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, 2001
---------------
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: 0-24626
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COOPERATIVE BANKSHARES, INC.
---------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1886527
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
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. 2,800,975 shares at April 13, 2001
----------------------------------
TABLE OF CONTENTS
Page
Part I Financial Information
Item 1 Financial Statements (Unaudited)
[Note: 12/30/00 Balance Sheet Is Audited]
Consolidated Statements of Financial Condition,
March 31, 2001 and December 31, 2000 2
Consolidated Statements of Operations, for the
three months ended March 31, 2001 and 2000 3
Consolidated Statements of Stockholders' Equity,
for the three months ended March 31, 2001 4
Consolidated Statements of Cash Flows, for the
three months ended March 31, 2001 and 2000 5-6
Notes to Consolidated Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Part II Other Information 15
Signatures 16
Exhibit 11 - Statement Regarding Computation of Earnings Per Share 17
PART 1-FINANCIAL INFORMATION-ITEM 1-FINANCIAL STATEMENTS
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2001 DECEMBER 31, 2000*
-------------- -----------------
(Unaudited)
ASSETS
Cash and due from banks, noninterest-bearing $ 2,495,535 $ 3,904,275
Interest-bearing deposits in other banks 8,496,881 13,994,293
------------ ------------
Total cash and cash equivalents 10,992,416 17,898,568
Securities:
Available for sale (amortized cost of $34,516,775 in March 2001
and $16,000,677 in December 2000) 34,766,929 16,049,376
Held to maturity (estimated market value of $7,912,189 in March 2001
and $18,553,526 in December 2000) 8,000,000 18,977,776
FHLB stock 3,755,300 3,755,300
Loans 351,340,431 349,662,711
Less allowance for loan losses 2,204,280 2,159,663
------------ ------------
Net loans 349,136,151 347,503,048
Other real estate owned 234,711 234,711
Accrued interest receivable 2,961,333 2,776,404
Premises and equipment, net 6,279,177 6,272,610
Prepaid expenses and other assets 1,031,283 1,260,232
------------ ------------
Total assets $417,157,300 $414,728,025
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $328,566,321 $327,312,324
Borrowed funds 55,100,419 55,101,477
Escrow deposits 756,341 560,775
Accrued interest payable 96,759 50,528
Accrued expenses and other liabilities 1,262,566 890,742
------------ ------------
Total liabilities 385,782,406 383,915,846
------------ ------------
Stockholders' equity:
Preferred stock, $1 par value, 3,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $1 par value, 7,000,000 shares authorized,
2,800,975 and 2,714,610 shares issued and outstanding 2,800,975 2,714,610
Additional paid-in capital 2,154,096 2,234,936
Accumulated other comprehensive income 152,594 29,707
Retained earnings 26,267,229 25,832,926
------------ ------------
Total stockholders' equity 31,374,894 30,812,179
------------ ------------
Total liabilities and stockholders' equity $417,157,300 $414,728,025
============ ============
Book value per common share $ 11.20 $ 11.35
============ ============
* Derived from audited consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
2
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
INTEREST INCOME:
Loans $ 7,145,394 $ 6,839,786
Securities 535,320 630,262
Other 170,206 117,035
Dividends on FHLB stock 67,132 72,361
----------- -----------
Total interest income 7,918,052 7,659,444
----------- -----------
INTEREST EXPENSE:
Deposits 4,125,279 3,349,323
Borrowed funds 846,806 1,118,530
----------- -----------
Total interest expense 4,972,085 4,467,853
----------- -----------
Net interest income 2,945,967 3,191,591
Provision for loan losses 90,000 700,000
----------- -----------
Net interest income after provision for loan losses 2,855,967 2,491,591
----------- -----------
NONINTEREST INCOME:
Net loss on sale of securities - (287,282)
Service charges and fees on loans 158,716 82,276
Deposit-related fees 259,234 214,625
Gain on sale of branch - 582,583
Other income (loss), net (2,974) 688
----------- -----------
Total noninterest income 414,976 592,890
----------- -----------
NONINTEREST EXPENSE:
Compensation and fringe benefits 1,296,628 1,528,985
Occupancy and equipment 543,818 521,700
Advertising 46,461 102,704
Real estate owned expenses and losses 911 33,962
Other 485,647 468,568
----------- -----------
Total other operating expenses 2,373,465 2,655,919
----------- -----------
Income before income taxes 897,478 428,562
Income tax expense 323,126 154,542
----------- -----------
NET INCOME $ 574,352 $ 274,020
=========== ===========
NET INCOME PER SHARE:
Basic $ 0.21 $ 0.10
=========== ===========
Diluted $ 0.20 $ 0.10
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 2,747,512 2,720,089
=========== ===========
Diluted 2,816,068 2,826,566
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
STOCK CAPITAL INCOME EARNINGS EQUITY
---------- ----------- -------------- -------- -------------
Balance, December 31, 2000 $ 2,714,610 2,234,936 29,707 25,832,926 30,812,179
Exercise of stock options 105,763 156,660 -- -- 262,423
Stock traded to exercise options
(19,398 shares) (19,398) (237,500) -- -- (256,898)
Other comprehensive --
income, net of taxes -- -- 122,887 -- 122,887
Net income for period -- -- -- 574,352 574,352
Cash dividend ($.05 per share) -- -- -- (140,049) (140,049)
----------- --------- ------- ---------- ----------
Balance, March 31, 2001 $ 2,800,975 2,154,096 152,594 26,267,229 31,374,894
=========== ========= ======= ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
--------- ---------
OPERATING ACTIVITIES:
Net income $ 574,352 $ 274,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Net accretion, amortization, and depreciation 162,528 167,652
Net (gain) loss on sale of securities - 287,282
Benefit from deferred income taxes (47,711) (301,299)
Loss (gain) on sale of premises and equipment 3,318 (50)
Loss on sales of foreclosed real estate - 32,248
Gain on sale of branch office - (582,583)
Provision for loan losses 90,000 700,000
Changes in assets and liabilities:
Accrued interest receivable (184,929) (228,052)
Prepaid expenses and other assets 195,681 903,056
Accrued interest payable 46,231 52,877
Accrued expenses and other liabilities 388,935 573,306
------------ ------------
Net cash provided by operating activities 1,228,405 1,878,457
------------ ------------
INVESTING ACTIVITIES:
Purchases of securities available for sale (14,553,138) -
Proceeds from sale of securities available for sale - 6,277,957
Proceeds from maturity of securities available for sale 2,013,112 189,762
Proceeds from maturity of securities held to maturity 5,000,000 -
Loan originations, net of principal repayments (1,737,803) (10,632,442)
Proceeds from disposals of foreclosed real estate - 217,510
Purchases of premises and equipment (176,084) (99,529)
Proceeds from sale of premises and equipment 5,375 50
Net cash paid related to sale of branch office - (5,156,761)
------------ ------------
Net cash used in investing activities (9,448,538) (9,203,453)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 1,253,997 18,676,136
Proceeds from borrowed funds - 15,000,000
Principal payments on borrowed funds (1,058) (27,001,002)
Proceeds from issuance of common stock 5,525 107,641
Purchase and retirement of common stock - (380,683)
Dividends paid (140,049) -
Net change in escrow deposits 195,566 321,108
------------ ------------
Net cash provided by financing activities 1,313,981 6,723,200
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (6,906,152) (601,796)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 17,898,568 15,592,010
------------ ------------
END OF PERIOD $ 10,992,416 $ 14,990,214
============ ============
(Continued)
5
COOPERATIVE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED
MARCH 31,
2001 2000
----------- -----------
Cash paid for:
Interest $ 4,925,854 $ 4,433,526
Income taxes 64,583 35,879
Summary of noncash investing and financing activities:
Transfer from loans to foreclosed real estate - 128,049
Unrealized gain (loss) on securities available for sale,
net of taxes 122,887 74,012
The accompanying notes are an integral part of the consolidated financial
statements.
6
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, 2000. The results of operations for the three-month period
ended March 31, 2001 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. Certain items for prior periods have been reclassified to
conform to the current period presentation. These reclassifications have no
effect on the net income or stockholders' equity as previously reported.
3. Earnings Per Share: Earnings per share are calculated by dividing net
-------------------
income by the sum of 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. The following table sets forth the
components of other comprehensive income and total comprehensive income for
the three months ended March 31:
2001 2000
---------- ----------
Net income $ 574,352 $ 274,020
Other comprehensive income, net of tax:
Reclassification to realized losses on available
for sale securities - 287,282
Unrealized gain (loss) on available for sale securities 201,454 (165,950)
Income tax expense (78,567) (47,320)
---------- ----------
Other comprehensive income 122,887 74,012
---------- ----------
Comprehensive income $ 697,239 $ 348,032
========== ==========
7
5. Statement of Financial Accounting Standards No. 133: On January 1, 2001,
------------------------------------------------------
the Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The statement is effective for fiscal years
beginning after June 15, 2000, with earlier adoption permitted, as amended
by SFAS No. 137. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. The
statement requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. On January 1, 2001, the Company transferred
held-to-maturity investment securities with an amortized cost of
approximately $5,978,000 to the available-for-sale category at fair value
as allowed by SFAS No. 133. The unrealized loss at the time of transfer of
approximately $32,000 before tax has been included in other comprehensive
income, net of tax. Such transfers from the held-to-maturity category at
the date of initial adoption shall not call into question the Company's
intent to hold other debt securities to maturity in the future. The Company
does not engage in any hedging activities, and, other than the
aforementioned transfer of securities, the adoption of the statement had no
impact on the Company.
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 for Cooperative Bank for Savings,
Inc., SSB ("Cooperative Bank" or the "Bank"), a North Carolina chartered 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 was chartered in 1898. The Bank's headquarters are located in
Wilmington, North Carolina. Cooperative operates 16 financial centers throughout
the coastal and inland communities of eastern North Carolina. These centers
extend from Corolla, located on the Outer Banks of North Carolina, to Tabor
City, located on the South Carolina border. The Bank's deposit accounts are
insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC").
Through its financial centers, the Bank provides a wide range of banking
products, including interest bearing and non-interest bearing checking accounts,
certificates of deposit and individual retirements accounts. It offers an array
of loan products: overdraft protection, commercial, consumer, agricultural, real
estate, residential mortgage and home equity loans. Also offered are safe
deposit boxes and automated banking services through ATMs and Access24 Phone
Banking. In addition, the Bank offers discount brokerage services, annuity sales
and mutual funds through a third party arrangement with UVEST Investment
Services.
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
loans for the purpose of constructing, financing or refinancing residential
properties. As of March 31, 2001, approximately $285.8 million, or 81.1%, 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, and secured and unsecured consumer and business loans.
While continuing to place emphasis on residential mortgage loans, the Bank is
taking a more aggressive position in pursuing business lending and
nonresidential real estate lending
8
involving loans secured by small commercial properties with balances generally
ranging from $100,000 to $1,000,000. The Bank originates adjustable rate and
fixed rate loans. As of March 31, 2001, adjustable rate and fixed rate loans
totaled approximately 61% and 39%, respectively, of the Bank's total loan
portfolio.
The Bank has chosen to begin selling a larger percentage of its fixed rate
mortgage loan originations through broker dealer arrangements. This enables the
Bank to invest its funds in higher yielding commercial loans, while increasing
fee income. This is part of the continuing effort to restructure the balance
sheet and operations to be more reflective of a commercial bank.
The Bank has received permission from regulators to open a branch in Whiteville,
North Carolina, which is located in Columbus County. The branch will be a
full-service facility, including an ATM, with two full-time employees and one
part-time employee. This financial center opened in April, 2001.
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,
2001, Cooperative had a one-year positive gap position of 2.1%. 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, 2001, the Bank's borrowed funds equaled 13.2% of its total assets.
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, 2001, the estimated market value of liquid assets (cash, cash
equivalents, and marketable securities) was approximately $53.7 million, which
represents 14.0% of deposits and borrowed funds as compared to $52.5 million or
13.7% of deposits and borrowed funds at December 31, 2000. The increase in
liquid assets was primarily due to investment of cash from operating activities
and the unrealized gain in marketable securities.
9
The Company's primary uses of liquidity are to fund loans and to make
investments. At March 31, 2001, outstanding off-balance sheet commitments to
extend credit totaled $24.6 million, and the undisbursed portion of construction
loans was $19.4 million. Management considers current liquidity levels adequate
to meet the Company's cash flow requirements.
CAPITAL
Stockholders' equity at March 31, 2001, was $31.4 million, up 1.8% from $30.8
million at December 31, 2000. Stockholders' equity at March 31, 2001 and
December 31, 2000, includes unrealized gains net of tax, of $152,594 and
$29,707, respectively, 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 leverage ratio of core (Tier I)
capital to average adjusted assets ranging from 3% to 5%. At March 31, 2001, the
Bank's ratio of Tier I capital was 7.5%. 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, 2001, the Bank had a ratio of qualifying total capital to
risk-weighted assets of 12.1%.
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 March 15, 2001, the Company's Board of Directors approved a quarterly cash
dividend of $.05 per share. The dividend was paid on April 16, 2001 to
stockholders of record as of April 2, 2001. 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.
FINANCIAL CONDITION AT MARCH 31, 2001, COMPARED TO DECEMBER 31, 2000
The Company's total assets increased 0.6% to $417.2 million at March 31, 2001,
as compared to $414.7 million at December 31, 2000. The major changes in the
assets are as follows: a decrease of $6.9 million (38.6%) in cash and cash
equivalents, an increase of $18.7 million (116.6%) in securities available for
sale, a decrease of $11.0 million (57.8%) in securities held to maturity and an
increase of $1.7 million (0.5%) in loans. Available liquid assets were used in
part to fund the increase in securities. Although the Company has concentrated
its lending activities on the origination of loans for the purpose of the
constructing, financing or refinancing of residential properties, it is becoming
more active in the origination of small loans secured by commercial properties.
At March 31, 2001, approximately 18.9% of the Company's loan portfolio were
loans secured by collateral other than residential properties, compared to 15.3%
at December 31, 2000.
The Bank funded the increase in loans with a $1.3 million (0.4%) increase in
retail deposits, and other available liquid assets. 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, 2001, $15.0 million in borrowed funds mature in 1 year and $30.0
million of funds mature in 2 to 5 years. The remaining amount of borrowed funds
matures in 2010.
The Company's non-performing assets (loans 90 days or more delinquent and
foreclosed real estate) were $966 thousand, or 0.23% of assets, at March 31,
2001, compared to $925 thousand, or 0.22% of assets, at December 31, 2000. The
Company assumes an aggressive position in collecting delinquent loans and
disposing of
10
foreclosed assets 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 loan loss reserve of $2.2 million at March 31, 2001, is adequate
to cover probable losses.
COMPARISON OF OPERATING 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, the
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, 2001, of $574,352
represents a 109.6% increase as compared to the same period last year. The
increase in net income for the period ended March 31, 2001 can be attributed to
a $610 thousand decrease in provision for loan losses, and, in the period ending
March 31, 2000, a $287 thousand loss on sales of mortgage-backed securities.
These increases were partially offset by a reduction in net interest income of
$246 thousand for the period ended March 31, 2001. In addition, during the first
quarter of 2000, a $582 thousand gain on the sale of a branch office was
recognized. No similar gain was recognized during the current period.
INTEREST INCOME
For the three-month period ended March 31, 2001, interest income increased 3.4%
as compared to the same period a year ago. The average balance of
interest-earning assets increased 1.3% and the average yield increased 16 basis
points as compared to the same period a year ago. The yield on average
interest-earning assets increased to 7.92% as compared to 7.76% 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 11.3% for the three-month period ended March 31,
2001, as compared to the same period a year ago. This increase was due to the
average balance of interest-bearing liabilities increasing 1.3% and the average
cost increasing 51 basis points as compared to the same period a year ago. The
cost of interest-bearing liabilities increased to 5.38% as compared to 4.87% for
the same period last year.
NET INTEREST INCOME
Net interest income for the three-month period ended March 31, 2001, as compared
to the same period a year ago, decreased 7.7%. During the three-month period,
the yield on average interest-earning assets increased 16 basis points and the
cost of average interest-bearing liabilities increased 51 basis points as
compared to the same period a year ago. The decrease was due to a larger
increase in the cost of liabilities versus the yield on assets. This difference
can be attributed to the fact that more assets repriced within 30 days as
compared to liabilities as a result of the rapidly declining interest rate
environment during the three-month period ended March 31, 2001. Once interest
rates stabilize, management expects the spread between the average yield on
interest-earning assets and the average cost on interest-bearing liabilities to
return to normal levels.
11
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. The average loan portfolio
balances include nonaccrual loans.
For the quarter ended
March 31, 2001 March 31, 2000
------------------------------- --------------------------------
(DOLLARS IN THOUSANDS) Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
Interest-earning assets:
Securities and other interest-earning
assets $ 51,805 $ 750 5.79% $ 51,941 $ 758 5.84%
Mortgage-backed and related securities 1,416 23 6.50% 3,992 62 6.21%
Loan portfolio 346,766 7,145 8.24% 338,986 6,840 8.07%
--------- ------ -------- ------
Total interest-earning assets 399,987 $7,918 7.92% 394,919 $7,660 7.76%
------ ------
Non-interest earning assets 13,780 13,358
-------- --------
Total assets $413,767 $408,277
======== ========
Interest-bearing liabilities:
Deposits 314,341 4,125 5.25% 295,259 3,349 4.54%
Borrowed funds 55,101 847 6.15% 71,918 1,119 6.22%
--------- ------ -------- ------
Total interest-bearing liabilities 369,442 $4,972 5.38% 367,177 $4,468 4.87%
------ ------
Non-interest bearing liabilities 12,900 11,185
-------- --------
Total liabilities 382,342 378,362
Stockholders' equity 31,425 29,915
-------- --------
Total liabilities and stockholders' equity $413,767 $408,277
======== ========
Net interest income $2,946 $3,192
====== ======
Interest rate spread 2.54% 2.89%
====== ======
Net yield on interest-earning assets 2.95% 3.23%
Percentage of average interest-earning
assets to average interest-bearing
liabilities 108.3% 107.6%
====== ======
12
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 two categories
based on their relative values.
For the three months ended
March 31, 2000 vs. March 31, 2001
Increase (Decrease)
Due to
--------------------------------
(DOLLARS IN THOUSANDS)
Volume Rate Total
------ ---- ------
Interest income:
Securities and other
interest-earning assets $ (2) $ (6) $ (8)
Mortgage-backed and related securities (42) 3 (39)
Loan portfolio 159 146 305
------- ------- -------
Total interest-earning assets 115 143 258
------- ------- -------
Interest expense:
Deposits 226 550 776
Borrowed funds (259) (13) (272)
------- ------- -------
Total interest-bearing liabilities (33) 537 504
------- ------- -------
Net interest income $ 148 $ (394) $ (246)
======= ======= =======
PROVISION AND RESERVE FOR LOAN LOSSES
During the three-month period ended March 31, 2001 the Bank had net charge-offs
against the allowance for loan losses of $45,000. The Bank added $90,000 to the
allowance for loan losses for the current three-month period increasing the
balance to $2.2 million at March 31, 2001. The $700,000 provision in the three
month period ended March 31, 2000 included an increase of approximately $625,000
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 the current 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. Additionally,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the recognition of additions to the allowance for loan losses based on
their judgments of information available to them at the time of their
examination.
13
NONINTEREST INCOME
Noninterest income decreased by 30.0% for the three-month period ended March 31,
2001, as compared to the same period a year ago. The change in noninterest
income can be attributed to a $582 thousand gain on the sale of a branch office
offset by a $287 thousand loss on the sale of mortgage back securities which
occurred during the three-month period ended March 31, 2000. No similar
transactions occurred during the three months ended March 31, 2001. For the
three-month period ended March 31, 2001, as compared to the same period a year
ago, service charges on deposit accounts increased 20.8% and loan fees and
service charges increased 92.9%. The increase in service charges on deposit
accounts was due to an increase in number of accounts, and an increase in
checking related fees. The increase in loan fees was mainly due to an increase
in loan settlement service fees for loans processed for others.
NONINTEREST EXPENSES
For the three-month period ended March 31, 2001, noninterest expense decreased
10.6% as compared to the same period last year. Compensation and related costs
decreased 15.2%. The major decrease was due to a modification to the defined
benefit plan in 2000, which caused a reduction in expense associated with the
defined benefit plan of $274 thousand. There was also a decrease in compensation
of 4.7% due to the early retirement of certain employees at December 31, 2000.
In addition, compensation and related expenses for the three months ended March
31, 2000 included a $31 thousand payment to a director upon his retirement.
There was an increase of $38 thousand due to employee medical insurance
premiums. Occupancy and equipment expense increased by 4.2%. 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 utility expenses. The reduction of
$56 thousand in advertising can be attributed to a more conservative advertising
campaign. Real estate owned expenses and losses were reduced by $33 thousand due
to a small inventory of property that did not change during the three-month
period ended March 31, 2001.
INCOME TAXES
The effective tax rates for the three-month period ended March 31, 2001 and
2000, respectively, approximate the statutory rate after giving effect to
nontaxable interest and other permanent tax differences.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, the discussion contains
forward-looking statements that involve risks and uncertainties. Economic
circumstances, the Company's operations, and the Company's actual results could
differ significantly from those discussed in the forward-looking statements.
Some of the factors that could cause or contribute to such differences are
discussed herein, but also include changes in the economy and interest rates in
the nation, changes in the Company's regulatory environment and the Company's
market area.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(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
15
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 11, 2001 /s/ Frederick Willetts, III
--------------------------------------
President and Chief Executive Officer
Dated: May 11, 2001 /s/ Todd L. Sammons
--------------------------------------
Treasurer and Chief Financial Officer
16