine months of 2005, representing an increase of $313,000 from the $1.4 million provision made in the same
period of 2004. 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. In the first nine months of 2005, the level of provision for loan losses resulted from net loan charge-offs of $203,000, the downgrading of a $2.1 million loan relationship to substandard and
accommodation for loan growth of $57.9 million. In the first nine months of 2004, the level of provision for loan losses resulted from loan charge-offs of $219,000 and accommodation for loan growth of $99.2 million. At September 30, 2005, the
allowance for loan losses was $5.1 million, representing 1.59% of gross loans outstanding.



Non-Interest Income.Non-interest income for the nine months ended September 30, 2005 was $1.7 million, an increase of $638,000 over the first nine months of 2004. This increase is primarily due to
increases in deposit service fees and charges of $133,000, gains from the sale of loans guaranteed by the Small Business Administration of $205,000, and an increase in other fees and income of $66,000. These gains also included an increase in fees
from presold mortgages of $224,000 compared to the first nine months of 2004. The growth in fees and service charges is directly related to the growth in loans and transaction accounts during 2005.



Non-Interest Expenses. Non-interest expenses increased by $1.5 million to $6.6 million
for the nine months ended September 30, 2005, from $5.1 million for the same period ended September 30, 2004. In general, this increase is due to the growth of our franchise in the Goldsboro and Fayetteville markets. Even with the growth
in non-interest expenses, the Companys ratio of non-interest expenses to average total assets decreased from 2.62% in the first nine months of 2004 to 2.38% in the first nine months of 2005. Salaries and employee benefits increased to $3.9
million in the first nine months of 2005 from $3.0 million in the same period of 2004, due mostly to the increase of Company personnel from 68 full-time equivalent employees at September 30, 2004 to 85 full-time equivalent employees at
September 30, 2005. Occupancy and equipment expenses increased by $167,000 to $556,000 for the nine months ended September 30, 2005 due to the addition of the new bank building in Fayetteville in December 2004 and an office to house
accounting, credit administration, and deposit operations, which opened in the third quarter of 2005. The following expenses have increased as a result of the general growth of the Company since September 2004. Marketing and advertising expenses
increased by $38,000 to $169,000 for the first nine months of 2005, due to marketing campaigns for free checking and time deposit promotions. Professional fees increased by $94,000 to $279,000 in first nine months 2005, up from $185,000 in the first
nine months 2004, due to higher internal audit service fees and Sarbanes-Oxley compliance work. Information systems expenses increased $161,000 to $594,000 for the quarter ended September 30, 2005 as a result of higher processing fees due to
internal bank growth. Other operating expenses increased to $1,075,000 in the first nine months of 2005 compared with $945,000 for the same period of 2004 due to the general growth of the Banks since September 2004.



Provision for Income Taxes. The Companys effective tax rate was 34% and 36% for
the nine months ended September 30, 2005 and 2004, respectively.



See
accompanying notes



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##### Table of Contents

Liquidity and Capital Resources



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 18% of total assets at September 30, 2005.



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. The Company has established credit lines with other financial
institutions to purchase up to $20.6 million in federal funds. Also, as a member of the Federal Home Loan Bank of Atlanta (FHLB), the Company may obtain advances of up to 30% of total assets, subject to available collateral. A floating lien of $12.6
million of qualifying loans is pledged to the FHLB to secure borrowings. Another source of short-term borrowings is securities sold under agreements to repurchase. At September 30, 2005, borrowings consisted of four advances from the FHLB
totaling $12.5 million, and securities sold under agreements to repurchase of $6.8 million and junior subordinated debentures of $12.4 million. These debentures provide additional capital for the current and future expansion of New Century Bank.
Under the current applicable regulatory guidelines, $10.5 million of the debentures qualify as Tier 1 capital for the Company.



Total deposits were $336.2 million at September 30, 2005. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally
considered to be rate sensitive. Time deposits represented 69.1% of total deposits at September 30, 2005. Time deposits of $100,000 or more represented 23.7% of the Companys total deposits at September 30, 2005. At September 30,
2005, the Company had $4.1 million in brokered time deposits. Management believes most other time deposits are relationship-oriented. While the Banks 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 our current cash flow needs.



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 percent of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A financial institution is
required to maintain, at a minimum, Tier 1 capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 capital as a percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, federal regulations
require that we maintain a minimum leverage ratio (Tier 1 capital as a percentage of tangible assets) of 4.0%. The Companys equity to assets ratio was 8.0% at September 30, 2005. As the following table indicates, at September 30,
2005, the Company exceeded regulatory capital requirements.



See
accompanying notes



- 14 -



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##### Table of Contents

|                                 |  |                       |   |  |                    |   |  |                             |  
|-------------------------------- |  | --------------------- | - |  | ------------------ | - |  | --------------------------- | -
|                                 |  | At September 30, 2005 |  
|                                 |  | ActualRatio           |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|New Century Bancorp, Inc.        |  |                       |   |  |                    |   |  |                             |  
|                                 |  |                       |  
|Total risk-based capital ratio   |  | 14.71                 | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 12.99                 | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 10.81                 | % |  | 4.00               | % |  | 5.00                        | %
|                                 | 
|                                 |  | At September 30, 2005 |  
|                                 |  | ActualRatio           |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|New Century Bank                 |  |                       |   |  |                    |   |  |                             |  
|                                 |  |                       |  
|Total risk-based capital ratio   |  | 14.98                 | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 13.73                 | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 11.46                 | % |  | 4.00               | % |  | 5.00                        | %
|                                 | 
|                                 |  | At September 30, 2005 |  
|                                 |  | ActualRatio           |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|New Century Bank of Fayetteville |  |                       |   |  |                    |   |  |                             |  
|                                 |  |                       |  
|Total risk-based capital ratio   |  | 13.27                 | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 12.02                 | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 9.86                  | % |  | 4.00               | % |  | 5.00                        | %



Management expects that the Company
will remain well-capitalized for regulatory purposes, although there can be no assurance that additional capital will not be required in the near future due to greater-than-expected growth, or otherwise.



Item 3. Quantitative and Qualitative Disclosures about Market Risk



Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net
interest income in future periods.



The Companys market risk arises
primarily from interest rate risk inherent in its lending and deposit-taking activities. The structure of the Companys loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and
net interest income. The Company does not maintain a trading account nor is the Company subject to currency exchange risk or commodity price risk. Interest rate risk is monitored as part of the Companys asset/liability management function,
which is discussed above in Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations under the heading Liquidity and Capital Resources.



Management does not believe there has been any significant change in the overall analysis of
financial instruments considered market risk sensitive since December 31, 2004.



See accompanying notes



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##### Table of Contents

Item 4. Controls and Procedures



| | (a) | As of 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 Companys disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | No change in the Companys internal control over financial reporting occurred during the Companys last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes



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##### Table of Contents

Part II. OTHER INFORMATION



Item 6. Exhibits



|          |  |                                                                                                                                                                                            
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit # |  | Description                                                                                                                                                                                
|31.1      |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|          | 
|31.2      |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 
|          | 
|32.1      |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                               
|          | 
|32.2      |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                               



See accompanying notes



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##### Table of Contents

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: November 10, 2005 |  | By:                       |  | /s/ John Q. Shaw, Jr.                            
|                        |  |                           |  | John Q. Shaw, Jr.                                
|                        |  |                           |  | President and Chief Executive Officer            
|                        |  |                          
|Date: November 10, 2005 |  | By:                       |  | /s/ Lisa F. Campbell                             
|                        |  |                           |  | Lisa F. Campbell                                 
|                        |  |                           |  | Senior Vice President and Chief Financial Officer



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