UNITED STATES
U.S. Securities and Exchange CommissionSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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 September 30, 20192020
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 Number000-50400
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'sRegistrant’s telephone number, including area codecode: (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 | ||
Common stock, par value |
| 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. Yesx☒ 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). Yesx☒ 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 |
Non-accelerated filer | Smaller reporting company | |
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¨☐ Nox
☒
As of October 30, 2019,2020, the registrant had outstanding 18,513,07817,786,552 shares of Common Stock, $1.00 par value per share.
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| Consolidated Statements of Cash Flows | 7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 | |
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2
Part I. FINANCIAL INFORMATION
Item 1. Financial InformationStatements.
CONSOLIDATED BALANCE SHEETS
| | | | | | | |
| | September 30, 2020 | | December 31, | | ||
|
| (unaudited) |
| 2019* | | ||
| | (In thousands, except share | | ||||
| | and per share data) | | ||||
ASSETS | | | | | | | |
Cash and due from banks | | $ | 25,068 | | $ | 19,110 | |
Interest-earning deposits in other banks | |
| 249,541 | |
| 50,920 | |
Federal funds sold | |
| 8,046 | |
| 9,047 | |
Investment securities available for sale, at fair value | |
| 87,434 | |
| 72,367 | |
Loans held for sale | |
| 2,945 | |
| 928 | |
Loans | |
| 1,283,457 | |
| 1,029,975 | |
Allowance for loan losses | |
| (13,561) | |
| (8,324) | |
NET LOANS | |
| 1,269,896 | |
| 1,021,651 | |
Accrued interest receivable | |
| 4,486 | |
| 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 | |
| 3,237 | |
| 3,533 | |
Premises and equipment, net | |
| 20,883 | |
| 17,791 | |
Right of use lease asset | | | 8,756 | | | 8,596 | |
Bank owned life insurance | |
| 30,271 | |
| 29,789 | |
Goodwill | |
| 41,914 | |
| 24,579 | |
Core deposit intangible (“CDI”) | |
| 1,677 | |
| 1,610 | |
Other assets | |
| 14,015 | |
| 7,202 | |
TOTAL ASSETS | | $ | 1,771,946 | | $ | 1,275,076 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
| |
Deposits: | |
|
| |
|
| |
Demand | | $ | 408,209 | | $ | 240,305 | |
Savings | |
| 51,629 | |
| 43,128 | |
Money market and NOW | |
| 610,275 | |
| 280,145 | |
Time | |
| 402,667 | |
| 429,260 | |
TOTAL DEPOSITS | |
| 1,472,780 | |
| 992,838 | |
Short-term debt | |
| 20,000 | |
| 0 | |
Long-term debt | |
| 37,372 | |
| 57,372 | |
Lease liability | | | 9,089 | | | 8,813 | |
Accrued interest payable | |
| 449 | |
| 578 | |
Accrued expenses and other liabilities | |
| 18,889 | |
| 2,700 | |
TOTAL LIABILITIES | |
| 1,558,579 | |
| 1,062,301 | |
Shareholders’ Equity | |
|
| |
|
| |
Preferred stock, 0 par value, 5,000,000 shares authorized; 0 preferred shares were issued and outstanding at September 30, 2020 and December 31, 2019 | |
| 0 | |
| 0 | |
Common stock, $1 par value, 50,000,000 shares authorized; 17,786,552 and 18,330,058 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | |
| 17,787 | |
| 18,330 | |
Additional paid-in capital | |
| 137,130 | |
| 140,870 | |
Retained earnings | |
| 56,917 | |
| 52,675 | |
Common stock issued to deferred compensation trust, at cost; 263,377 and 319,753 shares outstanding at September 30, 2020 and December 31, 2019, respectively | |
| (2,352) | |
| (2,815) | |
Directors’ Deferred Compensation Plan Rabbi Trust | |
| 2,352 | |
| 2,815 | |
Accumulated other comprehensive income | |
| 1,533 | |
| 900 | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 213,367 | |
| 212,775 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,771,946 | | $ | 1,275,076 | |
September 30, 2019 | December 31, | |||||||
(Unaudited) | 2018* | |||||||
(In thousands, except share and per share data) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 20,052 | $ | 17,059 | ||||
Interest-earning deposits in other banks | 53,093 | 121,303 | ||||||
Certificates of deposit | 500 | 1,000 | ||||||
Federal funds sold | 10,728 | - | ||||||
Investment securities available for sale, at fair value | 76,941 | 51,533 | ||||||
Loans held for sale | 1,714 | 580 | ||||||
Loans | 1,014,928 | 986,040 | ||||||
Allowance for loan losses | (8,056 | ) | (8,669 | ) | ||||
NET LOANS | 1,006,872 | 977,371 | ||||||
Accrued interest receivable | 3,902 | 3,889 | ||||||
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost | 3,045 | 3,283 | ||||||
Other non-marketable securities | 719 | 762 | ||||||
Foreclosed real estate | 1,442 | 1,088 | ||||||
Premises and equipment, net | 18,150 | 17,920 | ||||||
Right of use lease asset | 8,776 | - | ||||||
Bank owned life insurance | 29,621 | 29,117 | ||||||
Goodwill | 24,579 | 24,579 | ||||||
Core deposit intangible (“CDI”) | 1,803 | 2,085 | ||||||
Assets held for sale | - | 668 | ||||||
Other assets | 7,697 | 6,288 | ||||||
TOTAL ASSETS | $ | 1,269,634 | $ | 1,258,525 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits: | ||||||||
Demand | $ | 243,889 | $ | 247,007 | ||||
Savings | 43,355 | 51,811 | ||||||
Money market and NOW | 283,414 | 254,482 | ||||||
Time | 417,015 | 427,127 | ||||||
TOTAL DEPOSITS | 987,673 | 980,427 | ||||||
Short-term debt | - | 7,000 | ||||||
Long-term debt | 57,372 | 57,372 | ||||||
Lease liability | 8,951 | - | ||||||
Accrued interest payable | 596 | 667 | ||||||
Accrued expenses and other liabilities | 2,993 | 3,448 | ||||||
TOTAL LIABILITIES | 1,057,585 | 1,048,914 | ||||||
Shareholders’ Equity: | ||||||||
Preferred stock, no par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018 | - | - | ||||||
Common stock, $1.00 par value, 50,000,000 shares authorized; 18,513,078 and 19,311,505 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 18,513 | 19,312 | ||||||
Additional paid-in capital | 142,878 | 150,718 | ||||||
Retained earnings | 49,634 | 39,640 | ||||||
Common stock issued to deferred compensation trust, at cost; 312,956 and 303,239 shares outstanding at September 30, 2019 and December 31, 2018, respectively | (2,730 | ) | (2,615 | ) | ||||
Directors’ Deferred Compensation Plan Rabbi Trust | 2,730 | 2,615 | ||||||
Accumulated other comprehensive income (loss) | 1,024 | (59 | ) | |||||
TOTAL SHAREHOLDERS’ EQUITY | 212,049 | 209,611 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,269,634 | $ | 1,258,525 |
* Derived from audited consolidated financial statements.
See accompanying notes.
3
SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | | September 30, | | September 30, | | |||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||||
| | (In thousands, except share and per share data) | | (In thousands, except share and per share data) | | ||||||||
INTEREST INCOME | | | | | | | | | | | | | |
Loans | | $ | 15,404 | | $ | 13,924 | | $ | 43,079 | | $ | 40,481 | |
Federal funds sold and interest-earning deposits in other banks | |
| 54 | |
| 581 | |
| 255 | |
| 1,580 | |
Investments | |
| 367 | |
| 503 | |
| 1,169 | |
| 1,569 | |
TOTAL INTEREST INCOME | |
| 15,825 | |
| 15,008 | |
| 44,503 | |
| 43,630 | |
| | | | | | | | | | | | | |
INTEREST EXPENSE | |
|
| |
|
| |
|
| |
|
| |
Money market, NOW and savings deposits | |
| 891 | |
| 433 | |
| 1,887 | |
| 1,196 | |
Time deposits | |
| 1,415 | |
| 2,248 | |
| 4,922 | |
| 5,986 | |
Short-term debt | |
| 145 | |
| 4 | |
| 373 | |
| 56 | |
Long-term debt | |
| 263 | |
| 455 | |
| 896 | |
| 1,370 | |
TOTAL INTEREST EXPENSE | |
| 2,714 | |
| 3,140 | |
| 8,078 | |
| 8,608 | |
NET INTEREST INCOME | |
| 13,111 | |
| 11,868 | |
| 36,425 | |
| 35,022 | |
PROVISION FOR LOAN LOSSES | |
| 1,638 | |
| 231 | |
| 5,844 | |
| 136 | |
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | |
| 11,473 | |
| 11,637 | |
| 30,581 | |
| 34,886 | |
| | | | | | | | | | | | | |
NON-INTEREST INCOME | |
|
| |
|
| |
|
| |
|
| |
Gain on the sale of securities | |
| — | |
| 48 | |
| 0 | |
| 48 | |
Service charges on deposit accounts | |
| 257 | |
| 308 | |
| 801 | |
| 858 | |
Fees from the sale of mortgages | |
| 517 | |
| 218 | |
| 1,165 | |
| 605 | |
Other fees and income | |
| 950 | |
| 874 | |
| 2,613 | |
| 2,462 | |
TOTAL NON-INTEREST INCOME | |
| 1,724 | |
| 1,448 | |
| 4,579 | |
| 3,973 | |
NON-INTEREST EXPENSE | |
|
| |
|
| |
|
| |
|
| |
Personnel | |
| 5,742 | |
| 5,124 | |
| 17,160 | |
| 15,126 | |
Occupancy and equipment | |
| 1,008 | |
| 1,073 | |
| 2,925 | |
| 2,722 | |
Deposit insurance | |
| 370 | |
| (30) | |
| 434 | |
| 165 | |
Professional fees | |
| 399 | |
| 518 | |
| 1,222 | |
| 1,383 | |
Core deposit intangible amortization | |
| 179 | |
| 208 | |
| 553 | |
| 632 | |
Merger/acquisition related expenses | |
| 7 | |
| 128 | |
| 755 | |
| 235 | |
Information systems | |
| 1,043 | |
| 852 | |
| 3,053 | |
| 2,518 | |
Foreclosure-related expenses | |
| 228 | |
| (9) | |
| 420 | |
| 31 | |
Other | |
| 1,091 | |
| 1,067 | |
| 3,294 | |
| 3,234 | |
TOTAL NON-INTEREST EXPENSE | |
| 10,067 | |
| 8,931 | |
| 29,816 | |
| 26,046 | |
INCOME BEFORE INCOME TAX | |
| 3,130 | |
| 4,154 | |
| 5,344 | |
| 12,813 | |
INCOME TAX | |
| 673 | |
| 915 | |
| 1,102 | |
| 2,819 | |
NET INCOME | |
| 2,457 | |
| 3,239 | |
| 4,242 | |
| 9,994 | |
Basic | | $ | 0.14 | | $ | 0.17 | | $ | 0.24 | | $ | 0.52 | |
Diluted | | $ | 0.14 | | $ | 0.17 | | $ | 0.23 | | $ | 0.52 | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | |
|
| |
| | |
|
| |
Basic | |
| 17,847,913 | |
| 19,028,572 | |
| 18,038,345 | |
| 19,219,820 | |
Diluted | |
| 17,866,822 | |
| 19,073,235 | |
| 18,062,170 | |
| 19,266,480 | |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
INTEREST INCOME | ||||||||||||||||
Loans | $ | 13,924 | $ | 13,609 | $ | 40,481 | $ | 40,293 | ||||||||
Federal funds sold and interest-earning deposits in other banks | 581 | 422 | 1,580 | 940 | ||||||||||||
Investments | 503 | 351 | 1,569 | 1,058 | ||||||||||||
TOTAL INTEREST INCOME | 15,008 | 14,382 | 43,630 | 42,291 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Money market, NOW and savings deposits | 433 | 338 | 1,196 | 977 | ||||||||||||
Time deposits | 2,248 | 1,665 | 5,986 | 4,508 | ||||||||||||
Short-term debt | 4 | 75 | 56 | 285 | ||||||||||||
Long-term debt | 455 | 452 | 1,370 | 1,036 | ||||||||||||
TOTAL INTEREST EXPENSE | 3,140 | 2,530 | 8,608 | 6,806 | ||||||||||||
NET INTEREST INCOME | 11,868 | 11,852 | 35,022 | 35,485 | ||||||||||||
PROVISION FOR (RECOVERY OF) LOAN LOSSES | 231 | (459 | ) | 136 | 239 | |||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 11,637 | 12,311 | 34,886 | 35,246 | ||||||||||||
NON-INTEREST INCOME | ||||||||||||||||
Fees on the sale of mortgages | 218 | 109 | 605 | 293 | ||||||||||||
Gain on securities | 48 | - | 48 | - | ||||||||||||
Service charges on deposit accounts | 308 | 309 | 858 | 830 | ||||||||||||
Other fees and income | 874 | 648 | 2,462 | 2,334 | ||||||||||||
TOTAL NON-INTEREST INCOME | 1,448 | 1,066 | 3,973 | 3,457 | ||||||||||||
NON-INTEREST EXPENSE | ||||||||||||||||
Personnel | 5,124 | 4,464 | 15,126 | 13,861 | ||||||||||||
Occupancy and equipment | 1,073 | 849 | 2,722 | 2,598 | ||||||||||||
Deposit insurance | (30 | ) | 239 | 165 | 617 | |||||||||||
Professional fees | 518 | 322 | 1,383 | 1,012 | ||||||||||||
CDI amortization | 208 | 247 | 632 | 784 | ||||||||||||
Merger/acquisition related expenses | 128 | - | 235 | 1,826 | ||||||||||||
Information systems | 852 | 726 | 2,518 | 2,773 | ||||||||||||
Foreclosure-related expenses | (9 | ) | (22 | ) | 31 | 81 | ||||||||||
Other | 1,067 | 975 | 3,234 | 3,134 | ||||||||||||
TOTAL NON-INTEREST EXPENSE | 8,931 | 7,800 | 26,046 | 26,686 | ||||||||||||
INCOME BEFORE INCOME TAX | 4,154 | 5,577 | 12,813 | 12,017 | ||||||||||||
INCOME TAXES | 915 | 1,256 | 2,819 | 2,689 | ||||||||||||
NET INCOME | $ | 3,239 | $ | 4,321 | $ | 9,994 | $ | 9,328 | ||||||||
NET INCOME PER COMMON SHARE | ||||||||||||||||
Basic | $ | 0.17 | $ | 0.27 | $ | 0.52 | $ | 0.64 | ||||||||
Diluted | $ | 0.17 | $ | 0.27 | $ | 0.52 | $ | 0.63 | ||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
Basic | 19,028,572 | 15,858,455 | 19,219,820 | 14,636,576 | ||||||||||||
Diluted | 19,073,235 | 15,916,734 | 19,266,480 | 14,697,379 |
See accompanying notes.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||||
| | | (In thousands) | | | | | | | | |||
| | | | | | | | | | | | | |
Net income | | $ | 2,457 | | $ | 3,239 | | $ | 4,242 | | $ | 9,994 | |
| | | | | | | | | | | | | |
Other comprehensive income (loss): | |
|
| |
|
| |
|
| |
|
| |
Unrealized gains (loss) on investment securities-available for sale | |
| (161) | |
| 196 | |
| 822 | |
| 1,454 | |
Tax effect | |
| 38 | |
| (48) | |
| (189) | |
| (334) | |
Total | |
| (123) | |
| 148 | |
| 633 | |
| 1,120 | |
Reclassification adjustment for (gains) included in net income | |
| — | |
| (48) | |
| — | |
| (48) | |
Tax effect | |
| — | |
| 11 | |
| — | |
| 11 | |
| |
| — | |
| (37) | |
| — | |
| (37) | |
| | | | | | | | | | | | | |
Total | |
| (123) | |
| 111 | |
| 633 | |
| 1,083 | |
| | | | | | | | | | | | | |
Total comprehensive income | | $ | 2,334 | | $ | 3,350 | | $ | 4,875 | | $ | 11,077 | |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income | $ | 3,239 | $ | 4,321 | $ | 9,994 | $ | 9,328 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gain (loss) on investment securities available for sale | 196 | (222 | ) | 1,454 | (1,029 | ) | ||||||||||
Tax effect | (48 | ) | 50 | (334 | ) | 239 | ||||||||||
148 | (172 | ) | 1,120 | (790 | ) | |||||||||||
Reclassification adjustment for gain included in net income | (48 | ) | - | (48 | ) | - | ||||||||||
Tax effect | 11 | - | 11 | - | ||||||||||||
(37 | ) | - | (37 | ) | - | |||||||||||
Total | 111 | (172 | ) | 1,083 | (790 | ) | ||||||||||
Total comprehensive income | $ | 3,350 | $ | 4,149 | $ | 11,077 | $ | 8,538 |
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 | | Deferred | | Compensation | | Comprehensive | | Shareholders’ | ||||||||||||
| | Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Comp Plan |
| Trust |
| Income |
| Equity | ||||||||
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 |
Directors’ equity incentive plan, net | | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | 24 |
| | (24) |
| | — |
| | — |
Stock-based compensation | | — |
| | — |
| — |
| | — |
| | 105 |
| | — |
| | — |
| | — |
| | — |
| | 105 |
Balance at March 31, 2020 | | — | | $ | — |
| 18,055,692 | | $ | 18,056 | | $ | 138,788 | | $ | 53,779 | | $ | (2,791) | | $ | 2,791 | | $ | 1,462 | | $ | 212,085 |
Net income | | — | |
| — |
| — | |
| — | |
| — | |
| 681 | |
| — | |
| — | |
| — | |
| 681 |
Other comprehensive income | | — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 194 | |
| 194 |
Stock repurchases | | — | |
| — |
| (193,138) | |
| (193) | |
| (1,328) | |
| — | |
| — | |
| — | |
| — | |
| (1,521) |
Stock option exercises | | — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Directors’ equity incentive plan, net | | — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 238 | |
| (238) | |
| — | |
| — |
Stock-based compensation | | — | |
| — |
| — | |
| — | |
| 99 | |
| — | |
| — | |
| — | |
| — | |
| 99 |
Balance at June 30, 2020 | | — | | $ | — |
| 17,862,554 | | $ | 17,863 | | $ | 137,559 | | $ | 54,460 | | $ | (2,553) | | $ | 2,553 | | $ | 1,656 | | $ | 211,538 |
Net income | | — | | | — | | — | | | — | | | — | | | 2,457 | | | — | | | — | | | — | | | 2,457 |
Other comprehensive (loss) | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (123) | | | (123) |
Stock repurchases | | — | | | — | | (76,002) | | | (76) | | | (490) | | | — | | | — | | | — | | | — | | | (566) |
Directors’ equity incentive plan, net | | — | | | — | | — | | | — | | | — | | | — | | | 201 | | | (201) | | | — | | | — |
Stock based compensation | | — | | | — | | — | | | — | | | 61 | | | — | | | — | | | — | | | — | | | 61 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2020 | | — | | $ | — | | 17,786,552 | | $ | 17,787 | | $ | 137,130 | | $ | 56,917 | | $ | (2,352) | | $ | 2,352 | | $ | 1,533 | | $ | 213,367 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
Directors’ equity incentive plan, net | | — | | | — | | — | | | — | | | — | | | — | | | (37) | | | 37 | | | — | | | — |
Stock based compensation | | — | | | — | | — | | | — | | | 59 | | | — | | | — | | | — | | | — | | | 59 |
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 option exercises | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
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 |
Net income | | — | | | — | | — | | | — | | | — | | | 3,239 | | | — | | | — | | | — | | | 3,239 |
Other comprehensive income | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 111 | | | 111 |
Stock repurchases | | — | | | — | | (748,911) | | | (749) | | | (7,456) | | | — | | | — | | | — | | | — | | | (8,205) |
Stock option exercises | | | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Directors’ equity incentive plan, net | | — | | | — | | — | | | — | | | — | | | — | | | (78) | | | 78 | | | — | | | — |
Stock based compensation | | — | | | — | | — | | | — | | | 59 | | | — | | | — | | | — | | | — | | | 59 |
Balance at September 30, 2019 | | — | | $ | — | | 18,513,078 | | $ | 18,513 | | $ | 142,878 | | $ | 49,634 | | $ | (2,730) | | $ | 2,730 | | $ | 1,024 | | $ | 212,049 |
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 | |||||||||||||||||||||
Net income | - | - | - | - | - | 3,239 | - | - | - | 3,239 | ||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | - | 111 | 111 | ||||||||||||||||||||||||||||||
Stock repurchases | - | - | (748,911 | ) | (749 | ) | (7,456 | ) | - | - | - | - | (8,205 | ) | ||||||||||||||||||||||||||
Directors’ equity incentive plan, net | - | - | - | - | - | - | (78 | ) | 78 | - | - | |||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 59 | - | - | - | - | 59 | ||||||||||||||||||||||||||||||
Balance at September 30, 2019 | - | $ | - | 18,513,078 | $ | 18,513 | $ | 142,878 | $ | 49,634 | $ | (2,730 | ) | $ | 2,730 | $ | 1,024 | $ | 212,049 |
See accompanying notes.
6
SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYCASH FLOWS (Unaudited)
(in thousands, except share data)
| | | | | | | |
| | Nine Months Ended | | ||||
| | September 30, | | ||||
|
| 2020 |
| 2019 | | ||
| | | (In thousands) | | |||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Net income | | $ | 4,242 | | $ | 9,994 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Provision for loan losses | |
| 5,844 | |
| 136 | |
Depreciation and amortization of premises and equipment | |
| 1,335 | |
| 1,337 | |
Amortization and accretion of investment securities | |
| 436 | |
| 543 | |
Amortization of right of use asset | | | 941 | | | 810 | |
Accretion of deferred loan fees and costs | |
| (688) | |
| (590) | |
Amortization of core deposit intangible | |
| 553 | |
| 632 | |
Accretion of acquisition premium on time deposits | |
| (206) | |
| (7) | |
Deferred income taxes | |
| 283 | |
| 0 | |
Stock-based compensation | |
| 265 | |
| 178 | |
Accretion on acquired loans | |
| (1,075) | |
| (679) | |
Increase in cash surrender value of bank owned life insurance | | | (482) | | | (504) | |
Proceeds from loans held for sale | |
| 43,904 | |
| 25,388 | |
Originations of loans held for sale | |
| (44,756) | |
| (25,917) | |
Gain on sales of loans held for sale | | | (1,165) | | | 0 | |
Net loss on sale and write-downs of foreclosed real estate | | | 390 | | | 12 | |
Fees on sale of mortgages | |
| 0 | |
| (605) | |
Gain on the sale of securities | |
| 0 | |
| (48) | |
Loss (gain) on sale of premises and equipment | |
| 0 | |
| 8 | |
Loss on assets held for sale | |
| 0 | |
| 8 | |
Change in assets and liabilities: | |
| | |
| | |
Net change in accrued interest receivable | |
| 41 | |
| (13) | |
Net change in other assets | |
| (6,312) | |
| (1,656) | |
Net change in accrued expenses and other liabilities | |
| 15,887 | |
| (408) | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 19,437 | |
| 8,619 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
| |
Redemption (purchase) of FHLB stock | |
| (14) | |
| 238 | |
Redemption of non-marketable security | | | 1 | | | 43 | |
Purchase of investment securities available for sale | |
| (39,794) | |
| (37,948) | |
Maturities of investment securities available for sale | |
| 10,511 | |
| 2,883 | |
Cash received from branch acquisition | | | 60,234 | | | 24,093 | |
Mortgage-backed securities pay-downs | |
| 14,602 | |
| 9,367 | |
Proceeds from sale of investment securities available for sale | |
| 0 | |
| 1,125 | |
Net change in loans outstanding | |
| (149,341) | |
| (28,837) | |
Proceeds from sale of foreclosed real estate | |
| 180 | |
| 103 | |
Proceeds from sale of premises and equipment | |
| 0 | |
| 660 | |
Purchases of premises and equipment |
| | (1,531) | |
| (1,167) | |
| | | | | | | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (105,152) | |
| (29,440) | |
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 | ||||||||||||||||||||||||||||||
Directors’ equity incentive plan, net | - | - | - | - | - | - | 41 | (41 | ) | - | - | |||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 45 | - | - | - | - | 45 | ||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||
Net income | - | - | - | - | - | 4,321 | - | - | - | 4,321 | ||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | - | (172 | ) | (172 | ) | ||||||||||||||||||||||||||||
Shares issued for capital raise, net | - | - | 5,270,834 | 5,271 | 54,535 | - | - | - | - | 59,806 | ||||||||||||||||||||||||||||||
Stock option exercises | - | - | 400 | - | 4 | - | - | - | - | 4 | ||||||||||||||||||||||||||||||
Directors’ equity incentive plan, net | - | - | - | - | - | - | (80 | ) | 80 | - | - | |||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 44 | - | - | - | - | 44 | ||||||||||||||||||||||||||||||
Balance at September 30, 2018 | - | $ | - | 19,296,121 | $ | 19,296 | $ | 150,615 | $ | 35,186 | $ | (2,557 | ) | $ | 2,557 | $ | (392 | ) | $ | 204,705 |
See accompanying notes.
7
SELECT BANCORP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2019 | 2018 | |||||||
(In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 9,994 | $ | 9,328 | ||||
Adjustments to reconcile net income to net cash (used) provided by operating activities: | ||||||||
Provision for loan losses | 136 | 239 | ||||||
Depreciation and amortization of premises and equipment | 2,147 | 1,305 | ||||||
Amortization and accretion of investment securities | 543 | 455 | ||||||
Amortization of deferred loan fees and costs | (590 | ) | (543 | ) | ||||
Amortization of core deposit intangible | 632 | 784 | ||||||
Stock-based compensation | 178 | 133 | ||||||
Accretion on acquired loans | (679 | ) | (2,647 | ) | ||||
Amortization of acquisition premium on time deposits | (7 | ) | (171 | ) | ||||
Net accretion of acquisition discount on borrowings | - | (11 | ) | |||||
Increase in cash surrender value of bank-owned life insurance | (504 | ) | (513 | ) | ||||
Proceeds from loans held for sale | 25,388 | 18,317 | ||||||
Originations of loans held for sale | (25,917 | ) | (19,223 | ) | ||||
Fees on the sale of mortgages | (605 | ) | (293 | ) | ||||
Net loss on sale and write-downs of foreclosed real estate | 12 | 100 | ||||||
Loss on sale of premises and equipment | 8 | 179 | ||||||
Net write-down on assets held for sale | 8 | 178 | ||||||
Gain on sale of securities | (48 | ) | - | |||||
Change in assets and liabilities: | ||||||||
Net change in accrued interest receivable | (13 | ) | (26 | ) | ||||
Net change in other assets | (1,656 | ) | 2,330 | |||||
Net change in accrued expenses and other liabilities | (408 | ) | (10,409 | ) | ||||
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES | 8,619 | (488 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Redemption (purchase) of FHLB stock | 238 | (964 | ) | |||||
Redemption of non-marketable securities | 43 | 219 | ||||||
Purchase of investment securities available for sale | (37,948 | ) | - | |||||
Maturities of investment securities available for sale | 2,883 | 1,400 | ||||||
Proceeds from the sale of securities | 1,125 | - | ||||||
Cash received from branch acquisitions | 24,093 | - | ||||||
Mortgage-backed securities pay-downs | 9,367 | 8,626 | ||||||
Net change in loans outstanding | (28,837 | ) | (7,493 | ) | ||||
Proceeds from sale of foreclosed real estate | 103 | 657 | ||||||
Proceeds from sale of assets held for sale | 660 | - | ||||||
Purchases of premises and equipment | (1,167 | ) | (1,200 | ) | ||||
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES | (29,440 | ) | 1,245 |
See accompanying notes.
SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
Nine Months Ended | ||||||||
September 30, | ||||||||
2019 | 2018 | |||||||
(In thousands) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net change in deposits | $ | (17,786 | ) | $ | (20,712 | ) | ||
Repayments on short-term debt | (7,000 | ) | (17,266 | ) | ||||
Proceeds from long-term debt | - | 38,000 | ||||||
Repayment in lease liability | (565 | ) | - | |||||
Proceeds from issuance of common stock | - | 63,250 | ||||||
Direct expenses related to capital transactions | - | (3,444 | ) | |||||
Repurchase of common stock | (8,931 | ) | - | |||||
Proceeds from stock option exercises | 114 | 113 | ||||||
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES | (34,168 | ) | 59,941 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (54,989 | ) | 60,698 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING | 139,362 | 62,695 | ||||||
CASH AND CASH EQUIVALENTS, ENDING | $ | 84,373 | $ | 123,393 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 8,679 | $ | 6,654 | ||||
Income Taxes | 2,496 | 1,529 | ||||||
Non-cash transactions: | ||||||||
Unrealized (losses) gains on investment securities available for sale, net of tax | 1,120 | (790 | ) | |||||
Transfers from loans to foreclosed real estate | 469 | 519 |
| | | | | | | |
| | Nine Months Ended | | ||||
| | September 30, | | ||||
|
| 2020 |
| 2019 | | ||
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
Net change in deposits | | $ | 294,665 | | $ | (17,786) | |
Repayments of short-term debt | |
| 0 | |
| (7,000) | |
Repayment of lease liability | | | (825) | | | (565) | |
Repurchase of common stock | | | (4,556) | | | (8,931) | |
Proceeds from stock options exercised | |
| 7 | |
| 114 | |
| | | | | | | |
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES | |
| 289,291 | |
| (34,168) | |
| | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| 203,578 | |
| (54,989) | |
| | | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING | |
| 79,077 | |
| 139,362 | |
| | | | | | | |
CASH AND CASH EQUIVALENTS, ENDING | | $ | 282,655 | | $ | 84,373 | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
|
| |
|
| |
Cash paid during the period for: | |
|
| |
|
| |
Interest paid | | $ | 8,207 | | $ | 8,679 | |
Income taxes paid | |
| 3,202 | |
| 2,496 | |
| | | | | | | |
Non-cash transactions: | |
|
| |
|
| |
Change in fair value of investment securities available for sale, net of tax | |
| 633 | |
| 1,120 | |
Transfer from loans to foreclosed real estate | |
| 274 | |
| 469 | |
| | | | | | | |
Acquisition: | |
|
| |
|
| |
Assets acquired (excluding goodwill) | | | 170,914 | | | 0 | |
Liabilities assumed | |
| 186,416 | |
| 0 | |
Goodwill recorded | |
| 17,335 | |
| 0 | |
See accompanying notes.
8
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, NCNorth 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, NC.North Carolina. The Bank is engaged in general commercial and retail banking in central and eastern North Carolina, as well as in Charlotte,the State of North Carolina, northwest South Carolina, and the Virginia Beach, 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-three and nine-month periodsnine months ended September 30, 20192020 and 2018,2019, 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-three and nine-month periodsnine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.
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 20182019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2019.11, 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 September 30, 20192020 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 Paycheck Protection Program, deferrals on loan payments on existing loans and a reduced interest rate program available
9
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.
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 September 30, 20192020 and 20182019 there were 172,120243,120 and 119,800172,120 anti-dilutive stock options outstanding, respectively.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Weighted average shares used for basic net income available to common shareholders | 19,028,572 | 15,858,455 | 19,219,820 | 14,636,576 | ||||||||||||
Effect of dilutive stock options | 44,663 | 58,279 | 46,660 | 60,803 | ||||||||||||
Weighted average shares used for diluted net income available to common shareholders | 19,073,235 | 15,916,734 | 19,266,480 | 14,697,379 |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||
| | September 30, | | September 30, | | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| | | | | | | | | |
Weighted average number of common shares used in computing basic net income per share |
| 17,847,913 |
| 19,028,572 | | 18,038,345 |
| 19,219,820 | |
| | | | | | | | | |
Effect of dilutive stock options |
| 18,909 |
| 44,663 | | 23,825 |
| 46,660 | |
| | | | | | | | | |
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share |
| 17,866,822 |
| 19,073,235 | | 18,062,170 |
| 19,266,480 | |
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.
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, 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 Measurementtopic 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, 2019.2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures
10
upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company does not expectadoption of these amendments todid 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.
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. This ASU is effective for March 12, 2020 through December 31, 2022. The Company is still assessing this ASU but is not expecting it to have an impact to the consolidated financial position.
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.
NOTEDNOTE 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.
11
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.
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,agencies, mortgage-backed securities issued by government-sponsoredgovernment sponsored entities, (“GSEs”), and municipal bonds. There have been no changes in valuation techniques for the three and nine months ended September 30, 2019.2020. Valuation techniques are consistent with techniques used in prior periods.
12
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 September 30, 20192020 and December 31, 20182019 (in thousands):
Investment securities available for sale September 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 | $ | 10,381 | $ | - | $ | 10,381 | $ | - | ||||||||
Mortgage-backed securities-GSEs | 52,104 | - | 52,104 | - | ||||||||||||
Corporate bonds | 1,553 | - | 1,553 | - | ||||||||||||
Municipal bonds | 12,903 | - | 12,903 | - | ||||||||||||
Total investment AFS | $ | 76,941 | $ | - | $ | 76,941 | $ | - |
| | | | | | | | | | | | |
|
| | |
| Quoted Prices in |
| Significant |
| | | ||
Investment securities | | | | | Active Markets | | Other | | Significant | |||
available for sale | | | | | for Identical | | Observable | | Unobservable | |||
September 30, 2020 | | Fair value | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | ||||
U.S. government agencies – GSE’s | | $ | 11,760 | | $ | — | | $ | 11,760 | | $ | — |
| | | | | | | | | | | | |
Mortgage-backed securities – GSE’s | |
| 41,670 | |
| — | |
| 41,670 | |
| — |
| | | | | | | | | | | | |
Corporate Bonds | |
| 2,103 | |
| — | |
| 2,103 | |
| — |
| | | | | | | | | | | | |
Municipal bonds | |
| 31,901 | |
| — | |
| 31,901 | |
| — |
| | | | | | | | | | | | |
Total investment available for sale | | $ | 87,434 | | $ | — | | $ | 87,434 | | $ | — |
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 | $ | - |
| | | | | | | | | | | | |
|
| | |
| 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 available 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 ana 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.”“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 September 30, 20192020 and December 31, 2018,2019, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowancea 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 September 30, 2019,2020, the discounts
13
SELECT BANCORP, INC.
Notes to appraised valueConsolidated Financial Statements (Unaudited)
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 and nine months ended September 30, 2019.2020.
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
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.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 September 30, 2019,2020, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three and nine months ended September 30, 2019.2020.
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 asLoans 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.
Loans Held for Sale
The Company originates fixed and variable rate residential mortgage loans on a servicing-releasedservice-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 are 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 fees on the sale of mortgagesmortgage banking income in the consolidated statements of income.
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 September 30, 20192020 and December 31, 20182019 (in thousands):
Asset Category September 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) | ||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| | |
| Quoted Prices in |
| Significant |
| | | ||||||||||||||||||
| | | | | Active Markets | | Other | | Significant | |||||||||||||||||||
| | | | | for Identical | | Observable | | Unobservable | |||||||||||||||||||
Asset Category September 30, 2020 | | Fair value | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | ||||||||||||||||||||
Impaired loans | $ | 9,083 | $ | - | $ | - | $ | 9,083 | | $ | 7,695 | | $ | — | | $ | — | | $ | 7,695 | ||||||||
Loans held for sale | 1,714 | - | 1,714 | - | ||||||||||||||||||||||||
Foreclosed real estate | 1,442 | - | - | 1,442 | |
| 3,237 | |
| — | |
| — | |
| 3,237 | ||||||||||||
Total | $ | 12,239 | $ | - | $ | 1,714 | $ | 10,525 | | $ | 10,932 | | $ | — | | $ | — | | $ | 10,932 |
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) | ||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
| | | | | Quoted Prices in | | Significant | | | | ||||||||||||||||||
| | | | | Active Markets | | Other | | Significant | |||||||||||||||||||
| | | | | for Identical | | Observable | | Unobservable | |||||||||||||||||||
Asset Category December 31, 2019 |
| Fair value |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) | ||||||||||||||||||||
Impaired loans | $ | 7,257 | $ | - | $ | - | $ | 7,257 | | $ | 5,941 | | $ | — | | $ | — | | $ | 5,941 | ||||||||
Loans held for sale | 580 | - | 580 | - | ||||||||||||||||||||||||
Assets held for sale | 668 | - | - | 668 | ||||||||||||||||||||||||
Foreclosed real estate | 1,088 | - | - | 1,088 | |
| 3,533 | |
| — | |
| — | |
| 3,533 | ||||||||||||
Total | $ | 9,593 | $ | - | $ | 580 | $ | 9,013 | | $ | 9,474 | | $ | — | | $ | — | | $ | 9,474 |
14
The following table presents the carrying values and estimated fair values of the Company'sCompany’s financial instruments at September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | September 30, 2020 | |||||||||||||||||||||||||||||||||
| | Carrying | | Estimated | | | | | | | | | | ||||||||||||||||||||||
|
| Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||||||||||||||||||||||
September 30, 2019 | |||||||||||||||||||||||||||||||||||
Carrying | Estimated | ||||||||||||||||||||||||||||||||||
Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
| | (dollars in thousands) | |||||||||||||||||||||||||||||||||
Financial assets: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Cash and due from banks | $ | 20,052 | $ | 20,052 | $ | 20,052 | $ | - | $ | - | | $ | 25,068 | | $ | 25,068 | | $ | 25,068 | | $ | — | | $ | — | ||||||||||
Certificates of deposit | 500 | 500 | 500 | - | - | ||||||||||||||||||||||||||||||
Interest-earning deposits inother banks | 53,093 | 53,093 | 53,093 | - | - | |
| 249,541 | |
| 249,541 | |
| 249,541 | |
| — | |
| — | |||||||||||||||
Federal funds sold | 10,728 | 10,728 | 10,728 | - | - | | | 8,046 | | | 8,046 | | | 8,046 | | | — | | | — | |||||||||||||||
Investment securities availablefor sale | 76,941 | 76,941 | - | 76,941 | - | |
| 87,434 | |
| 87,434 | |
| — | |
| 87,434 | |
| — | |||||||||||||||
Loans held for sale | 1,714 | 1,714 | 1,714 | - | |
| 2,945 | |
| 2,945 | |
| — | |
| 2,945 | |
| — | ||||||||||||||||
Loans, net | 1,006,872 | 998,827 | - | - | 998,827 | |
| 1,269,896 | |
| 1,279,096 | |
| — | |
| — | |
| 1,279,096 | |||||||||||||||
Accrued interest receivable | 3,902 | 3,902 | - | 3,902 | - | |
| 4,486 | |
| 4,486 | |
| — | |
| 4,486 | |
| — | |||||||||||||||
Stock in FHLB | 3,045 | 3,045 | - | - | 3,045 | ||||||||||||||||||||||||||||||
Stock in the FHLB | |
| 3,059 | | | 3,059 | | | — | | | — | | | 3,059 | ||||||||||||||||||||
Other non-marketable securities | 719 | 719 | - | - | 719 | |
| 718 | | | 718 | | | — | | | — | | | 718 | |||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Financial liabilities: | |
| | |
| | |
|
| |
|
| |
|
| ||||||||||||||||||||
Deposits | $ | 987,673 | $ | 989,577 | $ | - | $ | 989,577 | $ | - | | $ | 1,472,780 | | $ | 1,476,441 | | $ | — | | $ | — | | $ | 1,476,441 | ||||||||||
Short-term debt | |
| 20,000 | |
| 20,000 | |
| — | |
| 20,000 | |
| — | ||||||||||||||||||||
Long-term debt | 57,372 | 55,941 | - | 55,941 | - | |
| 37,372 | |
| 34,163 | |
| — | |
| 34,163 | |
| — | |||||||||||||||
Accrued interest payable | 596 | 596 | - | 596 | - | |
| 449 | |
| 449 | |
| — | |
| 449 | |
| — |
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | December 31, 2019 | |||||||||||||||||||||||||||||||||
| | Carrying | | Estimated | | | | | | | | | | ||||||||||||||||||||||
|
| Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||||||||||||||||||||||
December 31, 2018 | |||||||||||||||||||||||||||||||||||
Carrying | Estimated | ||||||||||||||||||||||||||||||||||
Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||||||||
| | (dollars in thousands) | |||||||||||||||||||||||||||||||||
Financial assets: | | | | | | | | | | | | | | | | ||||||||||||||||||||
Cash and due from banks | $ | 17,059 | $ | 17,059 | $ | 17,059 | $ | - | $ | - | | $ | 19,110 | | $ | 19,110 | | $ | 19,110 | | $ | — | | $ | — | ||||||||||
Certificates of deposits | 1,000 | 1,000 | 1,000 | - | - | ||||||||||||||||||||||||||||||
Interest-earning deposits in other banks | 121,303 | 121,303 | 121,303 | - | - | |
| 50,920 | |
| 50,920 | |
| 50,920 | |
| — | |
| — | |||||||||||||||
Federal funds sold | |
| 9,047 | |
| 9,047 | |
| 9,047 | |
| — | |
| — | ||||||||||||||||||||
Investment securities available for sale | 51,533 | 51,533 | - | 51,533 | - | |
| 72,367 | |
| 72,367 | |
| — | |
| 72,367 | |
| — | |||||||||||||||
Loans held for sale | 580 | 580 | - | 580 | - | |
| 928 | |
| 928 | |
| — | |
| 928 | |
| — | |||||||||||||||
Loans, net | 977,371 | 970,330 | - | - | 970,330 | |
| 1,021,651 | |
| 1,016,239 | |
| — | |
| — | |
| 1,016,239 | |||||||||||||||
Accrued interest receivable | 3,889 | 3,889 | - | 3,889 | - | |
| 4,189 | |
| 4,189 | |
| — | |
| 4,189 | |
| — | |||||||||||||||
Stock in the FHLB | 3,283 | 3,283 | - | - | 3,283 | |
| 3,045 | |
| 3,045 | |
| — | |
| — | |
| 3,045 | |||||||||||||||
Other non-marketable securities | 762 | 762 | - | - | 762 | |
| 719 | |
| 719 | |
| — | |
| — | |
| 719 | |||||||||||||||
Assets held for sale | 668 | 668 | - | - | 668 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Financial liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Deposits | $ | 980,427 | $ | 979,570 | $ | - | $ | 979,570 | �� | $ | - | | $ | 992,838 | | $ | 995,056 | | $ | — | | $ | 995,056 | | $ | — | |||||||||
Short-term debt | 7,000 | 7,000 | - | 7,000 | - | ||||||||||||||||||||||||||||||
Long-term debt | 57,372 | 55,504 | - | 55,504 | - | |
| 57,372 | |
| 55,729 | |
| — | |
| 55,729 | |
| — | |||||||||||||||
Accrued interest payable | 667 | 667 | - | 667 | - | |
| 578 | |
| 578 | |
| — | |
| 578 | |
| — |
15
NOTE E - INVESTMENT SECURITIES
The amortized cost and fair value of available for sale investments (“AFS”), investments, with gross unrealized gains and losses, follow:
| | | | | | | | | | | | | | ||||||||||||||||
| | September 30, 2020 | | ||||||||||||||||||||||||||
| | | | | Gross | | Gross | | | | | ||||||||||||||||||
| | Amortized | | unrealized | | unrealized | | Fair | | ||||||||||||||||||||
|
| cost |
| gains |
| losses |
| value | | ||||||||||||||||||||
September 30, 2019 | |||||||||||||||||||||||||||||
Gross | Gross | ||||||||||||||||||||||||||||
Amortized | unrealized | unrealized | Fair | ||||||||||||||||||||||||||
cost | gains | losses | value | ||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||
| | (dollars in thousands) | | ||||||||||||||||||||||||||
Securities available for sale: | | | | | | | | | | | | | | ||||||||||||||||
U.S. government agencies – GSEs | $ | 10,181 | $ | 202 | $ | (2 | ) | $ | 10,381 | ||||||||||||||||||||
Mortgage-backed securities – GSEs | 51,200 | 919 | (15 | ) | 52,104 | ||||||||||||||||||||||||
U.S. government agencies – GSE’s | | $ | 11,508 | | $ | 276 | | $ | (24) | | $ | 11,760 | | ||||||||||||||||
Mortgage-backed securities – GSE’s | |
| 40,195 | |
| 1,528 | |
| (53) | |
| 41,670 | | ||||||||||||||||
Corporate bonds | 1,532 | 21 | - | 1,553 | |
| 2,101 | |
| 7 | |
| (5) | |
| 2,103 | | ||||||||||||
Municipal bonds | 12,698 | 205 | - | 12,903 | |
| 31,639 | |
| 333 | |
| (71) | |
| 31,901 | | ||||||||||||
$ | 75,611 | $ | 1,347 | $ | (17 | ) | $ | 76,941 | |||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
| | $ | 85,443 | | $ | 2,144 | | $ | (153) | | $ | 87,434 | |
As of September 30, 2020, accumulated other comprehensive income included net unrealized gains totaling $2.0 million. Deferred tax assets resulting from these net unrealized losses totaled $458,000.
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 $1.3$1.2 million. Deferred tax liabilities resulting from these net unrealized gains totaled $300,000.$269,000.
16
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 assets resulting from these net unrealized losses totaled $17,000.
18
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
The scheduled maturities of securities available for sale, with gross unrealized gains and losses, were as follows:follow:
September 30, 2019 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Fair | |||||||||||||
cost | gains | losses | value | |||||||||||||
(In thousands) | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
Within 1 year | $ | 8,114 | $ | 23 | $ | (7 | ) | $ | 8,130 | |||||||
After 1 year but within 5 years | 45,902 | 728 | (10 | ) | 46,620 | |||||||||||
After 5 years but within 10 years | 14,083 | 423 | - | 14,506 | ||||||||||||
After 10 years | 7,512 | 173 | �� | - | 7,685 | |||||||||||
$ | 75,611 | $ | 1,347 | $ | (17 | ) | $ | 76,941 |
| | | | | | | | | | | | |
| | September 30, 2020 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | unrealized | | unrealized | | Fair | ||||
|
| cost |
| gains |
| losses |
| value | ||||
| | (dollars in thousands) | ||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Due within one year | | $ | 2,757 | | $ | 8 | | $ | (1) | | $ | 2,764 |
Due after one but within five years | |
| 26,947 | |
| 1,268 | |
| (1) | |
| 28,214 |
Due after five but within ten years | |
| 5,565 | |
| 81 | |
| (7) | |
| 5,639 |
Due after ten years | |
| 50,174 | |
| 787 | |
| (144) | |
| 50,817 |
| | $ | 85,443 | | $ | 2,144 | | $ | (153) | | $ | 87,434 |
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 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | unrealized | | unrealized | | Fair | ||||
|
| cost |
| gains |
| losses |
| value | ||||
| | (dollars in thousands) | ||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Due within one year | | $ | 8,901 | | $ | 19 | | $ | (6) | | $ | 8,914 |
Due after one but within five years | |
| 40,954 | |
| 695 | |
| (7) | |
| 41,642 |
Due after five but within ten years | |
| 4,568 | |
| 94 | |
| (1) | |
| 4,661 |
Due after ten years | |
| 16,776 | |
| 375 | |
| (1) | |
| 17,150 |
| | $ | 71,199 | | $ | 1,183 | | $ | (15) | | $ | 72,367 |
Securities with a carrying value of $21.8$48.1 million and $6.4$18.4 million at September 30, 20192020 and December 31, 2018,2019, 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 September 30, 20192020 and December 31, 2018.2019. The Company didhas not sellincurred any losses related to securities in 2018 and sold two securities for a gain of $48,000sales in the first nine months of 2020 or during the year ended December 31, 2019.
17
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 September 30, 20192020 and December 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | |
| | September 30, 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 – GSE’s | | $ | 3,478 | | $ | (22) | | $ | 479 | | $ | (2) | | $ | 3,957 | | $ | (24) | |
Mortgage-backed securities–GSE’s | |
| 8,044 | |
| (51) | |
| 1,999 | |
| (2) | |
| 10,043 | |
| (53) | |
Corporate bonds | |
| 753 | |
| (5) | |
| — | |
| — | |
| 753 | |
| (5) | |
Municipal bonds | |
| 10,578 | |
| (71) | |
| — | |
| — | |
| 10,578 | |
| (71) | |
Total temporarily impaired securities | | $ | 22,853 | | $ | (149) | | $ | 2,478 | | $ | (4) | | $ | 25,331 | | $ | (153) | |
September 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 | $ | - | $ | - | $ | 627 | $ | (2 | ) | $ | 627 | $ | (2 | ) | ||||||||||
Mortgage-backed securities-GSEs | 3,150 | (3 | ) | 3,784 | (12 | ) | 6,934 | (15 | ) | |||||||||||||||
Total temporarily impaired securities | $ | 3,150 | $ | (3 | ) | $ | 4,411 | $ | (14 | ) | $ | 7,561 | $ | (17 | ) |
At September 30, 2019,2020, the Company had four3 securities inwith an unrealized loss position for more than twelve months of $4.4 million. There were three$4,000 which consisted of 2 U.S. government agencies-GSEs and 1 mortgage-backed GSEs in an- GSE bond. NaN securities had unrealized loss positionlosses for less than twelve months totaling $3.2 million$149,000 at September 30, 2020, which consisted of 9 Municipal bonds, 1 corporate bond, 1 U.S. government agencies - GSEs and 4 mortgage-backed - GSE bonds. 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 1 mortgage-backed GSE and 1 U.S Government agency – GSE with an unrealized loss for twelve or more consecutive months totaling $12,000. The Company had 3 securities with a loss for twelve months or less at December 31, 2019. NaN U.S. government agency GSE and 2 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. There were two investment securities sold during the first nine months
18
Table of 2019 at a gain of $48,000.Contents
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.
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 September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | ||||||||||||||||
| | September 30, | | December 31, | | | |||||||||||||||||||||||
| | 2020 | | 2019 |
| | |||||||||||||||||||||||
| | | | | Percent | | | | Percent |
| | ||||||||||||||||||
|
| Amount |
| of total |
| Amount |
| of total |
| | |||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||||||||
Percent | Percent | ||||||||||||||||||||||||||||
Amount | of total | Amount | of total | ||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||
| | (dollars in thousands) |
| | |||||||||||||||||||||||||
Real estate loans: | | | | | | | | | | | | | | ||||||||||||||||
1-to-4 family residential | $ | 153,862 | 15.16 | % | $ | 159,597 | 16.19 | % | | $ | 195,174 |
| | 15.21 | % | $ | 151,697 |
| 14.73 | % | | ||||||||
Commercial real estate | 452,644 | 44.60 | % | 457,611 | 46.41 | % | |
| 537,087 |
| | 41.85 | % |
| 459,115 |
| 44.58 | % | | ||||||||||
Multi-family residential | 62,080 | 6.12 | % | 63,459 | 6.44 | % | |
| 79,697 |
| | 6.21 | % |
| 69,124 |
| 6.71 | % | | ||||||||||
Construction | 212,677 | 20.95 | % | 170,404 | 17.28 | % | |
| 255,718 |
| | 19.92 | % |
| 221,878 |
| 21.55 | % | | ||||||||||
Home equity lines of credit (“HELOC”) | 46,221 | 4.55 | % | 49,713 | 5.04 | % | |
| 48,395 |
| | 3.77 | % |
| 44,514 |
| 4.32 | % | | ||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Total real estate loans | 927,484 | 91.38 | % | 900,784 | 91.36 | % | |
| 1,116,071 |
| | 86.96 | % |
| 946,328 |
| 91.89 | % | | ||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Other loans: | |
| |
| | | |
|
|
|
| | | ||||||||||||||||
Commercial and industrial | 79,686 | 7.85 | % | 74,181 | 7.52 | % | |
| 165,766 |
| | 12.91 | % |
| 75,748 |
| 7.35 | % | | ||||||||||
Loans to individuals | 9,539 | 0.94 | % | 12,597 | 1.28 | % | |
| 7,017 |
| | 0.55 | % |
| 9,779 |
| 0.95 | % | | ||||||||||
Overdrafts | 180 | 0.02 | % | 217 | 0.02 | % | |
| 80 |
| | 0.01 | % |
| 234 |
| 0.02 | % | | ||||||||||
Total other loans | 89,405 | 8.81 | % | 86,995 | 8.82 | % | |
| 172,863 |
| | 13.47 | % |
| 85,761 |
| 8.32 | % | | ||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Gross loans | 1,016,889 | 987,779 | |
| 1,288,934 |
| | | |
| 1,032,089 |
| | | | ||||||||||||||
Less deferred loan origination fees, net | (1,961 | ) | (0.19 | )% | (1,739 | ) | (0.18 | )% | |
| (5,477) |
| | (0.43) | % |
| (2,114) |
| (0.21) | % | | ||||||||
Total loans | 1,014,928 | 100.00 | % | 986,040 | 100.00 | % | |
| 1,283,457 |
| | 100.00 | % |
| 1,029,975 |
| 100.00 | % | | ||||||||||
Allowance for loan losses | (8,056 | ) | (8,669 | ) | |
| (13,561) |
| | | | | (8,324) |
|
| | | ||||||||||||
Total loans, net | $ | 1,006,872 | $ | 977,371 | | $ | 1,269,896 | | | | | $ | 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 September 30, 20192020 and December 31, 20182019 were:
(dollars in thousands) | September 30, 2019 | December 31, 2018 | ||||||||||||
| | | | | | | ||||||||
|
| September 30, 2020 |
| December 31, 2019 | ||||||||||
Contractually required payments | $ | 20,999 | $ | 24,823 | | $ | 38,279 | | $ | 20,598 | ||||
Nonaccretable difference | 1,659 | 1,962 | | | 3,401 | | | 1,694 | ||||||
Cash flows expected to be collected | 19,340 | 22,861 | | | 34,878 | | | 18,904 | ||||||
Accretable yield | 3,305 | 3,593 | | | 4,891 | | | 3,191 | ||||||
Carrying value | $ | 16,035 | $ | 19,268 | | $ | 29,987 | | $ | 15,713 |
Loans are primarily secured by real estate located in eastern and centralthe State of North Carolina, southeastern Virginia and northwestern South Carolina. Real estate loans can be affected by the condition of the local real estate market and by local economic conditions.
At September 30, 2019,2020, the Company had pre-approved but unused lines of credit for customers totaling $178.2$230.2 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.
19
The Bank has originated 1,249 loans amounting to $97.0 million during 2020 under the Paycheck Protection Program (“PPP”) which are classified as Commercial and industrial loans in the loan portfolio. As of September 30, 2020 the Bank has 1,242 PPP loans amounting to $95.3 million. The PPP loan program is sponsored by the Small Business Administration (SBA) to primarily facilitate the continuation of paychecks to employees of businesses impacted by the COVID-19 pandemic. These loans are guaranteed by the SBA and can be forgiven and paid off by the SBA if all conditions of the program are met. Loans that do not meet the conditions of the PPP loan program could result in the Bank incurring a charge-off. The extent of this potential loss to the Bank is not known since the conditions of the program have changed and are subject to future changes.
A floating lien of $112.6 million of loans was pledged to the FHLB to secure borrowings at September 30, 2019.
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
2020.
The following tables present an age analysis of past due loans, segregated by class of loans as of
September 30, 20192020 and December 31, 2018,2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | September 30, 2020 | | |||||||||||||||||||||||||||||||||||||||||||||||
| | 30-59 | | 60-89 | | 90+ | | Non- | | Total | | | | | | | | |||||||||||||||||||||||||||||||||
| | Days | | Days | | Days | | Accrual | | Past | | Total | | | | | ||||||||||||||||||||||||||||||||||
|
| Past Due |
| Past Due |
| Accruing |
| Loans |
| Due |
| Current |
| Loans | | |||||||||||||||||||||||||||||||||||
September 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| | (dollars in thousands) | | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 80 | $ | - | $ | 1,362 | $ | 3,664 | $ | 5,106 | $ | 74,580 | $ | 79,686 | | $ | 2 | | $ | 105 | | $ | 543 | | $ | 3,687 | | $ | 4,337 | | $ | 161,429 | | $ | 165,766 | | ||||||||||||||
Construction | 166 | - | - | 2,272 | 2,438 | 210,239 | 212,677 | |
| 0 | |
| 0 | |
| 0 | |
| 161 | |
| 161 | |
| 255,557 | |
| 255,718 | | |||||||||||||||||||||
Multi-family residential | - | - | - | - | 62,080 | 62,080 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| — | |
| 79,697 | |
| 79,697 | | ||||||||||||||||||||||
Commercial real estate | 6 | 88 | - | 2,020 | 2,114 | 450,530 | 452,644 | |
| 210 | |
| 0 | |
| 336 | |
| 2,489 | |
| 3,035 | |
| 534,052 | |
| 537,087 | | |||||||||||||||||||||
Loans to individuals &overdrafts | 31 | - | - | - | 31 | 9,688 | 9,719 | |
| 9 | |
| 0 | |
| 0 | |
| 145 | |
| 154 | |
| 6,943 | |
| 7,097 | | |||||||||||||||||||||
1-to-4 family residential | 51 | 474 | 934 | 382 | 1,841 | 152,021 | 153,862 | |||||||||||||||||||||||||||||||||||||||||||
1‑to‑4 family residential | |
| 200 | |
| 13 | |
| 669 | |
| 950 | |
| 1,832 | |
| 193,342 | |
| 195,174 | | ||||||||||||||||||||||||||||
HELOC | - | - | - | 745 | 745 | 45,476 | 46,221 | |
| 95 | |
| 31 | |
| 0 | |
| 263 | |
| 389 | |
| 48,006 | |
| 48,395 | | |||||||||||||||||||||
Deferred loan (fees)cost, net | - | - | - | - | - | - | (1,961 | ) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| — | |
| 0 | |
| (5,477) | | ||||||||||||||||||||
$ | 334 | $ | 562 | $ | 2,296 | $ | 9,083 | $ | 12,275 | $ | 1,004,614 | $ | 1,014,928 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | $ | 516 | | $ | 149 | | $ | 1,548 | | $ | 7,695 | | $ | 9,908 | | $ | 1,279,026 | | $ | 1,283,457 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 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) | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 1,108 | | $ | 34 | | $ | 46 | | $ | 2,824 | | $ | 4,012 | | $ | 71,736 | | $ | 75,748 | |
Construction | |
| 0 | |
| 0 | |
| 0 | |
| 181 | |
| 181 | |
| 221,697 | |
| 221,878 | |
Multi-family residential | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 69,124 | |
| 69,124 | |
Commercial real estate | |
| 393 | |
| 82 | |
| 321 | |
| 1,832 | |
| 2,628 | |
| 456,487 | |
| 459,115 | |
Loans to individuals & overdrafts | |
| 5 | |
| 0 | |
| 0 | |
| 155 | |
| 160 | |
| 9,853 | |
| 10,013 | |
1‑to‑4 family residential | |
| 859 | |
| 810 | |
| 864 | |
| 505 | |
| 3,038 | |
| 148,659 | |
| 151,697 | |
HELOC | |
| 168 | |
| 0 | |
| 0 | |
| 444 | |
| 612 | |
| 43,902 | |
| 44,514 | |
Deferred loan (fees) cost, net | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (2,114) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,533 | | $ | 926 | | $ | 1,231 | | $ | 5,941 | | $ | 10,631 | | $ | 1,021,458 | | $ | 1,029,975 | |
| | | | | | | | | | | | | | | | | | | | | | |
20
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 |
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 September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2020 |
| Three Months Ended | | Nine Months Ended | | |||||||||||||||
| | | | | Contractual | | | | | September 30, 2020 | | September 30, 2020 | | |||||||||
| | | | | Unpaid | | Related | | Average | | Interest Income | | Average | | Interest Income | | ||||||
| | Recorded | | Principal | | Allowance | | Recorded | | Recognized on | | Recorded | | Recognized on | | |||||||
|
| Investment |
| Balance |
| for Loan Losses |
| Investment |
| Impaired Loans |
| Investment |
| Impaired Loans | | |||||||
| | (dollars in thousands) | | | | | | | | |||||||||||||
2020 : | | | | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 3,635 | | $ | 5,466 | | $ | — | | $ | 4,818 | | $ | 25 | | $ | 4,475 | | $ | 152 | |
Construction | |
| 262 | |
| 366 | |
| — | |
| 345 | |
| 6 | |
| 291 | |
| 17 | |
Commercial real estate | |
| 5,175 | |
| 5,448 | |
| — | |
| 5,265 | |
| 38 | |
| 5,661 | |
| 127 | |
Loans to individuals & overdrafts | |
| 261 | |
| 279 | |
| — | |
| 271 | |
| — | |
| 273 | |
| 14 | |
Multi-family residential | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 99 | |
| — | |
HELOC | |
| 411 | |
| 553 | |
| — | |
| 453 | |
| 2 | |
| 575 | |
| 22 | |
1‑to‑4 family residential | |
| 197 | |
| 207 | |
| — | |
| 202 | |
| 22 | |
| 292 | |
| — | |
| | | | | | | | | | | | | | | | | | | | | | |
Subtotal: | |
| 9,941 | |
| 12,319 | |
| — | |
| 11,354 | |
| 93 | |
| 11,666 | |
| 332 | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
| 502 | |
| 521 | |
| 162 | |
| 576 | |
| 19 | |
| 576 | |
| 18 | |
Construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Commercial real estate | |
| 977 | |
| 1,032 | |
| 325 | |
| 986 | |
| 15 | |
| 208 | |
| 46 | |
Loans to individuals & overdrafts | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Multi-family Residential | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
HELOC | |
| 119 | |
| 150 | |
| 9 | |
| 122 | |
| 5 | |
| 264 | |
| 6 | |
1‑to‑4 family residential | |
| 39 | |
| 107 | |
| 10 | |
| 103 | |
| — | |
| 64 | |
| 6 | |
Subtotal: | |
| 1,637 | |
| 1,810 | |
| 506 | |
| 1,787 | |
| 39 | |
| 1,112 | |
| 76 | |
Totals: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Commercial | |
| 10,551 | |
| 12,833 | |
| 487 | |
| 11,990 | |
| 103 | |
| 11,310 | |
| 360 | |
Consumer | |
| 261 | |
| 279 | |
| — | |
| 271 | |
| — | |
| 273 | |
| 14 | |
Residential | |
| 766 | |
| 1,017 | |
| 19 | |
| 880 | |
| 29 | |
| 1,195 | |
| 34 | |
| | | | | | | | | | | | | | | | | | | | | | |
Grand Total: | | $ | 11,578 | | $ | 14,129 | | $ | 506 | | $ | 13,141 | | $ | 132 | | $ | 12,778 | | $ | 408 | |
Three months ended | Nine months ended | |||||||||||||||||||||||||||
As of September 30, 2019 | September 30, 2019 | September 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 | $ | 3,142 | $ | 4,530 | $ | - | $ | 4,010 | $ | 32 | $ | 4,397 | $ | 100 | ||||||||||||||
Construction | 2,531 | 2,635 | - | 2,413 | 12 | 1,546 | 20 | |||||||||||||||||||||
Commercial real estate | 6,366 | 7,601 | - | 7,167 | 70 | 6,022 | 218 | |||||||||||||||||||||
Loans to individuals & overdrafts | 85 | 89 | - | 84 | 6 | 93 | 6 | |||||||||||||||||||||
Multi-family residential | 202 | 202 | - | 205 | 3 | 209 | 10 | |||||||||||||||||||||
1-to-4 family residential | 658 | 1,843 | - | 1,205 | 21 | 1,202 | 61 | |||||||||||||||||||||
HELOC | 845 | 1,044 | - | 861 | 11 | 944 | 36 | |||||||||||||||||||||
Subtotal: | 13,829 | 17,944 | - | 15,945 | 155 | 14,413 | 451 | |||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||
Commercial and industrial | 731 | 1,056 | 230 | 882 | 1 | 572 | 41 | |||||||||||||||||||||
Construction | - | - | - | - | - | 13 | - | |||||||||||||||||||||
Commercial real estate | - | - | - | - | - | - | - | |||||||||||||||||||||
Loans to individuals & overdrafts | - | - | - | - | - | - | - | |||||||||||||||||||||
Multi-family residential | - | - | - | - | - | - | - | |||||||||||||||||||||
1-to-4 family residential | 81 | 94 | 6 | 546 | 14 | 563 | 7 | |||||||||||||||||||||
HELOC | 160 | 222 | 48 | 162 | 4 | 212 | 10 | |||||||||||||||||||||
Subtotal: | 972 | 1,372 | 284 | 1,590 | 19 | 1,360 | 58 | |||||||||||||||||||||
Totals: | ||||||||||||||||||||||||||||
Commercial | 12,972 | 16,024 | 230 | 14,677 | 118 | 12,759 | 389 | |||||||||||||||||||||
Consumer | 85 | 89 | - | 84 | 6 | 93 | 6 | |||||||||||||||||||||
Residential | 1,744 | 3,203 | 54 | 2,774 | 50 | 2,921 | 114 | |||||||||||||||||||||
Grand Total: | $ | 14,801 | $ | 19,316 | $ | 284 | $ | 17,535 | $ | 174 | $ | 15,773 | $ | 509 |
Impaired loans at September 30, 20192020 were approximately $14.8$11.6 million and were composed of $9.1$7.7 million in nonaccrualnon-accrual loans and $5.7 $3.9million in loans that were still accruing interest. Certain PCI loans are redirected and are not included in the table above. Recorded investment represents the current principal balance of the loan. Approximately $972,000$1.6 million in impaired loans had specific allowances provided for them while the
21
remaining $13.8$9.9 million had no specific allowances recorded at September 30, 2019.2020. Of the $13.8$9.9 million with no allowance recorded, $307,000 of those loans have had partial charge-offs through September 30, 2019 amounted to $844,000.recorded.
| | | | | | | | | | | | | | | | | | | | | | |
|
| As of December 31, 2019 | | Three Months Ended | | Nine Months Ended | | |||||||||||||||
| | | | | Contractual | | | | | September 30, 2019 | | September 30, 2019 | | |||||||||
| | | | | Unpaid | | Related | | Average | | Interest Income | | Average | | Interest Income | | ||||||
| | Recorded | | Principal | | Allowance | | Recorded | | Recognized on | | Recorded | | Recognized on | | |||||||
|
| Investment |
| Balance |
| for Loan Losses |
| Investment |
| Impaired Loans |
| Investment |
| Impaired Loans | | |||||||
| | (dollars in thousands) | | | | | | | | |||||||||||||
2019 : | | | | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 2,796 | | $ | 4,051 | | $ | — | | $ | 4,010 | | $ | 32 | | $ | 4,397 | | $ | 100 | |
Construction | |
| 440 | |
| 537 | |
| — | |
| 2,413 | |
| 12 | |
| 1,546 | |
| 20 | |
Commercial real estate | |
| 5,585 | |
| 6,750 | |
| — | |
| 7,167 | |
| 70 | |
| 6,022 | |
| 218 | |
Loans to individuals & overdrafts | |
| 197 | |
| 197 | |
| — | |
| 84 | |
| 6 | |
| 93 | |
| 6 | |
Multi-family residential | |
| 284 | |
| 293 | |
| — | |
| 205 | |
| 3 | |
| 209 | |
| 10 | |
HELOC | |
| 543 | |
| 678 | |
| — | |
| 1,205 | |
| 21 | |
| 1,202 | |
| 61 | |
1‑to‑4 family residential | |
| 395 | |
| 1,816 | |
| — | |
| 861 | |
| 11 | |
| 944 | |
| 36 | |
Subtotal: | |
| 10,240 | |
| 14,322 | |
| — | |
| 15,945 | |
| 155 | |
| 14,413 | |
| 451 | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
| 731 | |
| 1,056 | |
| 403 | |
| 882 | |
| 1 | |
| 572 | |
| 41 | |
Construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 13 | |
| — | |
Commercial real estate | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Loans to individuals & overdrafts | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Multi-family Residential | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
HELOC | |
| 160 | |
| 222 | |
| — | |
| 546 | |
| 14 | |
| 563 | |
| 7 | |
1‑to‑4 family residential | |
| 81 | |
| 94 | |
| 10 | |
| 162 | |
| 4 | |
| 212 | |
| 10 | |
Subtotal: | |
| 972 | |
| 1,372 | |
| 413 | |
| 1,590 | |
| 19 | |
| 1,360 | |
| 58 | |
Totals: | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial | |
| 9,749 | |
| 12,591 | |
| 403 | |
| 14,677 | |
| 118 | |
| 12,759 | |
| 389 | |
Consumer | |
| 284 | |
| 293 | |
| — | |
| 84 | |
| 6 | |
| 93 | |
| 6 | |
Residential | |
| 1,179 | |
| 2,810 | |
| 10 | |
| 2,774 | |
| 50 | |
| 2,921 | |
| 114 | |
Grand Total: | | $ | 11,212 | | $ | 15,694 | | $ | 413 | | $ | 17,535 | | $ | 174 | | $ | 15,773 | | $ | 509 | |
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
Three months ended | Nine months ended | |||||||||||||||||||||||||||
As of December 31, 2018 | September 30, 2018 | September 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 | $ | - | $ | 3,789 | $ | - | $ | 2,178 | $ | 108 | ||||||||||||||
Construction | 561 | 647 | - | 481 | 8 | 486 | 10 | |||||||||||||||||||||
Commercial real estate | 4,744 | 6,903 | - | 5,361 | 84 | 4,789 | 238 | |||||||||||||||||||||
Loans to individuals & overdrafts | 215 | 215 | - | 66 | 1 | 66 | 1 | |||||||||||||||||||||
Multi-family residential | 101 | 109 | - | 223 | 5 | 227 | 11 | |||||||||||||||||||||
1-to-4 family residential | 1,040 | 1,204 | - | 782 | 10 | 829 | 35 | |||||||||||||||||||||
HELOC | 572 | 732 | - | 896 | 9 | 803 | 34 | |||||||||||||||||||||
Subtotal: | 11,443 | 14,305 | - | 11,598 | 117 | 9,378 | 437 | |||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||
Commercial and industrial | 127 | 325 | 51 | 386 | 19 | 387 | 20 | |||||||||||||||||||||
Construction | 27 | 27 | 14 | 26 | - | - | - | |||||||||||||||||||||
Commercial real estate | - | - | - | - | - | - | - | |||||||||||||||||||||
Loans to individuals & overdrafts | - | - | - | 2 | - | - | - | |||||||||||||||||||||
Multi-family residential | - | - | - | - | - | - | - | |||||||||||||||||||||
1-to-4 family residential | 137 | 555 | 22 | 145 | - | 172 | 6 | |||||||||||||||||||||
HELOC | - | - | - | 142 | 3 | - | - | |||||||||||||||||||||
Subtotal: | 291 | 907 | 87 | 701 | 22 | 559 | 26 | |||||||||||||||||||||
Totals: | ||||||||||||||||||||||||||||
Commercial | 10,007 | 12,612 | 65 | 10,266 | 116 | 8,067 | 387 | |||||||||||||||||||||
Consumer | 101 | 109 | - | 68 | 1 | 66 | 1 | |||||||||||||||||||||
Residential | 1,626 | 2,491 | 22 | 1,965 | 22 | 1,804 | 75 | |||||||||||||||||||||
Grand Total: | $ | 11,734 | $ | 15,212 | $ | 87 | $ | 12,299 | $ | 139 | $ | 9,937 | $ | 463 |
Impaired loans at December 31, 20182019 were approximately $11.7$11.2 million and were comprised of $7.3included $5.9 million in non-accrual loans and $4.4$6.2 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately $291,000$972,000 of the $11.7$11.2 million in impaired loans at December 31, 20182019 had specific allowances aggregating $87,000$413,000 while the remaining $11.4$10.2 million had no specific allowances recorded. Of the $11.4$10.2 million with no allowance recorded, partial charge-offs through December 31, 20182019 amounted to $3.5 million.
$438,000.
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
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 nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | ||||||||||||||||||||||||||||||||||||
| | | | Pre-Modification | | Post-Modification | | | | Pre-Modification | | Post-Modification | | ||||||||||||||||||||||||||||
| | Number | | Outstanding | | Outstanding | | Number | | Outstanding | | Outstanding | | ||||||||||||||||||||||||||||
| | of | | Recorded | | Recorded | | of | | Recorded | | Recorded | | ||||||||||||||||||||||||||||
|
| loans |
| Investments |
| Investments |
| loans |
| Investments |
| Investments | | ||||||||||||||||||||||||||||
Three months ended September 30, 2019 | Nine months ended September 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) | |||||||||||||||||||||||||||||||||||||||||
| | (dollars in thousands) | | (dollars in thousands) | | ||||||||||||||||||||||||||||||||||||
Extended payment terms: |
|
|
| |
|
| |
| |
|
| |
|
| |
| | ||||||||||||||||||||||||
1-to-4 family residential | 1 | $ | 174 | $ | 173 | 3 | $ | 233 | $ | 211 |
| 2 |
| $ | 339 |
| $ | 325 | | 6 |
| $ | 797 |
| $ | 537 | | ||||||||||||||
Commercial real estate | - | - | - | 1 | 752 | 702 | |||||||||||||||||||||||||||||||||||
Construction | 1 | 259 | 259 | 1 | 259 | 259 | | — | | | — | | | — | | 1 | | | 157 | | | 13 | | ||||||||||||||||||
HELOC |
| — |
| | — |
| | — | | 2 |
| | 240 |
| | 232 | | ||||||||||||||||||||||||
Commercial & industrial | 1 | 103 | 71 | 4 | 931 | 899 | | 2 | | | 146 | | | 139 | | 4 | | | 1,091 | | | 1,083 | | ||||||||||||||||||
Loans to individuals | | — | | | — | | | — | | 1 | | | 14 | | | 9 | | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Total | 3 | $ | 536 | $ | 503 | 9 | $ | 2,175 | $ | 2,071 |
| 4 | | $ | 485 | | $ | 464 | | 14 | | $ | 2,299 | | $ | 1,874 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | ||||||||||||
| | | | Pre-Modification | | Post-Modification | | | | Pre-Modification | | Post-Modification | ||||
| | Number | | Outstanding | | Outstanding | | Number | | Outstanding | | Outstanding | ||||
| | of | | Recorded | | Recorded | | of | | Recorded | | Recorded | ||||
|
| loans |
| Investments |
| Investments |
| loans |
| Investments |
| Investments | ||||
| | (dollars in thousands) | | (dollars in thousands) | ||||||||||||
Extended payment terms: |
|
|
| |
|
| |
| |
|
| |
|
| |
|
Commercial and industrial |
| 1 |
| $ | 103 |
| $ | 71 | | 4 |
| $ | 931 |
| $ | 899 |
Commercial real estate |
| — |
| | — |
| | — | | 1 |
| | 752 |
| | 702 |
Construction | | 1 | | | 259 | | | 259 | | 1 | | | 259 | | | 259 |
1‑to‑4 family residential |
| 1 |
| | 174 |
| | 173 | | 3 |
| | 233 |
| | 211 |
| | | | | | | | | | | | | | | | |
Total |
| 3 | | $ | 536 | | $ | 503 | | 9 | | $ | 2,175 | | $ | 2,071 |
Three months ended September 30, 2018 | Nine months ended September 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 | $ | 17 | $ | 16 | 2 | $ | 426 | $ | 413 | ||||||||||||||
Commercial real estate | 1 | 392 | 350 | 3 | 1,283 | 1,123 | ||||||||||||||||||
Commercial & industrial | 1 | 74 | 74 | 7 | 1,653 | 1,625 | ||||||||||||||||||
Total | 3 | $ | 483 | $ | 440 | 12 | $ | 3,362 | $ | 3,161 |
Loans may be considered troubled debt restructurings for reasons including, but not limited to, below market interest rates, extended payment terms or forgiveness of principal.
25
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-monthtwelve month periods ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | |
| | Twelve months ended | | Twelve months ended | | ||||||
| | September 30, 2020 | | September 30, 2019 | | ||||||
| | Number | | Recorded | | Number | | Recorded | | ||
|
| of loans |
| investment |
| of loans |
| investment | | ||
| | (dollars in thousands) | | (dollars in thousands) | | ||||||
Extended payment terms: |
|
|
| |
| |
|
| |
| |
Commercial and industrial |
| 4 |
| $ | 2,203 | | — |
| $ | — | |
Construction | | 2 |
| | 208 | | — |
| | — | |
1-to-4 family residential | | 1 | | | 10 | | 1 | | | 16 | |
Total |
| 7 | | $ | 2,421 | | 1 | | $ | 16 | |
At September 30, 2020, the Bank had NaN loans with an aggregate balance of $10.3 million that were considered to be troubled debt restructurings. Of those TDRs, NaN loans with a balance totaling $3.9 million were still accruing as of September 30, 2020. The remaining TDRs with balances totaling $6.4 million as of September 30, 2020 were in non-accrual status. In response to the impact of COVID-19, payment deferrals were granted on 497 loans totaling $252.3
Twelve months ended | Twelve months ended | |||||||||||||||
September 30, 2019 | September 30, 2018 | |||||||||||||||
Number | Recorded | Number | Recorded | |||||||||||||
of loans | investment | of loans | investment | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Extended payment terms: | ||||||||||||||||
Commercial & industrial | - | $ | - | 5 | $ | 1,512 | ||||||||||
Commercial real estate | - | - | 2 | 724 | ||||||||||||
1-to-4 family residential | 1 | 16 | 2 | 461 | ||||||||||||
Total | 1 | $ | 16 | 9 | $ | 2,697 |
23
million through September 30, 2020 of which 114 loans amounting to $65.6 million remained on deferral at quarter end. The Bank has chosen to apply the CARES Act election for the accounting of TDRs. As permitted by applicable regulatory guidance, these loans were not classified as TDRs at September 30, 2020.
At September 30, 2019, the Bank had forty-oneNaN loans with an aggregate balance of $8.2 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-eightNaN loans with a balance totaling $6.5 million were still accruing as of September 30, 2019. The remaining TDRs with balances totaling $1.7 million as of September 30, 2019 were in non-accrual status.
At September 30, 2018, the Bank had forty-one loans with an aggregate balance of $7.5 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-three loans with a balance totaling $4.5 million were still accruing as of September 30, 2018. The remaining TDRs with balances totaling $3.0 million as of September 30, 2018 were in non-accrual status.
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 September 30, 20192020 and December 31, 2018,2019, respectively:
Total loans:
| | | | | | | | | | | | |
September 30, 2020 | ||||||||||||
Commercial | | | | | | | | | | | | |
Credit | | | | | | | | | | | | |
Exposure By |
| Commercial |
| | | | Commercial | | | | ||
Internally |
| and |
| | |
| real | | Multi-family | |||
Assigned Grade |
| industrial |
| Construction |
| estate |
| residential | ||||
| | (dollars in thousands) | | | | | | | | | | |
| | | | | | | | | | | | |
Superior | | $ | 96,415 | | $ | — | | $ | 76 | | $ | — |
Very good | |
| 368 | |
| 162 | |
| 7,812 | |
| — |
Good | |
| 5,538 | |
| 2,196 | |
| 67,996 | |
| 4,866 |
Acceptable | |
| 22,173 | |
| 24,718 | |
| 270,857 | |
| 50,771 |
Acceptable with care | |
| 35,331 | |
| 228,132 | |
| 181,384 | |
| 24,060 |
Special mention | |
| 390 | |
| 349 | |
| 2,363 | |
| — |
Substandard | |
| 5,551 | |
| 161 | |
| 6,599 | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — |
Loss | |
| — | |
| — | |
| — | |
| — |
| | $ | 165,766 | | $ | 255,718 | | $ | 537,087 | | $ | 79,697 |
September 30, 2019 | ||||||||||||||||
Commercial | ||||||||||||||||
Credit | ||||||||||||||||
Exposure By | Commercial | Commercial | ||||||||||||||
Internally | and | real | Multi-family | |||||||||||||
Assigned Grade | industrial | Construction | estate | residential | ||||||||||||
(In thousands) | ||||||||||||||||
Superior | $ | 1,602 | $ | - | $ | 232 | $ | - | ||||||||
Very good | 670 | 153 | 1,121 | - | ||||||||||||
Good | 4,122 | 8,849 | 60,135 | 4,884 | ||||||||||||
Acceptable | 22,853 | 19,978 | 246,804 | 38,784 | ||||||||||||
Acceptable with care | 44,004 | 180,985 | 137,263 | 18,412 | ||||||||||||
Special mention | 1,499 | 441 | 1,885 | - | ||||||||||||
Substandard | 4,936 | 2,271 | 5,204 | - | ||||||||||||
Doubtful | - | - | - | - | ||||||||||||
Loss | - | - | - | - | ||||||||||||
$ | 79,686 | $ | 212,677 | $ | 452,644 | $ | 62,080 |
| | | | | | |
Consumer Credit | | | |
| | |
Exposure By | | | | | | |
Internally |
| 1‑to‑4 family | | | | |
Assigned Grade |
| residential |
| HELOC | ||
| | | | | | |
Pass | | $ | 191,984 | | $ | 47,300 |
Special mention | |
| 445 | |
| 205 |
Substandard | |
| 2,745 | |
| 890 |
| | $ | 195,174 | | $ | 48,395 |
Consumer Credit | ||||||||||||||||
Exposure By | ||||||||||||||||
Internally | 1-to-4 family | |||||||||||||||
Assigned Grade | residential | HELOC | ||||||||||||||
Pass | $ | 149,883 | $ | 44,990 | ||||||||||||
Special mention | 1,550 | 76 | ||||||||||||||
Substandard | 2,429 | 1,155 | ||||||||||||||
$ | 153,862 | $ | 46,221 |
Consumer Credit | ||||||||||||||||
Exposure Based | Loans to | |||||||||||||||
On Payment | individuals & | |||||||||||||||
Activity | overdrafts | �� | ||||||||||||||
Pass | $ | 9,593 | ||||||||||||||
Special mention | 10 | |||||||||||||||
Substandard | 116 | |||||||||||||||
$ | 9,719 |
27
24
| | | |
Consumer Credit | | | |
Exposure Based |
| Loans to | |
On Payment |
| individuals & | |
Activity |
| overdrafts | |
| | | |
Pass | | $ | 6,806 |
Special mention | |
| 291 |
| | $ | 7,097 |
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 |
25
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 |
SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | |
Consumer Credit | | | |
Exposure Based |
| Loans to | |
On Payment |
| | individuals & |
Activity |
| overdrafts | |
| | | |
Pass | | $ | 9,727 |
Special mention | |
| 286 |
| | $ | 10,013 |
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.
company.
The following table documents changes to the amount of the accretable yield on PCI loans for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | ||||||||||||||||
|
| Three Months Ended | | Nine Months Ended | | ||||||||||||||||||||||||
| | September 30, | | September 30, | | ||||||||||||||||||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||
| | (dollars in thousands) | | (dollars in thousands) | | ||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Accretable yield, beginning of period | $ | 3,481 | $ | 3,102 | $ | 3,593 | $ | 3,307 | | $ | 5,661 | | $ | 3,481 | | $ | 3,191 | | $ | 3,593 | | ||||||||
Additions | |
| — | |
| — | |
| 2,949 | |
| — | | ||||||||||||||||
Accretion | (277 | ) | (540 | ) | (855 | ) | (1,242 | ) | |
| (487) | |
| (277) | |
| (1,209) | |
| (855) | | ||||||||
Reclassification from (to) nonaccretable difference | 45 | 15 | 293 | 78 | |||||||||||||||||||||||||
Reclassification from nonaccretable difference | |
| 24 | |
| 45 | |
| 67 | |
| 293 | | ||||||||||||||||
Other changes, net | 56 | 35 | 274 | 469 | |
| (307) | |
| 56 | |
| (107) | |
| 274 | | ||||||||||||
Accretable yield, end of period | $ | 3,305 | $ | 2,612 | $ | 3,305 | $ | 2,612 | | $ | 4,891 | | $ | 3,305 | | $ | 4,891 | | $ | 3,305 | |
26
The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and nine month periods ended September 30, 2020 and September 30, 2019, respectively:respectively (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | ||||||||||||||||||||||
| | Commercial |
| | |
| | |
| 1 to 4 |
| | |
| Loans to |
| Multi- |
| | | | ||||
| | and | | | | | Commercial | | family | | | | | individuals & | | family | | | | | |||||
2020 |
| industrial |
| Construction |
| real estate |
| residential |
| HELOC |
| overdrafts |
| residential |
| Total | | ||||||||
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans – excluding PCI |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Balance, beginning of period 07/01/2020 | | $ | 2,623 | | $ | 2,284 | | $ | 4,184 | | $ | 1,671 | | $ | 388 | | $ | 108 | | $ | 621 | | $ | 11,879 | |
Provision for (recovery of) loan losses | |
| 1,568 | |
| 212 | |
| 325 | |
| (570) | |
| (49) | |
| 4 | |
| 84 | |
| 1,574 | |
Loans charged-off | |
| (98) | |
| 0 | |
| (70) | |
| 0 | |
| 0 | |
| (23) | |
| 0 | |
| (191) | |
Recoveries | |
| 40 | |
| 0 | |
| 1 | |
| 7 | |
| 1 | |
| 7 | |
| 4 | |
| 60 | |
Balance, end of period 9/30/2020 | | $ | 4,133 | | $ | 2,496 | | $ | 4,440 | | $ | 1,108 | | $ | 340 | | $ | 96 | | $ | 709 | | $ | 13,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
PCI Loans | |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
| | |
Balance, beginning of period 07/01/2020 | | $ | 23 | | $ | 11 | | $ | 44 | | $ | 75 | | $ | 9 | | $ | 4 | | $ | 9 | | $ | 175 | |
Provision for (recovery of) loan losses | |
| (23) | | | (11) | |
| (44) | |
| 164 | |
| (9) | |
| (4) | |
| (9) | |
| 64 | |
Loans charged-off | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
Recoveries | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
Balance, end of period 9/30/2020 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 239 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
|
| |
| | |
Balance, beginning of period 07/01/2020 | | $ | 2,646 | | $ | 2,295 | | $ | 4,228 | | $ | 1,746 | | $ | 397 | | $ | 112 | | $ | 630 | | $ | 12,054 | |
Provision for (recovery of) loan losses | |
| 1,545 | |
| 201 | |
| 281 | |
| (406) | |
| (58) | |
| 0 | |
| 75 | |
| 1,638 | |
Loans charged-off | |
| (98) | |
| 0 | |
| (70) | |
| 0 | |
| 0 | |
| (23) | |
| 0 | |
| (191) | |
Recoveries | |
| 40 | |
| 0 | |
| 1 | |
| 7 | |
| 1 | |
| 7 | |
| 4 | |
| 60 | |
Balance, end of period 9/30/2020 | | $ | 4,133 | | $ | 2,496 | | $ | 4,440 | | $ | 1,347 | | $ | 340 | | $ | 96 | | $ | 709 | | $ | 13,561 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: individually evaluated for impairment | | $ | 162 | | $ | 0 | | $ | 325 | | $ | 10 | | $ | 9 | | $ | 0 | | $ | 0 | | $ | 506 | |
Ending Balance: collectively evaluated for impairment | | $ | 3,971 | | $ | 2,496 | | $ | 4,115 | | $ | 1,337 | | $ | 331 | | $ | 96 | | $ | 709 | | $ | 13,055 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | |
| | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
Ending Balance: collectively evaluated for impairment non PCI loans | | $ | 159,585 | | $ | 253,851 | | $ | 518,462 | | $ | 182,926 | | $ | 47,190 | | $ | 6,709 | | $ | 78,646 | | $ | 1,247,369 | |
Ending Balance: collectively evaluated for impairment PCI loans | | $ | 1,557 | | $ | 1,605 | | $ | 12,959 | | $ | 12,013 | | $ | 675 | | $ | 127 | | $ | 1,051 | | $ | 29,987 | |
Ending Balance: individually evaluated for impairment | | $ | 4,624 | | $ | 262 | | $ | 5,666 | | $ | 235 | | $ | 530 | | $ | 261 | | $ | 0 | | $ | 11,578 | |
Ending Balance | | $ | 165,766 | | $ | 255,718 | | $ | 537,087 | | $ | 195,174 | | $ | 48,395 | | $ | 7,097 | | $ | 79,697 | | $ | 1,288,934 | |
Three months ended September 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 | $ | 814 | $ | 1,487 | $ | 2,818 | $ | 1,543 | $ | 432 | $ | 309 | $ | 383 | $ | 7,786 | ||||||||||||||||
Provision for (recovery of) loan losses | 123 | 212 | (44 | ) | (111 | ) | 18 | 9 | 11 | 218 | ||||||||||||||||||||||
Loans charged-off | (48 | ) | - | - | - | (50 | ) | (155 | ) | - | (253 | ) | ||||||||||||||||||||
Recoveries | 2 | - | 1 | 8 | 21 | 5 | - | 37 | ||||||||||||||||||||||||
Balance, end of period | $ | 891 | $ | 1,699 | $ | 2,775 | $ | 1,440 | $ | 421 | $ | 168 | $ | 394 | $ | 7,788 | ||||||||||||||||
PCI Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 298 | $ | 6 | $ | 142 | $ | 62 | $ | 1 | $ | - | $ | 8 | $ | 517 | ||||||||||||||||
Provision for (recovery of) loan losses | 10 | - | - | (10 | ) | - | 13 | - | 13 | |||||||||||||||||||||||
Loans charged-off | (249 | ) | - | - | - | - | (13 | ) | - | (262 | ) | |||||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Balance, end of period | $ | 59 | $ | 6 | $ | 142 | $ | 52 | $ | 1 | $ | - | $ | 8 | $ | 268 | ||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 1,112 | $ | 1,493 | $ | 2,960 | $ | 1,605 | $ | 433 | $ | 309 | $ | 391 | $ | 8,303 | ||||||||||||||||
Provision for (recovery of) loan losses | 133 | 212 | (44 | ) | (121 | ) | 18 | 22 | 11 | 231 | ||||||||||||||||||||||
Loans charged-off | (297 | ) | - | - | - | (50 | ) | (168 | ) | - | (515 | ) | ||||||||||||||||||||
Recoveries | 2 | - | 1 | 8 | 21 | 5 | - | 37 | ||||||||||||||||||||||||
Balance, end of period | $ | 950 | $ | 1,705 | $ | 2,917 | $ | 1,492 | $ | 422 | $ | 168 | $ | 402 | $ | 8,056 | ||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 230 | $ | - | $ | - | $ | 6 | $ | 48 | $ | - | $ | - | $ | 284 | ||||||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 720 | $ | 1,705 | $ | 2,917 | $ | 1,486 | $ | 374 | $ | 168 | $ | 402 | $ | 7,772 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Ending Balance: collectively evaluated for impairment non PCI loans | $ | 74,658 | $ | 209,464 | $ | 440,244 | $ | 145,645 | $ | 45,170 | $ | 9,634 | $ | 60,970 | $ | 985,785 | ||||||||||||||||
Ending Balance: collectively evaluated for impairment PCI loans | $ | 1,154 | $ | 682 | $ | 6,033 | $ | 7,479 | $ | 47 | $ | - | $ | 908 | $ | 16,303 | ||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 3,874 | $ | 2,531 | $ | 6,367 | $ | 738 | $ | 1,004 | $ | 85 | $ | 202 | $ | 14,801 | ||||||||||||||||
Ending Balance | $ | 79,686 | $ | 212,677 | $ | 452,644 | $ | 153,862 | $ | 46,221 | $ | 9,719 | $ | 62,080 | $ | 1,016,889 |
30
27
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial |
| | |
| | |
| 1 to 4 |
| | |
| Loans to |
| Multi- |
| | | ||||
| | and | | | | | Commercial | | family | | | | | individuals & | | family | | | | |||||
2020 |
| industrial |
| Construction |
| real estate |
| residential |
| HELOC |
| overdrafts |
| residential |
| Total | ||||||||
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | |
Loans – excluding PCI |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance, beginning of period 01/01/2020 | | $ | 1,127 | | $ | 1,731 | | $ | 2,837 | | $ | 1,437 | | $ | 329 | | $ | 175 | | $ | 419 | | $ | 8,055 |
Provision for (recovery of) loan losses | |
| 3,591 | |
| 765 | |
| 1,670 | |
| (352) | |
| (31) | |
| (55) | |
| 286 | |
| 5,874 |
Loans charged-off | |
| (628) | |
| 0 | |
| (70) | |
| 0 | |
| 0 | |
| (42) | |
| 0 | |
| (740) |
Recoveries | |
| 43 | |
| 0 | |
| 3 | |
| 23 | |
| 42 | |
| 18 | |
| 4 | |
| 133 |
Balance, end of period 9/30/2020 | | $ | 4,133 | | $ | 2,496 | | $ | 4,440 | | $ | 1,108 | | $ | 340 | | $ | 96 | | $ | 709 | | $ | 13,322 |
| | | | | | | | | | | | | | | | | | | | | | | | |
PCI Loans | |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
| |
Balance, beginning of period 01/01/2020 | | $ | 178 | | $ | 6 | | $ | 14 | | $ | 56 | | $ | 0 | | $ | 0 | | $ | 15 | | $ | 269 |
Provision for (recovery of) loan losses | |
| (178) | |
| (6) | |
| (14) | |
| 183 | |
| 0 | |
| 0 | |
| (15) | |
| (30) |
Loans charged-off | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Recoveries | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Balance, end of period 9/30/2020 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 239 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 239 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
|
| |
| |
Balance, beginning of period 01/01/2020 | | $ | 1,305 | | $ | 1,737 | | $ | 2,851 | | $ | 1,493 | | $ | 329 | | $ | 175 | | $ | 434 | | $ | 8,324 |
Provision for (recovery of) loan losses | |
| 3,413 | |
| 759 | |
| 1,656 | |
| (169) | |
| (31) | |
| (55) | |
| 271 | |
| 5,844 |
Loans charged-off | |
| (628) | |
| 0 | |
| (70) | |
| 0 | |
| 0 | |
| (42) | |
| 0 | |
| (740) |
Recoveries | |
| 43 | |
| 0 | |
| 3 | |
| 23 | |
| 42 | |
| 18 | |
| 4 | |
| 133 |
Balance, end of period 9/30/2020 | | $ | 4,133 | | $ | 2,496 | | $ | 4,440 | | $ | 1,347 | | $ | 340 | | $ | 96 | | $ | 709 | | $ | 13,561 |
28
Nine months ended September 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 | 422 | 296 | (289 | ) | (248 | ) | (18 | ) | 123 | (77 | ) | 209 | ||||||||||||||||||||
Loans charged-off | (305 | ) | - | (10 | ) | - | (150 | ) | (179 | ) | - | (644 | ) | |||||||||||||||||||
Recoveries | 12 | 18 | 50 | 25 | 34 | 18 | - | 157 | ||||||||||||||||||||||||
Balance, end of period | $ | 891 | $ | 1,699 | $ | 2,775 | $ | 1,440 | $ | 421 | $ | 168 | $ | 394 | $ | 7,788 | ||||||||||||||||
PCI Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 214 | $ | - | $ | 385 | $ | 4 | $ | - | $ | - | $ | - | $ | 603 | ||||||||||||||||
Provision for (recovery of) loan losses | 94 | 6 | (243 | ) | 48 | 1 | 13 | 8 | (73 | ) | ||||||||||||||||||||||
Loans charged-off | (249 | ) | - | - | - | - | (13 | ) | - | (262 | ) | |||||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Balance, end of period | $ | 59 | $ | 6 | $ | 142 | $ | 52 | $ | 1 | $ | - | $ | 8 | $ | 268 | ||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 976 | $ | 1,385 | $ | 3,409 | $ | 1,667 | $ | 555 | $ | 206 | $ | 471 | $ | 8,669 | ||||||||||||||||
Provision for (recovery of) loan losses | 516 | 302 | (532 | ) | (200 | ) | (17 | ) | 136 | (69 | ) | 136 | ||||||||||||||||||||
Loans charged-off | (554 | ) | - | (10 | ) | - | (150 | ) | (192 | ) | - | (906 | ) | |||||||||||||||||||
Recoveries | 12 | 18 | 50 | 25 | 34 | 18 | - | 157 | ||||||||||||||||||||||||
Balance, end of period | $ | 950 | $ | 1,705 | $ | 2,917 | $ | 1,492 | $ | 422 | $ | 168 | $ | 402 | $ | 8,056 |
The Company periodically reviews and updates its qualitative factors for changes in current conditions. During the three months ended September 30, 2019, the Company adjusted several factors, including reducing the factors relating to exceptions, accuracy, and delinquency for certain loan types resulting in a reduction of $270,000 of the allowance for loan losses.
SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | ||||||||||||||||||||||
| | Commercial |
| | |
| | |
| 1 to 4 |
| | |
| Loans to |
| Multi- |
| | | | ||||
| | and | | | | | Commercial | | family | | | | | individuals & | | family | | | | | |||||
2019 |
| industrial |
| Construction |
| real estate |
| residential |
| HELOC |
| overdrafts |
| residential |
| Total | | ||||||||
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans – excluding PCI | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period 07/01/2019 | | $ | 814 | | $ | 1,487 | | $ | 2,818 | | $ | 1,543 | | $ | 432 | | $ | 309 | | $ | 383 | | $ | 7,786 | |
Provision for (recovery of) loan losses | |
| 123 | |
| 212 | |
| (44) | |
| (111) | |
| 18 | |
| 9 | |
| 11 | |
| 218 | |
Loans charged-off | |
| (48) | |
| 0 | |
| 0 | |
| 0 | |
| (50) | |
| (155) | |
| 0 | |
| (253) | |
Recoveries | |
| 2 | |
| 0 | |
| 1 | |
| 8 | |
| 21 | |
| 5 | |
| 0 | |
| 37 | |
Balance, end of period 9/30/2019 | | $ | 891 | | $ | 1,699 | | $ | 2,775 | | $ | 1,440 | | $ | 421 | | $ | 168 | | $ | 394 | | $ | 7,788 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
PCI Loans | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, beginning of period 07/01/2019 | | $ | 298 | | $ | 6 | | $ | 142 | | $ | 62 | | $ | 1 | | $ | 0 | | $ | 8 | | $ | 517 | |
Provision for (recovery of) loan losses | |
| 10 | |
| 0 | |
| 0 | |
| (10) | |
| 0 | |
| 13 | |
| 0 | |
| 13 | |
Loans charged-off | |
| (249) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (13) | |
| 0 | |
| (262) | |
Recoveries | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
Balance, end of period 9/30/2019 | | $ | 59 | | $ | 6 | | $ | 142 | | $ | 52 | | $ | 1 | | $ | 0 | | $ | 8 | | $ | 268 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, beginning of period 07/01/2019 | | $ | 1,112 | | $ | 1,493 | | $ | 2,960 | | $ | 1,605 | | $ | 433 | | $ | 309 | | $ | 391 | | $ | 8,303 | |
Provision for (recovery of) loan losses | |
| 133 | |
| 212 | |
| (44) | |
| (121) | |
| 18 | |
| 22 | |
| 11 | |
| 231 | |
Loans charged-off | |
| (297) | |
| 0 | |
| 0 | |
| 0 | |
| (50) | |
| (168) | |
| 0 | |
| (515) | |
Recoveries | |
| 2 | |
| 0 | |
| 1 | |
| 8 | |
| 21 | |
| 5 | |
| 0 | |
| 37 | |
Balance, end of period 9/30/2019 | | $ | 950 | | $ | 1,705 | | $ | 2,917 | | $ | 1,492 | | $ | 422 | | $ | 168 | | $ | 402 | | $ | 8,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: individually evaluated for impairment | | $ | 230 | | $ | 0 | | $ | 0 | | $ | 6 | | $ | 48 | | $ | 0 | | $ | 0 | | $ | 284 | |
Ending Balance: collectively evaluated for impairment | | $ | 720 | | $ | 1,705 | | $ | 2,917 | | $ | 1,486 | | $ | 374 | | $ | 168 | | $ | 402 | | $ | 7,772 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Ending Balance: collectively evaluated for impairment non PCI loans | | $ | 74,658 | | $ | 209,464 | | $ | 440,244 | | $ | 145,645 | | $ | 45,170 | | $ | 9,634 | | $ | 60,970 | | $ | 985,785 | |
Ending Balance: collectively evaluated for impairment PCI loans | | $ | 1,154 | | $ | 682 | | $ | 6,033 | | $ | 7,479 | | $ | 47 | | $ | 0 | | $ | 908 | | $ | 16,303 | |
Ending Balance: individually evaluated for impairment | | $ | 3,874 | | $ | 2,531 | | $ | 6,367 | | $ | 738 | | $ | 1,004 | | $ | 85 | | $ | 202 | | $ | 14,801 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 79,686 | | $ | 212,677 | | $ | 452,644 | | $ | 153,862 | | $ | 46,221 | | $ | 9,719 | | $ | 62,080 | | $ | 1,016,889 | |
29
The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and nine month periods ended September 30, 2018, respectively:
Three months ended September 30, 2018 | ||||||||||||||||||||||||||||||||
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 | $ | 781 | $ | 1,768 | $ | 3,926 | $ | 1,421 | $ | 618 | $ | 320 | $ | 588 | $ | 9,422 | ||||||||||||||||
Provision for (recovery of) loan losses | (178 | ) | (295 | ) | 163 | (36 | ) | (105 | ) | - | (41 | ) | (492 | ) | ||||||||||||||||||
Loans charged-off | - | - | (2 | ) | - | (20 | ) | (79 | ) | - | (101 | ) | ||||||||||||||||||||
Recoveries | 26 | - | 6 | 7 | 14 | 68 | - | 121 | ||||||||||||||||||||||||
Balance, end of period | $ | 629 | $ | 1,473 | $ | 4,093 | $ | 1,392 | $ | 507 | $ | 309 | $ | 547 | $ | 8,950 | ||||||||||||||||
PCI Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 54 | $ | - | $ | 52 | $ | - | $ | - | $ | - | $ | - | $ | 106 | ||||||||||||||||
Provision for (recovery of) loan losses | 61 | - | (52 | ) | 24 | - | - | - | 33 | |||||||||||||||||||||||
Loans charged-off | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Balance, end of period | $ | 115 | $ | - | $ | - | $ | 24 | $ | - | $ | - | $ | - | $ | 139 | ||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 835 | $ | 1,768 | $ | 3,978 | $ | 1,421 | $ | 618 | $ | 320 | $ | 588 | $ | 9,528 | ||||||||||||||||
Provision for (recovery of) loan losses | (117 | ) | (295 | ) | 111 | (12 | ) | (105 | ) | - | (41 | ) | (459 | ) | ||||||||||||||||||
Loans charged-off | - | - | (2 | ) | - | (20 | ) | (79 | ) | - | (101 | ) | ||||||||||||||||||||
Recoveries | 26 | - | 6 | 7 | 14 | 68 | - | 121 | ||||||||||||||||||||||||
Balance, end of period | $ | 744 | $ | 1,473 | $ | 4,093 | $ | 1,416 | $ | 507 | $ | 309 | $ | 547 | $ | 9,089 | ||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 115 | $ | - | $ | - | $ | 24 | $ | - | $ | - | $ | - | $ | 139 | ||||||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 629 | $ | 1,473 | $ | 4,093 | $ | 1,392 | $ | 507 | $ | 309 | $ | 547 | $ | 8,950 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Ending Balance: collectively evaluated for impairment non PCI loans | $ | 76,355 | $ | 161,323 | $ | 447,676 | $ | 155,648 | $ | 49,409 | $ | 12,124 | $ | 64,062 | $ | 966,597 | ||||||||||||||||
Ending Balance: collectively evaluated for impairment PCI loans | $ | 621 | $ | 935 | $ | 7,529 | $ | 6,790 | $ | 50 | $ | - | $ | 1,012 | $ | 16,937 | ||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | 3,362 | $ | 615 | $ | 5,151 | $ | 807 | $ | 634 | $ | 132 | �� | $ | 220 | $ | 10,921 | |||||||||||||||
Ending Balance | $ | 80,338 | $ | 162,873 | $ | 460,356 | $ | 163,245 | $ | 50,093 | $ | 12,256 | $ | 65,294 | $ | 994,455 |
SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial |
| | |
| | |
| 1 to 4 |
| | |
| Loans to |
| Multi- |
| | | ||||
| | and | | | | | Commercial | | family | | | | | individuals & | | family | | | | |||||
2019 |
| industrial |
| Construction |
| real estate |
| residential |
| HELOC |
| overdrafts |
| residential |
| Total | ||||||||
Allowance for loan losses | | | | | | | | | | | | | | | | | | | | | | | | |
Loans – excluding PCI |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance, beginning of period 01/01/2019 | | $ | 762 | | $ | 1,385 | | $ | 3,024 | | $ | 1,663 | | $ | 555 | | $ | 206 | | $ | 471 | | $ | 8,066 |
Provision for (recovery of) loan losses | |
| 422 | |
| 296 | |
| (289) | |
| (248) | |
| (18) | |
| 123 | |
| (77) | |
| 209 |
Loans charged-off | |
| (305) | |
| 0 | |
| (10) | |
| 0 | |
| (150) | |
| (179) | |
| 0 | |
| (644) |
Recoveries | |
| 12 | |
| 18 | |
| 50 | |
| 25 | |
| 34 | |
| 18 | |
| 0 | |
| 157 |
Balance, end of period 9/30/2019 | | $ | 891 | | $ | 1,699 | | $ | 2,775 | | $ | 1,440 | | $ | 421 | | $ | 168 | | $ | 394 | | $ | 7,788 |
| | | | | | | | | | | | | | | | | | | | | | | | |
PCI Loans | |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
| |
Balance, beginning of period 01/01/2019 | | $ | 214 | | $ | 0 | | $ | 385 | | $ | 4 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 603 |
Provision for (recovery of) loan losses | |
| 94 | |
| 6 | |
| (243) | |
| 48 | |
| 1 | |
| 13 | |
| 8 | |
| (73) |
Loans charged-off | |
| (249) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (13) | |
| 0 | |
| (262) |
Recoveries | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Balance, end of period 9/30/2019 | | $ | 59 | | $ | 6 | | $ | 142 | | $ | 52 | | $ | 1 | �� | $ | 0 | | $ | 8 | | $ | 268 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
|
| |
| — |
Balance, beginning of period 01/01/2019 | | $ | 976 | | $ | 1,385 | | $ | 3,409 | | $ | 1,667 | | $ | 555 | | $ | 206 | | $ | 471 | | $ | 8,669 |
Provision for (recovery of) loan losses | |
| 516 | |
| 302 | |
| (532) | |
| (200) | |
| (17) | |
| 136 | |
| (69) | |
| 136 |
Loans charged-off | |
| (554) | |
| 0 | |
| (10) | |
| 0 | |
| (150) | |
| (192) | |
| 0 | |
| (906) |
Recoveries | |
| 12 | |
| 18 | |
| 50 | |
| 25 | |
| 34 | |
| 18 | |
| 0 | |
| 157 |
Balance, end of period 9/30/2019 | | $ | 950 | | $ | 1,705 | | $ | 2,917 | | $ | 1,492 | | $ | 422 | | $ | 168 | | $ | 402 | | $ | 8,056 |
Nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||
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 | $ | 742 | $ | 1,955 | $ | 3,304 | $ | 1,058 | $ | 549 | $ | 305 | $ | 791 | $ | 8,704 | ||||||||||||||||
Provision for loan losses | (151 | ) | (488 | ) | 775 | 309 | 4 | 26 | (244 | ) | 231 | |||||||||||||||||||||
Loans charged-off | (9 | ) | - | (2 | ) | - | (68 | ) | (107 | ) | - | (186 | ) | |||||||||||||||||||
Recoveries | 47 | 6 | 16 | 25 | 22 | 85 | - | 201 | ||||||||||||||||||||||||
Balance, end of period | $ | 629 | $ | 1,473 | $ | 4,093 | $ | 1,392 | $ | 507 | $ | 309 | $ | 547 | $ | 8,950 | ||||||||||||||||
PCI Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 65 | $ | - | $ | 66 | $ | - | $ | - | $ | - | $ | - | $ | 131 | ||||||||||||||||
Provision for loan losses | 50 | - | (66 | ) | 24 | - | - | - | 8 | |||||||||||||||||||||||
Loans charged-off | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Recoveries | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Balance, end of period | $ | 115 | $ | - | $ | - | $ | 24 | $ | - | $ | - | $ | - | $ | 139 | ||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 807 | $ | 1,955 | $ | 3,370 | $ | 1,058 | $ | 549 | $ | 305 | $ | 791 | $ | 8,835 | ||||||||||||||||
Provision for loan losses | (101 | ) | (488 | ) | 709 | 333 | 4 | 26 | (244 | ) | 239 | |||||||||||||||||||||
Loans charged-off | (9 | ) | - | (2 | ) | - | (68 | ) | (107 | ) | - | (186 | ) | |||||||||||||||||||
Recoveries | 47 | 6 | 16 | 25 | 22 | 85 | - | 201 | ||||||||||||||||||||||||
Balance, end of period | $ | 744 | $ | 1,473 | $ | 4,093 | $ | 1,416 | $ | 507 | $ | 309 | $ | 547 | $ | 9,089 |
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
NOTE G – LOANS HELD FOR SALE
We originateThe Company originates fixed and variable rate residential mortgage loans on a servicing-releasedservice 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. WeThe Company usually deliverdelivers to, and receive 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. We areThe 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 operations.
NOTE H – REVENUE RECOGNITION
–BUSINESS COMBINATIONS
On January 1, 2018,December 20, 2019, the Company adopted ASU No. 2014-09Revenue from ContractsBank entered into a Branch Purchase and Assumption Agreement (the “Purchase Agreement”) with Customers (Topic 606)Entegra Bank (“Entegra”), by which the Bank assumed the deposits and all subsequent ASUs that modified Topic 606. The implementationacquired the majority of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjustedloans, property, equipment and continue to be reported in accordance with our historic accounting under Topic 605.
Topic 606 does not apply to revenueother selected assets associated with financial instruments, including revenue from loans3 existing Entegra branch offices. Entegra was merged with and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope
30
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of insufficient funds fees, account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
into First-Citizens Bank & Trust Company (“First-Citizens Bank”) on December 31, 2019, and First-Citizens Bank assumed the rights and obligations of Entegra under the Purchase Agreement with the Bank.
Other FeesOn April 17, 2020, the Bank completed the acquisition of the 3 branches located in western North Carolina and Income
Other fees and income primarily consist of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income primarily consists of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Other fees and income also includes other recurring revenue streams such as safe deposit box rental fees and other miscellaneous revenue streams. Safe deposit box rental fees are chargedpursuant to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the durationterms of the performance obligation.Purchase Agreement. The branches had approximately $170.9 million in assets and $186.4 million in liabilities as of the acquisition date, April 17, 2020. The purchase expanded the Bank’s North Carolina presence with branches in Sylva, Franklin and Highlands, North Carolina.
The purchase of the branches was accounted for under the acquisition method. The assets and liabilities of the branches, as of the effective date of the acquisition, are recorded at their respective fair values. For the acquisition of the branches, estimated fair values of assets acquired and liabilities assumed are based on the information that is available, and the Company believes this information provides a reasonable basis for determining fair values.
The following presentstable provides the carrying value of acquired assets and assumed liabilities, as recorded by the Company, the fair value adjustments calculated at the time of the merger and the resulting fair value recorded by the Company.
| | | | | | | | | |
| | April 17, 2020 | |||||||
| | As recorded by | | Fair Value | | As recorded by | |||
| | First Citizens | | adjustments | | the Company | |||
(Dollars in thousands) | | | | | | | | | |
Assets | | | | | | | | | |
Cash and cash equivalents | | $ | 60,234 | | $ | — | | $ | 60,234 |
Loans | | | 108,236 | | | (4,977) | | | 103,259 |
Premises and equipment | | | 2,106 | | | 790 | | | 2,896 |
Accrued interest receivable | | | 338 | | | — | | | 338 |
Core deposit intangible | | | — | | | 620 | | | 620 |
Other assets | | | — | | | 974 | | | 974 |
Total assets acquired | | $ | 170,914 | | $ | (2,593) | | $ | 168,321 |
| | | | | | | | | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Deposits: | | | | | | | | | |
Noninterest-bearing | | $ | 41,398 | | $ | — | | $ | 41,398 |
Interest-bearing | | | 144,845 | | | (760) | | | 144,085 |
Total deposits | | | 186,243 | | | (760) | | | 185,483 |
Other liabilities | | | 173 | | | — | | | 173 |
Total liabilities assumed | | $ | 186,416 | | $ | (760) | | $ | 185,656 |
Goodwill recorded for branches acquisition | | | | | | | | $ | 17,335 |
Goodwill recorded for the branches represents future revenues to be derived from the existing customer base, including efficiencies that will result from combining operations. The fair value adjustments remain subject to adjustment within the one year measurement period if there happens to be notable changes in the factors determining the fair value of the assets or liabilities.
In determining the acquisition date fair value of purchased credit-impaired (“PCI”) loans, and in subsequent accounting, the Company generally aggregates loans into pools of loans with common risk characteristics. Expected cash flows at the
31
acquisition date in excess of the fair value of loans are referred to as the “accretable yield” and recorded as interest income prospectively.
PCI loans acquired totaled $17.0 million at estimated fair value and acquired performing loans totaling $86.2 million at estimated fair value. For PCI loans acquired from First-Citizens Bank, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of the closing date of the merger were:
| | | |
(Dollars in thousands) | | April 17, 2020 | |
| | | |
Contractually required payments | | $ | 22,046 |
Nonaccretable difference | | | 2,073 |
Cash flow expected to be collected | | | 19,973 |
Accretable yield | | | 2,949 |
Fair value at acquisition date | | $ | 17,024 |
Merger-related expense in 2020 totaled $755,000 which were recorded as noninterest expense as incurred.
The following tables reflect the pro forma total net interest income, noninterest income segregated by revenue streams in-scope and out-of-scope of Topic 606,net income for the three and nine months ended September 30, 2020 and 2019 as though the acquisition of the branches had taken place on January 1, 2019. The pro forma results have not been adjusted to remove non-recurring acquisition-related expenses, and 2018.are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on January 1, 2019, nor of future results of operations.
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30 | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Service Charges on Deposit Accounts | $ | 308 | $ | 309 | $ | 858 | $ | 830 | ||||||||
Other | 584 | 349 | 1,618 | 1,119 | ||||||||||||
Noninterest Income (in-scope of Topic 606) | 892 | 658 | 2,476 | 1,949 | ||||||||||||
Noninterest Income (out-of-scope of Topic 606) | 556 | 408 | 1,497 | 1,508 | ||||||||||||
Total Non-interest Income | $ | 1,448 | $ | 1,066 | $ | 3,973 | $ | 3,457 |
| | | | | | | |
| | Nine Months Ended September 30 | | ||||
| | 2020 | | 2019 | | ||
| | (Dollars in thousands, except per share) | | ||||
Net interest income | | $ | 38,130 | | $ | 37,350 | |
Non-interest income | | | 4,717 | | | 4,161 | |
Net income available to common shareholders | | | 4,834 | | | 10,802 | |
| | | | | | | |
Earnings per share, basic | | $ | 0.27 | | $ | 0.56 | |
Earnings per share, diluted | | $ | 0.27 | | $ | 0.56 | |
| | | | | | | |
Weighted average common shares outstanding, basic | | | 18,038,345 | | | 19,219,820 | |
Weighted average common shares outstanding, diluted | | | 18,062,170 | | | 19,266,480 | |
Contract Balances
32
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2019 and December 31, 2018, the Company did not have any significant contract balances.
SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.
NOTE I – OTHER REAL ESTATE OWNED
The following table explains changes in other real estate owned, (“OREO”)or OREO, during the nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | ||||||||
| | Nine Months | | Nine Months | | ||||||||||
| | Ended | | Ended | | ||||||||||
|
| September 30, |
| September 30, | | ||||||||||
| | 2020 | | 2019 | | ||||||||||
Nine Months | Nine Months | ||||||||||||||
Ended | Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2019 | 2018 | ||||||||||||||
(Dollars in thousands) | |||||||||||||||
| | (Dollars in thousands) | | ||||||||||||
| | | | | | | | ||||||||
Beginning balance January 1 | $ | 1,088 | $ | 1,258 | | $ | 3,533 | | $ | 1,088 | | ||||
Sales | (103 | ) | (657 | ) | |
| (180) | |
| (103) | | ||||
Write-downs | (12 | ) | (100 | ) | |||||||||||
Write-downs and loss on sales | |
| (390) | |
| (12) | | ||||||||
Transfers | 469 | 519 | |
| 274 | |
| 469 | | ||||||
Ending balance | $ | 1,442 | $ | 1,020 | | $ | 3,237 | | $ | 1,442 | |
At September 30, 20192020 and December 31, 2018,2019, the Company had $1.4$3.2 million and $1.1$3.5 million, respectively, of which $379,000 is foreclosed residential real estate property in OREO. The Company had 2 loans with a recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure totaled $233,000in the aggregate amount of $428,000 at September 30, 2019.2020. At December 31, 2018,2019, the Company had 3 loans with recorded investment in the amount of $376,000$114,000 in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure.
NoteNOTE J – LEASES
SUBSEQUENT EVENTS
The Company has operating leasesevaluated for branchessubsequent events through the date and certain equipment. The Company’s leases have remaining lease termstime the financial statements were issued and has determined there are no reportable subsequent events.
33
At September 30, 2019, the Company did not have any leases that had not yet commenced for which we had created a ROU asset and a lease liability. For the operating leases the Company has elected the practical expedient of not separating lease components from non-lease components and instead to account for each separate lease component and the non-lease components associated with that lease as a single lease component. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of the lease agreements include periodic rate adjustments for inflation.
SELECT BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that the Company will exercise the option to renew or extend the lease term, that option is included in determining the value of the ROU asset and lease liability.
The components of lease expense were as follows:
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2019 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Operating lease cost | $ | 268 | $ | 787 |
Supplemental cash flow information related to leases was as follows:
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2019 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 268 | $ | 787 | ||||
Right-of-use assets obtained in exchange for lease obligations: | ||||||||
Operating leases | - | 8,776 |
The following table presents the remaining weighted average lease terms and discount rates as of September 30, 2019:
Maturities of lease liabilities were as follows:
(In thousands)
Operating | ||||
Leases | ||||
Year Ending December 31, | ||||
2019 (excluding the nine months ended September 30, 2019) | $ | 138 | ||
2020 | 586 | |||
2021 | 649 | |||
2022 | 722 | |||
2023 | 702 | |||
Thereafter | 6,154 | |||
Lease payments | 8,951 | |||
Amounts representing interest | (274 | ) | ||
Present Value of Net Future Minimum Lease Payments | 8,677 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
Management’s discussion and analysis is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of Select Bancorp, Inc. (the “Company”). This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 relating to, without limitation, our future economic performance, plans and objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, andas well as assumptions made by, and information currently available to us. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “could,” “project,” “predict,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results, performance or achievements may differ materially from the results expressed or implied by our forward-looking statements. Factors that could influence actual results, performance or achievements include, among other things: the impact of the novel coronavirus and the associated COVID-19 disease pandemic on the business, financial condition and results of operations of the Company and its customers, changes in national, regional and local market conditions; changes in legislative and regulatory conditions;conditions, changes in the interest rate environment;environment, breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats; and adverse changechanges in credit quality trends; and diversion of management’s time and attention to our merger-related, acquisition, or divestiture activities.trends.
Overview
The Company is a commercial bank holding company and has one banking subsidiary, Select Bank & Trust Company (referred to as the “Bank”), and one unconsolidated subsidiary, New Century Statutory Trust I, which issued trust preferred securities in 2004 to provide additional capital for general corporate purposes. The Company’s only business activity is the ownership of the Bank and New Century Statutory Trust I. This discussion focuses primarily on the financial condition and operating results of the Bank.
The Bank’s lending activities are oriented to the consumer/retail customer as well as to the small- to medium-sized businesses located in Harnett, Brunswick, New Hanover, Carteret, Cumberland, Jackson, Johnston, Macon, Mecklenburg, Pitt, Robeson, Sampson, Wake, Pasquotank, Martin, Alamance, and Wayne counties in North Carolina, and York Pickens and Cherokee counties in South Carolina, and Virginia Beach, Virginia. The Bank offers the standard complement of commercial, consumer, and mortgage lending products, as well as the ability to structure products to fit specialized needs. The deposit services offered by the Bank include small business and personal checking accounts, savings accounts, and certificates of deposit. The Bank concentrates on customer relationships in building its customer deposit base and competes aggressively in the area of transaction accounts.
The Company was formerly known as New Century Bancorp, Inc. On July 25, 2014, New Century Bancorp, Inc. acquired Select Bancorp, Inc. (“Legacy Select”) by merger. In connection with that merger theThe combined company changed its legal name tois now known as Select Bancorp, Inc., which we refer to in this report as the Company. Legacy Select was a bank holding company headquartered in Greenville, North Carolina, whose wholly owned subsidiary, Select Bank & Trust Company, was a state-chartered commercial bank with approximately $276.9 million in assets. The merger expanded the Company’s North Carolina presence with the
34
addition of six branches located in Greenville (two), Elizabeth City, Washington, Gibsonville, and Burlington. During 2015, the Gibsonville and Burlington branches were combined into a new location in Burlington. On December 15, 2017, the Company acquired Premara Financial, Inc. (“Premara”) and its banking subsidiary Carolina Premier Bank (“Carolina Premier”), located headquartered in Charlotte, North Carolina. At the time of the acquisition, Carolina Premier had approximately $279 million in assets and four-full service offices, including a presence in upstate South Carolina. The Bank acquired three branches located in the cities of Rock Hill, BlacksburgSylva, Franklin and Six Mile, South Carolina. Under the termsHighlands, North Carolina on April 17, 2020. The acquisition of that acquisition, Premara was merged withthese branches, which were acquired from First-Citizens Bank & Trust Company, Raleigh, North Carolina, added approximately $103 million in loans and into the Company, Carolina Premier was merged with and into the Bank, and shareholders of Premara received 1.0463 shares$185 million in deposits as of the Company’s common stock or $12.65 in cash for each outstanding shareacquisition date.
35
On January 29, 2019, the Bank entered into a Purchase and Assumption Agreement with City National Bank of West Virginia pursuant to which the Bank assumed the majority of deposits and acquired the equipment and other selected assets associated with City National Bank of West Virginia’s branch located at 621 Nevan Road, Virginia Beach, Virginia. The purchase and assumption transaction closed on June 28, 2019 resulting in the assumption of $25.7 million in deposits.
On June 4, 2019, the Bank entered into a Purchase and Assumption Agreement with Pickens Savings and Loan Association, FA (“Pickens”), pursuant to which Pickens will assume the majority of deposits and acquire selected assets associated with the Bank’s branch located at 115 North Main Street, Six Mile, South Carolina. The transaction is expected to close in the fourth quarter of 2019 pending satisfaction of customary closing conditions.
Comparison of Financial Condition at
September 30, 20192020 and December 31, 2018
2019
During the first nine months of 2019,2020, total assets increased by $11.1$496.9 million to $1.3$1.8 billion as of September 30, 2019.2020. The increase in assets was due primarily to the acquisition of three branches located in western North Carolina and loans originated by the Bank in connection with its participation in the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”). Earning assets at September 30, 20192020 totaled $1.2$1.6 billion and consisted of $1.0$1.3 billion in net loans, $76.9$87.4 million in investment securities, $64.3$274.6 million in cash, overnight investments and interest-bearing deposits in other banks, $8.0 million in federal funds sold and $3.8 million in non-marketable equity securities, of which $3.0 million is FHLB stock.securities. Total deposits and shareholders’ equity at the end of the third quarter of 20192020 were $987.7$1.5 billion and $213.4 million, and $212.0 million, respectively.
Since the end of 2018,2019, gross loans have increased by $28.9$253.5 million to $1.0$1.3 billion as of September 30, 2019.2020. The increase in gross loans was due primarily to normal customer demand, the PPP loan program and the aforementioned acquisition of branches. At September 30, 2019,2020, gross loans consisted of $79.7$165.8 million in commercial and industrial loans $452.6(which includes 1,249 PPP loans in the amount of $97.0 million), $537.1 million in commercial real estate loans, $62.1$79.7 million in multi-family residential loans, $9.7$7.1 million in consumer loans, to individuals, $153.9$195.2 million in 1-to-4 family residential real estate loans, $46.2$48.4 million in HELOCs, and $212.7$255.7 million in construction loans. Deferred loan fees, net of costs, on these loans were $2.0$5.5 million (which includes $3.1 million in net fees related to PPP loans) at September 30, 2019.
2020.
At September 30, 2019, there were $10.72020 the Company held $8.0 million ofin federal funds sold compared to no$9.0 million in federal funds sold at December 31, 2018. At September 30, 2019 and December 31, 2018 there were no repurchase agreements.2019. Interest-earning deposits in other banks were $53.6$249.5 million at September 30, 2019,2020, a $68.7$198.6 million decreaseincrease from December 31, 2018 primarily due to investment purchases and loan growth.2019. The Company’s investment securities at September 30, 20192020 were $76.9$87.4 million, an increase of $25.4$15.1 million from December 31, 2018. These securities are used to provide funding for higher yielding loans and reduce wholesale funding reliance.2019. The investment portfolio as of September 30, 20192020 consisted of $10.4$11.8 million in government agency debt securities, $52.1$41.7 million in mortgage-backed securities, $1.6$2.1 million in corporate securitiesbonds and $12.9$31.9 million in municipal securities. The net unrealized gain on these securities was $2.0 million as of September 30, 2019 was $1.3 million.
2020.
At September 30, 2019,2020, the Company had an investment of $3.0$3.1 million in FHLBFederal Home Loan Bank (“FHLB”) stock, which decreasedincreased by $239,000$14,000 from December 31, 2018 due to the repayment of advances during 2019 on the stock calculation.2019. Also, the Company had $719,000$718,000 in other non-marketable securities at September 30, 2019, which decreased by $43,000 from2020 compared to $719,000 at December 31, 2018.
2019.
At September 30, 2019,2020, non-earning assets were $107.2$120.0 million, an increase of $509,000$33.4 milllion from $106.7$86.6 million as of December 31, 2018.2019. Non-earning assets included $20.1$25.1 million in cash and due from banks, bank premises and equipment of $18.1 million, right of use asset of $8.8$20.9 million, goodwill of $24.6$41.9 million, core deposit intangible of $1.8$1.7 million, accrued interest receivable of $3.9$4.5 million, right of use lease asset of $8.8 million, foreclosed real estate of $1.4$3.2 million, $29.6 million in bank-owned life insurance (“BOLI”), and other assets totaling $14.0 million, including net deferred taxes of $7.7 million, which included $3.3 million in deferred tax assets.$3.6 million. Since the income on BOLIbank-owned life insurance is included in non-interest income, this asset is not included in the Company’s calculation of earning assets. The increase in non-earning assets was due primarily to the increase in goodwill, cash and due from banks.
36
Total deposits at September 30, 20192020 were $987.7 million$1.5 billion and consisted of $243.9$408.2 million in non-interest-bearing demand deposits, $283.4$610.3 million in money market and negotiable order of withdrawal, or NOW, accounts, $43.4$51.6 million in savings accounts, and $417.0$402.7 million in time deposits. Total deposits increased by $7.2$479.9 million from $980.4$992.8 million as of December 31, 2018,2019, due primarily to an increasethe acquisition of the three branches in money marketwestern North Carolina and deposits which was offset by decreases in DDAs, savings and wholesale CDs.related to the PPP loan program. The Bank had no$1.5 million in brokered demand deposits and $13.5$3.1 million in brokered time deposits as of September 30, 2020. The Bank had $0 million in brokered demand deposits and $45.0 million in brokered time deposits as of December 31, 2019.
As of September 30, 2019,2020, the Company had no$45.0 million (of which $20.0 million is identified as short-term debtborrowings and $57.4$25.0 million ofis identified as long-term debt, including $45.0 milliondebt) in FHLB borrowings, and $12.4 million in junior subordinated debentures.
debentures that are classified as long-term debt.
Total shareholders’ equity at September 30, 20192020 was $212.0$213.4 million, an increase of $2.4 million$592,000 from $209.6$212.8 million as of December 31, 2018.2019. Accumulated other comprehensive income relating to available for sale securities increased $1.1 million$633,000 during the nine months ended September 30, 2019. Other changes2020. Also contributing to the increase in shareholders’ equity included increaseswere net income of $178,000 in stock-based compensation, earnings of $10.0$4.2 million and $114,000$7,000 from the exercise of stock options. These increasesoptions, which were offset by the repurchase of $8.9 million in common stock of the Company. The Company’s historical financial performance and well-capitalized status enable us to return value to our shareholders through the repurchase plan by focusing on creating shareholder value over the long term. We believe that the Company's share repurchases continue to be an effective part of the Company’s overall capital management strategies.totaling $4.4 million.
Past Due Loans, Non-performing Assets, and Asset Quality
At September 30, 2019,2020, the Company had $334,000$516,000 in loans that were 30 to 59 days past due and $562,000$149,000 in loans that were 6030 to 89 days past due. This represented 0.33% and 0.55%, respectively,0.12% of gross loans outstanding on that date. This is a decrease from December 31, 20182019 when there were $633,000 in loans that were 30-59 days past due or 0.64% of gross loans outstanding and $1.3$3.5 million in loans that were 60-8930-89 days past due or 0.13%0.34% of gross loans outstanding. Non-accrual loans increased from $7.3$5.9 million at December 31, 20182019 to $9.1$7.7 million at September 30, 2019.
2020.
The percentage of non-performing loans (non-accrual loans and accruing troubled debt restructurings) to total loans increaseddecreased from 1.50%1.18% at December 31, 20182019 to 1.76%1.07% at September 30, 2019.2020. The Company has experiencedhad an increase of $1.8 million in non-accruals from $7.3$5.9 million at December 31, 20182019 and a decrease in accruing troubled debt restructurings or TDRs, from $6.2 million at December 31, 2019 to $9.1$6.0 million as of September 30, 2019 and an increase in accruing troubled debt restructurings from $4.4 million at December 31, 2018 to $6.5 million as of September 30, 2019.2020. Of the non-accrual loans as of September 30, 2019, seven2020, two commercial real estate loans totaled $2.0 million, fivetwo construction loans totaled $2.3 million, eight$161,000, twelve commercial loans totaled $1.5$4.3 million, sixfive HELOC loans totaled $745,000, eight agricultural loans totaled $500,000 and ten$263,000, eleven 1-to-4 family residential real estate loans totaled $950,000 and consumer made up the remaining balance.
At September 30, 2019,2020, the CompanyBank had forty-oneforty-nine loans totaling $8.2$10.3 million that were considered to be troubled debt restructurings, or TDRs. Twenty-eightThirty-two of these loans totaling $6.5$6.4 million were still in accruing status with the remaining TDRs included in non-accrual loans. All TDRs are considered impaired loans regardless of accrual status and have been included as non-performing assets in the table below.
37
The table below sets forth, for the periods indicated, information about the Company’s non-accrual loans, loans past due 90 days or more and still accruing interest, total non-performing loans (non-accrual loans plus accruing TDRs), and total non-performing assets.
For Periods Ended | ||||||||
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(dollars in thousands) | ||||||||
Non-accrual loans | $ | 9,083 | $ | 7,257 | ||||
Accruing TDRs | 6,477 | 4,378 | ||||||
Total non-performing loans | 15,560 | 11,635 | ||||||
Foreclosed real estate | 1,442 | 1,088 | ||||||
Total non-performing assets | $ | 17,002 | $ | 12,723 | ||||
Accruing loans past due 90 days or more | $ | 2,296 | $ | 3,167 | ||||
Allowance for loan losses | $ | 8,056 | $ | 8,669 | ||||
Non-performing loans to period end loans | 1.53 | % | 1.18 | % | ||||
Non-performing loans and accruing loans past due 90 days or more to period end loans | 1.76 | % | 1.50 | % | ||||
Allowance for loans losses to period end loans | 0.79 | % | 0.88 | % | ||||
Allowance for loan losses to non-performing loans | 52 | % | 75 | % | ||||
Allowance for loan losses to non-performing assets | 47 | % | 68 | % | ||||
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more | 42 | % | 55 | % | ||||
Non-performing assets to total assets | 1.34 | % | 1.01 | % | ||||
Non-performing assets and accruing loans past due 90 days or more to total assets | 1.52 | % | 1.26 | % |
| | | | | | | | |
| | For Periods Ended | | | ||||
| | September 30, | | December 31, | | | ||
|
| 2020 |
| 2019 |
| | ||
| | | | | | | | |
| | | | | | | | |
Non-accrual loans | | $ | 7,695 | | $ | 5,941 | | |
Accruing TDRs | |
| 6,044 | |
| 6,207 | | |
Total non-performing loans | |
| 13,739 | |
| 12,148 | | |
Foreclosed real estate | |
| 3,237 | |
| 3,533 | | |
Total non-performing assets | | $ | 16,976 | | $ | 15,681 | | |
Accruing loans past due 90 days or more | | $ | 1,548 | | $ | 1,231 | | |
Allowance for loan losses | | $ | 13,561 | | $ | 8,324 | | |
Non-performing loans to period end loans | |
| 1.07 | % |
| 1.18 | % | |
Non-performing loans and accruing loans past due 90 days or more to period end loans | |
| 1.19 | % |
| 1.30 | % | |
Allowance for loan losses to period end loans | |
| 1.06 | % |
| 0.81 | % | |
Allowance for loan losses to non-performing loans | |
| 99 | % |
| 69 | % | |
Allowance for loan losses to non-performing assets | |
| 80 | % |
| 53 | % | |
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more | |
| 73 | % |
| 49 | % | |
Non-performing assets to total assets | |
| 0.96 | % |
| 1.23 | % | |
Non-performing assets and accruing loans past due 90 days or more to total assets | |
| 1.05 | % |
| 1.33 | % | |
Total non-performing assets (non-accrual loans, accruing TDRs, and foreclosed real estate) at September 30, 20192020 and December 31, 20182019 were $17.0 million and $12.7$15.7 million, respectively. The allowance for loan losses at September 30, 20192020 represented 47%80% of non-performing assets compared to 68%53% at December 31, 2018.
2019.
Total impaired loans at September 30, 20192020 were $15.6$11.6 million. This includes $9.1included $7.7 million in loans that were classified as impaired because they were in non-accrual status and $6.5$3.9 million in loans that were determined to be impaired for other reasons.accruing loans. Of these loans, $972,000$1.6 million required a specific reserve of $284,000$506,000 at September 30, 2019.
2020.
Total impaired loans at December 31, 20182019 were $11.7$11.2 million. This included $7.3$5.9 million in loans that were classified as impaired because they were in non-accrual status and $4.4$6.2 million in accruing TDRs. Of these loans, $291,000$1.0 million required a specific reserve of $87,000$413,000 at December 31, 2018.
2019.
The allowance for loan losses was $8.1$13.6 million at September 30, 20192020 or 0.79%1.06% of gross loans outstanding as compared to 0.88%0.81% reported as a percentage of gross loans at December 31, 2018.2019. This decreaseincrease resulted primarily from reductionschanges in loans requiring a specific reserve plus qualitative factors related to interest rates, document exceptionsCOVID-19 and economic performance indicators. The Legacy Select loans, and Carolina Premier and First Citizens Bank loans were recorded at estimated fair value as of the acquisition date and the related credit risk is reflected as a fair value adjustment rather than separately in the allowance
38
for losses as required in acquisition accounting. This required accounting under GAAPgenerally accepted accounting principles has resulted in a lower percentage of the allowance for loan losses to gross loans. In the last few quarters past dues, nonaccruals and impaired loans have increased and those loans have been assessed for loss and charged offs have been incurred specifically on those loans for the respective expected loss. The allowance for loan losses at September 30, 20192020 represented 52%99% of non-performing loans as compared to 75%69% at December 31, 2018.2019. It is management’s assessment that the allowance for loan losses as of September 30, 20192020 is appropriate in light of the risk inherent within the Company’s loan portfolio. No assurances, however, can be given that further adjustments to the allowance for loan losses may not be deemed necessary in the future. The current economic and business disruptions in the Bank’s markets, and in the national and global markets more generally, are unprecedented, as state, local, and national governing bodies attempt to address the public health emergency caused by COVID-19. Management expects the Company’s customers, including its borrowers, will continue to experience the financial impacts of COVID-19 over the balance of the 2020 fiscal year. Depending on the length of financial impact and the effectiveness of the various governmental programs put in place to stabilize economic conditions, the Company’s management would expect to see continued volatility in the Company’s allowance for loan losses and related provision expense during the remainder of 2020. The CARES Act provided an opportunity for loan customers to request a temporary modification of the payment terms on their loans granting the customer time to address cashflow issues. The Bank entered into modifications on 497 loans amounting to $252.3 million during 2020 of which 114 loans totaling $65.6 million remained on modification as of September 30, 2020. See Item 1A (Risk Factors) later in this report for additional discussion of COVID-19.
Contractual Obligations
The following table presents the Company's significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient. The table excludes liabilities recorded where management cannot reasonably estimate the timing of any payments that may be required in connection with these liabilities.
September 30, 2019 | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | Payments Due by Period | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | More | | | | |||||||||||||||||||||
| | | 1 Year | | Over 1 to | | | Over 3 to | | | Than | | | ||||||||||||||||||||||
| | or Less |
| 3 Years |
| 5 Years |
| 5 years |
| Total | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
(dollars in thousands) | 1 Year or Less | Over 1 to 3 Years | Over 3 to 5 Years | More Than 5 Years | Total | | (dollars in thousands) | ||||||||||||||||||||||||||||
Time deposits | $ | 304,206 | $ | 106,056 | $ | 6,753 | $ | - | $ | 417,015 | | $ | 310,379 | | $ | 82,598 | | $ | 9,612 | | $ | 78 | | $ | 402,667 | ||||||||||
Short-term debt | |
| 20,000 | |
| — | |
| — | |
| — | |
| 20,000 | ||||||||||||||||||||
Long-term debt | - | 20,000 | 25,000 | 12,372 | 57,372 | |
| — | |
| — | |
| 25,000 | |
| 12,372 | |
| 37,372 | |||||||||||||||
Lease liability | 573 | 1,334 | 1,389 | 5,655 | 8,951 | ||||||||||||||||||||||||||||||
Operating leases | | | 663 | | | 1,503 | | | 1,466 | | | 5,457 | | | 9,089 | ||||||||||||||||||||
Total contractual obligations | $ | 304,779 | $ | 127,390 | $ | 33,142 | $ | 18,527 | $ | 483,338 | | $ | 331,042 | | $ | 84,101 | | $ | 36,078 | | $ | 17,907 | | $ | 469,128 |
Other Lending Risk Factors
Besides monitoring non-performing loans and past due loans, management also monitors trends in the loan portfolio that may indicate more than normal risk. A discussion of certain other risk factors follows. Some loans or groups of loans may contain one or more of these individual loan risk factors. Therefore, an accumulation of the amounts or percentages of the individual loan risk factors may not necessarily be an indication of the cumulative risk in the total loan portfolio.
39
Regulatory Loan to Value Ratios
The Company monitors its exposure to loans that exceed the guidelines established by regulators for loan to value (“LTV”) ratios.
At September30, 20192020 and December 31, 2018,2019, the Company had $33.8$40.4 million and $27.7 million in non 1-to-4non-1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. At September 30, 20192020 and December 31, 2018,2019, the Company had $10.9$7.8 million and $10.0 million of 1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. The total amount of these loans represented 25.9%28.3% and 23.2% of total risk-based capital as of September 30, 20192020 and December 31, 2018,2019, which is less than the 100% maximum allowed. These loans may presentrepresent more than ordinary risk to the Company if the real estate market weakens in terms of market activity or collateral valuations.
Business Sector Concentrations
Loan concentrations in certain business sectors can be impacted by lower than normal retail sales, higher unemployment, higher vacancy rates, and a weakening in real estate market conditions. The Company has established an internal commercial real estate guideline of 40% of risk-based capital for any single product line.
At September 30, 20192020, the Company had twofive product type groups which exceeded this threshold;guideline: Office Building, which represented 59% of risk-based capital or $100.8 million; Commercial Construction, which represented 79% of risk-based capital or $134.4 million; 1-to-4 Family Rental property, which represented 62% of risk-based capital or $105.7 million; Retail property, which represented 47% of risk-based capital or $80.6 million; and Apartment Complex/Multi-Family, which represented 46% of risk-based capital or $79.7 million and Commercial Construction, which represented 46% of risk-based capital or $79.9$78.3 million. All other commercial real estate groups were at or below the 40% threshold. The internal guideline levels heighten the level of Company monitoring of such loans in underwriting and ongoing servicing activities.
At December 31, 2018,2019, the Company did not exceedhad three product types that exceeded the 40% guidelineguideline. The following product types were in any product types.excess of the 40% guidelines at such date: apartments, commercial construction and office buildings. All other commercial and residential real estate product types were under the 40% threshold.
threshold as of such date.
Acquisition, Development, and Construction Loans (“ADC”)
The tables below provide information regarding loans the Company originates for the purpose of acquisition, development, and construction of both residential and commercial properties as of September 30, 20192020 and December 31, 2018.2019.
40
Acquisition, Development and Construction Loans
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | |||||||||||||||
| | | | | Land and Land | | | |
| | | | | Land and Land | | | |
| ||
|
| Construction |
| Development |
| Total |
|
| Construction |
| Development |
| Total |
| ||||||
Total ADC loans | | $ | 219,576 | | $ | 36,142 | | $ | 255,718 | | | $ | 186,038 | | $ | 35,840 | | $ | 221,878 | |
Average Loan Size | | $ | 315 | | $ | 592 | |
|
| | | $ | 331 | | $ | 607 | |
|
| |
Percentage of total loans | |
| 17.11 | % |
| 2.82 | % |
| 19.93 | % | |
| 18.06 | % |
| 3.48 | % |
| 21.55 | % |
Non-accrual loans | | $ | 169 | | $ | — | | $ | 169 | | | $ | 181 | | $ | — | | $ | 181 | |
| | | | | | | | | | | | | | | | | | | | |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Land and Land | Land and Land | |||||||||||||||||||||||
Construction | Development | Total | Construction | Development | Total | |||||||||||||||||||
Total ADC loans | $ | 178,499 | $ | 34,178 | $ | 212,677 | $ | 145,736 | $ | 24,668 | $ | 170,404 | ||||||||||||
Average Loan Size | $ | 301 | $ | 510 | $ | 267 | $ | 308 | ||||||||||||||||
Percentage of total loans | 17.59 | % | 3.37 | % | 20.95 | % | 14.78 | % | 2.50 | % | 17.28 | % | ||||||||||||
Non-accrual loans | $ | 2,272 | $ | - | $ | 2,272 | $ | 587 | $ | - | $ | 587 |
Management closely monitors the ADC portfolio by reviewing funding based on project completeness, monthly and quarterly inspections as required by the project, collateral value, geographic concentrations, speculative-to-presoldspec-to-presold ratios and performance of similar loans in the Company’s market area.
Geographic Concentrations
Certain risks exist arisearising from the geographic location of specific types of higher than normal risk real estate loans. Below is a table showing geographic concentrations for ADC and HELOC loans at September 30, 20192020 and December 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | |||||||||||||||||
|
| ADC Loans |
| Percent |
| HELOC |
| Percent |
| ADC Loans |
| Percent |
| HELOC |
| Percent |
| | ||||
| | | | | | | | | | | | | | | | | | | | | | |
| | (dollars in thousands) |
| | ||||||||||||||||||
Harnett County | | $ | 8,683 | | 3.40 | % | $ | 4,528 | | 9.36 | % | $ | 9,637 | | 4.34 | % | $ | 5,156 | | 11.58 | % | |
Alamance County | |
| 511 |
| 0.20 | % |
| 1,062 | | 2.20 | % |
| 845 |
| 0.38 | % |
| 1,072 | | 2.41 | % | |
Brunswick County | |
| 15,188 |
| 5.94 | % |
| 1,642 | | 3.39 | % |
| 15,456 |
| 6.97 | % |
| 1,629 | | 3.67 | % | |
Carteret County | |
| 4,483 |
| 1.75 | % |
| 2,242 | | 4.63 | % |
| 5,352 |
| 2.41 | % |
| 2,190 | | 4.92 | % | |
Cherokee County (SC) | |
| — |
| — | % |
| 34 | | 0.07 | % |
| — |
| — | % |
| 22 | | 0.05 | % | |
Cumberland County | |
| 25,098 |
| 9.83 | % |
| 1,975 | | 4.08 | % |
| 24,601 |
| 11.09 | % |
| 2,285 | | 5.13 | % | |
Durham County | | | 6,621 |
| 2.59 | % |
| 159 | | 0.33 | % | | — |
| — | % |
| — | | — | % | |
Forsyth County | | | 2,225 |
| 0.87 | % |
| — | | — | % | | — |
| — | % |
| — | | — | % | |
Jackson County | | | 4,770 |
| 1.87 | % |
| 2,106 | | 4.35 | % | | — |
| — | % |
| — | | — | % | |
Macon County | | | 10,507 |
| 4.11 | % |
| 4,779 | | 9.87 | % | | — |
| — | % |
| — | | — | % | |
Mecklenburg County | |
| 23,011 |
| 9.00 | % |
| 4,171 | | 8.62 | % |
| 18,142 |
| 8.18 | % |
| 2,689 | | 6.04 | % | |
New Hanover County | |
| 34,737 |
| 13.58 | % |
| 2,564 | | 5.30 | % |
| 40,518 |
| 18.26 | % |
| 2,885 | | 6.48 | % | |
Pasquotank County | |
| 2,978 |
| 1.16 | % |
| 1,636 | | 3.38 | % |
| 1,997 |
| 0.90 | % |
| 1,693 | | 3.80 | % | |
Pitt County | |
| 17,655 |
| 6.90 | % |
| 3,343 | | 6.91 | % |
| 16,098 |
| 7.25 | % |
| 5,442 | | 12.23 | % | |
Robeson County | |
| 35 |
| 0.01 | % |
| 2,568 | | 5.31 | % |
| 1,165 |
| 0.53 | % |
| 2,939 | | 6.60 | % | |
Sampson County | |
| 236 |
| 0.09 | % |
| 1,841 | | 3.80 | % |
| 23 |
| 0.01 | % |
| 1,743 | | 3.92 | % | |
Virginia Beach County (VA) | |
| 3,361 |
| 1.31 | % |
| 395 | | 0.82 | % |
| 142 |
| 0.06 | % |
| 99 | | 0.22 | % | |
Wake County | |
| 21,871 |
| 8.55 | % |
| 1,541 | | 3.18 | % |
| 23,407 |
| 10.56 | % |
| 1,640 | | 3.68 | % | |
Wayne County | |
| 3,207 |
| 1.25 | % |
| 2,904 | | 6.00 | % |
| 1,572 |
| 0.71 | % |
| 3,183 | | 7.15 | % | |
Wilson County | |
| 759 |
| 0.30 | % |
| 57 | | 0.12 | % |
| 477 |
| 0.21 | % |
| 72 | | 0.16 | % | |
York County (SC) | |
| 3,197 |
| 1.25 | % |
| 1,028 | | 2.12 | % |
| 1,931 |
| 0.87 | % |
| 1,123 | | 2.52 | % | |
All other locations | |
| 66,585 |
| 26.04 | % |
| 7,820 | | 16.16 | % |
| 60,515 |
| 27.27 | % |
| 8,652 | | 19.44 | % | |
| |
|
|
| — | |
| | |
| |
|
|
|
| |
|
| |
| | |
Total | | $ | 255,718 |
| 100.00 | % | $ | 48,395 | | 100.00 | % | $ | 221,878 |
| 100.00 | % | $ | 44,514 | | 100.00 | % | |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
ADC Loans | Percent | HELOC | Percent | ADC Loans | Percent | HELOC | Percent | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Harnett County | $ | 10,126 | 4.76 | % | $ | 5,126 | 11.09 | % | $ | 5,389 | 3.16 | % | $ | 5,367 | 10.80 | % | ||||||||||||||||
Alamance County | 693 | 0.33 | % | 1,214 | 2.63 | % | 740 | 0.43 | % | 1,350 | 2.72 | % | ||||||||||||||||||||
Beaufort County | 3,287 | 1.54 | % | 975 | 2.11 | % | 908 | 0.53 | % | 1,113 | 2.24 | % | ||||||||||||||||||||
Brunswick County | 14,061 | 6.61 | % | 1,670 | 3.61 | % | 8,440 | 4.95 | % | 1,492 | 3.00 | % | ||||||||||||||||||||
Carteret County | 4,033 | 1.90 | % | 2,876 | 6.22 | % | 1,544 | 0.91 | % | 2,676 | 5.38 | % | ||||||||||||||||||||
Cherokee County | - | -% | 23 | 0.05 | % | - | -% | 52 | 0.11 | % | ||||||||||||||||||||||
Craven County | 1,278 | 0.60 | % | 337 | 0.73 | % | 1,060 | 0.62 | % | 319 | 0.64 | % | ||||||||||||||||||||
Cumberland County | 26,236 | 12.34 | % | 2,503 | 5.42 | % | 21,019 | 12.34 | % | 3,116 | 6.27 | % | ||||||||||||||||||||
Mecklenburg County | 17,306 | 8.14 | % | 2,734 | 5.92 | % | 24,853 | 14.59 | % | 3,635 | 7.31 | % | ||||||||||||||||||||
New Hanover County | 37,300 | 17.54 | % | 3,070 | 6.64 | % | 23,396 | 13.73 | % | 2,721 | 5.47 | % | ||||||||||||||||||||
Pasquotank County | 1,533 | 0.72 | % | 1,754 | 3.79 | % | 1,145 | 0.67 | % | 1,915 | 3.85 | % | ||||||||||||||||||||
Pickens County | - | - | % | 96 | 0.21 | % | - | - | % | 99 | 0.20 | % | ||||||||||||||||||||
Pitt County | 16,724 | 7.86 | % | 5,515 | 11.93 | % | 10,574 | 6.21 | % | 6,334 | 12.74 | % | ||||||||||||||||||||
Robeson County | 850 | 0.40 | % | 2,835 | 6.13 | % | 1,076 | 0.63 | % | 3,505 | 7.05 | % | ||||||||||||||||||||
Sampson County | 176 | 0.08 | % | 1,699 | 3.68 | % | 149 | 0.09 | % | 1,835 | 3.69 | % | ||||||||||||||||||||
Virginia Beach | 142 | 0.07 | % | 103 | 0.22 | % | - | - | % | - | - | % | ||||||||||||||||||||
Wake County | 19,373 | 9.11 | % | 2,192 | 4.74 | % | 18,528 | 10.87 | % | 1,744 | 3.51 | % | ||||||||||||||||||||
Wayne County | 1,689 | 0.79 | % | 3,134 | 6.78 | % | 2,212 | 1.30 | % | 3,457 | 6.95 | % | ||||||||||||||||||||
Wilson County | 481 | 0.23 | % | 96 | 0.21 | % | 392 | 0.23 | % | 73 | 0.15 | % | ||||||||||||||||||||
York County | 1,881 | 0.88 | % | 788 | 1.70 | % | 124 | 0.07 | % | 1,053 | 2.12 | % | ||||||||||||||||||||
All other locations | 55,508 | 26.10 | % | 7,481 | 16.19 | % | 48,855 | 28.67 | % | 7,857 | 15.80 | % | ||||||||||||||||||||
Total | $ | 212,677 | 100.00 | % | $ | 46,221 | 100.00 | % | $ | 170,404 | 100.00 | % | $ | 49,713 | 100.00 | % |
41
Interest-Only Payments
Another risk factor that exists in the total loan portfolio pertains to loans with interest-only payment terms. At September 30, 2019,2020, the Company had $225.8$300.0 million in loans that had terms permitting interest-only payments. This represented 22.2%23.4% of the total loan portfolio. At December 31, 2018,2019, the Company had $224.6$249.9 million in loans that had terms permitting interest-only payments. This represented 22.8%24.3% of the total loan portfolio. Recognizing the risk inherent with interest-only loans, it is customary and general industry practice that loans in the ADC portfolio permit interest-only payments during the acquisition, development, and construction phases of such projects.
Large Dollar Concentrations
Concentrations of high dollar loans or large customer relationships may pose additional risk in the total loan portfolio. The Company’s ten largest loans or lines of credit totaled $77.6$85.1 million, or 7.6%6.6% of total loans, at September 30, 20192020 compared to $70.6$82.0 million, or 7.2%8.0% of total loans, at December 31, 2018.2019. The Company’s ten largest customer relationships totaled $125.8$149.8 million, or 12.4%11.7% of total loans, at September 30, 20192020 compared to $106.8$129.5 million, or 10.8%12.6% of total loans, at December 31, 2018.2019. Deterioration or loss in any one or more of these high dollar loan or customer concentrations could have an immediate, significant adverse impact on the Company’s capital position.
Comparison of Results of Operations for the
Three months ended September 30, 20192020 and 2018
2019
General. During the third quarter of 2019,2020, the Company hadreported net income of $3.2$2.5 million as compared with net income of $4.3$3.2 million for the third quarter of 2018.2019. Net income per common share for the third quarter of 20192020 was $0.17,$0.14 basic and diluted, compared with net income per common share of $0.27,$0.17 basic and diluted, for the third quarter of 2018.2019. Results of operations for the third quarter of 20192020 were primarily impacted by an increase of $16,000$1.2 million in net interest income and an increase in non-interest incomeexpense of $382,000 and an$1.1 million. The increase in the provision for loan losses of $690,000 versus the comparative three-month period in 2018. Noninterest expenses increased $1.1 million whichnon-interest expense was primarily related to increased personnel expense of $660,000, occupancyincreases in information systems expenses of $224,000, information system expenses of $126,000, integration related expenses of $128,000, foreclosure related expenses of $13,000, professional fees of $196,000, and other expenses of $92,000 which was partially offset by a reduction in$191,000, deposit insurance expense of $269,000$400,000, foreclosed real estate expense of $237,000, and core deposit intangible amortizationpersonnel expense of $39,000.$618,000, which were offset by a decrease in merger-related expenses of $121,000, occupancy expenses of $65,000 and professional fees of $119,000. The Company recorded a provision for loan losses of $231,000$1.6 million for the third quarter of 20192020 compared to a recoveryprovision of losses of $459,000 in the third quarter of 2018. Net interest margin of 3.94%$231,000 in the third quarter of 2019, decreased 26 basis points fromwhich increased provision expense had a significant impact on the samereduced net income reported for the 2020 third quarter as compared to the comparative period in 2018.
44
2019.
Net Interest Income. Net interest income was $11.9increased by $1.2 million for the third quarter of 2019, which was a $16,000 increase2020 from the comparative third quarter of 2018.2019. The Company’s total interest income was affected by thean increase in earning loans, which was offset by a reduction in earning balances of federal funds sold and investments in addition to the interest rates and loan balances due to growth.rate reductions. Average total interest-earning assets were $1.2$1.4 billion in the third quarter of 20192020 compared with $1.1$1.2 billion during the same period in 2018,2019, while the average yield on those assets increased 41decreased 48 basis points from 5.09%5.05% to 5.50%4.50%, which was primarily due to the increase inreduction of interest rates on recently originated loans due to modifications related to COVID-19, reduced rates on a comparative quarter basisovernight interest earning assets and accretion from acquired loans.reduced yield on investment securities.
42
The Company’s average interest-bearing liabilities decreasedincreased by $1.6$234.2 million to $818.6 million$1.1 billion for the quarter ended September 30, 20192020 from $820.2$818.6 million for the same period one year earlier and the cost of those funds increaseddecreased from 1.22%1.52% to 1.52%1.03%, or 3049 basis points. The increase in interest-bearing liabilities was a primary result of increased savings, money market and time deposits from the acquisition of three branches offset by a reduction in wholesale deposits. During the third quarter of 2019,2020, the Company’s net interest margin was 3.94%3.73% and net interest spread was 3.46%3.47%. In the same quarter ended one year earlier, net interest margin was 4.20%3.94% and net interest spread was 3.87%3.46%.
Provision for Loan Losses.Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. HistoricalIn determining the loss rates are calculated by using ahistory to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company uses loss migration analysis associating losses tohistory based on the weighted average net charge off history for the most recent twelve consecutive quarters, based on the risk-graded pool to which they relate for each of the previous twelve quarters.loss was assigned. Then, using a twelve quarterthe look back period, loss factors are calculated for each risk-graded pool. During the third quarter of 2019,2020, the Company recorded a provision for loan losses of $231,000, based primarily on adjustments to qualitative loan factors related to the underlying risk in loan portfolio. On a comparative quarter basis, the Company had a $459,000 recovery for the third quarter of 2018. The Company, has seen a slight deterioration of credit metrics primarily related to past dues, non-accruals of acquired loans, and TDRs during the third quarter of 2019,$1.6 million, as compared to the second quartera provision of 2019, where the Company$231,000 that was recorded a recovery of loan losses of $207,000 based primarily on qualitative loan factors. As a result of the estimated deterioration the Company incurred charge-offs of $515,000 in the third quarter of 2019.
Non-Interest Income. Non-interest income for the quarter ended September 30, 20192020 was $1.4$1.7 million, an increase of $276,000 from $382,000 in the third quarter of 2018.2019. Service charges on deposit accounts decreased $1,000$51,000 to $257,000 for the quarter ended September 30, 2020 from $308,000 for the same period in 2019. Other non-deposit fees and income increased $76,000 from the third quarter of 2019 to the third quarter of 2020. Fees from the sale of mortgages increased from $218,000 for the quarter ended September 30, 2019 from $309,000to $517,000 for the same period in 2018. Other non-deposit fees and income increased $226,000 from the third quarter of 20182020 due to the third quarter of 2019. Fees from presold mortgages increased non-interest income by $109,000 in the third quarter of 2019 to $218,000 from $109,000 in the third quarter of 2018.volume. The Company did not have sales of securities during the three months ended September 30, 2020 and in 2019 sold two investment securities in the third quarter of 2019 for a gain of $48,000. The Company did not sell any investment securities in the third quarter of 2018.
Non-Interest Expenses. Non-interest expenses increased by $1.1 million to $8.9$10.1 million for the quarter ended September 30, 2019,2020, from $7.8$8.9 million for the same period in 2018.2019. In general, most categories of non-interest expenses increased primarily due to changes in the Company’s branch network and the acquisition of the branches in western North Carolina. The following are highlights of the significant categories of non-interest expenses during the third quarter of 2019 compared to2020 versus the same period in 2018:
2019:
Personnel expenses increased |
43
● | Information systems expense increased by |
Provision for Income Taxes. The Company’s effective tax rate was 22.0%21.5% and 22.5%22.0% for the quarters ended September 30, 2020 and 2019, and 2018, respectively.
As of September 30, 20192020 and December, 31, 2018,2019, the Company had a net deferred tax asset in the amount of $3.3$3.6 million and $3.7$2.8 million, respectively. In evaluating whether the Company will realize the full benefit of the net deferred tax asset, management considered both positive and negative evidence, including, among other things, recent earnings trends, projected earnings, and asset quality. As of September 30, 20192020 and December 31, 2018,2019, management concluded that the net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether the full benefit of the net deferred tax asset will require a valuation allowance. Significant negative trends in credit quality or losses from operations, among other trends, could impact the realization of the deferred tax asset in the future.
NET INTEREST INCOME
The following table sets forth, for the periods indicated, information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income,
44
net interest spread, net interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Non-accrual loans have been included in determining average loans. The table is presented on a taxable equivalent basis where applicable.
| | | | | | | | | | | | | | | | | | |
| | For the quarter ended | | For the quarter ended | | | ||||||||||||
| | September 30, 2020 | | September 30, 2019 | | | ||||||||||||
| | (dollars in thousands) | | | | | | | | | | | ||||||
| | Average | | | | | Average | | Average | | | | | Average | | | ||
|
| balance |
| Interest |
| rate |
| balance |
| Interest |
| rate |
| | ||||
| | | | | | | | | | | | | | | | | | |
INTEREST-EARNING ASSETS: | | | | | | | | | | | | | | | | | | |
Loans, gross of allowance | | $ | 1,255,027 | | $ | 15,415 | | 4.89 | % | $ | 982,876 | | $ | 13,529 | | 5.52 | % | |
Investment securities | |
| 64,685 | |
| 386 |
| 2.37 | % |
| 85,781 | |
| 630 |
| 2.95 | % | |
Other interest-earning assets | |
| 83,394 | |
| 54 |
| 0.26 | % |
| 91,730 | |
| 456 |
| 1.99 | % | |
Total interest-earning assets | |
| 1,403,106 | |
| 15,855 |
| 4.50 | % |
| 1,160,387 | |
| 14,615 |
| 5.05 | % | |
Other assets | |
| 280,068 | |
| |
| | |
| 101,585 | |
|
|
|
| | |
Total assets | | $ | 1,683,174 | | | | | | | $ | 1,261,972 | |
|
|
|
| | |
| | | | | | | | | | | | | | | | | | |
INTEREST-BEARING LIABILITIES: | |
|
| |
|
| |
| |
|
| |
|
|
|
| | |
Deposits: | |
|
| |
|
| |
| |
|
| |
|
|
|
| | |
Savings, NOW and money market | | $ | 602,943 | |
| 891 | | 0.59 | % | $ | 314,099 | |
| 407 |
| 0.52 | % | |
Time deposits over $100,000 | |
| 277,435 | |
| 1,033 | | 1.48 | % |
| 293,635 | |
| 1,491 |
| 2.04 | % | |
Other time deposits | |
| 115,042 | |
| 382 | | 1.32 | % |
| 116,167 | |
| 494 |
| 1.71 | % | |
Borrowings | |
| 57,372 | |
| 408 | | 2.83 | % |
| 64,196 | |
| 483 |
| 3.02 | % | |
Total interest-bearing liabilities | |
| 1,052,792 | |
| 2,714 | | 1.03 | % |
| 788,097 | |
| 2,875 |
| 1.15 | % | |
Non-interest-bearing deposits | |
| 404,420 | |
| | | | |
| 246,117 | |
|
|
|
| | |
Other liabilities | |
| 11,685 | |
| | | | |
| 12,036 | |
|
|
|
| | |
Shareholders’ equity | |
| 214,277 | |
| | | | |
| 215,722 | |
|
|
|
| | |
Total liabilities and shareholders’ equity | | $ | 1,683,174 | | | | | | | $ | 1,261,972 | |
|
|
|
| | |
Net interest income/interest rate spread (taxable-equivalent basis) | | | | | $ | 13,141 | | 3.47 | % |
| | | $ | 11,740 |
| 3.59 | % | |
Net interest margin (taxable-equivalent basis) | |
| | |
| | | 3.73 | % |
|
| |
|
|
| 4.06 | % | |
Ratio of interest-earning assets to interest-bearing liabilities | |
| 133.27 | % |
| | | | |
| 147.24 | % |
|
|
|
| | |
Reported net interest income | |
|
| |
|
| |
| |
|
| |
|
|
|
| | |
Net interest income/net interest margin (taxable-equivalent basis) | | | | | $ | 13,141 | | 3.72 | % |
| | | $ | 11,740 |
| 4.19 | % | |
Less: | |
|
| |
|
| |
| |
|
| |
|
|
|
| | |
taxable-equivalent adjustment | |
| | |
| (30) | | | |
|
| |
| (39) |
|
| | |
Net Interest Income | | | | | $ | 13,111 | | | |
|
| | $ | 11,701 |
|
| | |
For the quarter ended | For the quarter ended | |||||||||||||||||||||||
September 30, 2019 | September 30, 2018 | |||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans, gross of allowance | $ | 1,005,170 | $ | 13,935 | 5.50 | % | $ | 978,928 | $ | 13,615 | 5.52 | % | ||||||||||||
Investment securities | 80,503 | 527 | 2.60 | % | 55,318 | 382 | 2.74 | % | ||||||||||||||||
Other interest-earning assets | 111,593 | 581 | 2.07 | % | 89,092 | 442 | 1.88 | % | ||||||||||||||||
Total interest-earning assets | 1,197,266 | 15,043 | 4.98 | % | 1,123,338 | 14,419 | 5.09 | % | ||||||||||||||||
Other assets | 102,871 | 104,921 | ||||||||||||||||||||||
Total assets | $ | 1,300,137 | $ | 1,228,259 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Savings, NOW and money market | $ | 327,737 | 433 | 0.52 | % | $ | 310,697 | 338 | 0.43 | % | ||||||||||||||
Time deposits over $100,000 | 317,310 | 1,720 | 2.15 | % | 318,822 | 1,282 | 1.60 | % | ||||||||||||||||
Other time deposits | 116,191 | 528 | 1.80 | % | 115,796 | 383 | 1.31 | % | ||||||||||||||||
Borrowings | 57,372 | 459 | 3.17 | % | 74,916 | 527 | 2.79 | % | ||||||||||||||||
Total interest-bearing liabilities | 818,610 | 3,140 | 1.52 | % | 820,231 | 2,530 | 1.22 | % | ||||||||||||||||
Non-interest-bearing deposits | 252,266 | 240,859 | ||||||||||||||||||||||
Other liabilities | 12,705 | 4,370 | ||||||||||||||||||||||
Shareholders' equity | 216,556 | 162,799 | ||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 1,300,137 | $ | 1,228,259 | ||||||||||||||||||||
Net interest income/interest rate spread (taxable-equivalent basis) | $ | 11,903 | 3.46 | % | $ | 11,889 | 3.87 | % | ||||||||||||||||
Net interest margin (taxable-equivalent basis) | 3.94 | % | 4.20 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 146.26 | % | 136.95 | % | ||||||||||||||||||||
Reported net interest income | ||||||||||||||||||||||||
Net interest income/net interestmargin (taxable-equivalent basis) | $ | 11,903 | $ | 11,889 | ||||||||||||||||||||
Less: | ||||||||||||||||||||||||
taxable-equivalent adjustment | (39 | ) | (37 | ) | ||||||||||||||||||||
Net Interest Income | $ | 11,864 | 3.93 | % | $ | 11,852 | 4.19 | % |
Comparison of Results of Operations for the
Nine months ended September 30, 20192020 and 2018
2019
General. During the first nine months of 2019,2020, the Company hadreported net income of $10.0$4.2 million as compared with net income of $9.3$10.0 million for the first nine months of 2018.2019. Net income per common share for the first nine months of 20192020 was $0.52 for$0.24 basic and $0.23 diluted, compared with net income per common share of $0.64 for$0.52 basic and $0.63 diluted, for the first nine months of 2018.2019. Results of operations for the nine months ended September 30, 2020 were primarily impacted by an increase of $1.4 million in net interest income and an increase in non-interest expense of $3.8 million. The increase in non-interest expense was primarily related to increases in occupancy expenses of $203,000, foreclosed real estate expense of $389,000, deposit insurance expense of $131,000, merger-related expenses of $520,000, information systems expenses of $535,000, and personnel expense of $2.0 million, which were offset by a decrease in professional fees of $161,000 and CDI amortization of $79,000. The Company recorded a provision for loan losses of $5.8 million for the first nine months of 20192020 compared to 2018 were primarily impacted by a decrease of $463,000 in net interest income, a decrease in provision for loan losses of $103,000, an increase of $516,000 in non-interest income and a decrease in non-interest expenses of $640,000. Net interest margin of 4.03%$136,000 in the first nine months of 2019, decreased 26 basis points fromwhich increased provision expense had a significant impact on the samereduced net income reported for the first nine months of 2020 as compared to the comparative period in 2018.2019.
45
Net Interest Income. Net interest income decreased to $35.0increased by $1.4 million for the first nine months of 20192020 from $35.5 million for the first nine months of 2018.2019. The Company’s total interest income was affected by thean increase in loan balances.earning loans, which was offset by a reduction in earning balances of federal funds sold and investments in addition to the interest rate reductions. Average total interest-earning assets were $1.2$1.3 billion forin the first nine months of 20192020 compared with $1.1$1.2 billion during the same period in 2018,2019, while the average yield on those assets decreased 938 basis points from 5.11%5.02% to 5.02%4.64%, which was primarily due to the decrease inreduction of interest rates on recently originated loans, federal funds purchased and accretion from acquired loans.
reduced investment securities.
The Company’s average interest-bearing liabilities decreasedincreased by $37.0$136.0 million to $793.1$926.1 million for the nine months ended September 30, 20192020 from $830.1$793.1 million for the same period one year earlier and the cost of those funds increaseddecreased from 1.10%1.45% to 1.45%1.17%, or 3528 basis points. The increase in interest-bearing liabilities was a primary result of increased savings, money market and time deposits acquired in the acquisition of branches offset by reduced wholesale deposits. During the first nine months of 2019,2020, the Company’s net interest margin was 3.80% and net interest spread was 3.47%. In the same quarter ended one year earlier, net interest margin was 4.03% and net interest spread was 3.57%. In the same period ended one year earlier, net interest margin was 4.29% and net interest spread was 4.01%. The increase in the interest rates of deposits was the primary driver of a lower net interest margin in 2019.
Provision for Loan Losses.Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. HistoricalIn determining the loss rates are calculated by using ahistory to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company uses loss migration analysis associating losses tohistory based on the weighted average net charge off history for the most recent twelve consecutive quarters, based on the risk-graded pool to which they relate for each of the previous twelve quarters.loss was assigned. Then, using a twelve quarter lookthe back period, loss factors are calculated for each risk-graded pool. During the first nine months of 2019,2020, the Company recorded a provision for loan losses of $136,000$5.8 million, as compared to $239,000 in the first nine monthsa provision of 2018. This reduction$136,000 that was based primarily on the reduction of qualitative loan factors associated with concentration ratios on CRE and Construction loans exceeding regulatory concentration guidelines. The reduction in these concentration ratios occurred as a result of downstreaming $25.0 million in capital to the Bank from the common stock offering completed in August of 2018. The provision decreased approximately $103,000 compared to the provision for loan losses recorded in the first nine months of 2018. The Company periodically reviews and updates it qualitative factors for changes in current conditions. The Company has seen a slight deterioration of credit metrics primarily related to past dues, non-accruals and TDRs during 2019 compared to the same period of 2018; however, management considers the allowance for loan losses to be appropriate.2019.
Non-Interest Income. Non-interest income for the nine months ended September 30, 20192020 was $4.0$4.6 million, an increase of $516,000$606,000 from the first nine months of 2018.2019. Service charges on deposit accounts decreased $57,000 to $801,000 for the nine months ended September 30, 2020 from $858,000 for the same period in 2019. Other non-deposit fees and income increased $28,000$151,000 from the first nine months of 2019 to $858,000the first nine months of 2020 due to increases in various items. Fees from the sale of mortgages increased from $605,000 for the nine months ended September 30, 2019 from $830,000to $1.2 million for the same period in 2018. Other non-deposit fees and income increased $128,000 from the first nine months of 2018 to the first nine months of 2019. Fees from presold mortgages increased non-interest income $312,000 in the nine months of 2019 to $605,000 from $293,000 for the same period in 2018. The Company sold two investment securities for a gain of $48,000 in the first nine months of 2019.2020. The Company did not sell any investmenthave sales of securities during the first nine months of 2018.
September 30, 2020 and in 2019 sold securities reflecting a gain of $48,000, respectively.
Non-Interest Expenses. Non-interest expenses decreasedincreased by $640,000$3.8 million to $26.0$29.8 million for the nine months ended September 30, 2019,2020, from $26.7$26.0 million for the same period in 2018.2019. In general, most categories of non-interest expenses increased primarily due to changes in the Company’s branch
46
network. The following are highlights of the significant categories of non-interest expenses during the first nine months of 20192020 versus the same period in 2018:
2019:
Personnel expenses increased | ||
Provision for Income Taxes. The Company’s effective tax rate was 22.0%20.6% and 22.4%22.0% for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
As of September 30, 20192020 and December, 31, 2018,2019, the Company had a net deferred tax asset in the amount of $3.3$3.6 million and $3.7$2.8 million, respectively. In evaluating whether the Company will realize the full benefit of the net deferred tax asset, management considered both positive and negative evidence, including among other things recent earnings trends, projected earnings, and asset quality. As of September 30, 20192020 and December 31, 2018,2019, management concluded that the net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether the full benefit of the net deferred tax asset will require a valuation allowance. Significant negative trends in credit quality or losses from operations, among other trends, could impact the realization of the deferred tax asset in the future.
NET INTEREST INCOME
The following table sets forth, for the periods indicated, information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income,
47
net interest spread, net interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Non-accrual loans have been included in determining average loans. The table is presented on a taxable equivalent basis where applicable.loans
| | | | | | | | | | | | | | | | | |
| | For the nine months ended | | For the nine months ended | |||||||||||||
| | September 30, 2020 | | September 30, 2019 | |||||||||||||
| | (dollars in thousands) | | | | | | | | | | ||||||
| | Average | | | | | Average | | Average | | | | | Average | | ||
|
| balance |
| Interest |
| rate |
| balance |
| Interest |
| rate | | ||||
| | | | | | | | | | | | | | | | | |
INTEREST-EARNING ASSETS: | | | | | | | | | | | | | | | | | |
Loans, gross of allowance | | $ | 1,156,906 | | $ | 43,113 | | 4.98 | % | $ | 988,268 | | $ | 40,510 | | 5.48 | % |
Investment securities | |
| 65,322 | |
| 1,224 |
| 2.50 | % |
| 77,674 | |
| 1,653 |
| 2.85 | % |
Other interest-earning assets | |
| 60,857 | |
| 255 |
| 0.56 | % |
| 99,966 | |
| 1,580 |
| 2.11 | % |
Total interest-earning assets | |
| 1,283,085 | |
| 44,592 |
| 4.64 | % |
| 1,165,908 | |
| 43,743 |
| 5.02 | % |
Other assets | |
| 204,098 | |
| |
| | |
| 101,558 | |
|
|
|
| |
Total assets | | $ | 1,487,183 | | | | | | | $ | 1,267,466 | |
|
|
|
| ��� |
| | | | | | | | | | | | | | | | | |
INTEREST-BEARING LIABILITIES: | |
|
| |
|
| |
| |
|
| |
|
|
|
| |
Deposits: | |
|
| |
|
| |
| |
|
| |
|
|
|
| |
Savings, NOW and money market | | $ | 468,630 | |
| 1,887 | | 0.54 | % | $ | 315,349 | |
| 1,196 |
| 0.51 | % |
Time deposits over $100,000 | |
| 289,516 | |
| 3,709 | | 1.71 | % |
| 299,092 | |
| 4,516 |
| 2.02 | % |
Other time deposits | |
| 110,579 | |
| 1,213 | | 1.47 | % |
| 116,710 | |
| 1,470 |
| 1.68 | % |
Borrowings | |
| 57,394 | |
| 1,269 | | 2.95 | % |
| 61,954 | |
| 1,426 |
| 3.08 | % |
Total interest-bearing liabilities | |
| 926,119 | |
| 8,078 | | 1.17 | % |
| 793,105 | |
| 8,608 |
| 1.45 | % |
Non-interest-bearing deposits | |
| 335,108 | |
| | | | |
| 247,087 | |
|
|
|
| |
Other liabilities | |
| 11,764 | |
| | | | |
| 12,452 | |
|
|
|
| |
Shareholders’ equity | |
| 214,192 | |
| | | | |
| 214,822 | |
|
|
|
| |
Total liabilities and shareholders’ equity | | $ | 1,487,183 | | | | | | | $ | 1,267,466 | |
|
|
|
| |
Net interest income/interest rate spread (taxable-equivalent basis) | | | | | $ | 36,514 | | 3.47 | % |
| | | $ | 35,135 |
| 3.57 | % |
Net interest margin (taxable-equivalent basis) | |
| | |
| | | 3.80 | % |
|
| |
|
|
| 4.03 | % |
Ratio of interest-earning assets to interest-bearing liabilities | |
| 138.54 | % |
| | | | |
| 147.01 | % |
|
|
|
| |
Reported net interest income | |
|
| |
|
| |
| |
|
| |
|
|
|
| |
Net interest income/net interest margin (taxable-equivalent basis) | | | | | $ | 36,514 | | 3.79 | % |
| | | $ | 35,135 |
| 4.02 | % |
Less: | |
|
| |
|
| |
| |
|
| |
|
|
|
| |
taxable-equivalent adjustment | |
| | |
| (89) | | | |
|
| |
| (113) |
|
| |
Net Interest Income | | | | | $ | 36,425 | | | |
|
| | $ | 35,022 |
|
| |
For the nine months ended | For the nine months ended | |||||||||||||||||||||||
September 30, 2019 | September 30, 2018 | |||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans, gross of allowance | $ | 988,268 | $ | 40,510 | 5.48 | % | $ | 976,862 | $ | 40,315 | 5.52 | % | ||||||||||||
Investment securities | 77,674 | 1,653 | 2.85 | % | 59,139 | 1,153 | 2.61 | % | ||||||||||||||||
Other interest-earning assets | 99,966 | 1,580 | 2.11 | % | 73,821 | 940 | 1.70 | % | ||||||||||||||||
Total interest-earning assets | 1,165,908 | 43,743 | 5.02 | % | 1,109,822 | 42,408 | 5.11 | % | ||||||||||||||||
Other assets | 101,558 | 105,644 | ||||||||||||||||||||||
Total assets | $ | 1,267,466 | $ | 1,215,466 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Savings, NOW and money market | $ | 315,349 | 1,196 | 0.51 | % | $ | 317,303 | 977 | 0.41 | % | ||||||||||||||
Time deposits over $100,000 | 299,092 | 4,516 | 2.02 | % | 326,037 | 3,453 | 1.42 | % | ||||||||||||||||
Other time deposits | 116,710 | 1,470 | 1.68 | % | 115,028 | 1,055 | 1.23 | % | ||||||||||||||||
Borrowings | 61,954 | 1,426 | 3.08 | % | 71,771 | 1,321 | 2.46 | % | ||||||||||||||||
Total interest-bearing liabilities | 793,105 | 8,608 | 1.45 | % | 830,139 | 6,806 | 1.10 | % | ||||||||||||||||
Non-interest-bearing deposits | 247,087 | 232,366 | ||||||||||||||||||||||
Other liabilities | 12,452 | 6,300 | ||||||||||||||||||||||
Shareholders' equity | 214,822 | 146,661 | ||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 1,267,466 | $ | 1,215,466 | ||||||||||||||||||||
Net interest income/interest rate spread (taxable-equivalent basis) | $ | 35,135 | 3.57 | % | $ | 35,602 | 4.01 | % | ||||||||||||||||
Net interest margin | ||||||||||||||||||||||||
(taxable-equivalent basis) | 4.03 | % | 4.29 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 147.01 | % | 133.69 | % | ||||||||||||||||||||
Reported net interest income | ||||||||||||||||||||||||
Net interest income/net interestmargin (taxable-equivalent basis) | $ | 35,135 | $ | 35,602 | ||||||||||||||||||||
Less: | ||||||||||||||||||||||||
taxable-equivalent adjustment | (113 | ) | (117 | ) | ||||||||||||||||||||
Net Interest Income | $ | 35,022 | 4.02 | % | $ | 34,485 | 4.27 | % |
50
Liquidity
Liquidity
The Company’s liquidity is a measure of its ability to fund loans, withdrawals and maturities of deposits, and other cash outflows in a cost-effectivecost effective manner. The principal sources of liquidity are deposits, scheduled payments and prepayments of loan principal, maturities of investment securities, access to liquid deposits, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Liquid assets (consisting of cash and due from banks, interest-earning deposits with other banks, federal funds sold and investment securities classified as available for sale) represented 12.7%20.9% of total assets at September 30, 2019 and decreased2020 as compared to 15.2%11.9% as of December 31, 2018.2019.
48
The Company has been a net seller of federal funds since its inception and strives to maintain a position of liquidity sufficient to fund future loan demand and to satisfy fluctuations in deposit levels. Federal funds sold was $10.7 million at September 30, 2019. Should the need arise, the Company would have the capability to sell securities classified as available for sale or to borrow funds as necessary. As of September 30, 2019,2020, the Company had existing credit lines with other financial institutions to purchase up to $243.2$243.0 million in federal funds. Also, as a member of the FHLB of Atlanta, the Company may obtain advances of up to 10% of total assets, subject to available collateral. A floating lien of $112.6$87.6 million of qualifying loans is pledged to the FHLB to secure borrowings. At September 30, 2019,2020, the Company had $45.0 million in FHLB advances outstanding. Another source of short-term borrowings available to the Bank is securities sold under agreements to repurchase. At September 30, 2019,2020, in addition to FHLB advances, total borrowings consisted of junior subordinated debentures of $12.4 million.
Total deposits were $987.7 million$1.5 billion at September 30, 2019.2020. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate sensitive. Time deposits represented 42.2%27.3% of total deposits at September 30, 2019.2020. Time deposits of $250,000 or more represented 16.0%9.6% of the Company’s total deposits at September 30, 2019.2020. At quarter-end, the Company had $13.5$3.1 million in brokered time deposits and no$1.5 in brokered demand deposits. Management believes most other time deposits are relationship-oriented. While the Bank will need to pay competitive rates to retain these deposits at their maturities, there are other subjective factors that will determine their continued retention. Based upon prior experience, the Company anticipates that a substantial portion of outstanding certificates of deposit will renew upon maturity.
Management believes that current sources of funds provide adequate liquidity for the Bank’s current cash flow needs. The Company maintains minimal cash balances at the parent holding company level. Management believes that the current cash balances will provide adequate liquidity for the Company’s current cash flow needs.
Capital Resources
A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity, and (2) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Commencing in the first quarter of 2015, financial institutions and their holding companies became subject to a revised set of regulatory capital requirements, due in part to agreements reached by the Basel Committee on Banking Supervision. Under the revised capital rules, theThe Common Equity Tier 1 risk-based ratio which does not include limited life components such as trust preferred securities and SBLF preferred stock in the calculation, was added as part on an institution’s capital ratio profile.this calculation. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require a financial institution to maintain capital as a percentage of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). The Company’s equity to assets ratio was 12.04% at September 30, 2020.
49
As the following table indicates, at September 30, 2019,2020, the Company and the Bank both exceeded minimum regulatory capital requirements as specified in the tables below.
| | | | | | | |
| | Actual | | Minimum |
| | |
| | Ratio | | Requirement |
| | |
| | | | | | | |
Select Bancorp, Inc. | | | | | | | |
Total risk-based capital ratio | | 14.71 | % | 8.00 | % | | |
Tier 1 risk-based capital ratio | | 13.68 | % | 6.00 | % | | |
Leverage ratio | | 11.00 | % | 4.00 | % | | |
Common equity Tier 1 risk-based capital ratio | | 12.77 | % | 4.50 | % | | |
| | | | | | | |
| | Actual | | Minimum |
| Well-Capitalized |
|
| | Ratio | | Requirement |
| Requirement |
|
| | | | | | | |
Select Bank & Trust | | | | | | | |
Total risk-based capital ratio | | 13.00 | % | 8.00 | % | 10.00 | % |
Tier 1 risk-based capital ratio | | 11.97 | % | 6.00 | % | 8.00 | % |
Leverage ratio | | 9.58 | % | 4.00 | % | 5.00 | % |
Common equity Tier 1 risk-based capital ratio | | 11.97 | % | 4.50 | % | 6.50 | % |
Actual | Minimum | |||||||||||
Select Bancorp, Inc. | Ratio | Requirement | ||||||||||
Total risk-based capital ratio | 18.39 | % | 8.00 | % | ||||||||
Tier 1 risk-based capital ratio | 17.67 | % | 6.00 | % | ||||||||
Leverage ratio | 15.39 | % | 4.00 | % | ||||||||
Common equity Tier 1 risk-based capital ratio | 16.58 | % | 4.50 | % |
Regulatory | ||||||||||||
Actual | Minimum | Well-Capitalized | ||||||||||
Select Bank & Trust | Ratio | Requirement | Requirement | |||||||||
Total risk-based capital ratio | 15.62 | % | 8.00 | % | 10.00 | % | ||||||
Tier 1 risk-based capital ratio | 14.89 | % | 6.00 | % | 8.00 | % | ||||||
Leverage ratio | 12.97 | % | 4.00 | % | 5.00 | % | ||||||
Common equity Tier 1 risk-based capital ratio | 14.89 | % | 4.50 | % | 6.50 | % |
During 2004, the Company issued $12.4 million of junior subordinated debentures to a newly formed subsidiary, New Century Statutory Trust I, which in turn issued $12.0 million of trust preferred securities. The proceeds from the sale of the trust preferred securities provided additional capital for the growth and expansion of the Bank. Under the current applicable regulatory guidelines, all of the proceeds from the issuance of these trust preferred securities qualify as Tier 1 capital as of September 30, 2019. During the third quarter of 2018 the Company completed a common stock offering netting $59.8 million which resulted in an increase in capital ratios for the holding company. Shortly after the receipt of the common stock offering proceeds, $25.0 million was downstreamed to the Bank, increasing its capital ratios.
2020.
Management expects that the Bank will remain “well-capitalized” for regulatory purposes, although there can be no assurance that additional capital will not be required in the future.
The Company’s equity to assets ratio was 16.7% at September 30, 2019.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company intends to reach its strategic financial objectives through the effective management of market risk. Like many financial institutions, the Company’s most significant market risk exposure is interest rate risk. The Company'sCompany’s primary goal in managing interest rate risk is to minimize the effect that changes in market interest rates have on earnings and capital. This goal is accomplished through the active management of the balance sheet. The goal of these activities is to structure the maturity and repricing ofassets and liabilities to produce stable net interest income despite changing interest rates. The Company'sCompany’s overall interest rate risk position is governed by policies approved by the Board of Directors and guidelines established and monitored by the Bank’s Asset/Liability Committee (“ALCO”).
To measure, monitor, and report on interest rate risk, the Company begins with two models: (1) net interest income ("NII"(“NII”) at risk, which measures the impact on NII over the next twelve and twenty-four months to immediate changes in interest rates and (2) net economic value of equity ("EVE"(“EVE”), which measures the impact on the present value of net assets to immediate changes in interest rates. NII at risk is designed to measure the potential short-term impact of changes in interest rates on NII.
50
EVE is a long-term measure of interest rate risk to the Company'sCompany’s balance sheet, or equity. Gap analysis, which is the difference between the amount of balance sheet assets and liabilities repricing within a specified time period, is used as a secondary measure of the Company'sCompany’s interest rate risk position. All of these models are subject to ALCO guidelines and are monitored regularly.
In calculating NII at risk, the Company begins with a base amount of NII that is projected over the next twelve and twenty-four months, assuming that the balance sheet is static and the yield curve remains unchanged over the period. The current yield curve is then “shocked,” or moved immediately, ±1.0 percent, ±2.0 percent, ±3.0 percent and ±4.0 percent in a parallel fashion, or at all points along the yield curve. New twelve-month and twenty four-month NII projections are then developed using the same balance sheet but with the new yield curves, and these results are compared to the base scenario. The Company also models other scenarios to evaluate potential NII at risk such as a gradual ramp in interest rates, a flattening yield curve, a steepening yield curve, and others that management deems appropriate.
EVE at risk is based on the change in the present value of all assets and liabilities under different interest rate scenarios. The present value of existing cash flows with the current yield curve serves as the base case. The Company then applies an immediate parallel shock to that yield curve of ±1.0 percent, ±2.0 percent, ±3.0 percent and ±4.0 percent and recalculates the cash flows and related present values.
Key assumptions used in the models described above include the timing of cash flows, the maturity and repricing of assets and liabilities, changes in market conditions, and interest-rate sensitivities of the Company'sCompany’s non-maturity deposits with respect to interest rates paid and the level of balances. These assumptions are inherently uncertain and, as a result, the models cannot precisely calculate future NII or predict the impact of changes in interest rates on NII and EVE. Actual results could differ from simulated results due to the timing, magnitude and frequency of changes in interest rates and market conditions, changes in spreads and management strategies, among other factors. Projections of NII are assessed as part of the Company'sCompany’s forecasting process.
NII and EVE Analysis. The following table presents the estimated exposure to NII for the next twelve months due to immediate changes in interest rates and the estimated exposure to EVE due to immediate changes in interest rates. All information is presented as of June 30, 2019.2020.
| | | | | |
| | June 30, 2020 |
| ||
(Dollars in thousands) |
| Estimated Effect on NII |
| Estimated Effect on EVE |
|
Immediate change in interest rates: | | | | | |
+ 4.0% | | 13.1 | % | 30.1 | % |
+ 3.0% | | 9.0 |
| 23.4 | |
+ 2.0% | | 4.9 |
| 16.0 | |
+ 1.0% | | 2.0 |
| 8.3 | |
No change | | — |
| — | |
- 1.0% | | 1.5 |
| (2.4) | |
June 30, 2019 | ||||||||
(Dollars in thousands) | Estimated Exposure to NII | Estimated Exposure to EVE | ||||||
Immediate change in interest rates: | ||||||||
+ 4.0% | 12.4 | % | 13.3 | % | ||||
+ 3.0% | 9.7 | 10.8 | ||||||
+ 2.0% | 6.7 | 8.0 | ||||||
+ 1.0% | 3.4 | 4.3 | ||||||
No change | - | - | ||||||
- 1.0% | (2.5 | ) | (5.3 | ) |
While the measures presented in the table above are not a prediction of future NII or EVE valuations, they do suggest that if all other variables remained constant, immediate increases in interest rates at all points on the yield curve may produce higher NII in the short term. Other important factors that
51
impact the levels of NII are balance sheet size and mix, interest rate spreads, the slope of the yield curve, the speed of interest rates changes, and management actions taken in response to the preceding conditions.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures.At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14.
13a-15.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in internal control over financial reporting.Management of the Company has evaluated, with the participation of the Company'sCompany’s Chief Executive Officer and Chief Financial Officer, changes in the Company'sCompany’s internal controls over financial reporting (as defined in Rule 13a−13a−15(f) and 15d−15d−15(f) of the Exchange Act) during the third quarter of 2019.2020. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the third quarter of 20192020 that have materially affected or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
53
Part II. OTHER INFORMATION
Item 1. Legal ProceedingsProceedings.
The Company is not currently engaged in, nor are any of its properties subject to, any material legal proceedings. From time to time, the Bank is a party to legal proceedings in the ordinary course of business wherein it attempts to collect loans, enforce its security interest in loans, or other matters of similar nature.
Item 1A. Risk Factors
Factors.
There have been no material changes toin the Company’s risk factors that we have previouslyfrom those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019, except as set forth in our Quarterly Report on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020.
52
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.
Global health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to elevated unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.
The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of factors impacting us or our borrowers, customers or business partners, including but not limited to:
● | demand for our products and services may decline, making it difficult to grow assets and income; |
● | if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
● | collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; |
● | our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; |
● | the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; |
● | as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; |
● | a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets; |
53
● | we rely on third-party vendors for certain services and the unavailability of a critical service (such as information technology network and data processing services) due to the COVID-19 outbreak could have an adverse effect on us; |
● | Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs; |
● | operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions; and |
● | increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity. |
Additionally, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
Any one or a combination of these factors could negatively impact our business, financial condition, and results of operations and prospects. These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.
The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel and developing work-from-home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.
54
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company announced a repurchase plan on August 31, 2016 (the “2016 Repurchase Plan”), by which management was authorized to repurchase up to 581,518 shares of Company common stockSet forth in the open market and through privately negotiated transactions. Duringtable below is the Company’s repurchase activity during the three monthsmonth period ended September 30, 2019, the Company exhausted its available repurchases under the 2016 Repurchase Plan. On September 17, 2019, the Company announced that its Board of Directors approved a new stock repurchase plan (the “2019 Repurchase Plan”). Under the 2019 Repurchase Plan, the Company is authorized to repurchase up to 937,248 outstanding shares of its common stock in the open market or through privately negotiated transactions.2020:
| | | | | | | | | |
|
| |
| | |
| Total number of shares | | Maximum number of |
| | Total number | | Average | | purchased as part of | | shares that may yet be | |
| | of shares | | price paid | | publicly announced | | purchased under the | |
Period | | purchased | | per share | | plans or programs(2) | | plans or programs(2) | |
July 2020 |
| — | | $ | — |
| 468,504 | | 42,002 |
Beginning Date: 7/1 | | | | | | | | | |
Ending Date: 7/31 | | | | | | | | | |
|
|
| |
|
|
|
| |
|
August 2020 |
| 14,616 | |
| 7.72 |
| 14,616 | | 27,386 |
Beginning Date: 8/1 | | | | | | | | | |
Ending Date: 8/31 | | | | | | | | | |
|
|
| |
|
|
|
| |
|
September 2020 |
| 61,386 | |
| 7.37 |
| 61,386 | | 841,000 |
Beginning Date: 9/1 | | | | | | | | | |
Ending Date: 9/30 | | | | | | | | | |
Share repurchase activity for the 2016 Repurchase Plan during the three months ended September 30, 2019 was as follows:
(1) | Reflects the number of shares of the Company’s common stock repurchased during the referenced period under both publicly announced repurchase plans or programs and those made not pursuant to publicly announced plans or programs. All repurchases made during the quarterly period were made pursuant to publicly announced repurchased plans. |
(2) | Reflects aggregate shares repurchased during the referenced period under publicly announced repurchase plans. The Company’s 2019 repurchase plan, which was announced on September 17, 2019 and authorized the repurchase of up to 937,438 shares of common stock, terminated during the period covered b the report, as all repurchases had been completed. On September 22, 2020, the Company publicly announced a new repurchase plan, which authorizes the repurchase of up to 875,000 shares of Company common stock. |
Issuer Purchases of Equity Securities
Period | Total number of Shares Purchased | Average Price | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Number of Shares that May Yet Be Purchased Under the Plan | ||||||||||||
July 1-31, 2019 | - | - | - | 517,022 | ||||||||||||
August 1-31, 2019 | 428,492 | 10.78 | 428,492 | 88,530 | ||||||||||||
September 1-30, 2019 (Plan 1) | 88,530 | 10.90 | 517,022 | - | ||||||||||||
September 17-30, 2019 (Plan 2) | 231,889 | 11.30 | 231,889 | 705,359 |
Item 3. Defaults Upon Senior Securities
Securities.
None.
Item 4. Mine Safety Disclosures
Disclosures.
Not applicable.
Item 5. Other Information
Information.
None.
55
Item 6. Exhibits.
Exhibit Index
| | | | | | | | | | |
| | | | Incorporated by Reference | ||||||
Exhibit | Description of Exhibit | Form | Exhibit | Filing | SEC | |||||
| | | | | | | | | | |
31.1 | | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act | | | | | | Filed | | |
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31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act | | | | | | Filed | | |
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32.1 | | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act | | | | | | Furnished | | |
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32.2 | | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act | | | | | | Furnished | | |
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101 | | Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019; (ii) Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2020 and 2019; (iii) Consolidated Statements of Comprehensive Income for the Three Months and Nine Months ended September 30, 2020 and 2019; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019, Three Months Ended June 30, 2020 and 2019 and the Three Months Ended September 30, 2020 and 2019; (v) Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and 2019; and (vi) Notes to Consolidated Financial Statements. | | | | | | Filed | | |
| | | | | | | | | | |
104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | | | | | | Filed | | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SELECT BANCORP, INC. | |
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Date: November 6, | By: | /s/ William L. Hedgepeth II |
| | William L. Hedgepeth II |
| | President and Chief Executive Officer |
| | |
Date: November 6, | By: | /s/ Mark A. Jeffries |
| | Mark A. Jeffries |
| | Executive Vice President and Chief Financial Officer |
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