UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

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¨ Soliciting Material Pursuant to §240.14a-12

NORTH STATE BANCORP

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NORTH STATE BANCORP

4270 The Circle at North Hills

Raleigh, North Carolina 27609

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held May 29, 2008

To The Shareholders of North State Bancorp:

The Annual Meeting of Shareholders of North State Bancorp, a North Carolina corporation, will be held at the Carolina Country Club, 2500 Glenwood Avenue, Raleigh, North Carolina, on Thursday, May 29, 2008 at 4:30 p.m. for the following purposes:

• to elect five Class II Directors to serve for three-year terms expiring in 2011;

• to ratify the appointment of Dixon Hughes PLLC, Raleigh, North Carolina, as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and

• to act upon such other matters as may properly come before the meeting or any adjournment thereof.

These matters are more fully described in the attached proxy statement.

The Board of Directors has fixed the close of business on April 11, 2008 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting or any adjournment thereof. We cordially invite you to attend the meeting in person. However, to assure your representation at the meeting, please mark, sign, date and return the enclosed proxy as promptly as possible in the enclosed postage-prepaid envelope. If you attend the meeting you may vote in person, even if you returned a proxy.

Our proxy statement and proxy are enclosed, along with our Annual Report to Shareholders and our Form 10-K for the fiscal year ended December 31, 2007.

IMPORTANT — YOUR PROXY IS ENCLOSED

Whether or not you plan to attend the meeting, please execute and promptly return the enclosed proxy in the enclosed envelope. No postage is required for mailing in the United States.

By Order of the Board of Directors

Larry D. Barbour,

President and Chief Executive Officer

Raleigh, North Carolina

April 23, 2008

NORTH STATE BANCORP

4270 The Circle at North Hills

Raleigh, North Carolina 27609

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

May 29, 2008

INFORMATION CONCERNING SOLICITATION AND VOTING

The enclosed proxy is solicited by the Board of Directors of North State Bancorp, a North Carolina corporation, for use at our Annual Meeting of Shareholders to be held at the Carolina Country Club, 2500 Glenwood Avenue, Raleigh, North Carolina, at 4:30 p.m. on Thursday, May 29, 2008, and any adjournment thereof. We will bear the cost of soliciting proxies. In addition to solicitation of proxies by mail, our employees, without extra remuneration, may solicit proxies personally or by telephone. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy materials to beneficial owners and seeking instruction with respect thereto. The mailing address of our principal executive offices is 4270 The Circle at North Hills, Raleigh, North Carolina 27609. Copies of this proxy statement and accompanying proxy card were mailed to shareholders on or about April 29, 2008.

Revocability of Proxies

Any shareholder giving a proxy has the power to revoke it at any time before it is voted by giving a later proxy or written notice to us (Attention: Stacey Koble, Corporate Secretary), or by attending the meeting and voting in person.

Voting

When the enclosed proxy is properly executed and returned (and not subsequently properly revoked), the shares it represents will be voted in accordance with the directions indicated thereon, or, if no direction is indicated thereon, it will be voted:

(1) FOR the election of the five Class II Director nominees identified herein;

(2) FOR ratification of the appointment of Dixon Hughes PLLC, Raleigh, North Carolina, as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and

(3) in the discretion of the proxies with respect to any other matters properly brought before the shareholders at the meeting.

Broker non-votes, abstentions and votes withheld from any director will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions, withheld votes and broker non-votes, if any, are not treated as votes cast and, therefore, will have no effect on the voting on the election of directors or the ratification of the appointment of auditors. Although there is no definitive statutory or case law in North Carolina regarding broker non-votes and abstentions, we believe that our intended treatment of them is appropriate. An independent inspector of elections will count all votes cast at the meeting.

Record Date

Only the holders of record of our common stock at the close of business on the record date, April 11, 2008, are entitled to notice of and to vote at the meeting. On the record date, 7,162,316 shares of our common stock were outstanding. Shareholders are entitled to one vote for each share of common stock held on the record date.

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PROPOSAL NO. 1 — ELECTION OF DIRECTORS

Director Independence

Although our common stock is not listed on Nasdaq, our board of directors has determined to apply Nasdaq’s test for director independence to all of our directors. All of our directors and director nominees are independent under Nasdaq Rule 4200(a)(15) except Larry D. Barbour, our President and Chief Executive Officer. While directors or their associates may obtain loans from our subsidiary North State Bank, these loans do not affect a director’s independence provided each loan is made in compliance with the provisions of the Federal Reserve Board Regulation O and is made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with others and do not involve more than the normal risk of collectibility or present other unfavorable features, and no loan may be classified as non-accrual, restructured or a potential problem loan. The board of directors considered the lease between our company and a company managed by C. Thomas Hendrickson in determining Mr. Hendrickson’s independence. This lease is described under “Other Information—Transactions with Management.”

Director Classes

Our board of directors is divided into three classes. Each year, one class is elected to serve for three years. At our annual meeting, five Class II directors will be elected for a term of three years, expiring in 2011, or until their successors are elected and qualified. The Class II directors standing for re-election in 2008 and their respective biographical summaries are:

Nominees

Name	Age (as of 03/31/08)	Director Since(1)	Business Experience For Last Five Years
Larry D. Barbour	58	2000	President and Chief Executive Officer, North State Bancorp, Raleigh, North Carolina, since June 2002; President and Chief Executive Officer, North State Bank, Raleigh, North Carolina, since November 1999.
Charles T. Francis	45	2000	Managing Member/Attorney, The Francis Law Firm, PLLC, Raleigh, North Carolina.
Ambassador Jeanette W. Hyde(1)	69	2000	Private investments, Raleigh, North Carolina, since 1998; prior to that, U.S. Ambassador to Barbados and the Eastern Caribbean Countries, since 1994.
Brig. Gen. (Retired) Gary H. Pendleton	60	2000	President/Owner, Preferred Planning & Insurance, Inc., Raleigh, North Carolina.
Fred J. Smith, Jr.	66	2000	Chief Executive Officer, Fred Smith Family Company, Clayton, North Carolina; Managing Member, Riverwood Golf & Athletic Club, LLC, Raleigh, North Carolina; Chief Executive Officer, C.C. Mangum Co., LLC, Raleigh, North Carolina, since 2005.

(1) Includes service as a director of our subsidiary, North State Bank, prior to its holding company reorganization, including the formation of North State Bancorp, in 2002.

(2) Jeanette W. Hyde’s niece is married to director C. Thomas Hendrickson.

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Vote Required

The five nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to be voted at the meeting shall be elected as directors. Shareholders do not have cumulative voting rights. Your vote may be cast for or withheld from each nominee.

Our Board of Directors has unanimously approved and recommends that shareholders vote “FOR” the election of the Class II director nominees listed above.

PROPOSAL NO. 2 —

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has appointed the firm of Dixon Hughes PLLC, Raleigh, North Carolina, to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2008. The Board of Directors has ratified this appointment and recommends that the shareholders ratify this appointment. If the appointment of Dixon Hughes PLLC is not ratified by the shareholders, the Audit Committee will reconsider, but might not change, its selection.

Dixon Hughes PLLC has audited our consolidated accounts since we were formed in June 2002, and has audited the accounts of our subsidiary, North State Bank, since it began operations in June 2000, and has advised us that it does not have, and has not had, any direct or indirect financial interest in our company or our subsidiary in any capacity other than that of serving as independent registered public accounting firm. Representatives of Dixon Hughes PLLC are expected to attend the annual meeting. They will have an opportunity to make a statement, if they desire to do so, and will also be available to respond to appropriate questions.

Vote Required

The affirmative vote of the holders of a majority of the shares of our common stock present or represented and voting on this proposal at the meeting shall constitute ratification of the appointment of Dixon Hughes PLLC.

Our Board of Directors has unanimously approved and recommends a vote “FOR” the ratification of the appointment of Dixon Hughes PLLC as our independent registered public accounting firm for the fiscal year ending December 31, 2008.

OTHER INFORMATION

Principal Shareholders

The following table sets forth certain information regarding the ownership of shares of our common stock as of March 31, 2008 by (1) each person known by us to beneficially own more than 5% of the outstanding shares of common stock, (2) each director of our company, (3) each of the Named Executive Officers, as listed in the Summary Compensation Table below, and (4) all directors and executive officers of our company as a group.

This table is based upon information supplied by our executive officers, directors and principal shareholders and from Schedules 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Share ownership in each case includes shares issuable upon exercise of options that may be exercised within 60 days after March 31, 2008 for purposes of computing the percentage of common stock owned by such person, but not for purposes of computing the percentage owned by any other person. Unless otherwise noted, the address for each person listed is 4270 The Circle at North Hills, Raleigh, North Carolina 27609. Applicable percentages are based on 7,157,747 shares outstanding on March 31, 2008.

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Name of Beneficial Owner	Shares Beneficially Owned	Percentage Owned (%)
Forrest H. Ball	224,211	3.13
Larry D. Barbour (1)	192,138	2.68
James C. Branch (2)	76,575	1.07
Charles T. Francis (3)	74,841	1.05
Glenn E. Futrell (4)	322,493	4.51
C. Thomas Hendrickson (5)	241,344	3.37
Jeanette W. Hyde (6)	104,984	1.47
J. Keith Keener, M.D. (7)	202,437	2.83
Hon. Burley B. Mitchell, Jr.	50,008	*
Barry W. Partlo	23,792	*
Gary H. Pendleton (8)	64,440	*
W. Harold Perry (9)	382,800	5.35
Nutan T. Shah (10)	268,748	3.75
Fred J. Smith, Jr. (11)	1,200,077	16.76
Jack M. Stancil	84,674	1.18
David M. Shipp	-0-	-0-
Sandra A. Temple (12)	57,798	*
Kirk A. Whorf (13)	51,733	*
All directors and executive officers as a group (18 persons) (14)	3,623,093	50.62	%

* Less than 1%.

(1) Includes 110,974 shares of common stock obtainable upon exercise of stock options.

(2) Includes 16,536 shares of common stock held by Mr. Branch’s minor children.

(3) Includes 30,252 shares held jointly by Mr. Francis and his wife.

(4) Includes 142,701 shares of common stock held by Mr. Futrell’s wife.

(5) Includes 84,792 shares of common stock obtainable upon exercise of stock options, 103,323 shares of common stock held jointly by Mr. Hendrickson and his wife and 4,626 shares held by Mr. Henderickson’s wife.

(6) Includes 22,328 shares of common stock obtainable upon exercise of stock options.

(7) Includes 183,726 shares held by a limited partnership of which Mr. Keener is a partner.

(8) Includes 38,246 shares held by Mr. Pendleton’s company.

(9) Includes 355,244 shares of common stock held jointly by Mr. Perry and his wife and 1,000 shares held by Mr. Perry as custodian for the benefit of his grandchild.

(10) Includes 92,988 shares held by Mr. Shah’s wife.

(11) Includes 20,667 shares held by Mr. Smith’s wife and 235,674 shares held by his company.

(12) Includes 23,667 shares of common stock obtainable upon exercise of stock options.

(13) Includes 450 shares of common stock obtainable upon exercise of stock options.

(14) Includes information contained in (1) – (13).

As of March 31, 2008, none of the shares of our common stock reported above were pledged as security for a loan to either our bank subsidiary, North State Bank, or any other financial institution, except for the following: C. Thomas Hendrickson, 45,856 shares (loan extended to him by our bank); Fred J. Smith, Jr., an aggregate of 1,113,532 shares; Kirk A. Whorf, 36,100 shares; and Sandra A. Temple, 26,000 shares.

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Other Directors

Class III Directors – Term Expiring 2009

Name	Age (as of 03/31/08)	Director Since(1)	Business Experience For Last Five Years
James C. Branch	56	2000	President, Hand-up Foundation since 2006; President, Nova Development Group, Raleigh, North Carolina, from 1981 to 2006.
Glenn E. Futrell	66	2000	President/Owner, Roanoke Properties Limited Partnership, Manteo, North Carolina, since 1984; since May 2003, director of Waste Industries USA, Inc., a publicly traded waste management company headquartered in Raleigh, North Carolina.
J. Keith Keener, M.D.	58	2000	Senior Partner, Wake Nephrology Associates, Physician, Raleigh, North Carolina, since 1983.
W. Harold (Hal) Perry	58	2000	Broker/Owner, RE/MAX UNITED; President, Real Estate Marketing & Consulting, Inc., Raleigh, North Carolina, since 1993.
Jack M. Stancil	66	2000	Vice President, Stancil & Company, Certified Public Accountants, Raleigh, North Carolina, since 2001, and President from 1975 to 2001.

(1) Includes service as a director of our subsidiary, North State Bank, prior to its holding company reorganization, including the formation of North State Bancorp, in 2002.

Class I Directors – Term Expiring 2010

Name	Age (as of 03/31/08)	Director Since(1)	Business Experience For Last Five Years
Forrest H. Ball	64	2000	President, Hartwell Realty, Inc., Garner, North Carolina since 1986.
C. Thomas Hendrickson (2)	51	2000	C. Thomas Hendrickson, Attorney at Law; Principal, Hendrickson Properties, Raleigh, North Carolina.
Honorable Burley B. Mitchell, Jr.	67	2000	Member/Attorney, Womble Carlyle Sandridge & Rice, PLLC, Raleigh, North Carolina, since 1999; Prior to that, Chief Justice, North Carolina Supreme Court, Raleigh, North Carolina, since February 1982.
Barry W. Partlo	49	2003	President/Owner, Agri Supply Company, Inc., Garner, North Carolina.
Nutan T. Shah	62	2000	President and Chief Executive Officer, Nine Points, Inc., Raleigh, North Carolina since 1997.

(1) Includes service as a director of our subsidiary, North State Bank, prior to its holding company reorganization, including the formation of North State Bancorp, in 2002, except for Mr. Partlo who was first elected in 2003.

(2) Director C. Thomas Hendrickson is married to the niece of Director Jeanette W. Hyde.

Director Compensation

In fiscal 2007, our directors received a $1,000 annual retainer, except for the Chairman of the Board and the Chairman of the Audit Committee, the Loan Committee, the Executive Committee, the Community Reinvestment Act (CRA) Committee

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and the Compensation Committee, who received annual retainers of $3,500, $3,500, $3,500, $2,000, $1,550 and $3,000, respectively, and the Vice Chairman of the Loan Committee, the Compensation Committee, the Asset/Liability Committee and the Audit Committee, who received annual retainers of $2,750, $2,500, $2,000 and $1,750, respectively. Directors also received $250 for each Board meeting, $350 for each Executive Committee meeting, $250 for each Audit Committee, Loan Committee, CRA Committee and Asset/Liability Committee and $200 for each Compensation Committee and Real Estate Committee meeting, whether they attended the meetings or not.

In December 2001, we implemented a non-qualified deferred compensation plan for directors. Under the plan, a director could elect to defer receipt of all or a portion of his or her director’s fees that would otherwise be payable in cash. At the end of each calendar year, the deferred fees were converted, using a formula based upon 125% of the dollar amount of fees deferred and the fair value of our common stock at the beginning of the year, into a hypothetical number of shares, or phantom shares, credited to the director’s account. The deferral plan was implemented early in our operations and was used as a means to not have to pay cash to directors as well as to serve as incentive compensation by tying the value of the deferred accounts to our stock price. Based on the increase in the value of these deferred accounts over time due to the increase in our stock price, which we deemed sufficient compensation for our directors, and due to the charge to earnings required annually as the deferred accounts increased in value, effective December 31, 2006, the amount of phantom shares credited to a director under the plan was converted to a cash amount based on a value of $24.00 per phantom share. Beginning January 1, 2007, this amount was credited to a bookkeeping account for each director, and each month a rate of earnings is credited to the account for the month equal to the 3-month LIBOR rate in effect on the last business day of the month plus 2%. The amount credited to the account will be paid to the director or to his beneficiary upon termination of his or her directorship, a specific date selected by the director, a change of control, unforeseeable emergency, or death. Beginning in April 2008, a director who has a deferred account may elect to have all or a portion of his or her account purchase shares of our common stock either in open market purchases or through the issuance of shares from our authorized stock. The shares so purchased would be held by a third party trustee in a rabbi trust for the benefit of our company until the director has elected to be paid out.

In late 2006 we approved a new deferred compensation plan for directors. Under this plan, a director may elect to defer the payment of all or a portion of his or her director’s fees, beginning with 2007 fees that would otherwise have been paid currently. Fees deferred are credited to a bookkeeping account kept by us for the director. Each month the bookkeeping account is increased for additional deferred amounts. The amount credited to the bookkeeping account will be paid to the director or to his or her beneficiary upon termination of his or her directorship, a specific date selected by the director, a change of control, unforeseeable emergency, or death. In 2007, the fees deferred were increased by 25%. Beginning in January 2008, we discontinued the 25% increase for fees earned that are also deferred.

Beginning in January 2008, we established an incentive cash compensation program pursuant to which an aggregate of 2.5% of our net income in fiscal year 2008 will be paid to the directors. In each subsequent year, the amount will be an aggregate of 5.0% of our net income in that year. The amount to be paid to a director will be based on his or her attendance. The number of meetings attended by a director in a year will be divided by the total meetings held by the board and all committees in that year. The resulting fraction will be the amount of the compensation pool in that year to which the director will be entitled for that year.

In 2000, we granted to our directors stock options for an aggregate of 578,586 shares of our common stock to serve as long-term incentive compensation. For the same purpose, in 2003, we granted an option for 11,387 shares to a director at the time of his election to the board in that year. We do not grant stock options to non-employee directors on an annual or other regular basis and did not grant any options to our non-employee directors in 2007. We believe that the initial grants of options as described have adequately served, to date, as appropriate long-term incentive compensation to our non-employee directors. We might in the future consider additional equity-based compensation for our non-employee directors.

The following table shows the compensation earned by each of our non-employee directors for the year ended December 31, 2007.

Non-Employee Director Compensation in Fiscal 2007

Name (1)	Fees Earned or Paid in Cash (2)		Option Awards ($)(3)		Change in Nonqualified Deferred Compensation Earnings (4)		All Other Compensation ($)(5)		Total ($)
Forrest H. Ball	$	6,850	$	-0-	$	2,025	$	1,712.50	$	10,587.50
James C. Branch		3,550		-0-		371		887.50		4,808.50
Charles T. Francis		10,700		-0-		756		2,675		14,131
Glenn E. Futrell		8,500		-0-		1,728		2,125		12,353

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Name (1)	Fees Earned or Paid in Cash (2)	Option Awards ($)(3)	Change in Nonqualified Deferred Compensation Earnings (4)	All Other Compensation ($)(5)	Total ($)
C. Thomas Hendrickson	6,850	-0-	-0-	1,712.50	8,562.50
Jeanette W. Hyde	4,500	-0-	644	1,125	6,269
J. Keith Keener, M.D.	12,950	-0-	1,153	3,237.50	17,340.50
Hon. Burley B. Mitchell, Jr.	4,500	-0-	-0-	1,125	5,625
Barry W. Partlo	4,250	-0-	433	1,062.50	5,745.50
Gary H. Pendleton	7,250	-0-	1,855	1,812.50	10,917.50
W. Harold Perry	11,600	-0-	1,200	2,900	15,700
Nutan T. Shah	6,750	-0-	600	1,687.50	9,037.50
Fred J. Smith, Jr.	13,950	-0-	2,647	3,487.50	20,084.50
Jack M. Stancil	12,450	-0-	2,867	3,112.50	18,429.50
George C. Venters, M.D.(6)	4,250	-0-	889	1,062.50	6,201.50

(1) Larry D. Barbour, our President and Chief Executive Officer, is not included in this table as the fees he received as a director in 2007 are disclosed in the column titled “All Other Compensation” in the Summary Compensation Table below.

(2) Consists of the annual board retainer, board and committee meeting fees, and committee chair retainers. Each non-employee director deferred all of his or her 2007 cash compensation pursuant to the deferred compensation plan for directors.

(3) As of December 31, 2007, the number of shares underlying options held by each non-employee director was as follows: 20,965 shares for Mr. Ball; no shares for Mr. Branch; no shares for Mr. Francis; no shares for Mr. Futrell; 84,792 shares for Mr. Hendrickson; 22,328 shares for Ms. Hyde; no shares for Dr. Keener; no shares for Mr. Mitchell; 2,278 shares for Mr. Partlo; no shares for Mr. Pendleton; no shares for Mr. Perry; no shares for Mr. Shah; 57,520 shares for Mr. Smith; no shares for Mr. Stancil; and no shares for Dr. Venters.

(4) Consists of interest earned on the director’s deferred compensation account that was deemed to be above market rate. Mr. Hendrickson and Mr. Mitchell earned no interest as their accounts were paid out to them in January 2007.

(5) Consists of an amount equal to 25% of the directors fees earned in 2007 due to the deferral of those fees.

(6) Dr. Venters resigned from the board on March 3, 2008.

Board of Director Meetings

The business of our company is under the general oversight of the Board of Directors as provided by the laws of North Carolina and our bylaws. During the fiscal year ended December 31, 2007, the Board of Directors held eight meetings. Each person who was a director during 2007 attended at least 75% of the Board of Directors meetings and the meetings of the committees on which he or she served.

As a community banking organization, we strongly encourage all of our directors to attend our annual meetings of shareholders. At the 2007 annual meeting, 13 of our then 16 directors were in attendance.

Committees

Our board of directors has established, among others, an Executive Committee, an Audit Committee, a Compensation Committee, a Loan Committee and an Asset/Liability Committee. The Executive, Loan and Asset/Liability Committees are not subject to independence standards as are the Audit and Compensation Committees.

Executive Committee. The Executive Committee is composed of directors Ball, Barbour (Chairman), Francis, Hendrickson, Keener, Perry, Smith and Stancil. The Executive Committee has the power to act on behalf of the full Board of Directors in nearly all matters concerning our operations. The Executive Committee also serves as the nominating committee, and, in this capacity, recommends to the Board the names of persons to be considered for nomination and election to the Board. The Executive Committee does not operate pursuant to a written charter. For a discussion of the Committee’s process for director nominations, see “Director Nominations.” The Executive Committee held 12 meetings in 2007.

Audit Committee. The Audit Committee is composed of directors Stancil (Chairman), Hyde, Francis (Vice Chairman), Mitchell and Shah, none of whom are our employees. The Audit Committee is responsible for the hiring and retention of our independent auditors. In addition, the Audit Committee reviews the findings of external audits and

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examinations, provides general oversight of the internal audit function, oversees our risk management function, and reviews the activities of our regulatory compliance efforts. The Audit Committee operates pursuant to a written charter, a copy of which was provided to shareholders in our proxy statement for the 2006 annual meeting of shareholders. The Audit Committee held six meetings in 2007.

Compensation Committee. The Compensation Committee is composed of directors Francis, Keener, Smith (Chairman) and Stancil, none of whom are our employees.

The Compensation Committee is responsible for evaluating and determining the compensation of our Chief Executive Officer and the Board of Directors. The Compensation Committee operates pursuant to a written charter, a copy of which was provided to shareholders in our proxy statement for the 2007 annual meeting of shareholders. The Compensation Committee may not delegate its authority to another body or entity.

In carrying out its duties, the Compensation Committee does not allow our President and Chief Executive Officer, Larry D. Barbour, to participate in the Committee’s deliberations on Mr. Barbour’s compensation, but may solicit his input. The Compensation Committee held six meetings in 2007.

Loan Committee. The Loan Committee is composed of directors Glenn E. Futrell (Chairman), Larry D. Barbour, J. Keith Keener, Barry W. Partlo, Gary H. Pendleton and W. Harold Perry (Vice Chairman). The Loan Committee is responsible for reviewing our loan portfolio and approving loans in excess of $3 million.

Asset/Liability Committee. The Asset/Liability Committee is composed of our Chief Financial Officer, Kirk A. Whorf (Chairman), and directors Larry D. Barbour, Barry W. Partlo, Gary H. Pendleton and Nutan T. Shah. The Asset/Liability Committee is responsible for managing the interest rate risk associated with our deposits and loans, oversight of the investment portfolio and overall bank funding.

Executive Officers

The following table sets forth certain information concerning our executive officers as of March 31, 2008:

Name	Age (as of 03/31/08)	Position with North State Bank and Business Experience for Last Five Years
Larry D. Barbour	58	President and Chief Executive Officer, North State Bancorp, Raleigh, North Carolina, since June 2002; President and Chief Executive Officer, North State Bank, Raleigh, North Carolina, since November 1999.
David M. Shipp	51	Executive Vice President and Chief Credit Officer since September 2007, North State Bank, Raleigh, North Carolina; prior to that, various positions, most recently Senior Vice President, with Wachovia Bank, Raleigh, North Carolina from 1987 to August 2007.
Sandra A. Temple	56	Executive Vice President since July 2005 (Senior Vice President from March 2000 to July 2005) and Chief Operations Officer since March 2000, North State Bank, Raleigh, North Carolina, since March 2000.
Kirk A. Whorf	50	Chief Financial Officer, North State Bancorp, Raleigh, North Carolina, since June 2002; Executive Vice President since July 2005 (Senior Vice President from March 2000 to July 2005) and Chief Financial Officer since March 2000, North State Bank, Raleigh, North Carolina.

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Compensation Discussion and Analysis

General

The Board of Directors, acting on its own and through the Compensation Committee, seeks to establish and implement a compensation system that is performance-oriented and designed to enable us to attract, retain and motivate our executive officers, reward performance for an individual’s contribution to our company, provide long-term incentive compensation through equity grants, and promote long-term shareholder value. The Board of Directors sets the compensation for our Chief Executive Officer. Our Chief Executive Officer sets the compensation for our other executive officers and advises the Compensation Committee on that compensation. While our President and Chief Executive Officer reviews and discusses with the Compensation Committee the salaries and incentive compensation for all of our Named Executive Officers, he was and is excluded from discussions regarding his own salary, incentive cash compensation and incentive stock compensation. We refer to our Chief Executive Officer and the other executive officers named in the Summary Compensation Table below as our Named Executive Officers.

Base Salary

The Compensation Committee establishes the base salary for our Chief Executive Officer, Larry D. Barbour. The Chief Executive Officer establishes the base salary for the other Named Executive Officers and all other employees, which salaries are reviewed by the Compensation Committee. Mr. Barbour does not participate in the discussion or determination of his own salary. The Compensation Committee has in the past reviewed comparisons of executive compensation prepared by an industry association, but only as a guide to determine if our salaries were competitive, not as a means to establish or otherwise benchmark the salaries we pay our Named Executive Officers. In 2008, the Compensation Committee hired VisionLink for Banks, a compensation consultant based in Austin, Texas, to assist the Compensation Committee to advise the Compensation Committee on the level and components of compensation paid to our Chief Executive Officer and the board of directors.

In establishing base salaries, the Compensation Committee strives to set fair and competitive salaries. The Committee believes that salaries should be set high enough to attract and retain our Named Executive Officers and other officers and employees. In this manner, base salaries provide sufficient compensation for continued performance by a Named Executive Officer in the event that our company’s performance does not generate incentive cash compensation in a given year. The Committee believes this leads toward longevity and stability among our Named Executive Officers and other officers and employees. We generally increase base salaries each year to provide continued incentive to remain in our employment. We also will provide larger salary increases, if appropriate, to recognize a Named Executive Officer’s performance and contributions to our company over the course of his or her employment. In some cases, an increase also will take into account the length of time that has elapsed since a Named Executive Officer’s last significant salary increase.

Incentive Cash Compensation

We provide additional cash compensation in the form of an annual management cash incentive plan. Within the plan, each Named Executive Officer can receive incentive cash compensation of up to a designated dollar amount or a percentage of his or her salary. The Compensation Committee establishes the goals and amounts for our Chief Executive Officer and he, in turn, establishes the goals and amounts for the other Named Executive Officers, which he reviews with the Compensation Committee. The dollar amount and percentages are established each year at the time the plan is developed. In the first quarter of each year, company performance goals are established. In addition, personal goals may be established for each Named Executive Officer. Personal goals, if established, are tied to performance within the Named Executive Officer’s area of responsibility and his or her job functions. Alternatively, we may establish more general strategic leadership goals for each Named Executive Officer or combine these goals with specific performance goals. In addition, each company goal and personal goal, if any, generally is assigned a percentage of the Named Executive Officer’s potential incentive cash compensation; if less than all of a particular goal is met, the Named Executive Officer’s potential incentive cash compensation will be reduced accordingly. In 2007, the designated dollar amount that Mr. Barbour could earn was $135,000 and the percentage of salary that could be earned as incentive cash compensation was 30% for Mr. Whorf and Ms. Temple and 25% for Mr. Rogers. Mr. Shipp was not eligible to participate in the plan in 2007 because he was hired in September, which was deemed too late in the year to establish meaningful goals for him.

For 2007, Mr. Barbour had four goals: loan, deposit, and total asset growth compared to the 2007 operating plan (25%); earnings per share for the year compared to the 2007 operating plan (25%); risk management goals consisting of reductions in loan exceptions, loan charge offs and non-performing loans (25%); and subjective goals related to strategic planning for our company (25%).

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For Mr. Whorf, Ms. Temple and Mr. Rogers, the company goals in 2007, and the weight assigned to each, were an average loan portfolio for 2007 of $458.6 million (20%), average deposits for 2007 of $496.7 million (20%), and goals tied to the bank’s regulatory examinations and/or the company’s internal audit department findings (10%). The remaining 50% of the incentive cash compensation was dependent on the Named Executive Officer demonstrating sufficient progress in strategic leadership and personal growth and development in 2007. There were no specific personal goals established for 2007. In addition, if the annual average loan portfolio and deposit goals were achieved, each Named Executive Officers could receive an additional 1% of his or her target incentive for each whole percentage point by which each goal was exceeded. Further, if at year end the bank did not have a designated regulatory rating or the company’s pre-tax income (before payment of any incentive cash compensation) was less than $7,082,225, no incentive cash compensation would be earned by a Named Executive Officer.

In 2007, as a result primarily of a decreasing interest rate environment, which reduced our interest rate margin and spread, as well as costs associated with constructing, equipping and staffing our new offices, and an increase in our loan loss reserve due to a 36% increase in our loan portfolio in the fourth quarter, the company goals related to pre-tax income and deposits were not met, either in the case of Mr. Barbour or the other Named Executive Officers. Consequently, none of the Named Executive Officers were entitled to incentive cash compensation. On the other hand, the great majority of the Named Executive Officers’ personal goals were met, except for Mr. Roger’s goals related to the loan portfolio. Because of the efforts expended by Mr. Barbour and the other Named Executive Officers, awards were made to Mr. Barbour of approximately 15%, to Mr. Whorf of approximately 11%, to Ms. Temple of approximately 11% and to Mr. Rogers of approximately 5% of the incentive compensation that they each would have been entitled to had the company goals been met. The Compensation Committee viewed this as appropriate action to reward these Named Executive Officers’ performance in a difficult economic environment.

Long-Term Equity Compensation

As part of our philosophy of providing long-tem incentive compensation to our employees, which we believe encourages better performance and resulting benefits to our shareholders, we grant stock options from time to time to employees. When our bank was established in June 2000, we granted options to all of our executive officers at the time, which included three of our Named Executive Officers. Thereafter, as individuals have been hired, they are considered for option grants, based on their performance. In some cases, options are granted upon an executive’s hiring as an inducement to his or her employment. These grants are recommended by our Chief Executive Officer and reviewed by the Compensation Committee. We do not grant options to officers or employees on a regular annual basis or pursuant to any established formula. We granted Mr. Rogers options upon his employment in 2004. In 2006, we granted stock options to a broad group of our employees, including our Named Executive Officers, except for our Chief Executive Officer, due to the positive performance of our company and the fact that many of our officers and employees had not received an option grant since we began operations in 2000. This grant was in line with our belief in tying our Named Executive Officers’ compensation, as well as that of our other employees, to our company’s performance and specifically our stock price. We granted options to Mr. Shipp upon his employment in 2007.

Employment and Change in Control Agreements

We have used a limited number of employment and change in control agreements as a means to attract and retain executive officers. These are more fully discussed under “ –Employment and Change in Control Agreements” below. We believe that these agreements provide our executive officers with the assurance that their employment is a long-term arrangement and provide us with the assurance that the officers’ services will be available to us for the foreseeable future.

These agreements also provide our executive officers with assurance that their compensation will be protected in the event there is a change in control of our company. Business combination transactions are not uncommon in the financial industry generally or among North Carolina community banks and bank holding companies specifically. As a result, change in control agreements are standard among North Carolina banks and many executive officers demand such agreements as a condition of their employment. At the same time, we believe these provisions are beneficial to our company by providing a contractual financial incentive for executives to maximize shareholder value even when facing a potential outcome, a change-in-control and termination of employment, that may not be in the personal interest of the executive officer. For any severance to be due under our change in control agreements, each agreement requires both a change in control and a change in the officer’s status within a pre-determined period of time which adversely affects the officer, commonly referred to as a “double trigger” payment. In this way, the executive officer cannot simply leave employment after a change in control and collect severance.

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Summary Compensation Table

The following table sets forth all compensation we paid in the fiscal years ended December 31, 2006 and 2007 to our Named Executive Officers.

Name and Principal Position	Year	Salary		Bonus		Option Awards (1)		Non-Equity Incentive Plan Compensation		Change in Nonqualified Deferred Compensation Earnings (2)		All Other Compensation (3)		Total
Larry D. Barbour	2007	$	275,028		-0-		-0-	$	20,000	$	13,456	$	71,649	$	380,133
President and Chief Executive Officer	2006	$	250,005	$	100,000		-0-		-0-	$	65,824	$	128,092	$	478,097
Kirk A. Whorf	2007	$	131,706		-0-	$	2,534	$	4,500		-0-	$	8,716	$	147,456
Chief Financial Officer and Executive Vice President	2006	$	112,005		-0-	$	1,056	$	30,000		-0-	$	7,263	$	150,324
David M. Shipp (4)	2007	$	40,389		-0-	$	9,696		-0-		-0-	$	2,400	$	52,485
Chief Credit Officer and Executive Vice President
Sandra A. Temple	2007	$	135,901		-0-	$	3,800	$	5,000		-0-	$	11,107	$	155,808
Chief Operations Officer and Executive Vice President	2006	$	114,944		-0-	$	1,584	$	30,000		-0-	$	8,130	$	154,658
Walter G. Rogers (5)	2007	$	110,348		-0-	$	2,534	$	1,500		-0-	$	12,859	$	127,241
Chief Credit Operations Officer and Executive Vice President	2006	$	108,030		-0-	$	1,056	$	13,000		-0-	$	16,040	$	138,126

(1) The dollar value represents the amount we recognized for financial statement purposes in accordance with FAS 123R, applying the Black-Scholes valuation model and the same assumptions used in our financial statements and accompanying notes, except that for purposes of this table and in accordance with SEC disclosure rules, we have disregarded the estimate of forfeitures related to service-based vesting conditions. There were no forfeitures of options in 2006 or 2007 among our Named Executive Officers.

(2) For a description of the directors deferred compensation plan, see “Director Compensation”. Mr. Barbour, as the only employee director we have, is the only Named Executive Officer to participate in the directors deferred compensation plan. Consists of interest earned on the director’s deferred compensation account that was deemed to be above market rate.

(3) These amounts represent the following in 2007 and 2006, respectively: for Mr. Barbour, $17,228 and $15,000 in 401(k) matching contributions, $1,831 and $999 in life insurance premiums paid by us on his behalf, $26,772 and $26,772 in automobile allowance, $10,693 and $4,872 in country club dues, $12,100 and $11,700 in directors fees, all of which director fees Mr. Barbour deferred pursuant to the directors deferred compensation plan, $3,025 and $2,925, which was equal to 25% of his directors fees earned in 2007 and 2006, respectively, due to the deferral of those fees, and $3,154 in interest earned in 2007 on his deferred compensation account that was deemed to be above market rate; for Mr. Whorf, $7,902 and $6,720 in 401(k) matching contributions and $814 and $543 in life insurance premiums paid by us on his behalf; for Mr. Shipp (2007 only), $2,250 in 401(k) matching contributions and $150 in life insurance premiums paid by us on his behalf; for Ms. Temple, $8,154 and $6,562 in 401(k) matching contributions and $2,953 and $1,568 in life insurance premiums paid by us on her behalf; and for Mr. Rogers, $6,621 and $6,482 in 401(k) matching contributions, $5,520 and $4,872 in country club dues, and $718 and $531 in life insurance

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premiums paid by us on his behalf.

(4) Mr. Shipp began employment in September 2007.

(5) Mr. Rogers became Chief Credit Operations Officer in September 2007, a non-executive officer position; prior to that he was Chief Credit Officer.

Incentive Cash Compensation Awards and Equity Grants, Exercises and Holdings

Incentive Cash Compensation Awards and Option Grants

The following table sets forth information concerning potential incentive cash compensation capable of being earned in and all grants of stock options made during the year ended December 31, 2007 to the Named Executive Officers.

Grants of Plan-Based Awards in Fiscal 2007

	Grant Date	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)				All Other Option Awards; Number of Securities Underlying Options	Exercise Price of Option Award		Grant Date Fair Value of Option Awards(2)
Name		Threshold	Target		Maximum
Larry D. Barbour	N.A.	N.A.		N.A.	N.A.	-0-		—		-0-
Kirk A. Whorf	N.A.	—	$	42,000	—	-0-		—		-0-
David M. Shipp	9/10/07	N.A.		N.A.	N.A.	15,000	$	17.00	$	145,444
Sandra A. Temple	N.A.	—	$	43,724	—	-0-		—		-0-
Walter G. Rogers	N.A.	—	$	28,751	—	-0-		—		-0-

(1) Under the 2007 incentive cash compensation plan, there was no minimum or threshold payout amount. The target amount reflects the percentage of the Named Executive Officer’s salary that could be earned as incentive cash compensation. The maximum amount is not calculable as the Named Executive Officer was entitled to an additional 1% of his or her target incentive for each whole percentage point by which the goals on annual average loan portfolio and annual average deposits were exceeded.

(2) The grant date fair value of the award was calculated in accordance with FAS 123R. In contrast to how we present amounts in the Summary Compensation Table, we report such amounts here without apportionment over the service or vesting period.

Option Holdings and Fiscal Year-End Option Values

The following table sets forth information concerning unexercised options held by each Named Executive Officer as of December 31, 2007.

Outstanding Equity Awards at Fiscal Year-End 2007

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price($)	Option Expiration Date
Larry D. Barbour	170,974	(1)	-0-		2.66	June 1, 2010
Kirk A. Whorf	450	(2)	1,800		11.29	August 7, 2016
David M. Shipp	-0-		15,000	(3)	17.00	September 10, 2017
Sandra A. Temple	22,991 675	(2) (2)	-0- 2,700		2.66 11.29	June 1, 2010 August 7, 2016
Walter G. Rogers	7,452 450	(4) (2)	4,968 1,800		5.15 11.29	March 17, 2014 August 7, 2016

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(1) The options were granted on June 1, 2000 and vested 20% on each of the subsequent five anniversary dates.

(2) The options were granted on August 7, 2006 and vest 20% on each of the subsequent five anniversary dates.

(3) The options were granted on September 10, 2007 and vest 20% on each of the subsequent five anniversary dates.

(4) The options were granted on March 17, 2004 and vest 20% on each of the subsequent five anniversary dates.

Option Exercises

The following table sets forth information on the aggregate number and value of all options exercised by Named Executive Officers in 2007.

Option Exercises in Fiscal 2007

	Option Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)
Larry D. Barbour	15,000	$	217,625
Kirk A. Whorf	-0-		-0-
David M. Shipp	-0-		-0-
Sandra A. Temple	30,000	$	400,149
Walter G. Rogers	-0-		-0-

(1) The aggregate value realized equals the difference between the fair market value of the shares acquired, based on the closing sale price, if any, or closing bid price per share of our common stock on the Over-the-Counter Bulletin Board on the date of exercise, and the exercise price for the underlying stock options.

2007 Nonqualified Deferred Compensation Table

We do not provide deferred compensation plans for our officers and employees. Our directors are entitled to participate in our Deferred Compensation Plan for Directors, which allows participants to defer all or a portion of the fees they receive for service as directors. We do not contribute to this plan nor is this plan tax-qualified. This deferral plan is more fully described under “Other Information – Director Compensation.” Our President and Chief Executive Officer, Larry D. Barbour, also is a director and participates in this plan.

The following table contains information with respect to the participation of Mr. Barbour in our Deferred Compensation Plan for Directors in fiscal 2007. All amounts deferred by Mr. Barbour in 2007 also are reported in the Summary Compensation Table.

Nonqualified Deferred Compensation

Name	Executive Contributions in 2007		Registrant Contributions in 2007	Aggregate Earnings in 2007		Aggregate Withdrawals/ Distributions	Aggregate Balance at 12/31/2007
Larry D. Barbour	$	12,100	-0-	$	16,481	-0-	$	208,070

Employment and Change in Control Agreements

We have entered into an employment agreement with Larry D. Barbour, our President and Chief Executive Officer. The agreement has a three-year term and automatically renews on June 1 of each year for an additional year, unless notice is given by us or Mr. Barbour at least 30 days before the renewal date, so that the term of the agreement will be for three years at all times. For fiscal 2008, Mr. Barbour’s annual salary is $325,000. If we terminate Mr. Barbour except for cause, he would receive three years of his most recent salary and incentive cash compensation and bonus, if any. In the event of our sale or other change in control that results in the termination or diminished compensation, duties or benefits of Mr. Barbour, or relocation requiring a change in his residence or a material increase in the amount of travel normally required of him, he would receive three times his most recent salary and incentive cash compensation and bonus, if any, and the continuation of health and other insurance benefits until age 65. Continuation of the health and other insurance benefits will cease if Mr. Barbour finds other employment that provides coverage. In addition, the ownership of all club memberships, automobiles and other

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perquisites in which Mr. Barbour is in possession prior to termination shall be transferred to him, at no cost to him, other than any income tax cost he may incur as a consequence of such transfer.

We also have entered into an agreement with each of David M. Shipp, Kirk A. Whorf and Sandra A. Temple whereby in the event of our sale or other change in control that results in the termination (other than for cause, death or retirement), diminished compensation or benefits, or relocation requiring a change in residence or a material increase in the amount of travel normally required of the officer, each agreement provides for the payment of three times the officer’s most recent salary and incentive cash compensation and bonus, if any, and the continuation of health and other insurance benefits for three years after termination, except that Mr. Shipp will receive benefits for 18 months after termination. Continuation of the health and other insurance benefits will cease if the officer finds other employment that provides coverage.

For all of these agreements, a change in control is defined as:

• the acquisition at any time by a person or group of shares of more than 40% of our common stock unless the acquisition is approved by our board of directors;

• the termination, for any reason other than death, disability or retirement, of a majority of our directors in a two-year period unless the election of or nomination for election of each new director during such period was approved by a vote of at least a majority of the directors still in office who were directors at the beginning of the period;

• approval by our shareholders of any sale or disposition of substantially all of the assets of our company; or

• approval by our shareholders of any merger or other consolidation that results in the persons who were shareholders immediately prior to the merger or consolidation owning less than 50% of stock of the surviving corporation.

If the severance payments called for in the agreements for Mr. Barbour, Mr. Whorf, Mr. Shipp and Ms. Temple had been triggered on December 31, 2007, we would have been obligated to make the following payments:

Name	Cash Payment Per Month (# of months paid)	Benefits ($ per month) and (# of months paid)				Number of Options that Would Vest (Market Value)(1)
Larry D. Barbour	$25,150 (36 mos.)	$	616	(84 mos.	)	-0-
Kirk A. Whorf	$11,668 (36 mos.)	$	537	(36 mos.	)	1,800 ($2,628)
David M. Shipp	$12,501 (36 mos.)	$	526	(18 mos.	)	15,000 ($-0-)
Sandra A. Temple	$12,146 (36 mos.)	$	803	(36 mos.	)	2,700 ($3,942)

(1) The market value equals the difference between $12.75, the fair market value of the shares that could be acquired based on the closing sale price per share of our common stock on the Over-the-Counter Bulletin Board on December 31, 2007 and the exercise prices for the underlying stock options.

Pursuant to the stock option agreements between us and the Named Executive Officers, in the event of a merger or other change in control of our company (as defined above), vesting of outstanding stock options will automatically accelerate.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management and, based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by:	THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
	Fred J. Smith, Jr., Chair Charles T. Francis J. Keith Keener, M.D. Jack M. Stancil

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Compensation Committee Interlocks and Insider Participation

Charles T. Francis, J. Keith Keener, M.D., Fred J. Smith, Jr. and Jack M. Stancil served as members of our Compensation Committee during all of 2007. None of these individuals was at any time during 2007 or at any other time an officer or employee of North State. No interlocking relationship exists between any member of our Compensation Committee and any member of any other company’s board of directors or compensation committee.

Transactions with Management

We have had, and expect to have in the future, banking transactions in the ordinary course of business with our executive officers, directors and their associates, on the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with third parties. In the opinion of our management, these transactions have not and will not involve more than the normal risk of collectibility or present other unfavorable features. All such outstanding loans were current and in good standing on December 31, 2007. These loans were made in compliance with federal banking regulations and therefore are allowed to be made under the provisions of the Sarbanes-Oxley Act of 2002.

We lease the space for our downtown Raleigh branch from a company of which our director, C. Thomas Hendrickson, is the manager. The rent began in November 2006 at the rate of $84,000 per year and increases by 5% in each of the five years of the lease. Our board of directors, without the involvement of Mr. Hendrickson, approved the lease after a review of its terms and upon the advice of management.

Report of the Audit Committee

The Audit Committee has reviewed and discussed our consolidated audited financial statements for fiscal 2007 with management. The Audit Committee has discussed with Dixon Hughes PLLC, our independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended. The Audit Committee has received the written disclosures and the letter from Dixon Hughes required by Independence Standards Board Standard No. 1, as modified or supplemented, and has discussed with Dixon Hughes its independence. Based on the review and discussions described above, among other things, the Audit Committee recommended to the Board of Directors that the consolidated audited financial statements be included in our Annual Report on Form 10-K for fiscal 2007.

The Board of Directors has determined that the members of the Audit Committee are independent as defined in Nasdaq Rule 4200(a)(15) although our common stock is not listed on Nasdaq. The Board of Directors also has determined that Jack M. Stancil is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K.

Audit Fees. Audit fees include fees billed to us by Dixon Hughes in connection with the annual audit of our consolidated financial statements, reviews of our interim financial statements, report production assistance related to these consolidated financial statements and review thereof. The aggregate fees billed or expected to be billed to us by Dixon Hughes for such audit services rendered for the fiscal years ended December 31, 2006 and 2007 were $83,065 and $84,550, respectively.

Audit-Related Fees. Audit related services consist solely of routine accounting consultations. The aggregate fees billed to us by Dixon Hughes for audit-related services for the fiscal years ended December 31, 2006 and 2007 were $7,750 and $6,100, respectively.

Tax Fees. Tax fees include corporate tax compliance, as well as counsel and advisory services. The aggregate fees billed to us by Dixon Hughes for tax related services for the fiscal years ended December 31, 2006 and 2007 were $9,975 and $9,650, respectively.

All Other Fees. There were no other fees billed to us by Dixon Hughes during the fiscal years ended December 31, 2006. During the fiscal year ended December 31, 2007, Dixon Hughes billed us $1,050 for consultations regarding our compliance with certain requirements of the Sarbanes-Oxley Act.

The Audit Committee of the Board of Directors considered all of the above activities to be compatible with the maintenance of Dixon Hughes’ independence. The Audit Committee discussed these services with Dixon Hughes and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

Although the Audit Committee does not have formal pre-approval policies and procedures in place, it pre-approved all

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of the services performed by Dixon Hughes as discussed above, as required by SEC regulation.

Submitted by:	The Audit Committee
	Jack M. Stancil, Chairman	Charles T. Francis
	Jeannette W. Hyde	Hon. Burley B. Mitchell, Jr.
	Nutan T. Shah

This Audit Committee Report shall not be deemed to be filed with the SEC or incorporated by reference into any of our previous or future filings with the SEC, except as otherwise explicitly specified by us in any such filing.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Securities Exchange Act, our directors and executive officers are required to file reports with the SEC indicating their holdings of and transactions in our equity securities. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required, there were no reports required under Section 16(a) of the Exchange Act which were not timely filed during the fiscal year ended December 31, 2007, except a report for Barry W. Partlo due on January 30, 2007 that was filed on March 15, 2007 for the acquisition of 1,518 shares upon option exercise, a report for W. Harold Perry due on March 17, 2007 that was filed on March 19, 2007 for the purchase of 1,000 shares, a report for Barry W. Partlo due on September 8, 2007 that was filed on January 29, 2008 for the for the acquisition of 1,518 shares upon option exercise, a report for Sandra A. Temple due on September 21, 2007 that was filed on October 1, 2007 for the sale of 82 shares, and a report for Kirk A. Whorf due on September 25, 2007 that was filed on September 26, 2007 for the sale of 200 shares.

CORPORATE GOVERNANCE

We have adopted a Code of Business Conduct that is designed to promote the highest standards of ethical conduct by our directors and employees. The Code of Business Conduct requires that our directors and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in our company’s best interest. In addition, as required by SEC regulations, we have adopted a Code of Ethics for our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions for our company.

As a mechanism to encourage compliance with the Code of Business Conduct and the Code of Ethics, we have established procedures to receive, retain, and address complaints received regarding accounting or auditing matters. These procedures ensure that individuals may submit concerns regarding questionable accounting or auditing matters in a confidential and anonymous manner.

DEADLINE FOR SHAREHOLDER PROPOSALS FOR 2009 ANNUAL MEETING

Shareholders having proposals that they desire to present at next year’s annual meeting of our shareholders should, if they desire that such proposals be included in our proxy statement relating to such meeting, submit such proposals in time to be received by us not later than December 31, 2008. To be so included, all such submissions must comply with the requirements of Rule 14a-8 promulgated under the Securities Exchange Act and we direct your close attention to that rule. In addition, management’s proxy holders will have discretion to vote proxies given to them on any shareholder proposal of which we do not have notice prior to March 16, 2009. Proposals should be mailed to the Corporate Secretary, 4270 The Circle at North Hills, Raleigh, North Carolina 27609.

DIRECTOR NOMINATIONS

The Executive Committee serves as the nominating committee. Because the Executive Committee serves in this function there is no nominating committee charter. Members of the committee are appointed by the Board. The committee is composed of Directors Ball, Barbour (Chairman), Francis, Hendrickson, Keener, Perry, Smith and Stancil, all of whom are considered by the Board to be independent directors within the meaning of Nasdaq Rule 4200(a)(15), except Mr. Barbour, our Chief Executive Officer and President.

The committee recommends to the Board the slate of director nominees to be proposed by the Board for election by the shareholders and any director nominees to be elected by the Board to fill interim director vacancies. In addition, this committee addresses general corporate governance matters on behalf of the Board. The committee also reviews the composition and function of the Board as a whole.

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The committee considers the following criteria in selecting nominees; personal qualities and characteristics, accomplishments, and reputation in the business community; financial, regulatory, and business experience; current knowledge and contacts in the communities in which we do business; ability and willingness to commit adequate time to Board and committee matters; fit of the individual’s skills with those of other directors and potential directors in building a Board that is effective and responsive to our needs; independence; and any other factors the Board deems relevant, including diversity of viewpoints, background, experience, and other demographics. In addition, prior to nominating an existing director for re-election to the Board, the committee will consider and review an existing director’s board and committee attendance and performance; length of board service; experience, skills, and contributions that the existing director brings to the board; and independence.

To identify nominees, the committee will rely on personal contacts as well as its knowledge of members of the local communities. We have not previously used an independent search firm to identify nominees.

The committee will consider nominees for the Board of Directors recommended by shareholders. A shareholder may submit a nomination for director by delivering to the Corporate Secretary a written notice stating the name and age of each nominee, the nominee’s principal occupation, and the number of shares of our common stock he or she beneficially owns. The written consent of the nominee to serve as a director must also be provided by the shareholder making the nomination.

SHAREHOLDER COMMUNICATIONS

Shareholders and other interested parties may communicate with the Board by writing to Larry D. Barbour, our President and Chief Executive Officer, at North State Bancorp, 4270 The Circle at North Hills, Raleigh, North Carolina 27609. Mr. Barbour will relay such communications to the Board of Directors.

OTHER MATTERS

The Board of Directors knows of no other business to be brought before the meeting, but intends that, as to any such other business, the shares will be voted pursuant to the proxy in accordance with the best judgment of the person or persons acting thereunder.

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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

NORTH STATE BANCORP

4270 The Circle at North Hills

Raleigh, North Carolina 27609

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS

May 29, 2008

The undersigned hereby appoints C. Thomas Hendrickson and Jack M. Stancil and each of them, as proxies, each with full power of substitution, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of North State Bancorp, a North Carolina corporation, held of record by the undersigned on April 11, 2008, at the Annual Meeting of Shareholders to be held at the Carolina Country Club, 2500 Glenwood Avenue, Raleigh, North Carolina, on May 29, 2008 at 4:30 p.m., or at any adjournment(s) thereof. The following proposals to be brought before the meeting are more specifically described in the accompanying proxy statement.

(1) Election of Directors:

¨  FOR ALL NOMINEES LISTED BELOW       (except as marked to the contrary below) ¨  WITHHOLD AUTHORITY TO VOTE FOR       ALL NOMINEES LISTED BELOW

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES STRIKE A LINE THROUGH THOSE NOMINEES’ NAMES BELOW:

Larry D. Barbour	Charles T. Francis	Ambassador Jeanette W. Hyde
Brig. Gen. (Retired) Gary H. Pendleton	Fred J. Smith, Jr.

(2) To ratify the appointment of Dixon Hughes PLLC as the independent registered public accounting firm of the company for the fiscal year ending December 31, 2008:

¨  VOTE FOR                    ¨  VOTE AGAINST                    ¨  ABSTAIN

(3) In their discretion, to vote upon such other matters as may properly come before the meeting:

¨  GRANT AUTHORITY                    ¨  WITHHOLD AUTHORITY

This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made this proxy will be voted for management’s slate of nominees for director listed above, for Proposal 2, and in the discretion of the proxies named herein on any other matter as may properly come before the meeting.

Signature

Signature, if held jointly

Please date and sign exactly as your name appears on your stock certificate. Joint owners should each sign. Trustees, custodians, executors and others signing in a representative capacity should indicate that capacity.

Date:                                 , 2008

Please mark, sign, date and return this proxy card promptly using the enclosed envelope whether or not you plan to be present at the meeting. If you attend the meeting, you can vote either in person or by your proxy.