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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
AMENDMENT NO. 1 TO
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 March 31, 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.
2,985,396 shares at April 24, 1998
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Financial Condition,
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows, for
the three months ended March 31, 1998 and
1997 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.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including interest-bearing
deposits:
March 1998-$33,078,424; December 1997-$12,311,582) $ 35,407,464 $ 17,207,777
Securities:
Available for sale 15,983,751 21,004,067
Held to maturity (market value: March 1998-$20,398,129;
December 1997 - $20,348,130) 21,041,525 21,043,946
Mortgage-backed and related securities available for sale 12,477,312 12,856,337
Other investments 2,828,000 2,688,200
Loans receivable, net 284,865,551 286,691,769
Foreclosed real estate owned 42,553 251,141
Accrued interest receivable 2,277,301 2,172,335
Premises and equipment, net 5,645,539 4,872,202
Prepaid expenses and other assets 862,682 333,316
------------ ------------
Total assets $381,431,678 $369,121,090
============ ============
LIABILITIES
Deposits $299,690,487 $288,690,634
Borrowed funds 50,139,874 50,141,002
ESOP note payable - 84,824
Escrow deposits 577,816 427,983
Accrued interest payable on deposits 150,402 126,155
Deferred income taxes, net 922,750 1,051,800
Accrued expenses and other liabilities 817,032 305,123
------------ ------------
Total liabilities 352,298,361 340,827,521
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, 3,000,000 shares
authorized, none issued and outstanding - -
Common stock, $1.00 par value, 7,000,000 shares authorized,
2,984,396 shares issued and outstanding 2,984,396 2,984,396
Additional paid-in capital 6,147,834 6,022,454
Unearned ESOP shares - (84,824)
Accumulated other comprehensive income 7,701 (6,663)
Retained earnings 19,993,386 19,378,206
------------ ------------
Total stockholders' equity 29,133,317 28,293,569
------------ ------------
Total liabilities and stockholders' equity $381,431,678 $369,121,090
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3 <PAGE>
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COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ -----------
<S> <C> <C>
INTEREST INCOME
Loans receivable $5,780,631 $5,194,103
Mortgage-backed and related securities 203,920 497,989
Securities 894,090 502,759
---------- ----------
Total interest income 6,878,641 6,194,851
---------- ----------
INTEREST EXPENSE
Deposits 3,385,872 3,118,870
Borrowed funds 800,708 570,342
---------- ----------
Total interest expense 4,186,580 3,689,212
---------- ----------
NET INTEREST INCOME 2,692,061 2,505,639
Provision for loan losses 130,000 30,000
---------- ----------
Net interest income after provision for
loan losses 2,562,061 2,475,639
---------- ----------
NONINTEREST INCOME
Net gains on sale of securities - -
Net gains on sale of loans and mortgage-backed
and related securities 260,174 -
Real estate owned expenses and losses (76,378) (600)
Loan fees 82,990 65,769
Deposit and related fees 81,966 68,519
Other income, net 605 (505)
---------- ----------
Total noninterest income 349,357 133,183
---------- ----------
NONINTEREST EXPENSES
Compensation and fringe benefits 1,051,862 989,292
Occupancy and equipment 364,316 337,595
Federal insurance premiums 44,972 65,244
Advertising 91,848 67,988
Other 399,740 223,112
---------- ----------
Total noninterest expenses 1,952,738 1,683,231
---------- ----------
Income before income taxes 958,680 925,591
Income tax expense 343,499 342,170
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NET INCOME $ 615,181 $ 583,421
========== ==========
EARNINGS PER:
Common share $ 0.21 $ 0.20
========== ==========
Common share - assuming dilution $ 0.19 $ 0.19
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4<PAGE>
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COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 615,181 $ 583,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Net accretion, amortization, and depreciation 145,360 143,020
Net gain on sale of loans and mortgage-backed and
related securities (260,174) -
Provision (benefit) for deferred income taxes (139,370) (75,661)
Release of ESOP shares 61,583 -
Loss (gain) on sale of premises and equipment - (982)
Loss on sales of foreclosed real estate 5,476 -
Valuation losses on foreclosed real estate 62,300 -
Provision for loan losses 130,000 30,000
Changes in assets and liabilities:
Accrued interest receivable (104,966) (163,195)
Prepaid expenses and other assets (474,356) 626,400
Accrued interest payable on deposits 24,247 (131,029)
Accrued expenses and other liabilities 511,907 (1,305)
------------ ------------
Net cash provided by operating activities 577,188 1,010,669
------------ ------------
INVESTING ACTIVITIES:
Purchases of securities available for sale (5,000,000) -
Proceeds from maturity of securities available
for sale 10,000,000 -
Proceeds from principal repayments of mortgage-
backed and related securities available for sale 406,220 273,450
Proceeds from sales of loans 13,915,579 -
Loan originations, net of principal repayments (11,959,186) (12,071,791)
Proceeds from disposals of foreclosed real estate 214,442 (10,242)
Purchases of premises and equipment (894,684) (38,455)
Proceeds from sale of premises and equipment - 2,732
Net purchases of other investments (208,430) (253,200)
------------ ------------
Net cash provided by (used in) investing
activities 6,473,941 (12,097,506)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 10,999,853 2,050,670
Proceeds from FHLB advances - 5,000,000
Principal payments on FHLB advances (1,128) (1,068)
Net change in escrow deposits 149,833 59,537
------------ ------------
Net cash provided by financing activities 11,148,558 7,109,139
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,199,687 (3,977,698)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD
END OF PERIOD 17,207,777 11,507,283
------------ ------------
$ 35,407,464 $ 7,529,585
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
5<PAGE>
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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 three-month period
ended March 31, 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. Statement of Financial Accounting Standards No. 130: On
January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."
As required by the SFAS No. 130, prior year information has been
modified to conform with the new presentation.
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.
<PAGE>
The Company's total comprehensive income for the three-
month periods ended March 31, 1998 and 1997 was $629,545 and
$409,570, respectively. Information concerning the Company's
other comprehensive income for the three-month periods ended
March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Unrealized gains/(losses) on available
for sale securities $ 24,683 $(298,456)
Reclassification of gains recognized in
net income 0 0
Income tax (expense) benefit relating to
unrealized gains on available for sale
securities (10,319) 124,605
-------- ---------
Other comprehensive income $ 14,364 $(173,851)
======== =========
</TABLE>
5. Statement of Financial Accounting Standards No. 131: On
January 1, 1998 the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This
adoption had no effect on the Company's financial statements.
6
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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 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.
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, 1998, $272.3 million,
or 86.6% of the Bank's loan portfolio consisted of loans secured
by one- to-four family residential properties. Also at that
date, approximately 90.5% 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 March 31, 1998,
adjustable rate loans totaled 68.6%, and fixed rate loans
totaled 31.4% of the Bank's total loan portfolio.
7<PAGE>
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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 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, 1998,
Cooperative had a one-year negative gap position of 7.7%.
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, 1998, the estimated market value of liquid
assets (cash, cash equivalents, and marketable securities) was
approximately $87.1 million, which represents 24.9% of deposits
and borrowed funds as compared to $74.1 million or 21.9% of
deposits and borrowed funds at December 31, 1997. The temporary
increase in liquid assets during the three months ended March
31, 1998, is in cash and cash equivalents. The increase in cash
came from the sale of long term fixed rate mortgages with a
market value of $14 million. This excess cash will be used
in the near future for the funding of home and commercial loan
commitments.
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
8<PAGE>
<PAGE>
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 March 31, 1998, outstanding
off-balance sheet commitments to extend credit totaled $16.9
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 March 31, 1998, was $29.1 million,
up 2.8% 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 March 31, 1998, the Bank's ratio of
Tier I capital was 7.8%. 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 March 31, 1998, 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.
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. The Company presently
believes that the majority of the existing software in use is in
compliance with the year 2000 issue and plans are in
progress to bring the remaining software in compliance at a
minimal cost to the Company. Although the cost to bring the
Company's software in compliance can not be determined at this
time, it is not expected to be material. However, there can
be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have material
adverse effect on the Company.
9<PAGE>
<PAGE>
FINANCIAL CONDITION AT MARCH 31, 1998 COMPARED TO
DECEMBER 31, 1997
The Company's total assets increased 3.3% to $381.4
million at March 31, 1998, as compared to $369.1 million at
December 31, 1997. The major change in the assets was a $18.2
million (105.8%) increase in cash and cash equivalents. The
increase in cash during the current period was due to the sale
of $14 million in fixed rate loans, a $5 million bond called at
par, and an $11 million increase in deposits. Part of the funds
($12 million) was reinvested in new loan production and the
remaining amount will be used in the near future for the
funding of 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 March 31, 1998, approximately 9.5%
of the Company's loan portfolio were loans other than
residential properties.
With an $11 million (3.8%) increase in retail deposits
the Bank had adequate funds to meet its loan demand without
additional borrowings from the Federal Home Loan Bank ("FHLB").
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 March 31, 1998,
$10.0 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 $594
thousand, or 0.16% of assets, at March 31, 1998, compared to
$761 thousand, or 0.21% of assets, at December 31, 1997. 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 $994 thousand at March 31, 1998
is adequate to cover potential losses.
COMPARISON OF OPERATION RESULTS FOR QUARTER ENDED MARCH 31, 1998
VS. 1997
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, 1998,
increased 5.5% to $615,200 as compared to $583,400 for the same
period last year. Although there was a 1 basis point reduction
in the net interest margin for the three month period ended
March 31, 1998, as compared to the same period last year, the
8.1% increase in interest-earning assets was the major factor
for the increase in net income.
INTEREST INCOME
Interest income increased 11.0% for the three-month period
ended March 31, 1998, as compared to the same period a year ago.
The increase in income can be attributed to both 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 7.65% as compared to 7.45%
for the same period a year ago, and the average balance
increased by 8.1%.
10<PAGE>
<PAGE>
INTEREST EXPENSE
Interest expense increased 13.5% for the three month
period ended March 31, 1998, as compared to the same period a
year ago. The 8.6% increase in average interest-bearing
liabilities with an increase in cost was the factors in causing
interest expense to increase. The cost of interest-bearing
liabilities increased 22 basis points to 4.97% as compared to
4.75% for the same period last year.
NET INTEREST INCOME
Net interest income for the three-month period ended
March 31, 1998, as compared to the same period a year ago,
increased 7.4%. During the three-month period, the yield on
average interest-earning assets increased 20 basis points and
the cost of average interest-bearing liabilities increased 22
basis points. The net interest margin decreased to 2.99% for
the current three month as compared to 3.01% for the same period
last year. The percentage of average interest-earning assets to
average interest-bearing liabilities decreased to 106.7% for the
current three-month period as compared to 107.1% for the same
period in 1997. The increase in interest-earning assets was the
major factor for the increase in net interest income. Interest-
earning assets grew 8.1% for the three-month period ended March
31, 1998, as compared to the same period last year.
11<PAGE>
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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
March 31, 1998 March 31, 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 $ 63,122 $ 894 5.67% $ 35,133 $ 503 5.73%
Mortgage-backed and related
securities 12,695 204 6.43% 29,284 498 6.80%
Loan portfolio 284,030 5,781 8.14% 268,366 5,194 7.74%
Total interest-earning -------- ------ -------- ------
assets 359,847 $6,879 7.65% 332,783 $6,195 7.45%
------ ------
Non-interest earning assets 13,468 10,123
-------- --------
Total assets $373,315 $342,906
======== ========
Interest-bearing liabilities:
Deposits 287,093 3,386 4.72% 274,849 3,119 4.54%
Borrowed funds 50,140 801 6.39% 35,790 570 6.37%
Total interest-bearing -------- ------ -------- ------
liabilities 337,233 $4,187 4.97% 310,639 $3,689 4.75%
------ ------
Non-interest bearing
liabilities 7,133 6,244
-------- --------
Total liabilities 344,366 316,883
Stockholders' equity 28,949 26,023
Total liabilities and -------- --------
stockholders' equity $373,315 $342,906
======== ========
Net interest income $2,692 $2,506
====== ======
Interest rate spread 2.68% 2.70%
==== ====
Net yield on interest-
earning assets 2.99% 3.01%
==== ====
Percentage of average interest-
earning assets to average
interest-bearing
liabilities 106.7% 107.1%
===== =====
</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, 1997 vs. March 31, 1998
Increase (Decrease)
Due to
--------------------------------------
(DOLLARS IN THOUSANDS) Volume Rate Rate/Volume Total
--------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Securities and other
interest-earning assets $ 400 $ (5) $ (4) $ 391
Mortgage-backed and related
securities (282) (27) 15 (294)
Loan portfolio 303 268 16 587
------ ----- ----- ------
Total interest-earning
assets 421 236 27 684
------ ----- ----- ------
Interest expense:
Deposits 139 123 5 267
Borrowed funds 229 2 0 231
------ ----- ----- ------
Total interest-bearing
liabilities 368 125 5 498
------ ----- ----- ------
Net interest income $ 53 $ 111 $ 22 $ 186
====== ===== ===== ======
</TABLE>
13<PAGE>
<PAGE>
RESERVE FOR LOAN LOSSES
During the three-month period ended March 31, 1998 the Bank
had charge-offs against the allowance for loan losses of
$10,000. The Bank added $130,000 to the allowance for loan
losses for the current period bringing the balance up to
$994,000. 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 three month period ended March 31, 1998, the
Bank sold $14 million in fixed rate mortgage loans at a gain of
$260,000. The sales proceeds were invested in interest-bearing
deposits and will be used in the near future 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. Management continues to be
committed to disposing of these properties in a timely manner.
The other income includes service fees on loans and fee income
from the deposit operations. Loan fees for the three-month
period ended March 31, 1998 as compared to last year increased
25.8% due to an increase in the volume of loans serviced. For
the same period, fee income from deposit operations increased
19.6% due to an increase in checking accounts.
NONINTEREST EXPENSES
For the three-month period ended March 31, 1998,
noninterest expense increased 16% as compared to the same period
last year. Compensation and related cost increased 6.3% due to
normal increases in salaries and benefits. Occupancy and
equipment expense increased 7.9%. This increase can be
attributed to additional maintenance necessary to keep the
buildings in good repair. The decrease of 31.1% in Federal
insurance premium can be attributed to a reduction in the
premium. Advertising increased 35.1% due to a more aggressive
advertising campaign. For the current quarter non-recurring
legal and consulting fees caused a 49% increase in other
operating expense as compared to the same period a year
ago. The remaining increase was in postage, due to mail volume,
and normal increases in other operating expenses.
INCOME TAXES
The effective tax rates for the three month periods ended
March 31, 1998 and 1997 approximate the statutory rate after
giving effect to nontaxable interest, 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
(1) Annual Meeting of Stockholders, April 24, 1998
(a) Election of Directors
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Abstentions
--------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Frederick Willetts, Jr. 2,078,354 0 34,464 0
James D. Hundley, M.D. 2,078,354 0 34,464 0
O. Richard Wright, Jr. 2,077,656 0 35,162 0
</TABLE>
(b) Approval of the Cooperative Bankshares, Inc. 1998 Stock Option and
Incentive Plan
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Abstentions
--------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
1,419,265 0 268,241 425,312
</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,
1998.
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 14, 1998 /s/ Frederick Willetts, III
-------------------------------------
Frederick Willetts, III
President and Chief Executive Officer
Dated: May 14, 1998 /s/ Edward E. Maready
-------------------------------------
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,
------------------
1998 1997
------------------
<S> <C> <C>
Basic income per common share:
Net Income $ 615,181 $ 583,421
Weighted average common shares
outstanding 2,984,019 2,966,729
Basic income per common share $ 0.21 $ 0.20
Dilutive income per common share:
Net income $ 615,181 $ 583,421
Weighted average common shares
outstanding 2,984,019 2,966,729
Dilutive effect of stock options 211,556 177,708
---------- ----------
Total shares 3,195,575 3,144,437
Dilutive income per common share $ 0.19 $ 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,329,040
<INT-BEARING-DEPOSITS> 33,078,424
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,461,063
<INVESTMENTS-CARRYING> 21,041,525
<INVESTMENTS-MARKET> 20,398,129
<LOANS> 285,859,685
<ALLOWANCE> 994,134
<TOTAL-ASSETS> 381,431,678
<DEPOSITS> 299,690,487
<SHORT-TERM> 50,139,874
<LIABILITIES-OTHER> 2,468,000
<LONG-TERM> 0
<COMMON> 2,984,396
0
0
<OTHER-SE> 26,148,921
<TOTAL-LIABILITIES-AND-EQUITY> 381,431,678
<INTEREST-LOAN> 5,780,631
<INTEREST-INVEST> 1,101,010
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,878,641
<INTEREST-DEPOSIT> 3,385,872
<INTEREST-EXPENSE> 4,186,580
<INTEREST-INCOME-NET> 2,692,061
<LOAN-LOSSES> 130,000
<SECURITIES-GAINS> 260,174
<EXPENSE-OTHER> 1,952,738
<INCOME-PRETAX> 958,680
<INCOME-PRE-EXTRAORDINARY> 958,680
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615,181
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 2.99
<LOANS-NON> 0
<LOANS-PAST> 551,477
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 873,802
<CHARGE-OFFS> 9,668
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 994,134
<ALLOWANCE-DOMESTIC> 994,134
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
