COOPERATIVE BANKSHARES INC
10-Q, 1998-11-13
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED
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                         UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                -----------------------------------
                             FORM 10-Q


(Mark One)

  [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934

        For the quarterly period ended September 30, 1998

                             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, Wilmington, 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.  

3,043,284 shares at October 26, 1998
- ------------------------------------<PAGE>
<PAGE>

                      TABLE OF CONTENTS

                                                           Page

PART I  - FINANCIAL INFORMATION

Item 1  Financial Statements (Unaudited)

        Consolidated Statements of Financial Condition, 
        September 30, 1998 and December 31, 1997             2

        Consolidated Statements of Operations, for the
        three and nine months ended September 30, 1998 
        and 1997                                             3

        Consolidated Statements of Cash Flows, for the
        nine months ended September 30, 1998 and 1997        4

        Notes to Consolidated Financial Statements           5

Item 2  Management's Discussion and Analysis of 
        Financial Condition and Results of Operations     6-15

Part II   Other Information                                 16

Signatures                                                  17

Exhibit 11 - Statement Regarding Computation of
             Earnings Per Share                             18

Exhibit 27 - Financial Data Schedule                     19-20
<PAGE>
<PAGE>

PART 1-FINANCIAL INFORMATION-ITEM 1-FINANCIAL STATEMENTS    
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>

                                                              September 30,    December 31,
                                                                  1998            1997
                                                              ------------     ------------
<S>                                                           <C>              <C>
ASSETS:
  Cash and cash equivalents (including interest-bearing 
    deposits:               
    September 1998-$7,423,560; December 1997-$12,311,582)     $ 11,992,956     $ 17,207,777
  Securities:               
    Available for sale                                          21,345,006       21,004,067 
    Held to maturity (market value: September 
      1998-$20,841,254; December 1997-$20,348,130)              21,036,684       21,043,946 
  Mortgage-backed and related securities available for sale     11,052,536       12,856,337 
  Other investments                                              2,828,000        2,688,200 
  Loans receivable, net                                        311,774,117      286,691,769 
  Foreclosed real estate owned                                          --          251,141 
  Accrued interest receivable                                    2,666,204        2,172,335 
  Premises and equipment, net                                    6,343,172        4,872,202
  Prepaid expenses and other assets                                370,465          333,316
                                                              ------------     ------------
       Total assets                                           $389,409,140     $369,121,090 
                                                              ============     ============   
LIABILITIES:               
  Deposits                                                    $301,038,324     $288,690,634 
  Borrowed funds                                                55,110,374       50,141,002 
  ESOP note payable                                                     --           84,824 
  Escrow deposits                                                  831,354          427,983 
  Accrued interest payable on deposits                             113,465          126,155 
  Deferred income taxes, net                                       918,516        1,051,800 
  Accrued expenses and other liabilities                           262,720          305,123 
                                                              ------------     ------------
       Total liabilities                                       358,274,753      340,827,521
                                                              ------------     ------------ 
STOCKHOLDERS' EQUITY:               
  Preferred stock, $1.00 par value, 3,000,000 shares               
    authorized, none issued and outstanding                             --          -
  Common stock, $1.00 par value, 7,000,000 shares authorized,               
    3,043,284 and 2,984,396 shares issued and outstanding        3,043,284        2,984,396
  Additional paid-in capital                                     6,635,734        6,022,454 
  Unearned ESOP shares                                                  --          (84,824)
  Accumulated other comprehensive income                           279,687           (6,663)
  Retained earnings                                             21,175,682       19,378,206
                                                              ------------     ------------
       Total stockholders' equity                               31,134,387       28,293,569 
                                                              ------------     ------------
       Total liabilities and stockholders' equity             $389,409,140     $369,121,090 
                                                              ============     ============
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.
                             3               <PAGE>
<PAGE>
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED           NINE MONTHS ENDED
                                         SEPTEMBER 30,                SEPTEMBER 30,
                                      1998           1997          1998           1997
                                  ------------  ------------   ------------  ------------
<S>                               <C>           <C>            <C>           <C>
INTEREST INCOME:                                   
  Loans receivable                $  6,297,876  $  5,668,139   $ 18,166,956  $ 16,345,483
  Mortgage-backed and related
    securities                         172,485       489,269        564,197     1,496,051
  Securities                           733,454       469,405      2,459,484     1,454,717
                                   -----------   -----------    -----------   -----------
   Total interest income             7,203,815     6,626,813     21,190,637    19,296,251 
                                   -----------   -----------    -----------   -----------
INTEREST EXPENSE:
  Deposits                           3,535,488     3,373,143     10,407,105     9,739,972
  Borrowed funds                       861,741       661,122      2,471,926     1,881,821
                                   -----------   -----------    -----------   -----------
   Total interest expense            4,397,229     4,034,265     12,879,031    11,621,793
                                   -----------   -----------    -----------   -----------
NET INTEREST INCOME:                 2,806,586     2,592,548      8,311,606     7,674,458
Provision for loan losses               65,000        30,000        255,000        90,000
                                   -----------   -----------    -----------   -----------
   Net interest income after 
    provision for loan losses        2,741,586     2,562,548      8,056,606     7,584,458
                                   -----------   -----------    -----------   -----------
NONINTEREST INCOME:
  Net gains on sale of loans
    and mortgage-backed and
    related securities                   6,214             0        268,178        12,115
  Real estate owned income
    (expenses), net                          0       (13,339)       (79,186)      (12,059)
  Loan fees                             73,958        70,166        230,704       203,389
  Deposit and related fees             107,151        81,132        293,065       215,802
  Other income (expense), net           (4,906)        8,833         (5,306)          534 
                                   -----------   -----------    -----------   -----------
     Total noninterest income          182,417       146,792        707,455       419,781
                                   -----------   -----------    -----------   -----------
NONINTEREST EXPENSES:
  Compensation and fringe
    benefits                         1,114,137     1,009,624      3,244,429     2,987,222
  Occupancy and equipment              448,709       354,514      1,180,664     1,075,585
  Federal insurance premiums            45,189        43,759        134,577       174,486
  Advertising                           98,605       129,595        285,293       287,680 
  Other                                397,490       301,428      1,076,762       790,616
                                   -----------   -----------    -----------   -----------
   Total other operating expenses    2,104,130     1,838,920      5,921,725     5,315,589
                                   -----------   -----------    -----------   -----------
Income before income taxes             819,873       870,420      2,842,336     2,688,650
Income tax expense                     306,377       344,758      1,044,859     1,036,388
                                   -----------   -----------    -----------   -----------
NET INCOME                        $    513,496  $    525,662   $  1,797,477  $  1,652,262
                                   ===========   ===========    ==========    ===========
EARNINGS PER:
  Common share -  basic           $       0.17  $       0.18   $      0.60   $       0.56
                                   ===========   ===========    ==========    ===========
  Common share - 
   assuming dilution              $       0.16  $       0.17   $      0.56   $       0.52
                                   ===========   ===========    ==========    ===========
</TABLE>
                                   
The accompanying notes are an integral part of the consolidated
financial statements.         
                            4<PAGE>
<PAGE>
COOPERATIVE BANKSHARES,  INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,   
                                                             1998             1997
                                                        ------------     ------------
<S>                                                     <C>              <C>
OPERATING ACTIVITIES:
  Net income                                            $  1,797,477     $  1,652,262
  Adjustments to reconcile net income to net 
   cash provided by operating activities:
    Net accretion, amortization, and depreciation            507,721          407,889
    Net gain on sale of loans and mortgage-backed and 
      related securities                                    (268,178)         (12,115)
    Provision (benefit) for deferred income taxes           (316,900)        (197,642)
    Release of ESOP shares                                   125,380               --
    Loss (gain) on sale of premises and equipment              8,183              574 
    Loss (gain) on sales of foreclosed real estate             2,498              929 
    Valuation losses on foreclosed real estate                62,300           10,653
    Provision for loan losses                                255,000           90,000 
    Changes in assets and liabilities:
      Accrued interest receivable                           (493,869)        (221,303)
      Prepaid expenses and other assets                      (53,514)       1,023,382 
      Accrued interest payable on deposits                   (12,690)        (208,336)
      Accrued expenses and other liabilities                 235,485          102,407 
                                                        ------------     ------------ 
        Net cash provided by operating activities          1,848,893        2,648,700
                                                        ------------     ------------ 
INVESTING ACTIVITIES:
  Purchases of securities available for sale             (10,000,000)      (2,000,000)
  Proceeds from maturity of securities available
    for sale                                              10,000,000        2,000,000
  Proceeds from principal repayments of mortgage-
    backed and related securities available for sale       1,866,026          959,523
  Proceeds from sales of loans                            13,977,489        4,070,113 
  Loan originations, net of principal repayments         (39,078,706)     (29,202,019)
  Proceeds from disposals of foreclosed real estate          292,147          290,232
  Purchases of premises and equipment                     (1,902,805)        (357,402)
  Proceeds from sale of premises and equipment                 1,360            9,139 
  Net purchases of other investments                        (208,556)        (253,200)
                                                        ------------     ------------ 
     Net cash used in investing activities               (25,053,045)     (24,483,614)
                                                        ------------     ------------ 
FINANCING ACTIVITIES:
  Net increase in deposits                                12,347,690       10,941,807 
  Proceeds from FHLB advances                              5,000,000        5,000,000
  Principal payments on FHLB advances                        (30,628)          (3,247)
  Proceeds from issuance of common stock                     268,898               --
  Net change in escrow deposits                              403,371          395,865  
                                                        ------------     ------------ 
     Net cash provided by financing  activities           17,989,331       16,334,425
                                                        ------------     ------------ 
DECREASE IN CASH AND CASH EQUIVALENTS                     (5,214,821)      (5,500,489)

CASH AND CASH EQUIVALENTS:
  BEGINNING OF PERIOD                                     17,207,777       11,507,283
                                                        ------------     ------------ 
  END OF PERIOD                                         $ 11,992,956     $  6,006,794
                                                        ============     ============ 
</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, 1997.  The results of operations for
     the nine month period ended September 30, 1998 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: On August 25, 1997 the Company
     declared a 100% stock split effected in the form of a
     stock dividend.  This split increased the number of common
     shares outstanding to 2,983,396.  All prior period share
     and per share data have been adjusted for the split.  The
     Company adopted SFAS No. 128 "Earnings Per Share" on
     December 31, 1997.  As required, all prior period earnings
     per share have been restated to conform with the
     provisions of the statement.  
     Earnings per share are calculated by dividing net income
     by both the weighted average number of common shares
     outstanding and the 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 the proceeds from the assumed
     exercise of the common stock options plus any tax benefits
     received as a result of the assumed exercise.
4.   Comprehensive Income:  Comprehensive income includes net
     income and all other changes to the Company's equity, with
     the exception of transactions with shareholders ("other
     comprehensive income").  The Company's only components of
     other comprehensive income relate to unrealized gains and
     losses on available for sale securities.

5.
<TABLE>
<CAPTION>

                                          
                                            Three Months Ended     Nine Months Ended
                                                September 30,         September 30,
                                              1998       1997        1998      1997
                                            -------   --------     -------   -------
<S>                                        <C>        <C>          <C>       <C>
Unrealized gains/(losses) on available
for sale securities                        $ 348,898  $ 387,756   $  469,965  $  540,083 
Income tax (expense)/benefit relating
   to unrealized gains on available 
   for sale securities                      (150,110)  (162,000)    (183,615)   (225,817)
                                           ---------  ---------   ----------   ---------
Other comprehensive income                   198,788    225,756      286,350     314,266 
                                           =========  =========   ==========  ==========
Total comprehensive income                 $ 712,284  $ 751,418   $2,083,827  $1,966,528 
                                           =========  =========   ==========  ==========
</TABLE>


                            -5-<PAGE>
<PAGE>
5.     Statement of Financial Accounting Standards No. 133:  On
       June 15, 1998 the Financial Accounting Standards Board
       (FASB) issued Statement of Financial Accounting Standards
       No. 133, Accounting for Derivative Instruments and
       Hedging Activities (FAS 133).  FAS 133 is effective for
       all fiscal quarters of all fiscal years beginning after
       June 15, 1999 (January 1, 2000 for the Company). FAS 133
       requires that all derivative instruments be recorded on
       the balance sheet at their fair value.  Changes in the
       fair value of derivatives are recorded each period in
       current earnings or other comprehensive income, depending
       on whether a derivative is designated as part of a hedge
       transaction and, if it is, the type of hedge transaction. 
       Management of the Company anticipates that, due to its
       limited use of derivative instruments, the adoption of
       FAS 133 will not have a significant effect on the
       Company's results of operations or its financial
       position.
6.     Statement of Financial Accounting Standards No. 134. 
       Accounting for Mortgage-Backed Securities Retained after
       the Securitization of Mortgage Loans Held for Sale by a
       Mortgage Banking Enterprise, was issued in October 1998. 
       This Statement amends existing classification and
       accounting treatment of mortgage-backed securities,
       retained after mortgage loans held for sale are
       securitized, for entities engaged in mortgage banking
       activities.  These securities previously were classified
       and accounted for as trading and now may be classified as
       held-to-maturity or available-for-sale, also.  This
       Statement is effective for the first fiscal quarter
       beginning after December 15, 1998.  SFAS No. 134 is not
       expected to have material effect on the Bank's financial
       statements.



ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION   AND RESULTS OF OPERATIONS


GENERAL
  Cooperative Bankshares, Inc. (the "Company") is a registered
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 home
loans, commercial loans, consumer 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.
                         -6-<PAGE>
<PAGE>
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 September 30, 1998, $264.4
million, or 84.2% of the Bank's loan portfolio consisted of
loans secured by one-to-four family residential properties. 
Also at that date, approximately 88.3% 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 $1,000,000.  The
Bank's primary emphasis is to originate adjustable rate loans
with the fixed rate loan as an option.  As of September 30,
1998, adjustable rate loans totaled 65.1%, and fixed rate loans
totaled 34.9% 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 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 exceeds the amount of interest
rate sensitive liabilities. Gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount
of interest rate sensitive assets.  At September 30, 1998,
Cooperative had a one-year negative gap position of 17%.  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.

                        -7-<PAGE>
<PAGE>
  At September 30, 1998, the estimated market value of liquid
assets (cash, cash equivalents, and marketable securities) was
approximately $68.1 million, which represents 19.1% of deposits
and borrowed funds as compared to $74.1 million or 21.9% of
deposits and borrowed funds at December 31, 1997.  The decrease
in liquid assets during the nine months ended September 30,
1998, 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 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, 2002.

  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 September 30, 1998, outstanding off-
balance sheet commitments to extend credit totaled $14.5
million, and the undisbursed portion of construction loans was
$18.3 million.  Management considers current liquidity levels
adequate to meet the Company's cash flow requirements.

CAPITAL
  Stockholders' equity at September 30, 1998, was $31.1
million, up 9.9% from $28.3 million at December 31, 1997.  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 September 30, 1998,
the Bank's ratio of Tier I capital was 8%.  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 I
capital plus the balance of allowance for loan losses.  At
September 30, 1998, the Bank had a ratio of qualifying
total capital to risk-weighted assets of 14.5%.

  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.

                             -8-<PAGE>
<PAGE>
OTHER INFORMATION
  The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year.  Any of the Company's computer programs that
have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.  This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities.

  Based on a recent assessment, the Company has developed a
plan to address the year 2000 issue.  With respect to the
Company's teller/platform system, the Company has installed a
new system that is Year 2000 compliant and fully tested. 
Installation has been completed and the new system is currently
in use.  Since the installation of the new system was not a
result of the Year 2000 issue, the costs of such system,
approximately $1.0 million, have been capitalized.  The Company
expects that testing of the remaining hardware and software will
commence in November 1998 and is scheduled to be completed by
January 31, 1999.  The Company presently believes that the
remaining hardware and software will be made in compliance at
what we believe will be a minimal cost to the Company.  Although
the precise cost to bring the Company's software in compliance
cannot be determined at this time, it is not expected to be
material.  The Company is in the process of developing a
contingency plan to deal with any possible risk that such
changes to its hardware and software are not fully successful
as well as the risk to the Company from the failure of third
parties with which the Company does business to make all
necessary corrections.  Such plan will be completed by December
1998. 

  The Company has also evaluated its non-information technology
systems (for example, its alarm system) to determine if such
systems may have embedded technology that could also be affected
by the Year 2000 problem.  The Company has determined that the
only system of this type that could be affected is its alarm
system.  The Company has been informed, however, by the vendor
that the system is Year 2000 compliant and has been fully
tested. 

  Computer problems experienced by its borrowers could have an
adverse effect on its business operations and their ability to
repay their loans when due.  The Company has evaluated its major
borrowers and does not anticipate that any problems will be
material to its operations.

FINANCIAL CONDITION AT SEPTEMBER 30, 1998 COMPARED TO
DECEMBER 31, 1997
  The Company's total assets increased 5.5% to $389.4 million at
September 30, 1998, as compared to $369.1 million at December
31, 1997.  Two major changes in the assets were a decrease of
$5.2 million (30%) in cash and a $25.1 million (8.7%) increase
in loans receivable.  Borrowed funds, retail deposits and
available liquid assets funded the increase in loans during the
current period.  Due to a high loan demand, the Bank sold $14
million in fixed rate loans during the nine month period ended
September 30, 1998 and used the funds to reinvest in new loans. 
Although 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, it is becoming more active in the
origination of small loans secured by commercial properties.  At
September 30, 1998, approximately 11.7% of the Company's loan
portfolio were loans other than residential properties.  In
addition to the above, premises and equipment increased 30.2%. 
The increase is due to two major projects.  The Bank completed
the installed of new teller workstations and data communications
during the third quarter of 1998.  The Bank also completed a
replacement office in Elizabethtown, North Carolina, during the
third quarter of 1998. 

                            -9-<PAGE>
<PAGE>
  With a $12.4 million (4.3%) increase in retail deposits, an
additional $5 million borrowed funds from the Federal Home Loan
Bank ("FHLB"), and the sale of $14 million in loans the Bank had
adequate funds to meet its loan demand. Borrowed funds,
collateralized through an agreement with the FHLB for advances,
are secured by the Bank's investment in FHLB stock and
qualifying first mortgage loans.  At September 30, 1998, $15.0
million in borrowed funds mature in 1 year and the remaining
amount of funds mature in 2 to 5 years. 

  The Company's non-performing assets (loans 90 days or more
delinquent and foreclosed real estate) were $3.4 million, or
0.86% of assets, at September 30, 1998, compared to $761
thousand, or 0.21% of assets, at December 31, 1997.  The
Company assumes an aggressive position in collecting delinquent
loans to minimize balances of non-performing assets and
continues to evaluate the loan and real estate portfolios to
provide loss reserves as considered necessary.  While there
can be no guarantee, in the opinion of management, the allowance
for loan losses of $1.1 million at September 30, 1998 is
adequate to cover potential losses. 

COMPARISON OF OPERATION RESULTS 

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 September 30, 1998
of $513,496 was essentially unchanged as compared to the same
period last year.  For the nine month periods ended September
30, 1998, net income increased 8.8% to $1.8 million as compared
$1.7 million for the same periods a year ago.  Contributing
factors for the increase in net income was an 7.9% increase in
interest-earning assets and an increase in the net interest
margin to 3.02% for the nine month period ended September 30,
1998, as compared to 3.01% for the same period last year.  Also,
noninterest income increased 68.5% for the nine month period
ended September 30, 1998, as compared to the same period last
year due to the sale of fixed rate long term loans at a gain of
$268 thousand.

INTEREST INCOME
  For the three month period ended September 30, 1998, interest
income increased 8.7% as compared to the same period a year ago. 
The increase in interest 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 7.74% as compared
to 7.66% for the same period a year ago, and the average balance
increased by 7.6%.

  Interest income increased 9.8% for the nine month period ended
September 30, 1998, as compared to the same period a year ago. 
The increase in interest 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 7.70% as compared
to 7.57% for the same period a year ago, and the average balance
increased by 7.9%.

                            -10-<PAGE>
<PAGE>
INTEREST EXPENSE

  For the three month period ended September 30, 1998, interest
expense increased 9% as compared to the same period a year ago. 
The 7.3% increase in the average balance of interest-bearing
liabilities and their subsequent increase in cost of funds
principally contributed to the increase in interest expense
during this period.  The cost of interest-bearing liabilities
increased 8 basis points to 5.09% as compared to 5.01% for the
same period last year. 

  Interest expense increased 10.8% for the nine month period
ended September 30, 1998, as compared to the same period a year
ago.  The 7.4% increase in the average balance of
interest-bearing liabilities and their subsequent increase
in cost of funds principally contributed to the increase in
interest expense.  The cost of interest-bearing liabilities
increased 15 basis points to 5.04% as compared to 4.89% for the
same period last year.

NET INTEREST INCOME

  Net interest income for the three and nine month periods ended
September 30, 1998, as compared to the same period a year ago,
increased 8.3% and 10.8%, respectively.  During these same
periods ended September 30, 1998, the yield on average
interest-earning assets increased 8 basis points and 13 basis
points, respectively. For the same periods, the cost of average
interest-bearing liabilities increased 8 basis points and 15
basis points, respectively.  The 7.9% increase in the
average balance of interest-earning assets was the major factor
for the increase in net interest income.

                             -11-<PAGE>
<PAGE>
             AVERAGE YIELD/COST ANALYSIS

The following table contains information relating to the
Company's average balance sheet and reflects the annualized
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
                                 Seotenber 30, 1998          September 30, 1997 
                               --------------------------  -------------------------
(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    $ 51,999   $  733    5.64%   $ 32,550  $  469   5.76%
Mortgage-backed and related 
 securities                     11,365      172    6.05%     28,698     489   6.82%
Loan portfolio                 308,904    6,298    8.16%    284,716   5,668   7.96%
    Total interest-earning    --------   ------            --------  ------
     assets                    372,268    7,203    7.74%    345,964   6,626   7.66%
                                         ------                      ------
Non-interest earning assets     12,333                       10,792
                              --------                     --------
Total assets                  $384,601                     $356,756
                              ========                     ========

Interest-bearing liabilities:
  Deposits                    $292,567   $3,535    4.83%   $281,928  $3,373   4.79%
  Borrowed funds                53,054      862    6.50%     40,227     661     6.57%
    Total interest-bearing    --------   ------            --------  ------
     liabilities               345,621    4,397    5.09%    322,155   4,034   5.01%
                                         ------                      ------
Non-interest bearing 
  liabilities                    8,127                        7,328
                              --------                     --------
    Total liabilities          353,748                      329,483
Stockholders' equity            30,853                       27,273
Total liabilities and         --------                     --------
 stockholders' equity         $384,601                     $356,756
                              ========                     ========
Net interest income                      $2,806                      $2,592
                                         ======                      ======
Interest rate spread                               2.65%                      2.65%
                                                   ====                       ==== 
Net yield on interest-
 earning assets                                    3.02%                      3.00%
                                                   ====                       ==== 
Percentage of average
 interest-earning assets to
 average interest-bearing
 liabilities                                      107.7%                     107.4%
                                                  =====                      =====
</TABLE>

                            -12-<PAGE>
<PAGE>     
                 AVERAGE YIELD/COST ANALYSIS

The following table contains information relating to the
Company's average balance sheet and reflects the annualized
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 nine months ended
                                 September 30, 1998          September 30, 1997
                               --------------------------  --------------------------
(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    $ 58,574   $ 2,459   5.60%   $ 33,704   $ 1,455   5.76%
Mortgage-backed and related 
 securities                     12,055       564   6.24%     29,000     1,496   6.88%
Loan portfolio                 296,256    18,167   8.18%    277,318    16,345   7.86%
    Total interest-earning    --------   -------            --------  -------
     assets                    366,885    21,190   7.70%    340,022    19,296   7.57%
                                         -------                      -------
Non-interest earning assets     12,700                       10,368
                              --------                     --------
Total assets                  $379,585                     $350,396
                              ========                     ========

Interest-bearing liabilities:
  Deposits                    $289,547   $10,407   4.79%   $278,399   $ 9,740   4.66%
  Borrowed funds                51,110     2,472   6.45%     38,804     1,882   6.47%
    Total interest-bearing    --------   -------           --------   -------
     liabilities               340,657    12,879   5.04%    317,203    11,622   4.89%
                                         -------                      -------
Non-interest bearing 
  liabilities                    9,032                        6,575
                              --------                     --------
    Total liabilities          349,689                      323,778
Stockholders' equity            29,896                       26,612
Total liabilities and         --------                     --------
 stockholders' equity         $379,585                     $350,390 
                              ========                     ========
Net interest income                      $ 8,311                       $ 7,674
                                         =======                       =======
Interest rate spread                               2.66%                        2.68%
                                                   ====                         ==== 
Net yield on interest-
 earning assets                                    3.02%                        3.01%
                                                   ====                         ==== 
Percentage of average
 interest-earning assets to
 average interest-bearing
 liabilities                                      107.7%                       107.2%
                                                  =====                        =====
</TABLE>

                            -13-<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); and (ii) changes in rates (change in rate multiplied by
old volume).  The change attributable to changes in rate-volume
have been allocated to the other categories based on absolute
values.

<TABLE>
<CAPTION>
                                          For the Nine Months Ended
                                     September 30, 1997 vs. September 30, 1998
                                            Increase (Decrease)
                                                   Due to
                                     -----------------------------------------
(DOLLARS IN THOUSANDS)                     Volume      Rate       Total
                                      ---------------------------------------
<S>                                         <C>        <C>        <C>  
Interest income:
   Securities and other
     interest-earning assets                $1,045     $  (41)    $1,004
   Mortgage-backed and related securities     (804)      (128)      (932)
   Loan portfolio                            1,144        678      1,822
                                            ------     ------     ------
     Total interest-earning assets           1,385        509      1,894
                                            ------     ------     ------
Interest expense:
   Deposits                                    397        270        667
   Borrowed funds                              595         (5)       590
                                            ------     ------     ------
     Total interest-bearing 
      liabilities                              992        265      1,257
                                            ------     ------     ------
Net interest income                         $  393     $  244     $  637
                                            ======     ======     ======
</TABLE>
                            -14-<PAGE>
<PAGE>

RESERVE FOR LOAN LOSSES
  During the nine month period ended September 30, 1998 the Bank
had charge-offs against the allowance for loan losses of
$21,463.  The Bank added $255,000 to the allowance for loan
losses for the current nine month period increasing the balance
to $1,107,339.  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
  During the nine month period ended September 30, 1998, the
Bank sold $14 million in fixed rate mortgage loans at a gain of
$268,000 as compared to the sale of $4.1 million at a gain of
$12,000 for the same period a year ago.  The proceeds
from the sales were used to fund new loans.  The balance in real
estate owned expense represents operating expense and further
reduction of the carrying amount of foreclosed real estate
owned.  During the nine month period ended September
30, 1998, the Bank aggressively pursued disposal of the
foreclosed real estate owned thereby incurring various charges
in the sales of these properties.  Loan fees for the nine month
period ended September 30, 1998 as compared to last year
increased 13.4% due to an increase in the volume of loans
serviced.  For the same period, fee income from deposit
operations increased 35.8% due to an increase in checking
accounts. 

NONINTEREST EXPENSES
     For the nine month period ended September 30, 1998,
noninterest expense increased 11.4% as compared to the same
period last year.  Compensation and related cost increased 8.6%
due to normal increases in salaries and benefits, and
additional employees needed to handle the 5.5% growth in assets. 
Occupancy and equipment expense increased 9.8%.  This increase
can be attributed to additional maintenance necessary to keep
the buildings in good repair, depreciation on the new teller
workstations and data communication, and depreciation on the new
Elizabethtown office.  The decrease of 22.9% in Federal
insurance premium can be attributed to a reduction in the
premium.  During the current nine month period other noninterest
expense increased 36% as compared to the same period a year
ago.  This increase can be accounted for as follows; paper and
printing 4%, postage and freight 12%, professional services 7%,
and telephone and data communications 8%.  The remaining
increase was due to normal increases in other expense items.

INCOME TAXES
  The effective tax rates for the nine month periods ended
September 30, 1998 and 1997 approximate the statutory rate after
giving effect to nontaxable interest, other permanent tax
differences, and adjustments to certain deferred tax
liabilities. 

                            -15-<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

         None

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 September 30, 1998.


                           -16-<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: November 10, 1998   /s/ Frederick Willetts, III
       -----------------   -------------------------------------
                           President and Chief Executive Officer



Dated: November 10, 1998   /s/ Edward E. Maready
       -----------------   -------------------------------------
                           Treasurer and Chief Financial Officer

                           -17-

EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED       NINE MONTHS ENDED
                                         SEPTEMBER 30,            SEPTEMBER 30,
                                     ---------------------    ----------------------
                                        1998       1997          1998        1997
                                     ----------  ---------    ----------  ----------
<S>                                  <C>         <C>          <C>         <C>
Basic income per common share:
  Net Income                         $  513,496  $  525,662   $1,797,477  $1,652,262
 
  Weighted average common shares
    outstanding                       3,038,900   1,974,622    3,011,445   2,971,991

  Basic income per common share      $     0.17  $     0.18   $     0.60  $     0.56

Dilutive income per common share:
  Net income                         $  513,496  $  525,662   $1,797,477  $1,652,262

  Weighted average common shares
    outstanding                       3,038,900   2,974,622    3,011,445   2,971,991
  Dilutive effect of stock options      180,238     193,368      195,693     183,619
                                     ----------  ----------   ----------  ----------
  Total shares                        3,219,138   3,167,990    3,207,138   3,155,610

  Dilutive income per common share   $     0.16  $     0.17   $     0.56   $    0.52

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 9
<MULTIPLIER>  1
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-END>                               SEP-30-1998
<CASH>                                       4,569,396
<INT-BEARING-DEPOSITS>                       7,423,560
<FED-FUNDS-SOLD>                                     0
<TRADING-ASSETS>                                     0
<INVESTMENTS-HELD-FOR-SALE>                 32,397,542
<INVESTMENTS-CARRYING>                      21,036,684
<INVESTMENTS-MARKET>                        20,841,254
<LOANS>                                    312,881,456
<ALLOWANCE>                                  1,107,339
<TOTAL-ASSETS>                             389,409,140
<DEPOSITS>                                 301,038,324
<SHORT-TERM>                                55,110,374
<LIABILITIES-OTHER>                          2,126,055
<LONG-TERM>                                          0
<COMMON>                                     3,043,284
                                0
                                          0
<OTHER-SE>                                  28,091,103
<TOTAL-LIABILITIES-AND-EQUITY>             389,409,140
<INTEREST-LOAN>                             18,166,956
<INTEREST-INVEST>                            3,023,681
<INTEREST-OTHER>                                     0
<INTEREST-TOTAL>                            21,190,637
<INTEREST-DEPOSIT>                          10,407,105
<INTEREST-EXPENSE>                          12,879,031
<INTEREST-INCOME-NET>                        8,311,606
<LOAN-LOSSES>                                  255,000
<SECURITIES-GAINS>                             268,178
<EXPENSE-OTHER>                              5,921,725
<INCOME-PRETAX>                              2,842,336
<INCOME-PRE-EXTRAORDINARY>                   2,842,336
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,797,477
<EPS-PRIMARY>                                     0.60
<EPS-DILUTED>                                     0.56
<YIELD-ACTUAL>                                    3.02
<LOANS-NON>                                          0
<LOANS-PAST>                                 3,358,302
<LOANS-TROUBLED>                                     0
<LOANS-PROBLEM>                                      0
<ALLOWANCE-OPEN>                               873,802
<CHARGE-OFFS>                                   21,463
<RECOVERIES>                                         0
<ALLOWANCE-CLOSE>                            1,107,339
<ALLOWANCE-DOMESTIC>                         1,107,339
<ALLOWANCE-FOREIGN>                                  0
<ALLOWANCE-UNALLOCATED>                              0
        

</TABLE>


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