##### Table of Contents

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U.S. Securities and Exchange Commission

Washington, D.C. 20549



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Form 10-Q



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



For the quarterly period ended March 31, 2005



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



For the transition period ended



Commission File Number 000-50400



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New Century Bancorp, Inc.

(Exact name of Registrant as specified in its charter)



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



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



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



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

Common Stock, $1 Par Value



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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No ̈



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



As of April 21, 2005, the Registrant had outstanding 2,812,808 shares of Common Stock, $1 par value.



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##### Table of Contents

|         |  |                                                                                       |  |         
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                       |  | Page No.
|Part I.  |  | FINANCIAL INFORMATION                                                                 |  |         
|         |  |                                                                                      
|Item 1-  |  | Consolidated Financial Statements (Unaudited)                                         |  |         
|         |  |                                                                                      
|         |  | Consolidated Balance SheetsMarch 31, 2005 and December 31, 2004                       |  | 3       
|         |  |                                                                                      
|         |  | Consolidated Statements of OperationsThree Months Ended March 31, 2005 and 2004       |  | 4       
|         |  |                                                                                      
|         |  | Consolidated Statements of Cash FlowsThree Months Ended March 31, 2005 and 2004       |  | 5       
|         |  |                                                                                      
|         |  | Notes to Consolidated Financial Statements                                            |  | 6       
|         |  |                                                                                      
|Item 2-  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9       
|         |  |                                                                                      
|Item 3-  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 14      
|         |  |                                                                                      
|Item 4-  |  | Controls and Procedures                                                               |  | 14      
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |         
|         |  |                                                                                      
|Item 6-  |  | Exhibits                                                                              |  | 15      



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##### Table of Contents

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements



NEW CENTURY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                          |  | March 31, 2005(Unaudited)                       |         |   | December 31,2004* |  
|                                                                                                                                          |  | (In thousands, except share and per share data) |        
|ASSETS                                                                                                                                    |  |                                                 |         |   |                   |   |         |  
|                                                                                                                                          |  |                                                
|Cash and due from banks                                                                                                                   |  | $                                               | 6,797   |   |                   | $ | 6,955   |  
|Interest-earning deposits in other banks                                                                                                  |  |                                                 | 3,470   |   |                   |   | 335     |  
|Federal funds sold                                                                                                                        |  |                                                 | 25,887  |   |                   |   | 25,000  |  
|Investment securities available for sale, at fair value                                                                                   |  |                                                 | 25,528  |   |                   |   | 24,879  |  
|                                                                                                                                          |  |                                                
|Loans                                                                                                                                     |  |                                                 | 287,981 |   |                   |   | 262,750 |  
|Allowance for loan losses                                                                                                                 |  |                                                 | (4,083  | ) |                   |   | (3,598  | )
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|NET LOANS                                                                                                                                 |  |                                                 | 283,898 |   |                   |   | 259,152 |  
|                                                                                                                                          |  |                                                
|Accrued interest receivable                                                                                                               |  |                                                 | 1,524   |   |                   |   | 1,353   |  
|Stock in Federal Home Loan Bank of Atlanta, at cost                                                                                       |  |                                                 | 1,095   |   |                   |   | 788     |  
|Stock in The Bankers Bank, at cost                                                                                                        |  |                                                 | 51      |   |                   |   | 49      |  
|Foreclosed real estate                                                                                                                    |  |                                                 | 135     |   |                   |   | 135     |  
|Premises and equipment                                                                                                                    |  |                                                 | 5,087   |   |                   |   | 4,801   |  
|Bank Owned Life Insurance                                                                                                                 |  |                                                 | 2,227   |   |                   |   | 2,204   |  
|Other assets                                                                                                                              |  |                                                 | 1,901   |   |                   |   | 2,660   |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                              |  | $                                               | 357,600 |   |                   | $ | 328,311 |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                      |  |                                                 |         |   |                   |   |         |  
|                                                                                                                                          |  |                                                
|Deposits:                                                                                                                                 |  |                                                 |         |   |                   |   |         |  
|Demand                                                                                                                                    |  | $                                               | 38,224  |   |                   | $ | 34,748  |  
|Savings                                                                                                                                   |  |                                                 | 2,759   |   |                   |   | 2,825   |  
|Money market and NOW                                                                                                                      |  |                                                 | 50,835  |   |                   |   | 53,839  |  
|Time                                                                                                                                      |  |                                                 | 203,898 |   |                   |   | 178,818 |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|TOTAL DEPOSITS                                                                                                                            |  |                                                 | 295,716 |   |                   |   | 270,230 |  
|                                                                                                                                          |  |                                                
|Securities sold under agreements to repurchase                                                                                            |  |                                                 | 5,950   |   |                   |   | 5,685   |  
|Advances from Federal Home Loan Bank                                                                                                      |  |                                                 | 12,500  |   |                   |   | 9,000   |  
|Junior subordinated debentures                                                                                                            |  |                                                 | 12,372  |   |                   |   | 12,372  |  
|Accrued interest payable                                                                                                                  |  |                                                 | 361     |   |                   |   | 261     |  
|Accrued expenses and other liabilities                                                                                                    |  |                                                 | 634     |   |                   |   | 1,319   |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|TOTAL LIABILITIES                                                                                                                         |  |                                                 | 327,533 |   |                   |   | 298,867 |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|Commitments (Note B)                                                                                                                      |  |                                                 |         |   |                   |   |         |  
|                                                                                                                                          |  |                                                
|Shareholders Equity                                                                                                                       |  |                                                 |         |   |                   |   |         |  
|Common stock, $1 par value, 10,000,000 shares authorized; 2,811,477 shares issued and outstanding at March 31, 2005 and December 31,
2004 |  |                                                 | 2,811   |   |                   |   | 2,811   |  
|Additional paid-in capital                                                                                                                |  |                                                 | 22,389  |   |                   |   | 22,389  |  
|Retained earnings                                                                                                                         |  |                                                 | 4,999   |   |                   |   | 4,194   |  
|Accumulated other comprehensive income (loss)                                                                                             |  |                                                 | (132    | ) |                   |   | 50      |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                |  |                                                 | 30,067  |   |                   |   | 29,444  |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                |  | $                                               | 357,600 |   |                   | $ | 328,311 |  
|                                                                                                                                          |  |                                                 |         |   |                   |   |         |  

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



See accompanying notes.



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##### Table of Contents

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



|                                                                |  |                                                |           |      |   |          
|--------------------------------------------------------------- |  | ---------------------------------------------- | --------- | ---- | - | ---------
|                                                                |  | Three Months Ended March 31,                  
|                                                                |  | 2005                                           |           | 2004
|                                                                |  | (In thousands, except shareand per share data)
|INTEREST INCOME                                                 |  |                                                |           |      |   |          
|Loans                                                           |  | $                                              | 4,737     |      | $ | 2,736    
|Federal funds sold and interest-earning deposits in other banks |  |                                                | 141       |      |   | 42       
|Investments                                                     |  |                                                | 249       |      |   | 120      
|                                                                |  |                                                |           |      |   |          
|TOTAL INTEREST INCOME                                           |  |                                                | 5,127     |      |   | 2,898    
|                                                                |  |                                                |           |      |   |          
|INTEREST EXPENSE                                                |  |                                                |           |      |   |          
|Money market, NOW and savings deposits                          |  |                                                | 157       |      |   | 128      
|Time deposits                                                   |  |                                                | 1,503     |      |   | 758      
|Junior subordinated debentures                                  |  |                                                | 148       |      |   |         
|Federal Home Loan Bank of Atlanta advances                      |  |                                                | 71        |      |   | 51       
|Securities sold under agreements to repurchase                  |  |                                                | 21        |      |   | 7        
|                                                                |  |                                                |           |      |   |          
|TOTAL INTEREST EXPENSE                                          |  |                                                | 1,901     |      |   | 914      
|                                                                |  |                                                |           |      |   |          
|NET INTEREST INCOME                                             |  |                                                | 3,226     |      |   | 1,984    
|                                                                |  |                                               
|PROVISION FOR LOAN LOSSES                                       |  |                                                | 500       |      |   | 603      
|                                                                |  |                                                |           |      |   |          
|                                                                |  |                                               
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES             |  |                                                | 2,726     |      |   | 1,381    
|                                                                |  |                                                |           |      |   |          
|NON-INTEREST INCOME                                             |  |                                                | 556       |      |   | 348      
|                                                                |  |                                                |           |      |   |          
|NON-INTEREST EXPENSE                                            |  |                                                |           |      |   |          
|Personnel                                                       |  |                                                | 1,213     |      |   | 942      
|Occupancy and equipment                                         |  |                                                | 157       |      |   | 115      
|Marketing and advertising                                       |  |                                                | 41        |      |   | 31       
|Professional fees                                               |  |                                                | 91        |      |   | 63       
|Information systems                                             |  |                                                | 193       |      |   | 140      
|Other operating expense                                         |  |                                                | 367       |      |   | 316      
|                                                                |  |                                                |           |      |   |          
|TOTAL NON-INTEREST EXPENSE                                      |  |                                                | 2,065     |      |   | 1,607    
|                                                                |  |                                                |           |      |   |          
|INCOME BEFORE INCOME TAXES                                      |  |                                                | 1,220     |      |   | 122      
|                                                                |  |                                               
|INCOME TAXES                                                    |  |                                                | 415       |      |   | 38       
|                                                                |  |                                                |           |      |   |          
|NET INCOME                                                      |  | $                                              | 805       |      | $ | 84       
|                                                                |  |                                                |           |      |   |          
|NET INCOME PER COMMON SHARE                                     |  |                                                |           |      |   |          
|Basic                                                           |  | $                                              | .29       |      | $ | .03      
|                                                                |  |                                                |           |      |   |          
|Diluted                                                         |  | $                                              | .27       |      | $ | .03      
|                                                                |  |                                                |           |      |   |          
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                      |  |                                                |           |      |   |          
|Basic                                                           |  |                                                | 2,811,477 |      |   | 2,795,334
|                                                                |  |                                                |           |      |   |          
|Diluted                                                         |  |                                                | 2,981,144 |      |   | 2,898,394
|                                                                |  |                                                |           |      |   |          



See accompanying notes.



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##### Table of Contents

NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                                         |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                         |  | Three Months EndedMarch 31, |        
|                                                                                         |  | 2005                        |         |   | 2004 |  
|                                                                                         |  | (In thousands)              |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |  |                             |         |   |      |   |         |  
|Net income                                                                               |  | $                           | 805     |   |      | $ | 84      |  
|Adjustments to reconcile net income to net cash provided (used) by operating activities: |  |                             |         |   |      |   |         |  
|Provision for loan losses                                                                |  |                             | 500     |   |      |   | 603     |  
|Depreciation and amortization                                                            |  |                             | 22      |   |      |   | 76      |  
|Decrease (increase) in loans held for sale                                               |  |                             |        |   |      |   | (2,251  | )
|Deferred income taxes                                                                    |  |                             | (40     | ) |      |   | (9      | )
|Gain on sale of foreclosed real estate                                                   |  |                             |        |   |      |   | 7       |  
|Gain on sale of real estate held for sale                                                |  |                             | (39     | ) |      |   |        |  
|Increase in cash surrender value of bank owned life insurance                            |  |                             | (23     | ) |      |   | (22     | )
|Change in assets and liabilities:                                                        |  |                             |         |   |      |   |         |  
|Increase in accrued interest receivable                                                  |  |                             | (171    | ) |      |   | (95     | )
|Increase in other assets                                                                 |  |                             | (32     | ) |      |   | (375    | )
|Decrease in accrued expenses and other liabilities                                       |  |                             | (585    | ) |      |   | (460    | )
|                                                                                         |  |                             |         |   |      |   |         |  
|NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                         |  |                             | 437     |   |      |   | (2,442  | )
|                                                                                         |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |  |                             |         |   |      |   |         |  
|Purchase of FHLB stock                                                                   |  |                             | (306    | ) |      |   |        |  
|Purchase of Bankers Bank stock                                                           |  |                             | (2      | ) |      |   |        |  
|Purchases of investment securities available for sale                                    |  |                             | (3,054  | ) |      |   | (506    | )
|Maturities and prepayments of investment securities available for sale                   |  |                             | 2,137   |   |      |   | 580     |  
|Net increase in gross loans outstanding                                                  |  |                             | (25,246 | ) |      |   | (36,426 | )
|Proceeds from sale of foreclosed real estate                                             |  |                             |        |   |      |   | 131     |  
|Proceeds from sale of bank premises and equipment                                        |  |                             |        |   |      |   | 25      |  
|Purchase of real estate held for sale                                                    |  |                             | (58     | ) |      |   |        |  
|Proceeds from sale of real estate held for sale                                          |  |                             | 1,025   |   |      |   |        |  
|Purchases of bank premises and equipment                                                 |  |                             | (320    | ) |      |   | (242    | )
|                                                                                         |  |                             |         |   |      |   |         |  
|NET CASH USED BY INVESTING ACTIVITIES                                                    |  |                             | (25,824 | ) |      |   | (36,438 | )
|                                                                                         |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                     |  |                             |         |   |      |   |         |  
|Increase in deposits                                                                     |  |                             | 25,486  |   |      |   | 43,695  |  
|Increase in repurchase agreements                                                        |  |                             | 265     |   |      |   | 58      |  
|Proceeds from FHLB advance                                                               |  |                             | 3,500   |   |      |   |        |  
|                                                                                         |  |                             |         |   |      |   |         |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                |  |                             | 29,251  |   |      |   | 43,753  |  
|                                                                                         |  |                             |         |   |      |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                |  |                             | 3,864   |   |      |   | 4,873   |  
|                                                                                         |  |                            
|CASH AND CASH EQUIVALENTS, BEGINNING                                                     |  |                             | 32,290  |   |      |   | 21,997  |  
|                                                                                         |  |                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, ENDING                                                        |  | $                           | 36,154  |   |      | $ | 26,870  |  
|                                                                                         |  |                             |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                        |  |                             |         |   |      |   |         |  
|Interest paid                                                                            |  | $                           | 1,801   |   |      | $ | 3,214   |  
|Income taxes paid                                                                        |  |                             | 641     |   |      |   |        |  
|Unrealized gain (loss) on investment securities available for sale, net of tax           |  |                             | (182    | ) |      |   | 49      |  



See accompanying notes.



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##### Table of Contents

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



All significant intercompany transactions and balances have been eliminated in consolidation.
In managements opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three month
periods ended March 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.



The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three month period ended March 31, 2005 are not necessarily
indicative of the results that may be expected for the fiscal year ending December 31, 2005.



The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Companys 2004
Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission. This quarterly report should be read in conjunction with the Annual Report.



NOTE B - LOAN COMMITMENTS



At March 31, 2005, loan commitments were $62,012,000.



NOTE C - PER SHARE RESULTS



Basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share
includes the dilutive effect of stock options outstanding during the period. There were no anti-dilutive options outstanding during the period. A summary of shares outstanding follows:



|                                                              |  |                             |  |          
|------------------------------------------------------------- |  | --------------------------- |  | ---------
|                                                              |  | Three Months EndedMarch 31,
|                                                              |  | 2005                        |  | 2004     
|Weighted average shares used for basic net income per share   |  | 2,811,477                   |  | 2,795,334
|                                                              |  |                            
|Incremental shares from assumed exercise of stock options     |  | 169,667                     |  | 103,060  
|                                                              |  |                             |  |          
|Weighted average shares used for diluted net income per share |  | 2,981,144                   |  | 2,898,394
|                                                              |  |                             |  |          



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##### Table of Contents

NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements



NOTE C - PER SHARE RESULTS (Continued)



On May 28, 2004, the Board of Directors of the Company declared an 11-for-10 stock split in the form of a stock dividend, which was payable to shareholders of record as
of June 15, 2004, and which resulted in the issuance of 253,679 additional common shares. All references to average shares outstanding and net income per share have been adjusted to reflect this stock split.



NOTE D - STOCK COMPENSATION PLANS



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



|                                                                                                                                      |  |                                              |     |      |   |    
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | --- | ---- | - | ---
|                                                                                                                                      |  | Three Months EndedMarch 31,                 
|                                                                                                                                      |  | 2005                                         |     | 2004
|                                                                                                                                      |  | (Amounts in thousands,except per share data)
|Net income:                                                                                                                           |  |                                              |     |      |   |    
|As reported                                                                                                                           |  | $                                            | 805 |      | $ | 84 
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax
effects |  |                                              | 15  |      |   |   
|                                                                                                                                      |  |                                              |     |      |   |    
|Pro forma                                                                                                                             |  | $                                            | 790 |      | $ | 84 
|                                                                                                                                      |  |                                              |     |      |   |    
|Basic net income per share:                                                                                                           |  |                                              |     |      |   |    
|As reported                                                                                                                           |  | $                                            | .29 |      | $ | .03
|Pro forma                                                                                                                             |  |                                              | .28 |      |   | .03
|                                                                                                                                      |  |                                             
|Diluted net income per share:                                                                                                         |  |                                              |     |      |   |    
|As reported                                                                                                                           |  | $                                            | .27 |      | $ | .03
|Pro forma                                                                                                                             |  |                                              | .26 |      |   | .03



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##### Table of Contents

NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements



NOTE E - COMPREHENSIVE INCOME



A
summary of comprehensive income is as follows:



|                                                                                                  |  |                             |      |   |      |   |    
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---
|                                                                                                  |  | Three Months EndedMarch 31,
|                                                                                                  |  | 2005                        |      |   | 2004
|                                                                                                  |  | (Amounts in thousands)     
|Net income                                                                                        |  | $                           | 805  |   |      | $ | 84 
|                                                                                                  |  |                            
|Other comprehensive income:                                                                       |  |                             |      |   |      |   |    
|Net increase (decrease) in the fair value of investment securities available for sale, net of tax |  |                             | (182 | ) |      |   | 49 
|                                                                                                  |  |                             |      |   |      |   |    
|Total comprehensive income                                                                        |  | $                           | 623  |   |      | $ | 133
|                                                                                                  |  |                             |      |   |      |   |    



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##### Table of Contents

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



Managements discussion and analysis is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of New
Century Bancorp, Inc. (the Company). This report may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and other business of the Company that are subject to
various factors which could cause actual results to differ materially from those estimates. Factors that could influence the estimates include changes in national, regional and local market conditions, legislative and regulatory conditions, and the
interest rate environment.



Overview



The Company is a commercial bank holding company that was incorporated on September 19,
2003 and has two banking subsidiaries, New Century Bank, which was acquired as part of the Banks holding company reorganization, and New Century Bank of Fayetteville, a de novo institution which was formed in January 2004 (collectively
referred to as the Banks). In September 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future
expansion of New Century Bank. The Companys only business activity is the ownership of the Banks. Accordingly, this discussion focuses primarily on the financial condition and operating results of the Banks.



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



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



On May 28, 2004, the Board of Directors of the Company declared an 11-for-10
stock split in the form of a stock dividend, which was payable to shareholders of record as of June 15, 2004. All references to average shares outstanding and net income per share have been adjusted to reflect this stock split.



Comparison of Financial Condition at

March 31, 2005 and December 31, 2004



During the first three months of 2005, total assets grew by $29.3 million from $328.3 million at December 31, 2004 to $357.6 million at March 31, 2005. Earning assets at
March 31, 2005 totaled $344.0 million and consisted of $288.0 million in gross loans, $26.7 million in investment securities and $29.3 million in overnight investments and interest-bearing deposits in other banks. Total deposits and
shareholders equity at March 31, 2005 were $295.7 million and $30.1 million, respectively.



Since the end of 2004, gross loans have grown $25.2 million to $288.0 million as of March 31, 2005. Gross loans as of March, 31, 2005 consisted of $70.6 million in commercial and industrial loans, $142.2 million in
commercial real estate loans, $17.9 million in consumer loans and $57.3 million in residential real estate and construction loans. As of quarter end, there were no loans held for sale. At March 31,



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2005, there were thirty-five loans with an aggregate principal balance of $1,588,000 that were 30 days or more past due.
This includes four loans with an aggregate balance of $189,000 that were more than 90 days past due and on a non-accrual basis. At December 31, 2004, there were twenty-eight loans with an aggregate principal balance of $862,000 that were more than
30 days past due. Three of these loans with a combined balance of $190,000 were in non-accrual status. The allowance for loan losses of $3.6 million represented 1.37% of gross loans outstanding as of December 31, 2004. The allowance for loan losses
increased 5 basis points to 1.42% of gross loans during the first quarter 2005. Management attributes the increase in the allowance to two factors. First, a slight increase in asset quality indicators, as past dues increased from .33% of total loans
as of December 31, 2004 to .55% of total loans at March 31, 2005. This increase resulted from the addition of two commercial relationships to past due status. Secondly, management has implemented an internal credit review department and that has led
to a better identification of risk within the Banks commercial loans rated Acceptable. Management believes that the allowance for loan losses as of March 31, 2005 is adequate to absorb probable losses inherent in the loan portfolio
as of that date.



Management strives to maintain a position of liquidity
sufficient to fund future loan demand and to satisfy fluctuations in deposit levels. This is achieved primarily in the form of federal funds sold on an overnight basis and an investment portfolio that includes a laddered maturity schedule. At March
31, 2005, federal funds sold were $25.9 million, an increase of $887,000 from the $25.0 million held as of December 31, 2004. Interest-earning deposits in other banks increased from $335,000 at December 31, 2004 to $3.5 million as of March 31, 2005.
The Banks investment securities as of March 31, 2005 were $25.5 million, an increase of $649,000 from December 31, 2004. The investment portfolio as of March 31, 2005 consisted of $14.9 million in government agency debt securities, $7.8
million in mortgage-backed securities and $3.0 million in municipal securities. The unrealized loss on these securities at March 31, 2005 was $186,000.



At March 31, 2005, non-earning assets were $17.7 million, which reflects a decrease of $400,000 from the $18.1 million as of December 31, 2004. Non-earning assets as of
March 31, 2005 included $5.1 million in premises and equipment, accrued interest receivable of $1.5 million, bank owned life insurance of $2.2 million and other assets of $2.1 million. Non-interest-earning cash and due from bank balances totaled
$6.8 million as of quarter end. During 2004, New Century Bank of Fayetteville constructed a three-story office building and entered into an agreement with two of its directors whereby New Century Bank of Fayetteville would sell a portion of the
building to these directors. During the first quarter of 2005, this sale was completed and New Century Bank of Fayetteville received a total of approximately $1,025,000 from two directors for 48.3% of the office building, resulting in a gain on sale
of approximately $39,000. The sales price was determined using an independent third party appraisal.



Total deposits at March 31, 2005 were $295.7 million and consisted of $38.2 million in non-interest-bearing demand deposits, $50.8 million in money market and NOW accounts, $2.8 million in savings accounts, and $203.9
million in time deposits. Total deposits grew by $25.5 million from $270.2 million as of December 31, 2004. Money market and NOW accounts decreased by $3.0 million and time deposits grew by $25.1 million during the first three months of 2005.
Non-interest-bearing demand deposits increased by $3.5 million from $34.7 million as of December 31, 2004. Time deposit growth has come from several promotions that have been offered by the Banks during the 1stquarter.



As of March 31, 2005, the Company has $12.5 million in advances outstanding on its line of credit with the FHLB. The advances are collateralized by a lien on 1-4 family first mortgage loans with $4.0 million maturing
in February 2006, $5.0 million maturing in June 2005 and $3.5 million maturing in July 2006. In addition to borrowings from the FHLB, the Company also issued $12.4 million of junior subordinated debentures in September 2004. These proceeds will
provide additional capital for the current and future expansion of New Century Bank. Under the current applicable regulatory guidelines, $12.0 million of these debentures qualify as Tier I capital.



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Total shareholders equity at March 31, 2005 was $30.1 million, an increase of $623,000 from $29.4 million as of
December 31, 2004. This increase was due to $805,000 in net income that was partially offset by a decrease of $182,000, net of tax, in the fair value of the Companys investment securities available for sale.



Comparison of Results of Operations for the

Three months ended March 31, 2005 and 2004



Net Income. During the first quarter of 2005, the Company generated net income of $805,000 compared with net income of $84,000 for the first quarter of 2004. Net
income per share for the quarter ended March 31, 2005 was $.29 per share-basic and $.27 per share-diluted, compared with net income per share of $.03 per share-basic and diluted, for the first quarter of 2004. The increase in net income is due to
higher net interest income, higher non-interest income and a lower provision for loan losses, which were partially offset by an increase in non-interest expenses.



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



Net interest income
increased just over $1.2 million to $3.2 million for the quarter ended March 31, 2005. The Companys total interest income benefited from strong growth in interest-earning assets. Average total interest-earning assets were $325.6 million in the
first quarter of 2005 compared with $197.5 million during the same period one year earlier, while the yield on those assets increased 43 basis points from 5.90% to 6.33%. The Companys average interest-bearing liabilities grew by $115.6 million
to $271.5 million since the quarter ended March 31, 2004, while the cost of those funds increased from 2.36% to 2.84% or 48 basis points. For the quarter ended March 31, 2005, the Companys net interest margin was 3.96% and our net interest
spread was 3.82%. For the quarter ended March 31, 2004, net interest margin was 4.04% and net interest spread was 3.87%.



Provision for Loan Losses.The Company recorded a $500,000 provision for loan losses in the first quarter of 2005, representing a decrease of $103,000 from the
$603,000 provision made in the same period of 2004. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management
considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrowers ability to repay, estimated value of
any underlying collateral, prevailing economic conditions and other relevant factors. In the first quarter of 2005, the provision for loan losses reflected net loan charge-offs of $15,000 as well as accommodation for loan growth of $25.2 million. In
the first quarter of 2004, the provision for loan losses reflected loan charge-offs of $8,000 as well as accommodation for loan growth of $37.8 million. At March 31, 2005, the allowance for loan losses was $4.1 million, representing 1.42% of gross
loans outstanding. At December 31, 2004, the allowance for loan losses was $3.6 million, or 1.37% of gross loans outstanding. There was $189,000 of nonaccrual loans at quarter end March 31, 2005, compared to $190,000 at December 31, 2004.



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Non-Interest Income.Non-interest income for the quarter ended March 31, 2005 was $556,000, an increase of
$211,000 over the first quarter of 2004. This increase is primarily due to increases in deposit service fees and charges of $48,000, premium income from loans guaranteed by the Small Business Administration of $59,000, and an increase in other fees
and income of $22,000. These gains also included an increase in fees from presold mortgages of $62,000 and an increase in commissions on credit life insurance policies of $18,000 over the first quarter of 2004. The growth in fees and service charges
is directly related to the growth in loans and transaction accounts during 2004.



Non-Interest Expenses. Non-interest expenses increased by $458,000 to $2.1 million for the quarter ended March 31, 2005, from $1.6 million for the quarter ended March 31, 2004. In general, this increase is due to the growth of our
franchise in the Goldsboro and Fayetteville markets. Even with the growth in non-interest expenses, the Companys ratio of non-interest expenses to average total assets decreased from 3.09% in the first quarter of 2004 to 2.47% in the first
quarter of 2005. Salaries and employee benefits increased to $1.2 million in the first quarter of 2005 from $942,000 in the same quarter of 2004 due mostly to the increase of Company personnel from 61 full-time equivalent employees at March 31, 2004
to 74 full-time equivalent employees at March 31, 2005. Occupancy and equipment expenses increased by $42,000 to $157,000 for the quarter ended March 31, 2005 due to the addition of the new bank building in Fayetteville in December 2004 and an
office to house loan operations, which opened in the second quarter of 2004. The following expenses have increased as a result of the general growth of the Company since March 2004. Marketing and advertising expenses increased by $9,000 to $41,000
for the first quarter of 2005. Professional fees increased by $28,000 to $91,000 in first quarter 2005, up from $63,000 in the first quarter 2004. Information systems expenses increased $53,000 to $193,000 for the quarter ended March 31, 2005. Other
operating expenses increased to $367,000 in the first quarter of 2005 compared with $316,000 for the same period of 2004.



Provision for Income Taxes. The Companys effective tax rate was 34% and 31% for the quarters ended March 31, 2005 and 2004, respectively.



Liquidity and Capital Resources



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



Liquid assets (consisting of cash and due from banks,
interest-earning deposits with other banks, federal funds sold and investment securities classified as available for sale) comprised 18% of total assets at March 31, 2005.



The Company has been a net seller of federal funds since its inception and strives to maintain a position of liquidity sufficient to fund
future loan demand and to satisfy fluctuations in deposit levels. Should the need arise, the Company would have the capability to sell securities classified as available for sale or to borrow funds as necessary. The Company has established credit
lines with other financial institutions to purchase up to $20.6 million in federal funds. Also, as a member of the Federal Home Loan Bank of Atlanta (FHLB), the Company may obtain advances of up to 30% of total assets, subject to available
collateral. A floating lien of $20.1 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 March 31, 2005, borrowings consisted of three
advances from the FHLB totaling $12.5 million, and securities sold under agreements to repurchase of $5.9 million and junior subordinated debentures of $12.4 million. These debentures provide additional capital for the current and future expansion
of New Century Bank. Under the current applicable regulatory guidelines, $12.0 million of the debentures qualify as Tier I capital.



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Total deposits were $295.7 million at March 31, 2005. Time deposits, which are the only deposit accounts that have stated
maturity dates, are generally considered to be rate sensitive. Time deposits represented 68.9% of total deposits at March 31, 2005. Time deposits of $100,000 or more represented 22.9% of the Companys total deposits at March 31, 2005. At March
31, 2005, the Company had $7.6 million in brokered time deposits. Management believes most other time deposits are relationship-oriented. While the Banks will need to pay competitive rates to retain these deposits at their maturities, there are
other subjective factors that will determine their continued retention. Based upon prior experience, the Company anticipates that a substantial portion of outstanding certificates of deposit will renew upon maturity.



Management believes that current sources of funds provide adequate liquidity for our current
cash flow needs.



A significant measure of the strength of a financial
institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders equity and qualifying preferred equity, and (2) Tier 2 capital,
which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require
a financial institution to maintain capital as a percent of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A financial institution is required to maintain, at a minimum, Tier 1
capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 capital as a percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, federal regulations require that we maintain a minimum leverage
ratio (Tier 1 capital as a percentage of tangible assets) of 4.0%. The Companys equity to assets ratio was 8.41% at March 31, 2005. As the following table indicates, at March 31, 2005, the Company exceeded regulatory capital requirements.



|                                 |  |                   |   |  |                    |   |  |                             |  
|-------------------------------- |  | ----------------- | - |  | ------------------ | - |  | --------------------------- | -
|                                 |  | At March 31, 2005 |  
|New Century Bancorp, Inc.        |  | ActualRatio       |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio   |  | 15.58             | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 14.33             | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 12.41             | % |  | 4.00               | % |  | 5.00                        | %
|                                 | 
|                                 |  | At March 31, 2005 |  
|New Century Bank                 |  | ActualRatio       |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio   |  | 15.56             | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 14.31             | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 12.42             | % |  | 4.00               | % |  | 5.00                        | %
|                                 | 
|                                 |  | At March 31, 2005 |  
|New Century Bank of Fayetteville |  | ActualRatio       |   |  | MinimumRequirement |   |  | Well-CapitalizedRequirement |  
|Total risk-based capital ratio   |  | 15.54             | % |  | 8.00               | % |  | 10.00                       | %
|Tier 1 risk-based capital ratio  |  | 14.29             | % |  | 4.00               | % |  | 6.00                        | %
|Leverage ratio                   |  | 12.24             | % |  | 4.00               | % |  | 5.00                        | %



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



Item 3. Quantitative and Qualitative Disclosures About Market Risk



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



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



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



Item 4. Controls and Procedures



| | (a) | As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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Part II. OTHER INFORMATION



Item 6. Exhibits



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



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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: May 13, 2005 |  | By:                       |  | /s/ John Q. Shaw, Jr.                            
|                   |  |                           |  | John Q. Shaw, Jr.                                
|                   |  |                           |  | President and Chief Executive Officer            
|                   |  |                          
|Date: May 13, 2005 |  | By:                       |  | /s/ Lisa F. Campbell                             
|                   |  |                           |  | Lisa F. Campbell                                 
|                   |  |                           |  | Senior Vice President and Chief Financial Officer



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