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 September 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
--------------------------
ECB Bancorp, Inc.
-----------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0215930
--------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 337, Engelhard, North Carolina 27824
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(252) 925-9411
--------------
(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 November 7, 2000, 2,078,493 shares of the registrant's common stock, $3.50
par value, were outstanding.
This Form 10-QSB has 15 pages.
<PAGE>
Item 1. Financial Statements
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30 December 31
Assets 2000 1999*
------------------------------------------------------------------------------------ ------------
(unaudited)
<S> <C> <C>
Non-interest bearing deposits and cash $12,025 $11,139
Federal funds sold 1,125 6,650
------------------------------------------------------------------------------------ ------------
Total cash and cash equivalents 13,150 17,789
------------------------------------------------------------------------------------ ------------
Investment securities
Available-for-sale, at market value (cost of $69,020 and
$59,797 at September 30, 2000 and December 31, 1999, respectively) 68,507 58,939
Loans 167,108 147,676
Allowance for probable loan losses (2,769) (2,700)
------------------------------------------------------------------------------------ ------------
Loans, net 164,339 144,976
------------------------------------------------------------------------------------ ------------
Real estate acquired in settlement of loans, net 58 183
Federal Home Loan Bank stock, at cost 633 633
Bank premises and equipment, net 7,714 6,727
Accrued interest receivable 3,128 2,259
Other assets 2,171 1,607
------------------------------------------------------------------------------------ ------------
Total $259,700 $233,113
------------------------------------------------------------------------------------ ------------
Liabilities and Shareholders' Equity
------------------------------------------------------------------------------------ ------------
Deposits
Demand, noninterest bearing $51,894 $43,638
Demand interest bearing 64,725 60,623
Savings 14,350 14,823
Time 95,850 84,217
------------------------------------------------------------------------------------ ------------
Total deposits 226,819 203,301
------------------------------------------------------------------------------------ ------------
Short-term borrowings 4,308 2,738
Long-term obligations 3,000 3,000
Accrued interest payable 1,057 817
Other liabilities 1,334 1,195
------------------------------------------------------------------------------------ ------------
Total liabilities 236,518 211,051
------------------------------------------------------------------------------------ ------------
Shareholders' equity
Common stock, par value $3.50 per share; authorized
10,000,000 shares; issued and outstanding 2,089,618 and
2,121,529 at September 30, 2000 and December 31, 1999, respectively. 7,314 7,425
Capital surplus 5,969 6,229
Retained earnings 10,263 9,009
Deferred compensation - restricted stock (26) (35)
Accumulated other comprehensive loss (338) (566)
------------------------------------------------------------------------------------ ------------
Total shareholders' equity 23,182 22,062
------------------------------------------------------------------------------------ ------------
Commitments
------------------------------------------------------------------------------------ ------------
Total $259,700 $233,113
------------------------------------------------------------------------------------ ------------
</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 nine months ended September 30, 2000 and 1999
(unaudited - dollar amounts in thousands, except net income per share)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
---------------------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,874 $3,163 $10,913 $9,255
Interest on investment securities:
Interest exempt from federal income taxes 156 184 480 578
Taxable interest income 813 594 2,303 1,636
Interest on federal funds sold 80 131 246 226
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total interest income 4,923 4,072 13,942 11,695
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Interest expense:
Deposits:
Demand accounts 366 348 1,040 902
Savings 56 56 167 165
Time 1,379 993 3,871 3,020
Short-term borrowings 47 8 103 14
Long-term obligations 36 34 107 95
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total interest expense 1,884 1,439 5,288 4,196
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net interest income 3,039 2,633 8,654 7,499
Provision for probable loan losses 75 60 205 180
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net interest income after provision for probable loan losses 2,964 2,573 8,449 7,319
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Non-interest income:
Service charges on deposit accounts 353 329 1,052 995
Other service charges and fees 278 223 614 496
Net gain/(loss) on sale of securities 7 (18) 5 (21)
Other operating income 9 53 35 82
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total non-interest income 647 587 1,706 1,552
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Non-interest expenses:
Salaries 1,025 896 2,923 2,601
Retirement and other employee benefits 308 268 906 794
Occupancy 217 189 620 516
Equipment 330 266 927 729
Professional fees 52 73 188 255
Supplies 83 30 258 168
Telephone 78 94 258 209
Postage 52 47 128 133
Other operating expenses 533 498 1,481 1,377
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total non-interest expenses 2,678 2,361 7,689 6,782
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before income taxes 933 799 2,466 2,089
Income taxes 255 215 690 530
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net income $678 $584 $1,776 $1,559
---------------------------------------------------------------------- =========== =========== =========== ===========
Net income per share (basic and diluted) $0.32 $0.28 $0.84 $0.73
Weighted average common shares outstanding 2,090,946 2,120,454 2,106,192 2,126,018
---------------------------------------------------------------------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the nine months ended September 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 securities losses,
net of income taxes of $465 (905) ($905) (905)
Net income 1,559 1,559 1,559
----------
Total comprehensive income $ 654
==========
Deferred compensation -
restricted stock issuance 12 29 $ (41)
Recognition of deferred
compensation - restricted stock 4 4
Repurchase of common stock (23) (56) (79)
Cash dividends ($.2175 per share) (462) (462)
---------- -------- ---------- ---------- ----------- ---------
Balance September 30, 1999 $ 7,427 $ 6,234 $ 8,578 $ (37) $ (232) $ 21,970
========== ======== ========== ========== =========== =========
</TABLE>
<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, 2000 $ 7,425 $ 6,229 $ 9,009 $ (35) $ (566) $ 22,062
Unrealized securities gains,
net of income taxes of $117 228 $ 228 228
Net income 1,776 1,776 1,776
----------
Total comprehensive income $ 2,004
==========
Recognition of deferred
compensation - restricted stock (3) 9 6
Repurchase of common stock (111) (257) (368)
Cash dividends ($.2475 per share) (522) (522)
---------- -------- ---------- ---------- ----------- ---------
Balance September 30, 2000 $ 7,314 $ 5,969 $ 10,263 $ (26) $ (338) $ 23,182
========== ======== ========== ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(Unaudited - dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
Cash flows from operating activities: 2000 1999
---------- ----------
<S> <C> <C>
Net income $1,776 $1,559
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 532 499
Amortization of investment securities, net (38) 42
Provision for probable loan losses 205 180
Loss (gain) on sale of available-for-sale securities (5) 21
Gain on disposal of premises and equipment - (42)
Deferred compensation - restricted stock 6 4
Increase in accrued interest receivable (869) (543)
Gain on sale of real estate acquired in
settlement of loans (9) -
Increase in other assets (679) (584)
Increase (decrease) in accrued interest payable 240 (64)
Increase in postretirement benefit liability 42 6
Increase in other liabilities, net 76 146
---------------------------------------------- ---------- ----------
Net cash provided by operating activities 1,277 1,224
---------------------------------------------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of investment securities classified
as available-for-sale 4,996 2,678
Proceeds from maturities of investment securities
classified as available-for-sale 9,814 13,347
Purchases of investment securities classified
as available-for-sale (23,990) (19,172)
Purchase of Federal Home Loan Bank common stock - (68)
Proceeds from disposal of premises and equipment - 1,597
Purchases of premises and equipment (1,519) (1,801)
Proceeds from disposal of real estate acquired in
settlement of loans and real estate held for sale 134 -
Net loan originations (19,568) (13,365)
---------------------------------------------- ---------- ----------
Net cash used by investing activities (30,133) (16,784)
---------------------------------------------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits 23,518 19,192
Net increase (decrease) of short-term borrowings 1,570 (1,783)
Proceeds from long-term obligations - 3,000
Dividends paid (503) (309)
Repurchase of common stock (368) (79)
---------------------------------------------- ---------- ----------
Net cash provided by financing activities 24,217 20,021
---------------------------------------------- ---------- ----------
Increase (decrease) in cash and cash equivalents (4,639) 4,461
Cash and cash equivalents at beginning of period 17,789 11,787
---------- ----------
Cash and cash equivalents at end of period $ 13,150 $ 16,248
========== ==========
Cash paid during the period:
Interest $ 5,048 $ 4,260
Taxes 575 425
Supplemental disclosures of noncash financing and investing activities:
Cash dividends declared but not paid $ 172 $ 153
Unrealized gains (losses) on available-for-sale
securities, net of deferred taxes 228 (905)
See accompanying notes to consolidated financial statements.
</TABLE>
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 nine month period ended September 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 nine months ended September 30, 2000 and 1999, respectively.
Nine months ended September 30,
-------------------------------
2000 1999
----------- -----------
Balance at the beginning of the
period $ 2,700,000 $ 2,750,000
Provision for probable loan losses 205,000 180,000
Charge-offs (210,000) (280,000)
Recoveries 74,000 64,000
----------- -----------
Net charge-offs (136,000) (216,000)
----------- -----------
Balance at the end of the period $ 2,769,000 $ 2,714,000
=========== ===========
(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 three and nine month periods ended September 30, 2000 and 1999.
6
<PAGE>
ECB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(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. ("Bancorp") is a bank holding company headquartered in
Engelhard, North Carolina. Bancorp's wholly-owned subsidiary, The East Carolina
Bank (the "Bank" or "ECB") (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 17 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, Hertford, New Bern 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 Nine Month Periods Ended
September 30, 2000 and 1999
Summary
-------
For the nine months ended September 30, 2000, the Company had net income of
$1,776,000, or $0.84 basic and diluted earnings per share, compared to
$1,559,000, or $0.73 basic and diluted earnings per share for the nine months
ended September 30, 1999. For the nine months ended September 30, 2000, net
interest income increased 15.40% and non-interest income increased 9.92% when
compared to the same period last year. Non-interest expense increased $907,000
or 13.37% for the nine months ended September 30, 2000 as compared to the same
period in 1999, partly attributable to increases in salary and employee benefits
expense of $434,000.
Net interest income
-------------------
Total interest income increased $2,247,000 for the nine months ended September
30, 2000 compared to the nine months ended September 30, 1999, principally due
to an increase in the average volume of loans of $19.1 million. Yield on average
earning assets, on a tax-equivalent basis, for the nine months ended September
30, 2000 was 8.33% compared to 8.01% in 1999. Total interest expense increased
$1,092,000 for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999, as a result of average balances of
interest-bearing demand deposits increasing by $6.0 million and increased
average balances of jumbo certificates of deposit of $9.2 million. The cost of
funds for the Company during the first nine months of 2000 increased 45 basis
points when compared to the nine months ended September 30, 1999. The Company's
increase in the cost of funds was partially offset by increased
non-interest-bearing demand deposits of $8.2 million compared to the same period
in 1999.
Net interest income for the nine months ended September 30, 2000 was $8,654,000,
an increase of $1,155,000 or 15.40% when compared to net interest income of
$7,499,000 for the nine months ended September 30, 1999. The Company's net
interest margin, on a tax-equivalent basis, for the nine months ended September
30, 2000 was 5.22% compared to 5.21% 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
nine months of 2000 was $205,000, compared to $180,000 during the first nine
months of 1999. Net charge-offs for the nine months ended September 30, 2000
totaled $136,000, compared to net charge-offs of $216,000 during the same period
of 1999. Higher prior year net charge-offs are primarily the result of farm
related credit losses 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 $154,000 to $1,706,000 for the nine months ended
September 30, 2000 from $1,552,000 for the same period in 1999. This increase is
due primarily to increased service charge fees on personal checking accounts of
$42,000, net merchant discount fees of $51,000 generated by the Company's
merchant services department and net fees of $47,000 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 $907,000 or 13.37% to $7,689,000 for the nine
months ended September 30, 2000 from $6,782,000 for the same period in 1999.
This increase is principally due to increases in salary and employee benefits
expense of $434,000 of which $192,000 is related to additional staffing within
the Company's home office and $145,000 for branch staffing in the new
Washington, New Bern and Hertford offices. Occupancy expense increased $104,000
over the prior year period as the Bank's building rental expense increased
$73,000 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 $90,000 during the first nine months of 2000 primarily due to
approximately $35,000 of nonrecurring expenses related to the implementation of
the Bank's check image statement. Telephone and communications expense increased
$49,000 over the prior year period due to voice and data equipment upgrades.
Equipment expense increased $198,000 as the Company began paying for its newly
implemented image check processing system. Other operating expenses increased
$104,000 from $1,377,000 for the nine months ended September 30, 1999 to
$1,481,000 for the nine months ended September 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 $24,000
compared to the first nine months of 1999. These increases were partially offset
by the reduction of Club 7 credit card program expense of $83,000 as the Bank
completed its two-year co-branding obligation with a local television station.
Income taxes
------------
Income tax expense for the nine months ended September 30, 2000 and 1999 was
$690,000 and $530,000, respectively, and effective tax rates were 27.98% and
25.37%, respectively. The increase in the effective tax rate during for the nine
months ended September 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.
9
<PAGE>
Comparison of the Results of Operations for the Three Month Periods Ended
September 30, 2000 and 1999
Summary
-------
For the three months ended September 30, 2000, the Company had net income of
$678,000, or $0.32 basic and diluted earnings per share, compared to $584,000,
or $0.28 basic and diluted earnings per share for the three months ended
September 30, 1999. Net interest income increased 15.42% to $3,039,000 in the
third quarter of 2000 from $2,633,000 in the third quarter of 1999, and
non-interest income increased $60,000 or 10.22% when compared to the same period
last year. Non-interest expense increased $317,000 or 13.43% for the three month
period ended September 30, 2000 as compared to the same period in 1999, partly
attributable to the opening of the New Bern and Washington offices and the
addition of personnel at the Company's corporate office. Salary and employee
benefits expense increased $169,000 to $1,333,000 compared to $1,164,000 during
the third quarter of 1999.
Net interest income
-------------------
Net interest income for the three months ended September 30, 2000 was
$3,039,000, an increase of $406,000 or 15.42% when compared to net interest
income of $2,633,000 for the three months ended September 30, 1999. The net
interest margin, on a tax-equivalent basis, for the three months ended September
30, 2000 was 5.30% compared to 5.29% in 1999.
Total interest income increased $851,000 for the three months ended September
30, 2000 compared to the three months ended September 30, 1999, principally due
to an increase in the average volume of loans of $19.3 million. Yield on average
earning assets, on a tax-equivalent basis, for the three months ended September
30, 2000 was 8.52% compared to 8.08% in 1999. Total interest expense increased
$445,000 for the three months ended September 30, 2000 compared to the three
months ended September 30, 1999, as a result of certificates of deposit balances
increasing $12.9 million and an increase in interest-bearing demand deposits of
$1.8 million. The cost of funds for the Company during the three months ended
September 30, 2000 increased 64 basis points when compared to the three months
ended September 30, 1999. The Company's increase in cost of funding was a result
of increased rates paid on interest bearing deposits since the third quarter of
1999. The Company's increase in cost of funding was partially offset by
increased non-interest-bearing demand deposits of $8.3 million over the third
quarter of 1999.
Provision for probable loan losses
The provision for probable loan losses charged to operations during the three
months ended September 30, 2000 was $75,000, compared to $60,000 during the
three months ended September 30, 1999. Net charge-offs for the quarter ended
September 30, 2000 totaled $26,000, compared to net charge-offs of $46,000
during the same period of 1999. 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 $60,000 to $647,000 for the three months ended
September 30, 2000 compared to the same period in 1999. This is principally due
to net fees of $22,000 derived from a new accounts receivable purchase product
introduced in the second quarter of this year, increased net merchant discount
income of $43,000 and increased service charge fees on personal checking
accounts of approximately $14,000.
10
<PAGE>
Non-interest expense
Non-interest expense increased $317,000 or 13.43% to $2,678,000 for the three
months ended September 30, 2000 from the same period in 1999. This increase is
principally due to general increases in salary and employee benefits expense of
$169,000. The opening of offices in New Bern and Hertford accounted for
approximately $56,000 of the personnel expense increase while additional
staffing within the Company's home offices accounted for an additional $42,000
of personnel expense. The Company experienced increases in employee group
insurance premiums during the third quarter of 2000 of $21,000 compared to the
prior year. Occupancy expense increased $28,000 over the prior year period as
the Bank's building rental expense increased $28,000 as a result of increased
building depreciation expense of $9,000 and increases in outside janitorial
services and property insurance of $8,000 and $5,000, respectively. Equipment
expense increased $64,000 as the Company began paying for its newly implemented
image check processing system. Supplies increased $53,000 over the prior year
period as a result of startup supplies for two new branch offices of $13,000 and
corporate supplies of $17,000. Other operating expenses increased $35,000 from
$498,000 for the three months ended September 30, 1999 to $533,000 for the three
months ended September 30, 2000. This increase is primarily due to increased
loan collection expense of approximately $19,000 and general increases in
operating expense. These increases were partially offset by the reduction of
Club 7 credit card program expense of $35,000 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 September 30, 2000 and 1999 was
$255,000 and $215,000, respectively, resulting in effective tax rates of 27.33%
and 26.90%, respectively. 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 September 30, 2000 and December 31, 1999
Total assets increased $26.6 million to $259.7 million, an increase of 11.41%
when compared to $233.1 million at December 31, 1999. Asset growth was funded by
increased non interest-bearing demand deposits of $8.3 million and increases in
certificates of deposits of $11.6 million.
Loans receivable have increased $19.4 million from $147.7 million at December
31, 1999 to $167.1 million at September 30, 2000. The Company has experienced
steady loan demand from all of its markets throughout the current year.
Shareholders' equity increased by $1,120,000 from December 31, 1999 to September
30, 2000, as the Company generated net income of $1,776,000 and experienced a
decrease of net unrealized losses on available-for-sale securities of $228,000.
The Company declared cash dividends of $522,000 or 24.75 cents per share, during
the nine months of 2000 compared to 21.75 cents per share in the prior year
period. The Company has repurchased $368,000 of common stock during 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.
11
<PAGE>
Nonperforming assets, which consist of loans not accruing interest, restructured
debt and real estate acquired in settlement of loans, were $716,000 and $672,000
at September 30, 2000 and December 31, 1999, respectively. The increase in
nonperforming assets is the result of an increase in non-accrual loans of
$176,000 during the first nine months of this year partially offset by a
reduction in foreclosed properties of $125,000. At September 30, 2000, the
recorded investment in loans that are considered to be impaired under SFAS No.
114 was $584,000 compared to $367,000 at December 31, 1999. These loans are on a
non-accrual basis and had a related allowance for probable loan losses of
approximately $97,000 and $55,000, respectively.
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 September 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 September 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, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. 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.
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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.
Forward-Looking Statements
This discussion may contain statements that could be deemed forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act, which statements are
inherently subject to risks and uncertainties. Forward-looking statements are
statements that include projections, predictions, expectations, or beliefs about
future events or results or otherwise are not statements of historical fact.
Such statements are often characterized by the use of qualifying words (and
their derivatives) such as "expect," "believe," "estimate," "plan," "project,"
"anticipate," or other statements concerning opinions or judgment of Bancorp and
its management about future events. Factors that could influence the accuracy of
such forward-looking statements include, but are not limited to, the financial
success or changing strategies of Bancorp's customers, actions of government
regulators, the level of market interest rates, and general economic conditions.
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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
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-KSB
(a) Exhibits:
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-KSB
None.
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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: 11/7/2000 By: /s/ Arthur H. Keeney, III
--------------- -------------------------
Arthur H. Keeney, III
(President & CEO)
Date: 11/7/2000 By: /s/ Gary M. Adams
--------------- -----------------
Gary M. Adams
(Senior Vice President & CFO)
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