REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

REGULATORY MATTERS

REGULATORY MATTERS

NOTE M - REGULATORY MATTERS

The Company is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on the Company’s consolidated financial statements. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios, as set forth in the table below. Management believes, as of December 31, 2019, that the Company meets all capital adequacy requirements to which it is subject. The Company’s significant assets are its investments in Select Bank & Trust Company and New Century Statutory Trust I.

Regulatory authorities may limit payment of dividends by any bank when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the bank. The North Carolina Commissioner of Banks and the FDIC are also authorized to prohibit the payment of dividends under certain other circumstances.

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. Financial institutions and holding companies became subject to the Basel III capital requirements beginning on January 1, 2015. A new part of the capital ratios profile is the Common Equity Tier 1 risk-based ratio which does not include limited life components such as trust preferred securities and Small Business Lending Fund (“SBLF”) preferred stock. 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).

As the following tables indicate, at December 31, 2019 and 2018, the Company and its Bank subsidiary both exceeded minimum regulatory capital requirements as specified below.

					Minimum for capital
	Actual				adequacy purposes
The Company:	Amount		Ratio		Amount		Ratio
December 31, 2019:	(dollars in thousands)
Total Capital (to Risk-Weighted Assets)	$	205,462	18.26	%	$	90,003	8.00	%
Tier 1 Capital (to Risk-Weighted Assets)		197,138	17.52	%		67,502	6.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)		185,138	16.46	%		50,627	4.50	%
Tier 1 Capital (to Average Assets)		197,138	15.84	%		49,777	4.00	%

					Minimum for capital
	Actual				adequacy purposes
The Company:	Amount		Ratio		Amount		Ratio
December 31, 2018:	(dollars in thousands)
Total Capital (to Risk-Weighted Assets)	$	202,675	19.26	%	$	84,179	8.00	%
Tier 1 Capital (to Risk-Weighted Assets)		194,006	18.44	%		63,135	6.00	%
Common Equity Tier 1 (to Risk-Weighted Assets)		182,006	17.30	%		47,351	4.50	%
Tier 1 Capital (to Average Assets)		194,006	15.65	%		49,576	4.00	%

Select Bank & Trust Company’s actual capital amounts and ratios are presented in the table below as of December 31, 2019 and 2018:

									Minimum to be well
					Minimum for capital				capitalized under prompt
	Actual				adequacy purposes				corrective action provisions
The Bank:	Amount		Ratio		Amount		Ratio		Amount	Ratio
December 31, 2019:	(dollars in thousands)
Total Capital (to Risk-Weighted Assets)	$	177,223	15.69	%	$	90,366	8.00	%	112,958	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		168,899	14.95	%		67,775	6.00	%	90,366	8.00	%
Common equity Tier 1 (to Risk-Weight Assets)		168,899	14.95	%		50,831	4.50	%	73,422	6.50	%
Tier 1 Capital (to Average Assets)		168,899	13.59	%		49,730	4.00	%	62,162	5.00	%

									Minimum to be well
					Minimum for capital				capitalized under prompt
	Actual				adequacy purposes				corrective action provisions
The Bank:	Amount		Ratio		Amount		Ratio		Amount	Ratio
December 31, 2018:	(dollars in thousands)
Total Capital (to Risk-Weighted Assets)	$	162,507	15.45	%	$	84,124	8.00	%	105,156	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		153,838	14.63	%		63,093	6.00	%	84,124	8.00	%
Common equity Tier 1 (to Risk-Weight Assets)		153,838	14.63	%		47,320	4.50	%	68,351	6.50	%
Tier 1 Capital (to Average Assets)		153,838	12.42	%		49,557	4.00	%	61,947	5.00	%

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 December 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.