COOPERATIVE BANKSHARES REPORTS 17.5% INCREASE IN 2005 

For Immediate Release: January 27, 2006

 Wilmington, NC—Cooperative Bankshares, Inc. (NASDAQ: “COOP”) (the “Company”) reported net income for the twelve months ended December 31, 2005, of $5.50 million or $1.26 per diluted share, a 17.5% increase in net income compared to last year.  Net income for the twelve months ended December 31, 2004 was $4.68 million or $1.07 per diluted share.  Net income for the quarter ended December 31, 2005, was $1.46 million or $0.33 per diluted share, an increase of $104,000 or 7.7% over the same quarter last year.  Net income for the quarter ended December 31, 2004 was $1.35 million or $0.31 per diluted share.  The increase in net income for both the December 2005 quarter and 2005 was mainly due to a rise in net interest income caused primarily by an increase in loans.  Loans increased 41.9% from December 31, 2004 to December 31, 2005.  The majority of the loan growth occurred in construction and land development loans which grew $65.0 million (101.7%), commercial real estate loans which grew $40.1 million (36.9%) and one-to-four family residential loans which grew $68.9 million (30.3%) during this period.  Loan growth is primarily attributable to continued strength in the economy of the markets in which the Company conducts its business and a continued emphasis on increased loan production.  Per share data for 2004 has been adjusted to reflect the 3-for-2 stock split in the form of a 50% stock dividend.  The shares were issued February 24, 2005.

The increase in net income for both the December 2005 quarter and the year 2005 included a $428,000 gain realized on the sale of an unoccupied former branch office.  Net income for the quarter and the year ended December 31, 2005 also reflected additional provisions for loan losses charged to operations of $710,000 and $1.52 million respectively, as compared to the provisions for loan losses for the same periods last year.  The increase in the provision for loan losses was caused by the overall increase in the loan portfolio, hurricane related collateral impairment and the Company’s increased emphasis on commercial loans.  Net income for the quarter and the year ended December 2005 was also reduced by $285,000 and $597,000 respectively due to an increase in the provision for income taxes.  As previously reported, the provision for income taxes was increased as a result of an announcement by the state taxing authority with respect to its proposed treatment regarding certain dividends received from entities such as the real estate investment trust controlled by the Company.  While the Company is currently undergoing a state tax audit, it believes that, as of December 31, 2005, it has accrued for the possible effect of the State’s announced tax position other than interest that may accrue after December 31, 2005. 

Total assets increased 35.7%, primarily as a result of continued loan growth, since December 31, 2004 and at December 31, 2005 were $746.3 million; stockholders’ equity was $51.1 million and represented 6.85% of assets.   

Cooperative Bankshares, Inc. is the parent company of Cooperative Bank.  Chartered in 1898, Cooperative Bank provides a full range of financial services through 21 offices in Eastern North Carolina.  The Bank’s subsidiary, Lumina Mortgage, Inc., is a mortgage banking firm, originating and selling residential mortgage loans through three offices in North Carolina, and offices in North Myrtle Beach, South Carolina, and Virginia Beach, Virginia.

 Statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements, which contain the words “expects”, “intends” and words of similar import, are subject to numerous risks and uncertainties disclosed from time to time in documents the company files with the Securities and Exchange Commission, which could cause actual results to differ materially from the results currently anticipated.  Undue reliance should not be placed on such forward-looking statements.

SEC Form 8-K has been filed containing additional financial information.

For Additional Information:

Frederick Willetts, III, President
Todd L. Sammons, CPA, Senior Vice President/ CFO
Linda B. Garland, Vice President/ Secretary
910-343-0181