SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File No. 2017-6
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ECB Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
North Carolina 56-0215930
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(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
Post Office Box 337, Engelhard, North Carolina 27824
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(Address of principal executive offices) (Zip Code)
(252) 925-9411
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(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 10, 2000, 2,093,418 shares of the registrant's common stock, $3.50
par value, were outstanding.
This Form 10-QSB has 15 pages.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 2000 1999*
------------------------------------------------------------------------------------- -----------
(unaudited)
<S> <C> <C>
Non-interest bearing deposits and cash $15,876 $11,139
Federal funds sold 3,900 6,650
------------------------------------------------------------------------------------- -----------
Total cash and cash equivalents 19,776 17,789
------------------------------------------------------------------------------------- -----------
Investment securities
Available-for-sale, at market value (cost of $59,941 and
$59,797 at June 30, 2000 and December 31, 1999, respectively) 58,915 58,939
Loans 164,340 147,676
Allowance for probable loan losses (2,721) (2,700)
------------------------------------------------------------------------------------- -----------
Loans, net 161,619 144,976
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Real estate acquired in settlement of loans, net 83 183
Federal Home Loan Bank stock, at cost 633 633
Bank premises and equipment, net 7,407 6,727
Accrued interest receivable 2,833 2,259
Other assets 2,074 1,607
------------------------------------------------------------------------------------- -----------
Total $253,340 $233,113
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Liabilities and Shareholders' Equity
------------------------------------------------------------------------------------- -----------
Deposits
Demand, noninterest bearing $53,376 $43,638
Demand interest bearing 64,806 60,623
Savings 13,296 14,823
Time 91,542 84,217
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Total deposits 223,020 203,301
------------------------------------------------------------------------------------- -----------
Short-term borrowings 2,598 2,738
Long-term obligations 3,000 3,000
Accrued interest payable 974 817
Other liabilities 1,241 1,195
------------------------------------------------------------------------------------- -----------
Total liabilities 230,833 211,051
------------------------------------------------------------------------------------- -----------
Shareholders' equity
Common stock, par value $3.50 per share; authorized
10,000,000 shares; issued and outstanding 2,102,670 and
2,121,529 at June 30, 2000 and December 31, 1999, respectively. 7,359 7,425
Capital surplus 6,096 6,229
Retained earnings 9,757 9,009
Deferred compensation - restricted stock (28) (35)
Accumulated other comprehensive loss (677) (566)
------------------------------------------------------------------------------------- -----------
Total shareholders' equity 22,507 22,062
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Commitments
------------------------------------------------------------------------------------- -----------
Total $253,340 $233,113
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</TABLE>
See accompanying notes to consolidated financial statements.
* Derived from audited consolidated financial statements.
2
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Income Statements
For the three and six months ended June 30, 2000 and 1999
(unaudited - dollar amounts in thousands, except net income per share)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
---------------------------------------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $3,672 $3,112 $7,039 $6,092
Interest on investment securities:
Interest exempt from federal income taxes 153 197 324 394
Taxable interest income 741 496 1,490 1,042
Interest on federal funds sold 101 53 166 95
---------------------------------------------- ----------- ----------- ------------ -----------
Total interest income 4,667 3,858 9,019 7,623
---------------------------------------------- ----------- ----------- ------------ -----------
Interest expense:
Deposits:
Demand accounts 345 315 674 554
Savings 55 53 111 109
Time 1,325 995 2,492 2,027
Short-term borrowings 27 - 56 6
Long-term obligations 35 33 71 61
---------------------------------------------- ----------- ----------- ------------ -----------
Total interest expense 1,787 1,396 3,404 2,757
---------------------------------------------- ----------- ----------- ------------ -----------
Net interest income 2,880 2,462 5,615 4,866
Provision for probable loan losses 70 60 130 120
---------------------------------------------- ----------- ----------- ------------ -----------
Net interest income after provision for
probable loan losses 2,810 2,402 5,485 4,746
---------------------------------------------- ----------- ----------- ------------ -----------
Non-interest income:
Service charges on deposit accounts 357 344 699 666
Other service charges and fees 231 168 336 273
Net loss on sale of securities (2) (3) (2) (3)
Other operating income 9 11 26 29
---------------------------------------------- ----------- ----------- ------------ -----------
Total non-interest income 595 520 1,059 965
---------------------------------------------- ----------- ----------- ------------ -----------
Non-interest expenses:
Salaries 977 877 1,898 1,705
Retirement and other employee benefits 302 266 598 526
Occupancy 193 146 403 327
Equipment 341 226 597 463
Professional fees 82 117 136 182
Supplies 76 74 175 138
Telephone 84 54 180 115
Postage 27 40 76 86
Other operating expenses 486 469 948 879
---------------------------------------------- ----------- ----------- ------------ -----------
Total non-interest expenses 2,568 2,269 5,011 4,421
---------------------------------------------- ----------- ----------- ------------ -----------
Income before income taxes 837 653 1,533 1,290
Income taxes 255 160 435 315
---------------------------------------------- ----------- ----------- ------------ -----------
Net income $582 $493 $1,098 $975
---------------------------------------------- =========== =========== ============ ===========
Net income per share (basic and diluted) $0.28 $0.23 $0.52 $0.46
Weighted average common shares outstanding 2,110,388 2,128,829 2,113,946 2,127,051
---------------------------------------------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the six months ended June 30, 2000 and 1999
(unaudited - dollar amounts in thousands)
<TABLE>
<CAPTION>
Deferred Accumulated
Compensation Other
Common Capital Retained Restricted Comprehensive Comprehensive
Stock Surplus Earnings Stock (Loss) Income Total
---------- ---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1999 $ 7,438 $ 6,261 $ 7,481 $ 673 $21,853
Unrealized losses, net of
income taxes of $376 (730) ($730) (730)
Net income 975 975 975
Deferred compensation -
restricted stock issuance 12 29 $ (41)
Recognition of deferred
compensation - restricted stock 2 2
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Total comprehensive income $ 245
===========
Cash dividends ($.145 per share) (309) (309)
---------- ---------- ----------- ----------- ------------ ---------
Balance June 30, 1999 $ 7,450 $ 6,290 $ 8,147 $ (39) $ (57) $21,791
========== ========== =========== =========== ============ =========
Deferred Accumulated
Compensation Other
Common Capital Retained Restricted Comprehensive Comprehensive
Stock Surplus Earnings Stock (Loss) Income Total
---------- ---------- ---------- ---------- ------------ ----------- ----------
Balance January 1, 2000 $ 7,425 $ 6,229 $ 9,009 $ (35) $ (566) $22,062
Unrealized losses, net of
income taxes of $57 (111) $ (111) (111)
Net income 1,098 1,098 1,098
Recognition of deferred
compensation - restricted stock (3) 7 4
-----------
Total comprehensive income $ 987
===========
Repurchase of common stock (66) (130) (196)
Cash dividends ($.165 per share) (350) (350)
---------- ---------- ----------- ----------- ------------ ----------
Balance June 30, 2000 $ 7,359 $ 6,096 $ 9,757 $ (28) $ (677) $22,507
========== ========== =========== =========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(Unaudited - dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
Cash flows from operating activities: 2000 1999
----------- -----------
<S> <C> <C>
Net income $1,098 $975
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 346 334
Amortization of investment securities, net (22) 33
Provision for probable loan losses 130 120
Loss on sale of available-for-sale securities 2 3
Deferred compensation - restricted stock 4 -
Increase in accrued interest receivable (574) (69)
Gain on sale of real estate acquired in
settlement of loans (9) -
Increase in other assets (410) (406)
Increase (decrease) in accrued interest payable 157 (31)
Increase in postretirement benefit liability 34 4
Increase (decrease) in other liabilities, net (9) 5
---------------------------------------------- ----------- -----------
Net cash provided by operating activities 747 968
---------------------------------------------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of investment securities classified
as available-for-sale 1,144 1,197
Proceeds from maturities of investment securities
classified as available-for-sale 6,815 11,195
Purchases of investment securities classified
as available-for-sale (8,083) (6,589)
Purchase of Federal Home Loan Bank common stock - (68)
Purchases of premises and equipment (1,026) (1,204)
Proceeds from disposal of real estate acquired in
settlement of loans and real estate held for sale 109 -
Net loan originations (16,773) (10,484)
---------------------------------------------- ----------- -----------
Net cash used by investing activities (17,814) (5,953)
---------------------------------------------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits 19,719 9,294
Repayment of short-term borrowings (140) (2,725)
Proceeds from long-term obligations - 3,000
Dividends paid (329) (154)
Repurchase of common stock (196) -
---------------------------------------------- ----------- -----------
Net cash provided by financing activities 19,054 9,415
---------------------------------------------- ----------- -----------
Increase in cash and cash equivalents 1,987 4,430
Cash and cash equivalents at beginning of period 17,789 11,787
----------- -----------
Cash and cash equivalents at end of period $ 19,776 $ 16,217
=========== ===========
Cash paid during the period:
Interest $ 3,247 $ 2,788
Taxes 300 300
Supplemental disclosures of noncash financing and investing
activities:
Cash dividends declared but not paid $ 175 $ 155
Unrealized losses on available-for-sale
securities, net of deferred taxes (111) (730)
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements include the accounts of ECB Bancorp, Inc.
("Bancorp") and its wholly-owned subsidiary, The East Carolina Bank (the "Bank")
(collectively referred to hereafter as the "Company"). The Bank has two
wholly-owned subsidiaries, Carolina Financial Courier, Inc. and Carolina
Financial Realty, Inc. All intercompany transactions and balances are eliminated
in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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 expenses
during the reporting period. Actual results could differ from those estimates.
All adjustments considered necessary for a fair presentation of the results for
the interim periods presented have been included (such adjustments are normal
and recurring in nature). The footnotes in Bancorp's annual report on Form
10-KSB should be referenced when reading these unaudited interim financial
statements. Operating results for the six month period ended June 30, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks (with original maturities of ninety days or less) and federal
funds sold. Generally, federal funds are purchased and sold for one-day periods.
(3) Allowance for Probable Loan Losses
The following summarizes the activity in the allowance for probable loan losses
for the six months ended June 30, 2000 and 1999, respectively.
Six months ended June 30,
-------------------------
2000 1999
---- ----
Balance at the beginning of the
period $ 2,700,000 2,750,000
Provision for probable loan losses 130,000 120,000
Charge-offs (140,000) (220,000)
Recoveries 31,000 50,000
----------- -----------
Net charge-offs (109,000) (170,000)
----------- -----------
Balance at the end of the period $ 2,721,000 2,700,000
=========== ===========
(4) Net income per share
The Company adopted SFAS No. 128, "Earnings Per Share", in 1997, which requires
net income per share to be calculated on both a basic and diluted basis. The
stock options granted in 1998 had no dilutive effect on net income per share for
the six months ended June 30, 2000 and 1999.
6
<PAGE>
(5) Reclassifications
Certain items in the prior period consolidated financial statements have been
reclassified to conform with the current presentation. Such reclassifications
had no impact on net income or shareholders' equity as previously reported.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
ECB Bancorp, Inc. ("Bancshares") is a bank holding company headquartered in
Engelhard, North Carolina. Bancshares' wholly-owned subsidiary, The East
Carolina Bank (the "Bank") (collectively referred to hereafter as the
"Company"), is a state-chartered community bank which was founded in 1919. The
Bank offers a full range of banking services through 15 branches serving eastern
North Carolina, including the communities of Engelhard, Swan Quarter, Columbia,
Creswell, Fairfield, Nags Head, Manteo, Southern Shores, Barco, Avon, Hatteras,
Ocracoke, Washington and Greenville (two branches).
The operations of the Company and depository institutions in general are
significantly influenced by general economic conditions and by related monetary,
fiscal and other policies of depository institution regulatory agencies,
including the Federal Reserve Board, the Federal Deposit Insurance Corporation
(the "FDIC") and the North Carolina State Banking Commission. Deposit flows and
costs of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting local demand and availability of funds.
Comparison of the Results of Operations for the Six Month Periods Ended June 30,
2000 and 1999
Summary
For the six months ended June 30, 2000, the Company had net income of
$1,098,000, or $0.52 basic and diluted earnings per share, compared to $975,000,
or $0.46 basic and diluted earnings per share for the six months ended June 30,
1999. For the six months ended June 30, 2000, net interest income increased
15.39% and non-interest income increased 9.74% when compared to the same period
last year. Non-interest expense increased $590,000 or 13.35% for the six months
ended June 30, 2000 as compared to the same period in 1999, partly attributable
to general increases in salary and employee benefits expense of $265,000.
Net interest income
Total interest income increased $1,396,000 for the six months ended June 30,
2000 compared to the six months ended June 30, 1999, principally due to an
increase in the average volume of loans of $17.1 million. Yield on average
earning assets, on a tax-equivalent basis, for the six months ended June 30,
2000 was 8.29% compared to 8.08% in 1999. Total interest expense increased
$647,000 for the six months ended June 30, 2000 compared to the six months ended
June 30, 1999, as a result of average balances of interest-bearing demand
deposits increasing by $8.0 million and increased average balances of jumbo
certificates of deposit of $8.7 million. The cost of funds for the Company
during the first six months of 2000 increased 36 basis points when compared to
the six months ended June 30, 1999. The Company's increase in the cost of funds
was partially offset by increased non-interest-bearing demand deposits of $8.1
million over the first half of 1999.
Net interest income for the six months ended June 30, 2000 was $5,615,000, an
increase of $749,000 or 15.39% when compared to net interest income of
$4,866,000 for the six months ended June 30, 1999. The Company's net interest
margin, on a tax-equivalent basis, for the six months ended June 30, 2000 was
5.22% compared to 5.24% in 1999. The stability of the Company's net interest
margin is attributable to its closely matched rate sensitive-asset and
rate-sensitive liability gap position.
8
<PAGE>
Provision for probable loan losses
The provision for probable loan losses charged to operations during the first
six months of 2000 was $130,000, compared to $120,000 during the first six
months of 1999. Net charge-offs for the six months ended June 30, 2000 totaled
$109,000, compared to net charge-offs of $170,000 during the same period of
1999. Higher prior year net charge-offs are primarily the result of farm related
credit loss of approximately $75,000. The amount charged for provision for
probable loan losses is the result of management's review and evaluation of the
portfolio, which considers current conditions, past due loans, and prior loan
loss experience.
Non-interest income
Non-interest income increased $94,000 to $1,059,000 for the six months ended
June 30, 2000 from $965,000 for the same period in 1999. This increase is due to
increased service charge fees on personal checking accounts of $29,000, mortgage
loan origination fees of $26,000 generated by the Company's mortgage loan
product and net fees of $25,000 derived from a new accounts receivable purchase
product introduced in the second quarter of this year. The product known as
Business Manager, is an accounts receivable purchasing program that is geared
toward small businesses. Through this program, ECB purchases accounts
receivables from its business customers at a discount and receives payments
directly from the accounts debtors.
Non-interest expense
Non-interest expense increased $590,000 or 13.35% to $5,011,000 for the six
months ended June 30, 2000 from the same period in 1999. This increase is
principally due to general increases in salary and employee benefits expense of
$265,000 of which $110,000 is related to the new Washington office. Occupancy
expense increased $76,000 over the prior year period as the Bank's building
rental expense increased $70,000 as a result of expanding the Avon office during
the first quarter of 2000 and opening of the Washington office in June of 1999.
Bank supply expense increased during the first six months of 2000 due to
approximately $35,000 of nonrecurring expenses related to the implementation of
the Bank's check image statement. Telephone and communications expense increased
$65,000 over the prior year period due to voice and data equipment upgrades.
Equipment expense increased $134,000 as the Company began paying for its newly
implemented image check processing system. Other operating expenses increased
$69,000 from $879,000 for the six months ended June 30, 1999 to $948,000 for the
six months ended June 30, 2000. This increase is primarily due to increased
expense related to the Bank's Best Checking Account products of approximately
$54,000 and increased advertising expense of $26,000 compared to the first half
of 1999. These increases were partially offset by the reduction of Club 7 credit
card program expense of $47,000 as the Bank completed its two-year co-branding
obligation with a local television station.
Income taxes
Income tax expense for the six months ended June 30, 2000 and 1999 was $435,000
and $315,000, respectively, and effective tax rates were 28.38% and 24.42%,
respectively. The increase in the effective tax rate during for the six months
ended June 30, 2000 as compared to the same period last year is due to lower tax
exempt interest income resulting from the sale of approximately $3.2 million of
certain municipal obligations during the third quarter of 1999.
Comparison of the Results of Operations for the Three Month Periods Ended June
30, 2000 and 1999
Summary
For the three months ended June 30, 2000, the Company had net income of
$582,000, or $0.28 basic and diluted earnings per share, compared to $493,000,
or $0.23 basic and diluted earnings per share for the three months ended June
30, 1999. Net interest income increased 16.98% to $2,880,000 in the second
9
<PAGE>
quarter of 2000 from $2,462,000 in the second quarter of 1999, and non-interest
income increased $75,000 or 14.42% when compared to the same period last year.
Non-interest expense increased $299,000 or 13.18% for the three month period
ended June 30, 2000 as compared to the same period in 1999 partly attributable
to the opening of the new Washington office and the addition of personnel at the
Company's corporate office. Salary and employee benefits expense increased
$136,000 to $1,279,000 compared to $1,143,000 during the second quarter of 1999.
Net interest income
Net interest income for the three months ended June 30, 2000 was $2,880,000, an
increase of $418,000 or 16.99% when compared to net interest income of
$2,462,000 for the three months ended June 30, 1999. The net interest margin, on
a tax-equivalent basis, for the three months ended June 30, 2000 was 5.19%
compared to 5.21% in 1999.
Total interest income increased $809,000 for the three months ended June 30,
2000 compared to the three months ended June 30, 1999, principally due to an
increase in the average volume of loans of $18.2 million. Yield on average
earning assets, on a tax-equivalent basis, for the three months ended June 30,
2000 was 8.33% compared to 8.04% in 1999. Total interest expense increased
$391,000 for the three months ended June 30, 2000 compared to the three months
ended June 30, 1999, as a result of certificates of deposit balances increasing
$13.1 million and an increase of interest-bearing demand deposits of $5.0
million. The cost of funds for the Company during the three months ended June
30, 2000 increased 49 basis points when compared to the three months ended June
30, 1999. The Company's increase in cost of funding was a result of increased
rates paid on interest bearing deposits since the second quarter of 1999. The
Company's increase in cost of funding was partially offset by increased
non-interest-bearing demand deposits of $9.7 million over the second quarter of
1999.
Provision for probable loan losses
The provision for probable loan losses charged to operations during the three
months ended June 30, 2000 was $70,000, compared to $60,000 during the three
months ended June 30, 1999. Net charge-offs for the quarter ended June 30, 2000
totaled $47,000, compared to net charge-offs of $159,000 during the same period
of 1999. Higher prior year net charge-offs are primarily the result of farm
related credit loss of approximately $75,000. The amount charged for provision
for probable loan losses is the result of management's review and evaluation of
the portfolio, which considers current conditions, past due loans, and prior
loan loss experience.
Non-interest income
Non-interest income increased $75,000 to $595,000 for the three months ended
June 30, 2000 compared to the same period in 1999. This is principally due to
net fees of $25,000 derived from a new accounts receivable purchase product
introduced in the second quarter of this year, increased net merchant discount
income of $18,000 and increased service charge fees on personal checking
accounts of approximately $13,000.
Non-interest expense
Non-interest expense increased $299,000 or 13.18% to $2,568,000 for the three
months ended June 30, 2000 from the same period in 1999. This increase is
principally due to general increases in salary and employee benefits expense of
$136,000. The opening of the Washington office accounted for approximately
$18,000 of the personnel expense increase while additional staffing within the
Company's home offices accounted for an additional $31,000 of personnel expense.
The Company experienced increases in employee group insurance premiums during
the second quarter of 2000 of $17,000 compared to the prior year. Occupancy
expense increased $47,000 over the prior year period as the Bank's building
rental expense increased $35,000 as a result of expanding the Avon office during
the first quarter of 2000 and opening of the Washington office in June of 1999.
Equipment expense increased $115,000 as the Company began paying for its newly
implemented image check processing system. Telephone and communications expense
increased $30,000 over the prior year period due to voice and data equipment
10
<PAGE>
upgrades associated with the Company's new communications network. Other
operating expenses increased $17,000 from $469,000 for the three months ended
June 30, 1999 to $486,000 for the three months ended June 30, 2000. This
increase is primarily due to increased expense related to the Bank's Best
Checking Account products of approximately $17,000 and general increases in
operating expense. These increases were partially offset by the reduction of
Club 7 credit card program expense of $23,000 as the Bank completed its two-year
co-branding obligation with a local television station.
Income taxes
Income tax expense for the three months ended June 30, 2000 and 1999 was
$255,000 and $160,000, respectively, resulting in effective tax rates of 30.47%
and 24.50%, respectively. The increase in the effective tax rate during for the
three months ended June 30, 2000 as compared to the same period last year is due
to lower tax exempt interest income resulting from the sale of approximately
$3.2 million of certain municipal obligations during the third quarter of 1999.
The effective tax rates in both years differ from the federal statutory rate of
34.00% primarily due to tax-exempt interest income.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Total assets increased $20.2 million to $253.3 million, an increase of 8.68%
when compared to $233.1 million at December 31, 1999. Asset growth was funded by
increased non interest-bearing demand deposits of $9.7 million and increases in
certificates of deposits of $7.3 million.
Loans receivable increased from $147.7 million at December 31, 1999 to $164.3
million at June 30, 2000. The Company experiences seasonal loan growth during
the first and second quarters of each year as farm production loans and
commercial lines of credit are used by the Company's agricultural base and
tourist related businesses on the "Outer Banks".
Shareholders' equity increased by $445,000 from December 31, 1999 to June 30,
2000, as the Company generated net income of $1,098,000 and experienced an
increase of net unrealized losses on available-for-sale securities of $111,000.
The Company declared cash dividends of $350,000 or 16.50 cents per share, during
the first half of 2000 compared to 14.50 cents per share in the prior year
period. The Company repurchased $196,000 of common stock during the first two
quarters of 2000.
Asset Quality
Management continuously analyzes the growth and risk characteristics of the
total loan portfolio under current conditions in order to evaluate the adequacy
of the allowance for probable loan losses. The factors that influence
management's judgment in determining the amount charged to operating expense
include past loan loss experience, composition of the loan portfolio, evaluation
of probable losses inherent in the portfolio and current economic conditions.
The Company's watch committee, which includes three members of senior management
as well as regional managers and other credit administration personnel, conducts
a quarterly review of all credits classified as substandard. This review follows
a re-evaluation by the account officer who has primary responsibility for the
relationship. Various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for probable
loan losses. Such agencies may require the Company to recognize additions to the
allowance for probable loan losses based on their judgments about information
available to them at the time of their examination. Nonperforming assets, which
consist of loans not accruing interest, restructured debt and real estate
acquired in settlement of loans, were $653,000 and $672,000 at June 30, 2000 and
December 31, 1999, respectively. The decrease in nonperforming assets is the
result of a reduction in foreclosed properties of $100,000 partially offset by
an increase of non-accrual loans of $87,000 during the first half of this year.
At June 30, 2000, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $658,192 compared to $367,000 at December 31,
1999. These loans are on a non-accrual basis and had related allowance for
probable loan losses of approximately $121,000 and $55,000, respectively.
11
<PAGE>
Regulatory Matters
Management is not presently aware of any current recommendation to the Company
by regulatory authorities which, if they were to be implemented, would have a
material effect on the Company's liquidity, capital resources or operations.
Liquidity
The Company relies on the investment portfolio, as a source of liquidity, with
maturities designed to provide needed cash flows. Further, retail deposits
generated throughout the branch network have enabled management to fund asset
growth and maintain liquidity. These sources have allowed limited dependence on
short-term borrowed funds for liquidity or for asset expansion. External sources
of funds include the ability to access advances from the Federal Home Loan Bank
of Atlanta and Fed Fund lines with correspondent banks.
Capital Resources
Bancorp and the Bank are subject to the capital requirements of the Federal
Reserve, the FDIC and the State Banking Commission. The FDIC requires the Bank
to maintain minimum ratios of Tier I capital to total risk-weighted assets and
total capital to risk-weighted assets of 4% and 8%, respectively. To be "well
capitalized," the FDIC requires ratios of Tier I capital to total risk-weighted
assets and total capital to risk-weighted assets of 6% and 10%, respectively.
Tier I capital consists of total stockholders' equity calculated in accordance
with generally accepted accounting principles excluding unrealized gains or
losses, net of income taxes, on securities available-for-sale, and total capital
is comprised of Tier I capital plus certain adjustments, the only one of which
is applicable to the Bank is the allowance for probable loan losses.
Risk-weighted assets reflect the Banks' on- and off-balance sheet exposures
after such exposures have been adjusted for their relative risk levels using
formulas set forth in FDIC regulations. As of June 30, 2000, the Bank was in
compliance with all of the aforementioned capital requirements and meets the
"well-capitalized" definition that is used by the FDIC in its evaluation of
member banks. Additionally, at June 30, 2000, Bancorp was also in compliance
with the applicable capital requirements set forth by the Federal Reserve.
Current Accounting Issues
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Standards (SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. Earlier application of all of the
provisions of this statement is encouraged. The Company plans to adopt this
statement at January 1, 2001 and does not anticipate any material effect on its
consolidated financial statements.
The FASB also 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 issued exposure drafts and to proposed
effective dates.
Management awareness
Management is not aware of any known trends, events, uncertainties, or current
recommendations by regulatory authorities that will or that are reasonably
likely to have a material effect on the Company's liquidity, capital resources
or other operations.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Shareholders was held on April 19,
2000.
(b) At the Annual Meeting, the following four Directors were elected for
terms of three years or until their respective successors are duly
elected and qualified: George T. Davis, Jr.; Gregory C. Gibbs; John F.
Hughes; and Robert L. Mitchell. Registrant's incumbent directors whose
terms of office continued after the meeting are: C. Gilbert Gibbs,
Arthur H. Keeney III, Bryant Kittrell III, Joseph T. Lamb, Jr., B.
Martelle Marshall, Ray M. Spencer, and R. S. Spencer, Jr.
Voting for Directors was as follows:
For Withheld Broker Non-vote
----------------------------------------------
George T. Davis, Jr. 1,806,995 5,531 1,525
Gregory C. Gibbs 1,806,995 5,531 1,525
John F. Hughes 1,806,995 5,531 1,525
Robert L. Mitchell 1,801,065 11,461 1,525
In addition to the election of Directors, the following proposal was
voted on and approved at the Annual Meeting:
1. Proposal to ratify the selection of KPMG LLP as independent
auditors for the Registrant as described under the caption
"Ratification of Selection of Independent Auditor" in the
Registrant's Proxy Statement dated March 20, 2000 (approved by an
affirmative vote of 1,796,174 shares or 99.10% of the shares that
voted, 1,269 negative votes and 15,083 shares abstained).
Item 5. Other Information
Not applicable.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-KSB
(a) Exhibits:
Exhibit
Number Description
------ -----------
3.1 Registrant's Articles of Incorporation (incorporated by
reference from Exhibit 3.1 to Registrant's Registration
Statement on Form SB-2, Reg. No. 333-61839)
3.2 Registrant's Bylaws (incorporated by reference from Exhibit
3.2 to Registrant's Registration Statement on Form SB-2, Reg.
No. 333-61839)
27 Financial Data Schedule.
(b) Reports on Form 8-KSB
None.
14
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ECB BANCORP, INC.
-----------------
(Registrant)
Date: 8/11/2000 By: /s/ Arthur H. Keeney, III
--------------- -------------------------
Arthur H. Keeney, III
(President & CEO)
Date: 8/11/2000 By: /s/ Gary M. Adams
--------------- -----------------
Gary M. Adams
(Senior Vice President & CFO)
15
