Select Bancorp (SLCT) 10-Q 2019 Q1 Quarterly report

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2019

or

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

of the Securities Exchange Act of 1934

For the transition period ended from              to                   

Commission File Number000-50400   

Select Bancorp, Inc.

(Exact name of Registrant as specified in its charter)

North Carolina	20-0218264
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
700 W. Cumberland Street
Dunn, North Carolina	28334
(Address of principal executive offices)	(Zip Code)

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

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. YesxNo¨

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). YesxNo¨

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 filerx
Non-accelerated filer¨	Smaller reporting company¨
		Emerging growth company¨

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes¨Nox

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

As of May 2, 2019, the registrant had outstanding 19,326,485 shares of Common Stock, $1.00 par value per share.

		Page No.
Part I.	FINANCIAL INFORMATION
Item 1 -	Financial Statements(Unaudited)
	Consolidated Balance Sheets March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Operations Three Months Ended March 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows Three Months Ended March 31, 2019 and 2018	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	45
Item 4 -	Controls and Procedures	47
Part II.	OTHER INFORMATION
Item 1 -	Legal Proceedings	48
Item 1A -	Risk Factors	48
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3 -	Defaults Upon Senior Securities	48
Item 4 -	Mine Safety Disclosures	48
Item 5-	Other Information	48
Item 6 -	Exhibits	49
	Signatures	50

2

Part I.Financial Information

Item 1. Financial Statements

SELECT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31,
	(Unaudited)			2018*
	(In thousands, except share
	and per share data)
ASSETS
Cash and due from banks	$	15,586		$	17,059
Interest-earning deposits in other banks		44,894			121,303
Certificates of deposit		1,000			1,000
Federal funds sold		9,809			-
Investment securities available for sale, at fair value		86,727			51,533
Loans held for sale		354			580
Loans		991,801			986,040
Allowance for loan losses		(8,510	)		(8,669	)
NET LOANS		983,291			977,371
Accrued interest receivable		4,120			3,889
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost		3,342			3,283
Other non-marketable securities		738			762
Foreclosed real estate		1,046			1,088
Premises and equipment, net		17,715			17,920
Right of use lease asset		8,750			-
Bank owned life insurance		29,282			29,117
Goodwill		24,579			24,579
Core deposit intangible (“CDI”)		1,866			2,085
Assets held for sale		668			668
Other assets		8,310			6,288
TOTAL ASSETS	$	1,242,077		$	1,258,525
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$	240,262		$	247,007
Savings		48,080			51,811
Money market and NOW		262,169			254,482
Time		400,455			427,127
TOTAL DEPOSITS		950,966			980,427
Short-term debt		7,000			7,000
Long-term debt		57,372			57,372
Lease liability		8,842			-
Accrued interest payable		519			667
Accrued expenses and other liabilities		3,927			3,448
TOTAL LIABILITIES		1,028,626			1,048,914
Shareholders’ Equity:
Preferred stock, no par value, 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2019 and December 31, 2018		-			-
Common stock, $1.00 par value, 25,000,000 shares authorized; 19,326,485 and 19,311,505 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		19,326			19,312
Additional paid-in capital		150,877			150,718
Retained earnings		42,947			39,640
Common stock issued to deferred compensation trust, at cost; 306,195 and 303,239 shares outstanding at March 31, 2019 and December 31, 2018, respectively		(2,652	)		(2,615	)
Directors’ Deferred Compensation Plan Rabbi Trust		2,652			2,615
Accumulated other comprehensive income (loss)		301			(59	)
TOTAL SHAREHOLDERS’ EQUITY		213,451			209,611
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,242,077		$	1,258,525

* Derived from audited consolidated financial statements.

See accompanying notes.

3

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended
	March 31,
	2019		2018
	(In thousands, except share
	and per share data)
INTEREST INCOME
Loans	$	13,042	$	13,157
Federal funds sold and interest-earning deposits in other banks		543		211
Investments		465		354
TOTAL INTEREST INCOME		14,050		13,722
INTEREST EXPENSE
Money market, NOW and savings deposits		356		314
Time deposits		1,753		1,354
Short-term debt		26		129
Long-term debt		458		221
TOTAL INTEREST EXPENSE		2,593		2,018
NET INTEREST INCOME		11,457		11,704
PROVISION FOR
LOAN LOSSES		112		141
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		11,345		11,563
NON-INTEREST INCOME
Fees on the sale of mortgages		157		26
Service charges on deposit accounts		266		276
Other fees and income		774		863
TOTAL NON-INTEREST INCOME		1,197		1,165
NON-INTEREST EXPENSE
Personnel		4,971		4,741
Occupancy and equipment		727		888
Deposit insurance		105		165
Professional fees		382		270
CDI amortization		219		275
Merger/acquisition related expenses		-		1,826
Information systems		789		1,002
Foreclosure-related expenses		30		12
Other		1,081		1,105
TOTAL NON-INTEREST EXPENSE		8,304		10,284
INCOME BEFORE INCOME TAX		4,238		2,444
INCOME TAXES		931		547
NET INCOME	$	3,307	$	1,897
NET INCOME PER COMMON SHARE
Basic	$	0.17	$	0.14
Diluted	$	0.17	$	0.13
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		19,315,686		14,011,707
Diluted		19,365,354		14,081,776

See accompanying notes.

4

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

	Three Months Ended
	March 31,
	2019			2018
	(In thousands)
Net income	$	3,307		$	1,897
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale		467			(536	)
Tax effect		(107	)		126
		360			(410	)
Total comprehensive income	$	3,667		$	1,487

See accompanying notes.

5

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, except share data)

													Common
													Stock
													Issued						Accumulated
									Additional				to Deferred						Other			Total
	Preferred Stock				Common Stock				paid-in		Retained		Compensation			Deferred			Comprehensive			Shareholders’
	Shares		Amount		Shares		Amount		Capital		Earnings		Trust			Comp Plan			Income (loss)			Equity
Balance at December 31, 2017		-	$	-		14,009,137	$	14,009	$	95,850	$	25,858	$	(2,518	)	$	2,518		$	398		$	136,115
Net income		-		-		-		-		-		1,897		-			-			-			1,897
Other comprehensive income (loss)		-		-		-		-		-		-		-			-			(410	)		(410	)
Stock option exercises		-		-		4,780		5		21		-		-			-			-			26
Stock based compensation		-		-		-		-		45		-		-			-			-			45
Directors’ equity incentive plan, net		-		-		-		-		-		-		41			(41	)		-			-
Balance at March 31, 2018		-	$	-		14,013,917	$	14,014	$	95,916	$	27,755	$	(2,477	)	$	2,477		$	(12	)	$	137,673
Balance at December 31, 2018		-	$	-		19,311,505	$	19,312	$	150,718	$	39,640	$	(2,615	)	$	2,615		$	(59	)	$	209,611
Net income		-		-		-		-		-		3,307		-			-			-			3,307
Other comprehensive income		-		-		-		-		-		-		-			-			360			360
Stock option exercises		-		-		14,980		14		100		-		-			-			-			114
Stock based compensation		-		-		-		-		59		-		-			-			-			59
Directors’ equity incentive plan, net		-		-		-		-		-		-		37			(37	)		-			-
Balance at March 31, 2019		-	$	-		19,326,485	$	19,326	$	150,877	$	42,947	$	(2,652	)	$	2,652		$	301		$	213,451

See accompanying notes.

6

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended
	March 31,
	2019			2018
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,307		$	1,897
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		112			141
Depreciation and amortization of premises and equipment		622			444
Amortization and accretion of investment securities		142			170
Amortization of deferred loan fees and costs		(217	)		(155	)
Amortization of core deposit intangible		219			275
Stock-based compensation		59			45
Accretion on acquired loans		(200	)		(938	)
Amortization of acquisition premium on time deposits		-			(80	)
Net accretion of acquisition discount on borrowings		-			(5	)
Increase in cash surrender value of bank owned life insurance		(165	)		(169	)
Proceeds from loans held for sale		6,667			(2,365	)
Originations of loans held for sale		(6,284	)		1,995
Loss (gain) on sales of loans held for sale		(157	)		26
Net loss on sale and write-downs of foreclosed real estate		3			11
Loss on sale of premises and equipment		-			49
Write-down on assets held for sale		-			50
Change in assets and liabilities:
Net change in accrued interest receivable		(231	)		234
Net change in other assets		(2,016	)		2,068
Net change in accrued expenses and other liabilities		481			(11,473	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		2,342			(7,780	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of FHLB stock		(59	)		(1,184	)
Redemption of non-marketable security		24			114
Purchase of investment securities available for sale		(37,948	)		-
Maturities of investment securities available for sale		-			100
Mortgage-backed securities pay-downs		3,079			3,642
Net change in loans outstanding		(5,641	)		5,085
Proceeds from sale of foreclosed real estate		65			62
Net purchases of premises and equipment		(417	)		(408	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(40,897	)		7,411

See accompanying notes.

7

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

	Three Months Ended
	March 31,
	2019			2018
	(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	(29,461	)	$	14,517
Proceeds from short-term debt		-			3,899
Proceeds from long-term debt		-			20,000
Repayments of lease liability		(171	)		-
Proceeds from stock option exercises		114			26
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(29,518	)		38,442
NET CHANGE IN CASH AND CASH EQUIVALENTS		(68,073	)		38,073
CASH AND CASH EQUIVALENTS, BEGINNING		139,362			62,695
CASH AND CASH EQUIVALENTS, ENDING	$	71,289		$	100,768
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	2,741		$	1,946
Taxes		-			-
Non-cash transactions:
Unrealized gains (losses) on investment securities available for sale, net of tax		360			(410	)
Transfers from loans to foreclosed real estate		26			340

See accompanying notes.

8

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

NOTE A - BASIS OF PRESENTATION

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

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

9

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

All significant inter-company transactions and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three months ended March 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Company’s 2018 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2019. This quarterly report should be read in conjunction with the Annual Report.

Certain reclassifications of the information in prior periods were made to conform to the March 31, 2019 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

NOTE B - PER SHARE RESULTS

Basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the dilutive effect of stock options outstanding during the period. At March 31, 2019 and 2018 there were 168,120 and 121,300 anti-dilutive options outstanding, respectively.

	Three Months Ended
	March 31,
	2019		2018
Weighted average shares used for basic net income per share		19,315,686		14,011,707
Effect of dilutive stock options		49,668		70,069
Weighted average shares used for diluted net income per share		19,365,354		14,081,776

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

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

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

10

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

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

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

In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.  The CECL model is expected to result in earlier recognition of credit losses.  ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities.  The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.  Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.   The Company has dedicated staff and resources in place evaluating the Company’s options including evaluating the appropriate model options and collecting and reviewing loan data for use in these models.  The Company is still assessing the impact that this new guidance will have on its consolidated financial statements.

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

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

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

NOTE D - FAIR VALUE MEASUREMENTS

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

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

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

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

Fair Value Hierarchy

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

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

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

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

12

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

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

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

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. government agencies, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three months ended March 31, 2019. Valuation techniques are consistent with techniques used in prior periods.

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):

			Quoted Prices in		Significant
Investment securities			Active Markets		Other		Significant
available for sale			for Identical		Observable		Unobservable
March 31, 2019	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
U.S. government agencies- GSE’s	$	11,937	$	-	$	11,937	$	-
Mortgage-backed securities-GSE’s		56,118		-		56,118		-
Corporate bonds		1,638		-		1,638		-
Municipal bonds		17,034		-		17,034		-
Total investment for sale	$	86,727	$	-	$	86,727	$	-

			Quoted Prices in		Significant
Investment securities			Active Markets		Other		Significant
available for sale			for Identical		Observable		Unobservable
December 31, 2018	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
U.S. government agencies- GSE’s	$	9,837	$	-	$	9,837	$	-
Mortgage-backed securities-GSE’s		22,983		-		22,983		-
Corporate bonds		1,722		-		1,722		-
Municipal bonds		16,991		-		16,991		-
Total investment for sale	$	51,533	$	-	$	51,533	$	-

13

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 March 31, 2019 and December 31, 2018, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where a specific reserve is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3. The significant unobservable input used in the fair value measurement of the Company’s impaired loans is the discount applied to appraised values to account for expected liquidation and selling costs. At March 31, 2019, the discounts used are weighted between 5% and 50%. There were no transfers between levels from the prior reporting periods and there have been no changes in valuation techniques for the three months ended March 31, 2019.

Foreclosed Real Estate

Foreclosed real estate are properties recorded at the balance of the loan or an estimated fair value of the real estate collateral less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. The significant unobservable input used in the fair value measurement of the Company’s foreclosed real estate is the discount applied to appraised values to account for expected liquidation and selling costs. At March 31, 2019, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three months ended March 31, 2019.

Assets held for sale

During 2015, a branch facility was taken out of service as part of the Company’s branch restructuring plan and reclassified as held for sale. The property is recorded at the remaining book balance of the asset or an estimated fair value less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. The significant unobservable input used is the discount applied to appraised values to account for expected liquidation and selling costs ranged between 1% and 25% at March 31, 2019 and December 31, 2018. There have been no changes in the valuation techniques for the three months ended March 31, 2019.

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.

14

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

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

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):

			Quoted Prices in		Significant
			Active Markets		Other		Significant
Asset Category			for Identical		Observable		Unobservable
March 31, 2019	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Impaired loans	$	6,337	$	-	$	-	$	6,337
Loans held for sale		354		-		354		-
Assets held for sale		668		-		-		668
Foreclosed real estate		1,046		-		-		1,046
Total	$	8,405	$	-	$	354	$	8,051

			Quoted Prices in		Significant
			Active Markets		Other		Significant
Asset Category			for Identical		Observable		Unobservable
December 31, 2018	Fair value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Impaired loans	$	7,257	$	-	$	-	$	7,257
Loans held for sale		580		-		580		-
Assets held for sale		668		-		-		668
Foreclosed real estate		1,088		-		-		1,088
Total	$	9,593	$	-	$	580	$	9,013

15

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

The following table presents the carrying values and estimated fair values of the Company's financial instruments at March 31, 2019 and December 31, 2018:

	March 31, 2019
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets:
Cash and due from banks	$	15,586	$	15,586	$	15,586	$	-	$	-
Certificates of deposit		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		44,894		44,894		44,894		-		-
Federal funds sold		9,809		9,809		9,809		-		-
Investment securities available for sale		86,727		86,727		-		86,727		-
Loans held for sale		354		354				354		-
Loans, net		983,291		975,395		-		-		975,395
Accrued interest receivable		4,120		4,120		-		4,120		-
Stock in FHLB		3,342		3,342		-		-		3,342
Other non-marketable securities		738		738		-		-		738
Financial liabilities:
Deposits	$	950,966	$	952,022	$	-	$	952,022	$	-
Short-term debt		7,000		7,000		-		7,000		-
Long-term debt		57,372		55,878		-		55,878		-
Accrued interest payable		519		519		-		519		-

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

16

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

NOTE E - INVESTMENT SECURITIES

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

	March 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	$	11,808	$	151	$	(22	)	$	11,937
Mortgage-backed securities   GSE’s		56,064		167		(113	)		56,118
Corporate bonds		1,617		21		-			1,638
Municipal bonds		16,846		190		(2	)		17,034
	$	86,335	$	529	$	(137	)	$	86,727

As of March 31, 2019, accumulated other comprehensive income included net unrealized gains totaling $392,000. Deferred tax assets resulting from these net unrealized losses totaled $91,000.

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

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

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

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

	March 31, 2019
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(dollars in thousands)
Securities available for sale:
Within 1 year	$	5,174	$	15	$	-		$	5,189
After 1 year but within 5 years		34,438		203		(126	)		34,515
After 5 years but within 10 years		27,940		130		(10	)		28,060
After 10 years		18,783		181		(1	)		18,963
	$	86,335	$	529	$	(137	)	$	86,727

17

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

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

Securities with a carrying value of $6.1 million and $6.4 million at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.

None of the unrealized losses relate to the liquidity of the securities or the issuer’s ability to honor redemption obligations. The Company has the intent and ability to hold these securities to recovery. No other than temporary impairments were identified for these investments having unrealized losses for the periods ended March 31, 2019 and December 31, 2018. The Company has not incurred any losses related to securities sales in the first three months of 2019 or during the year ended December 31, 2018.

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

	March 31, 2019
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	value		losses			value		losses			value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies- GSEs	$	-	$	-		$	3,026	$	(22	)	$	3,026	$	(22	)
Mortgage-backed securities- GSEs		10,044		(13	)		11,858		(100	)		21,902		(113	)
Municipal bonds		-		-			1,301		(2	)		1,301		(2	)
Total temporarily impaired securities	$	10,044	$	(13	)	$	16,185	$	(124	)	$	26,229	$	(137	)

At March 31, 2019, the Company had twenty-two securities with an unrealized loss for more than twelve months of $124,000 which consisted of five U.S. government agencies-GSEs, fourteen mortgage-backed GSEs and three municipal bonds. Three mortgage-backed GSEs had unrealized losses for less than twelve months totaling $13,000 at March 31, 2019. All unrealized losses are attributable to the general trend of interest rates. There were no sales of investment securities during the first quarter of 2019.

18

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

	December 31, 2018
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	value		losses			value		losses			value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies- GSEs	$	1,224	$	(6	)	$	4,086	$	(45	)	$	5,310	$	(51	)
Mortgage-backed securities-GSEs		200		-			16,932		(229	)		17,132		(229	)
Corporate bonds		-		-			-		-			-		-
Municipal bonds		1,007		(2	)		1,740		(22	)		2,747		(24	)
Total temporarily impaired securities	$	2,431	$	(8	)	$	22,758	$	(296	)	$	25,189	$	(304	)

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

19

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

NOTE F - LOANS

Following is a summary of the composition of the Company’s loan portfolio at March 31, 2019 and December 31, 2018:

	March 31,						December 31,
Total Loans:	2019						2018
				Percent						Percent
	Amount			of total			Amount			of total
				(dollars in thousands)
Real estate loans:
1-to-4 family residential	$	156,732			15.80	%	$	159,597			16.19	%
Commercial real estate		458,488			46.23	%		457,611			46.41	%
Multi-family residential		57,230			5.77	%		63,459			6.44	%
Construction		181,162			18.26	%		170,404			17.28	%
Home equity lines of credit (“HELOC”)		48,760			4.92	%		49,713			5.04	%
Total real estate loans		902,372			90.98	%		900,784			91.36	%
Other loans:
Commercial and industrial		79,729			8.04	%		74,181			7.52	%
Loans to individuals		11,338			1.14	%		12,597			1.28	%
Overdrafts		92			0.01	%		217			0.02	%
Total other loans		91,159			9.19	%		86,995			8.82	%
Gross loans		993,531						987,779
Less deferred loan origination fees, net		(1,730	)		(0.17	)%		(1,739	)		(0.18	)%
Total loans		991,801			100.00	%		986,040			100.00	%
Allowance for loan losses		(8,510	)					(8,669	)
Total loans, net	$	983,291					$	977,371

For Purchased Credit Impaired, or PCI loans, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of March 31, 2019 and December 31, 2018 were:

(dollars in thousands)	March 31, 2019		December 31, 2018
Contractually required payments	$	24,366	$	24,823
Nonaccretable difference		1,842		1,962
Cash flows expected to be collected		22,524		22,861
Accretable yield		3,721		3,593
Carrying value	$	18,803	$	19,268

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

20

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

At March 31, 2019, the Company had pre-approved but unused lines of credit for customers totaling $176.8 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.

A floating lien of $138.1 million of loans was pledged to the FHLB to secure borrowings at March 31, 2019.

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

	March 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	$	36	$	452	$	1,340	$	2,652	$	4,480	$	75,249	$	79,729
Construction		31		1,799		70		543		2,443		178,719		181,162
Multi-family residential		-		-		-		-		-		57,230		57,230
Commercial real estate		254		829		313		1,867		3,263		455,225		458,488
Loans to individuals & overdrafts		12		-		-		29		41		11,389		11,430
1-to-4 family residential		594		75		1,423		266		2,358		154,374		156,732
HELOC		13		-		-		980		993		47,767		48,760
Deferred loan (fees) cost, net		-		-		-		-		-		-		(1,730	)
	$	940	$	3,155	$	3,146	$	6,337	$	13,578	$	979,953	$	991,801
	December 31, 2018
	30-59		60-89		90+		Non-		Total
	Days		Days		Days		Accrual		Past				Total
	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
	(dollars in thousands)
Commercial and industrial	$	27	$	203	$	1,665	$	4,170	$	6,065	$	68,116	$	74,181
Construction		-		-		69		587		656		169,748		170,404
Multi-family residential		-		-		-		-		-		63,459		63,459
Commercial real estate		103		483		-		1,074		1,660		455,951		457,611
Loans to individuals & overdrafts		1		24		-		-		25		12,789		12,814
1-to-4 family residential		502		505		1,433		386		2,826		156,771		159,597
HELOC		-		43		-		1,040		1,083		48,630		49,713
Deferred loan (fees) cost, net		-		-		-		-		-		-		(1,739	)
	$	633	$	1,258	$	3,167	$	7,257	$	12,315	$	975,464	$	986,040

21

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

Impaired Loans

The following tables present information on loans that were considered to be impaired as of March 31, 2019 and December 31, 2018:

							Three months ended
	As of March 31, 2019						March 31, 2019
			Contractual
			Unpaid		Related		Average		Interest Income
	Recorded		Principal		Allowance		Recorded		Recognized on
	Investment		Balance		for Loan Losses		Investment		Impaired Loans
	(dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	2,584	$	2,788	$	-	$	3,853	$	4
Construction		465		525		-		552		5
Commercial real estate		6,008		7,251		-		5,843		66
Multi-family residential		211		211		-		213		3
Loans to individuals		117		121		-		109		-
HELOC		857		1,060		-		957		15
1-to-4 family residential		648		1,196		-		990		16
Subtotal:		10,890		13,152		-		12,517		109
With an allowance recorded:
Commercial and industrial		183		239		75		232		6
Construction		78		133		-		-		-
HELOC		-		-		-		-		-
1-to-4 family residential		-		-		7		134		7
Subtotal:		261		372		82		366		13
Totals:
Commercial		9,451		11,014		75		10,693		84
Consumer		117		121		-		109		-
Residential		1,583		2,389		7		2,081		38
Grand Total:	$	11,151	$	13,524	$	82	$	12,883	$	122

Impaired loans at March 31, 2019 were approximately $11.2 million and were composed of $6.3 million in non-accrual loans and $4.9 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $261,000 in impaired loans had specific allowances provided for them while the remaining $10.9 million had no specific allowances recorded at March 31, 2019. Of the $10.9 million with no allowance recorded, $1.1 million of those loans have had partial charge-offs recorded.

22

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

							Three months ended
	As of December 31, 2018						March 31, 2018
			Contractual
			Unpaid		Related		Average		Interest Income
	Recorded		Principal		Allowance		Recorded		Recognized on
	Investment		Balance		for Loan Losses		Investment		Impaired Loans
	(dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	4,210	$	4,495	$	-	$	1,806	$	72
Construction		561		647		-		382		1
Commercial real estate		4,744		6,903		-		4,655		60
Multi-family residential		101		109		-		232		3
Loans to individuals		215		215		-		1		-
HELOC		1,040		1,204		-		803		13
1-to-4 family residential		572		732		-		998		48
Subtotal:		11,443		14,305		-		8,877		197
With an allowance recorded:
Commercial and industrial		127		325		51		142		1
Construction		27		27		14		13		-
HELOC		-		-		-		16		-
1-to-4 family residential		137		555		22		177		5
Subtotal:		291		907		87		348		6
Totals:
Commercial		10,007		12,612		65		7,230		137
Consumer		101		109		-		1		-
Residential		1,626		2,491		22		1,994		66
Grand Total:	$	11,734	$	15,212	$	87	$	9,225	$	203

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

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

23

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

Troubled Debt Restructurings

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the first quarter of 2019 and 2018:

	Three months ended March 31, 2019						Three months ended March 31, 2018
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(dollars in thousands)
Extended payment terms:
Commercial and industrial		4	$	1,365	$	1,275		4	$	1,046	$	1,046
Commercial real estate		3		1,283		1,015		-		-		-
1-to-4 family residential		2		432		409		-		-		-
Loans to individuals		1		1		1		-		-		-
Total		10	$	3,081	$	2,700		4	$	1,046	$	1,046

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default during that period together with concessions made by loan class during the twelve month periods ended March 31, 2019 and 2018:

	Twelve months ended				Twelve months ended
	March 31, 2019				March 31, 2018
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
	(dollars in thousands)
Extended payment terms:
Commercial and industrial		8	$	1,591		3	$	996
Construction		1		34		1		62
Commercial real estate		3		697		1		899
Loans to Individuals		1		1		-		-
1-to-4 family residential		4		128		2		125
Total		17	$	2,451		7	$	2,082

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

At March 31, 2018, the Bank had thirty-nine loans with an aggregate balance of $6.7 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-three loans with a balance totaling $4.8 million were still accruing as of March 31, 2018. The remaining TDRs with balances totaling $1.9 million as of March 31, 2018 were in non-accrual status.

24

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

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

Total loans:

March 31, 2019
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
			(dollars in thousands)
Superior	$	990	$	-	$	185	$	-
Very good		2,207		142		1,075		-
Good		6,203		11,705		53,857		4,965
Acceptable		25,780		24,847		271,454		35,438
Acceptable with care		38,572		141,357		124,997		16,616
Special mention		84		697		1,414		-
Substandard		5,893		2,414		5,506		211
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	79,729	$	181,162	$	458,488	$	57,230
Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	153,077	$	47,300
Special mention		1,125		76
Substandard		2,530		1,384
	$	156,732	$	48,760
Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	11,309
Non -pass		121
	$	11,430

25

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

Total Loans:

December 31, 2018
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
			(dollars in thousands)
Superior	$	1,662	$	-	$	21	$	-
Very good		2,266		246		1,120		-
Good		5,773		12,106		47,959		5,116
Acceptable		22,332		30,897		263,017		37,832
Acceptable with care		34,626		125,788		139,484		20,296
Special mention		879		711		1,789		-
Substandard		6,643		656		4,221		215
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	74,181	$	170,404	$	457,611	$	63,459
Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	155,117	$	48,143
Special mention		900		88
Substandard		3,580		1,482
	$	159,597	$	49,713
Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	10,891
Special mention		1,923
	$	12,814

26

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

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

The following table documents changes to the amount of the accretable yield on PCI loans for the three months ended March 31, 2019 and 2018:

	2019			2018
	(dollars in thousands)
Accretable yield, beginning of period	$	3,593		$	3,307
Accretion		(288	)		(354	)
Reclassification from (to) nonaccretable difference		117			-
Other changes, net		299			87
Accretable yield, end of period	$	3,721		$	3,040

27

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

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three month periods ended March 31, 2019 and March 31, 2018, respectively (dollars in thousands):

	Three months ended March 31, 2019
	Commercial								1-to-4						Loans to			Multi-
	and					Commercial			family						individuals &			family
Allowance for loan losses	industrial			Construction		real estate			residential			HELOC			overdrafts			residential			Total
Loans – excluding PCI
Balance, beginning of period	$	762		$	1,385	$	3,024		$	1,663		$	555		$	206		$	471		$	8,066
Provision for (recovery of) loan losses		214			186		356			(461	)		(80	)		(15	)		(63	)		137
Loans charged-off		(251	)		-		-			-			(49	)		(19	)		-			(319	)
Recoveries		5			1		15			9			13			5			-			48
Balance, end of period	$	730		$	1,572	$	3,395		$	1,211		$	439		$	177		$	408		$	7,932
PCI Loans
Balance, beginning of period	$	214		$	-	$	385		$	4		$	-		$	-		$	-		$	603
Provision for (recovery of) loan losses		(168	)		23		(152	)		242			2			-			28			(25	)
Loans charged-off		-			-		-			-			-			-			-			-
Recoveries		-			-		-			-			-			-			-			-
Balance, end of period	$	46		$	23	$	233		$	246		$	2		$	-		$	28		$	578
Total Loans
Balance, beginning of period	$	976		$	1,385	$	3,409		$	1,667		$	555		$	206		$	471		$	8,669
Provision for (recovery of) loan losses		46			209		204			(219	)		(78	)		(15	)		(35	)		112
Loans charged-off		(251	)		-		-			-			(49	)		(19	)		-			(319	)
Recoveries		5			1		15			9			13			5			-			48
Balance, end of period	$	776		$	1,595	$	3,628		$	1,457		$	441		$	177		$	436		$	8,510
Ending Balance: individually evaluated for impairment	$	75		$	-	$	-		$	7		$	-		$	-		$	-		$	82
Ending Balance: collectively evaluated for impairment	$	701		$	1,595	$	3,628		$	1,450		$	441		$	177		$	436		$	8,428
Loans:
Ending Balance: collectively evaluated for impairment non PCI loans	$	75,481		$	179,872	$	444,893		$	148,073		$	47,853		$	11,313		$	56,092		$	963,577
Ending Balance: collectively evaluated for impairment PCI loans	$	1,481		$	747	$	7,587		$	8,011		$	50		$	-		$	927		$	18,803
Ending Balance: individually evaluated for impairment	$	2,767		$	543	$	6,008		$	648		$	857		$	117		$	211		$	11,151
Ending Balance	$	79,729		$	181,162	$	458,488		$	156,732		$	48,760		$	11,430		$	57,230		$	993,531

28

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

	Three months ended March 31, 2018
	Commercial								1-to-4					Loans to			Multi-
	and						Commercial		family					individuals &			family
Allowance for loan losses	industrial			Construction			real estate		residential		HELOC			overdrafts			residential			Total
Loans – excluding PCI
Balance, beginning of period	$	742		$	1,955		$	3,304	$	1,058	$	549		$	305		$	791		$	8,704
Provision for (recovery of) loan losses		(10	)		(275	)		282		208		125			(174	)		(94	)		62
Loans charged-off		(9	)		-			-		-		(35	)		(15	)		-			(59	)
Recoveries		6			6			4		9		6			9			-			40
Balance, end of period	$	729		$	1,686		$	3,590	$	1,275	$	645		$	125		$	697		$	8,747
PCI Loans
Balance, beginning of period	$	65		$	-		$	66	$	-	$	-		$	-		$	-		$	131
Provision for loan losses		79			-			-		-		-			-			-			79
Loans charged-off		-			-			-		-		-			-			-			-
Recoveries		-			-			-		-		-			-			-			-
Balance, end of period	$	144		$	-		$	66	$	-	$	-		$	-		$	-		$	210
Total Loans
Balance, beginning of period	$	807		$	1,955		$	3,370	$	1,058	$	549		$	305		$	791		$	8,835
Provision for (recovery of) loan losses		69			(275	)		282		208		125			(174	)		(94	)		141
Loans charged-off		(9	)		-			-		-		(35	)		(15	)		-			(59	)
Recoveries		6			6			4		9		6			9			-			40
Balance, end of period	$	873		$	1,686		$	3,656	$	1,275	$	645		$	125		$	697		$	8,957
Ending Balance: individually evaluated for impairment	$	49		$	14		$	-	$	13	$	-		$	-		$	-		$	76
Ending Balance: collectively evaluated for impairment	$	824		$	1,672		$	3,657	$	1,262	$	645		$	125		$	697		$	8,881
Loans:
Ending Balance: collectively evaluated for impairment	$	105,045		$	169,869		$	410,783	$	149,490	$	51,174		$	10,754		$	73,572		$	970,687
Ending Balance: individually evaluated for impairment	$	2,071		$	430		$	4,858	$	862	$	595		$	1		$	230		$	9,047
Ending Balance	$	107,116		$	170,299		$	415,641	$	150,352	$	51,769		$	10,755		$	73,802		$	979,734

29

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

NOTE G – 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 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 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 – REVENUE RECOGNITION

On January 1, 2018, the Company adopted ASU No. 2014-09Revenue from Contracts with Customers (Topic 606)and all subsequent ASUs that modified Topic 606. As stated in Note C,Recent Accounting Pronouncements, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of insufficient funds fees, account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

30

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

Other Fees and Income

Other fees and income primarily consist of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income primarily consists of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Other fees and income also includes other recurring revenue streams such as safe deposit box rental fees and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2019 and 2018.

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2019		2018
	(dollars in thousands)
Service Charges on Deposit Accounts	$	266	$	276
Other		502		413
Noninterest Income (in-scope of Topic 606)		768		689
Noninterest Income (out-of-scope of Topic 606)		429		476
Total Non-interest Income	$	1,197	$	1,165

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 2019 and December 31, 2018, the Company did not have any significant contract balances.

31

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

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

NOTE I – OTHER REAL ESTATE OWNED

The following table explains changes in other real estate owned, or OREO, during the three months ended March 31, 2019 and the year ended December 31, 2018:

	Three Months			Twelve Months
	Ended			Ended
	March 31,			December 31,
	2019			2018
	(dollars in thousands)
Beginning balance January 1	$	1,088		$	1,258
Sales		(65	)		(717	)
Write-downs		(3	)		(71	)
Transfers		26			618
Ending balance	$	1,046		$	1,088

At March 31, 2019 and December 31, 2018, the Company had $1.0 million and $1.1 million, respectively, of foreclosed residential real estate property in OREO. The Company had five 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 $770,000 at March 31, 2019. At December 31, 2018, the Company had 5 loans with recorded investment in the amount of $376,000 in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure.

Note J – 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 March 31, 2019, 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. The Company does not have any finance leases. 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.

32

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

Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that the Company will exercise the option to renew or extend the lease term, that option is included in determining the value of the ROU and lease liability.

The components of lease expense were as follows:

(In thousands)	Three Months Ended March 31,
	2019
Operating lease cost	$	261

Supplemental cash flow information related to leases was as follows:

(In thousands)	Three Months Ended March 31,
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	261
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		9,013

The following table presents the remaining weighted average lease terms and discount rates as of March 31, 2019:

Weighted Average Remaining Lease Term
Operating leases	7.3 years
Weighted Average Discount Rate
Operating leases	6.0	%

Maturities of lease liabilities were as follows:

(In thousands) Year Ending December 31,	Operating Leases
2019 (excluding the three months ended March 31, 2019)	$	398
2020		580
2021		642
2022		713
2023		693
Thereafter		5,816
Total lease payments	$	8,842

33

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: changes in national, regional and local market conditions; changes in legislative and regulatory conditions, changes in the interest rate 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.

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, Johnston, Pitt, Robeson, Sampson, Wake, Pasquotank, Martin, Alamance, and Wayne counties in North Carolina and York, Pickens and Cherokee counties in South Carolina. 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 addition of six branches located in Greenville (two), Elizabeth City, Washington, Gibsonville, and Burlington. During 2015, the Gibsonville and Burlington branches were combined into a new location in Burlington. On December 15, 2017, the Company acquired Premara Financial, Inc. (“Premara”) and its banking subsidiary Carolina Premier Bank (“Carolina Premier”) located in Charlotte, North Carolina and the cities of Rock Hill, Blacksburg and Six Mile, South Carolina. Under the terms of that acquisition, Premara was merged with and into the Company, Carolina Premier was merged with and into the Bank, and shareholders of Premara received 1.0463 shares of the Company’s common stock or $12.65 in cash for each outstanding share of Premara common stock, with approximately 70% of such shares being exchanged for shares of the Company’s common stock and 30% being exchanged for cash.

On January 29, 2019, the Bank entered into a Purchase and Assumption Agreement with City National Bank of West Virginia pursuant to which the Bank will assume the majority of deposits and acquire the equipment and other selected assets associated with City National Bank of West Virginia’s branch located at 621 Nevan Road, Virginia Beach, Virginia. The transaction is subject to state and federal bank regulatory approvals and other customary closing conditions and is expected to close during the second quarter of 2019.

34

Comparison of Financial Condition at

March 31, 2019 and December 31, 2018

During the first three months of 2019, total assets decreased by $16.4 million to $1.2 billion as of March 31, 2019. The decrease in assets was due primarily to cash used to pay down wholesale deposits. Earning assets at March 31, 2019 totaled $1.1 billion and consisted of $983.3 million in net loans, $86.7 million in investment securities, $61.5 million in cash, overnight investments and interest-bearing deposits in other banks, $9.8 million in federal funds sold and $4.1 million in non-marketable equity securities. Total deposits and shareholders’ equity at the end of the first quarter of 2019 were $951.0 million and $213.5 million, respectively.

Since the end of 2018, gross loans have increased by $5.8 million to $991.8 million as of March 31, 2019. The increase in gross loans was due primarily to normal customer demand. At March 31, 2019, gross loans consisted of $79.7 million in commercial and industrial loans, $458.5 million in commercial real estate loans, $57.2 million in multi-family residential loans, $11.4 million in consumer loans, $156.7 million in residential real estate loans, $48.8 million in HELOCs, and $181.2 million in construction loans. Deferred loan fees, net of costs, on these loans were $1.7 million at March 31, 2019.

At March 31, 2019 the Company held $9.8 million in federal funds sold and $0 in repurchase agreements compared to $0 in federal funds sold and $0 in repurchase agreements for December 31, 2018. Interest-earning deposits in other banks were $45.9 million at March 31, 2019, a $76.4 million decrease from December 31, 2018. The Company’s investment securities at March 31, 2019 were $86.7 million, an increase of $35.2 million from December 31, 2018. The investment portfolio as of March 31, 2019 consisted of $11.9 million in government agency debt securities, $56.1 million in mortgage-backed securities, $1.6 million in corporate bonds and $17.0 million in municipal securities. The net unrealized gain on these securities was $392,000 as of March 31, 2019.

At March 31, 2019, the Company had an investment of $3.3 million in the form of Federal Home Loan Bank (“FHLB”) stock, which increased by $59,000 from December 31, 2018. Also, the Company had $738,000 in other non-marketable securities at March 31, 2019 compared to $762,000 at December 31, 2018.

At March 31, 2019, non-earning assets were $107.2 million, an increase of $516,000 from $106.7 million as of December 31, 2018. Non-earning assets included $15.6 million in cash and due from banks, bank premises and equipment of $17.7 million, goodwill of $24.6 million, core deposit intangible of $1.9 million, accrued interest receivable of $4.1 million, right of use lease asset of $8.8 million, foreclosed real estate of $1.0 million, and other assets totaling $8.3 million, including net deferred taxes of $3.6 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 decrease in non-earning assets was due primarily to the reduction in cash and due from banks.

Total deposits at March 31, 2019 were $951.0 million and consisted of $240.3 million in non-interest-bearing demand deposits, $262.2 million in money market and negotiable order of withdrawal, or NOW, accounts, $48.1 million in savings accounts, and $400.5 million in time deposits. Total deposits decreased by $29.5 million from $980.4 million as of December 31, 2018, due primarily to the decrease in wholesale deposits. The Bank had $0 in brokered demand deposits and $26.3 million in brokered time deposits as of March 31, 2019. The Bank had $0 in brokered demand deposits and $56.5 million in brokered time deposits as of December 31, 2018.

35

As of March 31, 2019, the Company had $52.0 million (of which $45.0 million is identified as long-term debt) in FHLB borrowings, and $12.4 million in junior subordinated debentures that are classified as long-term debt.

Total shareholders’ equity at March 31, 2019 was $213.5 million, an increase of $3.8 million from $209.6 million as of December 31, 2018. Accumulated other comprehensive income relating to available for sale securities increased $360,000 during the three months ended March 31, 2019. Other changes in shareholders’ equity included net income of $3.3 million and $114,000 from the exercise of stock options.

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

At March 31, 2019, the Company had $940,000 in loans that were 30 to 59 days past due and $3.2 million in loans that were 30 to 89 days past due. This represented 0.73% of gross loans outstanding on that date. This is a decrease from December 31, 2018 when there were $5.1 million in loans that were 30-89 days past due or 0.51% of gross loans outstanding. Non-accrual loans decreased from $7.3 million at December 31, 2018 to $6.3 million at March 31, 2019.

The percentage of non-performing loans (non-accrual loans and accruing troubled debt restructurings) to total loans decreased from 1.50% at December 31, 2018 to 1.49% at March 31, 2019. The Company had a decrease of $920,000 in non-accruals from $7.3 million at December 31, 2018 and an increase in accruing troubled debt restructurings from $4.4 million at December 31, 2018 to $5.2 million as of March 31, 2019. Of the non-accrual loans as of March 31, 2019, five commercial real estate loans totaled $1.1 million, five construction loans totaled $544,000, fourteen commercial loans totaled $2.4 million, nine HELOC loans totaled $980,000, six agricultural loans totaled $1.0 million and ten 1-to-4 family residential loans totaled $266,000 and consumer made up the remaining balance.

At March 31, 2019, the Bank had thirty-nine loans totaling $7.7 million that were considered to be troubled debt restructurings. Twenty-two of these loans totaling $5.2 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
	March 31,			December 31,
	2019			2018
	(dollars in thousands)
Non-accrual loans	$	6,337		$	7,257
Accruing TDRs		5,246			4,378
Total non-performing loans		11,583			11,635
Foreclosed real estate		1,046			1,088
Total non-performing assets	$	12,629		$	12,723
Accruing loans past due 90 days or more	$	3,146		$	3,167
Allowance for loan losses	$	8,510		$	8,669
Non-performing loans to period end loans		1.17	%		1.18	%
Non-performing loans and accruing loans past due 90 days or more to period end loans		1.49	%		1.50	%
Allowance for loan losses to period end loans		0.86	%		0.88	%
Allowance for loan losses to non-performing loans		73	%		75	%
Allowance for loan losses to non-performing assets		67	%		68	%
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more		54	%		55	%
Non-performing assets to total assets		1.02	%		1.01	%
Non-performing assets and accruing loans past due 90 days or more to total assets		1.27	%		1.26	%

Total non-performing assets (non-accrual loans, accruing TDRs, and foreclosed real estate) at March 31, 2019 and December 31, 2018 were $12.6 million and $12.7 million, respectively. The allowance for loan losses at March 31, 2019 represented 67% of non-performing assets compared to 68% at December 31, 2018.

Total impaired loans at March 31, 2019 were $11.6 million. This includes $6.3 million in loans that were classified as impaired because they were in non-accrual status and $5.2 million in accruing TDRs. Of these loans, $261,000 required a specific reserve of $82,000 at March 31, 2019.

Total impaired loans at December 31, 2018 were $11.7 million. This includes $7.3 million in loans that were classified as impaired because they were in non-accrual status and $4.4 million in accruing TDRs. Of these loans, $291,000 required a specific reserve of $87,000 at December 31, 2018.

The allowance for loan losses was $8.5 million at March 31, 2019 or 0.86% of gross loans outstanding as compared to 0.88% reported as a percentage of gross loans at December 31, 2018. This decrease resulted primarily from changes in loans requiring a specific reserve plus qualitative factors related to interest rates and economic performance indicators. The Legacy Select loans and Carolina Premier loans were recorded at estimated fair value as of the acquisition date and the related credit risk is reflected as a fair value adjustment rather than separately in the allowance for 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 March 31, 2019 represented 73% of non-performing loans compared to 75% at December 31, 2018. It is management’s assessment that the allowance for loan losses as of March 31, 2019 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.

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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.

	March 31, 2019
(dollars in thousands)	1 Year or Less		Over 1 to 3 Years		Over 3 to 5 Years		More Than 5 Years		Total
Time deposits	$	328,042	$	62,068	$	10,345	$	-	$	400,455
Short-term borrowings		7,000		-		-		-		7,000
Long-term debt		-		20,000		25,000		12,372		57,372
Operating leases		541		1,253		1,395		5,653		8,842
Total contractual obligations	$	335,583	$	83,321	$	36,740	$	18,025	$	473,669

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.

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 March 31, 2019 and December 31, 2018, the Company had $28.6 million and $27.7 million in non-1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. At March 31, 2019 and December 31, 2018, the Company had $14.0 million and $10.0 million of 1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. The total amount of these loans represented 25.6% and 23.2% of total risk-based capital as of March 31, 2019 and December 31, 2018, 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% of risk-based capital for any single product line.

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At March 31, 2019, the Company had one product type group which exceeded this guideline; Office Building, which represented 43% of risk-based capital or $71.7 million. All other commercial real estate groups were at or below the 40% threshold. The internal guideline levels heighten the level of Company monitoring of such loans in underwriting and ongoing servicing activities. At December 31, 2018, the Company did not exceed the 40% guideline in any product types. All commercial and residential real estate product types were under the 40% threshold. All other commercial real estate product types were under the 40% threshold.

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
March 31, 2019 and December 31, 2018.

Acquisition, Development and Construction Loans

(dollars in thousands)

	March 31, 2019									December 31, 2018
	Land and Land									Land and Land
	Construction			Development			Total			Construction			Development			Total
Total ADC loans	$	151,008		$	30,154		$	181,162		$	145,736		$	24,668		$	170,404
Average Loan Size	$	275		$	372					$	267		$	308
Percentage of total loans		15.23	%		3.04	%		18.27	%		14.78	%		2.50	%		17.28	%
Non-accrual loans	$	608		$	-		$	608		$	587		$	-		$	587

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.

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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
March 31, 2019 and December 31, 2018.

	March 31, 2019										December 31, 2018
	ADC Loans		Percent			HELOC		Percent			ADC Loans		Percent			HELOC		Percent
	(dollars in thousands)
Harnett County	$	8,035		4.43	%	$	5,238		10.74	%	$	5,389		3.16	%	$	5,367		10.80	%
Alamance County		786		0.43	%		1,290		2.65	%		740		0.43	%		1,350		2.72	%
Beaufort County		1,065		0.59	%		1,148		2.35	%		908		0.53	%		1,113		2.24	%
Brunswick County		9,239		5.10	%		1,447		2.97	%		8,440		4.95	%		1,492		3.00	%
Carteret County		2,405		1.33	%		2,670		5.48	%		1,544		0.91	%		2,676		5.38	%
Cherokee County		-		-	%		29		0.06	%		-		-	%		52		0.11	%
Craven County		1,177		0.65	%		318		0.65	%		1,060		0.62	%		319		0.64	%
Cumberland County		24,379		13.46	%		3,019		6.19	%		21,019		12.34	%		3,116		6.27	%
Mecklenburg County		28,455		15.71	%		3,589		7.36	%		24,853		14.59	%		3,635		7.31	%
New Hanover County		27,909		15.40	%		2,480		5.09	%		23,396		13.73	%		2,721		5.47	%
Pasquotank County		1,174		0.65	%		1,790		3.67	%		1,145		0.67	%		1,915		3.85	%
Pickens County		-		-	%		85		0.17	%		-		-	%		99		0.20	%
Pitt County		12,115		6.69	%		6,048		12.40	%		10,574		6.21	%		6,334		12.74	%
Robeson County		1,310		0.72	%		3,352		6.87	%		1,076		0.63	%		3,505		7.05	%
Sampson County		24		0.01	%		1,869		3.83	%		149		0.09	%		1,835		3.69	%
Wake County		17,542		9.68	%		2,324		4.77	%		18,528		10.87	%		1,744		3.51	%
Wayne County		1,629		0.90	%		3,309		6.79	%		2,212		1.30	%		3,457		6.95	%
Wilson County		449		0.25	%		70		0.14	%		392		0.23	%		73		0.15	%
York County		286		0.16	%		1,109		2.28	%		124		0.07	%		1,053		2.12	%
All other locations		43,183		23.84	%		7,576		15.54	%		48,855		28.67	%		7,857		15.80	%
Total	$	181,162		100.00	%	$	48,760		100.00	%	$	170,404		100.00	%	$	49,713		100.00	%

Interest-Only Payments

Another risk factor that exists in the total loan portfolio pertains to loans with interest-only payment terms. At March 31, 2019, the Company had $222.8 million in loans that had terms permitting interest-only payments. This represented 22.6% of the total loan portfolio. At December 31, 2018, the Company had $224.6 million in loans that had terms permitting interest only payments. This represented 22.77% 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 $70.1 million, or 7.1% of total loans, at March 31, 2019 compared to $70.6 million, or 7.2% of total loans, at December 31, 2018. The Company’s ten largest customer relationships totaled $114.3 million, or 11.5% of total loans, at March 31, 2019 compared to $106.8 million, or 10.8% of total loans, at December 31, 2018. 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.

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Comparison of Results of Operations for the

Three months ended March 31, 2019 and 2018

General. During the first quarter of 2019, the Company had net income of $3.3 million as compared with net income of $1.9 million for the first quarter of 2018. Net income per common share for the first quarter of 2019 was $0.17 basic and diluted, compared with net income per common share of $0.14 basic and $0.13 diluted, for the first quarter of 2018. Results of operations for the first quarter of 2019 were primarily impacted by a decrease of $247,000 in net interest income and a decrease in non-interest expense of $2.0 million, which was primarily related to decreases in merger related expenses of $1.8 million, occupancy expenses of $161,000, and information systems expenses of $213,000 which were offset by an increase in professional fees expense of $112,000 and personnel expense of $230,000. The Company recorded a provision for loan losses of $112,000 for the first quarter of 2019 compared to a provision of $141,000 in the first quarter of 2018.

Net Interest Income. Net interest income decreased to $11.5 million for the first quarter of 2019 from $11.7 million for the first quarter of 2018. The Company’s total interest income was affected by the decrease in earning loan balances during the first two months of the quarter due to customer activity. Average total interest-earning assets were $1.1 billion in the first quarter of 2019 compared with $1.1 billion during the same period in 2018, while the average yield on those assets decreased 19 basis points from 5.21% to 5.02% which was primarily due to the reduction of discount accretion on loans acquired in the merger with Carolina Premier Bank.

The Company’s average interest-bearing liabilities decreased by $59.6 million to $771.6 million for the quarter ended March 31, 2019 from $831.2 million for the same period one year earlier and the cost of those funds increased from 0.98% to 1.36%, or 38 basis points. The decrease in interest-bearing liabilities was a primary result of reducing brokered deposits and advances. During the first quarter of 2019, the Company’s net interest margin was 4.09% and net interest spread was 3.65%. In the same quarter ended one year earlier, net interest margin was 4.45% and net interest spread was 4.22%.

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 fourteen consecutive quarters, based on the risk-graded pool to which the loss was assigned. Historical loss rates are now calculated by using a loss migration analysis associating losses to the risk-graded pool to which they relate for each of the previous twelve quarters. Then, using a twelve quarter look back period, loss factors are calculated for each risk-graded pool. During the first quarter of 2019, the Company recorded a provision for loan losses of $112,000, as compared to the provision of $141,000 that was recorded in the first quarter of 2018. In both 2019 and 2018, the relatively small provision expense resulted from a low level of net charge-offs and improvements in qualitative factors associated with various loan pools.

Non-Interest Income. Non-interest income for the quarter ended March 31, 2019 was $1.2 million, an increase of $32,000 from the first quarter of 2018. Service charges on deposit accounts decreased $10,000 to $266,000 for the quarter ended March 31, 2019 from $276,000 for the same period in 2018. Other non-deposit fees and income decreased $89,000 from the first quarter of 2018 to the first quarter of 2019 due to decreases in various items. Fees from the sale of mortgages increased from $26,000 for the quarter ended March 31, 2018 to $157,000 for the first quarter of 2019. The Company did not have sales of securities during the three months ended March 31, 2019 or 2018, respectively.

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Non-Interest Expenses. Non-interest expenses decreased by $2.0 million to $8.3 million for the quarter ended March 31, 2019, from $10.3 million for the same period in 2018. In general, most categories of non-interest expenses decreased, primarily due to the elimination of expenses associated with the operational obligations of Carolina Premier Bank. The following are highlights of the significant categories of non-interest expenses during the first quarter of 2019 versus the same period in 2018:

· Personnel expenses increased $230,000 to $5.0 million, due to additional personnel and cost of living increases.

· Occupancy expenses decreased $161,000, primarily due to reduced repairs and maintenance and rent expense.

· Merger related expenses decreased $1.8 million.

· CDI expense decreased $56,000 due to the amortization.

· Information systems expense decreased by $213,000 due to reduction of expenses related to the conversion of the core processing system used by Carolina Premier.

· Professional fees increased by $112,000 to $382,000.

· Deposit insurance expenses decreased by $60,000 to $105,000, due to increased capital levels.

Provision for Income Taxes. The Company’s effective tax rate was 22.0% and 22.4% for the quarters ended March 31, 2019 and 2018, respectively.

As of March 31, 2019 and December, 31, 2018, the Company had a net deferred tax asset in the amount of $3.6 million and $3.7 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 March 31, 2019 and December 31, 2018, 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.

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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, 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.

	March 31, 2019								March 31, 2018
	(dollars in thousands)
	Average					Average			Average					Average
	balance			Interest		rate			balance			Interest		rate
Interest-earning assets:
Loans, gross of allowance	$	976,420		$	13,050		5.42	%	$	972,384		$	13,172		5.49	%
Investment securities		66,576			496		3.02	%		61,427			418		2.76	%
Other interest-earning assets		95,705			543		2.30	%		41,067			211		2.08	%
Total interest-earning assets		1,138,701			14,089		5.02	%		1,074,878			13,801		5.21	%
Other assets		100,146								124,698
Total assets	$	1,238,847							$	1,199,576
Interest-bearing liabilities:
Deposits:
Savings, NOW and money market	$	303,781			356		0.48	%	$	317,857			314		0.40	%
Time deposits over $100,000		285,980			1,304		1.85	%		330,144			1,030		1.27	%
Other time deposits		117,463			449		1.55	%		114,217			324		1.15	%
Borrowings		64,372			484		3.05	%		68,996			350		2.06	%
Total interest-bearing liabilities		771,596			2,593		1.36	%		831,214			2,018		0.98	%
Non-interest-bearing deposits		242,547								219,184
Other liabilities		12,574								11,095
Shareholders' equity		212,130								137,083
Total liabilities and shareholders' equity	$	1,238,847							$	1,198,576
Net interest income/interest rate spread (taxable-equivalent basis)				$	11,496		3.65	%				$	11,783		4.22	%
Net interest margin (taxable-equivalent basis)							4.09	%							4.45	%
Ratio of interest-earning assets to interest-bearing liabilities		147.58	%							129.31	%
Reported net interest income
Net interest income/net interest margin (taxable-equivalent basis)				$	11,496		4.08	%				$	11,783		4.42	%
Less:
taxable-equivalent adjustment					39								79
Net Interest Income				$	11,457							$	11,704

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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 12.7% of total assets at March 31, 2019 as compared to 15.2% as of December 31, 2018.

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 March 31, 2019, the Company had existing credit lines with other financial institutions to purchase up to $130.0 million in federal funds. Also, as a member of the FHLB of Atlanta, the Company may obtain advances of up to 10% of total assets, subject to available collateral. A floating lien of $138.1 million of qualifying loans is pledged to the FHLB to secure borrowings. At March 31, 2019, the Company had $52.0 million in FHLB advances outstanding. Another source of short-term borrowings available to the Bank is securities sold under agreements to repurchase. At March 31, 2019, in addition to FHLB advances, total borrowings consisted of junior subordinated debentures of $12.4 million.

Total deposits were $951.0 million at March 31, 2019. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate sensitive. Time deposits represented 42.1% of total deposits at March 31, 2019. Time deposits of $250,000 or more represented 12.7% of the Company’s total deposits at March 31, 2019. At quarter-end, the Company had $26.3 million in brokered time deposits and $0 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 and SBLF preferred stock 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 17.19% at March 31, 2019.

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As the following table indicates, at March 31, 2019, the Company and the Bank both exceeded minimum regulatory capital requirements as specified below.

	Actual			Minimum
Select Bancorp, Inc.	Ratio			Requirement
Total risk-based capital ratio		19.16	%		8.00	%
Tier 1 risk-based capital ratio		18.37	%		6.00	%
Leverage ratio		16.32	%		4.00	%
Common Equity Tier 1 risk-based capital ratio		17.26	%		4.50	%
				Regulatory
	Actual			Minimum			Well-Capitalized
Select Bank & Trust	Ratio			Requirement			Requirement
Total risk-based capital ratio		15.42	%		8.00	%		10.00	%
Tier 1 risk-based capital ratio		14.63	%		6.00	%		8.00	%
Leverage ratio		13.02	%		4.00	%		5.00	%
Common Equity Tier 1 risk-based capital ratio		14.63	%		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 March 31, 2019.

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

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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 December 31, 2018.

	December 31, 2018
(Dollars in thousands)	Estimated Change to NII			Estimated Change to EVE
Immediate change in interest rates:
+ 4.0%		17.9	%		10.1	%
+ 3.0%		13.8			8.2
+ 2.0%		9.5			6.2
+ 1.0%		4.8			3.4
No change		-			-
- 1.0%		(4.7	)		(4.5	)

While the measures presented in the table above are not a prediction of future NII or EVE valuations, they do suggest that if all other variables remained constant, immediate increases in interest rates at all points on the yield curve may produce higher NII in the short term. Other important factors that 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.

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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 first quarter of 2019. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the first quarter of 2019 that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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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 party to legal proceedings in the ordinary course of business wherein it attempts to collect loans, enforce its security interest in loans, or other matters of similar nature.

Item 1A. Risk Factors

There have been no material changes to the risk factors that we have previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

(c) Repurchases

The Company announced a repurchase program on August 31, 2016, by which management was authorized to repurchase up to 581,518 shares of Company common stock in the open market and through privately negotiated transactions. There were no share repurchase transactions conducted during the three-month period covered by this Report.

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.
10.1	First Amendment to Employment Agreement with Mark A. Jeffries, effective January 23, 2019	8-K	10.1	01/28/19	000-50400
10.2	First Amendment to Employment Agreement with W. Keith Betts, effective January 22, 2019	8-K	10.2	01/28/19	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 providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, in XBRL (eXtensible Business Reporting Language)			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: May 10, 2019	By:	/s/ William L. Hedgepeth II
		William L. Hedgepeth II
		President and Chief Executive Officer
Date: May 10, 2019	By:	/s/ Mark A. Jeffries
		Mark A. Jeffries
		Executive Vice President and Chief Financial Officer

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