<PAGE>
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 Number: No. 0-24626
COOPERATIVE BANKSHARES, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
North Carolina 56-1886527
- ----------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
of incorporation or organization Identification No.)
201 Market Street, Wilmingon, North Carolina 28401
- -------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(910) 343-0181
--------------
- -----------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of 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.
[X] Yes [ ] 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.
1,491,698 shares at April 30, 1997
- ----------------------------------<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Financial Condition,
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows, for
the three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-14
Part II Other Information 15
Signatures 16
<PAGE>
PART 1-FINANCIAL INFORMATION-ITEM 1-FINANCIAL STATEMENTS
COOPERATIVE BANKSHARES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31 December 31
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including interest-
bearing deposits:
March 1997 - $3,674,666; December 1996 - $9,084,216) $ 7,529,585 $ 11,507,283
Securities:
Available for sale 5,865,000 5,946,250
Held to maturity (market value March 1997-$19,272,189;
December 1996 - $19,705,700) 21,051,207 21,053,628
Mortgage-backed and related securities available
for sale 28,318,922 28,824,918
Other investments 2,688,200 2,435,000
Loans receivable, net 275,149,585 263,312,730
Foreclosed real estate owned 257,324 42,146
Accrued interest receivable 2,080,642 1,917,447
Premises and equipment, net 4,703,678 4,786,292
Prepaid expenses and other assets 853,488 1,474,164
------------ ------------
Total assets $348,497,631 $341,299,858
============ ============
LIABILITIES
Deposits $280,189,579 $278,138,909
Borrowed funds 40,144,294 35,145,362
ESOP note payable 84,824 289,160
Escrow deposits 680,345 620,808
Accrued interest payable on deposits 220,266 351,295
Deferred income taxes, net 875,618 1,075,883
Accrued expenses and other liabilities 207,586 208,891
------------ ------------
Total liabilities 322,402,512 315,830,308
Stockholders' Equity
Preferred stock, $1 par value, 3,000,000 shares
authorized, none issued and outstanding - -
Common stock, $1 par value, 7,000,000 shares
authorized, 1,491,698 issued and outstanding 1,491,698 1,491,698
Additional paid-in capital 6,014,775 6,003,111
Unearned ESOP shares (84,824) (289,160)
Net unrealized gain (loss) on securities available
for sale (546,116) (372,265)
Retained earnings 19,219,586 18,636,166
------------ ------------
Total stockholders' equity 26,095,119 25,469,550
------------ ------------
Total liabilities and stockholders' equity $348,497,631 $341,299,858
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3<PAGE>
<PAGE>
COOPERATIVE BANKSHARES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
INTEREST INCOME
Loans receivable $5,194,103 $4,501,592
Mortgage-backed and related securities 497,989 527,478
Securities 502,759 443,835
---------- ----------
Total interest income 6,194,851 5,472,905
---------- ----------
INTEREST EXPENSE
Deposits 3,118,870 3,202,708
Borrowed funds 570,342 163,379
---------- ----------
Total interest expense 3,689,212 3,366,087
NET INTEREST INCOME 2,505,639 2,106,818
Provision for loan losses 30,000 10,000
---------- ----------
Net interest income after provision for
loan losses 2,475,639 2,096,818
---------- ----------
NONINTEREST INCOME
Gain on sale of securities - -
Gain on sale of loans and mortgage-backed
and related securities - -
Loss on real estate owned (600) (24,532)
Other income, net 133,783 141,693
---------- ----------
Total noninterest income 133,183 117,161
---------- ----------
NONINTEREST EXPENSES
Compensation and fringe benefits 989,292 930,129
Occupancy and equipment 337,595 295,417
Federal insurance premiums 65,244 175,265
Advertising 67,988 63,556
Amortization of goodwill - 73,017
Other operating expense 223,112 247,492
---------- ----------
Total noninterest expenses 1,683,231 1,784,876
---------- ----------
Income before income taxes 925,591 429,103
Income tax expense 342,170 169,247
---------- ----------
Net Income $ 583,421 $ 259,856
========== ==========
EARNINGS PER:
Common and common share equivalent $ 0.37 $ 0.16
Common share - assuming full dilution $ 0.37 $ 0.16
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4<PAGE>
<PAGE>
COOPERATIVE BANKSHARES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 583,421 $ 259,856
Adjustments to reconcile net income to net
cash provided by operating activities:
Net accretion, amortization, and depreciation 143,020 201,143
Provision for deferred income taxes (75,661) (32,000)
Gain (loss) on sale of property, plant and equipment (982) 0
Loss on sales of foreclosed real estate 0 6,149
Provision for loan losses 30,000 10,000
Changes in assets and liabilities:
Accrued interest receivable (163,195) (72,546)
Prepaid expenses and other assets 626,400 (158,721)
Escrow deposits 59,537 285,518
Accrued interest payable on deposits (131,029) 430,465
Accrued expenses and other liabilities (1,305) 207,515
------------ ------------
Net cash provided by operating activities 1,070,206 1,137,379
------------ ------------
INVESTING ACTIVITIES:
Proceeds from principal repayments of mortgage-backed
and related securities available for sale 273,450 481,969
Loan originations, net of principal repayments (12,071,791) (3,174,163)
Change in foreclosed real estate (10,242) 166,617
Purchases of property, plant and equipment (38,455) (15,664)
Proceeds from sale of property, plant and equipment 2,732 0
Purchases of other investments (253,200) 0
Proceeds from sales of other investments 0 96,700
------------ ------------
Net cash provided by (used in) investing activities (12,097,506) (2,444,541)
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,050,670 869,469
Net increase (decrease) in borrowings 4,998,932 (477)
------------ ------------
Net cash provided by (used in) financing activities 7,049,602 868,992
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS (3,977,698) (438,170)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,507,283 11,889,473
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,529,585 $ 11,451,303
============ ============
SUPPLEMENTAL DISCLOSURES:
Net change in market value-securities available
for sale $ 298,455 $ 42,012
Transfer from loans to foreclosed real estate $ 204,936 $ 239,729
Loans to facilitate the sale of foreclosed real estate $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies: The significant accounting policies
followed by Cooperative Bankshares, Inc. (the "Company") for
interim financial reporting are consistent with the accounting
policies followed for annual financial reporting. These
unaudited consolidated financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X, and in management's
opinion, all adjustments of a normal recurring nature necessary
for a fair presentation have been included. The accompanying
financial statements do not purport to contain all the necessary
financial disclosures that might otherwise be necessary in the
circumstances and should be read in conjunction with the
consolidated financial statements and notes thereto in the
Company's annual report for the year ended December 31, 1996.
The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. Basis of Presentation: The accompanying unaudited
consolidated financial statements include the accounts of
Cooperative Bankshares, Inc., Cooperative Bank For Savings, Inc.,
SSB and its wholly owned subsidiary, CS&L Services, Inc. All
significant intercompany items have been eliminated.
3. Earnings Per Share: Earnings per share are calculated by
dividing net income by the weighted average number of common and
dilutive common equivalent shares outstanding. Common equivalent
shares consist of stock options issued and outstanding. In
determining the number of equivalent shares outstanding, the
treasury stock method was applied. This method assumes that the
number of shares issuable upon exercise of the stock options is
reduced by the number of common shares assumed purchased at
market prices with a portion of the proceeds from the assumed
exercise of the common stock options.
The company will adopt Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share" on December 31,
1997. SFAS No. 128 requires the Company to change its method for
computing, presenting and disclosing earnings per share
information. Upon adoption, all prior period data presented will
be restated to conform to the provisions of SFAS No. 128.
If the Company had adopted SFAS No. 128 for the period ended
March 31, 1997, the following computation would have been
presented on the consolidated statements of income:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Basic income per common share:
Net Income $ 583,421 $ 259,856
Weighted average common shares outstanding 1,483,364 1,491,698
Basic income per common share $0.39 $0.17
Diluted income per common share:
Net Income $ 583,421 $ 259,856
Weighted average common shares outstanding: 1,483,364 1,491,698
Dilutive effect of stock options 100,223 97,450
---------- ----------
Total shares 1,583,587 1,589,148
Dilutive income per common share $0.37 $0.16
</TABLE>
6
<PAGE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cooperative Bankshares, Inc. (the "Company") is a registered
savings bank holding company incorporated in North Carolina in
1994. The Company was formed for the purpose of serving as the
holding company of Cooperative Bank For Savings, Inc., SSB,
("Cooperative Bank" or the "Bank") a North Carolina chartered
stock savings bank. The Company's primary activities consist of
holding the stock of Cooperative Bank and operating the business
of the Bank. Accordingly, the information set forth in this
report, including financial statements and related data, relates
primarily to Cooperative Bank.
Cooperative Bank is chartered under the laws of the state of
North Carolina to engage in general banking business. The Bank
offers a wide range of retail banking services including deposit
services, banking cards and alternative investment products.
These funds are used for the extension of credit through mortgage
loans, savings account loans and other installment credit such as
home equity, auto and boat loans and check reserve.
The Company conducts its operations through its main office
in Wilmington, North Carolina and 16 offices throughout eastern
North Carolina. The Company considers its primary market for
savings and lending activities to be the communities of eastern
North Carolina extending from the Virginia to the South Carolina
borders.
The following management's discussion and analysis is
presented to assist in understanding the Company's financial
condition and results of operations. This discussion should be
read in conjunction with the consolidated financial statements
and accompanying notes presented in this report.
MANAGEMENT STRATEGY
It is the mission of the Company to provide the maximum in
safety and security for our depositors, an equitable rate of
return for our stockholders, excellent service for our customers,
and to do so while operating in a fiscally sound and conservative
manner, with fair pricing of our products and services, good
working conditions, outstanding training and opportunities for
our staff, along with a high level of corporate citizenship.
Cooperative Bank's lending activities are concentrated on
the origination of conventional mortgage loans for the purpose of
constructing, financing or refinancing one- to four-family
residential properties. As of March 31, 1997, $258.5 million, or
93.2%, of the Bank's loan portfolio consisted of loans secured by
one- to four family residential properties. Also at that date,
approximately 96.0% of the Bank's total loan portfolio consisted
of loans secured by residential real estate. To a lesser extent,
the Bank originates multi-family, nonresidential real estate
loans, home equity line of credit loans, secured and unsecured
consumer and business loans. While continuing to place primary
emphasis on residential mortgage loans, the Bank is taking a more
aggressive position in pursuing business lending, and
nonresidential real estate lending involving loans secured by
small commercial properties with balances generally ranging from
$100,000 to $500,000. The Bank's primary emphasis is to
originate adjustable rate loans with the fixed rate loan as an
option. Adjustable rate loans at March 31, 1997, were 68.6%, and
fixed rate loans were 31.4% of the Bank's total loan portfolio.
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity refers to the change in interest
spread resulting from changes in interest rates. To the extent
that interest income and interest expense do not respond equally
to changes in interest rates, or
7
<PAGE>
<PAGE>
that all rates do not change uniformly, earnings will be
affected. Interest rate sensitivity, at a point in time, can be
analyzed using a static gap analysis that measures the match in
balances subject to repricing between interest-earning assets and
interest-bearing liabilities. Gap is considered positive when the
amount of interest rate sensitive assets exceed the amount of
interest rate sensitive liabilities. Gap is considered negative
when the amount of interest rate sensitive liabilities exceed the
amount of interest rate sensitive assets. At March 31, 1997,
Cooperative had a one-year negative gap position of 2.4%. During
a period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. During a
period of falling interest rates, a negative gap would tend to
result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income. It is
important to note that certain shortcomings are inherent in
static gap analysis. Although certain assets and liabilities may
have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. For
example, most of the Company's adjustable-rate mortgage loans are
indexed to the National Monthly Median Cost of Funds to SAIF-
insured institutions. This index is considered a lagging index
that may lag behind changes in market rates. The one-year or less
interest-bearing liabilities also include checking, savings, and
money market deposit accounts. Experience has shown that the
Company sees relatively modest repricing of these transaction
accounts. Management takes this into consideration in
determining acceptable levels of interest rate risk.
LIQUIDITY
The Company's goal is to maintain adequate liquidity to meet
potential funding needs of loan and deposit customers, pay
operating expenses, and meet regulatory liquidity requirements.
Maturing securities, principal repayments of loans and
securities, deposits, income from operations and borrowings are
the main sources of liquidity. Scheduled loan repayments are a
relatively predictable source of funds, unlike deposits and loan
prepayments that are significantly influenced by general interest
rates, economic conditions and competition.
At March 31, 1997, the estimated market value of liquid
assets (cash, cash equivalents, and marketable securities) was
approximately $63.7 million, which represents 19.9% of deposits
and borrowed funds as compared to $68.4 million or 21.8% of
deposits and borrowed funds at December 31, 1996. The decrease
in liquid assets during the three months ended March 31, 1997,
was primarily due to the funding of new mortgage loans.
The Company's security portfolio consists of U.S. Government
agency, mortgage-backed and other permissible securities. The
mortgage-backed securities are guaranteed by the following
agencies: Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA"), and the
Government National Mortgage Association ("GNMA"). Mortgage-
backed securities entitle the Company to receive a pro rata
portion of the cash flows from an identified pool of mortgages.
Although mortgage-backed securities generally offer lesser yields
than the loans for which they are exchanged, they present
substantially lower credit risk by virtue of the guarantees that
back them. Mortgage-backed securities are more liquid than
individual mortgage loans, and may be used to collateralize
borrowings or other obligations of the Company.
The Company's investment in mortgage-related securities
includes collateralized mortgage obligations ("CMO"). CMOs are
securities derived by reallocating the cash flows from mortgage-
backed securities or pools of mortgage loans in order to create
multiple classes, or tranches, of securities with coupon rates
and average lives that differ from the underlying collateral as a
whole. At March 31, 1997, the Company's investment in CMOs
totaled $15 million, or 26.8% of the securities portfolio. Of
the $15 million, a $10 million CMO is guaranteed either directly
or indirectly through mortgage-backed securities underlying the
obligations of FNMA. This FNMA CMO has a 30 year term, floats at
155 basis points over
8
<PAGE>
<PAGE>
the 30 day London Interbank Offered Rate ("LIBOR") on a monthly
basis and has a lifetime interest rate cap of 8%. The remaining
$5 million CMO securities were issued by Chase Mortgage Finance
Corporation and represent a beneficial interest in a pool of
fixed-rate one- to four-family mortgage loans. The Chase CMO has
a 30 year term, floats at 180 basis points over the 30 day LIBOR
on a monthly basis and has a lifetime interest rate cap of 8%.
The Company's investment in U. S. Government agency bonds
includes $5 million in Federal Home Loan Banks' Dual Indexed
Consolidated Bonds maturing August 4, 2003. These bonds had an
8% interest rate from August 4, 1993, through August 3, 1995, at
which time the rate was adjusted to 3.485% based on an indexing
formula. Subsequent interest rates will also be based on an
indexing formula and will adjust annually on February 4 and
August 4. The indexing formula states that the interest rate per
annum will be equal to a rate determined by the 10-Year CMT less
the 6 month LIBOR plus a margin of 2.9% for August 4, 1995,
increasing 30 basis points annually to 5.0% for August 4, 2005.
The mortgage-backed and related securities owned by the
Company are subject to repayment by the mortgagors of the
underlying collateral at any time. These repayments may be
affected by a rising or declining interest rate environment.
During a rising or declining interest rate environment,
repayments and the interest rate caps may subject the Company's
mortgage-backed and related securities to yield and/or price
volatility.
The Company's primary uses of liquidity are to fund loans
and to make investments. At March 31, 1997, outstanding off-
balance sheet commitments to extend credit totaled $12.5 million,
and the undisbursed portion of construction loans was $14.8
million. Management considers current liquidity levels adequate
to meet the Company's cash flow requirements.
CAPITAL
Stockholders' equity at March 31, 1997, was $26.1 million,
up 1.6% from $25.5 million at December 31, 1996. The total at
March 31, 1997, and December 31, 1996, includes $546 thousand and
$372 thousand respectively, net of tax, of unrealized losses on
securities available for sale marked to estimated fair market
value under Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities
("SFAS 115").
Under the capital regulations of the FDIC, the Bank must
satisfy minimum leverage ratio requirements and risk-based
capital requirements. Banks, supervised by the FDIC, must
maintain a minimum leverage ratio of core (Tier I) capital to
average adjusted assets ranging from 3% to 5%. At March 31,
1997, the Bank's ratio of Tier I capital was 7.6%. The FDIC's
risk-based capital rules require banks supervised by the FDIC to
maintain risk-based capital to risk-weighted assets of at least
8.00%. Risk-based capital for the Bank is defined as Tier 1
capital plus the balance of allowance for loan losses. At March
31, 1997, the Bank had a ratio of qualifying total capital to
risk-weighted assets of 14.9%.
The Company, as a bank holding company, is also subject, on
a consolidated basis, to the capital adequacy guidelines of the
Board of Governors of the Federal Reserve (the "Federal Reserve
Board"). The capital requirements of the Federal Reserve Board
are similar to those of the FDIC governing the Bank.
The Company currently exceeds all of its capital
requirements. Management expects the Company to continue to
exceed these capital requirements without altering current
operations or strategies.
9
<PAGE>
<PAGE>
FINANCIAL CONDITION AT MARCH 31, 1997 COMPARED TO DECEMBER 31,
1996
The Company's total assets increased 2.1% to $348.5 million
at March 31, 1997, as compared to $341.3 million at December 31,
1996. The major change in the assets was a $11.8 million (4.5%)
increase in loans receivable. The increase in loans during the
current period were funded by retail deposits, borrowed funds,
and liquid assets. The Company concentrates its lending
activities on the origination of conventional mortgage loans for
the purpose of the construction, financing or refinancing of one-
to four-family residential properties. At March 31, 1997, over
93% of the Company's loan portfolio consisted of loans secured by
one- to four-family residential properties.
The $2.1 million (0.7%) increase in retail deposits with an
addition of $5 million in borrowed funds from the Federal Home
Loan Bank ("FHLB") was used in part to fund the increase in loans
receivable. Borrowed funds, collateralized through an agreement
with the FHLB for advances, are secured by the Company's
investment in FHLB stock and qualifying first mortgage loans.
Borrowed funds at March 31, 1997, in the amount of $10.0 million,
mature in May 1997 with the remaining amount maturing in 1 to 5
years.
The Company's non-performing assets (loans 90 days or more
delinquent and foreclosed real estate) were $1.6 million, or
0.45% of assets, at March 31, 1997, compared to $1.5 million, or
0.44% of assets, at December 31, 1996. An increase in delinquent
single family loans caused non-performing assets to be higher for
the period ended March 31, 1997, as compared to December 31,
1996. The Company takes an aggressive position in collecting
delinquent loans to keep non-performing assets down and continues
to evaluate the loan and real estate portfolios to provide loss
reserves as considered necessary. In the opinion of management,
the allowance for loan losses of $837 thousand at March 31, 1997,
is adequate to cover potential losses.
COMPARISON OF OPERATION RESULTS FOR QUARTER ENDED MARCH 31, 1997,
VS. 1996
OVERVIEW
The net income of the Company depends primarily upon net
interest income. Net interest income is the difference between
the interest earned on loans and securities portfolios and the
cost of funds, consisting principally of the interest paid on
deposits and borrowings. The Company's operations are materially
affected by general economic conditions, the monetary and fiscal
policies of the Federal government, and the policies of
regulatory authorities.
NET INCOME
Net income for the three month period ended March 31, 1997,
increased 125% to $583.4 thousand as compared to $259.9 thousand
for the same period last year. Several factors contributed to
the increase in net income. Interest earning assets grew 10.9%
and the net interest margin increased to 3.01% for the three
month period ended March 31, 1997, as compared to 2.81% for the
same period last year. In addition to the above, noninterest
expense decreased due to a reduction in the Federal insurance
premium and the elimination of goodwill amortization. The
impaired goodwill was charged-off during September 1996
eliminating a $73 thousand quarterly charge to income. Charges
in September 1996, by the Federal Deposit Assurance Corporation
Fund ("FDIC"), to capitalize the Savings Association Assurance
Fund ("SAIF"), resulted in an approximate decrease of 62% in the
current quarterly Federal insurance premium.
10
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<PAGE>
INTEREST INCOME
Interest income increased 13.2% for the three month period
ended March 31, 1997, as compared to the same period a year ago.
The increase in income can be principally attributed to an
increase in yield and the average balance of interest-earning
assets as compared to the same period last year. The yield on
average interest-earning assets increased to 7.45% as compared to
7.30% for the same period a year ago, and the average balance
increased by 10.9%.
INTEREST EXPENSE
Interest expense increased 9.6% for the three month period
ended March 31, 1997, as compared to the same period a year ago.
The 11.4% increase in average interest-bearing liabilities was
the major factor in causing interest expense to increase. In
addition, the 254% increase in borrowed funds, used to fund the
major part of the 11.4% increase in interest bearing assets
carries a higher cost than retail deposits. This higher cost of
borrowed funds at 6.37% as compared to 4.54% cost of retail
deposits adversely affects the overall cost of interest-bearing
liabilities. The cost of interest-bearing liabilities decreased
only 8 basis points to 4.75% as compared to 4.83% for the same
period last year.
NET INTEREST INCOME
Net interest income for the three month period ended March 31,
1997, as compared to the same period a year ago, increased 18.9%.
A reduction in the Company's one-year negative gap position in
which interest-bearing liabilities reprice faster than interest-
earning assets had a positive effect on increasing the interest
rate margin. The one-year negative gap has been reduced to 2.4%
at March 31, 1997, as compared to 15.1% for the same period last
year. During the three month period ended March 31, 1997, the
yield on average interest-earning assets increased 15 basis
points, while the cost of average interest-bearing liabilities
decreased 8 basis points, causing net interest income to
increase. The percentage of average interest-earning assets to
average interest-bearing liabilities decreased to 107.1% for the
three month period ended March 31, 1997, as compared to 107.7%
for the same period in 1996.
11
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<PAGE>
AVERAGE YIELD/COST ANALYSIS
The following table contains information relating to the
Company's average balance sheet and reflects the average yield on
assets and average cost of liabilities for the periods indicated.
Such annualized yields and costs are derived by dividing income
or expense by the average balances of asset or liabilities,
respectively, for the periods presented.
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, 1997 March 31, 1996
-------------------------- -------------------------
(Dollars in thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities and other
interest-earning assets $ 35,133 $ 503 5.73% $ 32,744 $ 444 5.42%
Mortgage-backed and related
securities 29,284 498 6.80% 31,188 527 6.76%
Loan portfolio 268,366 5,194 7.74% 236,128 4,502 7.63%
Total interest-earning -------- ------ -------- ------
assets 332,783 $6,195 7.45% 300,060 $5,473 7.30%
------ ------
Non-interest earning assets 10,123 13,145
-------- --------
Total assets $342,906 $313,205
======== ========
Interest-bearing liabilities:
Deposits 274,849 3,119 4.54% 268,638 3,203 4.77%
Borrowed funds 35,790 570 6.37% 10,089 163 6.46%
Total interest-bearing -------- ------ -------- ------
liabilities 310,639 $3,689 4.75% 278,727 3,366 4.83%
------ ------
Non-interest bearing
liabilities 6,244 5,280
-------- --------
Total liabilities 316,883 284,007
Stockholders' equity 26,023 29,198
Total liabilities and -------- --------
stockholders' equity $342,906 $313,205
======== ========
Net interest income $2,506 $2,107
====== ======
Interest rate spread 2.70% 2.47%
==== ====
Net yield on interest-
earning assets 3.01% 2.81%
==== ====
Percentage of average interest-
earning assets to average
interest-bearing
liabilities 107.1% 107.7%
===== =====
</TABLE>
12
<PAGE>
<PAGE>
RATE/VOLUME ANALYSIS
The table below provides information regarding changes in
interest income and interest expense for the period indicated.
For each category of interest-earning asset and interest-bearing
liabilities, information is provided on changes attributable to
(i) changes in volume (changes in volume multiplied by old rate);
(ii) changes in rates (change in rate multiplied by old volume);
and (iii) changes in rate-volume (changes in rate multiplied by
changes in volume).
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1996 vs. March 31, 1997
Increase (Decrease)
Due to
--------------------------------------
(Dollars in thousand) Volume Rate Rate/Volume Total
--------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Securities and other
interest-earning assets 32 25 2 59
Mortgage-backed and related
securities (32) 3 (0) (29)
Loan portfolio 615 68 9 692
--- ---- --- ---
Total interest-earning assets 615 96 11 722
--- ---- --- ---
Interest expense:
Deposits 74 (154) (4) (84)
Borrowed funds 415 (2) (6) 407
--- ---- --- ---
Total interest-bearing
liabilities 489 (156) (10) 323
--- ---- --- ---
Net interest income 126 252 21 399
=== ==== === ===
</TABLE>
13
<PAGE>
<PAGE>
RESERVE FOR LOAN LOSSES
At March 31, 1997, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS 114
totaled $791 thousand with a valuation allowance of $66 thousand.
The Bank uses several factors in determining if a loan is
impaired. The internal asset classification procedures include a
through review of significant loans and lending relationships and
includes the accumulation of related data. This data includes
loan payment status, borrowers' financial data and borrowers'
operating factors such as cash flows and operating income or
loss.
With no charge-offs required during the three month period
ended March 31,1997, the Company added $30 thousand to the
reserve for loan losses, bringing the balance up to $837
thousand. Management considers this level to be appropriate
based on lending volume, the current level of delinquencies and
other non-performing assets, overall economic conditions and
other factors. Future increases to the allowance may be
necessary, however, due to changes in loan composition or loan
volume, changes in economic or market area conditions and other
factors.
NONINTEREST INCOME
For the three month period ended March 31, 1997, real estate
owned expense was minimal as compared to the same period last
year due to a low volume of foreclosed real estate owned. Loan
fees for the three month period ended March 31, 1997, as compared
to last year decreased by 15.0% due to a decrease in servicing
fees on sold loans. Scheduled payments and prepayments decreased
sold loans. Fee income from deposit operations increased 8.1%
due to a more aggressive position in offering checking accounts.
NONINTEREST EXPENSES
For the three month period ended March 31, 1997, noninterest
expense decreased by 5.7% as compared to the same period last
year. The changes in noninterest expense are listed as follows.
Compensation and related cost increased 6.4%. This 6.4% can be
broken down to 2.4% for normal cost of living increases for
existing employees and 4.0% for a payment to a retiring Bank
Board Of Director member. Occupancy and equipment expense
increased 14.3%. This increase can be attributed to additional
maintenance necessary to keep the buildings in good repair. The
decrease in Federal insurance premium can be attributed to the
enacted legislation in September 1996 that resulted in a
reduction in the premium. Advertising increased 7.0% due to a
more aggressive advertising campaign. The impaired goodwill was
charged-off during September 1996 eliminating a $73 thousand
quarterly charge to noninterest expense. A reduction in
professional services (consultant fees, attorney fees and
accounting fees) was the major component that reduced other
operating expense by 9.9%.
INCOME TAXES
The effective tax rates for the three month periods ended
March 31, 1997 and 1996 approximate the statutory rate after
giving effect to nontaxable interest, amortization of goodwill,
other permanent tax differences,and adjustments to certain
deferred tax liabilities.
14
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not applicable
(b) Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) Annual Meeting of Stockholders, April 25, 1997
Election of Directors
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Abstentions
--------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Frederick Willetts, III 1,182,559 37,585 0 271,554
F. Peter Fensel 1,183,221 36,923 0 271,554
William H. Wagoner 1,182,221 37,923 0 271,554
R. Allen Rippy 1,183,109 37,035 0 271,554
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
quarter ended March 31, 1997.
15
<PAGE>
<PAGE>
SIGNATURES
Pursuant to 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.
COOPERATIVE BANKSHARES, INC.
Dated: May 12, 1997 /s/ Frederick Willetts, III
-------------------------------------
President and Chief Executive Officer
Dated: May 12, 1997 /s/ Edward E. Maready
-------------------------------------
Treasurer and Chief Financial Officer
16
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
NET INCOME (LOSS) $ 583,421 $ 259,856
========== ==========
PRIMARY
Average shares outstanding 1,483,364 1,491,698
Net effect of dilutive stock options -- based on the
treasury stock method using average market price 100,223 97,450
---------- ----------
TOTAL 1,583,587 1,589,148
========== ==========
PER SHARE AMOUNT $0.37 $0.16
========== ==========
FULLY DILUTED
Average shares outstanding 1,483,364 1,491,698
Net effect of dilutive stock options--based on the
treasury stock method using the period-end market
price, if it is dilutive more than 3%. 101,083 97,450
---------- ----------
TOTAL 1,584,447 1,589,148
========== ==========
PER SHARE AMOUNT $ 0.37 $ 0.16
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,854,919
<INT-BEARING-DEPOSITS> 3,674,666
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,183,922
<INVESTMENTS-CARRYING> 21,051,207
<INVESTMENTS-MARKET> 19,272,189
<LOANS> 275,987,124
<ALLOWANCE> 837,539
<TOTAL-ASSETS> 348,497,631
<DEPOSITS> 280,189,579
<SHORT-TERM> 40,144,294
<LIABILITIES-OTHER> 2,068,639
<LONG-TERM> 0
<COMMON> 1,491,698
0
0
<OTHER-SE> 24,603,421
<TOTAL-LIABILITIES-AND-EQUITY> 348,497,631
<INTEREST-LOAN> 5,194,103
<INTEREST-INVEST> 1,000,748
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,194,851
<INTEREST-DEPOSIT> 3,118,870
<INTEREST-EXPENSE> 3,689,212
<INTEREST-INCOME-NET> 2,505,639
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,683,231
<INCOME-PRETAX> 925,591
<INCOME-PRE-EXTRAORDINARY> 925,591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 583,421
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 3.01
<LOANS-NON> 791,141
<LOANS-PAST> 518,320
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 807,539
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 837,539
<ALLOWANCE-DOMESTIC> 837,539
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>