SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               __________________

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
For the Fiscal Year Ended December 31, 2002

[ ]  TRANSITIONAL  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

                          COOPERATIVE BANKSHARES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      North Carolina                                             56-1886527
---------------------------------------------                -------------------
(State or other jurisdiction of incorporation                 (I.R.S. Employer
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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $1.00 per share
                     ---------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Section 13 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. YES  X   NO
                      ---    ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). YES    NO  X
                                        ---    ---

As of February 26, 2003, the aggregate  market value of the voting stock held by
non-affiliates  of the  registrant,  based  on the  closing  sales  price of the
registrant's  common stock as quoted on the NASDAQ Stock Market was  $37,980,750
(2,072,054  shares at $18.33  per  share).  For  purposes  of this  calculation,
directors,  executive  officers  and  beneficial  owners of more than 10% of the
registrant's outstanding voting stock are treated as affiliates.

As of March 5, 2003,  there were issued and outstanding  2,847,947 shares of the
registrant's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Annual Report to Stockholders  for the Fiscal Year Ended December 31, 2002.
     (Parts I and II)

2.   Proxy Statement for the 2003 Annual Meeting of Stockholders. (Part III)

<PAGE>

                                     PART I

ITEM 1.  BUSINESS
-----------------

GENERAL

     THE COMPANY.  Cooperative Bankshares,  Inc. (the "Company") is a registered
bank holding company  incorporated in North Carolina in 1994. The Company serves
as the holding company for Cooperative  Bank  ("Cooperative"  or the "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.  Accordingly,  the  information  set forth in this  report,  including
financial statements and related data, relates primarily to Cooperative Bank.

     COOPERATIVE BANK.  Chartered in 1898, the Bank's headquarters is located in
Wilmington, North Carolina. Cooperative operates 17 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").  Effective December 31, 2002, the Bank converted its charter from that
of a state savings bank to a state  commercial  bank. At December 31, 2002,  the
Company  had total  assets of $504.2  million,  deposits  of $357.3  million and
stockholders' equity of $38.4 million.

     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  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.

     The Bank has chosen to sell a large  percentage  of its fixed rate mortgage
loan  originations in the secondary  market and through  brokered  arrangements.
This enables the Bank to invest its funds in 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.

     On May 31, 2002, the Bank,  through its  subsidiary,  CS&L Services,  Inc.,
acquired  the  operating  assets  of  Lumina  Mortgage  Company  ("Lumina"),   a
Wilmington-based mortgage banking firm with offices in Wilmington,  North Myrtle
Beach,  South  Carolina and Virginia  Beach,  Virginia.  The purchase  price was
approximately $740,000 in cash with two future contingent payments based on loan
origination  volume and  achievement of certain  profitability  goals in the two
subsequent years after the purchase.  The two contingent  payments are estimated
to be  approximately  $650,000 each and, if made, will be recorded as additional
purchase price. In October 2002, CS&L Services, Inc. was renamed Lumina Mortgage
Company, Inc.

     In December  2002,  the Bank formed two new  subsidiaries,  CS&L  Holdings,
Inc., a Virginia  corporation  ("Holdings")  and CS&L Real Estate Trust,  Inc. a
North Carolina  corporation (the "REIT") which has elected to be taxed as a real
estate  investment  trust.  At December  31, 2002,  Holdings was a  wholly-owned
subsidiary  of the Bank and its only  activity  consisted  of holding all of the
outstanding  shares of common stock of the REIT.  The REIT was formed to enhance
certain  liquidity  options and options for future capital needs of the Bank. At
December 31, 2002 the REIT held a participation  interest in approximately  $125
million  in  mortgage  loans of the  Bank.  At  December  31,  2002,  all of the
outstanding  shares  of the  REIT's  common  and  preferred  stock  were held by
Holdings.  Subsequent to December 31, 2002, 117 shares of preferred stock in the
REIT were granted to officers, directors and certain other parties.

     The common stock of  Cooperative  Bankshares,  Inc. is traded on the NASDAQ
National Market under the symbol "COOP".

                                       2
<PAGE>

MARKET AREA

     Cooperative Bank considers its primary market area to be the communities of
eastern North  Carolina  between the Virginia and South  Carolina  borders.  The
market is generally segmented into the coastal communities and the inland areas.
The  economies  of the  coastal  communities  (concentrated  in Dare,  Carteret,
Currituck,  Onslow, Pender, New Hanover and Brunswick Counties) are seasonal and
largely dependent on the summer tourism industry. The economy of Wilmington (the
largest  city in the market  area),  a historic  seaport  with a  population  of
approximately 92,000 is also reliant upon summer tourism but is diversified into
the  chemicals,   shipping,  aircraft  engines,  and  fiber  optics  industries.
Wilmington  also serves as a regional retail center,  a regional  medical center
and is home of the  University  of North  Carolina  at  Wilmington.  The  inland
communities  served by the Bank  (concentrated in Bladen,  Brunswick,  Columbus,
Duplin,  Hyde,  Beaufort and Pender  Counties) are largely service areas for the
agricultural activities in eastern North Carolina.

     By acquiring Lumina, the Bank's footprint extended north into Virginia with
an office in Virginia  Beach,  and south into South  Carolina  with an office in
North  Myrtle  Beach.  These areas offer busy real estate  markets  allowing our
mortgage  companies  to create  solid bases in both  purchases,  refinances  and
reverse  mortgages.  Their  markets  are similar to those that have proven to be
good  investments  in the past.  The offices are located in coastal areas with a
large dependence on the tourism industry and the retirement community.

LENDING ACTIVITIES

     GENERAL.  Cooperative  Bank's lending  activities have  concentrated on the
origination of loans for the purpose of  constructing,  financing or refinancing
residential properties.  As of December 31, 2002, approximately $268 million, or
69%, of the Bank's loan  portfolio  consisted  of loans  secured by  residential
properties.  In recent years,  however,  the Bank has emphasized  origination of
nonresidential  real  estate  loans,  and  secured and  unsecured  consumer  and
business  loans.  The Bank is  taking a more  aggressive  position  in  pursuing
business lending, and nonresidential real estate lending involving loans secured
by small commercial  properties with balances generally ranging from $100,000 to
$1,000,000.  The Bank  originates  adjustable  rate and fixed rate loans.  As of
December 31, 2002,  adjustable  rate and fixed rate loans totaled  approximately
65% and 35%, respectively, of the Bank's total loan portfolio.

                                       3
<PAGE>
     ANALYSIS OF LOAN  PORTFOLIO.  Set forth below is selected  data relating to
the  composition  of the  Bank's  loan  portfolio  by type of loan  and  type of
collateral on the dates indicated.  Other than as set forth below, there were no
concentrations of loans which exceeded 10% of total loans at December 31, 2002.
<TABLE>
<CAPTION>
                                                                     AT DECEMBER 31,
                                            ----------------------------------------------------------------
                                                  2002                      2001                   2000
                                            -----------------       ------------------     ------------------
                                                                 (DOLLARS IN THOUSANDS)
                                             AMOUNT      %           AMOUNT      %          AMOUNT      %
                                            --------   ------       --------   ------      --------   ------
<S>                                         <C>         <C>         <C>         <C>        <C>         <C>
Real estate:
   Construction and land development        $ 51,431    13.16%      $ 62,142    16.64%     $ 37,542    10.80%
   Mortgage:
      1-4 family residential                 204,395    52.29        209,622    56.13       234,383    67.45
      Multi-family residential                17,044     4.36         15,626     4.18        17,081     4.92
      Commercial                              87,257    22.32         55,664    14.90        31,300     9.01
      Equity line                             14,541     3.72         13,131     3.52        11,954     3.44
      Other                                      363     0.09            254     0.07           174     0.05
                                            --------   ------       --------   ------      --------   ------
             Total real estate loans         375,031    95.94        356,439    95.44       332,434    95.67

Commercial, industrial and agricultural       13,717     3.51         13,430     3.60        10,970     3.16
Consumer                                       6,396     1.64          7,285     1.95         7,236     2.08
                                            --------   ------       --------   ------      --------   ------
             Total gross loans               395,144   101.09        377,154   100.99       350,640   100.91
                                            --------   ------       --------   ------      --------   ------
Less:
Unearned discounts and net deferred fees       1,331      .34          1,173     0.31           994     0.29
Allowance for loan losses                      2,937     0.75          2,523     0.68         2,160     0.62
                                            --------   ------       --------   ------      --------   ------
              Net loans                     $390,876   100.00%      $373,458   100.00%     $347,486   100.00%
                                            ========   ======       ========   ======      ========   ======


<CAPTION>
                                                               AT DECEMBER 31,
                                                -------------------------------------------
                                                       1999                      1998
                                                ------------------        -----------------
                                                          (DOLLARS IN THOUSANDS)
                                                AMOUNT       %             AMOUNT      %
                                                --------   ------         --------  ------
<S>                                             <C>          <C>          <C>         <C>
Real estate:
   Construction and land development            $  1,497     0.45%        $  1,376    0.43%
   Mortgage:
      1-4 family residential                     253,857    75.83          265,172   82.52
      Multi-family residential                    17,166     5.13           12,941    4.03
      Commercial                                  38,765    11.58           26,296    8.18
      Equity line                                  9,772     2.92            8,811    2.74
      Other                                           78     0.02               52    0.02
                                                --------   ------         --------  ------
             Total real estate loans             321,135    95.93          314,648   97.92

Commercial, industrial and agricultural           10,653     3.18            3,997    1.24
Consumer                                           5,443     1.63            5,073    1.59
                                                --------   ------         --------  ------
             Total gross loans                   337,231   100.74          323,718  100.75
                                                --------   ------         --------  ------
Less:
Unearned discounts and net deferred fees           1,182     0.35            1,216    0.38
Allowance for loan losses                          1,306     0.39            1,178    0.37
                                                --------   ------         --------  ------
              Net loans                         $334,743   100.00%        $321,324  100.00%
                                                ========   ======         ========  ======
</TABLE>

                                       4
<PAGE>
     The following table sets forth as of December 31, 2002, certain information
regarding the dollar amount of loans maturing in the Bank's loan portfolio based
on their contractual terms to maturity.
<TABLE>
<CAPTION>

                                   DUE WITHIN             DUE AFTER             DUE AFTER
                                    ONE YEAR          1 THROUGH 5 YEARS          5 YEARS             TOTAL
                                   ----------         -----------------         ----------         ---------
                                                       (IN THOUSANDS)
<S>                                 <C>                   <C>                <C>                   <C>
Real Estate
  Construction and land
    development                     $ 31,575              $  16,910          $     2,946           $  51,431
  Mortgage
    1-4 family residential            11,955                 14,634              177,806             204,395
    Multi-family residential           4,039                  6,434                6,571              17,044
    Commercial                        12,121                 64,320               10,816              87,257
    Equity line                        2,957                    690               10,894              14,541
    Other                                 48                    315                   --                 363
Commercial, Industrial &
  Agricultural                         6,184                  5,409                2,124              13,717
Consumer                               2,847                  3,153                  396               6,396
                                    --------              ---------          -----------           ----------
     Total                          $ 71,726              $ 111,865          $   211,553           $ 395,144
                                    ========              =========          ===========           =========
</TABLE>

     The next table shows at December  31,  2002,  the dollar  amount of all the
Bank's loans due after one year from December 31, 2002 which have fixed interest
rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                         ONE TO FIVE           AFTER
                                                            YEARS            FIVE YEARS           TOTAL
                                                            -----            ----------           -----
                                                                           (IN THOUSANDS)
<S>                                                       <C>               <C>                 <C>
Loans maturing after one year with:
    Fixed interest rates                                  $ 54,054          $   64,648          $118,702
    Floating or adjustable rates                            57,811             146,905           204,716
                                                          --------          ----------          --------
Total                                                     $111,865          $  211,553          $323,418
                                                          ========          ==========          ========
</TABLE>

     RESIDENTIAL  REAL  ESTATE  LOANS.  The Bank  originates  one to four family
residential  mortgage  loans  collateralized  by property  located in its market
area.  While  a  majority  of the  Bank's  residential  real  estate  loans  are
collateralized by owner-occupied  primary residences,  the Bank's portfolio also
includes  some second home and  investor  properties.  The Bank also  originates
residential  lot  loans  collateralized  by  vacant  lots  located  in  approved
subdivisions.

     The Bank's loan  originations  are  generally for a term of 15 to 30 years,
amortized  on a monthly  basis,  with  principal  and  interest  due each month.
Residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms. Borrowers may refinance or prepay loans at
their option.

     The Bank has offered adjustable rate mortgage loans ("ARMs") since 1979 and
presently offers one-year ARMs with rate adjustments tied to prime or the weekly
average yield on U.S. Treasury Securities adjusted to a constant maturity of one
year.  The  Bank  offers  introductory  interest  rates  on ARMs  which  are not
generally fully indexed.  The interest rates on these loans generally  include a
cap of 2%  per  adjustment  and 6%  over  the  life  of  the  loan.  The  Bank's
underwriting  policies require that the borrower qualify for a 1 year ARM at the
fully  indexed rate.  While the  proportion  of fixed and  adjustable  rate loan
originations  in the Bank's  portfolio  largely depends on the level of interest
rates,  the Bank has  strongly  emphasized  ARMs in  recent  years  and has been
relatively  successful in maintaining the level of ARM originations  even during
periods of declining  interest  rates. In addition to the one-year ARM, the Bank
offers 3/1 and 5/1 ARM products.  These loans adjust  annually  after the end of
the first three or five-year  period.  A "Low Doc" program is available  for the
non-conforming loans.

     Cooperative Bank also originates 15 to 30 year fixed rate mortgage loans on
one to four family units.  The Bank generally  charges a higher interest rate on
such loans if the  property is not  owner-occupied.  The  majority of

                                       5
<PAGE>

fixed rate  loans are  underwritten  according  to  Federal  Home Loan  Mortgage
Corporation   ("FHLMC")  or  Federal  National  Mortgage   Association  ("FNMA")
guidelines,  so that the loans  qualify  for sale in the  secondary  market.  In
recent years the Bank has sold the majority of fixed rate mortgage  originations
in the secondary market or through brokered arrangements.

     The Bank actively lends on the security of properties  located in the Outer
Banks region of North  Carolina.  This  region's  economic  base is seasonal and
driven by beach  tourism,  and a large  number of the loans  made by the Bank in
this area are secured by vacation rental properties.  These loans are inherently
more risky than loans secured by the borrower's permanent  residence,  since the
borrower  is  typically  dependent  upon  rental  income  to meet  debt  service
requirements,  and repayment is therefore subject to a greater extent to adverse
economic,  weather and other conditions  affecting vacation rentals.  Management
seeks to minimize  these risks by employing  what it believes  are  conservative
underwriting criteria.

     The Bank's lending policies generally limit the maximum loan-to-value ratio
on conventional residential mortgage loans to 95% of the lesser of the appraised
value or purchase price,  with the condition that private mortgage  insurance is
required on loans with loan-to-value ratios in excess of 80%.

     Cooperative Bank also originates loans secured by multi-family  properties.
At December 31,  2002,  the Bank had $17.0  million of such loans,  representing
4.4% of its total loan portfolio. These loans are primarily secured by apartment
buildings located in the Bank's market area.

     CONSTRUCTION  LOANS.  The Bank originates loans to finance the construction
of one to four and  multi-family  dwellings,  housing  developments,  commercial
projects and condominiums.  Construction  loans amounted to approximately  $51.4
million,  or 13.2%,  of the Bank's total loan portfolio at December 31, 2002. In
recent years,  the Bank has emphasized the origination of construction  loans in
response  to the  significant  demand  for such  loans by  borrowers  engaged in
building and  development  activities in the growing  communities  of its market
area.  In  addition,  construction  loans  afford  the Bank the  opportunity  to
increase the interest rate sensitivity of its loan portfolio.

     Many of the Bank's  construction loans are converted to permanent loans. At
the time a spec loan is converted to a permanent loan, the Bank  underwrites the
creditworthiness  of the purchaser prior to approving the  assumption,  at which
time the original borrower is released from liability. On construction/permanent
loans,  the  customer  is  fully  qualified  for the  permanent  loan  based  on
information  received at application.  Construction/permanent  loans have either
fixed or adjustable  rates and have terms of up to 30 years.  The Bank also will
make short term construction  loans which have fixed rates and terms of up to 12
months.  These loans are generally made in amounts up to 80% of appraised value.
Loan proceeds  generally are disbursed in increments as construction  progresses
and as inspections warrant.

     The Bank's risk of loss on a construction loan by a spec builder is largely
dependent upon the accuracy of the initial  estimate of the property's  value at
completion  of  construction   and  the  bid  price   (including   interest)  of
construction. If the estimate of construction costs proves to be inaccurate, the
Bank may be required to advance funds beyond the amount originally  committed to
permit  completion  of the  project.  If the  estimate of the value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project  whose  value is  insufficient  to assure  full  repayment.  When
lending to speculation builders,  the cost of construction breakdown is provided
by the builder, as well as supported by the appraisal.

     The Bank's underwriting  criteria are designed to evaluate and minimize the
risks of each  construction  loan.  Among other things,  the Bank  considers the
reputation  of the borrower  and the  contractor,  the amount of the  borrower's
equity in the project,  independent  valuations  and reviews of cost  estimates,
pre-construction sale and leasing information,  and cash flow projections of the
borrower. In addition, the Bank reviews the builder's current financial reports,
tax returns, credit reports and, if the builder has not previously borrowed from
Cooperative  Bank, credit  references.  The Bank only makes  construction  loans
within its primary market area.

     The  Bank  has in  the  past  originated  loans  for  the  acquisition  and
development of unimproved  property to be used for  residential  purposes.  Land
development lending is generally  considered to involve a higher level of credit

                                       6
<PAGE>

risk than one to four family  residential  lending due to the  concentration  of
principal in a limited  number of loans and borrowers and the effects of general
economic conditions on development projects.

     The following table sets forth certain  information as of December 31, 2002
regarding  the dollar  amount of  construction  loans secured by real estate and
real  estate  mortgage  loans  maturing in the Bank's  portfolio  based on their
contractual  terms to  maturity.  A portion of these  loans have  provisions  to
convert  to  permanent  loans  upon  completion  of  construction.  For  further
information,  see Note 3 of Notes to Consolidated  Financial Statements included
in the  Company's  Annual  Report to  Stockholders  for the  Fiscal  Year  Ended
December 31, 2002 (the "Annual Report").

                                                 (IN THOUSANDS)
Real estate - construction
    1-4 residential                               $ 16,047
    Multi-family residential                        16,116
    Commercial                                      19,268
                                                  --------
    Total                                         $ 51,431
                                                  ========

     LOANS   SECURED  BY   NONRESIDENTIAL   REAL   ESTATE.   Loans   secured  by
nonresidential real estate constituted approximately $106.9 million, or 27.3% of
the Bank's  total  loans at  December  31,  2002.  The Bank is  emphasizing  the
origination of these loans because of their profitability,  since they generally
carry a higher  interest rate than single family  residential  mortgage loans as
well  as  being  more  interest  rate   sensitive.   The  Bank  originates  both
construction   loans  and   permanent   loans  on   nonresidential   properties.
Nonresidential  real estate loans are generally made in amounts up to 80% of the
lesser of appraised  value or purchase  price of the property and have generally
been made in amounts under $2.0  million.  The Bank's  permanent  nonresidential
real estate  loans are secured by improved  property  such as office  buildings,
retail centers,  warehouses,  and other types of buildings located in the Bank's
primary  market  area.  Nonresidential  real  estate  loans are either  fixed or
variable  rate. The variable rate loans have interest rates tied to prime or the
weekly average yield on U.S. Treasury Securities adjusted to a constant maturity
of one year.

     Loans secured by nonresidential properties are generally larger and involve
greater risks than residential mortgage loans. Because payments on loans secured
by  nonresidential  properties  are often  dependent on successful  operation or
management  of the  properties,  repayment  of such  loans may be  subject  to a
greater  extent to adverse  conditions in the real estate market or the economy.
The Bank seeks to minimize these risks in a variety of ways,  including limiting
the size of its  nonresidential  real estate loans,  generally  restricting such
loans  to  its  primary  market  area  and  attempting  to  employ  conservative
underwriting criteria.

     CONSUMER LENDING.  At December 31, 2002, the Bank's consumer loan portfolio
totaled approximately $6.4 million,  representing 1.6% of the Bank's total loans
receivable.  The Bank also offers home equity loans, which are made for terms of
up to 15 years at adjustable interest rates. As of December 31, 2002, the Bank's
home equity loan portfolio  totaled  approximately  $14.5 million,  representing
3.7% of its total loans receivable.

     Consumer  loans entail  greater risk than do  residential  mortgage  loans,
particularly in the case of consumer loans which are unsecured or collateralized
by  rapidly  depreciable  assets  such  as  automobiles.   In  such  cases,  any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood of damage, loss or depreciation.  The remaining deficiency often does
not warrant further  substantial  collection  efforts  against the borrower.  In
addition,  consumer loan collections are dependent on the borrower's  continuing
financial  stability,  and thus are more likely to be adversely  affected by job
loss, divorce, illness or personal bankruptcy.  Furthermore,  the application of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency laws, may limit the amount which can be recovered on such loans. Such
loans may also give rise to claims  and  defenses  by a consumer  loan  borrower
against an assignee of such loans such as the Bank,  and a borrower  may be able
to assert  against such  assignee  claims and defenses  which it has against the
seller of the underlying collateral.

                                       7
<PAGE>

     NON-REAL  ESTATE  BUSINESS  LENDING.  The  Bank  originates  loans to small
businesses  in the Bank's  market  area,  which are secured by various  forms of
non-real estate  collateral or are unsecured.  At December 31, 2002, these loans
totaled  approximately  $13.7 million.  Management of Cooperative  Bank believes
that these loans are  attractive  to the Bank in light of the  typically  higher
interest rate yields  associated with them and the opportunity  they present for
expanding  the Bank's  relationships  with  existing  customers  and  developing
broader  relationships  with  new  customers.  Accordingly,  the  Bank  plans to
continue to pursue this type of lending in the future in an effort to maintain a
profitable spread between the Bank's average loan yield and its cost of funds.

     Unlike residential mortgage loans, which generally are made on the basis of
the  borrower's  ability to make  repayment from his or her employment and other
income and which are  collateralized  by real  property  whose value tends to be
more  easily  ascertainable,  commercial  business  loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself.  Further,  the collateral securing the loans
may  depreciate  over time,  may be difficult  to appraise and may  fluctuate in
value based on the success of the business.  The management of Cooperative  Bank
seeks to minimize these risks as the Bank's  commercial  business loan portfolio
grows by employing conservative underwriting criteria.

     LOANS HELD FOR SALE.  Lumina's  target  market  includes all  homeowners or
potential  homeowners.  Having an extensive diversity of investors offering very
competitive  rates,  Lumina has  virtually  every  loan  product  available  for
purchase  or  refinance.   These  products  include,  but  are  not  limited  to
conventional,  jumbo, FHA, VA, 100% Rural Development financing,  non-conforming
(B/C), lot loans,  construction permanent,  and no-income verification loans, as
well as other niche products.

     LOAN  SOLICITATION  AND PROCESSING.  Loan  originations  are derived from a
number of  sources,  including  "walk-in"  customers  at the Bank's  offices and
solicitations by Cooperative Bank employees.

     Mortgage loan applications are accepted at all financial  centers,  and are
reviewed  by  a  loan  officer  or  branch  manager.  Upon  receipt  of  a  loan
application,  central  processing  orders a credit report and  verifications  to
verify specific information relating to the applicant's  employment,  income and
credit standing. An appraisal of the real estate intended to secure the proposed
loan is undertaken by an internal  appraiser or an outside appraiser approved by
the Bank. In the case of "Low Doc" loans, a tax valuation is acceptable.

     Loan  authorities  and limits have been delegated by the Board of Directors
to a group of senior  officers  who function as the loan  committee,  except for
consumer  loans,  which may be approved by branch loan officers.  Mortgage loans
exceeding 25% of the Bank's legal lending limit can be approved by the President
and two members of the Board of Directors.  Any mortgage  loan  exceeding 50% of
the Bank's legal  lending  limit is approved by the Bank's  Board of  Directors.
Retail and  Commercial  loan  authority is  considered to be an aggregate of all
indebtedness to Cooperative  exclusive of mortgage loans originated  through the
mortgage  loan  division or loans up to $100,000  secured by a  Cooperative  CD.
Three members of the Loan  Committee  have the  authority to approve  individual
retail  or  commercial  loans  up to 25%  of the  Bank's  legal  lending  limit.
Aggregate  indebtedness  exceeding  25% is  reported  to the Board at their next
meeting. Any retail or commercial loan exceeding 50% of the Bank's legal lending
limit  must be  approved  by the  President  and two  members  of the  Board  of
Directors.  Fire and  casualty  insurance  is required  on all loans  secured by
improved real estate.

     ORIGINATIONS,  PURCHASES,  AND SALES OF MORTGAGE LOANS.  The Bank's general
policy is to  originate  conventional  residential  mortgage  loans under terms,
conditions  and  documentation  which permit sale to the FHLMC,  FNMA or private
investors  in the  secondary  market.  The  Bank  has  chosen  to  sell a  large
percentage of its fixed rate mortgage loan  originations in the secondary market
and through brokered arrangements.  This enables the Bank to invest its funds in
commercial  loans,  while increasing fee income.  The Bank has from time to time
sold  fixed  rate,  long term  mortgage  loans in the  secondary  market to meet
liquidity requirements or as part of the asset/liability  management program. In
connection  with such  sales,  the Bank may  retain the  servicing  of the loans
(i.e.,  collection of principal and interest  payments),  for which it generally
receives a fee payable  monthly of up to 1/4% per annum of the unpaid balance of
each loan.  As of December 31, 2002,  the Bank was servicing  approximately  900
loans for others aggregating approximately $44.8 million.

                                       8
<PAGE>
     The Bank generally does not purchase loans,  and did not purchase any loans
during the last three fiscal years.

     LOAN COMMITMENTS.  The Bank issues loan commitments to qualified  borrowers
primarily for the  construction,  purchase and  refinancing of residential  real
estate.  Such  commitments  are made on specified  terms and  conditions and are
typically  for  terms  of  up to  45  days.  A  non-refundable  application  and
underwriting  fee is collected by Cooperative  Bank at the time of  application.
Lumina  collects actual fees at the time of  application.  Management  estimates
that  historically,  less  than  20% of such  commitments  expire  unfunded.  At
December  31,  2002,  Cooperative  Bank  had  outstanding  loan  commitments  of
approximately  $6.5  million  and  Lumina  had  approximately  $3.7  million  in
outstanding loan commitments.  For further  information,  see Note 3 of Notes to
Consolidated Financial Statements included in the Annual Report.

     LOAN  ORIGINATION AND OTHER FEES. In addition to receiving  interest at the
stated rate on loans,  the Bank receives loan  origination  fees for originating
loans.  Origination  fees  generally  are  calculated  as a  percentage  of  the
principal  amount of the loan and are charged to the borrower.  Loan origination
fees and certain direct loan origination costs are deferred,  and the net fee or
cost is recognized as an adjustment to interest income over the contractual life
of the related  loan.  The net deferred fee or cost on loans  originated as held
for sale is recorded to gain on sale of loans when the loan is sold.

     The  Bank is  currently  approved  to  broker  loans  to  Wells  Fargo  and
InterFirst Wholesale Mortgage Lending. These are done on the wholesale side with
Cooperative  Bank  processing  the loan using Wells Fargo or InterFirst  closing
documents.  Cooperative  Bank receives a settlement  service fee for  processing
these loans.  These loans  generate fee income and reduce the interest rate risk
of the Bank.

     Loan  origination,  settlement  service and  commitment  fees are  volatile
sources  of  funds.  Such  fees  vary  with the  volume  and  type of loans  and
commitments made and purchased and with competitive market conditions,  which in
turn respond to the demand for and availability of money.

     The Bank also  recognizes  other fees and service  charges on loans.  Other
fees and service  charges  consist of late fees, fees collected with a change in
borrower or other loan modifications.

     DELINQUENCIES. The Bank's collection procedures provide that when a loan is
30 days past due, the borrower is contacted by mail,  and payment is  requested.
If the  delinquency  continues,  subsequent  efforts  are  made to  contact  the
borrower.  If the loan continues in a delinquent status for 60 days or more, the
Bank generally  initiates legal proceedings.  At December 31, 2002, the Bank had
accruing  loans  which  are  contractually  past  due 90 or more  days  totaling
$249,000.

     NON-PERFORMING  ASSETS  AND  ASSET  CLASSIFICATION.   Loans  are  generally
classified as nonaccrual if they are past due for a period of more than 90 days,
unless  such loans are well  secured and in the  process of  collection.  If any
portion of a loan is  classified  as doubtful or is  partially  charged off, the
loan is generally  classified  as  nonaccrual.  Loans that are less than 90 days
past due may also be  classified as nonaccrual if repayment in full of principal
and/or  interest is in doubt.  As of December 31, 2002,  the Bank had 4 loans in
non-accrual  status with an aggregate  principal balance of $335,000,  which are
considered  impaired  in  accordance  with SFAS  No.114,  with no  corresponding
valuation allowances.

     Real estate  acquired by the Bank as a result of  foreclosure is classified
as real  estate  owned  until  such time as it is sold.  When such  property  is
acquired,  it is  recorded  at the lower of the unpaid  principal  balance  plus
unpaid accrued interest of the related loan or the fair value of the real estate
less  costs to sell the  property.  Any  required  write-down  of the loan  upon
foreclosure  is charged to the allowance for loan losses.  At December 31, 2002,
the Bank owned  approximately  $619,000  of  property  acquired as the result of
foreclosure  or by deed in lieu of  foreclosure  and  classified as "real estate
owned."  At  December  31,  2002,  the  Bank  had 24  loans  in the  process  of
foreclosure   and/or   bankruptcy  with  an  aggregate   principal   balance  of
approximately  $1.4  million.  Loans in  bankruptcy  paying  as  agreed  are not
included in non-performing assets. Any losses management anticipates on loans in
the process of foreclosure  and/or bankruptcy have already been recorded through
the allowance for loan losses.

                                       9
<PAGE>

     The  following  table sets  forth  information  with  respect to the Bank's
non-performing  assets for the periods indicated.  During the periods shown, the
Bank had no  restructured  loans  within the meaning of  Statement  of Financial
Accounting Standards ("SFAS") No. 15.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                                  --------------------------------------------------------------
                                                     2002         2001         2000         1999          1998
                                                   ---------    ---------    ---------    ---------     --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                <C>          <C>          <C>          <C>           <C>
Non-accruing loans                                 $     335    $     505    $     333    $     267     $     --
Accruing loans which are contractually
   past due 90 days or more                              249        2,563          358          934        1,765
                                                   ---------    ---------    ---------    ---------     --------
Total                                              $     584    $   3,068    $     691    $   1,201     $  1,765
                                                   =========    =========    =========    =========     ========
Percentage of total loans (1)                           .15%          .81%         .20%         .36%         .55%
                                                   =========    =========    =========    =========     ========
Other non-performing assets (2)                    $     619    $     759    $     234    $     245     $  2,439
                                                   =========    =========    =========    =========     ========
Total non-performing assets                        $   1,203    $   3,827    $     925    $   1,446     $  4,204
                                                   =========    =========    =========    =========     ========
Total non-performing assets to total assets             .24%          .84%         .22%         .35%        1.08%
                                                   =========    =========    =========    =========     ========
<FN>
(1)  Total loans do not include loans held for sale.

(2)  Other non-performing assets represent property acquired by the Bank through
     foreclosure  or  repossession.  This property is carried at fair value less
     estimated costs of sale.
</FN>
</TABLE>

     During  the  year  ended  December  31,  2002,  gross  interest  income  of
approximately  $11,790  would have been  recorded on  nonaccrual  loans had such
loans been  current  throughout  the  period.  Approximately  $4,206 in interest
income from such loans was  included in income for the year ended  December  31,
2002.

     Except as set forth above,  the Bank had no loans which were not classified
as non-accrual,  90 days past due or restructured but which may be so classified
in the  near  future  because  management  has  concerns  as to the  ability  of
borrowers to comply with repayment terms. For further information, see Note 3 of
Notes to Consolidated Financial Statements in the Annual Report.

     ALLOWANCE  FOR LOAN  LOSSES.  Management  considers a variety of factors in
establishing the appropriate levels for the provision and the allowance for loan
losses.  Consideration  is given to, among other  things,  the impact of current
economic conditions, the diversification of the loan portfolio,  historical loss
experience,  the review of loans by the loan review  personnel,  the  individual
borrower's  financial and managerial  strengths,  and the adequacy of underlying
collateral.

     The process used to allocate the allowance for loan losses considers, among
other  factors,  whether  the  borrower  is a  mortgage,  retail  or  commercial
customer,  whether the loan is secured or unsecured,  and whether the loan is an
open or  closed-end  agreement.  Generally,  loans are  reviewed and risk graded
among groups of loans with similar characteristics.  The probable loss estimates
for each risk grade group are the basis for the allowance  allocation.  The loss
estimates are based on prior experience,  general risk associated with each loan
group and current economic conditions. The unallocated allowance for loan losses
primarily  represents the impact of certain  conditions that were not considered
in  allocating  the allowance to the specific  components of the loan  portfolio
such as current economic conditions.

                                       10
<PAGE>

     The  following  table  analyzes  activity in the Bank's  allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------
                                                       2002         2001        2000        1999        1998
                                                     ---------    --------    --------    --------    --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                  <C>          <C>         <C>         <C>         <C>
Balance at beginning of period                       $   2,523    $  2,160    $  1,306    $  1,178    $    874
Provision for loan losses                                  740         460         970         210         330
Gross loans charged-off                                   (360)       (106)       (146)        (94)        (29)
Gross recoveries                                            34           9          30          12           3
                                                     ---------    --------    --------    --------    --------
Balance at end of period                             $   2,937    $  2,523    $  2,160    $  1,306    $  1,178
                                                     =========    ========    ========    ========    ========
Ratio of net charge-offs to average
  loans outstanding during the period                      .08%        .03%        .03%        .03%        .01%
                                                     =========    ========    ========    ========    ========
Ratio of loan loss reserve to total loans                  .74%        .67%        .62%        .39%        .36%
                                                     =========    ========    ========    ========    ========
</TABLE>

     Management  believes that it has established the Bank's existing  allowance
for loan losses in accordance  with generally  accepted  accounting  principles.
Additions to the allowance may be necessary, however, due to changes in economic
conditions,  real  estate  market  values,  growth in the  portfolio,  and other
factors.  In addition,  bank  regulators  may require  Cooperative  Bank to make
additional  provisions for losses in the course of their  examinations  based on
their  judgments as to the value of the Bank's assets.  For further  information
regarding the Bank's allowance for loan losses see "Management's  Discussion and
Analysis" and Note 3 of Notes to Consolidated Financial Statements in the Annual
Report.
                                       11
<PAGE>

     The following table sets forth  information  about the Bank's allowance for
loan losses by asset  category at the dates  indicated.  The  allocation  of the
allowance to each  category is not  necessarily  indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
                                          -------------------------------------------------------------------------
                                                2002                      2001                      2000
                                          ----------------------    ----------------------    ---------------------
                                                      PERCENT OF                PERCENT OF               PERCENT OF
                                                       LOANS IN                  LOANS IN                 LOANS IN
                                                    CATEGORY TO                CATEGORY TO              CATEGORY TO
                                          AMOUNT    TOTAL LOANS     AMOUNT     TOTAL LOANS    AMOUNT    TOTAL LOANS
                                          ------    -----------     ------     -----------    ------    -----------
                                                                   (DOLLARS IN  THOUSANDS)
<S>                                        <C>           <C>        <C>             <C>        <C>          <C>
Real estate :
  Construction and land development        $   511       13%        $   672         16%        $    428     10%
  Mortgage:
      1-4 family residential                   854       52             698         56              499     67
      Multi-family residential                 145        4             143          4              213      5
      Commercial                               911       22             589         15              526      9
      Equity line                              135        4             132          3               65      3
      Other                                      3       --               2         --                2      1
                                           -------      ---         -------        ---         --------    ---
          Total real estate loans            2,559       95%          2,236         94%           1,733     95%

Commercial, industrial & agricultural          137        3             214          4              166      3
Consumer                                        58        2              70          2               77      2
Unallocated                                    183       --               3         --              184     --
                                           -------      ---         -------        ---         --------    ---
           Total gross loans               $ 2,937      100%        $ 2,523        100%        $  2,160    100%
                                           =======      ===         =======        ===         ========    ===

<CAPTION>
                                                             AT DECEMBER 31,
                                               ------------------------------------------------
                                                     1999                      1998
                                               ----------------------     --------------------
                                                          PERCENT OF               PERCENT OF
                                                           LOANS IN                 LOANS IN
                                                          CATEGORY TO              CATEGORY TO
                                               AMOUNT     TOTAL LOANS      AMOUNT  TOTAL LOANS
                                               ------     -----------      ------  ------------
                                                         (DOLLARS IN THOUSANDS)
<S>                                            <C>              <C>         <C>          <C>
Real estate :
  Construction and land development            $     15         1%          $   14       1%
  Mortgage:
      1-4 family residential                        530        74              605      81
      Multi-family residential                      163         5              129       4
      Commercial                                    380        12              301       8
      Equity line                                    15         3               13       3
      Other                                           1        --                1      --
                                               --------       ---           ------     ---
          Total real estate loans                 1,104        95%           1,063      97%

Commercial, industrial & agricultural               152         3               59       1
Consumer                                             50         2               40       2
Unallocated                                          --        --               16      --
                                               --------       ---           ------     ---
           Total gross loans                   $  1,306       100%          $1,178     100%
                                               ========       ===           ======     ===
</TABLE>


                                       12
<PAGE>
INVESTMENT ACTIVITIES

     The following table sets forth the carrying value of the Bank's  investment
securities  portfolio  at  the  dates  indicated.   For  additional  information
regarding the Bank's investments,  see Note 2 of Notes to Consolidated Financial
Statements in the Annual Report.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                                             --------------------------------------------
                                                                2002              2001             2000
                                                              ---------         -------          --------
                                                                            (IN THOUSANDS)
<S>                                                           <C>               <C>              <C>
Securities held to maturity:
   U.S. Government and agency securities                      $   5,000         $ 5,000          $ 18,015
   Mortgage-backed securities                                     2,860              --               963
                                                              ---------         -------          --------
      Total securities held to maturity                       $   7,860         $ 5,000          $ 18,978

Securities available for sale:
   U.S. Government and agency securities                      $  19,663         $25,758          $ 16,049
   Mortgage-backed securities                                    14,806          11,123                --
   Marketable equity securities                                   5,074           5,099                --
   Corporate bond                                                 2,532             990                --
                                                              ---------         -------          --------
      Total securities available for sale                     $  42,075         $42,970          $ 16,049

      Total investment securities portfolio                   $  49,935         $47,970          $ 35,027
                                                              =========         =======          ========
</TABLE>

The following table sets forth the scheduled maturities, carrying values, market
values and average  yields for the Bank's  investment  securities  portfolio  at
December 31, 2002.
<TABLE>
<CAPTION>
                                                                     AFTER ONE      AFTER FIVE
                                           ONE YEAR OR LESS   THROUGH FIVE YEARS  THROUGH TEN YEARS
                                          ------------------  ------------------  -----------------
                                          CARRYING   AVERAGE   CARRYING  AVERAGE  CARRYING  AVERAGE
                                            VALUE     YIELD     VALUE     YIELD    VALUE     YIELD
                                          --------   -------   --------  -------  --------  -------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                          <C>      <C>       <C>       <C>      <C>      <C>
Securities held to maturity:
    U.S. government and agency securities    $5,000   7.64%     $    --    --      $   --     --
    Mortgage-backed securities                   --    --            --    --          --     --
                                             -------  ----      -------   ----     ------   ----
      Total securities held to maturity      $5,000   7.64%     $    --    --      $   --     --

Securities available for sale:
    U.S. government and agency securities    $   306  3.08%     $10,451   3.76%    $8,905    5.72%
    Mortgage-backed securities                    --   --            --    --          --     --
    Marketable equity securities                  --   --            --    --          --     --
    Corporate bond                                --   --         2,532   5.92%        --     --
                                             -------  ----      -------   ----     ------   ----
      Total securities available for sale    $   306  3.08%     $12,983   4.19%    $8,905   5.72%

      Total investment securities portfolio  $ 5,306  7.38%     $12,983   4.19%    $8,905   5.72%
                                             =======  ====      =======   ====     ======   ====

<CAPTION>

                                            MORE THAN TEN YEARS   TOTAL INVESTMENT PORTFOLIO
                                            -------------------  ---------------------------
                                            CARRYING   AVERAGE   CARRYING   FAIR     AVERAGE
                                              VALUE     YIELD      VALUE    VALUE     YIELD
                                            --------   -------   --------   -----    -------
                                                       (DOLLARS IN THOUSANDS)
<S>                                          <C>                  <C>      <C>         <C>
Securities held to maturity:
    U.S. government and agency securities    $   --       --      $5,000   $ 5,123     7.64%
    Mortgage-backed securities                 2,860     3.25%     2,860     2,886     3.25%
                                             --------   -----    --------  -------     ----
      Total securities held to maturity      $ 2,860     3.25%    $7,860   $ 8,009     6.04%

Securities available for sale:
    U.S. government and agency securities    $    --      --      $19,662  $19,662     4.63%
    Mortgage-backed securities                 14,806    5.21%     14,806   14,806     5.21%
    Marketable equity securities                5,075    6.14%      5,075    5,075     6.14%
    Corporate bond                                 --     --        2,532    2,532     5.92%
                                             --------    ----    --------  -------     ----
      Total securities available for sale    $ 19,881    5.45%   $ 42,075  $42,075     5.10%

      Total investment securities portfolio  $ 22,741    5.16%   $ 49,935  $50,084     5.25%
                                             ========    ====    ========  =======     ====
</TABLE>

DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

     GENERAL.  Deposits are the major source of the Bank's funds for lending and
other  investment  purposes.  In addition to deposits,  Cooperative Bank derives
funds from interest  payments,  loan  principal  repayments,  borrowed funds and
funds provided by operations.  Scheduled loan repayments are a relatively stable
source of funds,  while deposit  inflows and outflows and loan  prepayments  are
significantly  influenced by general interest rates and money market conditions.
Borrowings may be used to compensate for reductions in the availability of funds
from other sources.  The Bank intends to fund its activities  primarily  through
deposits.

                                       13
<PAGE>

     DEPOSITS. Deposits are attracted from within the Bank's primary market area
through  the  offering of a broad  selection  of deposit  instruments  including
checking,   savings,   money  market  deposit,  and  term  certificate  accounts
(including  negotiated jumbo  certificates in denominations of $100,000 or more)
as well as individual  retirement plans. Deposit account terms vary according to
the minimum balance required,  the time periods the funds must remain on deposit
and the  interest  rate,  among other  factors.  The Bank does not obtain  funds
through  brokers;  however,  the Bank  attracts  deposits  over the Internet and
considers this a viable  alternative to borrowed funds. For further  information
regarding the Bank's deposits,  see  "Management's  Discussion and Analysis" and
Note 5 of Notes to Consolidated Financial Statements in the Annual Report.

     The following table  indicates the amount of the Company's  certificates of
deposit of $100,000 or more by time remaining  until maturity as of December 31,
2002.

                                                      CERTIFICATES
        MATURITY PERIOD                                OF DEPOSIT
        ---------------                                ----------
                                                     (IN THOUSANDS)

        Three months or less                           $  25,687
        Over three through six months                     23,359
        Over six months through twelve
              months                                      22,276
        Over twelve months                                14,509
                                                       ---------
        Total                                          $  85,831
                                                       =========

     BORROWINGS. Deposits are the primary source of funds for Cooperative Bank's
lending and investment  activities and for its general business purposes. If the
need arises, the Bank may obtain advances from the FHLB of Atlanta to supplement
its  supply of  loanable  funds  and to meet  deposit  withdrawal  requirements.
Advances from the FHLB are typically secured by the Bank's stock in the FHLB and
a lien on a portion of the Bank's first  mortgage  loans.  The Bank has utilized
FHLB  advances  in recent  periods in order to meet a larger than  typical  loan
demand in the Bank's market area.

     The FHLB of Atlanta  functions as a central  reserve bank providing  credit
for the Bank and other member financial institutions.  As a member,  Cooperative
Bank is required to own capital stock in the FHLB and is authorized to apply for
advances on the  security of such stock and  certain of its home  mortgages  and
other assets  (principally,  securities  which are obligations of, or guaranteed
by, the United States),  provided certain standards related to  creditworthiness
have been met.  Advances are made pursuant to several different  programs.  Each
credit program has its own interest rate and range of  maturities.  Depending on
the program,  limitations  on the amount of advances are based either on a fixed
percentage of a member  institution's  net worth or on the FHLB's  assessment of
the institution's creditworthiness.

     Lumina  borrows  money  on a  short-term  basis  principally  from  another
financial  institution to fund its loans that are held for sale.  This borrowing
is  collateralized  by mortgage  loans held for sale.  When a loan is sold,  the
proceeds are used to repay the borrowing. Loans are usually sold within 60 days.
This  borrowing  agreement  provides  for a  maximum  line of  credit  up to $10
million, but the financial  institution continues to supply sufficient funds for
loans  originated  by Lumina  during  the large  volume  increase  caused by the
current low interest rate environment.

     For further  information  regarding  the Bank's  borrowings,  see Note 6 of
Notes to Consolidated Financial Statements in the Annual Report.

COMPETITION

     Cooperative  Bank encounters  strong  competition both in the attraction of
deposits  and in the making of real  estate  and other  loans.  Its most  direct
competition for deposits has  historically  come from financial  institutions in
its market area.  Competition for deposits is also realized from brokerage firms
and credit  unions.  The Bank  competes

                                       14
<PAGE>

for  deposits  by  offering  depositors  competitive  rates and a high  level of
personal  service  together with a wide range of banking products and convenient
office locations.

     Competition  for  real  estate  and  other  loans  comes  principally  from
financial  institutions and mortgage companies.  The Bank and Lumina compete for
loans  primarily  through the interest  rates and loan fees it charges,  and the
efficiency and quality of services it provides  borrowers.  Factors which affect
competition include general and local economic conditions, current interest rate
levels and volatility in the mortgage markets.

EMPLOYEES

     At December 31, 2002, the Bank had 122 full-time  employees and 7 part-time
employees.  Lumina  had 46 full  time  employees  and 1  part-time  employee  at
December  31,  2002.  None of the  employees  are  represented  by a  collective
bargaining unit. Both companies  believe its relationship  with its employees to
be good.

EXECUTIVE OFFICERS

     At December 31, 2002, the executive  officers of the Bank who were not also
directors were as follows:
<TABLE>
<CAPTION>
                                     AGE AT
NAME                            DECEMBER 31, 2002                        POSITION
----                            -----------------                        --------
<S>                                    <C>                    <C>
O.C. Burrell, Jr.                      54                     Executive Vice President and Chief Operating Officer

Todd L. Sammons, CPA                   41                     Senior Vice President and Chief Financial Officer

Dickson B. Bridger                     43                     Senior Vice President-Mortgage Lending

</TABLE>

     O. C.  BURRELL,  JR. was  employed in May 1993 as Senior Vice  President of
Retail  Banking.  Mr.  Burrell was elected  Executive  Vice  President and Chief
Operating  Officer in 1997. Mr.  Burrell has been in the banking  industry since
1970 and has served in leadership  capacities in various civic and  professional
organizations.  He is  active  in the  Wilmington  Rotary  Club  and  serves  as
treasurer  and director of the Child  Development  Center and is a member of the
Retail Lending Committee of the North Carolina Bankers Association.

     TODD L. SAMMONS was  employed in March 1986 as Auditor.  He was promoted to
Senior  Vice  President-and   Chief  Financial  Officer  in  December  2000.  He
previously  worked with a public  accounting  firm.  He has served in leadership
capacities  in various  professional,  church and civic  organizations.  He is a
Certified Public Accountant.  He serves on the Board of Winter Park Optimist and
as the treasurer of the Wilmington Vikings, a junior Legion Baseball Team.

     DICKSON  B.  BRIDGER  was  employed  in  March  1984  as  a  mortgage  loan
originator.  He was promoted to Vice  President in February 1990 and Senior Vice
President-Mortgage Lending in December 2000. He is a member of Wilmington Rotary
West and  serves as an Elder of the  Little  Chapel on the  Boardwalk  church at
Wrightsville Beach, North Carolina.

                                   REGULATION

     GENERAL.  As a  North  Carolina-chartered  commercial  bank  with  deposits
insured by the SAIF,  Cooperative Bank is subject to extensive regulation by the
North Carolina Office of the  Commissioner of Banks (the  Commissioner)  and the
FDIC.  The lending  activities and other  investments  of Cooperative  Bank must
comply with various federal  regulatory  requirements.  The Commissioner and the
FDIC  periodically   examine   Cooperative  Bank  for  compliance  with  various
regulatory  requirements.  The Bank must file reports with the  Commissioner and
the

                                       15
<PAGE>

FDIC describing its activities and financial condition. The Bank is also subject
to certain  reserve  requirements  promulgated  by the Board of Governors of the
Federal  Reserve System (the "Federal  Reserve  Board").  This  supervision  and
regulation is intended  primarily for the protection of  depositors.  Certain of
these regulatory requirements are referred to below or appear elsewhere herein.

     The Company is registered as a bank holding  company under the Bank Holding
Company Act of 1956,  as amended (the  "Holding  Company  Act") and, as such, is
subject to supervision and regulation by the Federal Reserve Board.  The Company
is also  subject  to  regular  examination  by the  Federal  Reserve  Board.  In
addition,  as a  savings  bank  holding  company,  the  Company  is  subject  to
supervision by the Commissioner under North Carolina law.

     The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank. A number of other  statutes and  regulations
have an impact on their operations. The following summary of applicable statutes
and regulations does not purport to be complete and is qualified in its entirety
by reference to such statutes and regulations.

     FINANCIAL MODERNIZATION LEGISLATION.  The Gramm-Leach-Bliley ("G-L-B") Act,
which was enacted in November 1999,  authorizes  affiliations  between  banking,
securities  and  insurance  firms and  authorizes  bank  holding  companies  and
national banks to engage in a variety of new financial activities. Among the new
activities  that are  permitted to bank holding  companies  are  securities  and
insurance  brokerage,   securities  underwriting,   insurance  underwriting  and
merchant banking.  The Federal Reserve Board, in consultation with the Secretary
of the Treasury,  may approve  additional  financial  activities.  The G-L-B Act
imposed new  requirements  on  financial  institutions  with respect to customer
privacy.

     BANK HOLDING COMPANY REGULATION.  As a bank holding company, the Company is
required to furnish to the Federal Reserve Board annual and quarterly reports of
its  operations  at the  end of  each  period  and to  furnish  such  additional
information  as the Federal  Reserve  Board may require  pursuant to the Holding
Company Act.

     Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal  Reserve Board before (1)  acquiring  direct or indirect
ownership or control of any voting  shares of any bank or bank  holding  company
if,  after  such  acquisition,  the  bank  holding  company  would  directly  or
indirectly  own or control more than 5% of such  shares;  (2)  acquiring  all or
substantially  all of the assets of another  bank or bank holding  company;  (3)
merging or  consolidating  with another bank holding  company;  or (4) acquiring
direct or indirect  ownership or control of more than 5% of the voting shares of
a  company  that  is not a bank or a bank  holding  company,  or  from  engaging
directly or indirectly in  activities  other than those of banking,  managing or
controlling banks, or providing services for its subsidiaries.

     The Holding  Company Act prohibits the Federal Reserve Board from approving
an  application  by a bank holding  company to acquire  voting  shares of a bank
located outside the state in which the operations of the holding  company's bank
subsidiaries   are  principally   conducted,   unless  such  an  acquisition  is
specifically  authorized  by state law. The State of North  Carolina has enacted
reciprocal  interstate  banking  statutes that authorize banks and their holding
companies in North  Carolina to be acquired by banks or their holding  companies
in states that have also  enacted  reciprocal  banking  legislation,  and permit
North Carolina banks and their holding  companies to acquire banks in such other
states.

     Under the Holding  Company  Act,  any company  must obtain  approval of the
Federal Reserve Board prior to acquiring control of the Company or the Bank. For
purposes of the Holding  Company Act,  "control" is defined as ownership of more
than 25% of any class of  voting  securities  of the  Company  or the Bank,  the
ability to control the election of a majority of the directors,  or the exercise
of a  controlling  influence  over  management or policies of the Company or the
Bank.

     The Change in Bank Control Act and the  regulations of the Federal  Reserve
Board  thereunder  require any person or persons  acting in concert  (except for
companies required to make application under the Holding Company Act), to file a
written notice with the Federal  Reserve Board before such person or persons may
acquire  control of the  Company or the Bank.  The  Change in Bank  Control  Act
defines "control" as the power,  directly or indirectly,  to

                                       16
<PAGE>

vote  25% or more of any  voting  securities  or to  direct  the  management  or
policies of a bank holding company or an insured bank.

     The Federal  Reserve  Board has adopted  guidelines  regarding  the capital
adequacy of bank holding  companies,  which  require  bank holding  companies to
maintain  specified  minimum  ratios of capital to total  assets and  capital to
risk-weighted assets. See " -- Capital Requirements."

     The  Federal  Reserve  Board has the power to  prohibit  dividends  by bank
holding companies if their actions constitute unsafe or unsound  practices.  The
Federal  Reserve  Board has  issued a policy  statement  on the  payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding  company  should pay cash  dividends only to the extent
that the  company's net income for the past year is sufficient to cover both the
cash  dividends  and a rate of earning  retention  that is  consistent  with the
company's capital needs, asset quality, and overall financial condition.

     Bank holding  companies  generally are required to give the Federal Reserve
Board notice of any purchase or redemption of outstanding  equity  securities if
the gross  consideration for the purchase or redemption,  when combined with the
net  consideration  paid  for all  such  purchases  or  redemptions  during  the
preceding 12 months,  is equal to 10% or more of the Company's  consolidated net
worth.

     CAPITAL REQUIREMENTS.  The regulations of the Federal Reserve Board and the
FDIC require  bank  holding  companies  and  state-chartered  banks that are not
members of the Federal  Reserve  System to maintain a minimum  leverage  capital
requirement consisting of a ratio of Tier 1 capital to total assets (as defined)
of 3%.  Although  setting a minimum 3% leverage ratio,  the capital  regulations
state that only the strongest bank holding  companies and banks,  with composite
examination  ratings  of 1 under the  rating  system  used by the  federal  bank
regulators,  would be  permitted  to  operate at or near such  minimum  level of
capital.  For all but the most highly rated institutions  meeting the conditions
set forth above,  the minimum  leverage  capital  ratio is 3% plus an additional
"cushion"  amount of at least 100 to 200 basis points.  Any bank or bank holding
company  experiencing  or anticipating  significant  growth would be expected to
maintain   capital   well  above  the  minimum   levels.   As  a   SAIF-insured,
state-chartered  bank,  the Bank must also  deduct from Tier 1 capital an amount
equal to its investments in, and extensions of credit to,  subsidiaries  engaged
in activities that are not  permissible to national  banks,  other than debt and
equity investments in subsidiaries engaged in activities undertaken as agent for
customers  or  in  mortgage  banking  activities  or  in  subsidiary  depository
institutions or their holding companies.

     The  risk-based  capital  rules of the Federal  Reserve  Board and the FDIC
require bank holding  companies and state  non-member  banks to maintain minimum
regulatory capital levels based upon a weighting of their assets and off-balance
sheet obligations according to risk. The risk-based capital rules have two basic
components:  a core capital (Tier 1)  requirement  and a  supplementary  capital
(Tier 2) requirement.  The risk-based  capital  regulations assign balance sheet
assets and credit equivalent  amounts of off-balance sheet obligations to one of
four broad  risk  categories  based  principally  on the  degree of credit  risk
associated with the obligor.  The assets and off-balance sheet items in the four
risk categories are weighted at 0%, 20%, 50% and 100%. These computations result
in the total risk-weighted assets.

     The  risk-based  capital  regulations  require  all banks and bank  holding
companies to maintain a minimum  ratio of total  capital to total  risk-weighted
assets of 8%, with at least 4% as core capital.  For the purpose of  calculating
these ratios: (i) supplementary  capital will be limited to no more than 100% of
core capital;  and (ii) the aggregate  amount of certain types of  supplementary
capital will be limited.  In addition,  the risk-based capital regulations limit
the  allowance  for  loan  losses  includable  as  capital  to  1.25%  of  total
risk-weighted assets.

     The federal bank regulatory  agencies,  including the Federal Reserve Board
and the FDIC, have revised their risk-based capital  requirements to ensure that
such  requirements  provide for explicit  consideration  by commercial  banks of
interest  rate risk.  Under  these  requirements,  a bank's  interest  rate risk
exposure is quantified using either the measurement system set forth in the rule
or the bank's  internal  model for  measuring  such  exposure,  if such model is
determined  to be adequate  by the bank's  examiner.  If the dollar  amount of a
bank's interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets,  the bank is

                                       17
<PAGE>

required to hold  additional  capital  equal to the dollar amount of the excess.
The Bank's current  interest rate risk exposure does not exceed 1% of the Bank's
total  assets.  Management  of the Bank does not believe that this interest rate
risk component has an adverse effect on the Bank's capital.

     In addition to the FDIC regulatory capital  requirements,  the Commissioner
requires   North   Carolina-chartered   commercial   banks   to  have   adequate
capitalization,  which is determined  based upon each bank's  particular  set of
circumstances.  In addition,  regulations  require all North  Carolina-chartered
commercial  banks to  maintain a capital  surplus  at least  equal to 50% of its
common  capital.  Common capital is defined as the par value of its shares times
the number of shares outstanding.

     The Bank was in compliance with both the FDIC capital  requirements and the
North  Carolina  net  worth  requirement  at  December  31,  2002.  For  further
information  regarding the Bank's capital  requirements,  see Note 7 of Notes to
Consolidated Financial Statements in the Annual Report.

     LIQUIDITY REQUIREMENTS. FDIC policy requires that banks maintain an average
daily balance of liquid  assets in an amount which it deems  adequate to protect
safety and  soundness of the bank.  Liquid  assets  include  cash,  certain time
deposits, bankers' acceptances and specified United States government, state, or
federal  agency  obligations.  The FDIC currently has no specific level which it
requires.

     North Carolina banks must maintain a reserve fund in an amount and/or ratio
set by the  North  Carolina  Banking  Commission  to  account  for the  level of
liquidity  necessary  to assure the safety and  soundness  of the State  banking
system.

     PROMPT CORRECTIVE  REGULATORY  ACTION.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution  into capital  compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
did not  submit an  acceptable  capital  restoration  plan,  may be  subject  to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution.

     Under  regulations  jointly  adopted by the federal banking  regulators,  a
savings  association's  capital  adequacy  for  purposes  of the  FDICIA  prompt
corrective  action rules is determined on the basis of the  institution's  total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio  (the  ratio  of its Tier 1 or core
capital to adjusted total assets).

                                       18
<PAGE>

     The following  table shows the capital ratio  requirements  for each prompt
corrective action category:
<TABLE>
<CAPTION>
                                                     ADEQUATELY                                  SIGNIFICANTLY
                           WELL-CAPITALIZED          CAPITALIZED        UNDERCAPITALIZED        UNDERCAPITALIZED
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio          10.0% or more             8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio           6.0% or more             4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio              5.0% or more             4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>

*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

For  information  regarding  the position of the Bank with respect to the FDICIA
prompt  corrective  action rules, see Note 7 of Notes to Consolidated  Financial
Statements included in the Annual Report hereof.

     COMMUNITY REINVESTMENT ACT. The Bank, like other financial institutions, is
subject to the Community  Reinvestment Act ("CRA"). The purpose of the CRA is to
encourage  financial  institutions to help meet the credit needs of their entire
communities,  including  the  needs of low and  moderate  income  neighborhoods.
During  the  Bank's   last   compliance   examination,   the  Bank   received  a
"satisfactory"  rating with respect to CRA  compliance.  The Bank's  rating with
respect to CRA  compliance  would be a factor to be  considered  by the  Federal
Reserve Board and the FDIC in considering  applications submitted by the Bank to
acquire branches or to acquire or combine with other financial  institutions and
take other  actions  and,  if such  rating was less than  "satisfactory,"  could
result in the denial of such applications.

     DIVIDEND  LIMITATIONS.  The Bank may not pay dividends on its capital stock
if its  regulatory  capital  would  thereby  be reduced  below the  amount  then
required  for the  liquidation  account  established  for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.

     Under  applicable  regulations,  the Bank is  prohibited  from  making  any
capital distributions if after making the distribution, the Bank would have: (i)
a total  risk-based  capital  ratio of less than 8.0%;  (ii) a Tier 1 risk-based
capital  ratio of less than 4.0%;  (iii) a leverage  ratio of less than 4.0%, or
(iv) a regulatory  net worth less than the  liquidation  account  established in
connection with the Bank's conversion to a stock institution.

     DEPOSIT  INSURANCE.  The Bank is  required  to pay  assessments  based on a
percentage of its insured  deposits to the FDIC for insurance of its deposits by
the SAIF. Under the FDIC's risk-based  deposit insurance  assessment system, the
assessment rate for an insured depository  institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the  institution's  capital level and  supervisory  evaluations.  Within each
capital group,  institutions are assigned to one of three subgroups on the basis
of supervisory  evaluations by the institution's  primary supervisory  authority
and  such  other  information  as the  FDIC  determines  to be  relevant  to the
institution's  financial  condition and the risk posed to the deposit  insurance
fund. The Bank is currently classified as well capitalized under this assessment
system.

     RESTRICTIONS ON CERTAIN ACTIVITIES.  Under applicable law,  state-chartered
banks with deposits insured by the FDIC are generally  prohibited from acquiring
or  retaining  any  equity  investment  of a type  or in an  amount  that is not
permissible  for a national bank. The foregoing  limitation,  however,  does not
prohibit  FDIC-insured  state  banks  from  acquiring  or  retaining  an  equity
investment   in  a   subsidiary   in  which  the  bank  is  a  majority   owner.
State-chartered banks are also prohibited from engaging as principal in any type
of activity  that is not  permissible  for a national bank and  subsidiaries  of
state-chartered,  FDIC-insured state banks have been prohibited from engaging as
principal in any type of activity that is not  permissible for a subsidiary of a
national bank unless in either case the FDIC  determines that the activity would
pose no significant risk to the appropriate  deposit insurance fund and the bank
is, and continues to be, in compliance with applicable capital standards.

                                       19
<PAGE>

     The FDIC has adopted  regulations to clarify the foregoing  restrictions on
activities of  FDIC-insured  state-chartered  banks and their  subsidiaries.  An
activity  permissible  for a  national  bank  includes  any  activity  expressly
authorized  for  national  banks by  statute or  recognized  as  permissible  in
regulations,  official  circulars  or  bulletins  or in  any  order  or  written
interpretation  issued by the Office of the Comptroller of the Currency ("OCC").
In its  regulations,  the FDIC  indicates that it will not permit state banks to
directly engage in commercial  ventures or directly or indirectly  engage in any
insurance  underwriting  activity  other than to the extent such  activities are
permissible  for a national  bank or a national  bank  subsidiary  or except for
certain  other  limited  forms of  insurance  underwriting  permitted  under the
regulations.  Under the  regulations,  the FDIC  permits  state  banks that meet
applicable  minimum  capital  requirements  to engage as  principal  in  certain
activities  that are not  permissible to national banks  including  guaranteeing
obligations of others,  activities  which the Federal Reserve Board has found by
regulation  or order to be closely  related to banking  and  certain  securities
activities conducted through subsidiaries.

     TRANSACTIONS WITH AFFILIATES.  Transactions between banks and any affiliate
are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of
a bank is any company or entity which  controls,  is  controlled  by or is under
common  control  with the bank.  Generally,  Sections  23A and 23B (i) limit the
extent  to  which  the  bank  or  its   subsidiaries   may  engage  in  "covered
transactions"  with  any  one  affiliate  to an  amount  equal  to 10%  of  such
institution's  capital stock and surplus,  and contain an aggregate limit on all
such  transactions with all affiliates to an amount equal to 20% of such capital
stock  and  surplus  and (ii)  require  that all such  transactions  be on terms
substantially  the  same,  or at  least  as  favorable,  to the  institution  or
subsidiary as those provided to a non-affiliate.  A bank holding company and its
subsidiaries are considered  "affiliates" of the bank under Section 23A and 23B.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and similar other types of transactions.  In addition to
the  restrictions  imposed by Sections 23A and 23B, the Bank may not (i) lend or
otherwise extend credit to an affiliate,  except for any affiliate which engages
only in activities  which are  permissible for bank holding  companies,  or (ii)
purchase  or  invest  in  any  stocks,  bonds,  debentures,   notes  or  similar
obligations of any affiliate,  except for affiliates  which are  subsidiaries of
the Bank.

     FEDERAL  HOME LOAN BANK  SYSTEM.  The Bank is a member of the FHLB  System,
which consists of 12 district FHLBs subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB").  As a member of the FHLB of Atlanta, the
Bank is  required  to acquire  and hold  shares of capital  stock in the FHLB of
Atlanta in an amount at least equal to 1% of the aggregate  unpaid  principal of
its home mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year,  or 1/20 of its advances  (borrowings)  from the FHLB of
Atlanta,  whichever is greater.  Cooperative  Bank was in  compliance  with this
requirement  with  investment  in FHLB of Atlanta  stock at December 31, 2002 of
approximately $4.1 million.

     FEDERAL  RESERVE BOARD  REGULATION.  Pursuant to regulations of the Federal
Reserve Board, all FDIC-insured  depository  institutions  must maintain average
daily reserves against their  transaction  accounts.  Because required  reserves
must be maintained in the form of vault cash or in a noninterest bearing account
at a Federal  Reserve Bank,  the effect of the reserve  requirement is to reduce
the amount of the institution's  interest-earning  assets. At December 31, 2002,
the Bank met its reserve requirements.

     North  Carolina  law also  required  the Bank to maintain a reserve fund at
least  equal to the Federal  Reserve  requirement.  In the event the  reservable
liabilities  of the Bank are such that no reserve  is  required  by the  Federal
Reserve,  the Bank would be  required  under  North  Carolina  law to maintain a
reserve  fund  equal to 3% of its total  deposits  of every  kind  which are not
otherwise secured by acceptable collateral.

     SARBANES-OXLEY ACT OF 2002. On July 30, 2002, the President signed into law
the  Sarbanes-Oxley  Act of 2002 (the "Act") which mandated a variety of reforms
intended to address  corporate and  accounting  fraud.  The Act provides for the
establishment of a new Public Company Accounting Oversight Board ("PCAOB") which
will enforce auditing, quality control and independence standards for firms that
audit SEC-reporting  companies and will be funded by fees from all SEC reporting
companies.  The Act  imposes  higher  standards  for  auditor  independence  and
restricts  provision of consulting  services by auditing firms to companies they
audit.  Any non-audit  services  being  provided to an audit client will require
pre-approval  by the Company's  audit committee  members.  In addition,  certain
audit partners must be rotated  periodically.  The Act requires chief  executive
officers and chief financial

                                       20
<PAGE>

officers,  or their  equivalent,  to certify to the accuracy of periodic reports
filed with the SEC, subject to civil and criminal penalties if they knowingly or
willfully violate this certification  requirement.  In addition,  under the Act,
counsel  will be required  to report  evidence  of a material  violation  of the
securities  laws or a  breach  of  fiduciary  duty  by a  company  to its  chief
executive  officer or its chief legal  officer,  and, if such  officer  does not
appropriately  respond,  to report such evidence to the audit committee or other
similar committee of the board of directors or the board itself.

     Longer  prison  terms  will also be  applied to  corporate  executives  who
violate federal  securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended,  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate  misconduct.  Executives  are  also  prohibited  from  trading  during
retirement  plan  "blackout"  periods,  and  loans  to  company  executives  are
restricted.  In addition, a provision directs that civil penalties levied by the
SEC as a result  of any  judicial  or  administrative  action  under  the Act be
deposited in a fund for the benefit of harmed investors. Directors and executive
officers  must also  report  most  changes  in their  ownership  of a  company's
securities within two business days of the change.

     The Act also  increases the oversight and authority of audit  committees of
publicly traded  companies.  Audit committee members must be independent and are
barred from accepting  consulting,  advisory or other compensatory fees from the
issuer.  In addition,  all SEC reporting  companies will be required to disclose
whether at least one member of the  committee is a  "financial  expert" (as such
term is  defined  by the SEC rules) and if not,  why not.  Audit  committees  of
publicly  traded  companies  will have authority to retain their own counsel and
other advisors funded by the company. Audit committees must establish procedures
for the receipt,  retention and treatment of complaints regarding accounting and
auditing  matters and  procedures  for  confidential,  anonymous  submission  of
employee concerns regarding questionable accounting or auditing matters. The SEC
has promulgated  regulations  implementing these provisions which are not yet in
effect.

     Beginning  six months  after the SEC  determines  that the PCAOB is able to
carry  out its  functions,  it will be  unlawful  for any  person  that is not a
registered  public  accounting firm ("RPAF") to audit an SEC-reporting  company.
Under the Act, a RPAF is prohibited from performing  statutorily  mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person serving
in equivalent  positions has been employed by such firm and  participated in the
audit of such company during the one-year period  preceding the audit initiation
date.  The Act also  prohibits any officer or director of a company or any other
person  acting  under their  direction  from  taking any action to  fraudulently
influence,  coerce,  manipulate or mislead any  independent  public or certified
accountant  engaged in the audit of the Company's  financial  statements for the
purpose of rendering the financial  statements  materially  misleading.  The Act
also  requires the SEC to  prescribe  rules  requiring  inclusion of an internal
control   report  and   assessment   by  management  in  the  annual  report  to
shareholders.  The Act  requires the RPAF that issues the audit report to attest
to and report on management's  assessment of the Company's internal controls. In
addition, the Act requires that each financial report required to be prepared in
accordance with (or reconciled to) generally accepted accounting  principles and
filed  with  the SEC  reflect  all  material  correcting  adjustments  that  are
identified by a RPAF in accordance with generally accepted accounting principles
and the rules and regulations of the SEC.

     Although  the  Company  anticipates  it will  incur  additional  expense in
complying with the provisions of the Act and the related rules,  management does
not expect that such  compliance  will have a material  impact on the  Company's
financial condition or results of operations.

     THE USA PATRIOT ACT. In response to the events of September  11, 2001,  the
United and  Strengthening  America by Providing  Appropriate  Tools  Required to
Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"), was signed
into law on October 26, 2001.  The USA PATRIOT Act gives the federal  government
new powers to address  terrorist  threats  through  enhanced  domestic  security
measures,  expanded  surveillance  powers,  increased  information  sharing, and
broadened anti-money laundering  requirements.  By way of amendments to the Bank
Secrecy  Act,  Title III of the USA  PATRIOT  Act  takes  measures  intended  to
encourage information sharing among bank regulatory agencies and law enforcement
bodies. Further,  certain provisions of Title III impose

                                       21
<PAGE>
affirmative  obligations on a broad range of financial  institutions,  including
banks,  thrifts,  brokers,  dealers,  credit unions,  money transfer  agents and
parties registered under the Commodity Exchange Act.

     Among  other  requirements,  Title III of the USA  PATRIOT  Act imposes the
following requirements with respect to financial institutions:

     o    Pursuant to Section 352, all  financial  institutions  must  establish
          anti-money  laundering  programs  that  includes,  at a  minimum:  (i)
          internal policies, procedures, and controls; (ii) specific designation
          of an anti-money laundering compliance officer; (iii) ongoing employee
          training programs;  and (iv) an independent audit function to test the
          anti-money laundering program.

     o    Section  326  authorizes  the  Secretary  of  the  Department  of  the
          Treasury,  in  conjunction  with  other  bank  regulators,   to  issue
          regulations  that  provide  for  minimum  standards  with  respect  to
          customer identification at the time new accounts are opened.

     o    Section 312 requires financial institutions that establish,  maintain,
          administer  or  manage  private  banking  accounts  or  correspondence
          accounts in the United States for  non-United  States persons or their
          representatives  (including  foreign  individuals  visiting the United
          States) to  establish  appropriate,  specific  and,  where  necessary,
          enhanced due diligence policies,  procedures, and controls designed to
          detect and report money laundering.

     o    A prohibition  against  establishing,  maintaining,  administering  or
          managing correspondent accounts for foreign shell banks (foreign banks
          that do not have a physical  presence  in any  country),  and  certain
          record keeping  obligations with respect to correspondent  accounts of
          foreign banks.

     o    Bank   regulators  are  directed  to  consider  a  holding   company's
          effectiveness  in combating  money  laundering  when ruling on Federal
          Reserve Act and Bank Merger Act applications.

     The  federal   banking   agencies  have  begun  to  propose  and  implement
regulations  pursuant  to the  USA  PATRIOT  Act.  These  proposed  and  interim
regulations require financial  institutions to adopt the policies and procedures
contemplated by the USA PATRIOT Act.

                                    TAXATION

     The Bank is subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") in the same general manner as other corporations.

     Legislation  that was effective for tax years  beginning after December 31,
1995 required  savings  institutions to recapture into taxable income over a six
taxable  year  period  the  portion of the tax loan  reserve  that  exceeds  the
pre-1988 tax loan loss reserve. Circumstances that would require an accrual of a
portion or all of this  unrecorded  tax  liability are a reduction in qualifying
loan levels  relative to the end of 1987,  failure to meet the  definition  of a
bank,  dividend  payments in excess of accumulated tax earnings and profits,  or
other distribution, liquidation or redemption of the Bank's stock.

     For additional  information  regarding federal and state taxes, see Note 10
of Notes to Consolidated Financial Statements in the Annual Report.

STATE INCOME TAXATION

     Under North Carolina law, the Bank is subject to an annual corporate income
tax of 6.90% of its federal  taxable income as computed under the Code,  subject
to certain  prescribed  adjustments.  In addition to the state corporate  income
tax, the Bank is subject to an annual state franchise tax, which is imposed at a
rate of .15%  applied to the greatest of the Bank's (i) capital  stock,  surplus
and undivided profits, (ii) investment in tangible property in

                                       22
<PAGE>
North Carolina or (iii) appraised  valuation of property in North Carolina.  The
filing of consolidated returns is not permitted under North Carolina law.

                                       23
<PAGE>


ITEM 2.  PROPERTIES
--------------------

     The Bank operated 17 financial  centers  throughout  the coastal and inland
communities of eastern North Carolina at December 31, 2002. The Bank has a total
of four offices that are subject to leases.  The land is leased for two of these
offices on which the Bank has built its own buildings.  One office is a lease of
the land and the building on it and one is an office  condominium that is leased
by the bank.  Lumina  operated 4 offices in Wilmington,  North  Carolina;  North
Myrtle Beach, South Carolina; and Virginia Beach, Virginia. All of these offices
are leased. For additional  information relating to premises and equipment,  see
Note 4 of Notes to Consolidated Financial Statements in the Annual Report.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 2002.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------

     The   information   contained  under  the  section   captioned   "Corporate
Information" in the Annual Report is incorporated by reference.

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

     The information  required by this item is incorporated  herein by reference
to the  tables  captioned  "Selected  Financial  and Other  Data" in the  Annual
Report.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
& Analysis" in the Annual Report is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and Analysis" in the Annual Report is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

     The  financial  statements  contained in the Annual Report which are listed
under Item 15 herein are incorporated herein by reference.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure
--------------------------------------------------------------------------------

     None.

                                       24
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

     (a)  Directors of the Registrant

     The  information  contained  under the  section  captioned  "Proposal  I --
Election of  Directors" in the Proxy  Statement  for the 2003 Annual  Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.

     (b)  Principal Officers of the Registrant

     The information contained under the caption "Executive Officers" under Part
I of this Form 10-K is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under the  section  captioned  "Proposal  I --
Election  of  Directors"  in the  Proxy  Statement  is  incorporated  herein  by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          Information  required by this item is incorporated herein by reference
          to the sections  captioned  "Voting  Securities and Principal  Holders
          Thereof" in the Proxy Statement.

     (b)  Security Ownership of Management

          Information  required by this item is incorporated herein by reference
          to the sections captioned "Proposal I -- Election of Directors" in the
          Proxy Statement.

     (c)  Changes in Control

          Management  of the Company  knows of no  arrangements,  including  any
          pledge of any person of  securities  of the Company,  the operation of
          which may at a  subsequent  date  result in a change in control of the
          Company.

                                       25
<PAGE>

     (d)  Securities Authorized for Issuance Under Equity Compensation Plans

     The  following  table sets forth  certain  information  with respect to the
Company's equity compensation plans.
<TABLE>
<CAPTION>
                                                                                                NUMBER OF SECURITIES REMAINING
                                     NUMBER OF SECURITIES TO BE                                 AVAILABLE FOR FUTURE ISSUANCE
                                      ISSUED UPON EXERCISE OF       WEIGHTED-AVERAGE EXERCISE     UNDER EQUITY COMPENSATION
                                        OUTSTANDING OPTIONS,          PRICE OF OUTSTANDING       PLANS (EXCLUDING SECURITIES
                                         WARRANTS & RIGHTS        OPTIONS, WARRANTS AND RIGHTS     REFLECTED IN COLUMN (A))
                                     --------------------------   ----------------------------   -----------------------------
<S>                                           <C>                             <C>                          <C>
Equity compensation plans
  approved by security holders                141,943                         11.28                        135,062

Equity compensation plans not
  approved by security holders                     --                           --                              --
                                              -------                         -----                        -------
Total                                         141,943                         11.28                        135,062
                                              -------                         -----                        -------
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the  sections  captioned  "Proposal I -- Election of  Directors"  and "Voting
Securities and Principal Holders Thereof" in the Proxy Statement.


ITEM 14. CONTROLS AND PROCEDURES
--------------------------------

     Within  90 days  prior  to the  date  of this  report,  we  carried  out an
evaluation,  under the supervision and with the  participation  of our principal
executive officer and principal  financial officer,  of the effectiveness of the
design and operation of our disclosure  controls and  procedures.  Based on this
evaluation,  our principal  executive  officer and principal  financial  officer
concluded  that our  disclosure  controls and procedures are effective in timely
alerting  them to material  information  required to be included in our periodic
SEC  reports.  It should be noted that the design of any system of  controls  is
based in part upon certain  assumptions  about the  likelihood of future events,
and there can be no  assurance  that any design will  succeed in  achieving  its
stated goals under all potential future conditions, regardless of how remote.

     In  addition,  we reviewed our  internal  controls,  and there have been no
significant  changes in our  internal  controls or in other  factors  that could
significantly  affect  those  controls  subsequent  to the  date of  their  last
evaluation.

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

     (a)  Contents. The following financial statements are filed as part of this
          --------
          Annual Report on Form 10-K.

          (1)  Consolidated Financial Statements

               1.   Independent Auditors' Report of KPMG LLP *
               2.   Consolidated   Statements  of  Financial   Condition  as  of
                    December 31, 2002 and 2001*
               3.   Consolidated  Statements of  Operations  for the Years Ended
                    December 31, 2002, 2001 and 2000 *
               4.   Consolidated  Statements  of  Comprehensive  Income  for the
                    Years Ended December 31, 2002, 2001 and 2000 *

                                       26
<PAGE>

               5.   Consolidated  Statements  of  Stockholders'  Equity  for the
                    Years Ended December 31, 2002, 2001 and 2000 *
               6.   Consolidated  Statements  of Cash Flows for the Years  Ended
                    December 31, 2002, 2001, and 2000 *
               7.   Notes to Consolidated Financial Statements *
               ___________
               *    Incorporated  by  reference  to the Annual  Report  attached
                    hereto as Exhibit 13.


          (2)  Financial  Statement Schedules (All financial statement schedules
               have  been  omitted  as  the  required   information   is  either
               inapplicable or included in the Consolidated Financial Statements
               or related notes.)

     (b) During the fourth  quarter of 2002,  the  Registrant  filed two Current
Reports on Form 8-K, one on December 31, 2002  announcing the conversion  from a
North Carolina chartered savings bank to a North Carolina  chartered  commercial
bank and one on October 23, 2002 reporting third quarter earnings.

     (c) The  following  exhibits are either filed as part of this report or are
incorporated herein by reference:
<TABLE>
<CAPTION>
        No.                         Description
        ---                         -----------

        <S>             <C>                                                                    <C>
        3.1             Articles of Incorporation                                                *

        3.2             Bylaws, as amended

        10.1            Cooperative Bankshares, Inc. 1998 Stock Option and
                        Incentive Plan                                                          **

        10.2            Employment Agreement with Frederick Willetts, III                        *

        10.3            Severance Agreement with Todd L. Sammons                                ***

        10.4            Severance Agreement with O.C. Burrell, Jr.                             ****

        10.5            Severance Agreement with Dickson B. Bridger                            *****

        10.6            Amendment to Severance Agreement of O.C. Burrell, Jr.                    *

        10.7            Indemnity Agreement with Directors and Executive                         *
                        Officers

        10.8            Director Retirement Agreements between Cooperative Bank                 ***
                        and Each Non-Employee Director of Cooperative Bank

        10.9            Director Deferred Fee Agreements between Cooperative Bankshares,        ***
                        Inc. and each Director of the Company

        10.10           Director Deferred Fee Agreements between Cooperative Bank               ***
                        and Each Non-Employee Director of Cooperative Bank

                                       27
<PAGE>

        10.11           Executive Indexed Retirement Agreements between                         ***
                        Cooperative Bank and Frederick Willetts, III
                        and O. C. Burrell

        11              Statement re: computation of per share earnings -
                        Reference is made to the Company's Consolidated
                        Statements of Operations attached hereto as Exhibit 13,
                        which are incorporated herein by reference

        13              Annual Report to Stockholders for the year ended
                        December 31, 2002

        21              Subsidiaries

        23.1            Consent of KPMG LLP

        99              Certification pursuant to 18 U.S.C. Section 1350
<FN>
___________
*    Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form S-4 (Reg. No. 33-79206).
**   Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form S-8 (Reg. No. 333-92219)
***  Incorporated by reference to the Registrant's Form 10-K for the fiscal year
     ended December 31, 2001.
**** Incorporated by reference to the Registrant's Form 10-K for the fiscal year
     ended December 31, 1997.
*****Incorporated  by  reference  to the  Registrant's  Form 10-K for the fiscal
     year ended December 31, 2000.
</FN>
</TABLE>

                                       28
<PAGE>
                                   SIGNATURES

     Pursuant to the  requirements of Section 13 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.




Date:  March 13, 2003              By:  /s/ Frederick Willetts, III
                                        --------------------------------------
                                        President and Chief Executive Officer
                                        (Duly Authorized Representative)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


By:  /s/ Frederick Willetts, III                           Date:  March 13, 2003
     ---------------------------------------------------
       President, Chief Executive Officer and Chairman
       (Principal Executive Officer and Director)

By:   /s/ Todd L. Sammons                                 Date:  March 13, 2003
     ---------------------------------------------------
       Senior Vice President and Chief Financial Officer
       (Principal Financial and Accounting Officer)

By:  /s/ James D. Hundley, M.D.                           Date:  March 13, 2003
     ---------------------------------------------------
       (Director)

By:   /s/ O. Richard Wright, Jr.                          Date:  March 13, 2003
     ---------------------------------------------------
       (Director)

By:    /s/ Paul G. Burton                                 Date:  March 17, 2003
     ---------------------------------------------------
       (Director)

By:   /s/ H. Thompson King, III                           Date:  March 13, 2003
     ---------------------------------------------------
       (Director)

By:   /s/ F. Peter Fensel, Jr.                            Date:  March 13, 2003
     ---------------------------------------------------
       (Director)

By:   /s/ R. Allen Rippy                                  Date:  March 13, 2003
     ---------------------------------------------------
       (Director)

By:   /s/ Russell M. Carter                               Date:  March 13, 2002
     ---------------------------------------------------
       (Director)

<PAGE>

                                  CERTIFICATION


     I,  Frederick  Willetts,  III,  President  and Chief  Executive  Officer of
Cooperative Bankshares, Inc., certify that:

     1. I  have  reviewed  this  annual  report  on  Form  10-K  of  Cooperative
Bankshares, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 12, 2003


                                     /s/Frederick Willetts, III
                                     --------------------------------------
                                     President and Chief Executive Officer


<PAGE>

                                  CERTIFICATION


     I, Todd  Sammons,  Senior Vice  President  and Chief  Financial  Officer of
Cooperative Bankshares, Inc., certify that:

     1. I  have  reviewed  this  annual  report  on  Form  10-K  of  Cooperative
Bankshares, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     a) All  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 12, 2003


                            /s/ Todd L. Sammons
                            -------------------------------------------------
                            Senior Vice President and Chief Financial Officer