New Century Bancorp's Third Quarter and Year-to-Date Results Impacted by Alleged Fraud

DUNN, N.C., Oct. 29 /PRNewswire-FirstCall/ --

• Bank adds to provision for loan losses to cover losses resulting from the alleged fraud
• Core business of the bank is positive, as FDIC data reveals deposit market share increases
• New Century Bank remains #1 in deposit market share in its headquarters city, Dunn, NC

Late in third quarter 2010, New Century Bancorp President and CEO William L. Hedgepeth II issued a statement concerning an apparent fraud against New Century Bank by a former director.  In anticipation of a loss resulting from the alleged fraud, New Century Bancorp (the "Company" -Nasdaq: NCBC), the holding company for New Century Bank, added $10.7 million to its provision for loan losses, for a total addition to the provision for the quarter of $12.5 million.  As a result, the Company reported a loss for the quarter ended September 30, 2010.  

New Century Bancorp's net loss was ($6.6) million for the quarter ended September 30, 2010, compared to a net loss of ($369,000) for the same period in 2009.  For the nine month period ended as of the same date, the Company reported a net loss of ($5.1) million compared to a net loss of ($214,000) for the nine months ended September 30, 2009.  Basic and diluted losses per share were ($0.96) and ($0.05), respectively, for third quarter 2010 and third quarter 2009, and were ($0.74) and ($0.03), respectively, for the nine month periods ended September 30, 2010, and September 30, 2009.

As of September 30, 2010, the Company held total assets of $643.1 million, total deposits of $548.9 million and total loans of $467.9 million.  As of September 30, 2009, these figures stood at total assets of $636.8 million, total deposits of $533.4 million, and total loans of $472.6 million, for changes, on a year-to-year basis of an increase in assets of 0.99%, an increase in deposits of 2.91% and a decrease in loans of (0.99%), due to the charge-off related to the alleged fraud, as well as overall soft loan demand that is being experienced by all banks.  

Hedgepeth commented on the results, saying, "Our Company was on track for a successful 2010, having reported net earnings through June 30, 2010, of more than $1.6 million.  To be faced with this alleged fraud and a potential loss that could exceed $10.0 million is difficult.   To our shareholders and customers, as well as other friends of our Company, we reiterate these key points:

• The apparent fraud is an isolated incident and is not indicative of the overall quality of New Century Bank's loan portfolio.  Over the past few years, we have worked hard to improve the credit culture at our bank, using a disciplined approach to lending and maintaining policies and procedures to protect the bank, our customers, and our shareholders.  
• Although it was not discovered until August 2010, the apparent fraud was committed over a period of many years, with the majority of the loans involved having been outstanding for years.
• The loans involved were annually reviewed, both internally and externally, and each time were deemed "satisfactory."  In the circumstances surrounding this alleged fraud, it has become clear that for personal reasons the individual involved was committed to the deception, using apparently falsified financial documents, including falsified business receivables, and not disclosing certain assets and liabilities.  All of this made detection of the fraud extremely difficult.    
• Other local and out-of-state banks held loans with the individual who committed the alleged fraud.  Each bank involved deemed the loans to be sound and the related companies to be profitable.    
• Loans to directors are generally sound and profitable loans, as directors are typically successful, reputable business and community leaders who are well-known and respected, and who also have significant deposit relationships with the bank.  Also because of their responsibility to shareholders to protect their investment, as well as because of the directors' own relationship with and investment in the bank, directors have a vested interest in the health, well-being and success of the bank
• We are committed to employing every legal remedy available to us in recovering losses due to this apparent fraud."

New Century remains well-capitalized and deposits held by the bank are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor.

Hedgepeth also said, "In spite of addressing this alleged fraud, we remain in a strong capital position.  The regulatory standard for a bank to be considered "well capitalized" is 10.00%, and New Century is well-capitalized at 12.57%.  We are meeting this challenge head on and from a position of strength, determined to maintain our focus on serving our customers, communities and shareholders.  

"According to FDIC market share data as of June 30, 2010, New Century Bank gained market share in Dunn, our headquarters city, allowing us to maintain the position of #1 in deposit market share in Dunn – a position we have held for 8 straight years.  In addition, we gained deposit market share in Harnett and Cumberland counties, as well as the town of Lillington.  Based on deposit market share, we are now the largest community bank in Harnett, Cumberland, Sampson, and Wayne counties.  These results show the strength of our overall customer and deposit growth strategy and reflect the hard work of our staff in gaining and keeping customer relationships.

"It is the firm belief of our management team that we will return to positive earnings in the near future.  On behalf of everyone at New Century, I again express our deep appreciation for the continued support of our loyal customers and shareholders.  Our focus is on being everything a community bank can and should be in the markets we serve: offering our customers a safe, sound place to conduct business; our employees a great environment in which to work; our communities a partner that is invested in making each community individually, and southeastern North Carolina as a whole, a better place to live and work—in many ways, including supporting  non-profits and other organizations; and, our shareholders a good return on their investment in us.  New Century employs more than 140 people with a total payroll, including benefits, of $7.0 million for the first three quarters of 2010, which has an annualized economic impact in our markets of nearly $10 million.  We enjoy being part of the fabric of the communities we serve."

Customers and shareholders who have any questions are asked to contact the bank's management at the Dunn headquarters.

New Century Bank has offices in Dunn, Clinton, Fayetteville (2), Goldsboro, Lillington, Lumberton, Pembroke, and Raeford, as well as a loan production office in Greenville, NC.

The information as of and for the quarter and nine months ended September 30, 2010 as presented is unaudited.   This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, (i) statements regarding certain of our goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "projects," "outlook" or similar expressions.  The actual results might differ materially from those projected in the forward-looking statements for various reasons, including, but not limited to, our ability to manage growth, our limited operating history, substantial changes in financial markets, regulatory changes, changes in interest rates, loss of deposits and loan demand to other savings and financial institutions, and changes in real estate values and the real estate market.  Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's SEC filings, including its periodic reports under the Securities Exchange Act of 1934, as amended, copies of which are available upon request from the Company.

www.newcenturybanknc.com

SOURCE New Century Bancorp