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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 June 30, 2007



| ̈ | 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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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 a large accelerated filer, an accelerated filer, or
a non-accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated Filer ̈Non-accelerated filer  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 August 7, 2007, the Registrant had outstanding 6,550,272 shares of Common Stock, $1 par value per share.



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|          |  |                                                                                                    |  |         
|--------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                    |  | Page No.
|Part I.   |  | FINANCIAL INFORMATION                                                                              |  |         
|          |  |                                                                                                   
|Item 1 -  |  | Consolidated Financial Statements (Unaudited)                                                      |  |         
|          |  |                                                                                                   
|          |  | Consolidated Balance Sheets June 30, 2007 and December 31, 2006                                    |  | 3       
|          |  |                                                                                                   
|          |  | Consolidated Statements of Operations Three Months and Six Months Ended June 30, 2007 and 2006     |  | 4       
|          |  |                                                                                                   
|          |  | Consolidated Statements of Changes in Shareholders Equity Six Months Ended June 30, 2007 and 2006 |  | 5       
|          |  |                                                                                                   
|          |  | Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2006                      |  | 6       
|          |  |                                                                                                   
|          |  | Notes to Consolidated Financial Statements                                                         |  | 8       
|          |  |                                                                                                   
|Item 2 -  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 11      
|          |  |                                                                                                   
|Item 3 -  |  | Quantitative and Qualitative Disclosures about Market Risk                                         |  | 18      
|          |  |                                                                                                   
|Item 4T - |  | Controls and Procedures                                                                            |  | 18      
|          |  |                                                                                                   
|Part II.  |  | Other Information                                                                                  |  |         
|          |  |                                                                                                   
|Item 4 -  |  | Submission of Matters to a Vote of Security Holders                                                |  | 19      
|          |  |                                                                                                   
|Item 6 -  |  | Exhibits                                                                                           |  | 19      



- 2 -



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Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

NEW CENTURY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

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|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                     |  | June 30, 2007(Unaudited)                       |         |   | December 31,2006* |  
|                                                                                                                                                                     |  | (In thousands, except shareand per share data) |        
|ASSETS                                                                                                                                                               |  |                                                |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                                               
|Cash and due from banks                                                                                                                                              |  | $                                              | 9,722   |   |                   | $ | 12,108  |  
|Interest-earning deposits in other banks                                                                                                                             |  |                                                | 1,178   |   |                   |   | 1,605   |  
|Federal funds sold                                                                                                                                                   |  |                                                | 38,248  |   |                   |   | 19,112  |  
|Investment securities available for sale, at fair value                                                                                                              |  |                                                | 55,723  |   |                   |   | 63,914  |  
|Loans                                                                                                                                                                |  |                                                | 455,939 |   |                   |   | 429,500 |  
|Allowance for loan losses                                                                                                                                            |  |                                                | (6,682  | ) |                   |   | (7,496  | )
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|NET LOANS                                                                                                                                                            |  |                                                | 449,257 |   |                   |   | 422,004 |  
|Accrued interest receivable                                                                                                                                          |  |                                                | 2,624   |   |                   |   | 3,220   |  
|Stock in Federal Home Loan Bank of Atlanta, at cost                                                                                                                  |  |                                                | 1,245   |   |                   |   | 1,427   |  
|Stock in The Bankers Bank                                                                                                                                            |  |                                                | 51      |   |                   |   | 51      |  
|Foreclosed real estate                                                                                                                                               |  |                                                | 326     |   |                   |   | 164     |  
|Premises and equipment                                                                                                                                               |  |                                                | 10,572  |   |                   |   | 9,855   |  
|Bank owned life insurance                                                                                                                                            |  |                                                | 6,802   |   |                   |   | 6,672   |  
|Goodwill                                                                                                                                                             |  |                                                | 8,674   |   |                   |   | 8,674   |  
|Core deposit intangible                                                                                                                                              |  |                                                | 1,237   |   |                   |   | 1,314   |  
|Other assets                                                                                                                                                         |  |                                                | 4,827   |   |                   |   | 2,845   |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                         |  | $                                              | 590,486 |   |                   | $ | 552,965 |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                                               
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                 |  |                                                |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                                               
|Deposits:                                                                                                                                                            |  |                                                |         |   |                   |   |         |  
|Demand                                                                                                                                                               |  | $                                              | 74,778  |   |                   | $ | 70,186  |  
|Savings                                                                                                                                                              |  |                                                | 56,560  |   |                   |   | 45,570  |  
|Money market and NOW                                                                                                                                                 |  |                                                | 41,325  |   |                   |   | 49,944  |  
|Time                                                                                                                                                                 |  |                                                | 329,595 |   |                   |   | 298,417 |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|TOTAL DEPOSITS                                                                                                                                                       |  |                                                | 502,258 |   |                   |   | 464,117 |  
|Short term debt                                                                                                                                                      |  |                                                | 15,119  |   |                   |   | 16,441  |  
|Long term debt                                                                                                                                                       |  |                                                | 12,372  |   |                   |   | 12,372  |  
|Accrued interest payable                                                                                                                                             |  |                                                | 828     |   |                   |   | 890     |  
|Accrued expenses and other liabilities                                                                                                                               |  |                                                | 1,260   |   |                   |   | 1,706   |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|TOTAL LIABILITIES                                                                                                                                                    |  |                                                | 531,837 |   |                   |   | 495,526 |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|Shareholders Equity                                                                                                                                                 |  |                                                |         |   |                   |   |         |  
|Common stock, $1 par value, 10,000,000 shares authorized; 6,550,272 and 6,497,022 shares issued and outstanding at June 30, 2007 and
December 31, 2006, respectively |  |                                                | 6,550   |   |                   |   | 6,497   |  
|Additional paid-in capital                                                                                                                                           |  |                                                | 39,507  |   |                   |   | 39,177  |  
|Retained earnings                                                                                                                                                    |  |                                                | 12,993  |   |                   |   | 11,785  |  
|Accumulated other comprehensive loss                                                                                                                                 |  |                                                | (401    | ) |                   |   | (20     | )
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                           |  |                                                | 58,649  |   |                   |   | 57,439  |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                           |  | $                                              | 590,486 |   |                   | $ | 552,965 |  
|                                                                                                                                                                     |  |                                                |         |   |                   |   |         |  

---

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

See
accompanying notes.



- 3 -



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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

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|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|--------------------------------------------------------------- |  | ----------------------------------------------- | --------- | ------------------------- | ---- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                |  | Three Months EndedJune 30,                      |           | Six Months Ended June 30,
|                                                                |  | 2007                                            |           |                           | 2006 |   | 2007      |  | 2006
|                                                                |  | (In thousands, except share and per share data)
|INTEREST INCOME                                                 |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Loans                                                           |  | $                                               | 9,452     |                           |      | $ | 7,213     |  | $    | 18,348    |  | $ | 13,959   
|Federal funds sold and interest-earning deposits in other banks |  |                                                 | 457       |                           |      |   | 483       |  |      | 821       |  |   | 965      
|Investments                                                     |  |                                                 | 729       |                           |      |   | 531       |  |      | 1,489     |  |   | 957      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|TOTAL INTEREST INCOME                                           |  |                                                 | 10,638    |                           |      |   | 8,227     |  |      | 20,658    |  |   | 15,881   
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|INTEREST EXPENSE                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Money market, NOW and savings deposits                          |  |                                                 | 632       |                           |      |   | 517       |  |      | 1,256     |  |   | 994      
|Time deposits                                                   |  |                                                 | 4,082     |                           |      |   | 2,795     |  |      | 7,913     |  |   | 5,257    
|Short term debt                                                 |  |                                                 | 204       |                           |      |   | 101       |  |      | 399       |  |   | 194      
|Long term debt                                                  |  |                                                 | 235       |                           |      |   | 306       |  |      | 467       |  |   | 595      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|TOTAL INTEREST EXPENSE                                          |  |                                                 | 5,153     |                           |      |   | 3,719     |  |      | 10,035    |  |   | 7,040    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NET INTEREST INCOME                                             |  |                                                 | 5,485     |                           |      |   | 4,508     |  |      | 10,623    |  |   | 8,841    
|PROVISION FOR LOAN LOSSES                                       |  |                                                 | 2,894     |                           |      |   | 192       |  |      | 3,044     |  |   | 601      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NET INTEREST INCOME AFTER                                       |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|PROVISION FOR LOAN LOSSES                                       |  |                                                 | 2,591     |                           |      |   | 4,316     |  |      | 7,579     |  |   | 8,240    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NON-INTEREST INCOME                                             |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Fees from presold mortgages                                     |  |                                                 | 257       |                           |      |   | 200       |  |      | 434       |  |   | 357      
|Service charges on deposit accounts                             |  |                                                 | 446       |                           |      |   | 281       |  |      | 840       |  |   | 531      
|Gains on sale of loans held for sale                            |  |                                                 | 242       |                           |      |   | 66        |  |      | 375       |  |   | 91       
|Other fees and income                                           |  |                                                 | 216       |                           |      |   | 131       |  |      | 422       |  |   | 252      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|TOTAL NON-INTEREST INCOME                                       |  |                                                 | 1,161     |                           |      |   | 678       |  |      | 2,071     |  |   | 1,231    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NON-INTEREST EXPENSE                                            |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Personnel                                                       |  |                                                 | 2,255     |                           |      |   | 1,848     |  |      | 4,660     |  |   | 3,519    
|Occupancy and equipment                                         |  |                                                 | 349       |                           |      |   | 258       |  |      | 675       |  |   | 503      
|Marketing and advertising                                       |  |                                                 | 109       |                           |      |   | 43        |  |      | 176       |  |   | 143      
|Professional fees                                               |  |                                                 | 423       |                           |      |   | 132       |  |      | 562       |  |   | 215      
|Information systems                                             |  |                                                 | 357       |                           |      |   | 224       |  |      | 690       |  |   | 416      
|Other                                                           |  |                                                 | 645       |                           |      |   | 509       |  |      | 1,249     |  |   | 956      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|TOTAL NON-INTEREST EXPENSE                                      |  |                                                 | 4,138     |                           |      |   | 3,014     |  |      | 8,012     |  |   | 5,752    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|INCOME (LOSS) BEFORE INCOME TAXES                               |  |                                                 | (386      | )                         |      |   | 1,980     |  |      | 1,638     |  |   | 3,719    
|INCOME TAXES                                                    |  |                                                 | (189      | )                         |      |   | 709       |  |      | 566       |  |   | 1,378    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NET INCOME (LOSS)                                               |  | $                                               | (197      | )                         |      | $ | 1,271     |  | $    | 1,072     |  | $ | 2,341    
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|NET INCOME (LOSS) PER COMMON SHARE                              |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Basic                                                           |  | $                                               | (.03      | )                         |      | $ | .25       |  | $    | .16       |  | $ | .46      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Diluted                                                         |  | $                                               | (.03      | )                         |      | $ | .23       |  | $    | .16       |  | $ | .43      
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                      |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Basic                                                           |  |                                                 | 6,540,736 |                           |      |   | 5,109,553 |  |      | 6,520,663 |  |   | 5,105,032
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          
|Diluted                                                         |  |                                                 | 6,540,736 |                           |      |   | 5,478,553 |  |      | 6,771,458 |  |   | 5,479,280
|                                                                |  |                                                 |           |                           |      |   |           |  |      |           |  |   |          

See accompanying notes.



- 4 -



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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)

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|                                                                 |  |                                           |  |                  |       |                                     |   |        |                          |   |        |  |   |      |   |  |   |        |  
|---------------------------------------------------------------- |  | ----------------------------------------- |  | ---------------- | ----- | ----------------------------------- | - | ------ | ------------------------ | - | ------ |  | - | ---- | - |  | - | ------ | -
|                                                                 |  | Additionalpaid-incapital                  |  | Retainedearnings |       | Accumulatedother com-prehensiveloss |   |        | Totalshareholdersequity |  
|                                                                 |  | Common stock                              |  |                  |       |                                    
|                                                                 |  | Shares                                    |  | Amount           |       |                                     |   |       
|                                                                 |  | (Amounts in thousands, except share data) | 
|Balance at December 31, 2005                                     |  | 4,241,040                                 |  | $                | 4,241 |                                     | $ | 21,196 |                          | $ | 7,814  |  | $ | (277 | ) |  | $ | 32,974 |  
|Net income                                                       |  |                                          |  |                  |      |                                     |   |       |                          |   | 2,341  |  |   |     |   |  |   | 2,341  |  
|Other comprehensive loss                                         |  |                                          |  |                  |      |                                     |   |       |                          |   |       |  |   | (241 | ) |  |   | (241   | )
|Exercise of stock options                                        |  | 15,425                                    |  |                  | 15    |                                     |   | 71     |                          |   |       |  |   |     |   |  |   | 86     |  
|Shares issued to directors deferred compensation plan           |  | 1,521                                     |  |                  | 2     |                                     |   | 37     |                          |   |       |  |   |     |   |  |   | 39     |  
|Net tax effect related to stock option exercises                 |  |                                          |  |                  |      |                                     |   | 38     |                          |   |       |  |   |     |   |  |   | 38     |  
|Stock based compensation                                         |  |                                          |  |                  |      |                                     |   | 32     |                          |   |       |  |   |     |   |  |   | 32     |  
|                                                                 |  |                                           |  |                  |       |                                     |   |        |                          |   |        |  |   |      |   |  |   |        |  
|Balance at June 30, 2006                                         |  | 4,257,986                                 |  | $                | 4,258 |                                     | $ | 21,374 |                          | $ | 10,155 |  | $ | (518 | ) |  | $ | 35,269 |  
|                                                                 |  |                                           |  |                  |       |                                     |   |        |                          |   |        |  |   |      |   |  |   |        |  
|Balance at December 31, 2006                                     |  | 6,497,022                                 |  | $                | 6,497 |                                     | $ | 39,177 |                          | $ | 11,785 |  | $ | (20  | ) |  | $ | 57,439 |  
|Adjustment related to the adoption of FASB Interpretation No. 48 |  |                                          |  |                  |      |                                     |   |       |                          |   | 136    |  |   |     |   |  |   | 136    |  
|Net income                                                       |  |                                          |  |                  |      |                                     |   |       |                          |   | 1,072  |  |   |     |   |  |   | 1,072  |  
|Other comprehensive loss                                         |  |                                          |  |                  |      |                                     |   |       |                          |   |       |  |   | (381 | ) |  |   | (381   | )
|Exercise of stock options                                        |  | 53,250                                    |  |                  | 53    |                                     |   | 201    |                          |   |       |  |   |     |   |  |   | 254    |  
|Stock based compensation                                         |  |                                          |  |                  |      |                                     |   | 129    |                          |   |       |  |   |     |   |  |   | 129    |  
|                                                                 |  |                                           |  |                  |       |                                     |   |        |                          |   |        |  |   |      |   |  |   |        |  
|Balance at June 30, 2007                                         |  | 6,550,272                                 |  | $                | 6,550 |                                     | $ | 39,507 |                          | $ | 12,993 |  | $ | (401 | ) |  | $ | 58,649 |  
|                                                                 |  |                                           |  |                  |       |                                     |   |        |                          |   |        |  |   |      |   |  |   |        |  

See accompanying notes.



- 5 -



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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

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|                                                                                  |  |                           |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Six Months Ended June 30, |        
|                                                                                  |  | 2007                      |         |   | 2006 |  
|                                                                                  |  | (In thousands)            |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                           |         |   |      |   |         |  
|Net income                                                                        |  | $                         | 1,072   |   |      | $ | 2,341   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |         |   |      |   |         |  
|Provision for loan losses                                                         |  |                           | 3,044   |   |      |   | 601     |  
|Depreciation and amortization                                                     |  |                           | 197     |   |      |   | 230     |  
|Adoption of FIN 48                                                                |  |                           | 136     |   |      |   |        |  
|Amortization of core deposit intangible                                           |  |                           | 77      |   |      |   |        |  
|Gain on retirement of premises and equipment                                      |  |                           |        |   |      |   | (3      | )
|Stock-based compensation                                                          |  |                           | 129     |   |      |   | 32      |  
|Origination of loans held for sale                                                |  |                           | (3,988  | ) |      |   | (5,971  | )
|Proceeds from loans held for sale                                                 |  |                           | 3,898   |   |      |   | 10,924  |  
|Gain on sale of loans held for sale                                               |  |                           | (375    | ) |      |   | (91     | )
|Increase in cash surrender value of bank owned life insurance                     |  |                           | (130    | ) |      |   | (86     | )
|Loss on sale of foreclosed real estate                                            |  |                           | 17      |   |      |   | 9       |  
|Change in assets and liabilities:                                                 |  |                           |         |   |      |   |         |  
|Decrease (increase) in accrued interest receivable                                |  |                           | 596     |   |      |   | (168    | )
|Increase in other assets                                                          |  |                           | (1,955  | ) |      |   | (664    | )
|Decrease in accrued expenses and other liabilities                                |  |                           | (508    | ) |      |   | (306    | )
|                                                                                  |  |                           |         |   |      |   |         |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  |                           | 2,210   |   |      |   | 6,848   |  
|                                                                                  |  |                           |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                           |         |   |      |   |         |  
|Redemption (purchase) of FHLB stock                                               |  |                           | 182     |   |      |   | (124    | )
|Purchase of bank owned life insurance                                             |  |                           |        |   |      |   | (600    | )
|Purchases of investment securities available for sale                             |  |                           | (3,852  | ) |      |   | (12,841 | )
|Maturities and prepayments of investment securities available for sale            |  |                           | 11,561  |   |      |   | 8,485   |  
|Net increase in gross loans outstanding                                           |  |                           | (29,832 | ) |      |   | (26,276 | )
|Proceeds from sale of foreclosed real estate                                      |  |                           | 35      |   |      |   | 426     |  
|Purchases of premises and equipment                                               |  |                           | (1,054  | ) |      |   | (273    | )
|                                                                                  |  |                           |         |   |      |   |         |  
|NET CASH USED BY INVESTING ACTIVITIES                                             |  |                           | (22,960 | ) |      |   | (31,203 | )
|                                                                                  |  |                           |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                           |         |   |      |   |         |  
|Increase in deposits                                                              |  |                           | 38,141  |   |      |   | 10,791  |  
|Decrease in short term debt                                                       |  |                           | (1,322  | ) |      |   | (2,224  | )
|Proceeds from issuance of long term debt                                          |  |                           |        |   |      |   | 2,000   |  
|Maturity of long term debt                                                        |  |                           |        |   |      |   | (4,000  | )
|Proceeds from share issued to directors deferred plan                            |  |                           |        |   |      |   | 39      |  
|Tax benefit from exercise of stock options                                        |  |                           |        |   |      |   | 38      |  
|Proceeds from the exercise of stock options                                       |  |                           | 254     |   |      |   | 86      |  
|                                                                                  |  |                           |         |   |      |   |         |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |  |                           | 37,073  |   |      |   | 6,730   |  
|                                                                                  |  |                           |         |   |      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                           | 16,323  |   |      |   | (17,625 | )
|CASH AND CASH EQUIVALENTS, BEGINNING                                              |  |                           | 32,825  |   |      |   | 56,481  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, ENDING                                                 |  | $                         | 49,148  |   |      | $ | 38,856  |  
|                                                                                  |  |                           |         |   |      |   |         |  

See accompanying notes



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NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

---



|                                                                        |  |                          |        |   |      |   |       |  
|----------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | -
|                                                                        |  | Six Months EndedJune 30, |       
|                                                                        |  | 2007                     |        |   | 2006 |  
|                                                                        |  | (In thousands)           |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                       |  |                          |        |   |      |   |       |  
|Cash paid during the period for:                                        |  |                          |        |   |      |   |       |  
|Interest paid                                                           |  | $                        | 10,097 |   |      | $ | 6,957 |  
|Income taxes paid                                                       |  |                          | 1,949  |   |      |   | 1,564 |  
|Non-cash transactions:                                                  |  |                          |        |   |      |   |       |  
|Unrealized loss on investment securities available for sale, net of tax |  |                          | (381   | ) |      |   | (241  | )
|Transfer from loans to foreclosed real estate                           |  |                          | 214    |   |      |   | 93    |  

See accompanying notes.



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NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements

---

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 South (collectively referred to as the
Banks). The Banks are engaged in general commercial and retail banking and operate under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of
Banks. The Banks undergo periodic examinations by those regulatory authorities. At the close of business on July 13, 2006, Progressive State Bank (Progressive) was acquired and was merged into New Century Bank South, and for
purposes of these consolidated financial statements, is considered to be part of New Century Bancorp since that time.

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 six month periods ended June 30, 2007 and 2006, 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 six month periods ended June 30, 2007 are not
necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007.

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 2006 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission. This quarterly report should be read in conjunction with the Annual Report.

NOTE B - PER SHARE RESULTS

Basic net income (loss) 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 103,001 anti-dilutive options as of June 30, 2007 and no anti-dilutive options outstanding as of June 30, 2006.



|                                                              |  |                            |  |                          |  |           |  |          
|------------------------------------------------------------- |  | -------------------------- |  | ------------------------ |  | --------- |  | ---------
|                                                              |  | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|                                                              |  | 2007                       |  | 2006                     |  | 2007      |  | 2006     
|Weighted average shares used for basic net income per share   |  | 6,540,736                  |  | 5,109,553                |  | 6,520,663 |  | 5,105,032
|Effect of dilutive stock options                              |  |                           |  | 369,000                  |  | 250,795   |  | 374,248  
|                                                              |  |                            |  |                          |  |           |  |          
|Weighted average shares used for diluted net income per share |  | 6,540,736                  |  | 5,478,553                |  | 6,771,458 |  | 5,479,280
|                                                              |  |                            |  |                          |  |           |  |          



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NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements

---



NOTE C  COMPREHENSIVE INCOME

A summary of comprehensive income (loss) is as follows:



|                                                                   |  |                            |      |   |                           |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------ |  | -------------------------- | ---- | - | ------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                   |  | Three Months EndedJune 30, |      |   | Six Months Ended June 30, |  
|                                                                   |  | 2007                       |      |   | 2006                      |   |       | 2007 |  |   | 2006  |  
|                                                                   |  | (Amounts in thousands)     |     
|Net income (loss)                                                  |  | $                          | (197 | ) |                           | $ | 1,271 |      |  | $ | 1,072 |   |  | $ | 2,341 |  
|Other comprehensive income (loss):                                 |  |                            |      |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Unrealized gain (loss) on investment securities available for sale |  |                            | (710 | ) |                           |   | (256  | )    |  |   | (622  | ) |  |   | (420  | )
|Tax effect                                                         |  |                            | 275  |   |                           |   | 99    |      |  |   | 241   |   |  |   | 179   |  
|                                                                   |  |                            |      |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Total                                                              |  |                            | (435 | ) |                           |   | (157  | )    |  |   | (381  | ) |  |   | (241  | )
|Total comprehensive income (loss)                                  |  | $                          | (632 | ) |                           | $ | 1,114 |      |  | $ | 691   |   |  | $ | 2,100 |  
|                                                                   |  |                            |      |   |                           |   |       |      |  |   |       |   |  |   |       |  

NOTE D - INCOME TAXES

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Income Tax Uncertainties, an interpretation of FASB Statement No 109 (the
Interpretation). This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. As a result of the initial adoption of this Interpretation,
retained earnings were increased by $136,000 and accrued expenses were reduced by the same amount. As of January 1, 2007, there were no uncertain tax positions. The amount of uncertain tax positions may increase or decrease in the future for
various reasons including adding amounts for current tax positions, expiration of open tax returns due to statutes of limitations, changes in managements judgment about the level of uncertainty, status of examinations, litigation and
legislative activity and the addition or elimination of uncertain tax positions. The Companys policy is to report interest and penalties, if any, related to uncertain tax positions in income tax expense in the Consolidated Statements of
Operations. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003.

NOTE E  RECENT ACCOUNTING PRONOUNCEMENTS

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

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



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NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements

---



NOTE E  RECENT ACCOUNTING PRONOUNCEMENTS (Continued)



SFAS No. 156, Accounting for Servicing of Financial Assets  an amendment of SFAS No. 140
requires that all separately recognized servicing assets and liabilities be initially measured at fair value and permits (but does not require) subsequent measurement of servicing assets and liabilities at fair value. This statement is effective for
fiscal years beginning after September 15, 2006. The Company adopted SFAS No. 155 on January 1, 2007 with no expected material impact on its financial statements.

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

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS No. 159), The Fair Value Option for Financial Assets
and Liabilities  Including an Amendment of FASB Statement No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedging accounting provisions. This Statement is intended
to expand the use of fair value measurement, with is consistent with the FASBs long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 2007. The
Company is currently evaluating the impact the SFAS No. 159 may have on its consolidated financial statements.



- 10 -



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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 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 South, a de novo institution which commenced operations in January 2004 (collectively referred to
as the Banks). At the close of business on July 13, 2006, the Company completed an acquisition of Progressive State Bank (Progressive), a North Carolina chartered bank headquartered in Lumberton, NC. Under the terms of
the Agreement, 100% of Progressive was merged with and into New Century Bank South. In September 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate
purposes, including the current and future expansion of New Century Bank. New Century Statutory Trust I is not a consolidated subsidiary of the Company. The Companys only business activity is the ownership of the Banks and New Century
Statutory Trust I. This discussion focuses primarily on the financial condition and operating results of the Banks.

The Banks lending activities are
oriented to the consumer/retail customer as well as to the small-to medium-sized businesses located in Bladen, Harnett, Hoke, Cumberland, Johnston, Robeson, 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.

All
references to average shares outstanding, price per share, and net income per share have been adjusted to reflect a six-for-five stock split that was effected in December 2006.

Comparison of Financial Condition at

June 30, 2007 and
December 31, 2006

During the first six months of 2007, total assets grew by $37.5 million from $553.0 million at December 31, 2006 to
$590.5 million at June 30, 2007. Earning assets at June 30, 2007 totaled $545.9 million and consisted of $449.3 million in net loans, $55.7 million in investment securities, $39.4 million in overnight investments and interest-bearing
deposits in other banks and $1.5 million in non-marketable equity securities. Total deposits and shareholders equity at June 30, 2007 were $502.3 million and $58.6 million, respectively.



- 11 -



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Since the end of 2006, gross loans have grown by $26.4 million to $455.9 million as of June 30, 2007. Gross loans as
of June 30, 2007 consisted of $99.5 million in commercial and industrial loans, $125.1 million in commercial real estate loans, $13.3 million in multi-family residential loans, $24.5 million in consumer loans, $113.1 million in residential real
estate, and $80.9 million in construction loans. As of quarter end, there were $2.0 million of loans held for sale. These loans are guaranteed by the Small Business Administration (SBA) and sold in the secondary market.

During the first quarter of 2007, management identified certain deficiencies in the underwriting processes at one of the Companys subsidiary banks, New Century
Bank. As a result, a third-party credit review firm was hired in the second quarter to review a sample of the banks loans. Also, during the second quarter, the FDIC conducted safety and soundness examinations of both of the Companys
subsidiary banks, which included a review of a sample of loans at each bank. As a result of these reviews of New Century Banks loans, which covered approximately 30% of the banks loan portfolio, there were a number of loans downgraded
from pass to the watch list necessitating a $2.9 million addition to the allowance for loan losses during the quarter. In addition, $3.7 million in loans were charged-off. All of the loans that were charged off were categorized as
impaired at December 31, 2006 and at March 31, 2007. Most of these losses had been provided for though additions to the allowance for loan losses in 2006. As a result of the aforementioned underwriting matters, it is likely that New
Century Bank may be subject to informal regulatory action, such as a memorandum of understanding, with its state and federal regulators. None of the loans originated by New Century Bank South were included in the downgraded or charged-off amounts.
To address these issues, management has implemented a detailed action plan and has hired two experienced credit professionals, reorganized the credit function and is planning to engage the third-party credit review firm to conduct a further review
another 30% of the New Century Bank loan portfolio. Management will continue its efforts to address regulatory concerns in advance of any informal regulatory action and also to remediate the material weakness in certain controls related to lending
and loan underwriting that was identified as part of the assessment of disclosure controls and procedures controls as of December 31, 2006.

On
June 30, 2007, the Company had $6.8 million in loans past due over 30 days. This was an increase of $2.0 million from the December 31, 2006 amount of $4.8 million. The overall past due percentage of loans, excluding loans held for sale,
increased 37 basis points during the first half of 2007 from 1.12% to 1.49%. Non-performing loans, which include restructured loans, non-accruing loans, and loans 90 days or more past due and still accruing interest, decreased $151,000 during the
first six months of 2007 to $4.3 million. The percentage of non-performing loans to total loans excluding loans held for sale decreased 9 basis points to .94%.

The Companys impaired loans, which includes all non-performing loans as defined above and other loans deemed by impaired in accordance with SFAS 114, decreased from $11.8 million at December 31, 2006 to $8.8 million at
June 30, 2007 due mostly to the previously mentioned $3.7 million in impaired loans that were charged-off. The decrease was partially offset by additions to the non-accrual and 90 days and still accruing categories in the second quarter. The
allowance for loan losses decreased 28 basis points to 1.47% of gross loans, excluding loans held for sale, at June 30, 2007 from 1.75% at December 31, 2006. The decrease in the allowance resulted from the charge-offs, which were partially
offset by increases to the allowance allocable to the aforementioned downgraded credits. Management believes the allowance for loan losses as of June 30, 2007 is appropriate in light of the risk inherent within the Companys loan
portfolio.

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 June 30, 2007, federal funds sold were $38.2 million, an increase of $19.1 million
from the $19.1 million held as of December 31, 2006. The Company also holds an investment of $1.2 million in the form of Federal Home Loan Bank stock with an annualized yield of 6.0%. Interest-earning deposits in other banks decreased



- 12 -



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from $1.6 million at December 31, 2006 to $1.2 million as of June 30, 2007. The Companys investment securities as of June 30, 2007 were
$55.7 million, a decrease of $8.2 million from December 31, 2006. The investment portfolio as of June 30, 2007 consisted of $28.8 million in government agency debt securities, $21.6 million in mortgage-backed securities and $5.9 million in
municipal securities. The unrealized loss on these securities was $651,000.

The Company also has an investment in bank owned life insurance of $6.8
million, which increased $130,000 from December 31, 2006 due to an increase in cash surrender value. Since the income on this investment is included in non-interest income, the asset is not included in the Companys calculation of earning
assets.

At June 30, 2007, non-earning assets were $38.0 million, which reflects a decrease of $200,000 from the $38.2 million as of December 31,
2006. Non-earning assets as of June 30, 2007 included $9.7 million in cash and due from banks, bank premises and equipment of $10.6 million, goodwill of $8.7 million, core deposit intangible of $1.2 million, accrued interest receivable of $2.6
million, and other assets of $5.2 million.

Total deposits at June 30, 2007 were $502.3 million and consisted of $74.8 million in non-interest-bearing
demand deposits, $41.3 million in money market and NOW accounts, $56.6 million in savings accounts, and $329.6 million in time deposits. Total deposits grew by $38.1 million from $464.1 million as of December 31, 2006. Most of this increase
came from growth in savings and time deposits. Savings deposits grew by $11.0 million to $56.6 million as of June 30, 2007. Time deposits grew by $31.2 million to $329.6 million as of June 30, 2007. Brokered deposits totaled $5.5 million
or 1.1% of quarter end deposits.

As of June 30, 2007, the Company had $15.1 million in short-term debt and $12.4 million in long-term debt.
Short-term debt included repurchase agreements of $9.6 million and $5.5 million in advances outstanding on a line of credit with the Federal Home Loan Bank (FHLB) of Atlanta, which is collateralized by a lien on 1-4 family first mortgage loans.
Long-term debt consists of $12.4 million of junior subordinated debentures that were issued in September 2004. The proceeds of the junior subordinated debentures have provided capital for the expansion of New Century Bank.

Total shareholders equity at June 30, 2007 was $58.6 million, an increase of $1.2 million from $57.4 million as of December 31, 2006. Most of this
increase is attributed to net income of nearly $1.1 million. As a result of the initial adoption of Accounting Standards Board Interpretation No. 48, Accounting for Income Tax Uncertainties, an interpretation of FASB Statement No 109,the Company recorded an increase in opening retained earnings of $136,000. Other changes in shareholders equity were $254,000 from the exercise of stock options and $129,000 in stock based compensation, partially offset by an other
comprehensive loss of $381,000.

Comparison of Results of Operations for the

Three months ended June 30, 2007 and 2006

General. During the second quarter of 2007, the Company incurred a net loss of approximately $197,000 as compared with net income of approximately $1.3 million for the same quarter in 2006. Net loss per share for the quarter was
$(.03) per share, basic and diluted, compared with net income per share of $.25 per share-basic and $.23 per share-diluted, for the second quarter of 2006. The decrease in net income resulted primarily from an increase in the provision for loans
losses from $192,000 in the second quarter of 2006 to $2.9 million in the same period of 2007.

Net Interest Income. Net interest income increased
by $977,000 to $5.5 million for second quarter 2007. The Companys total interest income benefited from growth in interest-earning assets, partially due to the acquisition of Progressive State Bank in July 2006. Average total interest-earning
assets were $543.2



- 13 -



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million in the second quarter of 2007 compared with $423.0 million during the same period in 2006 and the yield on those assets increased 6 basis points from
7.80% to 7.86%. During the second half of 2006, the Company promoted a home equity line of credit product with a one-year teaser rate of 4.99%. Upon the one-year anniversary of the lines, the 4.99% rates will expire and the lines will reprice to
higher rates.

The Companys average interest-bearing liabilities grew by $95.9 million to $451.8 million for the quarter ended June 30, 2007
from $355.9 for same period one year earlier, while the cost of those funds increased from 4.20% to 4.57% or 37 basis points. During the second quarter of 2007, the Companys net interest margin was 4.05% and our net interest spread was 3.28%.
For the quarter ended June 30, 2006, net interest margin was 4.28% and net interest spread was 3.61%.

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. The Company recorded a $2.9 million provision for loan losses in the second quarter of 2007, representing an increase of $2.7 million from the $192,000 provision made in the same period of 2006. In the second quarter of 2007,
the level of provision for loan losses was affected by net charge-offs of $3.7 million, and the downgrading of loans necessitated by deficiencies in the underwriting for certain loans included in the loan portfolio of the Companys subsidiary,
New Century Bank. In the second quarter of 2006, the level of the provision for loan losses resulted from net loan charge-offs of $117,000 and accommodation for loan growth of $8.5 million.

Non-Interest Income. Non-interest income for the quarter ended June 30, 2007 was $1.2 million, an increase of $483,000 from the second quarter of 2006.
Generally, there were increases in many categories of non-interest income due to overall growth in loans and deposits resulting from the merger with Progressive and continued organic growth. Compared to the second quarter of last year, the Company
had increases in deposit service fees and charges of $165,000, gains on loans held for sale of $176,000 and in other fees and income of $85,000. Deposit service charges were positively impacted by the growth in deposits both from existing branches
and the Progressive merger. In addition to these increases, fees from pre-sold mortgages grew by $57,000 from $200,000 in the second quarter of 2006 to $257,000 in 2007.

Non-Interest Expenses. Non-interest expenses increased by $1.1 million to $4.1 million for the quarter ended June 30, 2007, from $3.0 million for the same period in 2006. Like non-interest income, there
was an increase in all categories of non-interest expenses due to the additional offices acquired in the Progressive merger and organic growth. Salaries and employee benefits increased to $2.3 million in the second quarter of 2007 from $1.8 million
in the same quarter of 2006 due mostly to the increase of Company personnel from 116 full-time equivalent employees at June 30, 2006 to 148 full-time equivalent employees at June 30, 2007. The increase in staff is due not only to the
merger but also to the opening of a new branch location in Fayetteville, and the hiring of additional backroom personnel. Also, the Company recognized $62,000 in compensation expense related to stock options vesting during the second quarter of
2007, compared to $17,000 during the second quarter of 2006. Occupancy and equipment expenses increased by $91,000 to $349,000 for the quarter ended June 30, 2007. The increase in occupancy and equipment is due to the merger and the opening of
the new branch. The following highlight other changes in non-interest expenses from the 2nd quarter of 2006 to the 2nd quarter of 2007:



| |  |  | Marketing and advertising expenses increased from $43,000 in 2006 to $109,000 in 2007 due to a marketing campaign focused on generating business checking accounts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data processing and other outsourced service expenses increased from $192,000 in 2006 to $333,000 in 2007 due to the new branches and operations center.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



- 14 -



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| |  |  | Professional service expenses increased from $132,000 in 2006 to $423,000 in 2007, due to increases for audit, legal, and other outsourced services related to
compliance with section 404 of the Sarbanes Oxley Act, and to the aforementioned loan underwriting matters.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other operating expense increased from $509,000 in 2006 to $645,000 in 2007 due to general growth of the Company. Also, during the second quarter of 2007, the
Company recorded $38,000 in amortization of the core deposit intangible resulting from the acquisition of Progressives deposits.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Provision for Income Taxes. The Companys effective tax rate was (49%) and 36% for the quarters ended June 30, 2007 and 2006, respectively. The effective tax rate in the second quarter of 2007 was impacted by the net
loss during that period.

Comparison of Results of Operations for the

Six months ended June 30, 2007 and 2006

General. During the first six
months of 2007, the Company generated net income of approximately $1.1 million compared with net income of $2.3 million for the same period in 2006. Year-to-date net income was $.16 per share, basic and diluted, compared with net income per share of
$.46 per share-basic and $.43 per share-diluted, for the same period in 2006. The decrease in net income is directly related to the increase in the provision for loan losses from $601,000 in 2006 to $3.0 million in 2007.

Net Interest Income.Net interest income increased by $1.8 million to $10.6 million for the first six months of 2007. The Companys total interest income
benefited from growth in interest-earning assets, partially due to the acquisition of Progressive State Bank in July 2006. Average total interest-earning assets were approximately $532.0 million in the first six months of 2007 compared with $419.8
million during the same period in 2006 and the yield on those assets increased 16 basis points from 7.63% to 7.79%. During the second half of 2006, the Company promoted a home equity line of credit product with a one-year teaser rate of 4.99%. Upon
the one-year anniversary of the lines, the 4.99% rates will expire and the lines will reprice to higher rates.

The Companys average interest-bearing
liabilities grew by $89.4 million to $442.9 million for the first half of 2007 from $353.5 for the same period one year earlier, while the cost of those funds increased from 4.02% to 4.54% or 52 basis points. In 2007, the Companys net interest
margin was 4.03% and our net interest spread was 3.24%. In 2006, net interest margin was 4.25% and net interest spread was 3.61%.

Provision for Loan
Losses.As noted previously, the Company recorded a $3.0 million provision for loan losses in the first six months of 2007, representing a significant increase from the $601,000 provision made in the same period of 2006. As was the case for the
second quarter, the year-to-date provision for loan losses was significantly impacted by the downgrading of loans in the second quarter of 2007. In 2006, the level of provision for loan losses resulted from net loan charge-offs of $150,000 and
accommodation for loan growth of $21.4 million.

Non-Interest Income. Year-to-date non-interest income for 2007 was $2.1 million, an
increase of $840,000 from 2006. Generally, there were increases in many categories of non-interest income due to overall growth in loans and deposits resulting from the merger with Progressive and continued organic growth. Compared to last year, the
Company had an increase in deposit service fees and charges of $309,000, an increase in gains on loans held for sale of $284,000 and also in other fees and income of $170,000. Deposit service charges were positively impacted by the growth in
deposits both from existing branches and the Progressive merger. In addition to these increases, fees from pre-sold mortgages grew by $77,000 from $357,000 in the first six months of 2006 to $434,000 in the same period in 2007.

Non-Interest Expenses. Non-interest expenses increased by $2.3 million to $8.0 million for the six months ended June 30, 2007, from $5.8 million for the same
period in 2006. Like non-interest income, there was an



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increase in all categories of non-interest expenses due to the additional offices acquired in the Progressive merger and organic growth. Salaries and
employee benefits increased to $4.7 million in 2007 from $3.5 million in 2006 due mostly to the increase of Company personnel from 116 full-time equivalent employees at June 30, 2006 to 148 full-time equivalent employees at June 30, 2007.
The increase in staff is due not only to the merger but also to the opening of a new branch location, and the hiring of additional backroom personnel. Also, the Company recognized $129,000 in compensation expense related to stock options vesting
during the first half of 2007, compared to $32,000 during the same period in 2006. Occupancy and equipment expenses increased by $172,000 to $675,000 for the six months ended June 30, 2007. The increase in occupancy and equipment is due to the
merger and the opening of the new branch. The following highlight other changes in non-interest expenses from the six months ended June 30, 2006 to the six months ended June 30, 2007:



| |  |  | Marketing and advertising expenses increased by $33,000 due to the 2ndquarter business checking campaign.
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Data processing and other outsourced service expenses increased from $416,000 in 2006 to $690,000 in 2007 due to the new branches and operations center.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional service expenses increased from $215,000 in 2006 to $562,000 in 2007, due to increases for audit, legal, and other outsourced services related to
compliance with section 404 of the Sarbanes Oxley Act, and to the aforementioned loan underwriting matters.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other operating expense increased from $956,000 in 2006 to $1.2 million in 2007 due to general growth of the Company and $76,000 in amortization of the core deposit
intangible resulting from the acquisition of Progressives deposits.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Provision for Income Taxes. The Companys
effective tax rate was 35% and 37% for the six months ended June 30, 2007 and 2006, respectively.

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 17.8% of total assets at
June 30, 2007.

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 10% of total assets, subject to available
collateral. A floating lien of $10.9 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 June 30, 2007, total borrowings
consisted of two advances from the FHLB totaling $5.5 million, securities sold under agreements to repurchase of $9.6 million and junior subordinated debentures of $12.4 million.

Total deposits were $502.3 million at June 30, 2007. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate sensitive. Time deposits represented
65.6% of total deposits at June 30, 2007. Time deposits of $100,000 or more represented 29.5% of the



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Companys total deposits at June 30, 2007. At quarter end, the Company had $5.5 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.

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 percent of its assets, and certain off-balance
sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A financial institution is required to maintain, at a minimum, Tier 1 capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 capital as a
percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, federal regulations require that we maintain a minimum leverage ratio (Tier 1 capital as a percentage of tangible assets) of 4.0%. The Companys equity to
assets ratio was 10.0% at June 30, 2007. As the following table indicates, at June 30, 2007, the Company and its two bank subsidiaries exceeded regulatory capital requirements.



|                                |  |                  |   |  |                    |   |  |                             |  
|------------------------------- |  | ---------------- | - |  | ------------------ | - |  | --------------------------- | -
|                                |  | At June 30, 2007 |  
|New Century Bancorp, Inc.       |  | ActualRatio      |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio  |  | 14.17            | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio |  | 12.92            | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                  |  | 10.59            | % |  | 4.00               | % |  | 5.00                        | %
|                                | 
|                                |  | At June 30, 2007 |  
|New Century Bank                |  | ActualRatio      |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio  |  | 13.54            | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio |  | 12.28            | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                  |  | 10.09            | % |  | 4.00               | % |  | 5.00                        | %
|                                | 
|                                |  | At June 30, 2007 |  
|New Century Bank South          |  | ActualRatio      |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio  |  | 11.44            | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio |  | 10.60            | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                  |  | 9.14             | % |  | 4.00               | % |  | 5.00                        | %

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 New Century Bank. Under the current
applicable regulatory guidelines, all of



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the trust preferred securities qualify as Tier 1 capital as of June 30, 2007. Management expects that the Company and both Banks will remain
well-capitalized for regulatory purposes, although there can be no assurance that additional capital will not be required in the near future due to greater-than-expected growth, or otherwise.



|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, 2006.



|Item 4T. | 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, except for
the material weakness disclosed in the Companys 2006 annual report on Form 10-K, the Companys disclosure controls and procedures are effective (1) to provide reasonable assurance that information required to be disclosed by the
Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (2) to provide reasonable assurance that
information required to be disclosed by the Company in such reports is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions
regarding required disclosure. Management is addressing the material weakness disclosed in the Companys 2006 annual report on Form 10-K and is in the process of implementing new controls which are currently anticipated to remediate this
material weakness by the end of 2007. These efforts include the engagement of a third-party credit review firm to assist in the review of loans and implementation of new internal controls.

(b) No changes in the Companys internal control over financial reporting occurred during the Companys last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over financial reporting.



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Part II. OTHER INFORMATION



|Item 4. | Submission of Matters to a Vote of Securities Holders
|------- | -----------------------------------------------------

The Annual
Meeting of the Shareholders was held on May 30, 2007. Of 6,541,177 shares entitled to vote at the meeting, 4,242,085 shares voted. The following proposals were approved by shareholder vote at the meeting:

Proposal 1.Election of Directors. Votes for each nominee were as follows:



|                 |  |           |  |         
|---------------- |  | --------- |  | --------
|Name             |  | For       |  | Withheld
|J. Gary Ciccone  |  | 4,055,335 |  | 186,750 
|Carlie C. McLamb |  | 4,060,231 |  | 181,854 
|C.L. Tart, Jr.   |  | 4,085,454 |  | 156,631 

The following six directors terms continued after the annual meeting:

T.C. Godwin, Jr.

Oscar N. Harris

Gerald Hayes

John McCauley

Anthony Rand

John Q. Shaw, Jr.*

* Mr. Shaw subsequently resigned from the Board of Directors.

Proposal 2:Ratification of the appointment of Dixon Hughes PLLC as the Companys independent public accountants for 2007.



|          |  |         |  |        
|--------- |  | ------- |  | -------
|For       |  | Against |  | Abstain
|4,235,640 |  | 1,953   |  | 4,492  



|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                                               



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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 13, 2007 |  | By:                       |  | /s/ William L. Hedgepeth II                         
|                      |  |                           |  | William L. Hedgepeth II                             
|                      |  |                           |  | President and Chief Executive Officer               
|                      |  |                          
|Date: August 13, 2007 |  | By:                       |  | /s/ Lisa F. Campbell                                
|                      |  |                           |  | Lisa F. Campbell                                    
|                      |  |                           |  | Executive Vice President and Chief Financial Officer



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