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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 March 31, 2000
--------------
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
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COOPERATIVE BANKSHARES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1886527
- ------------------------------- -------------------
(State of other jurisdiction (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
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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.
2,669,778 shares at May 10, 2000.
- --------------------------------
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TABLE OF CONTENTS
Page
Part I Financial Information
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Financial
Condition, March 31, 2000 and December 31,
1999 2
Consolidated Statements of Operations, for
the three months ended March 31, 2000
and 1999 3
Consolidated Statements of Cash Flows, for
the three months ended March 31, 2000 and
1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6-12
Part II Other Information 13
Signatures 14
Exhibit 11 -- Statement Regarding Computation of
Earnings Per Share 15
Exhibit 27 -- Financial Data Schedule 16-17
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PART 1 - FINANCIAL INFORMATION - ITEM 1 - FINANCIAL STATEMENTS
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
2000 1998
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (including interest-bearing $ 14,990,214 $ 15,592,010
deposits: March 2000 - $11,478,760; December 1999 -
$9,522,187)
Securities:
Available for sale 20,597,191 20,671,572
Held to maturity (estimated market value:
March 2000 - $17,018,755; December 1999 -
$17,114,381) 18,022,161 18,024,581
Mortgage-backed and related securities available for sale - 6,564,413
Other investments 3,755,300 3,755,300
Loans receivable, net 343,221,884 334,743,526
Other real estate owned 126,343 244,626
Accrued interest receivable 2,694,781 2,471,459
Premises and equipment, net 6,126,621 6,244,551
Prepaid expenses and other assets 930,751 1,833,807
------------ ------------
Total assets $410,465,246 $410,145,845
============ ============
LIABILITIES:
Deposits $316,411,852 $304,834,455
Borrowed funds 63,104,565 75,105,567
Escrow deposits 663,813 349,450
Accrued interest payable on deposits 85,272 50,945
Deferred income taxes, net (99,182) 154,798
Accrued expenses and other liabilities 880,636 307,330
------------ ------------
Total liabilities 381,046,956 380,802,545
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $1 par value, 7,000,000 shares authorized,
2,709,078 and 2,687,919 shares issued and outstanding 2,709,078 2,687,919
Additional paid-in capital 2,237,797 2,531,998
Accumulated other comprehensive income (246,476) (320,488)
Retained earnings 24,717,891 24,443,871
------------ ------------
Total stockholders' equity 29,418,290 29,343,300
------------ ------------
Total liabilities and stockholders' equity $410,465,246 $410,145,845
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
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COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $6,839,786 $6,332,009
Mortgage-backed and related securities 61,804 156,075
Securities 757,854 593,113
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Total interest income 7,659,444 7,081,197
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INTEREST EXPENSE:
Deposits 3,349,323 3,248,177
Borrowed funds 1,118,530 882,989
---------- ----------
Total interest expense 4,467,853 4,131,166
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NET INTEREST INCOME: 3,191,591 2,950,031
Provision for loan losses 700,000 75,000
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Net interest income after provision for
loan losses 2,491,591 2,875,031
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NONINTEREST INCOME:
Net gains on sale of loans - 123,110
Service charges on deposit accounts 172,241 153,834
Loan fees and service charges 82,276 72,174
Investment fees 25,994 11,481
Other service charges and fees 16,390 10,061
Net losses on sale of investments (287,282) -
Real estate owned expenses and losses (33,962) (43,027)
Gain on sale of branch 582,583 -
Other income, net 688 1,135
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Total noninterest income 558,928 328,768
---------- ----------
NONINTEREST EXPENSE:
Compensation and fringe benefits 1,528,985 1,111,349
Occupancy and equipment 521,700 459,744
FDIC premium 16,135 45,442
Advertising 102,704 101,234
Other expense 452,433 467,527
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Total noninterest expense 2,621,957 2,185,296
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Income before income taxes 428,562 1,018,503
Income tax expense 154,542 377,552
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NET INCOME $ 274,020 $ 640,951
========== ==========
NET INCOME PER SHARE:
Basic $ 0.10 $ 0.22
========== ==========
Diluted $ 0.10 $ 0.20
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
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COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 274,020 $ 640,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Net accretion, amortization, and depreciation 167,652 137,959
Net (gain) loss on sale of loans and mortgage-
backed and related securities 287,282 (123,110)
Benefit for deferred income taxes (301,299) (95,027)
(Gain) Loss on sale of premises and equipment (50) (300)
Loss on sales of foreclosed real estate 32,248 37,945
Gain on sale of branch office (582,583) -
Provision for loan losses 700,000 75,000
Changes in assets and liabilities:
Accrued interest receivable (228,052) (157,117)
Prepaid expenses and other assets 903,056 (132,801)
Accrued interest payable on deposits 52,877 35,738
Accrued expenses and other liabilities 573,306 452,349
------------ ------------
Net cash provided by operating activities 1,878,457 871,587
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales of mortgage backed securities
available for sale 6,277,957 -
Proceeds from principal repayments of mortgage-backed
and related securities available for sale 189,762 621,721
Proceeds from sales of loans - 19,484,691
Loan originations, net of principal repayments (10,632,442) (15,849,128)
Proceeds from disposals of foreclosed real estate 217,510 61,270
Purchases of premises and equipment (99,529) (162,904)
Proceeds from sale of premises and equipment 50 300
Net cash paid related to sale of branch office (5,156,761) -
Net purchases of other investments - (177,500)
------------ ------------
Net cash used in investing activities (9,203,453) 3,978,450
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 18,676,136 (2,670,183)
Proceeds from FHLB advances 15,000,000 10,000,000
Principal payments on FHLB advances (27,001,002) (13,000,948)
Proceeds from issuance of common stock 107,641 48,981
Repurchase of common stock (380,683) (2,107,282)
Net change in escrow deposits 321,108 161,778
------------ ------------
Net cash provided by (used in)
financing activities 6,723,200 (7,567,654)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (601,796) (2,717,617)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 15,592,010 8,856,389
------------ ------------
END OF PERIOD $ 14,990,214 $ 6,138,772
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
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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,
1999. The results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- --------
<S> <C> <C>
Net income $ 274,020 $640,951
Other comprehensive income, net of tax:
Realized losses on available for sale
securities 287,282 -
Unrealized loss on available for sale
securities (165,950) (79,163)
Income tax (expense) benefit (47,320) 30,874
---------- --------
Other comprehensive income 74,012 (48,289)
---------- --------
Comprehensive income $ 348,032 $592,662
========== ========
</TABLE>
2. Basis of Presentation: The accompanying unaudited
---------------------
consolidated financial statements include the accounts of
Cooperative Bankshares, Inc., Cooperative Bank For Savings,
Inc., SSB and its wholly owned subsidiary, CS&L Services, Inc.
All significant intercompany items have been eliminated.
3. Earnings Per Share: Earnings per share are calculated by
------------------
dividing net income by 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. Statement of Financial Accounting Standards No. 137: In
---------------------------------------------------
June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No.
133 as an amendment of FASB Statement No. 133. SFAS 133,
Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. It establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133, as issued, is effective
for all fiscal quarters of all fiscal years beginning after June
15, 1999 with earlier applications encouraged. SFAS No. 137
amended SFAS No. 133 by delaying the effective date to all
fiscal quarters of all fiscal years beginning after June 15,
2000. The FASB continues to encourage early application of SFAS
No. 133.
SFAS No. 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 the fact that
it does not use derivative instruments, the adoption of SFAS No.
133 will not have a material effect on the Company's results of
operations or its financial position.
5
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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 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 15 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 have concentrated on
the origination of conventional mortgage loans for the purpose
of constructing, financing or refinancing residential
properties. As of March 31, 2000, $290.7 million, or 84.7%, of
the Bank's loan portfolio consisted of loans secured by
residential properties. To a lesser extent, the Bank originates
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 $3,000,000. The
Bank's primary emphasis is to originate adjustable rate loans
with the fixed rate loan as an option. As of March 31, 2000,
adjustable rate loans totaled 64.5%, and fixed rate loans
totaled 35.5% 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 exceed the amount of interest
rate sensitive liabilities.
6
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Gap is considered negative when the amount of interest rate
sensitive liabilities exceed the amount of interest rate
sensitive assets. At March 31, 2000, Cooperative had a one-year
negative gap position of 5.5%. 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, a large part 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. The Bank has been granted a line
of credit by the Federal Home Loan Bank of Atlanta in an amount
of up to 25% of the Bank's total assets. At March 31, 2000 the
bank has used 15.4% of this available credit. 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, 2000, the estimated market value of liquid
assets (cash, cash equivalents, and marketable securities) was
approximately, $56.4 million which represents 14.8% of deposits
and borrowed funds as compared to $63.7 million or 16.8% of
deposits and borrowed funds at December 31, 1999. The decrease
in liquid assets was primarily due to the sale of mortgage-
backed securities guaranteed by Federal National Mortgage
Association ("FNMA") and the Government National Mortgage
Association ("GNMA").
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.
At March 31, 2000, the rate was 4.46%.
The Company's primary uses of liquidity are to fund loans
and to make investments. At March 31, 2000, outstanding
off-balance sheet commitments to extend credit totaled $19.6
million, and the undisbursed portion of construction loans was
$28.7 million. Management considers current liquidity levels
adequate to meet the Company's cash flow requirements.
CAPITAL
Stockholders' equity at March 31, 2000, was $29.4 million,
up 0.26% from $29.3 million at December 31, 1999. Stockholders'
equity at March 31, 2000 and December 31, 1999, includes
unrealized losses of $246 and $320 thousand, respectively, net
of tax, on securities available for sale marked to estimated
fair market value.
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
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leverage ratio of core (Tier I) capital to average adjusted
assets ranging from 3% to 5%. At March 31, 2000 the Bank's
ratio of Tier I capital was 7.2%. 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,
2000, the Bank had a ratio of qualifying total capital to
risk-weighted assets of 11.6%.
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.
On October 22, 1999 the Company's Board of Directors
approved a Stock Repurchase Program. The Stock Repurchase
Program authorized the Company to repurchase up to 138,000
shares, or approximately 5% of the outstanding shares of common
stock at the time of approval. During the quarter ended March
31, 2000, the Company purchased 37,085 shares at an average cost
of $10.27 per share. The first purchase was made February 5,
1999. After the most recent purchase on March 28, 2000, there
remains approved for repurchase 21,126 common shares.
On January 27, 2000, the Company's Board of Directors
approved its first quarterly cash dividend of $.05 per share.
The first dividend was paid on April 15, 2000 to stockholders of
record as of April 1, 2000. Any future payment of dividends is
dependent on the financial condition, and capital needs of the
company, requirements of regulatory agencies, and economic
conditions in the marketplace.
On February 18, 2000, Cooperative Bank completed the sale
of its $7.1 million deposit branch in Robersonville, North
Carolina to Southern Bank and Trust Company of Mount Olive,
North Carolina. Due to deteriorating economic conditions in
Robersonville, the Bank's management determined it was no longer
feasible to continue in this market area in competition with two
other banks. This transaction resulted in a gain of $582
thousand.
FINANCIAL CONDITION AT MARCH 31, 2000 COMPARED TO DECEMBER 31,
1999
The Company's total assets increased 0.1% to $410.5 million
at March 31, 2000, as compared to $410.1 million at December 31,
1999. The major changes in the assets are as follows: a
decrease of $6.6 million (100.0%) in mortgage backed and related
securities available for sale, an increase of $8.5 million
(2.5%) in loans receivable, a decrease in foreclosed real estate
to $126 thousand from $245 thousand at December 31, 1999 and a
decrease of $903 thousand (49.2%) in prepaid expenses and other
assets. Retail deposits, available liquid assets, and the sale
of $6.3 million in mortgage-backed securities were used in part
to fund the increase in loans receivable. Although the Company
has concentrated its lending activities on the origination of
conventional mortgage loans for the purpose of the construction,
financing or refinancing of residential properties, it is
becoming more active in the origination of small loans secured
by commercial properties. At March 31, 2000, approximately
15.3% of the Company's loan portfolio were loans other than
residential properties.
With a $11.6 million (3.8%) increase in retail deposits,
and other available liquid assets, the Bank repaid $12.0 million
in borrowed funds. 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, 2000, $28.0 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 $771 thousand, or
.0.19% of assets, at March 31, 2000, compared to $1.4 million,
or 0.35% of assets, at December 31, 1999. The Company assumes
an aggressive position in collecting delinquent loans and
disposing of foreclosed assets to minimize balances of
non-performing assets and continues to evaluate the
8
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loan and real estate portfolios to provide loss reserves as
considered necessary. Following a detailed review of the Bank's
loan portfolio during the quarter ended March 31, 2000,
management authorized an increase of approximately $625 thousand
in the loan loss reserve. The decision to increase the loan
loss reserve was considered appropriate in light of the
successful expansion in the commercial loan portfolio in recent
months and was not in response to any significant increase in
non-performing assets. These loans do, however, pose risks that
are not characteristic of loans secured by single family
residences. While there can be no guarantee, in the opinion of
management, the loan loss reserve of $1.9 million at March 31,
2000 is adequate to cover probable 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
interest earning deposits 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, 2000,
decreased 57.2% to $274,020 as compared to $640,951 for the same
period last year. The major decreases in net income can be
attributed to a $625 thousand increase in provision for loan
losses, a $287 thousand loss on sales of mortgage-backed
securities, offset , in part, by a $582 thousand gain on the
sale of a branch office.
INTEREST INCOME
For the three-month period ended March 31, 2000, interest
income increased 8.2% as compared to the same period a year ago.
The average balance of interest-earning assets increased 5.7%
and average yield increased 18 basis points as compared to the
same period a year ago. The yield on average interest-earning
assets increased to 7.76% as compared to 7.58% for the same
period a year ago. The increase in the average balance of
interest-earning assets and yield had a positive effect on
interest income.
INTEREST EXPENSE
Interest expense increased 8.1% for the three-month period
ended March 31, 2000, as compared to the same period a year ago.
The increase in interest expense can be attributed to a 5.5%
increase in average interest-bearing liabilities and an increase
in the cost of these liabilities. The cost of interest-bearing
liabilities increased 12 basis points to 4.87% as compared to
4.75% for the same period last year.
NET INTEREST INCOME
Net interest income for the period ended March 31, 2000, as
compared to the same period a year ago, increased 8.2%. During
the three-month period, the yield on average interest-earning
assets increased 18 basis points, and the cost of average
interest-bearing liabilities increased 12 basis points as
compared to the same period a year ago. The increase in net
interest income is principally due to the higher volume of loans
(the highest yielding asset) offset by an increase in the
interest rate paid on deposits. Interest-earning assets
increased 5.7% while interest-bearing liabilities increased
5.5%. The net interest margin increased to 3.23% for the
three-month period ended March 31, 2000 as compared to 3.16% for
the same period a year ago. The percentage of average
interest-earning assets to average interest-bearing liabilities
increased to 107.6% for the three-month period ended March 31,
2000, as compared to 107.4% for the same period in 1999.
9
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AVERAGE YIELD/COST ANALYSIS
The following table contains information relating to the
Company's average balance sheet and reflects the average yield
on assets and average cost of liabilities for the periods
indicated. Such annualized yields and costs are derived by
dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented.
<TABLE>
<CAPTION>
For the quarter ended
March 31, 200 March 31, 1999
-----------------------------------------------------
(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 $ 51,941 $ 758 5.84% $ 42,493 $ 593 5.58%
Mortgage-backed and related
securities 3,992 62 6.21% 10,143 156 6.15%
Loan portfolio 338,986 6,840 8.07% 321,080 6,332 7.89%
Total interest-earning -------- ------ -------- ------
assets 394,919 $7,660 7.76% 373,716 $7,081 7.58%
------ ------
Non-interest earning assets 13,358 15,323
-------- --------
Total assets $408,277 $389,039
======== ========
Interest-bearing liabilities:
Deposits 295,259 3,349 4.54% 291,076 3,248 4.46%
Borrowed funds 71,918 1,119 6.22% 56,831 883 6.21%
Total interest-bearing -------- ------ -------- ------
liabilities 367,177 $4,468 4.87% 347,907 $4,131 4.75%
------ ------
Non-interest bearing
liabilities 11,185 9,850
-------- --------
Total liabilities 378,362 357,757
Stockholders' equity 29,915 31,282
Total liabilities and -------- --------
stockholders' equity $408,277 $389,039
======== ========
Net interest income $3,192 $2,950
====== ======
Interest rate spread 2.89% 2.83%
==== ====
Net yield on interest-
earning assets 3.23% 3.16%
Percentage of average
interest-earning assets to
average interest-bearing
liabilities 107.6% 107.4%
===== =====
</TABLE>
10
<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 assets 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 has been allocated to the other
categories based on absolute values.
<TABLE>
<CAPTION>
For the three months ended
March 31, 1999 vs. March 31, 2000
Increase (Decrease)
Due to
---------------------------------------
(DOLLARS IN THOUSANDS) Volume Rate Total
--------- --------- -----------
<S> <C> <C> <C>
Interest income:
Securities and other
interest-earning assets $ 137 $ 28 $ 165
Mortgage-backed and related securities (96) 2 (94)
Loan portfolio 359 149 508
------ ----- -----
Total interest-earning assets 400 179 579
------ ----- -----
Interest expense:
Deposits 47 55 102
Borrowed funds 234 1 235
------ ----- -----
Total interest-bearing liabilities 281 56 337
------ ----- -----
Net interest income $ 119 $ 123 $ 242
====== ===== =====
</TABLE>
11
<PAGE>
<PAGE>
RESERVE FOR LOAN LOSSES
During the three-month period ended March 31, 2000 the
Bank had net charge-offs against the loan loss reserve of $38
thousand. The Bank added $700 thousand to the loan loss reserve
for the current period increasing the balance to $1.9 million at
March 31, 2000. The $700 thousand provision in the three-month
period ended March 31, 2000 includes an increase of
approximately $625 thousand made in response to a detailed
review of the Bank's loan portfolio. Management's decision to
increase the loan loss reserve was considered appropriate in
light of the successful expansion in the commercial loan
portfolio in recent months and was not in response to any
significant increase in non-performing assets. 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
Noninterest income increased by 70.0% for the three-month
period ended March 31, 2000, as compared to the same period last
year. The change in noninterest income can be attributed to a
$582 thousand gain on the sale of a branch office offset by a
$287 loss on the sale of mortgage backed securities. During the
three-month period ended March 31, 2000, the Bank recognized no
gains or losses on the sales of loans as compared to the sale of
$19.5 million at a gain of $123 thousand for the same period a
year ago. The balance in real estate owned expense represents
operating expense and further reduction of the carrying amount
of foreclosed real estate owned. The Bank aggressively pursues
disposal of the foreclosed real estate owned, thereby incurring
various charges in the sales of these properties. Loan fees for
the three-month period ended March 31, 2000 as compared to last
year increased 14.0% due to an increase in the volume of loans
serviced. For the same period, fee income from deposit
operations increased 12.0% due to an increase in the volume of
checking accounts.
NONINTEREST EXPENSES
For the three-month period ended March 31, 2000,
noninterest expense increased 20.0% as compared to the same
period last year. Compensation and related costs increased
37.6% due to an additional $150 thousand in funding for the
defined benefit plan, a $31 thousand payment to a director upon
his retirement, increased staffing levels and normal increases
in salaries and benefits. Occupancy and equipment expense
increased by 13.5%. This increase can be attributed to
additional maintenance necessary to keep the buildings and
equipment in good repair, property tax increases, increases in
the cost of data processing services and normal increases in
utilities expenses.
INCOME TAXES
The effective tax rates for the three-month period ended
March 31, 2000 and 1999 approximate the statutory rate after
giving effect to nontaxable interest, other permanent tax
differences, and adjustments to certain deferred tax
liabilities.
12
<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 March 31, 2000.
13
<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 10, 2000 /s/ Frederick Willetts, III
---------------- ------------------------------------
Frederick Willetts, III
President and Chief Executive Officer
Dated: May 10, 2000 /s/ Edward E. Maready
---------------- -------------------------------------
Edward E. Maready
Treasurer and Chief Financial Officer
14
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------------------
<S> <C> <C>
Basic income per common share:
Net Income $ 274,020 $ 640,951
Weighted average common shares outstanding 2,720,089 2,979,311
Basic income per common share $ 0.10 $ 0.22
Dilutive income per common share:
Net Income $ 274,020 $ 640,951
Weighted average common shares outstanding 2,720,089 2,979,311
Dilutive effect of stock options 106,477 160,721
------------------------
Total shares 2,826,566 3,140,032
Dilutive income per common share $ 0.10 $ 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,511,454
<INT-BEARING-DEPOSITS> 11,478,760
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 18,022,161
<INVESTMENTS-MARKET> 17,018,755
<LOANS> 343,221,884
<ALLOWANCE> 1,967,807
<TOTAL-ASSETS> 410,465,246
<DEPOSITS> 316,411,852
<SHORT-TERM> 63,104,565
<LIABILITIES-OTHER> 1,530,539
<LONG-TERM> 0
<COMMON> 2,709,078
0
0
<OTHER-SE> 26,709,212
<TOTAL-LIABILITIES-AND-EQUITY> 410,465,246
<INTEREST-LOAN> 6,839,786
<INTEREST-INVEST> 819,658
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,659,444
<INTEREST-DEPOSIT> 3,349,323
<INTEREST-EXPENSE> 4,467,853
<INTEREST-INCOME-NET> 3,191,591
<LOAN-LOSSES> 700,000
<SECURITIES-GAINS> (287,282)
<EXPENSE-OTHER> 2,621,957
<INCOME-PRETAX> 428,562
<INCOME-PRE-EXTRAORDINARY> 428,562
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,020
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 3.23
<LOANS-NON> 0
<LOANS-PAST> 644,409
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,306,381
<CHARGE-OFFS> 61,597
<RECOVERIES> 23,023
<ALLOWANCE-CLOSE> 1,967,807
<ALLOWANCE-DOMESTIC> 1,967,807
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
