ECB BANCORP INC

There were 55,000 shares of restricted stock awarded on September 12, 2012 and all of these shares were non-vested as of September 30, 2012. There were no shares of non-vested restricted stock outstanding on December 31, 2011 or September 30, 2011. Restricted stock awards are subject to restrictions and the risk of forfeiture if conditions stated in the award agreement are not satisfied at the end of a restriction period. During the restriction period, restricted stock covered by the award will be held by the Company. If the conditions stated in the award agreement are satisfied at the end of the restriction period, the restricted stock will become unrestricted and the certificate evidencing the stock will be delivered to the employee.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the merger by shareholders of the Company and Crescent Financial. The Merger Agreement contains provisions that provide for the termination of the Merger Agreement in certain circumstances, and such provisions may require the Company to pay Crescent Financial a termination fee of $2.0 million and expense reimbursement up to $500,000. Currently, the merger is expected to be completed in the first quarter of 2013.

The Merger Agreement contains usual and customary representations and warranties that the parties to the Merger Agreement made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement between the parties, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts. The Company has also agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire the Company and it has agreed to certain usual and customary restrictions on its ability to respond to such proposals, as more fully described in the Merger Agreement.

Noninterest income increased $2.7 million or 104.6% to $5.3 million for the third quarter of this year compared to $2.6 million for the same period in 2011. For the nine months ended September 30, 2012 noninterest income increased $2.7 million or 40.9% to $9.2 million compared to $6.5 million for the same period in 2011. The increase in noninterest income in the third quarter of 2012 as compared to the same quarter of 2011 is primarily due to an increase in net gain on sale of securities of $2.2 million. The quarter and year to date increase in noninterest income is also primarily the result of an increase in net gain on the sale of securities of $1.7 million. The increase in net gain on sale of securities for the quarter and year to date is mainly the result of management’s decision to sell a large portion of securities in the third quarter to reposition and reduce price volatility of the security portfolio. Service charges on deposit accounts increased $66 thousand and $275 thousand, respectively, for the three and nine months ended September 30, 2012 as compared to the same periods in 2011 mainly due to an increase in cardholder fees. Other service charges and fees increased $32 thousand and $404 thousand, respectively, for the three and nine months ended September 30, 2012 as compared to the same periods in 2011. The primary reason for the increase is an increase in merchant processing fees. Mortgage loan origination fees increased $191 thousand and increased $195 thousand, respectively, for the three and nine months ended September 30, 2012 as compared to the same periods in 2011. Income from bank owned life insurance increased $27 thousand and increased $82 thousand, respectively, for the three and nine months ended September 30, 2012 as compared to the same periods in 2011 due to the Bank increasing the investment in bank owned life insurance late in 2011. Other operating income increased $49 thousand and increased $46 thousand, respectively, for the three and nine months ended September 30, 2012 as compared to the same periods in 2011 mainly due to an increase in small business investment company income.

At September 30, 2012, our allowance for loan losses as a percentage of loans was 2.20%, down from 2.34% at September 30, 2011 and 2.44% at December 31, 2011. The decrease can be attributable to a reduction in the CLD (Construction, land and Development) portfolio from $71.2 million to $65.7 million as of September 30, 2012. The largest portion of charge offs occurred in 2011 within the CLD portfolio with net charge offs in 2011 totaling $4.3 million versus just $1.5 million through September 30, 2012. Also, growth in loans during 2012 have been driven by an increase in loans to finance agriculture production which have 0% loss rates over the last two years. In evaluating the allowance for loan losses, we prepare an analysis of our current loan portfolio through the use of historical loss rates, homogeneous risk analysis grouping to include probabilities for loss in each group by risk grade, estimation of years to impairment in each homogeneous grouping, analysis of internal credit processes, past due loan portfolio performance and overall economic conditions, both regionally and nationally. The above mentioned combination of re-alignment of the loan portfolio away from a higher loss related segment to a lower loss history segment combined with lower net charge offs through September 30, 2012 resulted in a lower allowance for loan loss percentage of loans being required by our ALLL model.