Company Quick10K Filing
Quick10K
Select Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.93 19 $211
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-23 Officers, Exhibits
8-K 2019-09-18 Regulation FD, Exhibits
8-K 2019-09-17 Other Events, Exhibits
8-K 2019-08-28 Officers
8-K 2019-08-02 Earnings, Exhibits
8-K 2019-06-05 Officers
8-K 2019-06-04 Other Events, Exhibits
8-K 2019-05-21 Regulation FD, Exhibits
8-K 2019-05-21 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-05-06 Regulation FD, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-01-30 Regulation FD, Exhibits
8-K 2019-01-29 Other Events, Exhibits
8-K 2019-01-25 Earnings, Exhibits
8-K 2019-01-22 Officers, Exhibits
8-K 2018-10-22 Earnings, Exhibits
8-K 2018-08-27 Enter Agreement, Other Events, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-22 Officers, Shareholder Vote, Exhibits
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-03-02 Earnings, Exhibits
8-K 2018-02-23 Officers, Exhibits
COF Capital One Financial 39,028
BBT BB&T 35,700
NCOM National Commerce 998
LBAI Lakeland Bancorp 747
FMBH First Mid Illinois Bancshares 534
FDBC Fidelity D & D Bancorp 224
MVBF MVB Financial 215
AMRB American River Bankshares 91
UBCP United Bancorp 76
OZK Bank of The Ozarks 0
SLCT 2019-06-30
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-3.1 tv526726_ex3-1.htm
EX-31.1 tv526726_ex31-1.htm
EX-31.2 tv526726_ex31-2.htm
EX-32.1 tv526726_ex32-1.htm
EX-32.2 tv526726_ex32-2.htm

Select Bancorp Earnings 2019-06-30

SLCT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526726_10q.htm FORM 10-Q

 

 

 

U.S. 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 June 30, 2019

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
Symbol(s)
  Name of each exchange on which registered
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 August 5, 2019, the registrant had outstanding 19,261,989 shares of Common Stock, $1.00 par value per share.

 

 

 

 

 

 

    Page No.
     
Part I. FINANCIAL INFORMATION  
     
Item 1 - Financial Statements (Unaudited)  
     
  Consolidated Balance Sheets June 30, 2019 and December 31, 2018 3
     
  Consolidated Statements of Operations Three Months and Six Months Ended June 30, 2019 and 2018 4
     
  Consolidated Statements of Comprehensive Income Three Months and Six Months Ended June 30, 2019 and 2018 5
     
  Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2019 and 2018 and Three Months Ended June 30, 2019 and 2018 6
     
  Consolidated Statements of Cash Flows Six Months Ended June 30, 2019 and 2018 8
     
  Notes to Consolidated Financial Statements 10
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 39
     
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 54
     
Item 4 - Controls and Procedures 55
     
Part II. OTHER INFORMATION  
     
Item 1 - Legal Proceedings 56
     
Item 1A - Risk Factors 56
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 56
     
Item 3 - Defaults Upon Senior Securities 56
     
Item 4 - Mine Safety Disclosures 56
     
Item 5- Other Information 56
     
Item 6 - Exhibits 57
     
  Signatures 58

 

 - 2 - 

 

 

Part I. Financial Information

Item 1 - Financial Statements

 

SELECT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

 

   June 30, 2019   December 31, 
   (Unaudited)   2018* 
   (In thousands, except share 
   and per share data) 
ASSETS          
Cash and due from banks  $20,397   $17,059 
Interest-earning deposits in other banks   100,584    121,303 
Certificates of deposit   500    1,000 
Federal funds sold   21,961    - 
Investment securities available for sale, at fair value   83,102    51,533 
Loans held for sale   826    580 
Loans   997,062    986,040 
Allowance for loan losses   (8,303)   (8,669)
NET LOANS   988,759    977,371 
Accrued interest receivable   4,028    3,889 
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost   3,045    3,283 
Other non-marketable securities   718    762 
Foreclosed real estate   1,468    1,088 
Premises and equipment, net   18,274    17,920 
Right of use lease asset   8,953    - 
Bank owned life insurance   29,451    29,117 
Goodwill   24,579    24,579 
Core deposit intangible (“CDI”)   2,011    2,085 
Assets held for sale   -    668 
Other assets   8,141    6,288 
TOTAL ASSETS  $1,316,797   $1,258,525 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Deposits:          
Demand  $252,666   $247,007 
Savings   46,037    51,811 
Money market and NOW   292,629    254,482 
Time   438,918    427,127 
TOTAL DEPOSITS   1,030,250    980,427 
Short-term debt   -    7,000 
Long-term debt   57,372    57,372 
Lease liability   9,086    - 
Accrued interest payable   637    667 
Accrued expenses and other liabilities   2,607    3,448 
TOTAL LIABILITIES   1,099,952    1,048,914 
Shareholders’ Equity:          
Preferred stock, no par value, 5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2019 and December 31, 2018   -    - 
Common stock, $1.00 par value, 50,000,000 shares authorized; 19,261,989 and 19,311,505 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively   19,262    19,312 
Additional paid-in capital   150,275    150,718 
Retained earnings   46,395    39,640 
Common stock issued to deferred compensation trust, at cost; 309,820 and 303,239 shares outstanding at June 30, 2019 and December 31, 2018, respectively   (2,652)   (2,615)
Directors’ Deferred Compensation Plan Rabbi Trust   2,652    2,615 
Accumulated other comprehensive income (loss)   913    (59)
TOTAL SHAREHOLDERS’ EQUITY   216,845    209,611 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $1,316,797   $1,258,525 

 

* Derived from audited consolidated financial statements.

 

 - 3 - 

 

 

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
   (In thousands, except share and per share data) 
INTEREST INCOME                    
Loans  $13,515   $13,527   $26,557   $26,684 
Federal funds sold and interest-earning deposits in other banks   456    307    999    518 
Investments   601    353    1,066    707 
TOTAL INTEREST INCOME   14,572    14,187    28,622    27,909 
INTEREST EXPENSE                    
Money market, NOW and savings deposits   407    325    763    639 
Time deposits   1,985    1,489    3,738    2,843 
Short-term debt   26    81    52    210 
Long-term debt   457    363    915    584 
TOTAL INTEREST EXPENSE   2,875    2,258    5,468    4,276 
NET INTEREST INCOME   11,697    11,929    23,154    23,633 
PROVISION FOR (RECOVERY OF) LOAN LOSSES   (207)   557    (95)   698 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   11,904    11,372    23,249    22,935 
NON-INTEREST INCOME                    
Fees on the sale of mortgages   230    158    387    184 
Service charges on deposit accounts   284    245    550    521 
Other fees and income   814    823    1,588    1,686 
TOTAL NON-INTEREST INCOME   1,328    1,226    2,525    2,391 
NON-INTEREST EXPENSE                    
Personnel   5,031    4,656    10,002    9,397 
Occupancy and equipment   922    861    1,649    1,749 
Deposit insurance   90    213    195    378 
Professional fees   483    420    865    690 
CDI amortization   205    262    424    537 
Merger/acquisition related expenses   107    -    107    1,826 
Information systems   877    1,045    1,666    2,047 
Foreclosed-related expenses   10    91    40    103 
Other   1,086    1,054    2,167    2,159 
TOTAL NON-INTEREST EXPENSE   8,811    8,602    17,115    18,886 
INCOME BEFORE INCOME TAX   4,421    3,996    8,659    6,440 
INCOME TAXES   973    886    1,904    1,433 
NET INCOME  $3,448   $3,110   $6,755   $5,007 
NET INCOME PER COMMON SHARE                    
Basic  $0.18   $0.22   $0.35   $0.36 
Diluted  $0.18   $0.22   $0.35   $0.36 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                    
Basic   19,318,358    14,019,273    19,317,029    14,015,511 
Diluted   19,359,492    14,086,671    19,360,039    14,084,288 

 

See accompanying notes.

 

 - 4 - 

 

 

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
   (In thousands) 
                 
Net income  $3,448   $3,110   $6,755   $5,007 
                     
Other comprehensive income (loss):                    
Unrealized gain (loss) on investment securities available for sale   790    (271)   1,258    (807)
Tax effect   (178)   63    (286)   189 
Total   612    (208)   972    (618)
                     
Total comprehensive income  $4,060   $2,902   $7,727   $4,389 

 

See accompanying notes.

 

 - 5 - 

 

 

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, except share data)

 

                           Common             
                           Stock             
                           Issued       Accumulated     
                   Additional       to Deferred       Other   Total 
   Preferred Stock   Common Stock   paid-in   Retained   Compensation   Deferred   Comprehensive   Shareholders’ 
   Shares   Amount   Shares   Amount   Capital   Earnings   Trust   Comp Plan   Income (loss)   Equity 
Balance at December 31, 2017   -   $-    14,009,137   $14,009   $95,850   $25,858   $(2,518)  $2,518   $398   $136,115 
Net income   -    -    -    -    -    1,897    -    -    -    1,897 
Other comprehensive income (loss)   -    -    -    -    -    -    -    -    (410)   (410)
Stock option exercises   -    -    4,780    5    21    -    -    -    -    26 
Stock based compensation   -    -    -    -    45    -    -    -    -    45 
Directors’ equity incentive plan, net   -    -    -    -    -    -    41    (41)   -    - 
Balance at March 31, 2018   -   $-    14,013,917   $14,014   $95,916   $27,755   $(2,477)  $2,477   $(12)  $137,673 
Net income   -    -    -    -    -    3,110    -    -    -    3,110 
Other comprehensive loss   -    -    -    -    -    -    -    -    (208)   (208)
Stock option exercises   -    -    10,970    11    72    -    -    -    -    83 
Stock based compensation   -    -    -    -    44    -    -    -    -    44 
Balance at June 30, 2018   -   $-    14,024,887   $14,025   $96,032   $30,865   $(2,477)  $2,477   $(220)  $140,702 

 

See accompanying notes.

 

 - 6 - 

 

 

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, except share data)

 

                           Common             
                           Stock             
                           Issued       Accumulated     
                   Additional       to Deferred       Other   Total 
   Preferred Stock   Common Stock   paid-in   Retained   Compensation   Deferred   Comprehensive   Shareholders’ 
   Shares   Amount   Shares   Amount   Capital   Earnings   Trust   Comp Plan   Income (loss)   Equity 
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 
Net income   -    -    -    -    -    3,448    -    -    -    3,448 
Other comprehensive income   -    -    -    -    -    -    -    -    612    612 
Stock repurchases   -    -    (64,496)   (64)   (662)   -    -    -    -    (726)
Stock based compensation   -    -    -    -    60    -    -    -    -    60 
Balance at June 30, 2019   -   $-    19,261,989   $19,262   $150,275   $46,395   $(2,652)  $2,652   $913   $216,845 

 

See accompanying notes.

 

 - 7 - 

 

 

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

   Six Months Ended 
   June 30, 
   2019   2018 
   (In thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $6,755   $5,007 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Provision for (recovery of) loan losses   (95)   698 
Depreciation and amortization of premises and equipment   1,365    870 
Amortization and accretion of investment securities   324    323 
Amortization of deferred loan fees and costs   (400)   (351)
Amortization of core deposit intangible   424    537 
Stock-based compensation   119    89 
Accretion on acquired loans   (468)   (1,706)
Amortization of acquisition premium on time deposits   -    (139)
Net accretion of acquisition discount on borrowings   -    (8)
Increase in cash surrender value of bank owned life insurance   (334)   (341)
Proceeds from loans held for sale   15,707    10,306 
Originations of loans held for sale   (15,566)   (10,374)
Gain on sales of loans held for sale   (387)   (184)
Net loss on sale and write-downs of foreclosed real estate   12    53 
Write-down loss on assets held for sale   8    50 
Change in assets and liabilities:          
Net change in accrued interest receivable   (139)   109 
Net change in other assets   (2,063)   2,175 
Net change in accrued expenses and other liabilities   (753)   (11,223)
           
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   4,509    (4,109)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Redemption (purchase) of FHLB stock   238    (1,392)
Redemption of non-marketable security   44    143 
Purchase of investment securities available for sale   (37,948)   - 
Maturities of investment securities available for sale   1,805    650 
Cash received from branch acquisition   24,093    - 
Mortgage-backed securities pay-downs   5,432    6,262 
Net change in loans outstanding   (10,894)   (8,585)
Proceeds from sale of foreclosed real estate   77    86 
Proceeds from sale of assets held for sale   660    - 
Purchases of premises and equipment   (808)   (743)
           
NET CASH USED IN INVESTING ACTIVITIES   (17,301)   (3,579)

 

See accompanying notes.

 

 - 8 - 

 

 

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

 

   Six Months Ended 
   June 30, 
   2019   2018 
   (In thousands) 
CASH FLOWS FROM FINANCING ACTIVITIES          
Net change in deposits  $24,784   $(1,421)
Proceeds from long-term debt   -    38,000 
Repayments on short-term debt   (7,000)   (7,200)
Repayment in lease liability   (300)   - 
Repurchase common stock   (726)   - 
Proceeds from stock option exercises   114    109 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   16,872    29,488 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   4,080    21,800 
           
CASH AND CASH EQUIVALENTS, BEGINNING   139,362    62,695 
           
CASH AND CASH EQUIVALENTS, ENDING  $143,442   $84,495 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the period for:          
Interest  $5,498   $4,175 
Taxes   1,580    927 
           
Non-cash transactions:          
Unrealized gains (losses) on investment securities available for sale, net of tax   972    (618)
Transfers from loans to foreclosed real estate   469    378 

 

See accompanying notes.

 

 - 9 - 

 

 

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, NC (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. and its subsidiary Carolina Premier Bank 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, NC. The Bank is engaged in general commercial and retail banking in central and eastern North Carolina, as well as in Charlotte, North Carolina and northwest South Carolina. 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 and six month periods ended June 30, 2019 and 2018, 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 and six month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

 

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 2018 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2019. 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 June 30, 2019 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

 

 - 10 - 

 

 

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 June 30, 2019 and 2018 there were 172,120 and 121,300 anti-dilutive options outstanding, respectively.

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
Weighted average shares used for basic net income available to common shareholders   19,318,358    14,019,273    19,317,029    14,015,511 
                     
Effect of dilutive stock options   41,134    67,398    43,010    68,777 
                     
Weighted average shares used for diluted net income available to common shareholders   19,359,492    14,086,671    19,360,039    14,084,288 

 

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

 

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

 

In February 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). ASU 2016-02 applies a right-of-use (“ROU”) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.  For public business entities, the amendments in ASU 2016-02 are effective for interim and annual periods beginning after December 15, 2018.  The Company adopted this standard during the first quarter of 2019. The impact was an increase to the Consolidated Balance Sheet for ROU assets and associated lease liabilities, as well as resulting depreciation expense of the ROU assets and expense of the lease liabilities in the Consolidated Statements of Income. Additionally, adding these assets to the balance sheet impacted total risk-weighted assets used to determine the regulatory capital levels.

 

In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to make narrow amendments to clarify how to apply certain aspects of the new standard. The amendments are effective for reporting periods beginning after December 15, 2018.

 

The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. Adoption of ASU 2016-02 resulted in the recognition of lease liabilities totaling $9,013,900 and the recognition of ROU assets totaling $9,013,900 as of the date of adoption. The adoption of this standard did not impact beginning retained earnings. Total risk-based capital was adversely impacted by 13 basis points due to the increase in risk-weighted assets, see Note J. Lease liabilities and ROU assets are reflected in other liabilities and other assets, respectively. The initial balance sheet gross up upon adoption was primarily related to operating leases of certain real estate properties. The Company has a finance lease and no material subleases or leasing arrangements for which it is the lessor of property or equipment. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases.

 

 - 11 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

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, 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 July 17, 2019, FASB voted to propose a delay in implementation of CECL until January 2023 for certain companies, which includes small reporting companies (as defined by the SEC). The Company qualifies as a small reporting company and is prepared to adjust its implementation timeline and project plan as needed should this proposal become effective.  The Company 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 Company does not expect these amendments to have a material effect on its consolidated financial statements.

 

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.

 

 - 12 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

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:

 

·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.

 

 - 13 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

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 agency securities, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three and six months ended June 30, 2019. 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 June 30, 2019 and December 31, 2018 (in thousands):

 

Investment securities

available for sale
June 30, 2019

  Fair value  

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

  

Significant

Other

Observable

Inputs (Level 2)

  

Significant

Unobservable

Inputs (Level 3)

 
U.S. government agencies- GSEs  $11,352   $-   $11,352   $- 
Mortgage-backed securities-GSEs   54,965    -    54,965    - 
                     
Corporate bonds   1,645    -    1,645    - 
                     
Municipal bonds   15,140    -    15,140    - 
                     
Total investment AFS  $83,102   $-   $83,102   $- 

 

Investment securities

available for sale

December 31, 2018

  Fair value  

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

  

Significant

Other

Observable

Inputs (Level 2)

  

Significant

Unobservable

Inputs (Level 3)

 
U.S. government agencies- GSEs  $9,837   $-   $9,837   $- 
Mortgage-backed securities-GSEs   22,983    -    22,983    - 
                     
Corporate bonds   1,722    -    1,722    - 
                     
Municipal bonds   16,991    -    16,991    - 
                     
Total investment AFS  $51,533   $-   $51,533   $- 

 

 - 14 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

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 an 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 June 30, 2019 and December 31, 2018, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance 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 June 30, 2019, the discounts to appraised value 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 June 30, 2019.

 

Foreclosed Real Estate

 

Foreclosed real estate are properties recorded at estimated fair value less estimated selling costs. 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 June 30, 2019, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three months ended June 30, 2019.

 

Assets held for sale

 

During 2015, a branch facility was taken out of service as part of the Company’s branch restructuring plan and reclassified as held for sale. The property is recorded at the remaining book balance of the asset or an estimated fair value 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, assets held for sale is classified within Level 3 of the hierarchy. There have been no changes in the valuation techniques for the three months ended June 30, 2019.

 

 - 15 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

Loans held for sale

 

The Company originated 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. Therefore, loans held for sale is classified within Level 2 of the hierarchy. 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.

 

 - 16 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

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 June 30, 2019 and December 31, 2018 (in thousands):

 

Asset Category

June 30, 2019

  Fair value  

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

  

Significant

Other

Observable

Inputs (Level 2)

  

Significant

Unobservable

Inputs (Level 3)

 
Impaired loans  $10,521   $-   $-   $10,521 
                     
Loans held for sale   826    -    826    - 
                     
Foreclosed real estate   1,468    -    -    1,468 
                     
Total  $12,815   $-   $826   $11,989 

 

Asset Category

December 31, 2018

  Fair value  

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

  

Significant

Other

Observable

Inputs (Level 2)

  

Significant

Unobservable

Inputs (Level 3)

 
                 
Impaired loans  $7,257   $-   $-   $7,257 
                     
Loans held for sale   580    -    580    - 
                     
Assets held for sale   668    -    -    668 
                     
Foreclosed real estate   1,088    -    -    1,088 
                     
Total  $9,593   $-   $580   $9,013 

 

 - 17 - 

 

 

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 June 30, 2019 and December 31, 2018:

 

   June 30, 2019 
   Carrying   Estimated             
   Amount   Fair Value   Level 1   Level 2   Level 3 
   (dollars in thousands) 
Financial assets:                         
Cash and due from banks  $20,397   $20,397   $20,397   $-   $- 
Certificates of deposit   500    500    500    -    - 
Interest-earning deposits in other banks   100,584    100,584    100,584    -    - 
Federal funds sold   21,961    21,961    21,961    -    - 
Investment securities available for sale   83,102    83,102    -    83,102    - 
Loans held for sale   826    826    826    -      
Loans, net   988,759    976,499    -    -    976,499 
Accrued interest receivable   4,028    4,028    -    4,028    - 
Stock in FHLB   3,045    3,045    -    -    3,045 
Other non-marketable securities   718    718    -    -    718 
                          
Financial liabilities:                         
Deposits  $1,030,250   $1,312,278   $-   $1,312,278   $- 
Long-term debt   57,372    55,953    -    55,953    - 
Accrued interest payable   637    637    -    637    - 

 

   December 31, 2018 
   Carrying   Estimated             
   Amount   Fair Value   Level 1   Level 2   Level 3 
   (dollars in thousands) 
Financial assets:                         
Cash and due from banks  $17,059   $17,059   $17,059   $-   $- 
Certificates of deposits   1,000    1,000    1,000    -    - 
Interest-earning deposits in other banks   121,303    121,303    121,303    -    - 
Investment securities available for sale   51,533    51,533    -    51,533    - 
Loans held for sale   580    580    -    580    - 
Loans, net   977,371    970,330    -    -    970,330 
Accrued interest receivable   3,889    3,889    -    3,889    - 
Stock in the FHLB   3,283    3,283    -    -    3,283 
Other non-marketable securities   762    762    -    -    762 
Assets held for sale   668    668    -    -    668 
                          
Financial liabilities:                         
Deposits  $980,427   $979,570   $-   $979,570   $- 
Short-term debt   7,000    7,000    -    7,000    - 
Long-term debt   57,372    55,504    -    55,504    - 
Accrued interest payable   667    667    -    667    - 

 

 - 18 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

NOTE E - INVESTMENT SECURITIES

 

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

 

   June 30, 2019 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
U.S. government agencies – GSEs  $11,113   $241   $(2)  $11,352 
Mortgage-backed securities – GSEs   54,288    704    (27)   54,965 
Corporate bonds   1,617    28    -    1,645 
Municipal bonds   14,902    238    -    15,140 
                     
   $81,920   $1,211   $(29)  $83,102 

 

As of June 30, 2019 accumulated other comprehensive income included net unrealized gains totaling $1.2 million. Deferred tax assets resulting from these net unrealized gains totaled $270,000.

 

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

 

   December 31, 2018 
      Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
U.S. government agencies – GSEs  $9,852   $36   $(51)  $9,837 
Mortgage-backed securities – GSEs   23,150    62    (229)   22,983 
Corporate bonds   1,697    25    -    1,722 
Municipal bonds   16,910    105    (24)   16,991 
                     
   $51,609   $228   $(304)  $51,533 

 

As of December 31, 2018, accumulated other comprehensive loss included net unrealized losses totaling $76,000. Deferred tax liabilities resulting from these net unrealized gains totaled $17,000.

 

 - 19 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

The scheduled maturities of AFS securities, with gross unrealized gains and losses, were as follows:

 

   June 30, 2019 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
Within 1 year  $4,655   $20   $-   $4,675 
After 1 year but within 5 years   37,525    518    (29)   38,014 
After 5 years but within 10 years   31,393    481    -    31,874 
After 10 years   8,347    192    -    8,539 
                     
   $81,920   $1,211   $(29)  $83,102 

 

   December 31, 2018 
       Gross   Gross     
   Amortized   unrealized   unrealized   Fair 
   cost   gains   losses   value 
   (dollars in thousands) 
Securities available for sale:                    
Within 1 year  $3,275   $13   $-   $3,288 
After 1 year but within 5 years   32,862    96    (252)   32,706 
After 5 years but within 10 years   6,551    48    (29)   6,570 
After 10 years   8,921    71    (23)   8,969 
                     
   $51,609   $228   $(304)  $51,533 

 

Securities with a carrying value of $12.0 million and $6.4 million at June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018. The Company has not had any investment securities sales for the first six months of 2019 or 2018.

 

 - 20 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

  

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2019 and December 31, 2018.

 

   June 30, 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-GSEs  $-   $-   $641   $(2)  $641   $(2)
Mortgage backed security-GSEs   960    (1)  7,937    (26)   8,897    (27)
                               
Total temporarily impaired securities  $960   $(1)  $8,578   $(28)  $9,538   $(29)

 

At June 30, 2019, the Company had nine securities with an unrealized loss for more than twelve months of $8.6 million. There was one mortgage-backed GSE with unrealized losses for less than twelve months totaling $960,000 at June 30, 2019. All unrealized losses are attributable to the general trend of interest rates. There were no sales of investment securities during the first half of 2019.

 

   December 31, 2018 
   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  $1,224   $(6)  $4,086   $(45)  $5,310   $(51)
Mortgage-backed securities-GSEs   200    -    16,932    (229)   17,132    (229)
Municipal bonds   1,007    (2)   1,740    (22)   2,747    (24)
                               
Total temporarily impaired securities  $2,431   $(8)  $22,758   $(296)  $25,189   $(304)

 

At December 31, 2018, the Company had twenty-four AFS mortgage-backed GSEs, four municipals and six U.S Government agencies – GSEs with an unrealized loss for twelve or more consecutive months totaling $296,000. The Company had six AFS securities with a loss for twelve months or less. Three U.S. government agency GSEs, two municipals and one mortgage-backed GSE had unrealized losses for less than twelve months totaling $8,000 at December 31, 2018. All unrealized losses are attributable to the general trend of interest rates and the abnormal spreads of all debt instruments to U.S. Treasury securities. There were no sales of investment securities available for sale during 2018.

 

 - 21 - 

 

 

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 June 30, 2019 and December 31, 2018:

 

   June 30,   December 31, 
   2019   2018 
       Percent       Percent 
   Amount   of total   Amount   of total 
   (dollars in thousands) 
Real estate loans:                    
1-to-4 family residential  $161,670    16.22%  $159,597    16.19%
Commercial real estate   449,209    45.05%   457,611    46.41%
Multi-family residential   60,665    6.08%   63,459    6.44%
Construction   190,888    19.15%   170,404    17.28%
Home equity lines of credit (“HELOC”)   47,786    4.79%   49,713    5.04%
                     
Total real estate loans   910,218    91.29%   900,784    91.36%
                     
Other loans:                    
Commercial and industrial   78,360    7.86%   74,181    7.52%
Loans to individuals   10,193    1.02%   12,597    1.28%
Overdrafts   102    0.01%   217    0.02%
Total other loans   88,655    8.89%   86,995    8.82%
                     
Gross loans   998,873         987,779      
Less deferred loan origination fees, net   (1,811)   (0.18)%   (1,739)   (0.18)%
Total loans   997,062    100.00%   986,040    100.00%
                     
Allowance for loan losses   (8,303)        (8,669)     
                     
Total loans, net  $988,759        $977,371      

 

For purchased credit impaired (“PCI”) loans acquired from Legacy Select and Carolina Premier Bank, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of June 30, 2019 and December 31, 2018 were:

 

(dollars in thousands)  June 30, 2019   December 31, 2018 
         
Contractually required payments  $22,181   $24,823 
Nonaccretable difference   1,764    1,962 
Cash flows expected to be collected   20,417    22,861 
Accretable yield   3,481    3,593 
Carrying value  $16,936   $19,268 

 

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.

 

 - 22 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

At June 30, 2019, the Company had pre-approved but unused lines of credit for customers totaling $194.6 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 $128.9 million of loans was pledged to the FHLB to secure borrowings at June 30, 2019.

 

The following tables present an age analysis of past due loans, segregated by class of loans as of June 30, 2019 and December 31, 2018, respectively:

 

   June 30, 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) 
                             
Commercial and industrial  $36   $30   $1,282   $2,904   $4,252   $74,108   $78,360 
Construction   -    -    -    2,295    2,295    188,593    190,888 
Multi-family residential   -    -    -    -    -    60,665    60,665 
Commercial real estate   202    -    316    4,073    4,591    444,618    449,209 
Loans to individuals & overdrafts   3    12    -    495    510    9,785    10,295 
1-to-4 family residential   779    132    838    -    1,749    159,921    161,670 
HELOC   3    -    11    754    768    47,018    47,786 
Deferred loan (fees) cost, net   -    -    -    -    -    -    (1,811)
                                    
   $1,023   $174   $2,447   $10,521   $14,165   $984,708   $997,062 

 

   December 31, 2018 
   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  $27   $203   $1,665   $4,170   $6,065   $68,116   $74,181 
Construction   -    -    69    587    656    169,748    170,404 
Multi-family residential   -    -    -    -    -    63,459    63,459 
Commercial real estate   103    483    -    1,074    1,660    455,951    457,611 
Loans to individuals & overdrafts   1    24    -    -    25    12,789    12,814 
1-to-4 family residential   502    505    1,433    386    2,826    156,771    159,597 
HELOC   -    43    -    1,040    1,083    48,630    49,713 
Deferred loan (fees) cost, net   -    -    -    -    -    -    (1,739)
                                    
   $633   $1,258   $3,167   $7,257   $12,315   $975,464   $986,040 

 

 - 23 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

Impaired Loans

 

The following tables present information on loans, excluding PCI loans and loans evaluated collectively as a homogeneous group that were considered to be impaired as of June 30, 2019 and December 31, 2018:

 

       Three months ended   Six months ended 
   As of June 30, 2019   June 30, 2019   June 30, 2019 
       Contractual           Interest Income       Interest Income 
       Unpaid       Average   Recognized on   Average   Recognized on 
   Recorded   Principal   Related   Recorded   Impaired   Recorded   Impaired 
   Investment   Balance   Allowance   Investment   Loans   Investment   Loans 
   (In thousands) 
With no related allowance recorded:                                   
Commercial and industrial  $2,799   $3,059   $-   $3,298   $54   $4,189   $64 
Construction   2,295    2,396    -    1,419    3    1,428    8 
Commercial real estate   7,968    9,198    -    7,988    82    6,823    148 
Loans to individuals & overdrafts   83    92    -    99    5    92    6 
Multi-family residential   207    207    -    209    4    211    7 
1-to-4 family residential   570    678    -    625    23    658    39 
HELOC   850    1,056    -    874    11    952    26 
Subtotal:   14,772    16,686    -    14,512    182    14,353    298 
With an allowance recorded:                                   
Commercial and industrial   758    1,056    254    964    37    635    43 
Construction   -    -    -    -    -    13    - 
Commercial real estate   -    -    -    -    -    -    - 
Loans to individuals & overdrafts   12    9    12    10    -    77    - 
Multi-family residential   -    -    -    -    -    -    - 
1-to-4 family residential   83    94    6    517    9    91    7 
HELOC   163    222    52    262    1    213    10 
Subtotal:   1,016    1,381    324    1,753    47    1,029    60 
Totals:                                   
Commercial   14,027    15,916    254    13,878    180    13,299    270 
Consumer   95    101    12    109    5    169    6 
Residential   1,666    2,050    58    2,278    44    1,914    82 
Grand Total:  $15,788   $18,067   $324   $16,265   $229   $15,382   $358 

 

Impaired loans at June 30, 2019 were approximately $15.8 million and were composed of $10.5 million in nonaccrual loans and $5.3 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $1.0 million in impaired loans had specific allowances provided for them while the remaining $14.8 million had no specific allowances recorded at June 30, 2019. Of the $14.8 million with no allowance recorded, $546,000 of those loans have had partial charge-offs recorded.

 

 - 24 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

       Three months ended   Six months ended 
   As of December 31, 2018   June 30, 2018   June 30, 2018 
       Contractual           Interest Income       Interest Income 
       Unpaid       Average   Recognized on   Average   Recognized on 
   Recorded   Principal   Related   Recorded   Impaired   Recorded   Impaired 
   Investment   Balance   Allowance   Investment   Loans   Investment   Loans 
   (In thousands) 
With no related allowance recorded:                                   
Commercial and industrial  $4,210   $4,495   $-   $3,031   $57   $2,447   $130 
Construction   561    647    -    377    1    380    2 
Commercial real estate   4,744    6,903    -    5,226    94    4,999    155 
Loans to individuals & overdrafts   215    215    -    -    -    -    - 
Multi-family residential   101    109    -    228    3    230    6 
1-to-4 family residential   1,040    1,204    -    806    (16)   989    25 
HELOC   572    732    -    870    12    800    31 
Subtotal:   11,443    14,305    -    10,538    151    9,845    349 
With an allowance recorded:                                   
Commercial and industrial   127    325    51    141    1    141    1 
Construction   27    27    14    26    -    13    - 
Loans to individuals & overdrafts   -    -    -    2    -    2    - 
Multi-family residential   -    -    -    -    -    -    - 
1-to-4 family residential   137    555    22    149    2    175    7 
HELOC   -    -    -    35    1    52    1 
Subtotal:   291    907    98    353    4    383    9 
Totals:                                   
Commercial   10,007    12,612    65    9,029    156    8,210    294 
Consumer   101    109    -    2    -    2    - 
Residential   1,626    2,491    22    1,860    (1)   2,016    64 
Grand Total:  $11,734   $15,212   $87   $10,891   $155   $10,228   $358 

 

Impaired loans at December 31, 2018 were approximately $11.7 million and were comprised of $7.3 million in non-accrual loans and $4.4 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately $291,000 of the $11.7 million in impaired loans at December 31, 2018 had specific allowances aggregating $87,000 while the remaining $11.4 million had no specific allowances recorded. Of the $11.4 million with no allowance recorded, partial charge-offs through December 31, 2018 amounted to $3.5 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.

 

 - 25 - 

 

 

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 three and six months ended June 30, 2019 and 2018:

 

   Three months ended June 30, 2019   Six months ended June 30, 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:                              
1-to-4 family residential   1   $35   $18    2   $59   $40 
Commercial real estate   -    -    -    1    752    752 
Commercial & industrial   2    747    747    3    828    827 
                               
Total   3   $782   $765    6   $1,639   $1,619 

 

   Three months ended June 30, 2018   Six months ended June 30, 2018 
       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:                              
1-to-4 family residential   1   $408   $403    1   $408   $403 
Commercial real estate   2    892    817    2    892    817 
Commercial & industrial   2    533    510    6    1,579    1,555 
                               
Total   5   $1,833   $1,730    9   $2,879   $2,775 

 

Loans may be considered TDRs for reasons other than below market interest rates, extended payment terms or forgiveness of principal.

 

 - 26 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

Troubled Debt Restructurings (continued)

 

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 period ended June 30, 2019 and 2018:

 

   Twelve months ended   Twelve months ended 
   June 30, 2019   June 30, 2018 
   Number   Recorded   Number   Recorded 
   of loans   investment   of loans   investment 
   (Dollars in thousands) 
Extended payment terms:                    
Commercial & industrial   3   $827    6   $1,544 
Commercial real estate   2    1,058    1    384 
1-to-4 family residential   2    40    2    470 
Total   7   $1,925    9   $2,398 

 

At June 30, 2019, the Bank had thirty-nine loans with an aggregate balance of $7.8 million that were considered to be TDRs. Of those TDRs, twenty-four loans with a balance totaling $5.3 million were still accruing as of June 30, 2019. The remaining TDRs with balances totaling $1.8 million as of June 30, 2019 were in non-accrual status.

 

At June 30, 2018, the Bank had forty-three loans with an aggregate balance of $8.3 million that were considered to be TDRs. Of those TDRs, twenty-six loans with a balance totaling $5.6 million were still accruing as of June 30, 2018. The remaining TDRs with balances totaling $2.7 million as of June 30, 2018 were in non-accrual status.

 

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of June 30, 2019 and December 31, 2018, respectively:

 

 - 27 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

Total loans:

 

June 30, 2019 
Commercial                
Credit                
Exposure By  Commercial      Commercial     
Internally  and      real   Multi-family 
Assigned Grade  industrial   Construction   estate   residential 
(dollars in thousands)
                 
Superior  $674   $-   $136   $- 
Very good   1,146    157    1,059    - 
Good   5,314    10,736    58,861    4,925 
Acceptable   23,194    23,125    249,818    38,123 
Acceptable with care   41,171    153,899    130,758    17,617 
Special mention   1,236    676    1,911    - 
Substandard   5,625    2,295    6,666    - 
Doubtful   -    -    -    - 
Loss   -    -    -    - 
   $78,360   $190,888   $449,209   $60,665 

 

Consumer Credit                
Exposure By                
Internally  1-to-4 family             
Assigned Grade  residential   HELOC         
                 
Pass  $157,829   $46,533           
Special mention   1,687    76           
Substandard   2,154    1,177           
   $161,670   $47,786           

 

Consumer Credit                
Exposure Based  Loans to             
On Payment  individuals &             
Activity  overdrafts             
                 
Pass  $9,989                
Special mention   306                
   $10,295                

 

 - 28 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

Total Loans:

 

December 31, 2018 
Commercial                
Credit                
Exposure By  Commercial      Commercial     
Internally  and      real   Multi-family 
Assigned Grade  industrial   Construction   estate   residential 
(dollars in thousands)
                     
Superior  $1,662   $-   $21   $- 
Very good   2,266    246    1,120    - 
Good   5,773    12,106    47,959    5,116 
Acceptable   22,332    30,897    263,017    37,832 
Acceptable with care   34,626    125,788    139,484    20,296 
Special mention   879    711    1,789    - 
Substandard   6,643    656    4,221    215 
Doubtful   -    -    -    - 
Loss   -    -    -    - 
   $74,181   $170,404   $457,611   $63,459 

 

Consumer Credit                
Exposure By                
Internally  1-to-4 family             
Assigned Grade  residential   HELOC         
                 
Pass  $155,117   $48,143           
Special mention   900    88           
Substandard   3,580    1,482           
   $159,597   $49,713           

 

Consumer Credit                
Exposure Based  Loans to             
On Payment  individuals &             
Activity  overdrafts             
                 
Pass  $10,891                
Special mention   1,923                
   $12,814                

 

 - 29 - 

 

 

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 companies.

 

The following table documents changes to the amount of the accretable yield on PCI loans for the three and six months ended June 30, 2019 and 2018:

 

   Three Months   Three Months   Six Months   Six Months 
   Ended   Ended   Ended   Ended 
   June 30,   June 30,   June 30,   June 30, 
   2019   2018   2019   2018 
   (dollars in thousands) 
                 
Accretable yield, beginning of period  $3,721   $3,040   $3,593   $3,307 
Accretion   (290)   (348)   (578)   (702)
Reclassification from (to) nonaccretable difference   131    78    248    63 
Other changes, net   (81)   332    218    434 
Accretable yield, end of period  $3,481   $3,102   $3,481   $3,102 

 

 - 30 - 

 

 

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 and six month periods ended June 30, 2019, respectively:

 

   Three months ended June 30, 2019 
   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 
   (dollars in thousands) 
Loans – excluding PCI                                        
Balance, beginning of period  $730   $1,572   $3,395   $1,211   $439   $177   $408   $7,932 
Provision for (recovery of) loan losses   85    (102)   (601)   324    44    129    (25)   (146)
Loans charged-off   (6)   -    (10)   -    (51)   (5)   -    (72)
Recoveries   5    17    34    8    -    8    -    72 
Balance, end of period  $814   $1,487   $2,818   $1,543   $432   $309   $383   $7,786 
                                         
PCI Loans                                        
Balance, beginning of period  $46   $23   $233   $246   $2   $-   $28   $578 
Provision for (recovery of) loan losses   252    (17)   (91)   (184)   (1)   -    (20)   (61)
Loans charged-off   -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    - 
Balance, end of period  $298   $6   $142   $62   $1   $-   $8   $517 
                                         
Total Loans                                        
Balance, beginning of period  $776   $1,595   $3,628   $1,457   $441   $177   $436   $8,510 
Provision for (recovery of)loan losses   337    (119)   (692)   140    43    129    (45)   (207)
Loans charged-off   (6)   -    (10)   -    (51)   (5)   -    (72)
Recoveries   5    17    34    8    -    8    -    72 
Balance, end of period  $1,112   $1,493   $2,960   $1,605   $433   $309   $391   $8,303 
                                         
Ending Balance: individually evaluated for impairment  $254   $-   $-   $6   $52   $12   $-   $324 
Ending Balance: collectively evaluated for impairment  $858   $1,493   $2,960   $1,599   $381   $297   $391   $7,979 
                                         
Loans:                                        
Ending Balance: collectively evaluated for impairment non PCI loans  $73,377   $187,906   $434,939   $153,461   $46,725   $10,200   $59,541   $966,149 
Ending Balance: collectively evaluated for impairment PCI loans  $1,426   $687   $6,302   $7,556   $47   $-   $918   $16,936 
Ending Balance: individually evaluated for impairment  $3,557   $2,295   $7,968   $653   $1,014   $95   $206   $15,788 
Ending Balance  $78,360   $190,888   $449,209   $161,670   $47,786   $10,295   $60,665   $998,873 

 

 - 31 - 

 

 

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

 

   Six months ended June 30, 2019 
   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 
   (dollars in thousands) 
Loans – excluding PCI                                        
Balance, beginning of period  $762   $1,385   $3,024   $1,663   $555   $206   $471   $8,066 
Provision for (recovery of) loan losses   299    84    (245)   (137)   (36)   114    (88)   (9)
Loans charged-off   (257)   -