Cooperative Bankshares, Inc. (COOP-NASDAQ)
Interview with:
Frederick Willetts, III, Chairman, President and CEO
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Cooperative Bank, a North Carolina chartered commercial bank and their subsidiary, Lumina Mortgage, Inc.; a mortgage banking firm, originating and selling residential mortgage loans through offices in Wilmington, North Carolina, North Myrtle Beach, South Carolina, and Virginia Beach, Virginia.


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Cooperative Bankshares is a conservative, long-term financial institution and largest local bank in one of the most rapidly growing markets in the country

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Community Banks

Cooperative Bankshares, Inc.

201 Market Street
Wilmington, NC 28401
Phone: 910-343-0181

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Frederick Willetts, III
Chairman, President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
February 24, 2005

Frederick Willetts, III has been employed by the Bank since 1972 and has served as the Chief Executive Officer and President since June 1, 1991. He was named to the additional position of Chairman of the Board during 1998. Mr. Willetts is past Chairman of the North Carolina Bankers Association and served on the Board of Directors of America's Community Bankers. He has served on the Thrift Institutions Advisory Council to the Federal Reserve Board, as President of the Southeastern Conference of the U.S. Savings and Loan League, the Greater Wilmington Chamber of Commerce, the Foundation of the Episcopal Diocese of East Carolina, Vice Chairman of the Foundation of the University of North Carolina at Wilmington and as President of Wilmington Industrial Development (Committee of 100). Mr. Willetts was the recipient of the New Hanover Distinguished Service Award in 1987, the "Five Outstanding Young North Carolinians" Award in 1988, the Glen Troop Award for outstanding public service to the thrift industry in 1990 and the Wilmington Good Citizenship Award in 1994.

Company Profile:
Cooperative Bankshares, Inc. is a registered bank holding company incorporated in North Carolina in 1994. The Company serves as the holding company for Cooperative Bank; a North Carolina chartered commercial bank. The Company's primary activities consist of holding the stock of Cooperative Bank and operating the business of the Bank. Cooperative Bank's subsidiary, Lumina Mortgage, Inc., is a mortgage banking firm, originating and selling residential mortgage loans through offices in Wilmington, North Carolina, North Myrtle Beach, South Carolina, and Virginia Beach, Virginia.

Cooperative Bank was chartered in 1898. The Bank's headquarters is located in Wilmington, North Carolina. Cooperative operates 21 offices 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.

Through its offices, the Bank provides a wide range of banking products, including checking accounts, certificates of deposit and individual retirement 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 also offers discount brokerage services, annuity sales and mutual funds through a third party arrangement with UVEST Investment Services.

CEOCFOinterviews: Mr. Willetts, you have been CEO for quite some time; what was your vision when you took over and what has transpired since you have been there?
Mr. Willetts: "I have actually been employed here for over 33 years and I am third generation in my family to run things; taught by my father from an early age. In 1991, we took the company public. At that time, he moved to chairman of the board and I became president and CEO. The vision, beginning at that point was to become a public company and to enhance stockholder value and to convert the bank from a traditional savings-and-loan thrift type organization, to a full-service community bank."

CEOCFOinterviews: Where are you today?
Mr. Willetts: "Using a baseball analogy, I would say we are at the bottom of the seventh inning, so we still have some thrift assets on the books and they are gradually paying off. The banking assets are taking more of a percentage of the balance sheet."

CEOCFOinterviews: Who is your target customer?
Mr. Willetts: "Our focus is on small business and individuals in our markets."

CEOCFOinterviews: What is the economy like in the area that you serve?
Mr. Willetts: "We serve eastern North Carolina, which is a two-tier economy. The inland areas of eastern North Carolina are suffering economically, with tobacco becoming less of a money crop and with the textile industry moving overseas, unemployment is high and the economy is not good. However over on the coast is where we are more positioned at this point. It is a booming area both from a tourism perspective and our headquarters here in Wilmington is a diverse city of approximately 100,000 here in a metro area of 300,000. It is one of the fastest growing markets in the country."

CEOCFOinterviews: How do you attract business?
Mr. Willetts: "We generally try to attract business by using several methods. One is word-of-mouth, which over time has taken us a long way. People tell their neighbors about the quality of service and the fact that even though the big banks do not deliver that anymore, that there are still alternatives and we are one of them. The other is the personal contacts that we make with individuals."

CEOCFOinterviews: Do you do much advertising?
Mr. Willetts: "We do! It is hard to tell how effective that is. I have read before that 90% of your advertising is wasted; the key would be to know which 90% that is. I think the one-on-one approach has been more beneficial to us."

CEOCFOinterviews: How do you split between commercial and consumer and do you see that changing?
Mr. Willetts: "We really emphasize more commercial. We do make some car loans and home equity loans too, but we are geared more to the developer, construction lending or residential properties. We have a tremendous growth rate in our community and that has been a niche that we have been very successful in."

CEOCFOinterviews: Why are your customers coming to you as opposed to your competition?
Mr. Willetts: "We are the largest locally headquartered bank in Wilmington. We have had two relatively new startups in the last few years that have not penetrated the market in a significant fashion. Everybody else in this market is out of town, out of state or out of the country banks."

CEOCFOinterviews: I am looking at your website and it reads "modern facilities combined with old fashioned courtesy; " what is it that makes the difference in the contact with your customers?
Mr. Willetts: "It is getting to know your customer. When they come in, they see a familiar name and face. We don't move people around as many other banks do so that they are used to coming in and seeing the same people.

CEOCFOinterviews: What do you look for in your people?
Mr. Willetts: "The most important is the work ethic and people-person type. Obviously talent and drive is considered in the equation but somebody who likes people, wants to help people and is willing to work hard to accomplish that."

CEOCFOinterviews: Will you give us an example of what a customer might find at a Cooperative bank that they would not find somewhere else?
Mr. Willetts: "We send mystery shoppers in to pose as customers and we grade our people on how they greet the customer and so forth. One of the things that they will notice is that people are called by their name if they know their name. They will often ask how the grandchildren are or how the college education is coming or whatever the event may be. If they have a problem, they are not shoved off somewhere, the problem is solved right there. I leave my door open and customers can come in without an appointment and talk to the president of the bank. You cannot do that at the big banks. We tried to reach someone in a big bank a few months ago and we could not find anyone to talk to about our particular problem."

CEOCFOinterviews: Do you see new branches in the future?
Mr. Willetts: "Our strategic plan calls for us to open new branches every nine to fifteen months; we opened four branches in 2003. We explained to the market that we made a strategic, practical decision to do that realizing that it would impact earnings during 2004 and it did. The market was patient with us and watched as we continued to grow those new branches and increase profitability. Going forward, as I say every nine to fifteen month is our plan; we can accommodate that growth without impacting our earnings."

CEOCFOinterviews: Do you see acquisitions in the future?
Mr. Willetts: "We look out for acquisitions, but frankly there are not many in the markets that we are interested in today, and those that are, do not want to sell or they are mighty fond of their franchise."

CEOCFOinterviews: Will you tell us about your mortgage subsidiary?
Mr. Willetts: "We acquired a mortgage company in 2002, which is headquartered here in Wilmington, but it has offices in Myrtle Beach, South Carolina and Virginia Beach, Virginia. This gives the bank flexibility to move into two other states and additionally it will allow us flexibility to offer some programs that we do not. By affiliating with a bank, we can make their construction loans and development loans. We feed each other back and forth."

CEOCFOinterviews: Are there services that you plan to offer in the future or that you think that you may need to offer?
Mr. Willetts: "We constantly keep an eye open for possibilities, but we have full internet banking and bill paying capability. We have a network of ATMs. We are moving into a new operation center this summer for better hands-on operational facilities."

CEOCFOinterviews: How is business?
Mr. Willetts: "Business is great! We are very fortunate to be in such good markets, especially along the coast. The coastal regions of the mid-Atlantic are booming. There are huge retirement communities. I was looking at some demographics today, the largest influx of people into our county, came from New York state. Many people from the northeast are finding it attractive here. There is a booming economy expanding here. Corning Incorporated (NYSE: GLW) has expanded here, Verizon (NYSE: VZ) has opened a new operation here, the state port is growing because they just dug the river channel to forty-two feet, which will accommodate larger ships. We are getting new highways constantly. The University is the fastest growing branch of the University system in North Carolina. There is a very diverse economy here."

CEOCFOinterviews: Why should potential investors be interested and what should they know that perhaps they don't realize when they first look at the company?
Mr. Willetts: "I continually have said since 1991 that Cooperative was a buy-and-hold stock. Because of its small-cap nature, it is thinly traded. It is not the type of stock that you could buy ten thousand shares a day and necessarily be able to get out next week. I do emphasize that it is a buy-and-hold stock as long as we continue to stay the course and continue to grow our balance sheet with good quality credits, and our portfolio of credits is excellent. We are in good markets and are continually expanding in those markets, so it is a long-term investment."

CEOCFOinterviews: Is there much float available for potential investors?
Mr. Willetts: "It trades about 2000 shares a day. There was one day last week where it traded about 30,000 shares; this was after we announced the three-for-two stocks split"

CEOCFOinterviews: Will you tell us about the stock split?
Mr. Willetts: "We announced on January 19th, a three-for-two stock split, which will take effect on February 24th. This has been viewed very positively in the market. The stock is traded up close to its all-time high and the volume has been significantly higher than it has been. One of the reasons for doing the stock split is to put more shares into the market, which would increase the float."

CEOCFOinterviews: Is reaching investors a focus for you?
Mr. Willetts: "Yes it is! I am speaking next week at an investor’s conference in Chapel Hill, North Carolina. I spoke last year in Atlanta, New York, and several other locations. I think with a small-cap stock like we are, the market doesn't find you, you find them. Speaking with people like you today, is another way to get that message out."

CEOCFOinterviews: In closing, what should people remember most about Cooperative Bankshares?
Mr. Willetts: "Cooperative Bankshares is a conservative, long-term financial institution in one of the most rapidly growing markets in the country. It is the largest local bank in that market and we will continue to grow the bank in a responsible manner."


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"Cooperative Bankshares is a conservative, long-term financial institution in one of the most rapidly growing markets in the country. It is the largest local bank in that market and we will continue to grow the bank in a responsible manner." - Frederick Willetts, III


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