XNAS:NCBC Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 

 

U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

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 Number 000-50400

 

 

New Century Bancorp, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

North Carolina   20-0218264

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 8, 2012, the Registrant had outstanding 6,913,636 shares of Common Stock, $1 par value per share.

 

 

 


          Page No.  

Part I.

  

FINANCIAL INFORMATION

  

Item 1 -

  

Financial Statements (Unaudited)

  
  

Consolidated Balance Sheets March 31, 2012 and December 31, 2011

     3   
  

Consolidated Statements of Operations Three Months Ended March 31, 2012 and 2011

     4   
  

Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2012 and 2011

     5   
  

Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2012 and 2011

     6   
  

Consolidated Statements of Cash Flows Three Months Ended March 31, 2012 and 2011

     7   
  

Notes to Consolidated Financial Statements

     9   

Item 2 -

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     36   

Item 4 -

  

Controls and Procedures

     45   

Part II.

  

OTHER INFORMATION

  

Item 4 -

  

Mine Safety Disclosures

     46   

Item 5 -

  

Other Information

     46   

Item 6 -

  

Exhibits

     46   
  

Signatures

     47   
  

Exhibit Index

     48   

 

- 2 -


Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

NEW CENTURY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

     March 31, 2012
(Unaudited)
    December  31,
2011*
 
     (In thousands, except share and
per share data)
 

ASSETS

    

Cash and due from banks

   $ 14,360      $ 18,478   

Interest-earning deposits in other banks

     64,019        55,590   

Federal funds sold

     3,028        3,028   

Investment securities available for sale, at fair value

     72,901        67,854   

Loans held for sale, at fair value

     1,552        —     

Loans

     399,760        417,624   

Allowance for loan losses

     (9,568     (10,034
  

 

 

   

 

 

 

NET LOANS

     390,192        407,590   

Accrued interest receivable

     1,797        2,003   

Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost

     1,248        1,248   

Other non-marketable securities

     1,118        1,080   

Foreclosed real estate

     2,391        3,031   

Premises and equipment held for sale

     1,113        1,113   

Premises and equipment, net

     11,175        11,243   

Bank-Owned Life Insurance (“BOLI”)

     8,044        7,981   

Core deposit intangible

     516        545   

Other assets

     7,542        8,867   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 580,996      $ 589,651   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Deposits:

    

Demand

   $ 77,151      $ 74,569   

Savings

     25,472        24,461   

Money market and NOW

     94,148        92,600   

Time

     293,195        309,747   
  

 

 

   

 

 

 

TOTAL DEPOSITS

     489,966        501,377   

Short-term debt

     23,301        21,877   

Long-term debt

     12,372        14,372   

Accrued interest payable

     307        330   

Accrued expenses and other liabilities

     3,273        2,149   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     529,219        540,105   
  

 

 

   

 

 

 

Shareholders’ Equity

    

Common stock, $1 par value, 25,000,000 shares authorized; 6,913,636 and 6,860,367 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively

     6,914        6,860   

Additional paid-in capital

     41,975        41,851   

Retained earnings (accumulated deficit)

     1,662        (450

Accumulated other comprehensive income

     1,226        1,285   
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     51,777        49,546   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 580,996      $ 589,651   
  

 

 

   

 

 

 

 

* Derived from audited consolidated financial statements.

See accompanying notes.

 

- 3 -


NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands, except share
and per share data)
 

INTEREST INCOME

    

Loans

   $ 6,155      $ 7,304   

Federal funds sold and interest-earning deposits in other banks

     36        18   

Investments

     428        593   
  

 

 

   

 

 

 

TOTAL INTEREST INCOME

     6,619        7,915   
  

 

 

   

 

 

 

INTEREST EXPENSE

    

Money market, NOW and savings deposits

     100        217   

Time deposits

     1,556        1,880   

Short term debt

     34        69   

Long term debt

     82        74   
  

 

 

   

 

 

 

TOTAL INTEREST EXPENSE

     1,772        2,240   
  

 

 

   

 

 

 

NET INTEREST INCOME

     4,847        5,675   

PROVISION FOR LOAN LOSSES

     (2,136     1,164   
  

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     6,983        4,511   
  

 

 

   

 

 

 

NON-INTEREST INCOME

    

Fees from pre-sold mortgages

     39        26   

Service charges on deposit accounts

     318        382   

Other fees and income

     269        233   
  

 

 

   

 

 

 

TOTAL NON-INTEREST INCOME

     626        641   
  

 

 

   

 

 

 

NON-INTEREST EXPENSE

    

Personnel

     1,961        2,391   

Occupancy and equipment

     358        362   

Deposit insurance

     195        263   

Professional fees

     469        630   

Information systems

     367        386   

Foreclosure-related expenses

     131        299   

Other

     735        748   
  

 

 

   

 

 

 

TOTAL NON-INTEREST EXPENSE

     4,216        5,079   
  

 

 

   

 

 

 

INCOME BEFORE INCOME TAX (BENEFIT)

     3,393        73   

INCOME TAX (BENEFIT)

     1,281        (48
  

 

 

   

 

 

 

NET INCOME

   $ 2,112      $ 121   
  

 

 

   

 

 

 

NET INCOME PER COMMON SHARE

    

Basic

   $ 0.31      $ 0.02   
  

 

 

   

 

 

 

Diluted

   $ 0.31      $ 0.02   
  

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

    

Basic

     6,859,196        6,913,636   
  

 

 

   

 

 

 

Diluted

     6,859,196        6,913,653   
  

 

 

   

 

 

 

See accompanying notes.

 

- 4 -


NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands)  

Net income

   $ 2,112      $ 121   

Other comprehensive loss:

    

Unrealized losses on investment securities available for sale

     (148     (185

Tax effect

     53        64   
  

 

 

   

 

 

 
     (95     (121

Reclassification adjustment for losses included in net income

     58        24   

Tax effect

     (22     (9
  

 

 

   

 

 

 
     36        15   

Total

     (59     (106
  

 

 

   

 

 

 

Total comprehensive income

   $ 2,053      $ 15   
  

 

 

   

 

 

 

See accompanying notes.

 

- 5 -


NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

 

 

     Common stock      Additional
paid-in
     Retained
earnings
(accumulated)
    Accumulated
other
comprehensive
    Total
shareholders’
 
     Shares      Amount      capital      (deficit)     income     equity  
     (In thousands, except share and per data share)  

Balance at December 31, 2010

     6,913,636       $ 6,914       $ 41,887       $ (287   $ 1,178      $ 49,692   

Net income

     —           —           —           121        —          121   

Other comprehensive loss, net

     —           —           —           —          (106     (106

Stock based compensation

     —           —           71         —          —          71   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

     6,913,636       $ 6,914       $ 41,958       $ (166   $ 1,072      $ 49,778   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     6,860,367       $ 6,860       $ 41,851       $ (450   $ 1,285      $ 49,546   

Net income

     —           —           —           2,112        —          2,112   

Sale of common stock

     53,269         54         111         —          —          165   

Other comprehensive loss, net

     —           —           —           —          (59     (59

Stock based compensation

     —           —           13         —          —          13   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

     6,913,636       $ 6,914       $ 41,975       $ 1,662      $ 1,226      $ 51,777   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

- 6 -


NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 2,112      $ 121   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     (2,136     1,164   

Depreciation and amortization of premises and equipment

     142        170   

Amortization and accretion of investment securities

     146        217   

Amortization of deferred loan fees and costs

     (51     (46

Amortization of core deposit intangible

     28        39   

Stock-based compensation

     13        71   

Loss on write-down on other assets

     59        —     

Increase in cash surrender value of bank-owned life insurance

     (63     (63

Net loss on sale and write-downs of foreclosed real estate

     24        203   

Net loss on investment security sales

     58        24   

Change in assets and liabilities:

    

Net change in accrued interest receivable

     206        92   

Net change in other assets

     1,245        199   

Net change in accrued expenses and other liabilities

     1,101        44   
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     2,884        2,235   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchase of investment securities available for sale

     (12,501     —     

Maturities of investment securities available for sale

     3,698        6,921   

Mortgage-backed securities pay-downs

     3,463        3,139   

Net change in loans outstanding

     17,600        6,175   

Proceeds from sale of foreclosed real estate

     1,049        123   

Purchases of premises and equipment

     (60     (4
  

 

 

   

 

 

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

     13,249        16,354   
  

 

 

   

 

 

 

See accompanying notes.

 

- 7 -


NEW CENTURY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

 

 

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands)  

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net change in deposits

   $ (11,411   $ 7,672   

Proceeds from short-term debt

     3,424        —     

Repayments from short-term debt

     (2,000     (371

Repayments from long-term debt

     (2,000     (2,000

Proceeds from sale of common stock

     165        —     
  

 

 

   

 

 

 

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

     (11,822     5,301   
  

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     4,311        23,890   

CASH AND CASH EQUIVALENTS, BEGINNING

     77,096        35,902   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, ENDING

   $ 81,407      $ 59,792   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest paid

   $ 1,795      $ 2,241   

Non-cash transactions:

    

Unrealized gains (losses) on investment securities available for sale, net of tax

     (59     (106

Transfers from loans to foreclosed real estate

     433        1,690   

Transfer from loans to loans held for sale, at fair value

     1,552        —     

See accompanying notes.

 

- 8 -


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE A - BASIS OF PRESENTATION

New Century Bancorp, Inc. (the “Company”) is a bank holding company whose principal business activity consists of ownership of New Century Bank (the “Bank”). The Bank is engaged in general commercial and retail banking and operates under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank undergoes periodic examinations by those regulatory authorities.

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 month periods ended March 31, 2012 and 2011, 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 month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012.

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 2011 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2011. This quarterly report should be read in conjunction with the Annual Report.

Certain reclassifications have been made to conform prior year financial information to current period presentation. These reclassifications had no material impact on the unaudited consolidated financial statements.

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, 2012 and 2011 there were 395,789 and 428,878 anti-dilutive options for each three month period, respectively.

 

     Three Months Ended
March 31,
 
     2012      2011  

Weighted average shares used for basic net income per share

     6,859,196         6,913,636   

Effect of dilutive stock options

     —           17   
  

 

 

    

 

 

 

Weighted average shares used for diluted net income per share

     6,859,196         6,913,653   
  

 

 

    

 

 

 

 

9


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

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

Accounting Standards Update (“ASU”) No. 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements. ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 became effective for the Company on January 1, 2012 and did not have a significant impact on the Company’s financial statements.

ASU 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to add both additional clarifications to existing fair value measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity’s shareholders’ equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. ASU 2011-04 became effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s financial statements.

ASU 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. ASU 2011-05 amends Topic 220, Comprehensive Income, to require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 became effective for annual periods beginning after December 15, 2011. The Company has adopted the standard and the adoption of ASU 2011-05 did not have an impact on the Company’s financial condition, results of operations, or cash flows.

Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

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.

 

10


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

NOTE D – FAIR VALUE MEASUREMENTS

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.

Financial instruments include cash and due from banks, interest-earning deposits with banks, investments, loans, BOLI, deposit accounts and borrowings. 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 flows models and similar techniques.

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

 

11


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE D – FAIR VALUE MEASUREMENTS (continued)

 

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 quarter ended March 31, 2012. 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, 2012 and December 31, 2011 (dollars in thousands):

 

Investment securities available for sale March 31, 2012

   Fair value      Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

U.S. government agencies

   $ 32,126       $ —         $ 32,126       $ —     

Mortgage-backed securities - Government Sponsored- Enterprises (“GSE’s”)

     34,541         —           34,541         —     

Municipal bonds

     6,234         —           6,234         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 72,901       $ —         $ 72,901       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Investment securities available for sale December 31, 2011

   Fair value      Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

U.S. government agencies

   $ 26,412       $ —         $ 26,412       $ —     

Mortgage-backed securities - GSE’s

     35,169         —           35,169         —     

Municipal bonds

     6,273         —           6,273         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 67,854       $ —         $ 67,854       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

12


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE D – FAIR VALUE MEASUREMENTS (continued)

 

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

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 an 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, 2012 and December 31, 2011, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance 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 nonrecurring 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 nonrecurring Level 3. There were no transfers between levels from the prior reporting periods. There have been no changes in valuation techniques for the quarter ended March 31, 2012. Valuation techniques are consistent with techniques used in prior periods.

Foreclosed Real Estate

Foreclosed real estate are properties recorded at the balance of the loan 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. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. There have been no changes in valuation techniques for the quarter ended March 31, 2012. Valuation techniques are consistent with techniques used in prior quarters.

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a nonrecurring basis as of March 31, 2012 and December 31, 2011 (dollars in thousands):

 

Asset Category March 31, 2012

   Fair value      Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Loans held for sale, at fair value

   $ 1,552       $ —         $ —         $ 1,552   

Impaired loans

     11,501         —           —           11,501   

Foreclosed real estate

     2,391         —           —           2,391   

Premises and equipment held for sale

     1,113         —           —           1,113   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,557       $ —         $ —         $ 16,557   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE D – FAIR VALUE MEASUREMENTS (continued)

 

Asset Category December 31, 2011

   Fair value      Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Loans held for sale, at fair value

   $ —         $ —         $ —         $ —     

Impaired loans

     13,353         —           —           13,353   

Foreclosed real estate

     3,031         —           —           3,031   

Premises and equipment held for sale

     1,113         —           —           1,113   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,497       $ —         $ —         $ 17,497   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE E – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Carrying
Amount
     Estimated
Fair Value
     Level 1      Level 2      Level 3  
     (In thousands)  

Financial assets:

              

Cash and due from banks

   $ 14,360       $ 14,360       $ 14,360       $ —         $ —     

Interest-earning deposits in other banks

     64,019         64,019         64,019         —           —     

Federal funds sold

     3,028         3,028         3,028         —           —     

Investment securities available for sale

     72,901         72,901         —           72,901         —     

Loans held for sale

     1,552         1,552         —           —           1,552   

Loans, net

     390,192         405,606         —           —           405,606   

Premises and equipment available for sale

     1,113         1,113         —           —           1,113   

Accrued interest receivable

     1,797         1,797         —           —           1,797   

Stock in the FHLB

     1,248         1,248         —           —           1,248   

Other non marketable securities

     1,118         1,118         —           —           1,118   

Bank owned life insurance

     8,044         8,044         —           8,044         —     

Financial liabilities:

              

Deposits

   $ 489,966       $ 498,440       $ —         $ 498,440       $ —     

Short term debt

     23,301         23,301         —           23,301         —     

Long term debt

     12,372         7,661         —           7,661         —     

Accrued interest payable

     307         307         —           —           307   

 

14


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

 

     December 31, 2011  
     Carrying
Amount
     Estimated
Fair Value
     Level 1      Level 2      Level 3  
     (In thousands)  

Financial assets:

              

Cash and due from banks

   $ 18,478       $ 18,478       $ 18,478       $ —         $ —     

Interest-earning deposits in other banks

     55,590         55,590         55,590         —           —     

Federal funds sold

     3,028         3,028         3,028         —           —     

Investment securities available for sale

     67,854         67,854         —           67,854         —     

Loans held for sale

     —           —           —           —           —     

Loans, net

     407,590         424,851         —           —           424,851   

Premises and equipment available for sale

     1,113         1,113         —           —           1,113   

Accrued interest receivable

     2,003         2,003         —           —           2,003   

Stock in the FHLB

     1,248         1,248         —           —           1,248   

Other non marketable securities

     1,080         1,080         —           —           1,080   

Bank owned life insurance

     7,981         7,981         —           7,981         —     

Financial liabilities:

              

Deposits

   $ 501,377       $ 509,454       $ —         $ 509,454       $ —     

Short term debt

     21,877         21,877         —           21,877         —     

Long term debt

     14,372         9,661         —           9,661         —     

Accrued interest payable

     330         330         —           —           330   

Cash and Due from Banks, Interest-Earning Deposits in Other Banks and Federal Funds Sold

The carrying amounts for cash and due from banks, interest-earning deposits in other banks and federal funds sold approximate fair value because of the short maturities of those instruments.

Investment Securities Available for Sale

Fair value for investment securities available for sale equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated using prices quoted for similar investments or quoted market prices obtained from independent pricing services.

Loans Held for Sale

Loans held for sale are carried at fair value which is determined by offers to purchase or expected value of future cash flows. Unrealized losses on loans held for sale are included in losses on sales of loans and leases in the consolidated statement of operations.

 

15


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

 

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. However, the values likely do not represent exit prices due to distressed market conditions.

Stock in Federal Home Loan Bank of Atlanta and Other Non Marketable Securities

The fair value for FHLB stock approximates carrying value, based on the redemption provisions of the Federal Home Loan Bank. The fair value of stock in other non marketable securities is assumed to approximate carrying value.

Bank Owned Life Insurance

The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the insurer.

Deposits

The fair value of demand deposits is the amount payable on demand at the reporting date. The fair values of time deposits are estimated using the rates currently offered for instruments of similar remaining maturities.

Short-term Debt

The fair values of short term debt (sweep accounts that re-price daily and short term FHLB advances) are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Long-term Debt

The fair values of long term debt are based on discounting expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and payable approximate fair value, because of the short maturities of these instruments.

Financial Instruments with Off-Balance Sheet Risk

With regard to financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of future financing commitments.

 

16


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

NOTE F - INVESTMENT SECURITIES

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

 

     March 31, 2012  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  
     (In thousands)  

Securities available for sale:

          

U.S. government agencies

          

Within 1 year

   $ 12,491       $ 77       $ —        $ 12,568   

After 1 year but within 5 years

     19,377         207         (26     19,558   

Mortgage-backed securities-GSE’s

          

Within 1 year

     1,446         52         —          1,498   

After 1 year but within 5 years

     27,858         1,202         —          29,060   

After 5 years but within 10 years

     3,925         75         (17     3,983   

Municipal bonds

          

Within 1 year

     352         7         —          359   

After 1 year but within 5 years

     1,015         59         —          1,074   

After 5 years but within 10 years

     2,688         259         —          2,947   

After 10 years

     1,747         107         —          1,854   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 70,899       $ 2,045       $ (43   $ 72,901   
  

 

 

    

 

 

    

 

 

   

 

 

 

As of March 31, 2012, accumulated other comprehensive income included unrealized net gains of $2.0 million, net of deferred income taxes of $776,000.

 

     December 31, 2011  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  
     (In thousands)  

Securities available for sale:

          

U.S. government agencies

          

Within 1 year

   $ 13,508       $ 106       $ —        $ 13,614   

After 1 year but within 5 years

     12,577         221         —          12,798   

Mortgage-backed securities-GSE’s

          

Within 1 year

     1,858         56         —          1,914   

After 1 year but within 5 years

     29,584         1,243         (11     30,816   

After 5 years but within 10 years

     2,429         17         (7     2,439   

Municipal bonds

          

Within 1 year

     —           —           —          —     

After 1 year but within 5 years

     1,369         70         —          1,439   

After 5 years but within 10 years

     2,691         287         —          2,978   

After 10 years

     1,747         109         —          1,856   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 65,763       $ 2,109       $ (18   $ 67,854   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

17


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE F - INVESTMENT SECURITIES (continued)

 

As of December 31, 2011, accumulated other comprehensive income included unrealized net gains of $2.1 million, net of deferred income taxes of $800,000.

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2012 and December 31, 2011.

 

     March 31, 2012  
     Less Than 12 Months      12 Months or More      Total  
     Fair
value
     Unrealized
losses
     Fair
value
     Unrealized
losses
     Fair
value
     Unrealized
losses
 
     (In thousands)  

Securities available for sale:

                 

U.S. government agencies

   $ 6,814       $ 26       $ —         $ —         $ 6,814       $ 26   

Mortgage-backed securities-GSE’s

     3,101         17         —           —           3,101         17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 9,915       $ 43       $ —         $ —         $ 9,915       $ 43   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2012, the Company had no AFS securities with an unrealized loss for twelve or more consecutive months. Five U.S. government agencies and three GSE’s had unrealized losses for less than twelve months totaling $43,000 at March 31, 2012. All unrealized losses are primarily attributable to the general trend of interest rates.

 

     December 31, 2011  
     Less Than 12 Months      12 Months or More      Total  
     Fair
value
     Unrealized
losses
     Fair
value
     Unrealized
losses
     Fair
value
     Unrealized
losses
 
     (In thousands)  

Securities available for sale:

                 

Mortgage-backed securities-GSE’s

   $ 7,207       $ 18       $ —         $ —         $ 7,207       $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 7,207       $ 18       $ —         $ —         $ 7,207       $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2011, the Company had no AFS securities with an unrealized loss for twelve or more consecutive months. Seven GSE’s had unrealized losses for less than twelve months totaling $18,000 at December 31, 2011. All unrealized losses are primarily attributable to the general trend of interest rates.

 

18


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

NOTE G - LOANS

Following is a summary of loans at March 31, 2012 and December 31, 2011:

 

     2012     2011  
     Amount     Percent
of total
    Amount     Percent
of total
 
     (In thousands)  

Real estate loans:

        

1-to-4 family residential

   $ 51,502        12.88   $ 52,182        12.49

Commercial real estate

     184,543        46.16     192,047        45.98

Multi-family residential

     19,294        4.83     23,377        5.60

Construction

     67,542        16.90     70,846        16.96

Home equity lines of credit (“HELOC”)

     37,328        9.34     38,702        9.27
  

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate loans

     360,209        90.11     377,154        90.30
  

 

 

   

 

 

   

 

 

   

 

 

 

Other loans:

        

Commercial and industrial

     31,580        7.90     33,146        7.94

Loans to individuals & overdrafts

     8,317        2.08     7,671        1.84
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other loans

     39,897        9.98     40,817        9.78
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross loans

     400,106          417,971     

Less deferred loan origination fees, net

     (346     (.09 %)      (347     (.08 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

     399,760        100.00     417,624        100.00
    

 

 

     

 

 

 

Allowance for loan losses

     (9,568       (10,034  
  

 

 

     

 

 

   

Total loans, net

   $ 390,192        $ 407,590     
  

 

 

     

 

 

   

Loans are primarily made in southeastern North Carolina. Real estate loans can be affected by the condition of the local real estate market and by the local economic conditions.

At March 31, 2012, the Company had pre-approved but unused lines of credit totaling $54.4 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.

 

19


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

A description of the various loan products provided by the Bank is presented below.

Residential 1-to-4 Family Loans

Residential 1-to-4 family loans are mortgage loans that typically convert from construction loans into permanent financing and are secured by properties within the Bank’s market areas.

Commercial Real Estate Loans

Commercial real estate loans are underwritten based on the borrower’s ability to generate adequate cash flow to repay the subject debt within reasonable terms. Commercial real estate loans typically include both owner and non-owner occupied properties with higher principal loan amounts and the repayment of these loans is generally dependent on the successful management of the property. Commercial real estate loans are sensitive to market and general economic conditions. Repayment analysis must be performed and consists of an identified primary/cash flow source of repayment and a secondary/liquidation source of repayment. The primary source of repayment is cash flow from income generated from rental or lease of the property. However, the cash flow can be supplemented with the borrower’s and guarantor’s global cash flow position. Other credit issues such as the business fundamentals and financial strength of the borrower/guarantor can be considered in determining adequacy of repayment ability. The secondary source of repayment is liquidation of the collateral, supplemented by liquidation cushion provided by the financial assets of the borrower/guarantor. Management monitors and evaluates commercial real estate loans based on collateral, market area, and risk grade.

Multi-family Residential Loans

Multi-family residential loans are typically nonfarm properties with 5 or more dwelling units in structures which include apartment buildings used primarily to accommodate households on a more or less permanent basis. Successful performance of these types of loans is primarily dependant on occupancy rates, rental rates, and property management.

Construction Loans

Construction loans are non-revolving extensions of credit secured by real property of which the proceeds are used to acquire and develop land and to construct commercial or residential buildings. The primary source of repayment for these types of loans is the sale of the improved property or permanent financing in which case the property is expected to generate the cash flow necessary for repayment on a permanent loan basis. Property cash flow may be supplemented with financial support from the borrowers/guarantors. Proper underwriting of a construction loan consists of the initial process of obtaining, analyzing, and approving various aspects of information pertaining to: the analysis of the permanent financing source, creditworthiness of the borrower and guarantors, ability of contractor to perform under the terms of the contract, and the feasibility, marketability, and valuation of the project.

Also much consideration needs to be given to the cost of the project and sources of funds needed to complete construction as well as identifying any sources of equity funding. Construction loans are traditionally considered to be higher risk loans involving technical and legal requirements inherently different from other types of loans; however with thorough credit underwriting, proper loan structure, and diligent loan servicing, these risks can be mitigated. Some examples of risks inherent in this type of lending include: underestimated costs, inflation of material and labor costs, site difficulties (i.e. rock, soil), project not built to plans, weather delays and natural disasters, borrower/contractor/subcontractor disputes which prompt liens, interest rates increasing beyond budget.

 

20


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

Home Equity Lines of Credit

Home equity lines of credit are consumer-purpose revolving extensions of credit which are secured by first or second liens on owner-occupied residential real estate. Appropriate risk management and compliance practices are exercised to ensure that loan-to-value, lien perfection, and compliance risks are addressed and managed within the Bank’s established guidelines. The degree of utilization of revolving commitments within this loan segment is reviewed periodically to identify changes in the behavior of this borrowing group.

Commercial and Industrial Loans

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to generate positive cash flow, operate profitably and prudently expand its business. Underwriting standards are designed to promote relationships to include a full range of loan, deposit, and cash management services. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and the guarantors. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. In the case of loans secured by accounts receivable, the availability of funds for repayment can be impacted by the borrower’s ability to collect amounts due from its customers.

Loans to Individuals & Overdrafts

Consumer loans are approved using Bank policies and procedures established to evaluate each credit request. All lending decisions and credit risks are clearly documented. Several factors are considered in making these decisions such as credit score, adjusted net worth, liquidity, debt ratio, disposable income, credit history, and loan-to-value of the collateral. This process combined with the relatively smaller loan amounts spreads the risk among many individual borrowers. Overdrafts on customer accounts are classified as loans for reporting purposes.

The following tables present an age analysis of past due loans, segregated by class of loans as of March 31, 2012 and December 31, 2011, respectively:

 

     March 31, 2012  
     30+
Days
Past Due
     Non-
Accrual
Loans
     Total
Past
Due
     Current      Total
Loans
 
     (In thousands)  

Commercial and industrial

   $ 28       $ 162       $ 190       $ 31,390       $ 31,580   

Construction

     514         2,955         3,469         64,073         67,542   

Multi-family residential

     —           1,540         1,540         17,754         19,294   

Commercial real estate

     36         9,691         9,727         174,816         184,543   

Loans to individuals & overdrafts

     23         174         197         8,120         8,317   

1-to-4 family residential

     305         2,011         2,316         49,186         51,502   

HELOC

     27         1,018         1,045         36,283         37,328   

Deferred loan (fees) cost, net

                 (346
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 933       $ 17,551       $ 18,484       $ 381,622       $ 399,760   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There was one loan in 1 to 4 family residential category totaling $81,000 that was over 90 days past due and still accruing interest at March 31, 2012.

 

21


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

     December 31, 2011  
     30+
Days
Past Due
     Non-
Accrual
Loans
     Total
Past
Due
     Current      Total
Loans
 
     (In thousands)  

Commercial and industrial

   $ 48       $ 171       $ 219       $ 32,927       $ 33,146   

Construction

     568         4,072         4,640         66,206         70,846   

Multi-family residential

     1,540         —           1,540         21,837         23,377   

Commercial real estate

     1,013         10,425         11,438         180,609         192,047   

Loans to individuals & overdrafts

     10         176         186         7,485         7,671   

1-to-4 family residential

     735         1,875         2,610         49,572         52,182   

HELOC

     333         904         1,237         37,465         38,702   

Deferred loan (fees) cost, net

                 (347
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,247       $ 17,623       $ 21,870       $ 396,101       $ 417,624   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2011 there were three loans totaling $108,000 that were 90 days or more past due and still accruing interest.

Impaired Loans

The following tables present information on loans that were considered to be impaired as of March 31, 2012 and December 31, 2011:

 

            Contractual             March 31, 2012
Year to Date
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest Income
Recognized on
Impaired Loans
 
     (In thousands)  

With no related allowance recorded:

              

Commercial and industrial

   $ 448       $ 840       $ —         $ 464       $ 7   

Construction

     1,956         2,558         —           1,483         15   

Commercial real estate

     11,937         13,004         —           10,566         88   

Loans to individuals & overdrafts

     177         196         —           197         1   

Multi-family residential

     1,540         1,540         —           1,540         —     

1-to-4 family residential

     1,868         2,676         —           1,984         4   

HELOC

     1,050         1,210         —           890         8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal:

     18,976         22,024         —           17,124         123   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial and industrial

     121         121         24         60         2   

Construction

     1,694         1,694         302         2,529         1   

Commercial real estate

     2,635         3,712         662         3,837         36   

Loans to individuals & overdrafts

     55         55         23         36         —     

Multi-family Residential

     —           —           —           —           —     

1-to-4 family residential

     775         807         206         756         10   

HELOC

     335         335         168         371         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal:

     5,615         6,724         1,385         7,589         49   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals:

              

Commercial

     20,331         23,469         988         20,479         149   

Consumer

     232         251         23         233         1   

Residential

     4,028         5,028         374         4,001         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand Total:

   $ 24,591       $ 28,748       $ 1,385       $ 24,713       $ 172   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Impaired Loans (continued)

 

            Contractual             December 31, 2011
Year to Date
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest Income
Recognized on
Impaired Loans
 
     (In thousands)  

With no related allowance recorded:

              

Commercial and industrial

   $ 478       $ 808       $ —         $ 290       $ 25   

Construction

     1,011         1,166         —           1,539         23   

Commercial real estate

     9,195         10,085         —           7.889         158   

Loans to individuals & overdrafts

     217         234         —           175         4   

Multi-family residential

     1,540         1,540         —           1,041         102   

1-to-4 family residential

     2,100         2,930         —           1,746         33   

HELOC

     730         823         —           406         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal:

     15,271         17,586         —           13,086         345   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

Commercial and industrial

     —           —           —           272         —     

Construction

     3,365         4,085         674         1,269         4   

Commercial real estate

     5,039         5.929         498         4,043         71   

Loans to individuals & overdrafts

     16         16         15         102         1   

Multi-family Residential

     —           —           —           —           —     

1-to-4 family residential

     736         774         170         1,999         35   

HELOC

     408         435         158         321         10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal:

     9,564         11,239         1,515         8,006         121   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals:

              

Commercial

     20,628         23,613         1,172         16,343         383   

Consumer

     233         250         15         277         5   

Residential

     3,974         4,962         328         4,472         78   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand Total:

   $ 24,835       $ 28,825       $ 1,515       $ 21,092       $ 466   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans are placed on non-accrual basis 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


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

Troubled Debt Restructurings

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) for which there was a payment default together with a breakdown of the types of concessions made by loan class during the three months ended March 31, 2012 and within the previous twelve months:

 

     Three months ended March 31, 2012      Twelve months ended March 31, 2012  
     Number
of loans
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
     Number
of loans
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 
     (In thousands)  

Below market interest rate:

     —         $ —         $ —        

 

—  

  

   $ —         $ —     

Commercial and Industrial

     —           —           —           —           —           —     

Construction

     —           —           —           —           —           —     

Commercial real estate

     —           —           —           —           —           —     

Loans to individuals and overdrafts

     —           —           —           —           —           —     

1-to-4 family residential

     —           —           —           —           —           —     

HELOC

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Extended payment terms:

                 

Commercial and Industrial

     —           —           —           —           —           —     

Construction

     —           —           —           —           —           —     

Commercial real estate

     1         287         287         5         3,592         3,506   

Loans to individuals and overdrafts

     —           —           —           —           —           —     

1-to-4 family residential

     —           —           —           1         110         109   

HELOC

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1         287         287         6         3,702         3,615   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Forgiveness of principal:

                 

Commercial and Industrial

     —           —           —           —           —           —     

Construction

     —           —           —           —           —           —     

Commercial real estate

     —           —           —           1         938         635   

Loans to individuals and overdrafts

     —           —           —           —           —           —     

1-to-4 family residential

     —           —           —           —           —           —     

HELOC

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           —           1         938         635   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 287       $ 287         7       $ 4,640       $ 4,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

24


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Troubled Debt Restructurings (continued)

 

The following table presents loans that were modified as TDRs with a breakdown of the types of concessions made by loan class during the three months ended March 31, 2012 and within the previous twelve months:

 

     Three months ended
March 31, 2012
     Twelve months ended
March 31, 2012
 
     Number
of loans
     Recorded
investment
     Number
of loans
     Recorded
investment
 
     (In thousands)  

Below market interest rate:

           

Commercial and Industrial

     —         $ —           —         $ —     

Construction

     —           —           —           —     

Commercial real estate

     —           —           —           —     

Loans to individuals and overdrafts

     —           —           —           —     

1-to-4 family residential

     —           —           —           —     

HELOC

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Extended payment terms:

           

Commercial and Industrial

     1         114         1         211   

Construction

     2         294         4         2,329   

Commercial real estate

     4         1,165         14         5,161   

Loans to individuals and overdrafts

     —           —           —           —     

1-to-4 family residential

     —           —           5         447   

HELOC

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7         1,573         24         8,148   
  

 

 

    

 

 

    

 

 

    

 

 

 

Forgiveness of principal:

           

Commercial and Industrial

     —           —           —           —     

Construction

     —           —           —           —     

Commercial real estate

     —           —           1         635   

Loans to individuals and overdrafts

     —           —           —           —     

1-to-4 family residential

     —           —           —           —     

HELOC

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           1         635   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7       $ 1,573         25       $ 8,783   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Troubled Debt Restructurings (continued)

 

The following table presents the successes and failures of the types of modifications within the previous three months as of March 31, 2012:

 

     Paid in full      Paying as restructured      Converted to non-accrual      Foreclosure/Default  
     Number
of loans
     Recorded
Investment
     Number
of loans
     Recorded
Investment
     Number
of loans
     Recorded
Investment
     Number
of loans
     Recorded
Investment
 
                          (In thousands)                       

Below market interest rate

     —         $ —           —         $ —           —         $ —           —         $ —     

Extended payment terms

     —           —           3         408         3         878         1         287   

Forgiveness of principal

     —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —         $ —           3       $ 408         3       $ 878         1       $ 287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2012, the Company had 25 loans with a balance of $7.2 million that were considered to be troubled debt restructured. Of those TDRs, 11 loans with a balance totaling $1.7 million were still accruing as of March 31, 2012. The remaining 14 TDRs with a balance totaling $5.5 million as of March 31, 2012 were in nonaccrual status.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the loan portfolio, management utilizes a risk grading matrix to assign a risk grade to each of the Company’s loans. All non-consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of these nine different risk grades is as follows:

 

   

Risk Grade 1 (Superior) - Credits in this category are virtually risk-free and are well-collateralized by cash-equivalent instruments. The repayment program is well-defined and achievable. Repayment sources are numerous. No material documentation deficiencies or exceptions exist.

 

   

Risk Grade 2 (Very Good) - This grade is reserved for loans secured by readily marketable collateral, or loans within guidelines to borrowers with liquid financial statements. A liquid financial statement is a financial statement with substantial liquid assets relative to debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

 

   

Risk Grade 3 (Good) - These loans have excellent sources of repayment, with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics:

 

   

Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

 

   

Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

 

26


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

 

   

Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

 

   

Risk Grade 4 (Acceptable) - This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics:

 

   

General conformity to the Bank’s policy requirements, product guidelines and underwriting standards, with limited exceptions. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

 

   

Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

 

   

Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor

 

   

Risk Grade 5 (Acceptable With Care) - This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. Loans assigned this grade may demonstrate some or all of the following characteristics:

 

   

Additional exceptions to the Bank’s policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank. Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.

 

   

Unproven, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time. Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.

 

   

Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

 

   

Risk Grade 6 (Watch List or Special Mention) – Loans in this category can have the following characteristics:

 

   

Loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors.

 

27


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

 

   

Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

 

   

Loans where adverse economic conditions that develop subsequent to the loan origination that don’t jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

 

   

Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action.

 

   

Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

 

   

Risk Grade 9 (Loss) - Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future.

Consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of the nine risk grades is as follows:

 

   

Risk Grades 1 – 5 (Pass) – The loans in this category range from loans secured by cash with no risk of principal deterioration (Risk Grade 1) to loans that show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss (Risk Grade 5).

 

   

Risk Grade 6 (Watch List or Special Mention) - Watch List or Special Mention loans include the following characteristics:

 

   

Loans within guideline tolerances or with exceptions of any kind that have not been mitigated by other economic or credit factors.

 

   

Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

 

28


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

 

   

Loans where adverse economic conditions that develop subsequent to the loan origination that don’t jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

 

   

Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

   

Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt

 

   

Risk Grade 9 (Loss) - Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.

 

29


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of March 31, 2012 and December 31, 2011, respectively:

 

March 31, 2012

 

Commercial Credit Exposure By Internally Assigned Grade

   Commercial
and

industrial
     Construction      Commercial
real

estate
     Multi-family
residential
 
            (In thousands)                

Superior

   $ 588       $ 56       $ —         $ —     

Very good

     37         5         311         —     

Good

     3,416         1,599         14,604         1,710   

Acceptable

     9,157         7,637         63,902         8,624   

Acceptable with care

     16,017         52,111         61,571         7,298   

Special mention

     1,789         2,105         28,755         122   

Substandard

     576         4,029         15,400         1,540   

Doubtful

     —           —           —           —     

Loss

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 31,580       $ 67,542       $ 184,543       $ 19,294   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Consumer Credit Exposure By Internally Assigned Grade

   1-to-4
Family
residential
     HELOC  

Pass

   $ 44,004       $ 34,245   

Special mention

     2,537         1,239   

Substandard

     4,961         1,844   
  

 

 

    

 

 

 
   $ 51,502       $ 37,328   
  

 

 

    

 

 

 

 

Consumer Credit Exposure Based On Payment Activity

   Loans to
individuals &
overdrafts
 

Pass

   $ 8,074   

Non –pass

     243   
  

 

 

 
   $ 8,317   
  

 

 

 

 

30


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

December 31, 2011

 

Commercial Credit Exposure By Internally Assigned Grade

   Commercial
and

industrial
     Construction      Commercial
real

estate
     Multi-family
residential
 
            (In thousands)                

Superior

   $ 722       $ 59       $ —         $ —     

Very good

     154         6         429         —     

Good

     5,184         2,369         16,510         1,064   

Acceptable

     8,224         6,685         67,922         12,828   

Acceptable with care

     15,048         54,087         60,604         7,820   

Special mention

     3,062         2,671         27,177         125   

Substandard

     752         4,969         19,405         1,540   

Doubtful

     —           —           —           —     

Loss

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 33,146       $ 70,846       $ 192,047       $ 23,377   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Consumer Credit Exposure By Internally Assigned Grade

   1-to-4
Family
residential
     HELOC  

Pass

   $ 43,647       $ 35,127   

Special mention

     2,925         1,391   

Substandard

     5,610         2,184   
  

 

 

    

 

 

 
   $ 52,182       $ 38,708   
  

 

 

    

 

 

 

 

Consumer Credit Exposure Based On Payment Activity

   Loans to
individuals &
overdrafts
 

Pass

   $ 7,447   

Non-pass

     224   
  

 

 

 
   $ 7,671   
  

 

 

 

Nonperforming assets at March 31, 2012 and December 31, 2011 consist of the following:

 

     March 31, 2012      December 31, 2011  
     (In thousands)  

Non-accrual loans

   $ 17,551       $ 17,623   

Restructured loans

     1,719         2,013   
  

 

 

    

 

 

 

Total non-performing loans

     19,270         19,636   

Foreclosed real estate

     2,391         3,031   
  

 

 

    

 

 

 

Total non-performing assets

   $ 21,661       $ 22,667   
  

 

 

    

 

 

 

 

31


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

 

Allowance for Loan Losses

The allowance for loan losses is a reserve established through provisions for loan losses charged to income and represents management’s best estimate of probable loans losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated losses and risk inherent in the loan portfolio. The Company’s allowance for loan loss methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of reserves is designed to account for changes in credit quality as they occur The provision for loan losses reflect loan quality trends, including the levels of and trends related to past due loans and economic conditions at the local and national levels. It also considers the quality and risk characteristics of the Company’s loan origination and servicing policies and practices.

Individual reserves are calculated according to ASC Section 310-10-35 against loans evaluated individually and deemed to most likely be impaired. All loans in non-accrual status and all substandard loans that are deemed to be collateral dependent are assessed for impairment.

Loans are deemed uncollectible at the discretion of the Chief Credit Officer, based on a variety of credit, collateral, documentation and other issues. In the case of uncollectible receivables, the collateral is considered unsecured and therefore fully charged off.

 

32


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Allowance for Loan Losses (Continued)

 

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, 2012 and March 31, 2011, respectively:

 

      Three months ended March 31, 2012  

Allowance for loan losses

   Commercial
and
industrial
    Construction     Commercial
real estate
    1-to-4 Family
residential
    HELOCs     Loans to
individuals &
overdrafts
    Multi- family
residential
    Total  
                       (In thousands)                          

Balance, beginning of period 01/01/2012

   $ 719      $ 1,540      $ 4,771      $ 1,661      $ 1,122      $ 94      $ 127      $ 10,034   

Provision for loan losses

     (2,547     56        334        (94     175        (40     (20     (2,136

Loans charged-off

     (47     (458     (312     (45     (208     (9     —          (1,079

Recoveries

     2,430        173        11        63        12        60        —          2,749   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period 3/31/2012

   $ 555      $ 1,311      $ 4,804      $ 1,585      $ 1,101      $ 105      $ 107      $ 9,568   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 24      $ 302      $ 662      $ 206      $ 168      $ 23      $ —        $ 1,385   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 531      $ 1,009      $ 4,142      $ 1,379      $ 933      $ 82      $ 107      $ 8,183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                

Ending balance

   $ 31,580      $ 67,542      $ 184,543      $ 51,502      $ 37,328      $ 8,317      $ 19,294      $ 400,106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

   $ 569      $ 3,650      $ 14,572      $ 2,643      $ 1,385      $ 232      $ 1,540      $ 24,591   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

   $ 31,011      $ 63,892      $ 169,971      $ 48,859      $ 35,943      $ 8,085      $ 17,754      $ 375,515   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the three months ended March 31, 2012 the Company recorded recoveries on loans previously charged-off in the amount of $2.7 million. These recoveries were primarily a result of a $2.4 million recovery on commercial and industrial loans. These recoveries combined with the decrease in total loans outstanding at March 31, 2012 resulted in a $2.1 million reversal in the provision.

 

33


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE G - LOANS (continued)

Allowance for Loan Losses (continued)

 

    December 31, 2011  

Allowance for loan losses

  Commercial
and
industrial
    Construction     Commercial
real estate
    1-to-4
Family
residential
    HELOCs     Loans to
individuals &
overdrafts
    Multi-
family
residential
    Total  
                      (In thousands)                          

Loans:

               

Ending Balance

  $ 33,146      $ 70,846      $ 192,047      $ 52,182      $ 38,702      $ 7,671      $ 23,377      $ 417,971   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

  $ 478      $ 4,376      $ 14,234      $ 2,836      $ 1,138      $ 233      $ 1,540      $ 24,835   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: collectively evaluated for impairment

  $     32,668      $   66,470      $   177,813      $   49,346      $   37,564      $         7,438      $      21,837      $  393,136   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Three months ended
March 31, 2011
 

Allowance for loan losses

  Commercial
and
industrial
    Construction     Commercial
real estate
    1-to-4
Family
residential
    HELOCs     Loans to
individuals &
overdrafts
    Multi-
family
residential
    Total  
                      (In thousands)                          

Balance, beginning of period 01/01/2011

  $ 1,052      $ 349      $ 3,111      $ 1,985      $ 1,348      $ 1,530      $ 640      $ 10,015   

Provision for loan losses

    (43     1,144        1,269        526        (145     (1,130     (457     1,164   

Loans charged-off

    —          (222     (773     (190     (65     (22     —          (1,272

Recoveries

    72        —          2        130        2        5        —          211   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period 3/31/2011

  $ 1,081      $ 1,271      $ 3,609      $ 2,451      $ 1,140      $ 383      $ 183      $ 10,118   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

  $ 262      $ 668      $ 832      $ 1,157      $ 262      $ 264      $ —        $ 3,445   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: collectively evaluated for impairment

  $ 819      $ 603      $ 2,777      $ 1,294      $ 878      $ 119      $ 183      $ 6,673   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Ending Balance

  $ 47,250      $ 85,963      $ 188,314      $ 58,590      $ 39,781      $ 12,090      $ 29,983      $ 461,971   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

  $ 1,016      $ 1,976      $ 8,317      $ 2,504      $ 1,700      $ 470      $ 2,122      $ 18,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: collectively evaluated for impairment

  $     46,234      $   83,987      $   179,997      $   56,086      $   38,081      $       11,620      $      27,861      $  443,866   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


NEW CENTURY BANCORP, INC.

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

NOTE H –BRANCH SALE

On April 6, 2012, the Bank sold all deposits and selected assets associated with two branch offices located in Pembroke and Raeford, North Carolina, respectively. The transaction was consummated pursuant to a definitive purchase and assumption agreement with Lumbee Guaranty Bank, Pembroke, North Carolina, which was entered into on December 20, 2011. The purchase price under the terms of the purchase and assumption agreement was $1.8 million which included $1.1 million for all real property and equipment and $691,000 for a deposit premium. The deposit premium was offset by the write-off of a core deposit intangible of $134,000 on these deposits resulting in a net gain of $557,000 for the Company from this transaction. Lumbee Guarantee Bank assumed $14.6 million in deposits from the Bank and took assignment of all real property and equipment associated with the two branch offices, which totaled $1.1 million at April 6, 2012. The Bank retained all loans associated with the two branches except for approximately $340,000 in loans associated with deposit accounts which included overdraft protection loans and time deposit loans. Separate payment for these loans was not included in the $1.8 million purchase price.

 

35


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 New Century 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 changes in national, regional and local market conditions, legislative and regulatory conditions, and the interest rate environment.

Overview

The Company is a commercial bank holding company and has one banking subsidiary, New Century Bank (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, Cumberland, Johnston, Pitt, Robeson, Sampson, and Wayne counties in North 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. Deposit services are not offered in Pitt County. The Bank concentrates on customer relationships in building its customer deposit base and competes aggressively in the area of transaction accounts.

Comparison of Financial Condition at

March 31, 2012 and December 31, 2011

During the first three months of 2012, total assets decreased by $8.7 million to $581.0 million as of March 31, 2012. Earning assets at March 31, 2012 totaled $534.1 million and consisted of $390.2 million in net loans, $1.6 million in loans held for sale, $72.9 million in investment securities, $67.0 million in overnight investments and interest-bearing deposits in other banks and $2.4 million in non-marketable equity securities. Total deposits and shareholders’ equity at the end of the first quarter of 2012 were $490.0 million and $51.8 million, respectively.

Since the end of 2011, gross loans have decreased by $17.9 million to $399.8 million as of March 31, 2012 due to continued soft loan demand and efforts to reduce concentration levels of construction and commercial real estate loans. Gross loans consisted of $31.6 million in commercial and industrial loans, $184.5 million in commercial real estate loans, $19.3 million in multi-family residential loans, $8.3 million in consumer loans, $51.5 million in residential real estate, $37.3 million in HELOC, and $67.6 million in construction loans. The deferred loan fees and costs on these loans were ($346,000). During the first quarter of 2012 there was one loan within the commercial real estate loan group totaling approximately $1.6 million that was moved to loans held for sale and reported at fair market value as of March 31, 2012.

 

36


At March 31, 2012 and December 31, 2011, the Company held $3.0 million in federal funds sold. Interest-earning deposits in other banks were $64.0 million at March 31, 2012, an $8.4 million increase from December 31, 2011. The Company’s investment securities at March 31, 2012 were $72.9 million, an increase of $5.0 million from December 31, 2011. The investment portfolio as of March 31, 2012 consisted of $31.9 million in government agency debt securities, $33.2 million in mortgage-backed securities and $5.8 million in municipal securities. The unrealized gain on these securities was $2.0 million.

At March 31, 2012, the Company also held an investment of $1.2 million in the form of Federal Home Loan Bank (“FHLB”) stock and $1.1 million in other non marketable securities, each of which was approximately the same at December 31, 2011.

At March 31, 2012, non-earning assets were $46.9 million, which reflects a decrease of $6.4 million from the $53.3 million as of December 31, 2011. Non-earning assets as of March 31, 2012 included $14.4 million in cash and due from banks, bank premises and equipment of $11.2 million, $1.1 million in bank premises and equipment available for sale, core deposit intangible of $516,000, accrued interest receivable of $1.8 million, foreclosed real estate of $2.4 million, and other assets which consisted of $8.0 million in bank owned life insurance (“BOLI”), $5.2 million in deferred tax assets, $1.5 million in prepaid expenses, and $800,000 in all other assets. Since the income on BOLI is included in non-interest income, this asset is not included in the Company’s calculation of earning assets.

Total deposits at March 31, 2012 were $490.0 million and consisted of $77.2 million in non-interest-bearing demand deposits, $94.1 million in money market and NOW accounts, $25.5 million in savings accounts, and $293.2 million in time deposits. Total deposits decreased by $11.4 million from $501.4 million as of December 31, 2011. The Bank had $498,000 in brokered demand deposits and no brokered time deposits as of March 31, 2012.

As of March 31, 2012, the Company had $23.3 million in short-term debt and $12.4 million in long-term debt. Short-term debt consisted of $21.3 million of repurchase agreements with local customers and $2.0 million of FHLB advances. Long-term debt consisted of $12.4 million of junior subordinated debentures that were issued in September 2004.

Total shareholders’ equity at March 31, 2012 was $51.8 million, an increase of $2.2 million from $49.6 million as of December 31, 2011. Accumulated other comprehensive income relating to available for sale securities decreased $59,000 for the three months ended March 31, 2012. Other changes in shareholders’ equity included increases of $13,000 in stock-based compensation, and a net income of $2.1 million for the three months ending March 31, 2012, and $165,000 from the proceeds of the sale of common stock.

Past Due Loans, Nonperforming Assets, and Asset Quality

At March 31, 2012, the Company had $933,000 in loans that were past due with $852,000 being 30-89 days past due and $81,000 being 90 or more days past due and still accruing. This represented 0.23% of gross loans outstanding on that date. This is an decrease from December 31, 2011 when there were $4.1 million in loans that were 30-89 days past due and $109,000 in loans that were 90 days or more past due and still accruing. This represented 1.02% of gross loans outstanding. Non-accrual loans remained approximately the same at $17.6 million for the periods ended March 31, 2012 and December 31, 2012.

The percentage of non-performing loans (non-accrual loans and restructured loans) to total loans increased 12 basis points from 4.70% at December 31, 2011 to 4.82% at March 31, 2012.

The Company had eleven loans totaling $1.7 million that were considered troubled debt restructurings (“TDRs”) that were not included in nonaccrual loans at March 31, 2012.

 

37