Company Quick10K Filing
Select Bancorp
Price11.06 EPS1
Shares19 P/E21
MCap213 P/FCF25
Net Debt-27 EBIT22
TEV186 TEV/EBIT8
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-14
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-10
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-24
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-28
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-20
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-28
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-13
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-28
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-04-01
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-29
8-K 2020-05-19
8-K 2020-05-19
8-K 2020-05-01
8-K 2020-04-29
8-K 2020-04-17
8-K 2020-04-01
8-K 2020-01-28
8-K 2020-01-24
8-K 2020-01-02
8-K 2019-12-20
8-K 2019-10-31
8-K 2019-09-23
8-K 2019-09-18
8-K 2019-09-17
8-K 2019-08-28
8-K 2019-08-02
8-K 2019-06-05
8-K 2019-06-04
8-K 2019-05-21
8-K 2019-05-21
8-K 2019-05-06
8-K 2019-04-30
8-K 2019-01-30
8-K 2019-01-29
8-K 2019-01-25
8-K 2019-01-22
8-K 2018-10-22
8-K 2018-08-27
8-K 2018-08-27
8-K 2018-07-25
8-K 2018-05-22
8-K 2018-05-22
8-K 2018-05-10
8-K 2018-03-02
8-K 2018-02-23

SLCT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 tm2014631d1_ex31-1.htm
EX-31.2 tm2014631d1_ex31-2.htm
EX-32.1 tm2014631d1_ex32-1.htm
EX-32.2 tm2014631d1_ex32-2.htm

Select Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.41.10.80.60.30.02012201420172020
Assets, Equity
0.10.10.10.00.00.02016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 tm2014631d1_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2020
or

¨ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the transition period ended from                to                    

 

Commission File Number 000-50400

 

Select Bancorp, Inc.

(Exact name of Registrant as specified in its charter)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Name of each exchange on which registered
  Symbol(s)  
Common stock, par value $1.00 per share SLCT The NASDAQ Stock Market LLC

 

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 the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company x  
    Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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

 

As of May 4, 2020, the registrant had outstanding 18,055,692 shares of Common Stock, $1.00 par value per share.

 

 

 

 

 

 

    Page No.
     
Part I. FINANCIAL INFORMATION  
     
Item 1 - Financial Statements (Unaudited)  
     
  Consolidated Balance Sheets
March 31, 2020 and December 31, 2019
3
     
  Consolidated Statements of Operations
Three Months Ended March 31, 2020 and 2019
4
     
  Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2020 and 2019
5
     
  Consolidated Statements of Changes in Shareholders’ Equity
Three Months Ended March 31, 2020 and 2019
6
     
  Consolidated Statements of Cash Flows
Three Months Ended March 31, 2020 and 2019
7
     
  Notes to Consolidated Financial Statements 9
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 44
     
Item 4 - Controls and Procedures 46
     
Part II. OTHER INFORMATION  
     
Item 1 - Legal Proceedings 47
     
Item 1A - Risk Factors 47
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 49
     
Item 3 - Defaults Upon Senior Securities 49
     
Item 4 - Mine Safety Disclosures 49
     
Item 5 - Other Information 49
     
Item 6 - Exhibits 49
     
  Signatures 51

 

 2 

 

 

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

SELECT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2020   December 31, 
   (Unaudited)   2019* 
   (In thousands, except share
and per share data)
 
ASSETS          
Cash and due from banks  $20,030   $19,110 
Interest-earning deposits in other banks   35,544    50,920 
Federal funds sold   11,673    9,047 
Investment securities available for sale, at fair value   64,738    72,367 
Loans held for sale   1,606    928 
Loans   1,039,514    1,029,975 
Allowance for loan losses   (10,586)   (8,324)
NET LOANS   1,028,928    1,021,651 
Accrued interest receivable   3,839    4,189 
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost   3,059    3,045 
Other non-marketable securities   718    719 
Foreclosed real estate   3,737    3,533 
Premises and equipment, net   17,868    17,791 
Right of use lease asset   8,414    8,596 
Bank-owned life insurance   29,950    29,789 
Goodwill   24,579    24,579 
Core deposit intangible (“CDI”)   1,431    1,610 
Other assets   7,380    7,202 
TOTAL ASSETS  $1,263,494   $1,275,076 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Deposits:          
Demand  $250,031   $240,305 
Savings   41,815    43,128 
Money market and NOW   306,051    280,145 
Time   384,754    429,260 
TOTAL DEPOSITS   982,651    992,838 
Short-term debt   20,000    - 
Long-term debt   37,372    57,372 
Lease liability   8,669    8,813 
Accrued interest payable   536    578 
Accrued expenses and other liabilities   2,181    2,700 
TOTAL LIABILITIES   1,051,409    1,062,301 
Shareholders’ Equity:          
Preferred stock, no par value, 5,000,000 shares authorized; 0 shares
issued and outstanding at March 31, 2020 and December 31, 2019
   -    - 
Common stock, $1.00 par value, 50,000,000 shares authorized;
18,055,692 and 18,330,058 shares issued and outstanding
at March 31, 2020 and December 31, 2019, respectively
   18,056    18,330 
Additional paid-in capital   138,788    140,870 
Retained earnings   53,779    52,675 
Common stock issued to deferred compensation trust, at cost; 317,756
and 319,753 shares outstanding at March 31, 2020 and December 31, 2019, respectively
   (2,791)   (2,815)
Directors’ Deferred Compensation Plan Rabbi Trust   2,791    2,815 
Accumulated other comprehensive income   1,462    900 
TOTAL SHAREHOLDERS’ EQUITY   212,085    212,775 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $1,263,494   $1,275,076 

* Derived from audited consolidated financial statements.

 

See accompanying notes.

 

 3 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

   Three Months Ended 
   March 31, 
   2020   2019 
   (In thousands, except share
and per share data)
 
INTEREST INCOME          
Loans  $13,589   $13,042 
Federal funds sold and interest-earning deposits in other banks   168    543 
Investments   421    465 
TOTAL INTEREST INCOME   14,178    14,050 
INTEREST EXPENSE          
Money market, NOW and savings deposits   348    356 
Time deposits   1,931    1,753 
Short-term debt   87    26 
Long-term debt   352    458 
TOTAL INTEREST EXPENSE   2,718    2,593 
NET INTEREST INCOME   11,460    11,457 
PROVISION FOR LOAN LOSSES   2,273    112 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   9,187    11,345 
NON-INTEREST INCOME          
Fees on the sale of mortgages   293    157 
Service charges on deposit accounts   338    266 
Other fees and income   813    774 
TOTAL NON-INTEREST INCOME   1,444    1,197 
NON-INTEREST EXPENSE          
Personnel   5,632    4,971 
Occupancy and equipment   931    727 
Deposit insurance   (12)   105 
Professional fees   372    382 
CDI amortization   179    219 
Merger/acquisition related expenses   39    - 
Information systems   1,038    789 
Foreclosure-related expenses   5    30 
Other   1,063    1,081 
TOTAL NON-INTEREST EXPENSE   9,247    8,304 
INCOME BEFORE INCOME TAX   1,384    4,238 
INCOME TAXES   280    931 
NET INCOME  $1,104   $3,307 
NET INCOME PER COMMON SHARE          
Basic  $0.06   $0.17 
Diluted  $0.06   $0.17 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          
Basic   18,255,351    19,315,686 
Diluted   18,287,064    19,365,354 

 

See accompanying notes.

 

 4 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

   Three Months Ended 
   March 31, 
   2020   2019 
   (In thousands) 
Net income  $1,104   $3,307 
Other comprehensive income:          
Unrealized gain on investment securities available for sale   731    467 
Tax effect   (169)   (107)
    562    360 
           
Total comprehensive income  $1,666   $3,667 

 

See accompanying notes.

 

 5 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

    Preferred Stock     Common Stock     Additional paid-in
Capital
    Retained
Earnings
    Common Stock Issued to Deferred Compensation
Trust
    Deferred Comp Plan     Accumulated Other Comprehensive Income     Total Shareholders
Equity
 
                               
                               
                               
                               
    Shares     Amount     Shares     Amount                          
Balance at December 31, 2018     -     $ -       19,311,505     $ 19,312     $ 150,718     $ 39,640     $ (2,615 )   $ 2,615     $ (59 )   $ 209,611  
Net income     -       -       -       -       -       3,307       -       -       -       3,307  
Other comprehensive income     -       -       -       -       -       -       -       -       360       360  
Stock option exercises     -       -       14,980       14       100       -       -       -       -       114  
Stock-based compensation     -       -       -       -       59       -       -       -       -       59  
Directors’ equity incentive plan, net     -       -       -       -       -       -       37       (37 )     -       -  
Balance at March 31, 2019     -     $ -       19,326,485     $ 19,326     $ 150,877     $ 42,947     $ (2,652 )   $ 2,652     $ 301     $ 213,451  
                                                                                 
Balance at December 31, 2019     -     $ -       18,330,058     $ 18,330     $ 140,870     $ 52,675     $ (2,815 )   $ 2,815     $ 900     $ 212,775  
Net income     -       -       -       -       -       1,104       -       -       -       1,104  
Other comprehensive income     -       -       -       -       -       -       -       -       562       562  
Stock repurchases     -       -       (275,366 )     (275 )     (2,193 )     -       -       -       -       (2,468 )
Stock option exercises     -       -       1,000       1       6       -       -       -       -       7  
Stock-based compensation     -       -       -       -       105       -       -       -       -       105  
Directors’ equity incentive plan, net     -       -       -       -       -       -       24       (24 )     -       -  
Balance at March 31, 2020     -     $ -       18,055,692     $ 18,056     $ 138,788     $ 53,779     $ (2,791 )   $ 2,791     $ 1,462     $ 212,085  

 

See accompanying notes.

 

 6 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

   Three Months Ended 
   March 31, 
   2020   2019 
   (In thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $1,104   $3,307 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Provision for loan losses   2,273    112 
Depreciation and amortization of premises and equipment   422    622 
Amortization and accretion of investment securities   171    142 
Amortization of right of use lease asset   308    - 
Amortization of deferred loan fees and costs   (243)   (217)
Amortization of core deposit intangible   179    219 
Stock-based compensation   105    59 
Accretion on acquired loans   (105)   (200)
Increase in cash surrender value of bank-owned life insurance   (161)   (165)
Proceeds from loans held for sale   10,865    6,667 
Originations of loans held for sale   (11,250)   (6,284)
Gain on sales of loans held for sale   (293)   (157)
Net loss on sale and write-downs of foreclosed real estate   -    3 
Amortization of deposit premium   (7)   - 
Change in assets and liabilities:          
Net change in accrued interest receivable   350    (231)
Net change in other assets   (346)   (2,016)
Net change in accrued expenses and other liabilities   (561)   481 
           
NET CASH PROVIDED BY OPERATING ACTIVITIES   2,811    2,342 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of FHLB stock   (14)   (59)
Redemption of non-marketable security   1    24 
Purchase of investment securities available for sale   -    (37,948)
Maturities of investment securities available for sale   3,500    - 
Mortgage-backed securities pay-downs   4,688    3,079 
Net change in loans outstanding   (9,406)   (5,641)
Proceeds from sale of foreclosed real estate   -    65 
Net purchases of premises and equipment   (499)   (417)
           
NET CASH (USED IN) INVESTING ACTIVITIES   (1,730)   (40,897)

 

See accompanying notes.

 

 7 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

 

   Three Months Ended 
   March 31,
   2020   2019 
   (In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES          
Net change in deposits  $(10,180)  $(29,461)
Repurchase of stock   (2,468)   - 
Repayments of lease liability   (270)   (171)
Proceeds from stock option exercises   7    114 
           
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES   (12,911)   (29,518)
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   (11,830)   (68,073)
           
CASH AND CASH EQUIVALENTS, BEGINNING   79,077    139,362 
           
CASH AND CASH EQUIVALENTS, ENDING  $67,247   $71,289 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the period for:          
Interest  $2,760   $2,741 
Taxes   -    - 
           
Non-cash transactions:          
Unrealized gains (losses) on investment securities available for sale, net of tax   562    360 
Transfers from loans to foreclosed real estate   204    26 

 

See accompanying notes.

 

 8 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

  

NOTE A - BASIS OF PRESENTATION

 

Select Bancorp, Inc. (the “Company”) is a bank holding company whose principal business activity consists of ownership of Select Bank & Trust Company (referred to as the “Bank”). In 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 the Company. New Century Statutory Trust I is not a consolidated subsidiary of the Company. On July 25, 2014, the Company changed its name from New Century Bancorp, Inc. to Select Bancorp, Inc. following its acquisition by merger of Select Bancorp, Inc., Greenville, North Carolina (which we refer to herein as “Legacy Select”). The Company is subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the North Carolina Commissioner of Banks.

 

The Bank was originally incorporated as New Century Bank on May 19, 2000 and began banking operations on May 24, 2000. On July 25, 2014, the Company acquired Select Bank & Trust Company, Greenville, North Carolina, and changed the Bank’s legal name to Select Bank & Trust Company. On December 15, 2017, the Company acquired Premara Financial, Inc. (“Premara”) and its subsidiary Carolina Premier Bank (“Carolina Premier”) through the merger of Premara with and into the Company, followed immediately by the merger of Carolina Premier with and into the Bank. The Bank continues as the only banking subsidiary of the Company with its headquarters and operations center located in Dunn, North Carolina. The Bank is engaged in general commercial and retail banking in central and eastern North Carolina, as well as in Charlotte, North Carolina, northwest South Carolina, and the Virginia Beach-Norfolk-Newport News, VA-NC, metropolitan statistical area. The Bank is subject to the supervision and regulation of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks.

All significant inter-company 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 months ended March 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

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 months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

 

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 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020. This quarterly report should be read in conjunction with the Annual Report.

 

Certain reclassifications of the information in prior periods were made to conform to the March 31, 2020 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

 

COVID-19. The Company has evaluated for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of the disease caused by a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. Several programs are available to businesses impacted by COVID-19 such as loans available through the Payroll Protection Program, deferrals on loan payments on existing loans and a reduced interest rate program available to financial institutions through the Federal Reserve Bank. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak may adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

  

 9 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

NOTE B - 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. At March 31, 2020 and 2019 there were 219,120 and 168,120 anti-dilutive stock options outstanding, respectively.

 

   Three Months Ended 
   March 31, 
   2020   2019 
Weighted average shares used for basic net income per share   18,255,351    19,315,686 
Effect of dilutive stock options   31,713    49,668 
Weighted average shares used for diluted net income per share   18,287,064    19,365,354 

 

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

 

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

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.  The CECL model is expected to result in earlier recognition of credit losses.  ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, including loans and available-for-sale debt securities.  The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.  Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.   On October 16, 2019, the FASB voted to delay implementation of CECL until January 2023 for certain companies, including smaller reporting companies (as defined by the SEC). The Company currently qualifies as a smaller reporting company and is still assessing the impact that this new guidance will have on its consolidated financial statements.

 

In August 2018, the FASB amended ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement topic of the Accounting Standards Codification. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The adoption of these amendments did not have a material effect on its consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test. The Company adopted this ASU during the first quarter of 2020 with no impact to the consolidated financial position as a result of the adoption.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 – Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides for temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The provisions of this ASU are elective and applicable to all entities that have contracts, hedging relationships and other transactions, subject to certain criteria, that reference LIBOR or another reference rate to be discontinued because of reference rate reform. There are practical expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedge accounting relationships affected by reference rate reform in order to facilitate a smoother transition to new reference rates. For contracts meeting certain criteria, a change in the contract’s reference interest rate would be accounted for as a continuation of that contract rather than the creation of a new contract. This provision applies to loans, debt, leases, and other arrangements. An entity will also be permitted to preserve its hedge accounting when updating its hedging strategies in response to reference rate reform. The guidance will only apply to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

 

From time to time, the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

 

NOTE D - FAIR VALUE MEASUREMENTS

 

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

 

Fair value estimates are made at a specific moment in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

 

Because no active market readily exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

·Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

 

·Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

 

·Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis.

 

Investment Securities Available-for-Sale (“AFS”)

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. government agencies, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three months ended March 31, 2020. Valuation techniques are consistent with techniques used in prior periods.

 

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):

 

       Quoted Prices in   Significant     
Investment securities      Active Markets   Other   Significant 
available for sale      for Identical   Observable   Unobservable 
March 31, 2020  Fair value   Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3) 
U.S. government agencies- GSE’s   $9,272   $              -   $9,272   $                    - 
Mortgage-backed securities-GSE’s   44,482    -    44,482    - 
Corporate bonds   2,214    -    2,214    - 
Municipal bonds   8,770    -    8,770    - 
Total investment for sale  $64,738   $-   $64,738   $- 

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

       Quoted Prices in   Significant     
Investment securities      Active Markets   Other   Significant 
available for sale      for Identical   Observable   Unobservable 
December 31, 2019  Fair value   Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3) 
U.S. government agencies- GSE’s  $9,996   $           -   $9,996   $               - 
Mortgage-backed securities-GSE’s   47,743    -    47,743    - 
Corporate bonds   2,299    -    2,299    - 
Municipal bonds   12,329    -    12,329    - 
Total investment for sale  $72,367   $-   $72,367   $- 

 

The following is a description of valuation methodologies used for assets recorded at fair value on a non-recurring basis.

 

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and a specific reserve in the allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, “Receivables”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, or liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2020 and December 31, 2019, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where a specific reserve is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3. The significant unobservable input used in the fair value measurement of the Company’s impaired loans is the discount applied to appraised values to account for expected liquidation and selling costs. At March 31, 2020, the discounts used are weighted between 3% and 50%. There were no transfers between levels from the prior reporting periods, and there have been no changes in valuation techniques for the three months ended March 31, 2020.

 

Foreclosed Real Estate

Foreclosed real estate are properties recorded at the balance of the loan or an estimated fair value of the real estate collateral less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. The significant unobservable input used in the fair value measurement of the Company’s foreclosed real estate is the discount applied to appraised values to account for expected liquidation and selling costs. At March 31, 2020, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three months ended March 31, 2020.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

Loans held for sale

The Company originates fixed and variable rate residential mortgage loans on a service-release basis in the secondary market. Loans closed but not yet settled with an investor are carried in our loans held for sale portfolio. Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with our customers. Therefore, these loans present very little market risk. The Company usually delivers to, and receives funding from, the investor within 30 to 60 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts” basis. The Company is not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. Because of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is materially the same as the value of the loan amount at its origination.

 

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are provided for in a valuation allowance by charges to operations as a component of mortgage banking income. Gains or losses on sales of loans are recognized when control over these assets are surrendered and are included in mortgage banking income in the consolidated statements of income.

 

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):

 

       Quoted Prices in   Significant     
       Active Markets   Other   Significant 
Asset Category      for Identical   Observable   Unobservable 
March 31, 2020  Fair value   Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3) 
Impaired loans  $7,201   $-   $-   $7,201 
Foreclosed real estate   3,737    -    -    3,727 
                     
  Total  $10,938   $-   $-   $10,938 

 

       Quoted Prices in   Significant     
       Active Markets   Other   Significant 
Asset Category      for Identical   Observable   Unobservable 
December 31, 2019  Fair value   Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3) 
Impaired loans  $5,941   $-   $-   $5,941 
Foreclosed real estate   3,533    -    -    3,533 
Total  $9,474   $-   $-   $9,474 

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

The following table presents the carrying values and estimated fair values of the Company's financial instruments at March 31, 2020 and December 31, 2019:

 

   March 31, 2020 
   Carrying   Estimated             
   Amount   Fair Value   Level 1   Level 2   Level 3 
   (dollars in thousands) 
Financial assets:                         
Cash and due from banks  $20,030   $20,030   $20,030   $-   $- 
Interest-earning deposits in other banks   35,544    35,544    35,544    -    - 
Federal funds sold   11,673    11,673    11,673    -    - 
Investment securities available for sale   64,738    64,738    -    64,738    - 
Loans held for sale   1,606    1,606         1,606    - 
Loans, net   1,028,928    1,009,919    -    -    1,009,919 
Accrued interest receivable   3,839    3,839    -    3,839    - 
Stock in FHLB   3,059    3,059    -    -    3,059 
Other non-marketable securities   718    718    -    -    718 
                          
Financial liabilities:                         
Deposits  $982,651   $985,248   $-   $985,248   $- 
Short-term debt   20,000    20,000    -    20,000    - 
Long-term debt   37,372    35,291    -    35,291    - 
Accrued interest payable   536    536    -    536    - 

 

   December 31, 2019 
   Carrying   Estimated             
   Amount   Fair Value   Level 1   Level 2   Level 3 
   (dollars in thousands) 
Financial assets:                         
Cash and due from banks  $19,110   $19,110   $19,110   $-   $- 
Interest-earning deposits in other banks   50,920    50,920    50,920    -    - 
Federal funds sold   9,047    9,047    9,047    -    - 
Investment securities available for sale   72,367    72,367    -    72,367    - 
Loans held for sale   928    928    -    928    - 
Loans, net   1,021,651    1,016,239    -    -    1,016,239 
Accrued interest receivable   4,189    4,189    -    4,189    - 
Stock in the FHLB   3,045    3,045    -    -    3,045 
Other non-marketable securities   719    719    -    -    719 
                          
Financial liabilities:                         
Deposits  $992,838   $995,056   $-   $995,056   $- 
Long-term debt   57,372    55,429    -    55,429    - 
Accrued interest payable   578    578    -    578    - 

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

NOTE E - INVESTMENT SECURITIES

 

The amortized cost and fair value of available for sale (“AFS”) investments, with gross unrealized gains and losses, follow:

 

   March 31, 2020 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
       (dollars in thousands)     
Securities available for sale:                    
U.S. government agencies – GSE’s  $9,038   $236   $(2)  $9,272 
Mortgage-backed securities – GSE’s   42,987    1,506    (11)   44,482 
Corporate bonds   2,193    21    -    2,214 
Municipal bonds   8,621    149    -    8,770 
   $62,839   $1,912   $(13)  $64,738 

 

As of March 31, 2020, accumulated other comprehensive income included net unrealized gains totaling $1.9 million. Deferred tax assets resulting from these net unrealized losses totaled $437,000.

 

The amortized cost and fair value of “AFS” investments, with gross unrealized gains and losses, follow:

 

   December 31, 2019 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
U.S. government agencies – GSE’s  $9,839   $159   $(2)  $9,996 
Mortgage-backed securities – GSE’s   46,926    830    (13)   47,743 
Corporate bonds   2,282    17    -    2,299 
Municipal bonds   12,152    177    -    12,329 
   $71,199   $1,183   $(15)  $72,367 

 

As of December 31, 2019, accumulated other comprehensive income included net unrealized gains totaling $1.2 million. Deferred tax liabilities resulting from these net unrealized gains totaled $269,000.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follow:

 

   March 31, 2020 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
Within 1 year  $9,208   $13   $(6)  $9,215 
After 1 year but within 5 years   34,108    1,299    (6)   35,401 
After 5 years but within 10 years   6,457    129    (1)   6,585 
After 10 years   13,066    471    -    13,537 
   $62,839   $1,912   $(13)  $64,738 

 

   December 31, 2019 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
Within 1 year  $8,901   $19   $(6)  $8,914 
After 1 year but within 5 years   40,954    695    (7)   41,642 
After 5 years but within 10 years   4,568    94    (1)   4,661 
After 10 years   16,776    375    (1)   17,150 
   $71,199   $1,183   $(15)  $72,367 

 

Securities with a carrying value of $21.6 million and $18.4 million at March 31, 2020 and December 31, 2019, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.

 

None of the unrealized losses relate to the liquidity of the securities or the issuer’s ability to honor redemption obligations. The Company has the intent and ability to hold these securities to recovery. No other than temporary impairments were identified for these investments having unrealized losses for the periods ended March 31, 2020 and December 31, 2019. The Company has not incurred any losses related to securities sales in the first three months of 2020 or during the year ended December 31, 2019.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

The following tables show the gross unrealized losses and fair value of the Company’s investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2020 and December 31, 2019.

 

   March 31, 2020 
   Less Than 12 Months   12 Months or More   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   value   losses   value   losses   value   losses 
           (dollars in thousands)         
Securities available for sale:                              
U.S. government agencies- GSEs  $-   $-   $565   $(2)  $565   $(2)
Mortgage-backed securities- GSEs   1,591    (6)   1,997    (5)   3,588    (11)
Municipal bonds   -    -    -    -    -    - 
Total temporarily impaired securities  $1,591   $(6)  $2,562   $(7)  $4,153   $(13)

 

 

At March 31, 2020, the Company had three securities with an unrealized loss for more than twelve months of $7,000 which consisted of two U.S. government agencies-GSEs and one mortgage-backed GSE bond. Two mortgage-backed GSEs had unrealized losses for less than twelve months totaling $6,000 at March 31, 2020. All unrealized losses are attributable to the general trend of interest rates.

 

   December 31, 2019 
   Less Than 12 Months   12 Months or More   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   value   losses   value   losses   value   losses 
   (dollars in thousands) 
Securities available for sale:                              
U.S. government agencies- GSE’s  $872   $-   $621   $(2)  $1,493   $(2)
Mortgage-backed securities- GSE’s   2,672    (3)   3,774    (10)   6,446    (13)
Corporate bonds   -    -    -    -    -    - 
Municipal bonds   -    -    -    -    -    - 
Total temporarily impaired securities  $3,544   $(3)  $4,395   $(12)  $7,939   $(15)

 

 

At December 31, 2019, the Company had two mortgage-backed GSE’s and one U.S Government agency – GSE with an unrealized loss for twelve or more consecutive months totaling $12,000. The Company had three securities with a loss for twelve months or less at December 31, 2019. One U.S. government agency GSE and two mortgage-backed GSE’s had unrealized losses for less than twelve months totaling $3,000 at December 31, 2019. All unrealized losses are attributable to the general trend of interest rates.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

NOTE F - LOANS

 

Following is a summary of the composition of the Company’s loan portfolio at March 31, 2020 and December 31, 2019:

 

   March 31,   December 31, 
Total Loans:  2020   2019 
       Percent       Percent 
   Amount   of total   Amount   of total 
   (dollars in thousands) 
Real estate loans:                    
1-to-4 family residential  $153,923    14.81%  $151,697    14.73%
Commercial real estate   464,326    44.67%   459,115    44.58%
Multi-family residential   70,731    6.80%   69,124    6.71%
Construction   228,646    21.99%   221,878    21.55%
Home equity lines of credit (“HELOC”)   43,816    4.22%   44,514    4.32%
Total real estate loans   961,442    92.49%   946,328    91.89%
                     
Other loans:                    
Commercial and industrial   72,227    6.95%   75,748    7.35%
Loans to individuals   7,767    0.75%   9,779    0.95%
Overdrafts   242    0.02%   234    0.02%
Total other loans   80,236    7.72%   85,761    8.32%
                     
Gross loans   1,041,678         1,032,089      
Less deferred loan origination fees, net   (2,164)   (0.21)%   (2,114)   (0.21)%
Total loans   1,039,514    100.00%   1,029,975    100.00%
Allowance for loan losses   (10,586)        (8,324)     
Total loans, net  $1,028,928        $1,021,651      

 

For Purchased Credit Impaired, or PCI loans, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of March 31, 2020 and December 31, 2019 were:

 

(dollars in thousands)  March 31, 2020   December 31, 2019 
Contractually required payments  $18,983   $20,598 
Nonaccretable difference   1,574    1,694 
Cash flows expected to be collected   17,409    18,904 
Accretable yield   2,986    3,191 
Carrying value  $14,423   $15,713 

 

Loans are primarily secured by real estate located in eastern and central North Carolina and northwestern South Carolina. Real estate loans can be affected by the condition of the local real estate market and by local economic conditions.

 

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

At March 31, 2020, the Company had pre-approved but unused lines of credit for customers totaling $174.2 million. In management’s opinion, these commitments, and undisbursed proceeds on loans reflected above, represent no more than normal lending risk to the Company and will be funded from normal sources of liquidity.

 

A floating lien of $108.6 million of loans was pledged to the FHLB to secure borrowings at March 31, 2020.

 

The following tables present an age analysis of past due loans, segregated by class of loans as of March 31, 2020 and December 31, 2019, respectively:

 

   March 31, 2020 
   30-59   60-89   90+   Non-   Total         
   Days   Days   Days   Accrual   Past       Total 
   Past Due   Past Due   Accruing   Loans   Due   Current   Loans 
           (dollars in thousands)             
Commercial and industrial  $58   $977   $46   $3,746   $4,827   $67,400   $72,227 
Construction   -    -    -    177    177    228,469    228,646 
Multi-family residential   -    -    -    -    -    70,731    70,731 
Commercial real estate   2,321    5    323    1,766    4,415    459,911    464,326 
Loans to individuals & overdrafts   4    -    -    148    152    7,857    8,009 
1-to-4 family residential   883    34    813    922    2,652    151,271    153,923 
HELOC   170    -    -    442    612    43,204    43,816 
Deferred loan (fees) cost, net   -    -    -    -    -    -    (2,164)
   $3,436   $1,016   $1,182   $7,201   $12,835   $1,028,843   $1,039,514 

 

   December 31, 2019 
   30-59   60-89   90+   Non-   Total         
   Days   Days   Days   Accrual   Past       Total 
   Past Due   Past Due   Accruing   Loans   Due   Current   Loans 
   (dollars in thousands) 
Total loans                                   
Commercial and industrial  $1,108   $34   $46   $2,824   $4,012   $71,736   $75,748 
Construction   -    -    -    181    181    221,697    221,878 
Multi-family residential   -    -    -    -    -    69,124    69,124 
Commercial real estate   393    82    321    1,832    2,628    456,487    459,115 
Loans to individuals & overdrafts   5    -    -    155    160    9,853    10,013 
1-to-4 family residential   859    810    864    505    3,038    148,659    151,697 
HELOC   168    -    -    444    612    43,902    44,514 
Deferred loan (fees) cost, net   -    -    -    -    -    -    (2,114)
   $2,533   $926   $1,231   $5,941   $10,631   $1,021,458   $1,029,975 

 

 20 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

Impaired Loans

 

The following tables present information on loans that were considered to be impaired as of March 31, 2020 and December 31, 2019:

 

       Three months ended 
   As of March 31, 2020   March 31, 2020 
       Contractual             
       Unpaid   Related   Average   Interest Income 
   Recorded   Principal   Allowance   Recorded   Recognized on 
   Investment   Balance   for Loan Losses   Investment   Impaired Loans 
   (dollars in thousands) 
With no related allowance recorded:                         
Commercial and industrial  $2,688   $4,181   $-   $3,684   $44 
Construction   436    535    -    438    5 
Commercial real estate   4,925    5,744    -    5,504    65 
Multi-family residential   -    -    -    269    11 
Loans to individuals   255    270    -    99    - 
HELOC   750    953    -    734    12 
1-to-4 family residential   360    1,792    -    1,735    12 
Subtotal:   9,414    13,475    -    12,463    149 
With an allowance recorded:                         
Commercial and industrial   1,128    1,133    601    1,037    - 
Commercial real estate   140    140    96    70    - 
HELOC   -    -    -    -    - 
1-to-4 family residential   71    70    5    71    10 
Subtotal:   1,339    1,343    702    1,178    10 
Totals:                         
Commercial   9,317    11,733    697    10,832    114 
Consumer   255    270    -    269    11 
Residential   1,181    2,815    5    2,540    34 
Grand Total:  $10,753   $14,818   $702   $13,641   $159 

 

Impaired loans at March 31, 2020 were approximately $10.8 million and were composed of $7.2 million in non-accrual loans and $3.6 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $1.3 million in impaired loans had specific allowances provided for them while the remaining $9.4 million had no specific allowances recorded at March 31, 2020. Of the $9.4 million with no allowance recorded, $373,000 of those loans have had partial charge-offs recorded.

 

 21 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

       Three months ended 
   As of December 31, 2019   March 31, 2019 
       Contractual             
       Unpaid   Related   Average   Interest Income 
   Recorded   Principal   Allowance   Recorded   Recognized on 
   Investment   Balance    for Loan Losses   Investment   Impaired Loans 
   (dollars in thousands) 
With no related allowance recorded:                         
Commercial and industrial  $2,796   $4,051   $  -   $3,853   $4 
Construction   440    537    -    552    5 
Commercial real estate   5,585    6,750    -    5,843    66 
Multi-family residential   197    197    -    213    3 
Loans to individuals & overdrafts   284    293    -    109    - 
HELOC   543    678    -    957    15 
1-to-4 family residential   395    1,816    -    990    16 
Subtotal:   10,240    14,322    -    12,517    109 
With an allowance recorded:                         
Commercial and industrial   731    1,056    403    232    6 
Construction   -    -    -    -    - 
HELOC   160    222    -    -    - 
1-to-4 family residential   81    94    10    134    7 
Subtotal:   972    1,307    413    366    13 
Totals:                         
Commercial   9,749    12,591    403    10,693    84 
Consumer   284    293    -    109    - 
Residential   1,179    2,810    10    2,081    38 
Grand Total:  $11,212   $15,694   $413   $12,883   $122 

 

Impaired loans at December 31, 2019 were approximately $11.2 million and included $5.9 million in non-accrual loans and $6.2 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately $972,000 of the $11.2 million in impaired loans at December 31, 2019 had specific allowances aggregating $413,000 while the remaining $10.2 million had no specific allowances recorded. Of the $10.2 million with no allowance recorded, partial charge-offs through December 31, 2019 amounted to $4.1 million.

 

Loans are placed on non-accrual status when it has been determined that all contractual principal and interest will not be received. Any payments received on these loans are applied to principal first and then to interest only after all principal has been collected. In the case of an impaired loan that is still on accrual basis, payments are applied to both principal and interest.

 

 22 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

Troubled Debt Restructurings

 

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the first quarter of 2020 and 2019:

 

   Three months ended March 31, 2020   Three months ended March 31, 2019 
       Pre-   Post-       Pre-   Post- 
       Modification   Modification       Modification   Modification 
       Outstanding   Outstanding       Outstanding   Outstanding 
   Number   Recorded   Recorded   Number   Recorded   Recorded 
   of loans   Investment   Investment   of loans   Investment   Investment 
           (dollars in thousands)         
Extended payment terms:                              
Commercial and industrial   5   $2,455   $2,360    4   $1,365   $1,275 
Commercial real estate   -    -    -    3    1,283    1,015 
1-to-4 family residential   2    209    184    2    432    409 
Construction   1    259    259    -    -    - 
HELOC   1    50    50    -    -    - 
Loans to individuals   -    -    -    1    1    1 
Total   9   $2,973   $2,853    10   $3,081   $2,700 

 

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default during that period together with concessions made by loan class during the twelve month periods ended March 31, 2020 and 2019:

 

   Twelve months ended   Twelve months ended 
   March 31, 2020   March 31, 2019 
   Number   Recorded   Number   Recorded 
   of loans   investment   of loans   investment 
   (dollars in thousands) 
Extended payment terms:                    
Commercial and industrial   3   $2,209    8   $1,591 
Construction   -    -    1    34 
Commercial real estate   -    -    3    697 
Loans to Individuals   -    -    1    1 
1-to-4 family residential   -    -    4    128 
Total   3   $2,209    17   $2,451 

 

At March 31, 2020, the Bank had forty-three loans with an aggregate balance of $9.3 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-eight loans with a balance totaling $3.6 million were still accruing as of March 31, 2020. The remaining TDRs with balances totaling $5.7 million as of March 31, 2020 were in non-accrual status. In response to the impact of COVID – 19 payment deferrals were granted on 290 loans totaling $167.3 million through May 5, 2020.

 

At March 31, 2019, the Bank had thirty-nine loans with an aggregate balance of $7.7 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-two loans with a balance totaling $5.2 million were still accruing as of March 31, 2019. The remaining TDRs with balances totaling $2.5 million as of March 31, 2019 were in non-accrual status.

 

 23 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of March 31, 2020 and December 31, 2019, respectively:

 

Total loans:

 

March 31, 2020
Commercial                
Credit                
Exposure By  Commercial       Commercial     
Internally  and       real   Multi-family 
Assigned Grade  industrial   Construction   estate   residential 
   (dollars in thousands) 
Superior  $2,517   $-   $534   $- 
Very good   244    107    1,566    - 
Good   5,554    8,445    59,285    6,422 
Acceptable   19,928    17,821    257,167    37,544 
Acceptable with care   37,540    201,837    139,746    26,765 
Special mention   742    259    1,479    - 
Substandard   5,702    177    4,549    - 
Doubtful   -    -    -    - 
Loss   -    -    -    - 
   $72,227   $228,646   $464,326   $70,731 

 

Consumer Credit        
Exposure By        
Internally  1-to-4 family     
Assigned Grade  residential   HELOC 
Pass  $150,325   $42,703 
Special mention   1,133    292 
Substandard   2,465    821 
   $153,923   $43,816 

 

Consumer Credit    
Exposure Based  Loans to 
On Payment  individuals & 
Activity  overdrafts 
Pass  $7,735 
Special mention   274 
   $8,009 

 

 24 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

Total Loans:

 

December 31, 2019 
Commercial                
Credit                
Exposure By  Commercial       Commercial     
Internally  and       real   Multi-family 
Assigned Grade  industrial   Construction   estate   residential 
   (dollars in thousands) 
Superior  $4,014   $-   $337   $- 
Very good   349    110    1,245    - 
Good   5,976    8,674    62,643    4,839 
Acceptable   19,197    16,249    255,751    41,113 
Acceptable with care   40,579    196,228    133,190    23,172 
Special mention   242    436    1,490    - 
Substandard   5,391    181    4,459    - 
Doubtful   -    -    -    - 
Loss   -    -    -    - 
   $75,748   $221,878   $459,115   $69,124 

 

Consumer Credit        
Exposure By        
Internally  1-to-4 family     
Assigned Grade  residential   HELOC 
Pass  $147,958   $43,585 
Special mention   1,246    76 
Substandard   2,493    853 
   $151,697   $44,514 

 

Consumer Credit    
Exposure Based  Loans to 
On Payment  individuals & 
Activity  overdrafts 
Pass  $9,727 
Special mention   286 
   $10,013 

 

 25 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

Determining the fair value of PCI loans at acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected to be collected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called the accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP, there was no carry-over of previously established allowance for credit losses from the acquired company.

 

The following table documents changes to the amount of the accretable yield on PCI loans for the three months ended March 31, 2020 and 2019:

 

   2020   2019 
   (dollars in thousands) 
Accretable yield, beginning of period  $3,191   $3,593 
Accretion   (280)   (288)
Reclassification from (to) nonaccretable difference   32    117 
Other changes, net   43    299 
Accretable yield, end of period  $2,986   $3,721 

 

 26 

 

 

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three month periods ended March 31, 2020 and March 31, 2019, respectively (dollars in thousands):

 

   Three months ended March 31, 2020 
   Commercial           1-to-4       Loans to   Multi-     
   and       Commercial   family       individuals &   family     
Allowance for loan losses  industrial   Construction   real estate   residential   HELOC   overdrafts   residential   Total 
Loans – excluding PCI                                        
Balance, beginning of period  $1,127   $1,731   $2,837   $1,437   $329   $175   $419   $8,055 
Provision for (recovery of) loan losses   717    394    720    267    69    (20)   127    2,274 
Loans charged-off   (11)   -    -    -    -    (16)   -    (27)
Recoveries   1    -    1    10    -    4    -    16 
Balance, end of period  $1,834   $2,125   $3,558   $1,714   $398   $143   $546   $10,318 
PCI Loans                                        
Balance, beginning of period  $178   $6   $14   $56   $-   $-   $15   $269 
Provision for (recovery of) loan losses   21    1    -    (13)   -    -    (10)   (1)
Loans charged-off   -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    - 
Balance, end of period  $199   $7   $14   $43   $-   $-   $5   $268 
Total Loans                                        
Balance, beginning of period  $1,305   $1,737   $2,851   $1,493   $329   $175   $434   $8,324 
Provision for (recovery of) loan losses   738    395    720    254    69    (20)   117    2,273 
Loans charged-off   (11)   -    -    -    -    (16)   -    (27)
Recoveries   1    -    1    10    -    4    -    16 
Balance, end of period  $2,033   $2,132   $3,572   $1,757   $398   $143   $551   $10,586 
Ending Balance: individually evaluated for impairment  $601   $-   $96   $5   $-   $-   $-   $702 
Ending Balance: collectively evaluated for impairment  $1,432   $2,132   $3,476   $1,752   $398   $143   $551   $9,884 
Loans:                                        
Ending Balance: collectively evaluated for impairment non PCI loans  $67,312   $227,538   $453,592   $147,444   $43,017   $7,754   $69,845