-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dtsd1BrvCRoROED5rYoT//k+Jr2fGc6Ev7rbK+I60CY2weppCPM7c4Zz4Dn9chvb 285hwsI04MA3OdT9miT+Vg== 0000950168-01-500358.txt : 20010515 0000950168-01-500358.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950168-01-500358 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECB BANCORP INC CENTRAL INDEX KEY: 0001066254 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 562090738 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24753 FILM NUMBER: 1632168 BUSINESS ADDRESS: STREET 1: P O BOX 337 STREET 2: HWY 264 CITY: ENGELHARD STATE: NC ZIP: 27824 BUSINESS PHONE: 2529259411 10QSB 1 form10qsb_38727.txt FORM 10-QSB 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 March 31, 2001 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 incorporation or organization) Identification No.) 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 May 8, 2001, 2,069,332 shares of the registrant's common stock, $3.50 par value, were outstanding. This Form 10-QSB has 13 pages. Part I. FINANCIAL INFORMATION Item 1. Financial Statements ECB BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets March 31, 2001 and December 31, 2000 (dollar amounts in thousands)
March 31, December 31, Assets 2001 2000* - ------------------------------------------------------------------------------------- ------------ (unaudited) Non-interest bearing deposits and cash $13,289 $18,342 Federal funds sold 2,200 1,975 - ------------------------------------------------------------------------------------- ----------- Total cash and cash equivalents 15,489 20,317 - ------------------------------------------------------------------------------------- ----------- Investment securities Available-for-sale, at market value (cost of $63,361 and $64,463 at March 31, 2001 and December 31, 2000, respectively) 64,268 64,777 Loans 180,370 172,965 Allowance for probable loan losses (2,827) (2,800) - ------------------------------------------------------------------------------------- ----------- Loans, net 177,543 170,165 - ------------------------------------------------------------------------------------- ----------- Real estate acquired in settlement of loans, net 58 58 Federal Home Loan Bank common stock, at cost 633 633 Bank premises and equipment, net 8,612 7,882 Accrued interest receivable 2,700 2,637 Other assets 1,719 1,920 - ------------------------------------------------------------------------------------- ----------- Total $271,022 $268,389 - ------------------------------------------------------------------------------------- ----------- Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------------- ----------- Deposits Demand, noninterest bearing $45,311 $46,565 Demand interest bearing 62,773 61,759 Savings 13,230 13,457 Time 119,797 114,461 - ------------------------------------------------------------------------------------- ----------- Total deposits 241,111 236,242 - ------------------------------------------------------------------------------------- ----------- Short-term borrowings 2,738 2,678 Long-term obligations - 3,000 Accrued interest payable 1,378 1,160 Other liabilities 1,288 1,366 - ------------------------------------------------------------------------------------- ----------- Total liabilities 246,515 244,446 - ------------------------------------------------------------------------------------- ----------- Shareholders' equity Common stock, par value $3.50 per share; authorized 10,000,000 shares; issued and outstanding 2,070,101 and 2,073,081 in 2001 and 2000, respectively. 7,245 7,256 Capital surplus 5,801 5,822 Retained earnings 10,956 10,682 Deferred compensation - restricted stock (93) (24) Accumulated other comprehensive income 598 207 - ------------------------------------------------------------------------------------- ----------- Total shareholders' equity 24,507 23,943 - ------------------------------------------------------------------------------------- ----------- Commitments - ------------------------------------------------------------------------------------- ----------- Total $271,022 $268,389 - ------------------------------------------------------------------------------------- -----------
See accompanying notes to consolidated financial statements. * Derived from audited consolidated financial statements. 2 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Income Statements For the three months ended March 31, 2001 and 2000 (unaudited - dollar amounts in thousands, except net income per share) Three months ended March 31 -------------------------- 2001 2000 - ------------------------------------------------ ----------- ----------- Interest Income: Interest and fees on loans $3,943 $3,367 Interest on investment securities: Interest exempt from federal income taxes 149 171 Taxable interest income 840 749 Interest on federal funds sold 112 65 - ------------------------------------------------ ----------- ----------- Total interest income 5,044 4,352 - ------------------------------------------------ ----------- ----------- Interest expense: Deposits: Demand accounts 299 329 Savings 50 56 Time 1,830 1,167 Short-term borrowings 34 29 Long-term obligations 12 36 - ------------------------------------------------ ----------- ----------- Total interest expense 2,225 1,617 - ------------------------------------------------ ----------- ----------- Net interest income 2,819 2,735 Provision for probable loan losses 80 60 - ------------------------------------------------ ----------- ----------- Net interest income after provision for 2,739 2,675 probable loan losses - ------------------------------------------------ ----------- ----------- Noninterest income: Service charges on deposit accounts 387 342 Other service charges and fees 202 105 Net gain on sale of securities 48 - Other 10 17 - ------------------------------------------------ ----------- ----------- Total noninterest income 647 464 - ------------------------------------------------ ----------- ----------- Noninterest expense: Salaries 1,088 921 Retirement and other employee benefits 339 296 Occupancy 248 210 Equipment 314 256 Professional fees 68 54 Supplies 61 99 Telephone 90 96 Postage 53 49 Other 505 462 - ------------------------------------------------ ----------- ----------- Total noninterest expenses 2,766 2,443 - ------------------------------------------------ ----------- ----------- Income before income taxes 620 696 Income taxes 160 180 - ------------------------------------------------ ----------- ----------- Net income $460 $516 - ------------------------------------------------ ----------- ----------- Net income per share (basic and diluted) $0.22 $0.24 ----------- ----------- Weighted average shares outstanding - basic 2,065,532 2,117,504 ----------- ----------- Weighted average shares outstanding - diluted 2,069,197 2,118,320 ----------- ----------- See accompanying notes to consolidated financial statements. 3 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity Three months ended March 31, 2001 and 2000 (unaudited - dollar amounts in thousands)
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 $83 (161) (161) (161) Net income 516 516 516 --------- Total comprehensive income $ 355 ========= Recognition of deferred compensation - restricted stock 2 2 Repurchase of common stock (9) (18) (27) Cash dividends ($.0825 per share) (175) (175) ---------- ---------- ----------- ---------- --------- -------- Balance March 31, 2000 $ 7,416 $ 6,211 $ 9,350 $ (33) $ (727) $22,217 ========== ========== =========== ========== ========= ======== Deferred Accumulated compensation- other Common Capital Retained restricted comprehensive Comprehensive stock surplus earnings stock loss income Total ---------- ---------- ----------- ----------- ---------- ------------- ---------- Balance January 1, 2001 $7,256 $5,822 $10,682 ($24) $207 $23,943 Unrealized gains, net of income taxes of $202 391 $ 391 391 Net income 460 460 460 --------- Total comprehensive income $ 851 ========= Deferred compensation - restricted stock issuance 21 54 ($75) - Recognition of deferred compensation - restricted stock 6 6 Repurchase of common stock (32) (75) (107) Cash dividends ($.09 per share) (186) (186) ---------- ---------- ----------- ---------- --------- -------- Balance March 31, 2001 $ 7,245 $ 5,801 $ 10,956 $ (93) $ 598 $24,507 ========== ========== =========== ========== ========= ========
See accompanying notes to consolidated financial statements. 4 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Three months ended March 31, 2001 and 2000 (Unaudited - dollar amounts in thousands)
Three Months Ended March 31, Cash flows from operating activities: 2001 2000 ---------- ---------- Net income $ 460 $ 516 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 198 169 Amortization of investment securities, net (8) (9) Provision for probable loan losses 80 60 Gain on sale of securities (48) - Deferred compensation - restricted stock 6 2 Increase in accrued interest receivable (63) (130) Gain on sale of real estate acquired in settlement of loans - (9) Decrease (increase) in other assets 1 (150) Increase in accrued interest payable 218 101 Increase in postretirement benefit liability 11 25 Decrease in other liabilities, net (104) (52) - ----------------------------------------------------- ---------- ---------- Net cash provided by operating activities 751 523 - ----------------------------------------------------- ---------- ---------- Cash flows from investing activities: Proceeds from sales of investment securities classified as available-for-sale 10,862 - Proceeds from maturities of investment securities classified as available-for-sale 5,265 4,153 Purchases of investment securities classified as available-for-sale (14,971) (5,389) Purchases of premises and equipment (928) (105) Proceeds from disposal of real estate acquired in settlement of loans and real estate held for sale - 109 Net loan originations (7,458) (6,256) - ---------------------------------------------- ---------- ---------- Net cash used by investing activities (7,230) (7,488) - ---------------------------------------------- ---------- ---------- Cash flows from financing activities: Net increase in deposits 4,869 10,206 Net increase (decrease) in short-term borrowings 60 (1,085) Decrease in long-term obligations (3,000) - Dividends paid (171) (154) Repurchase of common stock (107) (27) - ---------------------------------------------- ---------- ---------- Net cash provided by financing activities 1,651 8,940 - ---------------------------------------------- ---------- ---------- Increase (decrease) in cash and cash equivalents (4,828) 1,975 Cash and cash equivalents at beginning of period 20,317 17,789 ---------- ---------- Cash and cash equivalents at end of period $ 15,489 $ 19,764 ========== ========== Cash paid during the period: Interest $ 2,007 $ 1,516 Taxes - 52 Supplemental disclosures of noncash financing and investing activities: Cash dividends declared but not paid $ 186 $ 175 Unrealized gains (losses) on available-for-sale securities, net of deferred taxes 391 (161)
See accompanying notes to consolidated financial statements. 5 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 accounting principles generally accepted in the United States of America 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 three month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. (2) Allowance for Probable Loan Losses The following summarizes the activity in the allowance for probable loan losses for the three months ended March 31, 2001 and 2000, respectively. Three months ended March 31, ---------------------------- 2001 2000 ---- ---- Balance at the beginning of the period $2,800,000 2,700,000 Provision for probable loan losses 80,000 60,000 Charge-offs (63,000) (78,000) Recoveries 10,000 16,000 ------ --------- Net charge-offs (53,000) (62,000) -------- --------- Balance at the end of the period $2,827,000 2,698,000 ========== ========= (3) 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 months ended March 31, 2001 and 2000. (4) New Accounting Pronouncements 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, (collectively referred to as derivatives) and for hedging activities. This Statement, as amended, is effective for all 6 fiscal quarters of fiscal years beginning after June 15, 2000, and was adopted by the Company on January 1, 2001 with no impact the Company's financial statements. 7 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 Three Month Periods Ended March 31, 2001 and 2000 Summary For the three months ended March 31, 2001, the Company had net income of $460,000, or $0.22 basic and diluted earnings per share, compared to $516,000, or $0.24 basic and diluted earnings per share for the three months ended March 31, 2000. Net interest income increased 3.07% to $2,819,000 in the first quarter of 2001 from $2,735,000 in the first quarter of 2000, and noninterest income increased $183,000 or 39.44% when compared to the same period last year. Noninterest expense increased $323,000 or 13.22% for the three month period ended March 31, 2001 as compared to the same period in 2000, 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 $210,000 to $1,427,000 compared to $1,217,000 during the first quarter of 2000. Net interest income The Company's net interest margin, on a tax-equivalent basis, for the three months ended March 31, 2001 was 4.65% compared to 5.18% in 2000. This decrease in the Company's net interest margin is a result of a lower interest rate environment compared to first quarter of 2000 as the Federal Reserve Board lowered the federal funds target rate by 150 basis points during the first quarter of 2001. The Bank is asset sensitive in the initial 90 to 120 day time horizon as interest rates on approximately 35% of the loan portfolio float with prime rate. Consequently, its net interest margin is negatively affected by decreases in interest rates during this period. Beyond this initial asset sensitive period the bank becomes liability sensitive on a cumulative basis due to re-pricing opportunities within the certificate of deposit portfolio. The Bank anticipates that its net interest margin will return to historical levels once this re-pricing occurs. Net interest income for the three months ended March 31, 2001 was $2,819,000, an increase of $84,000 or 3.07% when compared to net interest income of $2,735,000 for the three months ended March 31, 2000. Total interest income increased $692,000 for the three months ended March 31, 2001 compared to the three months ended March 31, 2000, principally due to an increase in the average volume of loans of $25.7 million. Yield on average earning assets, on a tax-equivalent basis, for the three months ended March 31, 2001 was 8.23% compared to 8.14% in 2000. 8 Total interest expense increased $608,000 for the three months ended March 31, 2001 compared to the three months ended March 31, 2000, as a result of average certificates of deposit balances increasing $34.2 million. The cost of funds for the Company during the three months ended March 31, 2001 was 4.45%, an increase of 63 basis points when compared to 3.82% for the three months ended March 31, 2000. The Company's increase in cost of funding was a result of increased interest expense associated with an increase of $23.8 million in public funds late in the fourth quarter of 2000 just prior to the Federal Reserve action during the first quarter of 2001. Interest expense on certificates greater than $100,000 increased 50 basis points, or $412,000, when compared to the first quarter of 2000. Provision for probable loan losses The provision for probable loan losses charged to operations during the three months ended March 31, 2001 was $80,000, compared to $60,000 during the three months ended March 31, 2000. Net charge-offs for the quarter ended March 31, 2001 totaled $53,000, compared to net charge-offs of $62,000 during the same period of 2000. 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. Noninterest income Noninterest income increased $183,000 or 39.44% to $647,000 for the three months ended March 31, 2001 compared to $464,000 for the same period in 2000. This is principally due to an increase of $97,000 in other fee income generated from some of the new banking products introduced by the Bank since the first quarter of 2000. A new accounts receivable purchase product introduced in the second quarter of 2000 generated net fees of $15,000 for the quarter while the Bank's newly formed Insurance Services generated fees of $17,000. In addition, the Bank's mortgage department increased loan origination fees by $39,000 as the reduction in mortgage rates spurred homeowners to refinance. Service charges on deposit accounts increased $45,000 to $387,000 compared to $342,000 in 2000. Other operating income decreased $7,000 to $10,000 from the $17,000 recorded during the first quarter of 2000 due to a gain on the sale of other real estate owned of $9,000 in the first quarter of 2000. During the first quarter of 2001, the Bank had a gain on the sale of securities of $48,000. Noninterest expense Noninterest expense increased $323,000 or 13.22% to $2,766,000 for the three months ended March 31, 2001 from the same period in 2000. This increase is principally due to general increases in salary and employee benefits expense of $210,000. 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 first quarter of 2001 of $30,000 compared to the prior year. Occupancy expense increased $38,000 over the prior year period as a result of increased utilities of $16,000, building depreciation expense of $6,000 and increases in property insurance and outside janitorial services of $9,000 and $5,000, respectively. Equipment expense increased $58,000 as equipment depreciation and rental expense increased $19,000 and $16,000, respectively. Bank supply expense decreased during the first quarter of 2001 due to approximately $35,000 of nonrecurring expenses related to the implementation of the Bank's check image statement during the first quarter of 2000. Other operating expenses increased $43,000 from $462,000 for the three months ended March 31, 2000 to $505,000 for the three months ended March 31, 2001. This increase is primarily due to increases of other insurance of $20,000 and advertising of $15,000. Income taxes Income tax expense for the three months ended March 31, 2001 and 2000 was $160,000 and $180,000, respectively, resulting in effective tax rates of 25.81% and 25.86%, respectively. The effective tax rates in both years differ from the federal statutory rate of 34.00% primarily due to tax-exempt interest income. 9 Comparison of Financial Condition at March 31, 2001 and December 31, 2000 Total assets increased $2.6 million to $271.0 million, an increase of 0.98% when compared to $268.4 million at December 31, 2000. Asset growth was funded by increased certificates of deposits of $5.3 million but was partially offset by a call option on a $3.0 million advance that was exercised by the Federal Home Loan Bank of Atlanta during the first quarter of 2001. Loans receivable have increased $7.4 million from $173.0 million at December 31, 2000 to $180.1 million at March 31, 2001. The Company has experienced steady loan demand from all of its markets throughout the quarter. Shareholders' equity increased by $564,000 from December 31, 2000 to March 31, 2001, as the Company generated net income of $460,000 and experienced an increase of net unrealized gains on available-for-sale securities of $391,000. The Company declared cash dividends of $186,000 or 9.00 cents per share, during the first quarter of 2001 compared to 8.25 cents per share in the prior year period. The Company has repurchased $107,000 of common stock during 2001. 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 $249,000 and $252,000 at March 31, 2001 and December 31, 2000, respectively. At March 31, 2001, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $119,000 compared to $121,000 at December 31, 2000, all on a non-accrual basis. 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 10 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 March 31, 2001, 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 March 31, 2001, Bancorp was also in compliance with the applicable capital requirements set forth by the Federal Reserve. Current Accounting Issues The Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards (SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125." It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This Statement is not expected to materially impact the Company. 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. 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. 11 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 Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-KSB None. 12 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: 5/11/2001 By: /s/ Arthur H. Keeney, III - -------------- ------------------------- Arthur H. Keeney, III (President & CEO) Date: 5/11/2001 By: /s/ Gary M. Adams - --------------- ------------------------- Gary M. Adams (Senior Vice President & CFO) -----END PRIVACY-ENHANCED MESSAGE-----