SLCT - Select Bancorp Reports Third Quarter 2020 Earnings

DUNN, N.C., Oct. 29, 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 September 30, 2020 of $2.5 million with basic and diluted earnings per share of $0.14, compared to net income of $3.2 million with basic and diluted earnings per share of $0.17 for the comparative quarter ended September 30, 2019. The decrease in net income in the third quarter of 2020 compared to the third quarter of 2019 was primarily attributable to a provision for loan losses of $1.6 million compared to a provision for loan losses of $231,000 for the same period in 2019. The increase in the provision for loan losses was primarily due to a specific reserve, loan growth and factors associated with the economic impact of the COVID-19 pandemic.

Total assets, deposits, and gross loans for the Company as of September 30, 2020 were $1.8 billion, $1.5 billion, and $1.3 billion, respectively, compared to total assets of $1.3 billion, total deposits of $987.7 million, and total loans of $1 billion as of the same date in 2019.

Comments of the Chief Executive Officer and Other Matters

William Hedgepeth, President and Chief Executive Officer, stated regarding the 3 ^rd quarter of 2020, “We had a solid third quarter in spite of the impact of the COVID-19 pandemic upon our company and earnings. In the last three quarters, we have been preparing for a ‘worst-case scenario’ should the pandemic linger and have a lasting impact on the economy that stretches beyond months or years. Although the bank, our customers and employees have learned to navigate the current state of affairs, there is still much uncertainty that lies ahead. We believe we are well-positioned and prepared to assist our customers further should that be required, with measures such as additional loan deferrals and the waiving of certain fees. Our capital, liquidity and asset quality are all strong and should enable us to overcome many challenges we may face until we emerge from this pandemic. We continue to realize efficiencies and improve our processes as we move forward. Our three newest branches in the western part of North Carolina (Franklin, Highlands, and Sylva) are integrating well and have become a great part of our branch network. We are so proud of the western North Carolina branch team members’ efforts over the past few months. Albeit challenging in this environment, they have done a fantastic job maintaining customer relationships and growing those markets.”

Other matters of interest to shareholders are:

• The Company announced on October 2, 2020 a stock repurchase plan authorizing the repurchase of up to 875,000 outstanding shares of common stock.
• Organic deposit growth was approximately $134.0 million in the third quarter of 2020.
• Loans increased by approximately $34.5 million in the third quarter of 2020 in organic growth.

Net Interest Income and Net Interest Margin

Net interest income was $13.1 million for the third quarter of 2020 and $11.9 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 average 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 third quarter of 2020 and $1.2 billion for the same period in 2019. The yield on those assets decreased 48 basis points, from 4.98% in the third quarter of 2019 to 4.50% for the same period in 2020. This was primarily due to lower rates on recently originated loans and 1,249 Paycheck Protection Program, or PPP, loans along with deferral modifications on loans due to COVID-19 on a comparative-quarter basis. When compared to the third quarter of 2020, average total interest-earning assets were $1.3 billion in the second quarter of 2020 and $1.4 billion for the third quarter of 2020. The yield on those assets increased 28 basis points, from 4.22% in the second quarter of 2020 to 4.50% for the third quarter of 2020.

The Company’s average interest-bearing liabilities increased by $234.2 million, to $1.1 billion for the quarter ended September 30, 2020, from $818.6 million for the third quarter of 2019. Low-cost savings, NOW and money market deposits increased $275.2 million, while the cost of transactional deposits increased from 0.52% to 0.59%, or 7 basis points, year over year. The cost of total deposits decreased from 1.40% in the third quarter of 2019 to 0.92% in the third quarter of 2020 due to the decrease in the cost of time deposits. During the third quarter of 2020, the Company’s net interest margin was 3.73% and net interest spread was 3.47%. In the third quarter of 2019, net interest margin was 3.94% and net interest spread was 3.46%.

Provision for Loan Losses and Asset Quality

During the third quarter of 2020, the Company recorded a provision for loan losses of $1.6 million, based primarily on loan growth and adjustments to qualitative allowance factors. There was a 0.10% allowance applied to all loan pools for factors related to the potential economic impact of the COVID-19 pandemic. As a result, $129,000 of the $1.6 million provision was attributable to the impact COVID-19 on the reserve’s increase. When the pandemic began, we granted payment deferrals related to the impact of COVID-19 on approximately 497 commercial and consumer loans totaling approximately $240.2 million. As of the date of this release, there are approximately 129 loans totaling $85.7 million remaining on deferral. On a comparative-quarter basis, the Company recorded a provision for loan losses of $231,000 for the third quarter of 2019. In the third quarter of 2020, the Company recorded net charge-offs of $131,000 compared to net charge-offs of $478,000 in the third quarter of 2019. These charge-offs resulted in a net charge-off rate of 0.04% of average loans for the current quarter, compared to a net charge-off rate of 0.19% in the third quarter of 2019.

Non-interest Income

Non-interest income for the quarter ended September 30, 2020 was $1.7 million, an increase of $276,000 from $1.4 million in the third quarter of 2019. Service charges on deposit accounts decreased $51,000, to $257,000 for the quarter ended September 30, 2020, from $308,000 for the third quarter in 2019. Other non-deposit fees and income increased $76,000 from the third quarter of 2019 to the third quarter of 2020. Fees of $255,000 from presold mortgages and $262,000 from non-PPP SBA loans totaled $517,000 in the third quarter of 2020, which represented an increase of $299,000 from the $218,000 of fees in the third quarter of 2019. The Company did not sell any investment securities in the third quarter of 2020 but did have gains of $48,000 in the third quarter of 2019.

Non-interest Expense

Non-interest expenses increased by $1.1 million to $10.1 million for the quarter ended September 30, 2020, from $8.9 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 third quarter of 2020 versus the same period in 2019:

• Personnel expenses increased $618,000 to $5.7 million, due to additional personnel primarily from branch acquisitions and the establishment of new branches.
• Occupancy expenses decreased $65,000 to $1.0 million, primarily due to additional branches, repairs and maintenance.
• Foreclosure-related expenses increased $237,000 to $228,000, due to write-down to fair value.
• Core Deposit Intangible (“CDI”) expense decreased $29,000 to $195,000 due to amortization.
• Information systems expense increased by $191,000 to $1.0 million due to increased expenses related to a new mobile banking platform, increased number of customer accounts and security cost for the core processing system.
• Professional fees decreased by $119,000 to $399,000.
• Deposit insurance expenses increased by $400,000 to $370,000 due to premium increases related to asset growth.

Income Taxes

The Company’s effective tax rate was 21.5% and 22.0% for the quarters ended September 30, 2020 and 2019, respectively.

Balance Sheet

Total assets at September 30, 2020 were $1.8 billion, an increase of $502.3 million or 39.6% from a year earlier. Gross loans at September 30, 2020 were $1.3 billion, up $268.5 million or 26.4% from a year earlier, and total deposits were $1.5 billion, an increase of $485.1 million or 49.1% from a year earlier.

Retail deposits (excluding brokered deposits and internet time deposits) grew at a rate of 87.5% or $499.5 million as of September 30, 2020 compared to the same period in 2019. Deposits increased $97.2 million due to the PPP loan program in 2020. Wholesale deposits decreased from $13.5 million at September 30, 2019 to $4.6 million at September 30, 2020 as we continue emphasizing core deposit growth to replace wholesale deposits.

About Select Bank & Trust Company

Select 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 Measures

Certain 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 Statements

This 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.