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Select Bancorp Reports Second Quarter 2020 Earnings

DUNN, N.C., Aug. 05, 2020 (GLOBE NEWSWIRE) — Select Bancorp, Inc. (NASDAQ: SLCT) (the “Company”), the holding company for Select Bank & Trust Company, today reported net income for the quarter ended June 30, 2020 of $681,000 with basic and diluted earnings per share of $0.04, compared to net income of $3.4 million with basic and diluted earnings per share of $0.18 for the comparative quarter ended June 30, 2019. The decrease in net income in the second quarter of 2020 compared to the second quarter of 2019 was primarily attributable to a provision for loan losses of $1.9 million compared to a recovery of loan losses of $207,000 for the same period in 2019. The increase in the provision for loan losses was primarily due to factors associated with the economic impact of the COVID-19 pandemic. In addition, we incurred $709,000 of expenses related to the acquisition of three branches from First Citizens Bank during the quarter.  We also incurred expenses of $265,000 associated with new branches in Cornelius, North Carolina (Charlotte area) and Holly Springs, North Carolina (Raleigh area). 
Total assets, deposits, and gross loans for the Company as of June 30, 2020 were $1.6 billion, $1.3 billion, and $1.2 billion, respectively, compared to total assets of $1.3 billion, total deposits of $1.0 billion, and total loans of $997.1 million as of the same date in 2019.  Comments of the Chief Executive Officer and Other MattersWilliam Hedgepeth, President and Chief Executive Officer, stated regarding the 2nd quarter of 2020, “We continue to navigate the challenges that we are facing during this unprecedented crisis caused by the COVID-19 pandemic.  Our customers, employees, shareholders, families and friends have been deeply affected by the pandemic and the future is uncertain.  However, Select Bank & Trust is positioned and prepared to assist our customers and employees. Our capital position, liquidity and asset quality are sound at this time and we believe sufficient to navigate the COVID-19 pandemic in the coming weeks and months.  We have assisted our customers with Paycheck Protection Program, or PPP, small business loans and COVID-19 loan modifications where necessary. We originated over 1,200 PPP loans totaling approximately $97.0 million.  Over 65% or 831 of these loans were at or below $50,000.  We granted over 475 COVID-19 loan modifications totaling approximately $240.0 million.  Our employees and Board of Directors are committed to assisting our customers, employees and communities through this crisis.  Our employees have worked extremely hard this year, and for many years preceding this crisis, to place Select Bank & Trust in a position to support our customers, employees and communities as we move forward in this unusual time.” Hedgepeth continued, “We also acquired three branches from Entegra Bank, a division of First Citizens Bank, in the western part of North Carolina in mid-April.  The pandemic challenged us to get creative with how we would normally convert systems, train team members and successfully open three new branches, but we effectively converted all three branch facilities, the systems and the employees, and we are very proud of the teams’ efforts. We are pleased to have the branches officially in our network now, located in Franklin, Highlands, and Sylva, North Carolina.”Other matters of interest to shareholders are:The Company repurchased 193,138 shares of its common stock during the second quarter of 2020 under a repurchase plan authorized by the Board of Directors in 2019. The Company may repurchase up to an additional 42,002 shares of its common stock under the repurchase plan.Loan growth was approximately $210.5 million in the second quarter of 2020, which consisted of $103.3 million in loans acquired from First Citizens in connection with the acquisition of three western North Carolina branches, plus $95.1 million in PPP loans and $12.1 million in net organic loan growth.Deposit growth was approximately $356.1 million in the second quarter of 2020, which consisted of $185.5 million in deposits acquired from First Citizens in connection with the branch acquisition and $170.6 million in net organic growth.With the closing of the acquisition of three western North Carolina branches on April 17, 2020, our total assets are in excess of $1.6 billion. Net Interest Income and Net Interest MarginNet interest income was $11.9 million for the second quarter of 2020 and $11.7 million for the same period in 2019. On a comparative quarter basis, the Company’s total interest income was positively affected by increased loan balances due to growth which was offset by a decreasing yield, a decrease in securities balances and lower yielding loans plus the reduction in other earning assets at a lower yield. Average total interest-earning assets were $1.4 billion in the second quarter of 2020 and $1.2 billion for the same period in 2019.  The yield on those assets decreased 83 basis points, from 5.05% in the second quarter of 2019 to 4.22% for the same period in 2020.  This was primarily due to lower rates on recently originated loans and PPP loans along with deferral modifications on loans due to COVID-19 on a comparative quarter basis.  When compared to the first quarter of 2020, average total interest-earning assets were $1.4 billion in the second quarter of 2020 and $1.1 billion for the first quarter of 2020.  The yield on those assets decreased 76 basis points, from 4.98% in the second quarter of 2019 to 4.22% for the same period in 2020.The Company’s average interest-bearing liabilities increased by $147.7 million, to $935.8 million for the quarter ended June 30, 2020, from $788.1 million for the second quarter of 2019.  Low-cost savings, NOW and money market deposits increased $164.3 million while the cost of transactional deposits increased from 0.52% to 0.54%, or 2 basis points year over year. The cost of total deposits decreased from 1.33% in the second quarter of 2019 to 1.02% in the second quarter of 2020 due to the decrease in the cost of time deposits.  During the second quarter of 2020, the Company’s net interest margin was 3.45% and net interest spread was 3.08%. In the second quarter of 2019, net interest margin was 4.06% and net interest spread was 3.59%.  Provision for Loan Losses and Asset QualityDuring the second quarter of 2020, the Company recorded a provision for loan losses of $1.9 million, based primarily on loan growth and adjustments to qualitative allowance factors. There was a 0.12% allowance applied to all loan pools for factors related to the potential economic impact of the COVID-19 pandemic. Additionally, due to the COVID-19 pandemic, we increased our reserve an additional 5 basis points in response to qualitative factors for gross domestic product, peer group delinquency, and North Carolina unemployment in all loan pools.  As a result, $1.1 million of the $1.9 million provision was attributable to the impact COVID-19 on the reserve’s increase.  We granted payment extensions on approximately 491 commercial and consumer loans totaling approximately $240.2 million related to the impact of COVID-19.  As of the date of this filing, there are approximately 137 loans totaling $83.1 million remaining on modification.  On a comparative-quarter basis, the Company recorded a recovery of loan losses of $207,000 for the second quarter of 2019. In the second quarter of 2020, the Company recorded net charge-offs of $515,000 compared to net charge-offs of $0 in the second quarter of 2019.  These charge-offs resulted in a net charge-off rate of 0.16% of average loans for the current quarter, compared to a net charge-off rate of 0.00% in the second quarter of 2019.Non-interest IncomeNon-interest income for the quarter ended June 30, 2020 was $1.4 million, an increase of $83,000 from $1.3 million in the second quarter of 2019. Service charges on deposit accounts decreased $78,000, to $206,000 for the quarter ended June 30, 2020, from $284,000 for the second quarter in 2019. Other non-deposit fees and income increased $36,000 from the second quarter of 2019 to the second quarter of 2020. Fees of $235,000 from presold mortgages and $120,000 from SBA loans totaled $355,000 in the year-over-year comparison, which represented an increase of $124,000 from the $230,000 of fees in the second quarter of 2019. The Company did not sell any investment securities in the second quarter of 2020 or 2019.Non-interest ExpenseNon-interest expenses increased by $1.7 million to $10.5 million for the quarter ended June 30, 2020, from $8.8 million for the same period in 2019.  In general, most categories of non-interest expenses increased, primarily due to an increase in the number of branches.  The following are highlights of the significant categories of non-interest expenses during the second quarter of 2020 versus the same period in 2019:Personnel expenses increased $755,000 to $5.8 million, due to additional personnel and cost-of-living increases. Occupancy expenses increased $64,000 to $986,000, primarily due to additional branches, repairs and maintenance and increased rent expense due to normal rent escalation.Integration-related expenses increased $602,000 to $709,000, due to the acquisition of three branches in western North Carolina.Core Deposit Intangible (“CDI”) expense decreased $10,000 to $195,000 due to amortization.Information systems expense increased by $95,000 to $972,000 due to increased expenses related to a new mobile banking platform, increased number of users and security cost for the core processing system.Professional fees decreased by $32,000 to $451,000.Deposit insurance expenses decreased by $14,000 to $76,000 due to premium credit.Income TaxesThe Company’s effective tax rate was 18.0% and 22.0% for the quarters ended June 30, 2020 and 2019, respectively. Balance SheetTotal assets at June 30, 2020 were $1.6 billion, an increase of $302.2 million or 22.9% from a year earlier.  Gross loans at June 30, 2020 were $1.2 billion, up $252.9 million or 25.4% from a year earlier, and total deposits were $1.3 billion, an increase of $308.5 million or 29.9% from a year earlier.Retail deposits (excluding brokered deposits and internet time deposits) grew at a rate of 60.4% or $357.0 million as of June 30, 2020 compared to the same period in 2019. Deposits increased $97.2 million due to the PPP loan program.  Wholesale deposits decreased from $16.9 million at June 30, 2019 to $7.2 million at June 30, 2020 as we continue emphasizing core deposit growth to replace wholesale deposits.Completion of Acquisition of Three Branches in Western North CarolinaOn April 17, 2020, the Company’s subsidiary, Select Bank & Trust, completed its acquisition of three branches from Entegra Bank, a division of First Citizens Bank.The branches are located at 473 Carolina Way, Highlands, NC; 498 East Main Street, Sylva, NC; and 30 Hyatt Road, Franklin, NC. As part of the acquisition, Select Bank & Trust Company acquired approximately $185 million in deposits, goodwill of $17.3 million and purchased approximately $103 million in loans. About Select Bank & Trust CompanySelect Bank & Trust has 22 full-service offices in these North Carolina communities: Dunn, Burlington, Charlotte, Clinton, Cornelius (Charlotte area), Elizabeth City, Fayetteville, Franklin, Goldsboro, Greenville, Highlands, Holly Springs (Raleigh area), Leland, Lillington, Lumberton, Morehead City, Raleigh, Sylva, and Wilmington; in the following South Carolina communities: Blacksburg and Rock Hill; and in Virginia Beach, Virginia.  Select Bank & Trust also operates three loan production offices in Wilson, Durham and Winston-Salem, North Carolina.About Select Bancorp, Inc.Select Bancorp, Inc. is a bank holding company headquartered in Dunn, North Carolina. The Company primarily conducts operations through its wholly owned subsidiary, Select Bank & Trust Company, a North Carolina-chartered commercial bank that provides a full suite of banking services through its offices in North Carolina, South Carolina, and Virginia. The Company’s common stock is listed on the Nasdaq Global Market under the symbol “SLCT”.Non-GAAP Financial MeasuresCertain financial measures we use to evaluate our performance and discuss in this release and the accompanying tables are identified as being “non-GAAP financial measures.” In accordance with the rules of the Securities and Exchange Commission, or the SEC, we classify a financial measure as being a non-GAAP (generally accepted accounting principles) financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of operations, balance sheet or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.The non-GAAP financial measures that we discuss in this release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this release may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar, or with names similar, to the non-GAAP financial measures we have discussed in this release when comparing such non-GAAP financial measures.Tangible book value per share is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as shareholders’ equity less goodwill and core deposit intangibles; and (b) tangible book value per share as tangible common equity (as described in clause (a)) divided by shares of common stock outstanding. For tangible book value per share, the most directly comparable financial measure calculated in accordance with GAAP is our book value per share. A reconciliation of tangible book value per share to book value per share is included in the tables that accompany this release. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.Important Note Regarding Forward-Looking StatementsThis news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, (i) statements regarding certain of our goals and expectations with respect to earnings, revenue, and expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to anticipated market share growth, and (ii) statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or similar expressions. The actual results might differ materially from those projected in the forward-looking statements for various reasons, including, but not limited to: the ongoing COVID-19 pandemic and measures intended to prevent its spread, which include wide disruptions to business activity that may impact the financial strength of our borrowers; our ability to manage growth or achieve it at all; substantial changes in financial markets; our ability to obtain the synergies and expense efficiencies anticipated from our acquisition activity and branch divestures and consolidations; regulatory changes; changes in interest rates, including the impact of such changes on our net interest margin; loss of deposits and loan demand to other savings and financial institutions; adverse economic conditions that impact our borrowers’ ability to pay their debts when due, including the rapid rise in unemployment associated with the COVID-19 pandemic; and changes in real estate values and the real estate market. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company’s SEC filings, including its periodic reports under the Securities Exchange Act of 1934, as amended, copies of which are available upon request from the Company. Except as required by law, the Company assumes no obligation to update the forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.Mark A. Jeffries
Executive Vice President
Chief Financial Officer
Office: 910-892-7080 and Direct: 910-897-3603
markj@SelectBank.com
SelectBank.com




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