UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

☐ Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period ended from to

Commission File Number 000-50400

Select Bancorp, Inc.

(Exact name of Registrant as specified in its charter)


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

700 W. Cumberland Street
Dunn, North Carolina		28334
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (910) 892-7080

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


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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

As of ~~October 30, 2020,~~August 3, 2021, the registrant had outstanding ~~17,786,552~~17,229,504 shares of Common Stock, $1.00 par value per share.

Table of Contents

		Page No.

Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements (Unaudited)

	Consolidated Balance Sheets ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Operations Three ~~Months~~ and ~~Nine Months Ended September~~six months ended June 30, ~~2020~~2021 and ~~2019~~2020	4

	Consolidated Statements of Comprehensive Income Three ~~Months~~ and ~~Nine Months Ended September~~six months ended June 30, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Statements of Changes in Shareholders’ Equity Three ~~Months Ended March 31, 2020~~ and ~~2019, Three Months Ended~~six months ended June 30, ~~2020~~2021 and ~~2019 and Three Months Ended September 30,~~ 2020 ~~and 2019~~	6

	Consolidated Statements of Cash Flows ~~Nine Months~~Six months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Consolidated Financial Statements	9

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk	5049

Item 4 -	Controls and Procedures	5251

Part II.	OTHER INFORMATION

Item 1 -	Legal Proceedings	5251

Item 1A -	Risk Factors	52

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3 -	Defaults Upon Senior Securities	5556

Item 4 -	Mine Safety Disclosures	5556

Item 5 -	Other Information	5556

Item 6 -	Exhibits	5657

	Signatures	5758

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SELECT BANCORP, INC.

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


	June 30, 2021		December 31,
	(unaudited)		2020*

	(In thousands, except share
	and per share data)
ASSETS
Cash and due from banks	$	25,110	$	23,324
Interest-earning deposits in other banks		179,832		87,399
Certificates of deposit		250		—
Federal funds sold		2,731		5,364
Investment securities available for sale, at fair value		217,605		194,492
Loans held for sale		3,061		2,064
Loans		1,332,420		1,304,384
Allowance for loan losses		(12,658)		(14,108)
NET LOANS		1,319,762		1,290,276
Accrued interest receivable		4,844		5,110
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost		862		1,147
Other non-marketable securities		655		709
Foreclosed real estate		1,675		2,172
Premises and equipment, net		19,899		20,587
Right of use lease asset		8,156		8,558
Bank owned life insurance		30,743		30,432
Goodwill		42,907		42,907
Core deposit intangible (“CDI”)		1,222		1,513
Other assets		15,496		13,991
TOTAL ASSETS	$	1,874,810	$	1,730,045
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$	491,265	$	395,916
Savings		59,243		51,843
Money market and NOW		714,234		649,677
Time		355,910		388,381
TOTAL DEPOSITS		1,620,652		1,485,817

Long-term debt		12,372		12,372
Lease liability		8,598		8,930
Accrued interest payable		154		246
Accrued expenses and other liabilities		11,551		7,312
TOTAL LIABILITIES		1,653,327		1,514,677
Shareholders’ Equity
Preferred stock, 0 par value, 5,000,000 shares authorized; 0 preferred shares were issued and outstanding at June 30, 2021 and December 31, 2020		—		—

Common stock, $1 par value, 50,000,000 shares authorized; 17,229,504 and 17,507,103 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		17,229		17,507
Additional paid-in capital		132,473		135,058
Retained earnings		72,789		60,838
Common stock issued to deferred compensation trust, at cost; 272,509 and 274,956 shares outstanding at June 30, 2021 and December 31, 2020, respectively		(2,449)		(2,416)
Directors’ Deferred Compensation Plan Rabbi Trust		2,449		2,416
Accumulated other comprehensive income (loss)		(1,008)		1,965
TOTAL SHAREHOLDERS’ EQUITY		221,483		215,368
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,874,810	$	1,730,045

* Derived from audited consolidated financial statements.

See accompanying notes.

Table of Contents

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				Six Months Ended
		June 30,			June 30,
	2021		2020		2021		2020

	(In thousands, except share and per share data)				(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	16,700	$	14,086	$	33,735	$	27,675
Federal funds sold and interest-earning deposits in other banks		41		33		66		201
Investments		977		381		1,897		802
TOTAL INTEREST INCOME		17,718		14,500		35,698		28,678

INTEREST EXPENSE
Money market, NOW and savings deposits		781		648		1,705		996
Time deposits		831		1,576		1,869		3,507
Short-term debt		16		141		32		228
Long-term debt		71		281		142		633
TOTAL INTEREST EXPENSE		1,699		2,646		3,748		5,364
NET INTEREST INCOME		16,019		11,854		31,950		23,314
PROVISION FOR (RECOVERY OF) LOAN LOSSES		(459)		1,933		(1,236)		4,206
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES		16,478		9,921		33,186		19,108

NON-INTEREST INCOME
Service charges on deposit accounts		239		206		495		544
Fees from the sale of mortgages		268		235		556		420
Fees from the sale of SBA loans		163		120		360		228
Other fees and income		1,225		850		2,166		1,663
TOTAL NON-INTEREST INCOME		1,895		1,411		3,577		2,855
NON-INTEREST EXPENSE
Personnel		6,169		5,786		12,301		11,418
Occupancy and equipment		948		986		1,938		1,917
Deposit insurance		262		76		642		64
Professional fees		993		451		1,455		823
Core deposit intangible amortization		140		195		291		374
Merger/acquisition related expenses		—		709		—		748
Information systems		1,057		972		2,103		2,010
Foreclosure-related expenses		208		187		68		192
Other		1,244		1,140		2,419		2,203
TOTAL NON-INTEREST EXPENSE		11,021		10,502		21,217		19,749
INCOME BEFORE INCOME TAX		7,352		830		15,546		2,214
INCOME TAX		1,741		149		3,595		429
NET INCOME		5,611		681		11,951		1,785
Basic	$	0.33	$	0.04	$	0.69	$	0.10
Diluted	$	0.32	$	0.04	$	0.69	$	0.10
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		17,227,689		18,013,863		17,306,762		18,134,607
Diluted		17,277,578		18,030,136		17,343,057		18,157,992

See accompanying notes.

Table of Contents

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

		(In thousands)								(In thousands)

Net income	$	2,457	$	3,239	$	4,242	$	9,994	$	5,611	$	681	$	11,951	$	1,785

Other comprehensive income (loss):
Unrealized gains (loss) on investment securities-available for sale		(161)		196		822		1,454		4,296		252		(3,861)		983
Tax effect		38		(48)		(189)		(334)		(988)		(58)		888		(227)
Total		(123)		148		633		1,120		3,308		194		(2,973)		756
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	$	8,919	$	875	$	8,978	$	2,541

See accompanying notes.

Table of Contents

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


																			��												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 (loss)		Equity
Balance at December 31, 2020																			—	$	—	17,507,103	$	17,507	$	135,058	$	60,838	$	2,416	$	(2,416)	$	1,965	$	215,368
Net income																			—		—	—		—		—		6,340		—		—		—		6,340
Other comprehensive loss																			—		—	—		—		—		—		—		—		(6,281)		(6,281)
Stock repurchases																			—		—	(286,799)		(287)		(2,907)		—		—		—		—		(3,194)
Stock option exercises																			—		—	6,800		7		57		—		—		—		—		64
Directors’ equity incentive plan, net																			—		—	—		—		—		—		33		(33)		—		—
Stock-based compensation																			—		—	—		—		192		—		—		—		—		192
Balance at March 31, 2021																			—	$	—	17,227,104	$	17,227	$	132,400	$	67,178	$	2,449	$	(2,449)	$	(4,316)	$	212,489
Net income																			—		—	—		—		—		5,611		—		—		—		5,611
Other comprehensive income																			—		—	—		—		—		—		—		—		3,308		3,308
Stock option exercises																			—		—	2,400		2		18		—		—		—		—		20
Stock-based compensation																			—		—	—		—		55		—		—		—		—		55
Balance at June 30, 2021																			—	$	—	17,229,504	$	17,229	$	132,473	$	72,789	$	2,449	$	(2,449)	$	(1,008)	$	221,483

													Common Stock																		Common Stock
													Issued		Accumulated																Issued		Accumulated
							Additional						to Deferred		Other		Total								Additional						to Deferred		Other		Total
	Preferred Stock			Common Stock			paid-in		Retained		Deferred		Compensation		Comprehensive		Shareholders’		Preferred Stock			Common Stock			paid-in		Retained		Deferred		Compensation		Comprehensive		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Comp Plan		Trust		Income		Equity		Shares	Amount		Shares	Amount		Capital		Earnings		Comp Plan		Trust		Income (loss)		Equity
Balance at December 31, 2019	—	$	—	18,330,058	$	18,330	$	140,870	$	52,675	$	(2,815)	$	2,815	$	900	$	212,775	—	$	—	18,330,058	$	18,330	$	140,870	$	52,675	$	(2,815)	$	2,815	$	900	$	212,775
Net income	—		—	—		—		—		1,104		—		—		—		1,104	—		—	—		—		—		1,104		—		—		—		1,104
Other comprehensive income	—		—	—		—		—		—		—		—		562		562	—		—	—		—		—		—		—		—		562		562
Stock repurchases	—		—	(275,366)		(275)		(2,193)		—		—		—		—		(2,468)	—		—	(275,366)		(275)		(2,193)										(2,468)
Stock option exercises	—		—	1,000		1		6		—		—		—		—		7	—		—	1,000		1		6		—		—		—		—		7
Directors’ equity incentive plan, net	—		—	—		—		—		—		24		(24)		—		—	—		—	—		—		—		—		24		(24)		—		—
Stock-based compensation	—		—	—		—		105		—		—		—		—		105
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	—		—	18,055,692		18,056		138,788		53,779		(2,791)		2,791		1,462		212,085
Net income	—		—	—		—		—		681		—		—		—		681	—		—	—		—		—		681		—		—		—		681
Other comprehensive income	—		—	—		—		—		—		—		—		194		194	—		—	—		—		—		—		—		—		194		194
Stock repurchases	—		—	(193,138)		(193)		(1,328)		—		—		—		—		(1,521)	—		—	(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)		—		—	—		—	—		—		—		—		238		(238)		—		—
Stock based compensation	—		—	—		—		61		—		—		—		—		61	—		—	—		—		99		—		—		—		—		99

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
Balance at June 30, 2020																			—	$	—	17,862,554	$	17,863	$	137,559	$	54,460	$	(2,553)	$	2,553	$	1,656	$	211,538

See accompanying notes.

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SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2020		2019		2021		2020

		(In thousands)				(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,242	$	9,994	$	11,951	$	1,785
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		5,844		136
Provision for (recovery of) loan losses						(1,236)		4,206
Depreciation and amortization of premises and equipment		1,335		1,337		719		869
Amortization and accretion of investment securities		436		543		368		307
Amortization of right of use asset		941		810
Amortization of right of use lease asset						402		623
Accretion of deferred loan fees and costs		(688)		(590)		(2,167)		(458)
Amortization of core deposit intangible		553		632		291		374
Accretion of acquisition premium on time deposits		(206)		(7)		(131)		(109)
Deferred income taxes		283		0
Stock-based compensation		265		178		247		204
Accretion on acquired loans		(1,075)		(679)		(917)		(620)
Increase in cash surrender value of bank owned life insurance		(482)		(504)
Proceeds from loans held for sale		43,904		25,388		31,348		26,583
Originations of loans held for sale		(44,756)		(25,917)		(31,429)		(28,462)
Gain on sales of loans held for sale		(1,165)		0		(916)		(648)
Net loss on sale and write-downs of foreclosed real estate		390		12		54		176
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
Increase in cash surrender value of bank owned life insurance						(311)		(321)
Change in assets and liabilities:
Net change in accrued interest receivable		41		(13)		266		127
Net change in other assets		(6,312)		(1,656)		(618)		95
Net change in accrued expenses and other liabilities		15,887		(408)		4,147		(1,397)
NET CASH PROVIDED BY OPERATING ACTIVITIES		19,437		8,619		12,068		3,334

CASH FLOWS FROM INVESTING ACTIVITIES
Redemption (purchase) of FHLB stock		(14)		238		285		(14)
Redemption of non-marketable security		1		43		54		1
Purchase of investment securities available for sale		(39,794)		(37,948)		(41,132)		(4,563)
Maturities of investment securities available for sale		10,511		2,883		2,671		4,775
Cash received from branch acquisition		60,234		24,093		—		60,234
Mortgage-backed securities pay-downs		14,602		9,367		11,120		9,873
Proceeds from sale of investment securities available for sale		0		1,125
Net change in loans outstanding		(149,341)		(28,837)		(25,692)		(116,367)
Proceeds from sale of foreclosed real estate		180		103		969		—
Proceeds from sale of premises and equipment		0		660
Purchases of premises and equipment		(1,531)		(1,167)		(31)		(1,075)

NET CASH USED IN INVESTING ACTIVITIES		(105,152)		(29,440)		(51,756)		(47,136)

See accompanying notes.

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SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

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


	Six Months Ended
	June 30,
	2021		2020

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	134,966	$	160,541
Repayment of lease liability		(332)		(550)
Repurchase of common stock		(3,194)		(389)
Proceeds from stock options exercised		84		7

NET CASH PROVIDED BY FINANCING ACTIVITIES		131,524		159,609

NET CHANGE IN CASH AND CASH EQUIVALENTS		91,836		112,207

CASH AND CASH EQUIVALENTS, BEGINNING		116,087		79,077

CASH AND CASH EQUIVALENTS, ENDING	$	207,923	$	191,284

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest paid	$	3,840	$	5,484
Income taxes paid		1,261		1,361

Non-cash transactions:
Change in fair value of investment securities available for sale, net of tax		(2,973)		756
Transfer from loans to foreclosed real estate		526		204

Acquisition:
Assets acquired (excluding goodwill)		—		170,914
Liabilities assumed		—		186,416
Goodwill recorded		—		18,328

See accompanying notes.

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

NOTE A - BASIS OF PRESENTATION

Select Bancorp, Inc. (the “Company”) is a bank holding company whose principal business activity consists of ownership of Select Bank & Trust Company (referred to as the “Bank”). In 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of the Company. New Century Statutory Trust I is not a consolidated subsidiary of the Company. On July 25, 2014, the Company changed its name from New Century Bancorp, Inc. to Select Bancorp, Inc. following its acquisition by merger of Select Bancorp, Inc., Greenville, North Carolina (which we refer to herein as “Legacy Select”). The Company is subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the North Carolina Commissioner of Banks.

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

As described in more detail in note J to the consolidated financial statements, on June 1, 2021, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with First Bancorp, the holding company for First Bank, Southern Pines, North Carolina, pursuant to which the Company will merge with and into First Bancorp (the “Merger”), and the Bank will merge with and into First Bank. The parties anticipate closing the Merger during the fourth quarter of 2021.

All significant inter-company transactions and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2020.~~2021.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Company’s ~~2019~~2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 11, ~~2020.~~2021. 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~~June 30, ~~2020~~2021 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

COVID-19. ~~The Company~~Significant progress has ~~evaluated for potential recognition and/~~been made to combat the outbreak of the coronavirus disease, 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,~~COVID-19, that was declared a global pandemic by the World Health Organization ~~declared~~in March of 2020. However, the ~~outbreak of the disease caused by a novel coronavirus (“COVID-19”) as a global~~COVID-19 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 couldhas adversely ~~impact~~impacted a broad range of industries in which the ~~Company��s~~Company’s customers operate and could still 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

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

ability to meet their financial ~~institutions through~~obligations to the ~~Federal Reserve Bank. On March 3, 2020,~~Company. The Company’s business depends upon the ~~Federal Open Market Committee reduced the target federal funds rate by 50 basis points~~willingness and ability of its employees and customers 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~~conduct banking and other financial transactions. Although it appears that public health and economic conditions are trending in a positive direction as of June 30, 2021, a resurgence of COVID-19 could result in further adverse effects on the Company’s business, financial condition, results of operations, and cash flows. It is not possible to know the full extent of the impact of COVID-19 ~~outbreak may adversely affect~~and the measures enacted to curtail its spread on the Company’s ~~financial condition and results of~~future 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~~June 30, ~~2020~~2021 and ~~2019~~2020 there were ~~243,120~~201,100 and ~~172,120~~219,120 anti-dilutive stock options outstanding, respectively.


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2020	2019	2020	2019	2021	2020	2021	2020

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	17,227,689	18,013,863	17,306,762	18,134,607

Effect of dilutive stock options	18,909	44,663	23,825	46,660	49,889	16,273	36,295	23,385

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	17,277,578	18,030,136	17,343,057	18,157,992

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

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

In June 2016, the FASB issued ~~ASU~~Accounting Standards Update (“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. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to delay implementation of CECL until January 2023 for certain companies, including smaller reporting companies (as defined by the SEC). The Company currently qualifies as a smaller reporting company and is still assessing the impact that this new guidance will have on its consolidated financial statements.

In ~~August 2018, the FASB amended ASU 2018-13~~ ~~- Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~ ~~topic of the Accounting Standards Codification. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement,~~ ~~Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements~~~~. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after~~ ~~December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures~~

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~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The adoption of these amendments did not have a material effect on its consolidated financial statements.

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

In March 2020, the FASB issued ~~Accounting Standards Update ("ASU")~~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

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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~~has evaluated this ASU ~~but is~~and does not ~~expecting~~expect it to have an impact toon the Company’s 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.

NOTE D - FAIR VALUE MEASUREMENTS

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

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

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~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

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

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

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

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

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. government agencies, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Valuation techniques are consistent with techniques used in prior periods.

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~~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 recurring basis as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


			Quoted Prices in		Significant						Quoted Prices in		Significant
Investment securities			Active Markets		Other		Significant				Active Markets		Other		Significant
available for sale			for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
September 30, 2020	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
June 30, 2021									Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
U.S. government agencies – GSE’s	$	11,760	$	—	$	11,760	$	—	$	51,995	$	—	$	51,995	$	—

Mortgage-backed securities – GSE’s		41,670		—		41,670		—		71,941		—		71,941		—

Corporate Bonds		2,103		—		2,103		—		2,250		—		2,250		—

Municipal bonds		31,901		—		31,901		—		91,419		—		91,419		—

Total investment available for sale	$	87,434	$	—	$	87,434	$	—	$	217,605	$	—	$	217,605	$	—


			Quoted Prices in		Significant						Quoted Prices in		Significant
Investment securities			Active Markets		Other		Significant				Active Markets		Other		Significant
available for sale			for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
December 31, 2019	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
December 31, 2020									Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
U.S. government agencies – GSE’s	$	9,996	$	—	$	9,996	$	—	$	50,232	$	—	$	50,232	$	—

Mortgage-backed securities – GSE’s		47,743		—		47,743		—		48,931		—		48,931		—

Corporate Bonds		2,299		—		2,299		—		2,350		—		2,350		—

Municipal bonds		12,329		—		12,329		—		92,979		—		92,979		—

Total investment available for sale	$	72,367	$	—	$	72,367	$	—	$	194,492	$	—	$	194,492	$	—

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and a specific reserve in the allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, “Receivables”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, or liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where a specific reserve is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3. The significant unobservable input used in the fair value measurement of the Company’s impaired loans is the discount applied to appraised values to account for expected liquidation and selling costs. At ~~September~~June 30, 2021 and December 31, 2020, the

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~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

discounts used are weighted between 3% and ~~50%~~20%. 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~~six months ended ~~September~~June 30, ~~2020.~~2021.

Foreclosed Real Estate

Foreclosed real estate are properties recorded at the balance of the loan or an estimated fair value of the real estate collateral less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. The significant unobservable input used in the fair value measurement of the Company’s foreclosed real estate is the discount applied to appraised values to account for expected liquidation and selling costs. At ~~September~~June 30, 2021 and December 31, 2020, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Loans held for sale

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

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

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):

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

$
7,695

$
—

$
—

$
7,695
Foreclosed real estate

3,237

—

—

3,237
Total

$
10,932

$
—

$
—

$
10,932

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

$
5,941

$
—

$
—

$
5,941
Foreclosed real estate

3,533

—

—

3,533
Total

$
9,474

$
—

$
—

$
9,474

1413

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):


			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Asset Category - June 30, 2021	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Impaired loans	$	10,846	$	—	$	—	$	10,846
Foreclosed real estate		1,675		—		—		1,675
Total	$	12,521	$	—	$	—	$	12,521


			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Asset Category - December 31, 2020	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Impaired loans	$	6,790	$	—	$	—	$	6,790
Foreclosed real estate		2,172		—		—		2,172
Total	$	8,962	$	—	$	—	$	8,962

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30, 2020

Carrying

Estimated


Amount

Fair Value

Level 1

Level 2

Level 3

(dollars in thousands)
Financial assets:

Cash and due from banks

$
25,068

$
25,068

$
25,068

$
—

$
—
Interest-earning deposits in other banks

249,541

249,541

249,541

—

—
Federal funds sold

8,046

8,046

8,046

—

—
Investment securities available for sale

87,434

87,434

—

87,434

—
Loans held for sale

2,945

2,945

—

2,945

—
Loans, net

1,269,896

1,279,096

—

—

1,279,096
Accrued interest receivable

4,486

4,486

—

4,486

—
Stock in the FHLB

3,059

3,059

—

—

3,059
Other non-marketable securities

718

718

—

—

718

Financial liabilities:






Deposits

$
1,472,780

$
1,476,441

$
—

$
—

$
1,476,441
Short-term debt

20,000

20,000

—

20,000

—
Long-term debt

37,372

34,163

—

34,163

—
Accrued interest payable

449

449

—

449

—

December 31, 2019

Carrying

Estimated


Amount

Fair Value

Level 1

Level 2

Level 3

(dollars in thousands)
Financial assets:

Cash and due from banks

$
19,110

$
19,110

$
19,110

$
—

$
—
Interest-earning deposits in other banks

50,920

50,920

50,920

—

—
Federal funds sold

9,047

9,047

9,047

—

—
Investment securities available for sale

72,367

72,367

—

72,367

—
Loans held for sale

928

928

—

928

—
Loans, net

1,021,651

1,016,239

—

—

1,016,239
Accrued interest receivable

4,189

4,189

—

4,189

—
Stock in the FHLB

3,045

3,045

—

—

3,045
Other non-marketable securities

719

719

—

—

719

Financial liabilities:










Deposits

$
992,838

$
995,056

$
—

$
995,056

$
—
Long-term debt

57,372

55,729

—

55,729

—
Accrued interest payable

578

578

—

578

—


	June 30, 2021
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3

	(dollars in thousands)
Financial assets:
Cash and due from banks	$	25,110	$	25,110	$	25,110	$	—	$	—
Certificates of deposit		250		250		250		—		—
Interest-earning deposits in other banks		179,832		179,832		179,832		—		—
Federal funds sold		2,731		2,731		2,731		—		—
Investment securities available for sale		217,605		217,605		—		217,605		—
Loans held for sale		3,061		3,061		—		3,061		—
Loans, net		1,319,762		1,334,791		—		—		1,334,791
Accrued interest receivable		4,844		4,844		—		4,844		—
Stock in the FHLB		862		862		—		—		862
Other non-marketable securities		655		655		—		—		655

Financial liabilities:
Deposits	$	1,620,652	$	1,622,286	$	—	$	—	$	1,622,286
Long-term debt		12,372		11,499		—		11,499		—
Accrued interest payable		154		154		—		154		—

1514

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~NOTE E - INVESTMENT SECURITIES~~

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

September 30, 2020

Gross

Gross

Amortized

unrealized

unrealized

Fair


cost

gains

losses

value

(dollars in thousands)

Securities available for sale:

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

2,101

7

(5)

2,103

Municipal bonds

31,639

333

(71)

31,901

$
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 $1.2 million. Deferred tax liabilities resulting from these net unrealized gains totaled $269,000.

~~Table of Contents~~

~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


	December 31, 2020
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3

	(dollars in thousands)
Financial assets:
Cash and due from banks	$	23,324	$	23,324	$	23,324	$	—	$	—
Interest-earning deposits in other banks		87,399		87,399		87,399		—		—
Federal funds sold		5,364		5,364		5,364		—		—
Investment securities available for sale		194,492		194,492		—		194,492		—
Loans held for sale		2,064		2,064		—		2,064		—
Loans, net		1,290,276		1,294,552		—		—		1,294,552
Accrued interest receivable		5,110		5,110		—		5,110		—
Stock in the FHLB		1,147		1,147		—		—		1,147
Other non-marketable securities		709		709		—		—		709

Financial liabilities:
Deposits	$	1,485,817	$	1,489,220	$	—	$	—	$	1,489,220
Long-term debt		12,372		9,965		—		9,965		—
Accrued interest payable		246		246		—		246		—

NOTE E - INVESTMENT SECURITIES

The amortized cost and fair value of ~~securities~~ available for sale (“AFS”) investments, with gross unrealized gains and losses as of June 30, 2021, follow:

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, 2019								June 30, 2021
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value		cost		gains		losses		value

	(dollars in thousands)								(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
U.S. government agencies – GSE’s									$	53,129	$	241	$	(1,375)	$	51,995
Mortgage-backed securities – GSE’s										72,123		819		(1,001)		71,941
Corporate bonds										2,248		2		—		2,250
Municipal bonds										91,413		819		(813)		91,419
	$	71,199	$	1,183	$	(15)	$	72,367
Total									$	218,913	$	1,881	$	(3,189)	$	217,605

~~Securities with a carrying value~~As of ~~$48.1 million and $18.4 million at September~~June 30, ~~2020 and December 31, 2019, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.~~

~~None of the~~2021, accumulated other comprehensive income included net 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~~totaling $1.3 million. Deferred tax assets resulting from these ~~securities to recovery. No other than temporary impairments were identified for these investments having~~net unrealized losses for the periods ended September 30, 2020 and December 31, 2019. The Company has not incurred any losses related to securities sales in the first nine months of 2020 or during the year ended December 31, 2019.totaled $301,000.

1715

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The amortized cost and fair value of “AFS” investments, with gross unrealized gains and losses as of December 31, 2020, follow:


	December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value

	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	50,304	$	270	$	(342)	$	50,232
Mortgage-backed securities – GSE’s		47,658		1,320		(47)		48,931
Corporate bonds		2,343		7		—		2,350
Municipal bonds		91,635		1,417		(73)		92,979

Total	$	191,940	$	3,014	$	(462)	$	194,492

As of December 31, 2020, accumulated other comprehensive income included net unrealized gains totaling $2.6 million. Deferred tax liabilities resulting from these net unrealized gains totaled $587,000.

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


	June 30, 2021
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value

	(dollars in thousands)
Securities available for sale:
Due within one year	$	1,073	$	19	$	—	$	1,092
Due after one but within five years		20,132		840		(42)		20,930
Due after five but within ten years		36,361		86		(757)		35,690
Due after ten years		161,347		936		(2,390)		159,893
	$	218,913	$	1,881	$	(3,189)	$	217,605


	December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value

	(dollars in thousands)
Securities available for sale:
Due within one year	$	3,153	$	13	$	(1)	$	3,165
Due after one but within five years		24,515		1,140		(2)		25,653
Due after five but within ten years		22,615		99		(91)		22,623
Due after ten years		141,657		1,762		(368)		143,051
	$	191,940	$	3,014	$	(462)	$	194,492

Securities with a carrying value of $77.8 million and $68.4 million at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.

Table of Contents

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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. NaN other than temporary impairments were identified for these investments having unrealized losses for the periods ended June 30, 2021 and December 31, 2020. The Company has not incurred any losses related to securities sales in the first six months of 2021 or during the year ended December 31, 2020.

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~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


	September 30, 2020												June 30, 2021
	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses		value		losses		value		losses		value		losses

	(dollars in thousands)												(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	3,478	$	(22)	$	479	$	(2)	$	3,957	$	(24)	$	45,126	$	(1,375)	$	—	$	—	$	45,126	$	(1,375)
Mortgage-backed securities–GSE’s		8,044		(51)		1,999		(2)		10,043		(53)		50,986		(1,001)		—		—		50,986		(1,001)
Corporate bonds		753		(5)		—		—		753		(5)
Municipal bonds		10,578		(71)		—		—		10,578		(71)		48,760		(813)		—		—		48,760		(813)
Total temporarily impaired securities	$	22,853	$	(149)	$	2,478	$	(4)	$	25,331	$	(153)	$	144,872	$	(3,189)	$	—	$	—	$	144,872	$	(3,189)

At ~~September~~June 30, ~~2020,~~2021, the Company had ~~3 securities~~0 security with an unrealized loss for more than twelve ~~months of $4,000 which consisted of 2 U.S. government agencies-GSEs and 1 mortgage-backed - GSE bond.~~months. NaN securities had unrealized losses for less than twelve months totaling ~~$149,000~~$3.2 million at ~~September~~June 30, ~~2020,~~2021, which consisted of ~~9 Municipal~~40 municipal bonds, ~~1 corporate bond, 1~~13 U.S. government agencies - GSEs and 4NaN mortgage-backed - GSE bonds. All unrealized losses are attributable to the general trend of interest rates.


	December 31, 2019												December 31, 2020
	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses		value		losses		value		losses		value		losses

	(dollars in thousands)												(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	872	$	—	$	621	$	(2)	$	1,493	$	(2)	$	42,159	$	(340)	$	420	$	(2)	$	42,579	$	(342)
Mortgage-backed securities–GSE’s		2,672		(3)		3,774		(10)		6,446		(13)		19,297		(46)		1,999		(1)		21,296		(47)
Corporate bonds		—		—		—		—		—		—
Municipal bonds		—		—		—		—		—		—		10,105		(73)		—		—		10,105		(73)
Total temporarily impaired securities	$	3,544	$	(3)	$	4,395	$	(12)	$	7,939	$	(15)	$	71,561	$	(459)	$	2,419	$	(3)	$	73,980	$	(462)

At December 31, ~~2019,~~2020, the Company had 1 mortgage-backed GSE and 12 U.S Government agency – ~~GSE~~GSE’s with an unrealized loss for twelve or more consecutive months totaling ~~$12,000.~~$3,000. The Company had 330 securities with a loss for twelve months or less at December 31, ~~2019.~~2020. NaN U.S. government agency ~~GSE~~GSE’s, 12 municipal bonds and 27 mortgage-backed GSE’s had unrealized losses for less than twelve months totaling ~~$3,000~~$459,000 at December 31, ~~2019.~~2020. All unrealized losses are attributable to the general trend of interest rates.

1817

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS

Following is a summary of the composition of the Company’s loan portfolio at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	September 30,					December 31,					June 30,					December 31,
	2020					2019					2021					2020
			Percent					Percent					Percent					Percent
	Amount		of total			Amount			of total		Amount		of total			Amount			of total

	(dollars in thousands)										(dollars in thousands)
Real estate loans:
1-to-4 family residential	$	195,174		15.21	%	$	151,697		14.73	%	$	178,113		13.37	%	$	194,031		14.88	%
Commercial real estate		537,087		41.85	%		459,115		44.58	%		695,407		52.19	%		608,482		46.65	%
Multi-family residential		79,697		6.21	%		69,124		6.71	%		79,133		5.94	%		82,508		6.32	%
Construction		255,718		19.92	%		221,878		21.55	%		216,638		16.26	%		236,735		18.15	%
Home equity lines of credit (“HELOC”)		48,395		3.77	%		44,514		4.32	%		56,285		4.22	%		53,806		4.12	%

Total real estate loans		1,116,071		86.96	%		946,328		91.89	%		1,225,576		91.98	%		1,175,562		90.12	%

Other loans:
Commercial and industrial		165,766		12.91	%		75,748		7.35	%		108,033		8.11	%		125,700		9.64	%
Loans to individuals		7,017		0.55	%		9,779		0.95	%		3,914		0.29	%		6,629		0.04	%
Overdrafts		80		0.01	%		234		0.02	%		126		0.01	%		493		0.51	%
Total other loans		172,863		13.47	%		85,761		8.32	%		112,073		8.41	%		132,822		10.19	%

Gross loans		1,288,934					1,032,089					1,337,649					1,308,384
Less deferred loan origination fees, net		(5,477)		(0.43)	%		(2,114)		(0.21)	%		(5,229)		(.39)	%		(4,000)		(.31)	%
Total loans		1,283,457		100.00	%		1,029,975		100.00	%		1,332,420		100.00	%		1,304,384		100.00	%
Allowance for loan losses		(13,561)					(8,324)					(12,658)					(14,108)
Total loans, net	$	1,269,896				$	1,021,651				$	1,319,762				$	1,290,276

For ~~Purchased Credit Impaired,~~purchased credit-impaired, or PCI, loans acquired from Legacy Select, Premara and First Citizens, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of ~~September~~the closing date of the acquisition and June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were:


	September 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Contractually required payments	$	38,279	$	20,598	$	32,087	$	37,241
Nonaccretable difference		3,401		1,694		3,398		3,586
Cash flows expected to be collected		34,878		18,904		28,689		33,655
Accretable yield		4,891		3,191		4,985		4,622
Carrying value	$	29,987	$	15,713	$	23,704	$	29,033

Loans are primarily secured by real estate located in the 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, 2020, the Company had pre-approved but unused lines of credit for customers totaling $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.

1918

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2021, the Company had pre-approved but unused lines of credit for customers totaling $292.8 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.

The Bank ~~has~~ originated ~~1,249~~1,821 loans amounting to ~~$97.0~~$137.1 million during 2020 and 2021 under the Paycheck Protection Program (“PPP”) which are classified as ~~Commercial~~commercial and industrial loans in the loan portfolio. AsDuring 2020 and 2021 some of ~~September~~the PPP loans were forgiven and as of June 30, ~~2020~~2021 the Bank ~~has 1,242 PPP~~had 607 loans amounting to ~~$95.3 million.~~$41.5 million outstanding. In the first six months of 2021, there were 572 PPP loans originated amounting to $40.1 million of which $38.4 million remains outstanding as of June 30, 2021. The PPP loan program is sponsored by the U.S. Small Business Administration ~~(SBA)~~(the “SBA”) primarily 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.

During the last twelve months, the Bank granted 419 COVID-19 deferrals amounting to $219.6 million. At June 30, 2021 the Bank had 8 loans under COVID-19 deferrals amounting to $2.2 million which are set to expire within the next 90 days.

A floating lien of ~~$112.6~~$83.9 million of loans was pledged to the FHLB to secure borrowings at ~~September~~June 30, ~~2020.~~2021.

The following tables present an age analysis of past due loans, segregated by class of loans as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:


	September 30, 2020														June 30, 2021
	30-59		60-89		90+		Non-		Total						30-59		60-89		90+		Non-		Total
	Days		Days		Days		Accrual		Past		Total				Days		Days		Days		Accrual		Past		Total
	Past Due		Past Due		Accruing		Loans		Due		Current		Loans		Past Due		Past Due		Accruing		Loans		Due		Current		Loans

	(dollars in thousands)														(dollars in thousands)
Commercial and industrial	$	2	$	105	$	543	$	3,687	$	4,337	$	161,429	$	165,766	$	88	$	��	$	981	$	3,225	$	4,294	$	103,739	$	108,033
Construction		0		0		0		161		161		255,557		255,718		—		—		—		600		600		216,038		216,638
Multi-family residential		0		0		0		0		—		79,697		79,697		—		—		—		—		—		79,133		79,133
Commercial real estate		210		0		336		2,489		3,035		534,052		537,087		1,059		18		—		2,208		3,285		692,122		695,407
Loans to individuals & overdrafts		9		0		0		145		154		6,943		7,097		5		—		—		3		8		4,032		4,040
1‑to‑4 family residential		200		13		669		950		1,832		193,342		195,174		108		54		701		649		1,512		176,601		178,113
HELOC		95		31		0		263		389		48,006		48,395		1		35		—		86		122		56,163		56,285
Deferred loan (fees) cost, net		0		0		0		0		—		0		(5,477)		—		—		—		—		—		—		(5,229)

	$	516	$	149	$	1,548	$	7,695	$	9,908	$	1,279,026	$	1,283,457	$	1,261	$	107	$	1,682	$	6,771	$	9,821	$	1,327,828	$	1,332,420

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

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)


	December 31, 2020
	30-59		60-89		90+		Non-		Total
	Days		Days		Days		Accrual		Past				Total
	Past Due		Past Due		Accruing		Loans		Due		Current		Loans

	(dollars in thousands)

Commercial and industrial	$	11	$	1,003	$	2	$	3,601	$	4,617	$	121,083	$	125,700
Construction		8		—		—		154		162		236,573		236,735
Multi-family residential		—		1,533		—		—		1,533		80,975		82,508
Commercial real estate		1,880		—		9		2,008		3,897		604,585		608,482
Loans to individuals & overdrafts		10		—		—		145		155		6,967		7,122
1‑to‑4 family residential		700		—		760		655		2,115		191,916		194,031
HELOC		67		—		31		227		325		53,481		53,806
Deferred loan (fees) cost, net		—		—		—		—		—		—		(4,000)

	$	2,676	$	2,536	$	802	$	6,790	$	12,804	$	1,295,580	$	1,304,384

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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~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	As of September 30, 2020						Three Months Ended				Nine Months Ended				As of June 30, 2021						Three Months Ended				Six Months Ended
			Contractual				September 30, 2020				September 30, 2020						Contractual				June 30, 2021				June 30, 2021
			Unpaid		Related		Average		Interest Income		Average		Interest Income				Unpaid		Related		Average		Interest Income		Average		Interest Income
	Recorded		Principal		Allowance		Recorded		Recognized on		Recorded		Recognized on		Recorded		Principal		Allowance		Recorded		Recognized on		Recorded		Recognized on
	Investment		Balance		for Loan Losses		Investment		Impaired Loans		Investment		Impaired Loans		Investment		Balance		for Loan Losses		Investment		Impaired Loans		Investment		Impaired Loans

	(dollars in thousands)														(dollars in thousands)
2020 :

With no related allowance recorded:
Commercial and industrial	$	3,635	$	5,466	$	—	$	4,818	$	25	$	4,475	$	152	$	1,671	$	1,816	$	—	$	2,267	$	22	$	1,926	$	22
Construction		262		366		—		345		6		291		17		697		721		—		571		6		402		6
Commercial real estate		5,175		5,448		—		5,265		38		5,661		127		3,704		3,704		—		4,402		126		3,936		126
Loans to individuals & overdrafts		261		279		—		271		—		273		14		2		2		—		53		—		195		—
Multi-family residential		—		—		—		—		—		99		—		—		—		—		—		—		—		—
HELOC		411		553		—		453		2		575		22		432		432		—		401		15		407		15
1‑to‑4 family residential		197		207		—		202		22		292		—		299		299		—		308		57		252		57

Subtotal:		9,941		12,319		—		11,354		93		11,666		332		6,805		6,974		—		8,002		226		7,118		226
With an allowance recorded:
Commercial and industrial		502		521		162		576		19		576		18		2,153		2,353		1,228		1,714		14		1,922		14
Construction		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate		977		1,032		325		986		15		208		46		1,698		1,698		396		779		32		1,278		33
Loans to individuals & overdrafts		—		—		—		—		—		—		—		52		52		3		—		—		2		—
Multi-family Residential		—		—		—		—		—		—		—		—		—		—		—		—		—		—
HELOC		119		150		9		122		5		264		6		65		65		3		65		2		65		2
1‑to‑4 family residential		39		107		10		103		—		64		6		—		—		—		—		—		—		—
Subtotal:		1,637		1,810		506		1,787		39		1,112		76		3,968		4,168		1,630		2,558		48		3,267		49
Totals:
Commercial		10,551		12,833		487		11,990		103		11,310		360		9,923		10,292		1,624		9,733		200		9,464		201
Consumer		261		279		—		271		—		273		14		54		54		3		53		—		197		—
Residential		766		1,017		19		880		29		1,195		34		796		796		3		774		74		724		74

Grand Total:	$	11,578	$	14,129	$	506	$	13,141	$	132	$	12,778	$	408	$	10,773	$	11,142	$	1,630	$	10,560	$	274	$	10,385	$	275

Impaired loans at ~~September~~June 30, ~~2020~~2021 were approximately ~~$11.6~~$10.8 million and were composed of ~~$7.7~~$6.7 million in non-accrual loans and ~~$3.9~~$4.1 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately ~~$1.6~~$4.0 million in impaired loans had specific allowances provided for them while the

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

remaining ~~$9.9~~$6.8 million had no specific allowances recorded at ~~September~~June 30, ~~2020.~~2021. Of the ~~$9.9~~$6.8 million with no allowance recorded, ~~$307,000~~$699,000 of those loans have had partial charge-offs recorded.


	As of December 31, 2019						Three Months Ended				Nine Months Ended				As of December 31, 2020						Three Months Ended				Six Months Ended
			Contractual				September 30, 2019				September 30, 2019						Contractual				June 30, 2020				June 30, 2020
			Unpaid		Related		Average		Interest Income		Average		Interest Income				Unpaid		Related		Average		Interest Income		Average		Interest Income
	Recorded		Principal		Allowance		Recorded		Recognized on		Recorded		Recognized on		Recorded		Principal		Allowance		Recorded		Recognized on		Recorded		Recognized on
	Investment		Balance		for Loan Losses		Investment		Impaired Loans		Investment		Impaired Loans		Investment		Balance		for Loan Losses		Investment		Impaired Loans		Investment		Impaired Loans

	(dollars in thousands)														(dollars in thousands)
2019 :

With no related allowance recorded:
Commercial and industrial	$	2,796	$	4,051	$	—	$	4,010	$	32	$	4,397	$	100	$	2,231	$	2,525	$	—	$	3,667	$	71	$	2,951	$	108
Construction		440		537		—		2,413		12		1,546		20		252		440		—		432		6		434		11
Commercial real estate		5,585		6,750		—		7,167		70		6,022		218		5,090		5,426		—		5,679		38		5,690		88
Loans to individuals & overdrafts		197		197		—		84		6		93		6		250		287		—		259		3		273		13
Multi-family residential		284		293		—		205		3		209		10		—		—		—		—		—		99		21
HELOC		543		678		—		1,205		21		1,202		61		383		478		—		671		10		610		20
1‑to‑4 family residential		395		1,816		—		861		11		944		36		206		259		—		109		18		86		—
Subtotal:		10,240		14,322		—		15,945		155		14,413		451		8,412		9,415		—		10,817		146		10,143		261
With an allowance recorded:
Commercial and industrial		731		1,056		403		882		1		572		41		1,641		1,918		419		649		11		649		19
Construction		—		—		—		—		—		13		—		—		—		—		—		—		—		—
Commercial real estate		—		—		—		—		—		—		—		415		415		323		278		16		278		31
Loans to individuals & overdrafts		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Multi-family Residential		—		—		—		—		—		—		—		—		—		—		—		—		—		—
HELOC		160		222		—		546		14		563		7		82		83		7		—		—		—		—
1‑to‑4 family residential		81		94		10		162		4		212		10		14		16		9		246		14		283		22
Subtotal:		972		1,372		413		1,590		19		1,360		58		2,152		2,432		758		1,173		41		1,210		72
Totals:
Commercial		9,749		12,591		403		14,677		118		12,759		389		9,629		10,724		742		10,705		142		10,101		257
Consumer		284		293		—		84		6		93		6		250		287		—		259		3		273		13
Residential		1,179		2,810		10		2,774		50		2,921		114		685		836		16		1,026		42		979		63
Grand Total:	$	11,212	$	15,694	$	413	$	17,535	$	174	$	15,773	$	509	$	10,564	$	11,847	$	758	$	11,990	$	187	$	11,353	$	333

Impaired loans at December 31, ~~2019~~2020 were approximately ~~$11.2~~$10.6 million and included ~~$5.9~~$6.8 million in non-accrual loans and ~~$6.2~~$3.8 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately ~~$972,000~~$2.2 million of the ~~$11.2~~$10.6 million in impaired loans at December 31, ~~2019~~2020 had specific allowances aggregating ~~$413,000~~$758,000 while the remaining ~~$10.2~~$8.4 million had no specific allowances recorded. Of the ~~$10.2~~$8.4 million with no allowance recorded, partial charge-offs through December 31, ~~2019~~2020 amounted to ~~$438,000.~~$81,000.

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.

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Troubled Debt Restructurings

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020					Three Months Ended June 30, 2021					Six Months Ended June 30, 2021
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification			Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded		of	Recorded		Recorded		of	Recorded		Recorded
	loans	Investments		Investments		loans	Investments		Investments		loans	Investments		Investments		loans	Investments		Investments

	(dollars in thousands)					(dollars in thousands)					(dollars in thousands)					(dollars in thousands)
Extended payment terms:
1-to-4 family residential	2	$	339	$	325	6	$	797	$	537
Construction	—		—		—	1		157		13
HELOC	—		—		—	2		240		232
Commercial & industrial	2		146		139	4		1,091		1,083	1		364		265	2		382		280
Loans to individuals	—		—		—	1		14		9

Total	4	$	485	$	464	14	$	2,299	$	1,874	1	$	364	$	265	2	$	382	$	280

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 June 30, 2020					Six Months Ended June 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

	(dollars in thousands)					(dollars in thousands)
Extended payment terms:
Commercial and industrial	—	$	—	$	—	6	$	2,665	$	2,539
Construction	1		157		138	2		417		396
HELOC	1		190		185	2		240		235
1‑to‑4 family residential	2		139		92	5		632		384

Total	4	$	486	$	415	15	$	3,954	$	3,554

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default during that period together with concessions made by loan class during the twelve month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Twelve months ended			Twelve months ended			Twelve months ended			Twelve months ended
	September 30, 2020			September 30, 2019			June 30, 2021			June 30, 2020
	Number	Recorded		Number	Recorded		Number	Recorded		Number	Recorded
	of loans	investment		of loans	investment		of loans	investment		of loans	investment

	(dollars in thousands)			(dollars in thousands)			(dollars in thousands)			(dollars in thousands)
Extended payment terms:
Commercial and industrial	4	$	2,203	—	$	—	5	$	1,301	2	$	1,510
Loans to individuals							1		2	—		—
Construction	2		208	—		—	—		—	1		138
HELOC							—		—	1		186
1-to-4 family residential	1		10	1		16	—		—	2		92
							1		13
Total	7	$	2,421	1	$	16	7	$	1,316	6	$	1,926

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

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

~~million through September~~At June 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,~~2021, the Bank had NaN loans with an aggregate balance of ~~$8.2~~$6.5 million that were considered to be troubled debt restructurings. Of those TDRs, NaN loans with a balance totaling ~~$6.5~~$4.1 million were still accruing as of ~~September~~June 30, ~~2019.~~2021. The remaining TDRs with balances totaling ~~$1.7~~$2.4 million as of ~~September~~June 30, ~~2019~~2021 were in non-accrual status.

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:

Total loans:


September 30, 2020
June 30, 2021									June 30, 2021
Commercial
Credit
Exposure By	Commercial				Commercial					Commercial				Commercial
Internally	and				real		Multi-family			and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential			industrial		Construction		estate		residential
	(dollars in thousands)									(dollars in thousands)

Superior	$	96,415	$	—	$	76	$	—		$	42,427	$	—	$	361	$	—
Very good		368		162		7,812		—			935		334		3,840		—
Good		5,538		2,196		67,996		4,866			4,183		2,307		99,588		4,454
Acceptable		22,173		24,718		270,857		50,771			12,788		19,277		326,890		41,936
Acceptable with care		35,331		228,132		181,384		24,060			42,173		193,993		255,808		32,743
Special mention		390		349		2,363		—			1,434		126		5,569		—
Substandard		5,551		161		6,599		—			4,093		601		3,351		—
Doubtful		—		—		—		—			—		—		—		—
Loss		—		—		—		—			—		—		—		—
	$	165,766	$	255,718	$	537,087	$	79,697		$	108,033	$	216,638	$	695,407	$	79,133


Consumer Credit
Exposure By
Internally	1‑to‑4 family				1‑to‑4 family
Assigned Grade	residential		HELOC		residential		HELOC

Pass	$	191,984	$	47,300	$	175,593	$	55,305
Special mention		445		205		719		237
Substandard		2,745		890		1,801		743
	$	195,174	$	48,395	$	178,113	$	56,285


Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts

Pass	$	3,973
Special mention		67
	$	4,040

Table of Contents

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Consumer Credit

Exposure Based

Loans to
On Payment

individuals &
Activity

overdrafts

Pass

$
6,806
Special mention

291

$
7,097

Total Loans:


December 31, 2019
December 31, 2020									December 31, 2020
Commercial
Credit
Exposure By	Commercial				Commercial					Commercial				Commercial
Internally	and				real		Multi-family			and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential			industrial		Construction		estate		residential
	(dollars in thousands)									(dollars in thousands)

Superior	$	4,014	$	—	$	337	$	—		$	56,510	$	—	$	123	$	—
Very good		349		110		1,245		—			508		70		8,129		—
Good		5,976		8,674		62,643		4,839			4,693		1,770		80,401		2,086
Acceptable		19,197		16,249		255,751		41,113			17,226		18,084		308,200		46,820
Acceptable with care		40,579		196,228		133,190		23,172			40,946		216,418		203,008		32,068
Special mention		242		436		1,490		—			1,313		239		4,344		1,534
Substandard		5,391		181		4,459		—			4,504		154		4,277		—
Doubtful		—		—		—		—			—		—		—		—
Loss		—		—		—		—			—		—		—		—
	$	75,748	$	221,878	$	459,115	$	69,124		$	125,700	$	236,735	$	608,482	$	82,508


Consumer Credit
Exposure By
Internally		1‑to‑4 family				1‑to‑4 family
Assigned Grade	residential		HELOC		residential		HELOC

Pass	$	147,958	$	43,585	$	190,975	$	52,756
Special mention		1,246		76		633		226
Substandard		2,493		853		2,423		824
	$	151,697	$	44,514	$	194,031	$	53,806

~~Table of Contents~~

~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


Consumer Credit
Exposure Based	Loans to		Loans to
On Payment		individuals &		individuals &
Activity	overdrafts		overdrafts

Pass	$	9,727	$	6,845
Special mention		286		277
	$	10,013	$	7,122

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

Table of Contents

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following table documents changes to the amount of the accretable yield on PCI loans for the last three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(dollars in thousands)				(dollars in thousands)				(dollars in thousands)				(dollars in thousands)

Accretable yield, beginning of period	$	5,661	$	3,481	$	3,191	$	3,593	$	5,222	$	2,986	$	4,622	$	3,191
Additions		—		—		2,949		—		—		2,949		—		2,949
Accretion		(487)		(277)		(1,209)		(855)		(455)		(442)		(854)		(722)
Reclassification from nonaccretable difference		24		45		67		293		290		11		553		43
Other changes, net		(307)		56		(107)		274		(72)		157		664		200
Accretable yield, end of period	$	4,891	$	3,305	$	4,891	$	3,305	$	4,985	$	5,661	$	4,985	$	5,661

Table of Contents

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the ~~three~~three-month and ~~nine month~~six-month periods ended ~~September~~June 30, ~~2020~~2021 and ~~September~~June 30, ~~2019,~~2020, respectively (dollars in thousands):


	Three Months Ended September 30, 2020																Three Months Ended June 30, 2021
	Commercial						1 to 4				Loans to		Multi-				Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family				and				Commercial		family				individuals &		family
2020	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
2021																	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
Balance, beginning of period 3/31/2021																	$	3,418	$	1,704	$	4,792	$	1,028	$	328	$	56	$	1,294	$	12,620
Provision for (recovery of) loan losses		1,568		212		325		(570)		(49)		4		84		1,574		(68)		(130)		623		(95)		(35)		(6)		(737)		(448)
Loans charged-off		(98)		0		(70)		0		0		(23)		0		(191)		(7)		—		(332)		—		—		(7)		—		(346)
Recoveries		40		0		1		7		1		7		4		60		175		69		12		10		2		8		—		276
Balance, end of period 9/30/2020	$	4,133	$	2,496	$	4,440	$	1,108	$	340	$	96	$	709	$	13,322
Balance, end of period 6/30/2021																	$	3,518	$	1,643	$	5,095	$	943	$	295	$	51	$	557	$	12,102

PCI Loans
Balance, beginning of period 07/01/2020	$	23	$	11	$	44	$	75	$	9	$	4	$	9	$	175
Balance, beginning of period 3/31/2021																	$	203	$	38	$	4	$	311	$	1	$	0	$	10	$	567
Provision for (recovery of) loan losses		(23)		(11)		(44)		164		(9)		(4)		(9)		64		308		(38)		41		(311)		(1)		—		(10)		(11)
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
Balance, end of period 6/30/2021																	$	511	$	0	$	45	$	0	$	0	$	0	$	0	$	556

Total Loans
Balance, beginning of period 07/01/2020	$	2,646	$	2,295	$	4,228	$	1,746	$	397	$	112	$	630	$	12,054
Balance, beginning of period 3/31/2021																	$	3,621	$	1,742	$	4,796	$	1,339	$	329	$	56	$	1,304	$	13,187
Provision for (recovery of) loan losses		1,545		201		281		(406)		(58)		0		75		1,638		240		(168)		664		(406)		(36)		(6)		(747)		(459)
Loans charged-off		(98)		0		(70)		0		0		(23)		0		(191)		(7)		—		(332)		—		—		(7)		—		(346)
Recoveries		40		0		1		7		1		7		4		60		175		69		12		10		2		8		—		276
Balance, end of period 9/30/2020	$	4,133	$	2,496	$	4,440	$	1,347	$	340	$	96	$	709	$	13,561
Balance, end of period 6/30/2021																	$	4,029	$	1,643	$	5,140	$	943	$	295	$	51	$	557	$	12,658

Ending Balance: individually evaluated for impairment	$	162	$	0	$	325	$	10	$	9	$	0	$	0	$	506	$	1,228	$	—	$	396	$	—	$	3	$	3	$	—	$	1,630
Ending Balance: collectively evaluated for impairment	$	3,971	$	2,496	$	4,115	$	1,337	$	331	$	96	$	709	$	13,055	$	2,801	$	1,643	$	4,744	$	943	$	292	$	48	$	557	$	11,028

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	$	102,703	$	215,423	$	679,162	$	168,527	$	55,163	$	3,774	$	78,420	$	1,303,172
Ending Balance: collectively evaluated for impairment PCI loans	$	1,557	$	1,605	$	12,959	$	12,013	$	675	$	127	$	1,051	$	29,987	$	1,506	$	663	$	10,843	$	9,287	$	625	$	67	$	713	$	23,704
Ending Balance: individually evaluated for impairment	$	4,624	$	262	$	5,666	$	235	$	530	$	261	$	0	$	11,578	$	3,824	$	552	$	5,402	$	299	$	497	$	199	$	—	$	10,773
Ending Balance	$	165,766	$	255,718	$	537,087	$	195,174	$	48,395	$	7,097	$	79,697	$	1,288,934	$	108,033	$	216,638	$	695,407	$	178,113	$	56,285	$	4,040	$	79,133	$	1,337,649

Table of Contents

SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

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


	Six Months Ended June 30, 2021

	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
2021	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
Allowance for loan losses
Loans – excluding PCI
Balance, beginning of period 01/01/2021	$	3,302	$	2,334	$	5,472	$	1,365	$	371	$	109	$	820	$	13,773
Provision for (recovery of) loan losses		218		(760)		(82)		(429)		(80)		(61)		(263)		(1,457)
Loans charged-off		(204)		—		(332)		(8)		—		(17)		—		(561)
Recoveries		202		69		37		15		4		20		—		347
Balance, end of period 6/30/2021	$	3,518	$	1,643	$	5,095	$	943	$	295	$	51	$	557	$	12,102

PCI Loans
Balance, beginning of period 01/01/2021	$	203	$	31	$	4	$	85	$	1	$	—	$	11	$	335
Provision for (recovery of) loan losses		308		(31)		41		(85)		(1)		—		(11)		221
Loans charged-off		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—
Balance, end of period 6/30/2021	$	511	$	—	$	45	$	—	$	—	$	—	$	—	$	556

Total Loans
Balance, beginning of period 01/01/2021	$	3,505	$	2,365	$	5,476	$	1,450	$	372	$	109	$	831	$	14,108
Provision for (recovery of) loan losses		526		(791)		(41)		(514)		(81)		(61)		(274)		(1,236)
Loans charged-off		(204)		—		(332)		(8)		—		(17)		—		(561)
Recoveries		202		69		37		15		4		20		—		347
Balance, end of period 6/30/2021	$	4,029	$	1,643	$	5,140	$	943	$	295	$	51	$	557	$	12,658

Table of Contents

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


	Three Months Ended June 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 3/31/2020	$	1,834	$	2,125	$	3,558	$	1,714	$	398	$	143	$	546	$	10,318
Provision for (recovery of) loan losses		1,306		159		625		(49)		(51)		(39)		75		2,026
Loans charged-off		(519)		—		—		—		—		(3)		—		(522)
Recoveries		2		—		1		6		41		7		—		57
Balance, end of period 6/30/2020	$	2,623	$	2,284	$	4,184	$	1,671	$	388	$	108	$	621	$	11,879

PCI Loans
Balance, beginning of period 3/31/2020	$	199	$	7	$	14	$	43	$	0	$	0	$	5	$	268
Provision for (recovery of) loan losses		(176)		4		30		32		9		4		4		(93)
Loans charged-off		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—
Balance, end of period 6/30/2020	$	23	$	11	$	44	$	75	$	9	$	4	$	9	$	175

Total Loans
Balance, beginning of period 3/31/2020	$	2,033	$	2,132	$	3,572	$	1,757	$	398	$	143	$	551	$	10,586
Provision for (recovery of) loan losses		1,130		163		655		(17)		(42)		(35)		79		1,933
Loans charged-off		(519)		—		—		—		—		(3)		—		(522)
Recoveries		2		—		1		6		41		7		—		57
Balance, end of period 6/30/2020	$	2,646	$	2,295	$	4,228	$	1,746	$	397	$	112	$	630	$	12,054

Ending Balance: individually evaluated for impairment	$	344	$	—	$	392	$	4	$	—	$	—	$	—	$	740
Ending Balance: collectively evaluated for impairment	$	2,302	$	2,295	$	3,836	$	1,742	$	397	$	112	$	630	$	11,314

Loans:
Ending Balance: collectively evaluated for impairment non PCI loans	$	155,443	$	243,887	$	497,112	$	184,805	$	48,034	$	7,128	$	76,463	$	1,212,872
Ending Balance: collectively evaluated for impairment PCI loans	$	1,659	$	1,622	$	13,148	$	12,259	$	691	$	150	$	1,414	$	30,943
Ending Balance: individually evaluated for impairment	$	4,541	$	428	$	5,852	$	331	$	546	$	262	$	—	$	11,960

Ending Balance	$	161,643	$	245,937	$	516,112	$	197,395	$	49,271	$	7,540	$	77,877	$	1,255,775

Table of Contents

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


	Six Months Ended June 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		2,023		553		1,345		218		18		(59)		202		4,300
Loans charged-off		(530)		—		—		—		—		(19)		—		(549)
Recoveries		3		—		2		16		41		11		—		73
Balance, end of period 6/30/2020	$	2,623	$	2,284	$	4,184	$	1,671	$	388	$	108	$	621	$	11,879

PCI Loans
Balance, beginning of period 01/01/2020	$	178	$	6	$	14	$	56	$	—	$	—	$	15	$	269
Provision for (recovery of) loan losses		(155)		5		30		19		9		4		(6)		(94)
Loans charged-off		—		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—		—
Balance, end of period 6/30/2020	$	23	$	11	$	44	$	75	$	9	$	4	$	9	$	175

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		1,868		558		1,375		237		27		(55)		196		4,206
Loans charged-off		(530)		—		—		—		—		(19)		—		(549)
Recoveries		3		—		2		16		41		11		—		73
Balance, end of period 6/30/2020	$	2,646	$	2,295	$	4,228	$	1,746	$	397	$	112	$	630	$	12,054

NOTE G – LOANS HELD FOR SALE

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

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

~~NOTE H –BUSINESS COMBINATIONS~~

On December 20, 2019, the Bank entered into a Branch Purchase and Assumption Agreement (the “Purchase Agreement”) with Entegra Bank (“Entegra”), by which the Bank assumed the deposits and acquired the majority of the loans, property, equipment and other selected assets associated with 3 existing Entegra branch offices. Entegra was merged with and

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

NOTE H – OTHER REAL ESTATE OWNED

The following table explains changes in other real estate owned, or OREO, during the six months ended June 30, 2021 and 2020:


	Six Months		Six Months
	Ended		Ended
	June 30,		June 30,
	2021		2020

	(Dollars in thousands)

Beginning balance January 1	$	2,172	$	3,533
Sales proceeds		(969)		—
Write-downs and (loss) gain on sales		(54)		(176)
Transfers		526		204
Ending balance	$	1,675	$	3,561

At June 30, 2021 and 2020, the Company had $1.7 million and $3.6 million, respectively, of foreclosed real estate property in OREO. The Company had 1 loan with a recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure in the aggregate amount of $351,000 at June 30, 2021. At June 30, 2020, the Company had 2 loans with recorded investment in the amount of $428,000 in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure.

NOTE I – LEASES

The Company has operating leases for branches and certain equipment. The Company’s leases have remaining lease terms of 1 year to 15 years which may include options to extend the leases for up to 5 years per option period. The Company has some leases that are month to month or expire within 1 year that are not included below.

At June 30, 2021, the Company did not have any leases that had not yet commenced for which we had created a right-of-use 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.

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 and lease liability.

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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.

On April 17, 2020, the Bank completed the acquisition of the 3 branches located in western North Carolina and pursuant to the terms of the 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 table 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

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~~SELECT BANCORP, INC.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~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 and net income for the 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 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.

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

The components of lease expense were as follows:


	Six Months		Six Months
	Ended		Ended
	June 30,		June 30,
	2021		2020
Operating lease cost	$	634	$	623

Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases	$	634	$	623

Right-of-use assets obtained in exchange for lease obligations:

Operating leases	$	8,156	$	8,953

The following table presents the remaining weighted average lease terms and discount rates as of June 30, 2021 and 2020 :


	June 30, 2021		June 30, 2020
Weighted Average Remaining Lease Term Operating Leases	11.4	years	6.7	years

Weighted Average Discount Rate Operating Leases	6.0	%	6.0	%

Maturities of lease liabilities were as follows:


	Operating
(In thousands)	Leases
Year Ending December 31,
2021	$	379
2022		816
2023		796
2024		769
2025		842
Thereafter		5,558
Lease payments		9,160
Amounts representing interest		(562)
Present Value of Net Future Minimum Lease Payments	$	8,598

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SELECT BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

NOTE IJ – ~~OTHER REAL ESTATE OWNED~~BUSINESS COMBINATIONS

~~The following table explains changes in other real estate owned, or OREO, during the nine months ended September 30, 2020 and 2019:~~

Nine Months

Nine Months

Ended

Ended

September 30,

September 30,

2020

2019

(Dollars in thousands)

Beginning balance January 1

$
3,533

$
1,088

Sales

(180)

(103)

Write-downs and loss on sales

(390)

(12)

Transfers

274

469

Ending balance

$
3,237

$
1,442

On June 1, 2021, the Company entered into the Merger Agreement with First Bancorp, pursuant to which the Company will merge with and into First Bancorp and the Bank will merge with and into First Bank. As of June 1, 2021, the aggregate merger consideration had a total value of approximately $314.3 million, or $18.10 per share. As of June 30, 2021, the aggregate merger consideration had a total value of approximately $290.0 million, or $16.70 per share.

~~At September 30, 2020~~Subject to the terms and ~~December 31, 2019,~~conditions of the Merger Agreement, the Company’s shareholders will have the right to receive 0.408 of a share of First Bancorp common stock for each share of the Company’s common stock. Additionally, at closing each outstanding and unexercised option to acquire shares of the Company’s common stock, whether or not previously vested, will be cancelled in exchange for a cash payment of $18.00 minus the exercise price for each share of the Company’s common stock subject to such stock option.

The Merger Agreement has been unanimously approved by the boards of directors of each of the Company ~~had $3.2 million~~ and ~~$3.5 million, respectively,~~First Bancorp. The closing of the Merger is subject to the approval of the Company’s shareholders and First Bancorp’s shareholders, requisite regulatory approvals and other customary closing conditions. The parties anticipate closing the Merger during the fourth quarter of 2021.

The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety be reference to the Merger Agreement, 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 in the aggregate amount of $428,000 at September 30, 2020. At December 31, 2019, the Company had 3 loans with recorded investment in the amount of $114,000 in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure.incorporated as Exhibit 2.1 to this Quarterly Report on Form 10-Q.

NOTE JK – SUBSEQUENT EVENTS

The Company has evaluated for subsequent events through the date and time the financial statements were issued and has determined there are no reportable subsequent events.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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, as 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,~~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 changes in credit quality ~~trends.~~trends ; our ability to successfully consummate our previously announced merger with First Bancorp, including the ability to obtain required governmental approvals of the merger on the proposed terms and schedule or that the terms of the proposed merger may need to be unfavorably modified to satisfy such approvals or other closing conditions; the diversion of management time from core banking functions due to merger-related issues; and potential difficulty in maintaining relationships with customers, associates or business partners as a result of our previously announced merger with First Bancorp.

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, Alamance, and Wayne counties in North Carolina, York 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. The combined company is 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

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addition of six branches located in Greenville (two), Elizabeth City, Washington, Gibsonville, and Burlington. During 2015, the Gibsonville and Burlington

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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”) headquartered in Charlotte, North Carolina. At the time of the acquisition, Carolina Premier had approximately $279 million in assets and ~~four-full service~~four full-service offices, including a presence in upstate South Carolina. The Bank acquired three branches located in the cities of Sylva, Franklin and Highlands, North Carolina on April 17,2020. The acquisition of these branches, which were acquired from First-Citizens Bank & Trust Company, Raleigh, North Carolina, added approximately $103 million in loans and $185 million in deposits as of the acquisition date.

On June 1, 2021, the Company entered into the Merger Agreement with First Bancorp, the holding company for First Bank, Southern Pines, North Carolina, pursuant to which the Company will merge with and into First Bancorp, and the Bank will merge with and into First Bank. The parties anticipate closing the Merger during the fourth quarter of 2021.

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Comparison of Financial Condition at

~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020

During the first ~~nine~~six months of ~~2020,~~2021, total assets increased by ~~$496.9~~$144.8 million to ~~$1.8~~$1.9 billion as of ~~September~~June 30, ~~2020.~~2021. The increase in assets was due primarily to loan growth and the ~~acquisition of three branches located~~increase in ~~western North Carolina~~cash on hand and ~~loans originated by the Bank in connection with its participation in the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”).~~investments. Earning assets at ~~September~~June 30, ~~2020~~2021 totaled ~~$1.6~~$1.7 billion and consisted of $1.3 billion in net loans, ~~$87.4~~$217.6 million in investment securities, ~~$274.6~~$205.2 million in cash, overnight investments and interest-bearing deposits in other banks, ~~$8.0~~$2.7 million in federal funds sold and ~~$3.8~~$1.5 million in non-marketable equity securities. Total deposits and shareholders’ equity at the end of the ~~third~~second quarter of ~~2020~~2021 were ~~$1.5~~$1.6 billion and ~~$213.4~~$221.5 million, respectively.

Since the end of ~~2019,~~2020, gross loans have increased by ~~$253.5~~$28.0 million to $1.3 billion as of ~~September~~June 30, ~~2020.~~2021. The increase in gross loans was due primarily to normal customer demand and the PPP loan ~~program and the aforementioned acquisition of branches.~~program. At ~~September~~June 30, ~~2020,~~2021, gross loans consisted of ~~$165.8~~$97.6 million in commercial and industrial loans (which includes ~~1,249~~605 PPP loans in the amount of ~~$97.0~~$41.5 million), ~~$537.1~~$695.4 million in commercial real estate loans, ~~$79.7~~$79.1 million in multi-family residential loans, ~~$7.1~~$14.5 million in consumer loans, ~~$195.2~~$178.1 million in residential real estate loans, ~~$48.4~~$56.3 million in HELOCs, and ~~$255.7~~$216.6 million in construction loans. Deferred loan fees, net of costs, on these loans were ~~$5.5~~$5.2 million (which includes ~~$3.1~~$2.1 million in net fees related to PPP loans) at ~~September~~June 30, ~~2020.~~2021.

At ~~September~~June 30, ~~2020~~2021 the Company held ~~$8.0~~$2.7 million in federal funds sold compared to ~~$9.0~~$5.4 million in federal funds sold at December 31, ~~2019.~~2020. Interest-earning deposits in other banks were ~~$249.5~~$179.8 million at ~~September~~June 30, ~~2020,~~2021, a ~~$198.6~~$92.4 million increase from December 31, ~~2019.~~2020. The Company’s investment securities at ~~September~~June 30, ~~2020~~2021 were ~~$87.4~~$217.6 million, an increase of ~~$15.1~~$23.1 million from December 31, ~~2019.~~2020. The investment portfolio as of ~~September~~June 30, ~~2020~~2021 consisted of ~~$11.8~~$52.0 million in government agency debt securities, ~~$41.7~~$71.9 million in mortgage-backed securities, ~~$2.1~~$2.3 million in corporate bonds and ~~$31.9~~$91.4 million in municipal securities. The net unrealized ~~gain~~loss on these securities was ~~$2.0~~$1.3 million as of ~~September~~June 30, ~~2020.~~2021.

At ~~September~~June 30, ~~2020,~~2021, the Company had an investment of ~~$3.1 million~~$862,000 in Federal Home Loan Bank (“FHLB”) stock, which ~~increased~~decreased by ~~$14,000~~$285,000 from December 31, ~~2019.~~2020. Also, the Company had ~~$718,000~~$655,000 in other non-marketable securities at ~~September~~June 30, ~~2020~~2021 compared to ~~$719,000~~$709,000 at December 31, ~~2019.~~2020.

At ~~September~~June 30, ~~2020,~~2021, non-earning assets were ~~$120.0~~$119.3 million, an increase of ~~$33.4~~$1.1 milllion from ~~$86.6~~$118.2 million as of December 31, ~~2019.~~2020. Non-earning assets included $25.1 million in cash and due from banks, bank premises and equipment of ~~$20.9~~$19.9 million, goodwill of ~~$41.9~~$42.9 million, core deposit intangible of ~~$1.7~~$1.2 million, accrued interest receivable of ~~$4.5~~$4.8 million, right of use lease asset of ~~$8.8~~$8.2 million, foreclosed real estate of ~~$3.2~~$1.7 million,

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and other assets totaling ~~$14.0~~$15.5 million, including net deferred taxes of ~~$3.6~~$4.1 million. Since the income on bank-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.

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Total deposits at ~~September~~June 30, ~~2020~~2021 were ~~$1.5~~$1.6 billion and consisted of ~~$408.2~~$491.3 million in non-interest-bearing demand deposits, ~~$610.3~~$714.2 million in money market and negotiable order of withdrawal, or NOW, accounts, ~~$51.6~~$59.2 million in savings accounts, and ~~$402.7~~$355.9 million in time deposits. Total deposits increased by ~~$479.9~~$134.8 million from ~~$992.8 million~~$1.5 billion as of December 31, ~~2019,~~2020, due primarily to the ~~acquisition of the three branches in western North Carolina~~federal stimulus programs and deposits related to the PPP loan program. The Bank had ~~$1.5~~$1.6 million in brokered demand deposits and ~~$3.1~~$1.6 million in brokered time deposits as of ~~September~~June 30, ~~2020.~~2021. The Bank had $0$1.4 million in brokered demand deposits and ~~$45.0~~$1.8 million in brokered time deposits as of December 31, ~~2019.~~2020.

As of ~~September~~June 30, ~~2020,~~2021, the Company had ~~$45.0 million (of which $20.0 million is identified as short-term borrowings and $25.0 million is identified as long-term debt) in~~no FHLB borrowings, and $12.4 million in junior subordinated debentures that are classified as long-term debt.

Total shareholders’ equity at ~~September~~June 30, ~~2020~~2021 was ~~$213.4~~$221.5 million, an increase of ~~$592,000~~$6.1 million from ~~$212.8~~$215.4 million as of December 31, ~~2019.~~2020. Accumulated other comprehensive ~~income~~loss relating to available for sale securities ~~increased $633,000~~dereased by $3.0 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020. Also contributing to the~~2021. The increase in shareholders’ equity ~~were~~was driven by net income of ~~$4.2~~$11.9 million and ~~$7,000~~$84,000 from the exercise of stock ~~options, which~~options. Also, contributing to the change in equity were ~~offset by~~ stock repurchases totaling ~~$4.4~~$3.2 million.

Past Due Loans, Non-performing Assets, and Asset Quality

At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$516,000 in loans that were 30 to 59 days past due and $149,000~~$1.4 million in loans that were 30 to 89 days past due, of which $107,000 in loans were 60 to 89 days past due. This $1.4 million represented ~~0.12%~~0.10% of gross loans outstanding on that date. This is a decrease from December 31, ~~2019~~2020 when there were ~~$3.5~~$5.2 million in loans that were 30-89 days past due, ~~or 0.34%~~of which $2.5 million in loans were 60 to 89 days past due. This $5.2 million repesented 0.40% of gross loans ~~outstanding.~~outstanding at December 31, 2020. Non-accrual loans ~~increased~~decreased $19,000 from ~~$5.9~~$6.8 million at December 31, ~~2019~~2020 to ~~$7.7~~$6.8 million at ~~September~~June 30, ~~2020.~~2021.

The percentage of non-performing loans (non-accrual loans and accruing troubled debt restructurings) to total loans decreased from ~~1.18%~~1.10% at December 31, ~~2019~~2020 to ~~1.07%~~0.81% at ~~September~~June 30, ~~2020.~~2021. The Company had ~~an increase~~a decrease of ~~$1.8 million~~$19,000 in non-accruals from ~~$5.9~~$6.8 million at December 31, ~~2019~~2020 and a decrease in accruing troubled debt restructurings, or TDRs, from ~~$6.2~~$7.5 million at December 31, ~~2019~~2020 to ~~$6.0~~$4.1 million as of ~~September~~June 30, ~~2020.~~2021. Of the non-accrual loans as of ~~September~~June 30, ~~2020, two~~2021, commercial real estate loans totaled ~~$2.0~~$2.2 million, ~~two~~ construction loans totaled ~~$161,000, twelve~~$600,000, commercial loans totaled ~~$4.3~~$3.2 million, ~~five~~ HELOC loans totaled ~~$263,000, eleven~~$86,000, 1-to-4 family residential loans totaled ~~$950,000~~$649,000 and consumer loans made up the remaining balance.

At ~~September~~June 30, ~~2020,~~2021, the Bank had ~~forty-nine~~thirty-four loans totaling ~~$10.3~~$6.5 million that were considered to be troubled debt restructurings, or TDRs. ~~Thirty-two~~Twenty-four of these loans totaling ~~$6.4~~$4.1 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.

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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						For Periods Ended
	September 30,			December 31,			June 30,			December 31,
	2020			2019			2021			2020


Non-accrual loans	$	7,695		$	5,941		$	6,771		$	6,790
Accruing TDRs		6,044			6,207			4,075			7,506
Total non-performing loans		13,739			12,148			10,846			14,296
Foreclosed real estate		3,237			3,533			1,675			2,172
Total non-performing assets	$	16,976		$	15,681		$	12,521		$	16,468

Accruing loans past due 90 days or more	$	1,548		$	1,231		$	1,682		$	802
Allowance for loan losses	$	13,561		$	8,324		$	12,658		$	14,108

Non-performing loans to period end loans		1.07	%		1.18	%		0.81	%		1.10	%
Non-performing loans and accruing loans past due 90 days or more to period end loans		1.19	%		1.30	%		0.94	%		1.16	%
Allowance for loan losses to period end loans		1.06	%		0.81	%		0.95	%		1.08	%
Allowance for loan losses to non-performing loans		99	%		69	%		117	%		99	%
Allowance for loan losses to non-performing assets		80	%		53	%		101	%		86	%
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more		73	%		49	%		89	%		82	%
Non-performing assets to total assets		0.96	%		1.23	%		0.67	%		0.95	%
Non-performing assets and accruing loans past due 90 days or more to total assets		1.05	%		1.33	%		0.76	%		1.00	%

Total non-performing assets (non-accrual loans, accruing TDRs, and foreclosed real estate) at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$17.0~~$12.5 million and ~~$15.7~~$16.5 million, respectively. The allowance for loan losses at ~~September~~June 30, ~~2020~~2021 represented ~~80%~~101% of non-performing assets compared to ~~53%~~86% at December 31, ~~2019.~~2020.

Total impaired loans at ~~September~~June 30, ~~2020~~2021 were ~~$11.6~~$10.8 million. This included ~~$7.7~~$6.7 million in loans that were classified as impaired because they were in non-accrual status and ~~$3.9~~$4.1 million in accruing loans. Of these loans, ~~$1.6~~$4.0 million required a specific reserve of ~~$506,000~~$1.6 million at ~~September~~June 30, ~~2020.~~2021.

Total impaired loans at December 31, ~~2019~~2020 were ~~$11.2~~$10.6 million. This included ~~$5.9~~$6.8 million in loans that were classified as impaired because they were in non-accrual status and ~~$6.2~~$3.8 million in accruing TDRs. Of these loans, ~~$1.0~~$2.2 million required a specific reserve of ~~$413,000~~$758,000 at December 31, ~~2019.~~2020.

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The allowance for loan losses was ~~$13.6~~$12.7 million at ~~September~~June 30, ~~2020~~2021 or ~~1.06%~~0.95% of gross loans outstanding as compared to ~~0.81%~~1.08% reported as a percentage of gross loans at December 31, ~~2019.~~2020. This ~~increase~~decrease resulted primarily from changes in loans requiring a specific reserve plus a reduction in qualitative factors related to COVID-19 and economic performance indicators. The loans acquired from Legacy Select, ~~loans,~~ Carolina Premier and First Citizens Bank ~~loans~~ were recorded at estimated fair value as of the acquisition ~~date and~~date; the related credit risk is reflected as a fair value adjustment rather than separately in the allowance

~~Table of Contents~~

for loan losses as required in acquisition accounting. This required accounting under generally accepted accounting principles has resulted in a lower percentage of the allowance for loan losses to gross loans. The allowance for loan losses at ~~September~~June 30, ~~2020~~2021 represented ~~99%~~117% of non-performing loans compared to ~~69%~~99% at December 31, ~~2019.~~2020. It is management’s assessment that the allowance for loan losses as of ~~September~~June 30, ~~2020~~2021 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,~~have improved compared to a year ago but are ~~unprecedented, as state,~~still influenced by some deteriorated economic factors that have not returned to pre-pandemic levels. State, local, and national governing bodies continue to 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~~2021 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.~~2021. The Coronavirus Aid, Relieft, and Econnomic Security Act, or 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~~512 loans amounting to ~~$252.3~~$302.5 million ~~during 2020~~ of which ~~114~~8 loans totaling ~~$65.6~~$2.2 million remained on modification as of ~~September~~June 30, ~~2020. See Item 1A (Risk Factors) later in this report for additional discussion of COVID-19.~~2021.

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.


	Payments Due by Period										Payments Due by Period
								More										More
		1 Year	Over 1 to			Over 3 to		Than				1 Year	Over 1 to			Over 3 to		Than
	or Less		3 Years		5 Years		5 years		Total		or Less		3 Years		5 Years		5 years		Total

(dollars in thousands)	(dollars in thousands)										(dollars in thousands)
Time deposits	$	310,379	$	82,598	$	9,612	$	78	$	402,667	$	288,683	$	60,332	$	6,721	$	174	$	355,910
Short-term debt		20,000		—		—		—		20,000
Long-term debt		—		—		25,000		12,372		37,372		—		—		—		12,372		12,372
Operating leases		663		1,503		1,466		5,457		9,089		717		1,473		1,581		4,827		8,598
Total contractual obligations	$	331,042	$	84,101	$	36,078	$	17,907	$	469,128	$	289,400	$	61,805	$	8,302	$	17,373	$	376,880

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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.

~~Table of Contents~~

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$40.4~~$30.3 million and $27.7 million in non-1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$7.8~~$6.9 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 ~~28.3%~~20.0% and 23.2% of total risk-based capital as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, which is less than the 100% maximum allowed. These loans may represent 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%~~90% of risk-based capital for any single product line.

At ~~September~~June 30, ~~2020,~~2021, the Company ~~had five~~did not have any product type groups which exceeded this 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 $78.3 million. All other commercial real estate groups were at or below the 40% threshold.guideline. The internal guideline levels heighten the level of Company monitoring of such loans in underwriting and ongoing servicing activities.

At December 31, ~~2019,~~2020, the Company had three product types that exceeded the 40% guideline. The following product types were in 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 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~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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Acquisition, Development and Construction Loans

(dollars in thousands)


	September 30, 2020									December 31, 2019									June 30, 2021									December 31, 2020
				Land and Land									Land and Land									Land and Land									Land and Land
	Construction			Development			Total			Construction			Development			Total			Construction			Development			Total			Construction			Development			Total
Total ADC loans	$	219,576		$	36,142		$	255,718		$	186,038		$	35,840		$	221,878		$	177,567		$	39,071		$	216,638		$	195,649		$	41,086		$	236,735
Average Loan Size	$	315		$	592					$	331		$	607					$	256		$	535					$	288		$	595
Percentage of total loans		17.11	%		2.82	%		19.93	%		18.06	%		3.48	%		21.55	%		13.33	%		2.93	%		16.26	%		15.00	%		3.15	%		18.15	%
Non-accrual loans	$	169		$	—		$	169		$	181		$	—		$	181		$	601		$	—		$	601		$	154		$	—		$	154

Management monitors the ADC portfolio by reviewing funding based on project completeness, monthly and quarterly inspections as required by the project, collateral value, geographic concentrations, spec-to-presold ratios and performance of similar loans in the Company’s market area.

Geographic Concentrations

Certain risks exist arising 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~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


	September 30, 2020								December 31, 2019								June 30, 2021								December 31, 2020
	ADC Loans		Percent		HELOC		Percent		ADC Loans		Percent		HELOC		Percent		ADC Loans		Percent		HELOC		Percent		ADC Loans		Percent		HELOC		Percent

	(dollars in thousands)																(dollars in thousands)
Harnett County	$	8,683	3.40	%	$	4,528	9.36	%	$	9,637	4.34	%	$	5,156	11.58	%	$	10,047	4.64	%	$	4,144	7.36	%	$	9,515	4.02	%	$	4,672	8.68	%
Alamance County		511	0.20	%		1,062	2.20	%		845	0.38	%		1,072	2.41	%		397	0.18	%		536	0.95	%		536	0.23	%		920	1.71	%
Brunswick County		15,188	5.94	%		1,642	3.39	%		15,456	6.97	%		1,629	3.67	%		13,111	6.05	%		1,365	2.43	%		14,173	5.99	%		1,506	2.80	%
Carteret County		4,483	1.75	%		2,242	4.63	%		5,352	2.41	%		2,190	4.92	%		5,462	2.52	%		2,312	4.11	%		5,219	2.20	%		2,606	4.84	%
Cherokee County (SC)		—	—	%		34	0.07	%		—	—	%		22	0.05	%		—	—	%		18	0.03	%		—	—	%		22	0.04	%
Cumberland County		25,098	9.83	%		1,975	4.08	%		24,601	11.09	%		2,285	5.13	%		17,838	8.23	%		3,003	5.34	%		24,261	10.25	%		2,667	4.96	%
Durham County		6,621	2.59	%		159	0.33	%		—	—	%		—	—	%		806	0.37	%		901	1.60	%		541	0.23	%		554	1.03	%
Forsyth County		2,225	0.87	%		—	—	%		—	—	%		—	—	%		8,946	4.13	%		30	0.05	%		5,055	2.14	%		82	0.15	%
Jackson County		4,770	1.87	%		2,106	4.35	%		—	—	%		—	—	%		2,688	1.24	%		2,038	3.62	%		3,295	1.39	%		2,204	4.10	%
Macon County		10,507	4.11	%		4,779	9.87	%		—	—	%		—	—	%		6,064	2.80	%		4,952	8.80	%		9,454	3.99	%		5,160	9.59	%
Mecklenburg County		23,011	9.00	%		4,171	8.62	%		18,142	8.18	%		2,689	6.04	%		19,120	8.83	%		4,919	8.74	%		23,788	10.05	%		4,360	8.10	%
New Hanover County		34,737	13.58	%		2,564	5.30	%		40,518	18.26	%		2,885	6.48	%		22,818	10.53	%		4,583	8.14	%		25,608	10.82	%		3,416	6.35	%
Pasquotank County		2,978	1.16	%		1,636	3.38	%		1,997	0.90	%		1,693	3.80	%		4,137	1.91	%		1,279	2.27	%		3,148	1.33	%		1,241	2.31	%
Pitt County		17,655	6.90	%		3,343	6.91	%		16,098	7.25	%		5,442	12.23	%		14,229	6.57	%		3,176	5.64	%		17,154	7.25	%		3,733	6.94	%
Robeson County		35	0.01	%		2,568	5.31	%		1,165	0.53	%		2,939	6.60	%		17	0.01	%		2,917	5.18	%		33	0.01	%		2,966	5.51	%
Sampson County		236	0.09	%		1,841	3.80	%		23	0.01	%		1,743	3.92	%		316	0.15	%		1,654	2.94	%		295	0.12	%		1,830	3.40	%
Virginia Beach County (VA)		3,361	1.31	%		395	0.82	%		142	0.06	%		99	0.22	%		3,551	1.64	%		1,186	2.11	%		3,648	1.54	%		795	1.48	%
Wake County		21,871	8.55	%		1,541	3.18	%		23,407	10.56	%		1,640	3.68	%		23,559	10.87	%		4,681	8.32	%		23,514	9.93	%		2,694	5.01	%
Wayne County		3,207	1.25	%		2,904	6.00	%		1,572	0.71	%		3,183	7.15	%		828	0.38	%		2,205	3.92	%		2,426	1.03	%		2,962	5.50	%
Wilson County		759	0.30	%		57	0.12	%		477	0.21	%		72	0.16	%		—	—	%		173	0.31	%		1,112	0.47	%		130	0.24	%
York County (SC)		3,197	1.25	%		1,028	2.12	%		1,931	0.87	%		1,123	2.52	%		2,987	1.38	%		1,032	1.83	%		2,538	1.07	%		1,253	2.33	%
All other locations		66,585	26.04	%		7,820	16.16	%		60,515	27.27	%		8,652	19.44	%		59,717	27.57	%		9,181	16.31	%		61,422	25.94	%		8,033	14.93	%
			—																—
Total	$	255,718	100.00	%	$	48,395	100.00	%	$	221,878	100.00	%	$	44,514	100.00	%	$	216,638	100.00	%	$	56,285	100.00	%	$	236,735	100.00	%	$	53,806	100.00	%

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Interest-Only Payments

Another risk factor that exists in the total loan portfolio pertains to loans with interest-only payment terms. At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$300.0~~$339.1 million in loans that had terms permitting interest-only payments. This represented ~~23.4%~~25.4% of the total loan portfolio. At December 31, ~~2019,~~2020, the Company had ~~$249.9~~$312.2 million in loans that had terms permitting interest-only payments. This represented ~~24.3%~~23.94% 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 ~~$85.1~~$133.2 million, or ~~6.6%~~8.6% of total loans, at ~~September~~June 30, ~~2020~~2021 compared to ~~$82.0~~$104.6 million, or ~~8.0%~~10.1% of total loans, at December 31, ~~2019.~~2020. The Company’s ten largest customer relationships totaled ~~$149.8 million, or 11.7% of total loans, at September 30, 2020 compared to $129.5~~$168.0 million, or 12.6% of total loans, at June 30, 2021 compared to $158.1 million, or 15.3% of total loans, at December 31, ~~2019.~~2020. 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~~June 30, ~~2020~~2021 and ~~2019~~2020

General. During the ~~third~~second quarter of ~~2020,~~2021, the Company reported net income of ~~$2.5~~$5.6 million as compared with net income of ~~$3.2 million~~$681,000 for the ~~third~~second quarter of ~~2019.~~2020. Net income per common share for the ~~third~~second quarter of ~~2020~~2021 was ~~$0.14~~$0.33 and $0.32 basic and diluted, compared with net income per common share of ~~$0.17~~$0.04 basic and diluted, for the ~~third~~second quarter of ~~2019.~~2020. Results of operations for the ~~third~~second quarter of ~~2020~~2021 were primarily impacted by an increase of ~~$1.2~~$4.2 million in net interest income and an increase in non-interest expense of ~~$1.1 million.~~$520,000. The increase in non-interest expense of $520,000 was primarily related to increases in ~~information systems expenses~~personnel expense of ~~$191,000,~~$383,000, deposit insurance expense of ~~$400,000, foreclosed real estate expense~~$185,000, foreclosure related expenses of ~~$237,000,~~$22,000, professional fees of $542,000, other expenses of $104,000, and ~~personnel expense of $618,000,~~ which were offset by occupancy expenses of $37,000, and a decrease in merger-related expenses of ~~$121,000, occupancy expenses of $65,000 and professional fees of $119,000.~~$709,000. The Company recorded a recovery of provision for loan losses of ~~$1.6 million~~$459,000 for the ~~third~~second quarter of ~~2020~~2021 compared to a provision of ~~$231,000~~$1.9 million in the ~~third~~second quarter of ~~2019, which increased~~2020. The change in the provision expense had a significant impact on the ~~reduced~~ net income reported for the ~~2020 third~~2021 second quarter as compared to the comparative period in ~~2019.~~2020.

Net Interest Income. Net interest income increased by ~~$1.2~~$4.2 million for the ~~third~~second quarter of ~~2020~~2021 from the ~~third~~second quarter of ~~2019.~~2020. The Company’s total interest income was affected by an increase in earning loans, ~~which was offset by a reduction in earning balances of~~earnings on federal funds sold and ~~investments in addition to the interest rate reductions.~~investments. Average total interest-earning assets were ~~$1.4~~$1.7 billion in the ~~third~~second quarter of ~~2020~~2021 compared with ~~$1.2~~$1.4 billion during the same period in ~~2019,~~2020, while the average yield on those assets ~~decreased 48~~increased 3 basis points from ~~5.05%~~4.22% to ~~4.50%~~4.25%, which was primarily due to loan fee income that was offset the reduction of interest rates on loans due, ~~to modifications related to COVID-19,~~the reduced rates on overnight interest earning assets and reduced yield on investment securities.

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The Company’s average interest-bearing liabilities increased by ~~$234.2~~$213.3 million to $1.1 billion for the quarter ended ~~September~~June 30, ~~2020~~2021 from ~~$818.6~~$935.8 million for the same period one year earlier and the cost of those funds decreased from ~~1.52%~~1.14% to ~~1.03%~~0.59%, or 4955 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, deposits from PPP loans and general organic growth that is offset by a reduction in wholesale deposits. During the ~~third~~second quarter of ~~2020,~~2021, the Company’s net interest margin was ~~3.73%~~3.85% and net interest spread was ~~3.47%~~3.66%. In the same quarter ended one year earlier, net interest margin was ~~3.94%~~3.45% and net interest spread was ~~3.46%~~3.08%.

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. In determining the loss history to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company uses loss history based on the weighted average net charge off history for the most recent twelve consecutive quarters, based on the risk-graded pool to which the loss was assigned. Then, using the ~~look back~~look-back period, loss factors are calculated for each risk-graded pool. During the ~~third~~second quarter of ~~2020,~~2021, the Company recorded a recovery of provision for loan losses of ~~$1.6 million,~~$459,000, as compared to a provision of ~~$231,000~~$1.9 million that was recorded in the ~~third~~second quarter of ~~2019.~~2020 that was primarily influenced by improved in economic qualitative factors compared to prior periods that are associated with the computation of allowance for loan losses.

Non-Interest Income. Non-interest income for the quarter ended ~~September~~June 30, ~~2020~~2021 was ~~$1.7~~$1.9 million, an increase of ~~$276,000~~$484,000 from the ~~third~~second quarter of ~~2019.~~2020. Service charges on deposit accounts ~~decreased $51,000~~increased $33,000 to ~~$257,000~~$239,000 for the quarter ended ~~September~~June 30, ~~2020~~2021 from ~~$308,000~~$206,000 for the same period in ~~2019.~~2020. Other non-deposit fees and income increased ~~$76,000~~$375,000 from the ~~third~~second quarter of ~~2019~~2020 to the ~~third~~second quarter of ~~2020.~~2021. Fees from the sale of mortgages and SBA loans increased from ~~$218,000~~$355,000 for the quarter ended ~~September~~June 30, ~~2019~~2020 to ~~$517,000~~$431,000 for the ~~third~~second quarter of ~~2020~~2021 due to increased volume. The Company did not have any sales of investment securities during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~in 2019 sold securities for a gain of $48,000.~~2020.

Non-Interest Expenses. Non-interest expenses increased by ~~$1.1 million~~$520,000 to ~~$10.1~~$11.0 million for the quarter ended ~~September~~June 30, ~~2020,~~2021, from ~~$8.9~~$10.5 million for the same period in ~~2019.~~2020. 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~~second quarter of ~~2020~~2021 versus the same period in ~~2019:~~2020:

●

Personnel expenses increased ~~$618,000~~$383,000 to ~~$5.7~~$6.2 million, due to additional personnel and cost of living increases.

●

~~Occupancy expenses decreased $65,000,~~Information systems increased $84,000, primarily due to the ~~reduction~~increased accounts in ~~repairs and maintenance which was offset by increased rent expense due to normal rent escalation.~~the branches.

●

Integration-related expenses decreased ~~$121,000.~~

●

~~CDI expense reduced $29,000 due to amortization.~~$709,000.

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●

~~Information systems~~CDI expense decreased $54,000 due to amortization.

●

Other expenses increased by ~~$191,000~~$104,000 due to increased expenses related to the new mobile banking platform, increase in customer accounts and ~~security cost for the core processing system.~~increase in number of branches.

●

Professional fees ~~decreased~~increased by ~~$119,000~~$542,000 to ~~$399,000.~~$993,000 due to expenses related to acquisition.

●

Deposit insurance expenses increased by ~~$400,000~~$185,000 due to increased asset base.

Provision for Income Taxes. The Company’s effective tax rate was ~~21.5%~~23.7% and 22.0% for the quarters ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

As of ~~September~~June 30, ~~2020~~2021 and December, 31, ~~2019,~~2020, the Company had a net deferred tax asset in the amount of ~~$3.6~~$4.1 million and ~~$2.8~~$3.2 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~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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,

4443

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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.


	For the quarter ended							For the quarter ended							For the quarter ended							For the quarter ended
	September 30, 2020							September 30, 2019							June 30, 2021							June 30, 2020
	(dollars in thousands)														(dollars in thousands)
	Average					Average		Average					Average		Average					Average		Average					Average
	balance			Interest		rate		balance			Interest		rate		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	%	$	1,323,142		$	16,712	5.07	%	$	1,193,985		$	14,097	4.75	%
Investment securities		64,685			386	2.37	%		85,781			630	2.95	%		211,131			1,022	1.94	%		63,113			399	2.54	%
Other interest-earning assets		83,394			54	0.26	%		91,730			456	1.99	%		141,495			41	0.12	%		127,288			33	0.10	%
Total interest-earning assets		1,403,106			15,855	4.50	%		1,160,387			14,615	5.05	%		1,675,768			17,775	4.25	%		1,384,386			14,529	4.22	%
Other assets		280,068							101,585							184,001							135,892
Total assets	$	1,683,174						$	1,261,972						$	1,859,769						$	1,520,278

INTEREST-BEARING LIABILITIES:
Deposits:
Savings, NOW and money market	$	602,943			891	0.59	%	$	314,099			407	0.52	%	$	770,839			781	0.41	%	$	478,422			648	0.54	%
Time deposits over $100,000		277,435			1,033	1.48	%		293,635			1,491	2.04	%		254,981			578	0.91	%		295,014			1,177	1.60	%
Other time deposits		115,042			382	1.32	%		116,167			494	1.71	%		110,841			253	0.92	%		104,895			399	1.53	%
Borrowings		57,372			408	2.83	%		64,196			483	3.02	%		12,437			87	2.81	%		57,438			422	2.95	%
Total interest-bearing liabilities		1,052,792			2,714	1.03	%		788,097			2,875	1.15	%		1,149,098			1,699	0.59	%		935,769			2,646	1.14	%
Non-interest-bearing deposits		404,420							246,117							474,634							359,012
Other liabilities		11,685							12,036							18,641							11,701
Shareholders’ equity		214,277							215,722							217,396							213,796
Total liabilities and shareholders’ equity	$	1,683,174						$	1,261,972						$	1,859,769						$	1,520,278
Net interest income/interest rate spread (taxable-equivalent basis)				$	13,141	3.47	%				$	11,740	3.59	%				$	16,076	3.66	%				$	11,883	3.08	%
Net interest margin (taxable-equivalent basis)						3.73	%						4.06	%						3.85	%						3.45	%
Ratio of interest-earning assets to interest-bearing liabilities		133.27	%						147.24	%						145.83	%						147.94	%
Reported net interest income
Net interest income/net interest margin (taxable-equivalent basis)				$	13,141	3.72	%				$	11,740	4.19	%				$	16,076	3.84	%				$	11,883	3.44	%
Less:
taxable-equivalent adjustment					(30)							(39)							(51)							(29)
Net Interest Income				$	13,111						$	11,701						$	16,025						$	11,854

Comparison of Results of Operations for the

~~Nine~~Six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

General. During the first ~~nine~~six months of ~~2020,~~2021, the Company reported net income of ~~$4.2~~$11.9 million as compared with net income of ~~$10.0~~$1.8 million for the first ~~nine~~six months of ~~2019.~~2020. Net income per common share for the first ~~nine~~six months of ~~2020~~2021 was ~~$0.24~~$0.69 basic and ~~$0.23~~ diluted, compared with net income per common share of ~~$0.52~~$0.10 basic and diluted, for the first ~~nine~~six months of ~~2019.~~2020. Results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were primarily impacted by an increase of ~~$1.4~~$8.6 million in net interest income and an increase in non-interest expense of ~~$3.8~~$1.5 million. The increase in non-interest expense was primarily related to increases in occupancy expenses of ~~$203,000, foreclosed real estate expense~~$21,000, professional fees of ~~$389,000,~~$632,000, deposit insurance expense of ~~$131,000, merger-related expenses of $520,000,~~$578,000, information systems expenses of ~~$535,000,~~$93,000, other expenses of $216,000 and personnel expense of ~~$2.0 million,~~$883,000, which were offset by a decrease in ~~professional fees~~foreclosed real estate expense of ~~$161,000~~$124,000, merger-related expenses of $748,000, and CDI amortization of ~~$79,000.~~$82,000. The Company recorded a recovery of provision for loan losses of ~~$5.8~~$1.2 million for the first ~~nine~~six months of ~~2020~~2021 compared to ~~$136,000~~a provision of $4.2 million in the first ~~nine~~six months of ~~2019, which~~2020. The increased provision expense had a significant impact on the reduced net income reported for the first ~~nine~~six months of 2020 as compared to the comparative period in ~~2019.~~2021.

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Net Interest Income. Net interest income increased by ~~$1.4~~$8.6 million for the first ~~nine~~six months of ~~2020~~2021 from the first ~~nine~~six months of ~~2019.~~2020. The Company’s total interest income was affected by an increase in earning loans and investments, which was offset by a reduction in earning balances of federal funds ~~sold and investments in addition to the interest rate reductions.~~sold. Average total interest-earning assets were ~~$1.3~~$1.7 billion in the first ~~nine~~six months of ~~2020~~2021 compared with ~~$1.2~~$1.3 billion during the same period in ~~2019,~~2020, while the average yield on those assets decreased 3822 basis points from ~~5.02%~~4.54% to ~~4.64%~~4.32%, which was primarily due to the reduction of interest rates on loans, federal funds purchased and reduced investment securities.

The Company’s average interest-bearing liabilities increased by ~~$136.0~~$266.3 million to ~~$926.1 million~~$1.1 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~$793.1~~$865.1 million for the same period one year earlier and the cost of those funds decreased from ~~1.45%~~1.25% to ~~1.17%~~0.67%, or 2858 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 and increased customer deposits offset by reduced wholesale deposits. During the first ~~nine~~six months of ~~2020,~~2021, the Company’s net interest margin was ~~3.80%~~3.86% and net interest spread was ~~3.47%~~3.65%. In the same quarter ended one year earlier, net interest margin was ~~4.03%~~3.69% and net interest spread was ~~3.57%~~3.29%.

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. In determining the loss history to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company uses loss history based on the weighted average net charge off history for the most recent twelve consecutive quarters, based on the risk-graded pool to which the loss was assigned. Then, using the back period, loss factors are calculated for each risk-graded pool. During the first ~~nine~~six months of ~~2020,~~2021, the Company recorded a recovery of provision for loan losses of ~~$5.8~~$1.2 million, as compared to a provision of ~~$136,000~~$4.2 million that was recorded in the first ~~nine~~six months of ~~2019.~~2020.

Non-Interest Income. Non-interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$4.6~~$3.6 million, an increase of ~~$606,000~~$722,000 from the first ~~nine~~six months of ~~2019.~~2020. Service charges on deposit accounts decreased ~~$57,000~~$49,000 to ~~$801,000~~$495,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~$858,000~~$544,000 for the same period in ~~2019.~~2020. Other non-deposit fees and income increased ~~$151,000~~$502,000 from the first ~~nine~~six months of ~~2019~~2020 to the first ~~nine~~six months of ~~2020~~2021 due to increases in various items. Fees from the sale of mortgages and SBA loans increased from ~~$605,000~~$648,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 to ~~$1.2 million~~$916,000 for the first ~~nine~~six months of ~~2020.~~2021. The Company did not have any sales of securities during the first ~~nine~~six months of ~~September~~June 30, ~~2020~~2021 and ~~in 2019 sold securities reflecting a gain of $48,000, respectively.~~2020.

Non-Interest Expenses. Non-interest expenses increased by ~~$3.8~~$1.5 million to ~~$29.8~~$21.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, from ~~$26.0~~$19.7 million for the same period in ~~2019.~~2020. In general, most categories of non-interest expenses increased primarily due to changes in the Company’s branch

~~Table of Contents~~

network. The following are highlights of the significant categories of non-interest expenses during the first ~~nine~~six months of ~~2020~~2021 versus the same period in ~~2019:~~2020:

●

Personnel expenses increased ~~$2.0 million~~$883,000 to ~~$17.1~~$12.3 million, due to additional personnel and cost of living increases and acquisition of three branches.

●

Occupancy expenses increased ~~$203,000,~~$21,000, primarily due to additional branches, repairs and maintenance and increased rent expense due to normal rent escalation.

Table of Contents

●

Integration-related expenses ~~increased $520,000.~~decreased $748,000.

●

CDI expense decreased ~~$79,000~~$82,000 due to the amortization.

●

Information systems expense increased by ~~$535,000~~$93,000 due to increased expenses related to ~~the new mobile banking platform and security cost for the core processing system.~~additional account transactions.

●

Professional fees ~~decreased~~increased by ~~$161,000~~$632,000 to ~~$1.2 million.~~$1.5 million due to expenses related to acquisition.

●

Deposit insurance expenses increased by ~~$269,000~~$578,000 due to increased asset base.

Provision for Income Taxes. The Company’s effective tax rate was ~~20.6%~~23.1% and ~~22.0%~~19.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

As of ~~September~~June 30, ~~2020~~2021 and December, 31, ~~2019,~~2020, the Company had a net deferred tax asset in the amount of ~~$3.6~~$4.1 million and ~~$2.8~~$3.2 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~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~

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~~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~~


	For the six months ended							For the six months ended
	June 30, 2021							June 30, 2020
	(dollars in thousands)
	Average					Average		Average					Average
	balance			Interest		rate		balance			Interest		rate

INTEREST-EARNING ASSETS:
Loans, gross of allowance	$	1,316,746		$	33,759	5.17	%	$	1,107,307		$	27,697	5.03	%
Investment securities		206,132			1,987	1.94	%		65,643			838	2.57	%
Other interest-earning assets		150,639			66	0.09	%		99,518			201	0.41	%
Total interest-earning assets		1,673,517			35,812	4.32	%		1,272,468			28,736	4.54	%
Other assets		137,607							115,642
Total assets	$	1,811,124						$	1,388,110

INTEREST-BEARING LIABILITIES:
Deposits:
Savings, NOW and money market	$	745,900			1,705	0.46	%	$	400,735			996	0.50	%
Time deposits over $100,000		261,089			1,316	1.02	%		298,622			2,676	1.80	%
Other time deposits		111,988			553	1.00	%		108,324			831	1.54	%
Borrowings		12,405			174	2.83	%		57,405			861	3.02	%
Total interest-bearing liabilities		1,131,382			3,748	0.67	%		865,086			5,364	1.25	%
Non-interest-bearing deposits		445,238							300,071
Other liabilities		17,798							8,804
Shareholders’ equity		216,706							214,149
Total liabilities and shareholders’ equity	$	1,811,124						$	1,388,110
Net interest income/interest rate spread (taxable-equivalent basis)				$	32,064	3.65	%				$	23,372	3.29	%
Net interest margin (taxable-equivalent basis)						3.86	%						3.69	%
Ratio of interest-earning assets to interest-bearing liabilities		147.92	%						147.09	%
Reported net interest income
Net interest income/net interest margin (taxable-equivalent basis)				$	32,064	3.85	%				$	23,372	3.68	%
Less:
taxable-equivalent adjustment					(114)							(59)
Net Interest Income				$	31,950						$	23,313

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

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 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 ~~20.9%~~11.6% of total assets at ~~September~~June 30, ~~2020~~2021 as compared to ~~11.9%~~18.0% as of December 31, ~~2019.~~2020.

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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. 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~~June 30, ~~2020,~~2021, the Company had existing credit lines with other financial institutions to purchase up to ~~$243.0~~$239.3 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 ~~$87.6~~$83.9 million of qualifying loans is pledged to the FHLB to secure borrowings. At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$45.0 million in~~no FHLB advances outstanding. Another source of short-term borrowings available to the Bank is securities sold under agreements to repurchase. At ~~September~~June 30, ~~2020, in addition to FHLB advances,~~2021, total borrowings consisted of junior subordinated debentures of $12.4 million.

Total deposits were ~~$1.5~~$1.6 billion at ~~September~~June 30, ~~2020.~~2021. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be ~~rate sensitive.~~rate-sensitive. Time deposits represented ~~27.3%~~22.0% of total deposits at ~~September~~June 30, ~~2020.~~2021. Time deposits of $250,000 or more represented ~~9.6%~~7.6% of the Company’s total deposits at ~~September~~June 30, ~~2020.~~2021. At quarter-end, the Company had ~~$3.1~~$1.6 million in brokered time deposits and ~~$1.5~~$1.6 million 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 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. The Common Equity Tier 1 risk-based ratio does not include limited life components such as trust preferred securities in 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%~~11.81% at ~~September~~June 30, ~~2020.~~2021.

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As the following table indicates, at ~~September~~June 30, ~~2020,~~2021, the Company and the Bank both exceeded minimum regulatory capital requirements as specified below.


	Actual		Minimum				Actual		Minimum
	Ratio		Requirement				Ratio		Requirement

Select Bancorp, Inc.
Total risk-based capital ratio	14.71	%	8.00	%			13.57	%	8.00	%
Tier 1 risk-based capital ratio	13.68	%	6.00	%			12.72	%	6.00	%
Leverage ratio	11.00	%	4.00	%			10.46	%	4.00	%
Common equity Tier 1 risk-based capital ratio	12.77	%	4.50	%			11.92	%	4.50	%

	Actual		Minimum		Well-Capitalized		Actual		Minimum		Well-Capitalized
	Ratio		Requirement		Requirement		Ratio		Requirement		Requirement

Select Bank & Trust
Total risk-based capital ratio	13.00	%	8.00	%	10.00	%	12.50	%	8.00	%	10.00	%
Tier 1 risk-based capital ratio	11.97	%	6.00	%	8.00	%	11.65	%	6.00	%	8.00	%
Leverage ratio	9.58	%	4.00	%	5.00	%	9.57	%	4.00	%	5.00	%
Common equity Tier 1 risk-based capital ratio	11.97	%	4.50	%	6.50	%	11.65	%	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~~June 30, ~~2020.~~2021.

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.

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’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 of assets and liabilities to produce stable net interest income despite changing interest rates. The Company’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”) 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”), which measures the impact on the present value of net assets to immediate changes in interest rates.

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NII at risk is designed to measure the potential short-term impact of changes in interest rates on NII.

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EVE is a long-term measure of interest rate risk to the Company’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’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’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’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, 2020.~~March 31, 2021.


	June 30, 2020				March 31, 2021
(Dollars in thousands)	Estimated Effect on NII		Estimated Effect on EVE		Estimated Effect on NII		Estimated Effect on EVE
Immediate change in interest rates:
+ 4.0%	13.1	%	30.1	%	7.3	%	15.1	%
+ 3.0%	9.0		23.4		4.6		11.9
+ 2.0%	4.9		16.0		1.8		8.2
+ 1.0%	2.0		8.3		0.1		4.3
No change	—		—		—		—
- 1.0%	1.5		(2.4)		0.2		(3.6)

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

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all points on the yield curve may produce higher NII in the short term. Other important factors that

~~Table of Contents~~

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-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’s Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a−15(f) and 15d−15(f) of the Exchange Act) during the ~~third~~second quarter of ~~2020.~~2021. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the ~~third~~second quarter of ~~2020~~2021 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~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~~we are party to routine legal proceedings within our normal course of business. Management believes that such routine legal proceedings taken together are immaterial to our financial condition or results of operations.

As previously described, on June 1, 2021, the Company and First Bancorp entered into the Merger Agreement, pursuant to which, upon satisfaction of the conditions set forth in the ~~ordinary course~~Merger Agreement, the Company will merge with and into First Bancorp, with First Bancorp being the surviving corporation and the Company ceasing to be a separate entity. The announcement of ~~business wherein it attempts~~the Merger has triggered three lawsuits filed by purported shareholders.

On July 14, 2021, a purported shareholder filed a lawsuit in the United States District Court, Southern District of New York, against the Company and members of the Company’s board of directors. The

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lawsuit alleges inadequate disclosures in the joint proxy statement/prospectus and violations of the Securities Exchange Act of 1934. The lawsuit seeks, among other remedies, to ~~collect loans, enforce its security interest~~enjoin the Merger, to direct defendants to account for unspecified damages, and for costs of the lawsuit, including attorneys’ and experts’ fees.

On July 16, 2021, a purported shareholder filed a lawsuit in ~~loans,~~the United States District Court, District of Delaware, against the Company, members of the Company’s board of directors, and First Bancorp. The lawsuit alleges inadequate disclosures in the joint proxy statement/prospectus and violations of the Securities Exchange Act of 1934. The lawsuit seeks, among other remedies, to enjoin the Merger or, in the event the Merger is completed, rescission of the Merger or rescissory damages; to direct defendants to disseminate a revised joint proxy statement/prospectus; to declare the defendants violated the Securities Exchange Act of 1934 and rules promulgated thereunder; and costs of the lawsuit, including attorneys’ and experts’ fees.

On July 22, 2021, a purported shareholder filed a lawsuit in the United States District Court, Eastern District of New York, against the Company and members of the Company’s board of directors. The lawsuit alleges inadequate disclosures in the joint proxy statement/prospectus and violations of the Securities Exchange Act of 1934. The lawsuit seeks, among other ~~matters~~remedies, to enjoin the Merger or, in the event the Merger is completed, rescission of ~~similar nature.~~the Merger or rescissory damages; to declare the defendants violated the Securities Exchange Act of 1934 and rules promulgated thereunder; and costs of the lawsuit, including attorneys’ and experts’ fees.

As of the date of this filing, the Company cannot reasonably predict the outcome of the above-described lawsuits or, in the event of an adverse outcome, the potential loss or range of possible loss relating to the lawsuits.

Item 1A. Risk Factors.

~~There have been no material changes~~In addition to the other information set forth in this report, you should carefully consider the ~~Company’s risk~~ factors ~~from those disclosed~~discussed in ~~the Company’s~~Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019, except as set forth~~2020, which could materially affect our business, financial condition or future results.

The risks described in our ~~Quarterly~~Annual Report on Form ~~10-Q for~~10-K are not the ~~periods ended March 31, 2020~~only risks facing the Company. Additional risks and ~~June 30, 2020.~~uncertainties unknown to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Additionally, there are or will be important factors related to the proposed merger with First Bancorp that could cause actual results to differ materially from anticipated results. We believe that these factors include, but are not limited to, those listed below. Capitalized terms used but not otherwise defined in this “Risk Factors” section have the meanings ascribed to them in other sections of this report.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

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~~The ongoing COVID-19 pandemic~~Before the Merger may be completed, the Company, the Bank, First Bancorp, and ~~measures intended~~First Bank must obtain approvals from the Federal Reserve and the North Carolina Commissioner of Banks. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in any party’s regulatory standing or other factors could result in an inability to obtain or a delay in receiving their approval. These regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Such conditions or changes could delay or prevent ~~its spread could~~completion of the Merger or impose additional costs on or limit the revenues of the combined company following the Merger, any of which might have ~~a material~~an adverse effect on ~~our business, results~~the combined company following the Merger.

Combining the companies may be more difficult, costly, or time-consuming than expected.

The Company and First Bancorp have operated and, until the completion of ~~operations~~the Merger, will continue to operate independently. The success of the Merger, including anticipated benefits and ~~financial condition, and such effects~~cost savings, will depend, in part, on ~~future developments,~~First Bancorp’s ability to successfully combine and integrate the businesses of First Bancorp and the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which ~~are highly uncertain~~could have an adverse effect on the Company’s financial results and ~~are difficult~~the value of the Company’s common stock. If First Bancorp experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to ~~predict.~~realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause First Bancorp and/or the Company to lose customers or cause customers to remove their accounts from First Bancorp and/or the Company and move their business to competing financial institutions. Integration efforts will also divert management attention and resources. In addition, the actual cost savings of the Merger could be less than anticipated.

The Merger is subject to certain closing conditions that, if not satisfied or waived, will result in the Merger not being completed. Termination of the Merger Agreement could negatively impact the Company.

~~Global health concerns relating~~The Merger is subject to customary conditions to closing, including the receipt of required regulatory approvals and adoption of the Merger Agreement by the Company’s and First Bancorp’s shareholders. If any condition to the ~~COVID-19 outbreak and related government actions taken~~Merger is not satisfied or waived, to ~~reduce~~ the ~~spread of~~extent permitted by law, 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,Merger will not be completed. In addition, either First Bancorp 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~~Company may terminate the Merger Agreement under certain circumstances even if the Merger Agreement is ~~likely to further adversely impact our workforce and operations and~~adopted by 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,Company’s shareholders, including but not limited ~~to:~~to, if the Merger has not been completed on or before March 31, 2022.

●

~~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;

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●

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~~If the ~~management skills of our executive officers and directors, many of whom~~Merger Agreement is terminated, there may be various consequences. For example, the Company’s businesses may have ~~held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees~~been impacted adversely by the failure to pursue other beneficial opportunities due to the ~~outbreak~~focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could ~~harm our~~decline to the extent that the current market prices reflect a market assumption that the Merger will be completed.

The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.

The Merger Agreement restricts the Company from operating its business other than in the ordinary course and prohibits the Company from taking specified actions without First Bancorp’s consent until the Merger occurs. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger. In addition, uncertainty about the effect of the Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to ~~operate our~~attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business ~~or execute our business strategy. We~~relationships with the Company. Retention of certain employees by the Company may ~~not~~ be ~~successful in finding~~challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with the Company. If key employees depart because of issues relating to the uncertainty and ~~integrating suitable successors in the event~~difficulty of ~~key employee loss or unavailability.~~

~~Any one~~integration or a ~~combination of these factors~~desire not to remain with the Company, the Company’s business could ~~negatively impact our~~be harmed.

The uncertainty caused by the pending Merger could cause the Company’s clients and business ~~financial condition,~~associates to seek to change their existing business relationships with the Company. These uncertainties may impair the Company’s ability to attract, retain 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 aftergrow its client base until the ~~COVID-19 outbreak has subsided.~~Merger is complete.

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 spreadmarket value of the ~~outbreak, its severity,~~merger consideration that 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 businessCompany’s shareholders will receive as a result of the ~~virus’s global~~Merger may fluctuate.

If the Merger is completed, each share of the Company’s common stock will be converted into the right to receive 0.408 shares of First Bancorp common stock, and cash in lieu of any fractional shares. The market value of the merger consideration may vary from the closing price of First Bancorp common stock on the date the Merger was announced, on the date that the joint proxy statement/prospectus is mailed to the Company’s shareholders, on the date of the meeting of the Company’s shareholders, on the date the Merger is consummated, and thereafter. Stock price changes may result from a variety of factors, including general market and economic ~~impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur~~conditions, changes in the ~~future.~~

~~There~~respective businesses, operations and prospects, and the regulatory situation of First Bancorp and the Company. Many of these factors are ~~no comparable recent events that provide guidance as to~~beyond the ~~effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact~~control of the ~~outbreak is highly uncertain and subject~~Company. Any change in the market price of First Bancorp common stock prior to ~~change. We do not yet know the full extent~~completion of the ~~impacts on our business, our operations~~Merger will affect the amount of and the market value of the merger consideration that the Company’s shareholders will receive upon completion of the Merger. Accordingly, at the time of the shareholders meeting, the Company’s shareholders will not know or be able to calculate the amount or the ~~global economy as a whole. However,~~market value of the ~~effects could have a material impact on our results~~merger consideration they would receive upon completion 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.~~Merger.

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Further, the results of operations of the combined company following the Merger and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of First Bancorp and the Company.

If the Merger is not completed, the Company will have incurred substantial expenses without realizing the expected benefits of the Merger.

The Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger.

The Merger Agreement limits the Company’s ability to pursue an alternative acquisition proposal and could require the Company to pay a termination fee of $11.5 million under certain circumstances relating to alternative acquisition proposals.

The Merger Agreement prohibits the Company from soliciting, initiating or knowingly encouraging certain alternative acquisition proposals with any third party, subject to exceptions set forth in the Merger Agreement. The Merger Agreement also provides for the payment by the Company to First Bancorp of a termination fee in the amount of $11.5 million in the event that the Company or First Bancorp terminates the Merger Agreement for certain specified reasons. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Set forth in the table below is the Company’s repurchase activity during the ~~three month~~three-month period ended ~~September~~June 30, ~~2020:~~2021:

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

~~(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.

~~Item 3. Defaults Upon Senior Securities.~~

~~None.~~

~~Item 4. Mine Safety Disclosures.~~

~~Not applicable.~~

~~Item 5. Other Information.~~

~~None.~~

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~~Item 6. Exhibits.~~

~~Exhibit Index~~

~~Incorporated by Reference~~
~~(Unless Otherwise Indicated)~~

~~Exhibit~~
~~No.~~

Total number of shares

~~Description~~Maximum number of ~~Exhibit~~

~~Form~~

~~Exhibit~~

~~Filing~~
~~Date~~

~~SEC~~
~~File No.~~

~~31.1~~Total number

~~Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act~~Average

purchased as part of

~~Filed~~
~~herewith~~

shares that may yet be

~~31.2~~of shares

~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act~~price paid

publicly announced

purchased under the

Period

purchased⁽¹⁾

per share

plans or programs⁽²⁾

April 2021

—

~~Filed~~
~~herewith~~

264,099

~~32.1~~

~~Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act~~

~~Furnished~~
~~herewith~~

~~32.2~~

~~Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act~~

~~Furnished~~
~~herewith~~

~~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~~
~~herewith~~

Beginning Date: 4/1

~~104~~

~~Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)~~Ending Date: 4/30

~~Filed~~

~~herewith~~

May 2021

—

264,099

Beginning Date: 5/1

Ending Date: 5/31

June 2021

—

264,099

Beginning Date: 6/1

Ending Date: 6/30

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(1)

(2)

On October 2, 2020, the Company announced that its board of directors had authorized a repurchase plan under which the Company may repurchase up to 875,000 shares of its common stock through open market purchases or privately negotiated transactions. The Company’s repurchase plan has no time limit.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit Index


		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit No.	Description of Exhibit	Form	Exhibit	Filing Date	SEC File No.

2.1	Agreement and Plan of Merger and Reorganization, dated June 1, 2021, by and between Select Bancorp, Inc. and First Bancorp	8-K	2.1	June 1, 2021	000-50400

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act			Filed herewith

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act			Filed herewith

32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act			Furnished herewith

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act			Furnished herewith

101	Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020; (ii) Consolidated Statements of Operations for the Three and Six Months Months ended June 30, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the Three and Six Months Months ended June 30, 2021 and 2020; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the Six Months ended June 30, 2021 and 2020; and (vi) Notes to Consolidated Financial Statements.			Filed herewith

104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)			Filed herewith

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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.


	SELECT BANCORP, INC.


Date: ~~November~~August 6, ~~2020~~2021	By:	/s/ William L. Hedgepeth II
		William L. Hedgepeth II
		President and Chief Executive Officer

Date: ~~November~~August 6, ~~2020~~2021	By:	/s/ Mark A. Jeffries
		Mark A. Jeffries
		Executive Vice President and Chief Financial Officer

5758


	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


	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


	Nine Months		Nine Months
	Ended		Ended
	September 30,		September 30,
	2020		2019

	(Dollars in thousands)

Beginning balance January 1	$	3,533	$	1,088
Sales		(180)		(103)
Write-downs and loss on sales		(390)		(12)
Transfers		274		469
Ending balance	$	3,237	$	1,442


	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


				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