FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000 Commission file number 2-99779
National Consumer Cooperative Bank
(Exact name of registrant as specified in its charter)
United States of America 52-1157795
(12 U.S.C. Section 3001 et seq.) (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
1401 Eye Street, NW, Suite 700, Washington, D.C. 20005
(Address of principal executive offices)
Registrant's telephone number, including area code (202)336-7700
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at June 30, 2000
Class C 222,733
(Common stock, $100.00 par value)
Class B 997,104
(Common stock, $100.00 par value)
Class D 3
(Common stock, $100.00 par value)
National Consumer Cooperative Bank
(doing business as National Cooperative Bank)
and Subsidiaries
INDEX
PART I FINANCIAL INFORMATION
Page No.
Item 1 Consolidated balance sheets - June 30,
2000 and December 31, 1999 ............ 3
Consolidated statements of income - for
the three and six months ended June 30, 2000
and 1999............................... 4
Consolidated statements of comprehensive
income - for the six months ended
June 30, 2000 and 1999................. 5
Consolidated statements of cash flows -
for the six months ended June 30, 2000
and 1999............................... 6-7
Condensed notes to the consolidated
financial statements - June 30, 2000... 8-17
Item 2 Management's discussion and analysis
of financial condition and results of
operations - for the three and six months
ended June 30, 2000 and 1999........... 18-28
Item 3 Quantitative and qualitative disclosures
about market risk ..................... 28
PART II OTHER INFORMATION
Item 6 Exhibits ............................. 29
Exhibit 10-30 - Amendment No. 3 to Third
Amended and Restated Loan Agreement with
Fleet Bank as Agent
Exhibit 27 - Financial Data Schedule
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Unaudited)
June 30, December 31,
Assets 2000 1999
Cash and cash equivalents $ 28,984,637 $ 29,910,037
Restricted cash 4,857,607 4,887,213
Investment securities
Available-for-sale 44,166,980 46,283,045
Held-to-maturity 2,710,244 2,710,191
Loans held for sale 207,788,526 132,057,978
Loans and lease financing 884,320,739 815,840,439
Less: Allowance for loan loss (19,072,553) (18,693,670)
Net loans held for sale and
loans and lease financing 1,073,036,712 929,204,747
Other assets 37,869,628 43,514,663
Total assets $1,191,625,808 $1,056,509,896
Liabilities and Members' Equity
Liabilities
Deposits $ 142,482,158 $ 126,071,259
Patronage dividends payable
in cash 6,774,313 5,642,040
Other liabilities 28,359,754 25,041,359
Borrowings
Short-term 377,598,417 283,589,354
Long-term 304,151,219 286,262,870
681,749,636 569,852,224
Subordinated debt 182,498,076 182,620,212
Total borrowings 864,247,712 752,472,436
Total liabilities 1,041,863,937 909,227,094
Members' equity
Common stock
Class B 99,710,414 99,879,531
Class C 22,273,318 22,380,663
Class D 300 300
Retained earnings
Allocated 10,625,057 9,203,865
Unallocated 17,368,655 16,682,644
Accumulated other comprehensive
income (215,873) (864,201)
Total members' equity 149,761,871 147,282,802
Total liabilities and members'
equity $1,191,625,808 $1,056,509,896
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
Interest income
Loans and lease financing $43,443,662 $35,429,714 $22,862,582 $18,415,896
Investments securities 2,331,643 2,706,871 1,090,231 1,218,099
Total interest income 45,775,305 38,136,585 23,952,813 19,633,995
Interest expense
Deposits 3,200,690 2,840,310 1,742,364 1,389,586
Short-term borrowings 10,547,178 7,178,910 5,841,421 3,595,484
Long-term debt, other borrowings
and subordinated debt 16,629,159 13,319,661 8,515,237 7,489,756
Total interest expense 30,377,027 23,338,881 16,099,022 12,474,826
Net interest income 15,398,278 14,797,704 7,853,791 7,159,169
Provision for loan losses 441,667 835,036 429,167 417,536
Net interest income after
provision for loan losses 14,956,611 13,962,668 7,424,624 6,741,633
Non-interest income
Gain on sale of loans 232,994 3,756,363 237,063 3,691,893
Loan and deposit servicing fees 1,447,851 1,319,608 635,918 599,013
Other 1,252,468 2,577,823 636,156 1,721,661
Total non-interest income 2,933,313 7,653,794 1,509,137 6,012,567
Non-interest expense
Compensation and
employee benefits 7,487,420 7,478,528 3,234,188 3,864,642
Contractual services 2,286,910 2,105,342 1,233,438 1,038,296
Occupancy and equipment 2,519,984 2,281,927 1,278,394 1,232,147
Contribution to NCB
Development Corporation - 200,000 - 150,000
Other 1,319,459 1,400,216 789,664 793,836
Total non-interest expense 13,613,773 13,466,013 6,535,684 7,078,921
Income before income taxes 4,276,151 8,150,449 2,398,077 5,675,279
Provision for income taxes 805,457 727,596 427,193 403,182
Net income $ 3,470,694 $ 7,422,853 $ 1,970,884 $ 5,272,097
Distribution of net income
Patronage dividends $ 3,470,694 $ 7,422,853 $ 1,970,884 $ 5,272,097
Retained earnings - - - -
$ 3,470,694 $ 7,422,853 $ 1,970,884 $ 5,272,097
</TABLE>
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the six months ended June 30, 2000 1999
Net income $3,470,694 $7,422,853
Other comprehensive income, net of tax:
Net unrealized holding
gains before tax 648,328 1,317,045
Comprehensive income $4,119,022 $8,739,898
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30, 2000 1999
Cash flows from operating activities
Net income $ 3,470,694 $ 7,422,853
Adjustments to reconcile net
income to net cash used in
operating activities
Provision for loan losses 441,667 835,035
Depreciation and amortization 3,432,986 2,802,052
Gain on sale of loans (232,994) (4,345,651)
Loans originated for sale (115,896,466) (143,984,908)
Proceeds from sale of loans
held for sale 40,398,910 131,774,082
Decrease (increase) in other
assets 2,826,011 (6,868,407)
Increase (decrease) in other
liabilities 3,026,290 (11,458,739)
Net cash used in operating
activities (62,532,902) (23,823,683)
Cash flows from investing activities
Decrease in restricted cash 29,606 7,512,629
Purchase of investment securities
Available-for-sale (2,260,916) (1,000,000)
Proceeds from maturities of
investments securities
Available-for-sale 2,752,681 6,558,083
Held-to-maturity - 165,596
Net increases in loans and lease
financing (80,564,806) (191,831,996)
Proceeds from sale of portfolio
loans 13,823,937 10,483,123
Purchases of premises and equipment (73,460) (421,096)
Net cash used in investing activities (66,292,958) (168,533,661)
Cash flows from financing activities
Net increase (decrease) in deposits 16,410,899 (4,457,641)
Net increase in short-term borrowings 94,009,063 146,401,341
Proceeds from issuance of long-term
debt 49,768,128 45,000,000
Repayment on long term debt (32,000,000) (20,000,000)
Dividends paid (287,630) (250,848)
Net cash provided by financing
activities 127,900,460 166,692,852
Decrease in cash and cash equivalents (925,400) (25,664,492)
Cash and cash equivalents, beginning
of year 29,910,037 66,563,160
Cash and cash equivalents, end of
period $ 28,984,637 $ 40,898,668
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental schedule of investing and financing activities:
For the six months ended June 30, 2000 1999
Unrealized gain on investment
available-for-sale $ 648,328 $ 1,317,045
Interest paid $29,247,787 $23,374,647
Income taxes paid $ 731,970 $ 614,694
NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
The accompanying financial statements have been prepared
without audit and reflect all adjustments (consisting only of
normal recurring adjustments) which were, in the opinion of
management, necessary to a fair statement of the results of the
interim period presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. Accordingly, these condensed
financial statements should be read in conjunction with the
financial statements and the notes thereto included in National
Cooperative Bank's (NCB's) most current annual report. The
results of operations for the interim periods are not necessarily
indicative of the results of the entire year.
1. Cash, Cash Equivalents and Investment Securities
As of June 30, 2000, NCB's portfolios of investment
securities, cash and cash equivalents had an average adjusted
maturity of approximately 2.6 years with interest rates in those
portfolios varying from 5.23% to 8.13%.
Cash and Investments Investments
Cash Available- Held-to-
Equivalents for-Sale Maturity
Cash $ 2,868,539 $ - $ -
Federal funds 15,921,664 - -
Money market securities 9,844,434 752,518 -
Private debt security - - 767,931
Mutual funds - 1,794,353 -
Certificates of deposit 350,000 - -
Mortgage-backed
securities - - 1,942,313
Corporate bonds - 4,689,913 -
U.S. Treasury and Agency
obligations - 17,607,645 -
Interest-only receivables - 19,322,551 -
$28,984,637 $44,166,980 $2,710,244
As of December 31, 1999, NCB's portfolios of investment
securities, cash and cash equivalents were comprised of the
following:
Cash and Investments Investments
Cash Available- Held-to-
Equivalents for-Sale Maturity
Cash $ 3,407,537 $ - $ -
Federal funds 11,763,202 - -
Money market securities 14,389,298 1,039,318 -
Private debt security - - 767,878
Mutual funds - 1,221,719 -
Certificates of deposit 350,000 - -
Mortgage-backed
securities - - 1,942,313
Corporate bonds - 4,721,038 -
U.S. Treasury and Agency
obligations - 18,447,345 -
Interest-only receivables - 20,853,625 -
$29,910,037 $46,283,045 $2,710,191
At June 30, 2000 and December 31, 1999, the investments in
the available-for-sale portfolio were recorded at aggregate fair
value.
Restricted cash of $4,857,607 and $4,887,213 at June 30, 2000
and December 31, 1999, respectively is held by a trustee for the
benefit of certificate holders in the event of a loss on certain
loans sold in 1992 and 1993. At June 30, 2000 and December 31,
1999, the combined remaining balance of 1992 and 1993 loans
totaled $38,955,317 and $56,967,101, respectively. The restricted
cash will become available to NCB I, Inc. as the principal
balance of the respective loans decreases. The loans sold have
original maturities of ten to fifteen years.
Interest-only receivables substantially pertain to blanket
loans to cooperative housing corporations.
2. Loans and Lease Financing
Loans and leases outstanding by category were as follows:
June 30, 2000 December 31,1999
Commercial loans $ 537,850,646 $470,913,210
Lease financing 57,590,393 60,104,256
Real estate loans
Residential 486,831,096 408,204,055
Commercial 9,837,130 8,676,896
$1,092,109,265 $947,898,417
At June 30, 2000 and December 31, 1999, loans held for sale
were $207.8 million and $132.1 million, respectively.
3. Impaired Assets
Impaired loans, representing the nonaccrual loans at June 30,
2000 and December 31, 1999, totaled $707,259 and $580,311,
respectively, and averaged $744,500 and $1,084,000 during the
respective periods ending on these dates. Specific allowances of
$343,600 and $239,911 were established at June 30, 2000 and
December 31, 1999, respectively. During 2000 and 1999, the
interest collected on the nonaccrual loans was applied to reduce
the outstanding principal.
At June 30, 2000 and December 31, 1999, there were no
commitments to lend additional funds to borrowers whose loans are
impaired.
At June 30, 2000 and December 31, 1999, NCB had real estate
acquired through foreclosure of $125,007 and $2,686,747,
respectively, which is classified as other assets.
4. Allowance for Loan Losses
The following is a summary of the activity in the allowance
for loan losses during the six months ended June 30, 2000:
Balance at January 1, 2000 $18,693,670
Provision for loan losses 441,667
Charge-offs (480,355)
Recoveries of loans previously
charged-off 417,571
Balance at June 30, 2000 $19,072,553
The allowance for loan losses as a percentage of average loans
and lease financing at June 30, 2000 was 1.8%.
5. Statement of Changes in Members' Equity
The following is a summary of the activity in members' equity at June 30,
2000:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retained Retained Total
Common Earnings Earnings Unrealized Members'
Stock Allocated Unallocated (Loss) Gain Equity
Balance, December 31, 1999 $122,260,494 $ 9,203,865 $16,682,644 $ (864,201) $147,282,802
Net income - - 3,470,694 - 3,470,694
Other dividends declared - - (292,107) - (292,107)
Cancellation and redemption
of stock (276,462) - 91,409 - 185,053)
2000 patronage dividends
to be distributed in cash - - (1,162,793) - (1,162,793)
Retained in form of equity - 1,421,192 (1,421,192) - -
Unrealized gain on investment
securities available-for-
sale - - - 648,328 648,328
Balance, June 30, 2000 $121,984,032 $10,625,057 $17,368,655 $ (215,873)$149,761,871
</TABLE>
6. Segment Reporting
NCB's reportable segments are strategic business units that
provide diverse products and services within the financial
services industry. NCB has five reportable segments: commercial
lending, real estate lending, warehouse lending, NCB Savings
Bank and other. The commercial lending segment provides
financial services to cooperative and member-owned businesses.
The real estate lending segment originates and services multi-
family cooperative real estate loans nationally, with a
concentration in New York City. The warehouse lending segment
originates real estate and commercial loans for sale in the
secondary market. NCB Savings Bank segment provides traditional
banking services such as lending and deposit gathering
to retail, corporate and commercial customers. "Other"
consists of NCB's unallocated parent company income and expense,
and net interest income from investments and corporate debt after
allocations to segments.
NCB evaluates segment performance based on net income before
taxes. The accounting policies of the segments are substantially
the same as those described in the summary of significant
accounting policies in the most recent annual report. Overhead
and support expenses are allocated to each operating segment
based on number of employees, and other factors relevant to
expenses incurred. Also included in overhead and support is
depreciation allocated based on equipment usage.
The following is the segment reporting for the six months ended June 30,
2000 and 1999 (dollars in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
2000 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
Interest income $ 22,565 $ 6,487 $ 7,142 $ 6,283 $ 3,298 $ 45,775
Interest expense
Allocated 18,308 4,589 5,473 - (28,370) -
Direct - - - 3,809 26,568 30,377
Net interest income 4,257 1,898 1,669 2,474 5,100 15,398
Provision(credit)for
loan losses 10,419 81 - 67 (10,125) 442
Non-interest income-
external 1,061 797 568 505 3 2,934
Non-interest expense
Direct expense 2,556 1,700 406 1,111 7,841 13,614
Overhead and support 587 477 81 544 (1,689) -
Total non-interest
expense 3,143 2,177 487 1,655 6,152 13,614
(Loss) income before
taxes $ (8,244) $ 437 $ 1,750 $ 1,257 $ 9,076 $ 4,276
Total average
assets $ 573,277 $151,677 $167,808 $164,703 $ 74,748 $1,132,213
1999 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
Interest income $ 17,382 $ 4,786 $ 7,532 $ 5,279 $ 3,158 $ 38,137
Interest expense
Allocated 12,264 3,369 4,983 - (20,616) -
Direct - - - 3,052 20,287 23,339
Net interest income 5,118 1,417 2,549 2,227 3,487 $ 14,798
Provision (credit)
for loan (1,342) 183 - 85 1,909 835
Non-interest income-
external 1,656 1,194 4,554 483 (234) 7,653
Non-interest expense
Direct expense 2,572 1,546 767 1,344 7,236 13,466
Overhead and support 404 135 36 150 (724) -
Total non-interest
expense 2,976 1,681 803 1,494 6,512 13,466
Income (loss) before
taxes $ 5,140 $ 747 $ 6,300 $ 1,131 $ (5,168) $ 8,150
Total average assets $396,804 $137,906 $192,033 $141,576 $133,625 $1,001,944
The following is the segment reporting for the three months ended June 30,
2000 and 1999 (dollars in thousands):
2000 Commercial Real Estate Warehouse NCB
Lending Lending NCBSB Other Consolidated
Interest income $ 11,142 $ 3,402 $ 3,659 $ 3,350 $ 2,400 $ 23,953
Interest expense
Allocated 9,435 2,421 3,180 - (15,036) -
Direct - - - 2,106 13,993 16,099
Net interest
income 1,707 981 479 1,244 3,443 7,854
Provision (credit)
for loan losses 4,471 11 - 54 (4,107) 429
Non-interest income-
external 404 327 386 279 113 1,509
Non-interest expense
Direct expense 1,337 760 194 557 3,688 6,536
Overhead and support 300 266 39 270 (875) -
Total non-interest
expense 1,637 1,026 233 827 2,813 6,536
(Loss) income before
taxes $ (3,997) $ 271 $ 632 $ 642 $ 4,850 $ 2,398
Total average assets $564,483 $150,243 $157,568 $161,369 $141,082 $1,174,745
1999 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
Interest income $ 9,538 $ 2,277 $ 2,794 $ 2,842 $ 2,183 $ 19,634
Interest expense
Allocated 6,777 1,651 2,222 - (10,650) -
Direct - - - 1,598 10,877 12,475
Net interest income 2,761 626 572 1,244 1,956 7,159
Provision (credit)
for loan losses 727 (10) - 42 (342) 417
Non-interest income-
external 1,047 1,044 4,499 232 (810) 6,012
Non-interest expense
Direct expense 1,424 871 331 682 3,770 7,079
Overhead and support 287 67 (16) 75 (444) -
Total non-interest
expense 1,711 938 347 757 3,326 7,079
Income (loss) before
taxes $ 1,370 $ 748 $ 4,719 $ 677 $ (1,839) $ 5,675
Total average assets $407,892 $138,671 $167,997 $151,236 $149,628 $1,015,424
</TABLE>
7. New Accounting Standards
In June 1998,Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued
effective for all fiscal periods beginning after June 15, 1999. In June
1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" was issued to
amend SFAS No. 133 to be effective for all fiscal years beginning after June
15, 2000. In June 2000, SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" was issued further amending
SFAS No. 133. SFAS No. 133 and SFAS No. 138 establish accounting and
reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair
value. The statements require that changes in the derivative's fair value
be recognized currently in earnings unless specific accounting criteria are
met and the hedge is considered to be highly effective. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The
statements are effective for NCB for the fiscal quarter beginning
January 1, 2001. NCB is currently evaluating the requirements of
these statements to determine the potential impact on the consolidated
financial statements.
8. Subsequent Event
On August 4, 2000, NCB sold $129.0 million and $14.5 million of
cooperative mortgages and commercial mortgages, respectively, into a $1.1
billion conduit transaction. The gain on these sales will be reflected in
the third quarter results.
NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
SUMMARY
NCB's net income for the six months ended June 30, 2000 was $3.5
million. This was a 53.2% or $3.9 million decrease compared with
$7.4 million for the six months ended June 30, 1999. The variance resulted
from a decrease of $4.7 million in non-interest income and increases in
non-interest expense and taxes of $147.8 thousand and $77.9 thousand,
respectively. This was partially offset by an increase in netinterest
income of $600.6 thousand and a decrease of $393.3 thousand in provision for
loan losses. For the three month period ending June 30, 2000, net income
decreased $3.3 million or 62.6% due primarily to a decrease in non-interest
income.
Total assets were $1.19 billion at June 30, 2000, up 12.8% or $135.1
million from $1.06 billion at December 31, 1999. This resulted from an
increase in loans held for sale and loans and lease financing of $144.2
million partially offset by a decrease in cash and cash equivalents,
restricted cash, investment securities and other assets of $8.7 million.
The annualized return on average total assets was .61% for the first
six months of 2000 compared with 1.48% for the same period in 1999. The
annualized return on average equity for the periods ended June 30, 2000
and 1999 was 4.67% and 10.38%, respectively.
NET INTEREST INCOME
Net interest income for the first six months of 2000 was $15.4 million,
an increase of 4.1% or $600.6 thousand compared with $14.8 million over
the same period a year ago.
For the six months ending June 30, 2000, interest income increased 20.0%
or $7.7 million to $45.8 million from $38.1 million of the prior year's
period. The majority of the increase was due to the growth of commercial
loan and lease portfolios and a higher yield on real estate loans and cash
equivalents and investment securities. Table 2 shows that increases of
$6.4 million and $1.2 million were volume and yield related, respectively.
Interest expense increased $7.1 million to $30.4 million for the six
months ended June 30, 2000 compared with $23.3 million for the six months
ended June 30, 1999. Interest expense was up as a result of higher levels
of notes payable and deposits and higher interest rates on them. The
increased borrowings were required to fund loan volume. As shown on Table 2,
a $4.3 million increase in interest expense was volume related while a $2.8
million increase was due to interest rates.
For the six months ended June 30, 2000 and 1999, the average rate on
interest earning assets was 8.28% and 7.92%, respectively. Average rate on
interest bearing liabilities was up 68 basis points to 6.40% for the first
half of 2000 compared with 5.72% for the same period in 1999.
For the three month period ended June 30, 2000, net interest income went
up 9.7% or $694.6 thousand from the same period in 1999.
Interest income went up $4.3 million to $24.0 million for the three
months ended June 30, 2000 compared with $19.6 million for the same period
ended June 30, 1999. The increase in interest income was due to a higher
average balance of interest earning assets.
For the second quarter ended June 30, 2000, interest expense increased
29.1% or $3.6 million to $16.1 million compared with $12.5 million for the
second quarter ended June 30, 1999 due to higher short-term interest rates
and increased funding of loans. As shown on Table 2A, the increase in
interest expense amounting to $2.5 million was volume related while $1.1
million was yield related.
For the quarter ended June 30, 2000, the average rate on interest earning
assets was up 28 basis points to 8.34% from 8.06% for the same quarter ended
June 30, 1999. Average rate on interest bearing liabilities was 6.51% and
5.96% for the periods ended June 30, 2000 and 1999, respectively.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 2000 of $2.9
million decreased 61.7% or $4.8 million from $7.7 million for the same
period last year. Non-interest income is composed of gains from sales of
blanket mortgages and share loans to secondary market investors, servicing
fees, net origination fees on loans sold, management fees and advisory
and debt placement fees.
For the six months ended June 30, 2000, gain on sale of loans was
$233.0 thousand compared with $3.8 million in the same period last year.
The decrease resulted from the timing and volume of loans sold. Total loans
sold were $55.8 million and $161.1 million for the periods ended June 30,
2000 and 1999, respectively.
Servicing fee income for the six months ended June 30, 2000 increased
9.7% or $128.2 thousand to $1.45 million compared to $1.32 million in the
prior year. NCB serviced single and multi-family real estate and commercial
loans for investors in the amounts of $2.1 billion and $1.9 billion as of
June 30, 2000 and 1999, respectively.
Other non-interest income for the six months ended June 30, 2000 was
down 51.4% or $1.3 million from $2.6 million for the same six months in the
prior year. Commercial loan fees and income of interest-only receivables were
lower for the first six months of 2000 by $450.5 thousand and $236.0 thousand,
respectively, compared with the same period of the prior year. Additionally,
in the first six months of 1999, NCB received $389.8 thousand as
reimbursement for expenses incurred in the sale of a real estate note.
For the three month period ending June 30, 2000, non-interest income
decreased 74.9% or $4.5 million to $1.5 million from $6.0 million for the
same period in 1999. Decreases amounting to $3.5 million was related to
secondary marketing activities and $1.1 million was due to lower commercial
fees and miscellaneous income received and lower income on interest-only
receivables.
NON-INTEREST EXPENSE
Non-interest expense for the six months ended June 30, 2000 increased
1.1% or $147.8 thousand to $13.6 million compared with $13.5 million for
the six months ended June 30, 1999. Compensation and benefits, the largest
component of non-interest expense, slightly increased .12% or $8.9 thousand.
Contractual services, occupancy and equipment, and other expenses increased
5.9% or $338.9 thousand primarily due to equipment and technology costs,
corporate and marketing development, legal fees and other loan costs.
Excluding the voluntary contributions to NCB Development Corporation,
which was zero and $200.0 thousand during the first two quarters of 2000
and 1999, respectively, non-interest expense as a percentage of average
assets decreased to 1.2% for the six months ended June 30, 2000 compared
with 1.3% for the same period a year ago.
For the three months ended June 30, 2000, non-interest expense decreased
7.7% or $543.2 thousand to $6.5 million from $7.1 million for the same period
in 1999. The variance was primarily due to a decrease in compensation and
employee benefits of $630.4 thousand which was partially offset by an
increase in contractual services of $195.1 thousand.
Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30,
2000 1999
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rate Balance Expense Rate
Interest earning
assets
Real estate loans $ 462,519 $18,691 8.08% $ 473,710 $17,678 7.46%
Commercial loans
and leases 563,606 24,753 8.78% 402,231 17,752 8.83%
Total loans and
leases 1,026,125 43,444 8.47% 875,941 34,430 8.09%
Investment securities
and cash equivalents 78,988 2,331 5.90% 87,438 2,707 6.19%
Total interest earning
assets 1,105,113 45,775 8.28% 963,379 38,137 7.92%
Allowance for loan
losses (18,796) (18,037)
Non-interest earning
assets
Cash 4,446 10,955
Other assets 41,450 45,647
Total non-interest
earning assets 45,896 56,602
Total assets $1,132,213 $1,001,944
LIABILITIES AND MEMBERS' EQUITY
Interest bearing liabilities
Subordinated debt $ 182,571 $ 5,441 5.96% $ 182,668 $ 5,119 5.61%
Notes payable 631,347 21,735 6.89% 507,913 15,379 6.06%
Deposits 135,315 3,201 4.73% 125,591 2,840 4.52%
Total interest bearing
liabilities 949,233 30,377 6.40% 816,172 23,338 5.72%
Other liabilities 34,415 42,743
Members' equity 148,565 143,029
Total liabilities
and members' equity $1,132,213 $1,001,944
Net interest earning
assets $ 155,880 $ 147,207
Net interest revenues
and spread $15,398 1.88% $14,799 2.20%
Net yield on interest
earning assets 2.79% 3.07%
Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Three Months Ended June 30,
2000 1999
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expenses Rates
Interest earning
assets
Real estate loans $ 482,955 $10,055 8.33% $ 488,965 $ 8,973 7.34%
Commercial loans
and leases 584,048 12,808 8.77% 413,230 9,443 9.14%
Total loans and
leases 1,067,003 22,863 8.57% 902,195 18,416 8.16%
Investment securities
and cash equivalents 82,414 1,090 5.29% 72,122 1,218 6.76%
Total interest earning
assets 1,149,417 23,953 8.34% 974,317 19,634 8.06%
Allowance for loan
losses (18,868) (18,355)
Non-interest earning
assets
Cash 3,923 11,038
Other assets 40,273 48,424
Total non-interest
earning assets 44,196 59,462
Total assets $1,174,745 $1,015,244
LIABILITIES AND MEMBERS' EQUITY
Interest bearing liabilities
Subordinated debt $ 182,541 $ 2,795 6.13% $ 182,694 $ 2,531 5.54%
Notes payable 664,430 11,562 6.96% 529,676 8,554 6.46%
Deposits 141,923 1,742 4.91% 125,160 1,390 4.44%
Total interest bearing
liabilities 988,894 16,099 6.51% 837,530 12,475 5.96%
Other liabilities 36,607 33,354
Members' equity 149,244 144,540
Total liabilities and
members' equity $1,174,745 $1,015,424
Net interest earning
assets $ 160,523 $ 136,787
Net interest revenues
and spread $ 7,854 1.83% $ 7,159 2.10%
Net yield on interest
earning assets 2.73% 2.94%
</TABLE>
Table 2
Changes in Net Interest Income
(dollars in thousands)
For the six months ended June 30, 2000 compared to 1999
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ (253) $ (122) $ (375)
Commercial loans and leases 7,088 (87) 7,001
Real estate loans (425) 1,438 1,013
Total interest income 6,410 1,229 7,639
Interest expense
Deposits 226 135 361
Notes payable 4,065 2,290 6,355
Subordinated debt (3) 325 322
Total interest expense 4,288 2,750 7,038
Net interest income $2,122 $(1,521) $ 601
* Average monthly balances
**Changes in interest income and interest expense due to changes in
rate and volume have been allocated to "change in average volume" and
"change in average rate" in proportion to the absolute dollar amounts
in each.
Table 2A
Changes in Net Interest Income
(dollars in thousands)
For the three months ended June 30, 2000 compared to 1999
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ 159 $ (287) $ (128)
Commercial loans and leases 3,760 (395) 3,365
Real estate loans (112) 1,194 1,082
Total interest income 3,807 512 4,319
Interest expense
Deposits 197 155 352
Notes payable 2,305 703 3,008
Subordinated debt (2) 266 264
Total interest expense 2,500 1,124 3,624
Net interest income $1,307 $ (612) $ 695
* Average monthly balances
**Changes in interest income and interest expense due to changes in
rate and volume have been allocated to "change in average volume" and
"change in average rate" in proportion to the absolute dollar amounts
in each.
PROVISION FOR INCOME TAXES
The federal income tax provision is determined on the basis of
non-member income generated by NCB Savings Bank, FSB(NCBSB) and
reserves set aside for the retirement of Class A notes and
dividends on Class C stock. NCB's subsidiaries are also subject
to varying levels of state taxation. The income tax provision
for the six months ended June 30, 2000 was $805.4 thousand
compared with the prior year's provision of $727.6 thousand.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities totaling $75.9
million at June 30, 2000 decreased $3.0 million or 3.9% from
$78.9 million at year-end 1999. The decrease was due mostly to
the funding of loans and lease financing. As a percentage of
earning assets, cash, cash equivalents and investment securities
decreased to 6.5% at June 30, 2000 from 8.1% at December 31,
1999.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 2000 increased 2.03%
or $378.9 thousand to $19.1 million from $18.7 million at
December 31, 1999. The allowance during the period was impacted
by loans charged-off amounting to $480.4 thousand, recoveries of
loans previously charged-off of $417.6 thousand and the provision
of $441.7 thousand. NCB's annualized provision for loan losses as
a percentage of average loans and leases outstanding remained at
.02% and .2% for the six months ended June 30, 2000 and 1999,
respectively.
Criticized loans have grown to $42.4 million or 7.8% at June 30,
2000 from 4.3% of the total loans outstanding at December 31, 1999.
The growth in criticized loans came primarily from a package of
retail member loans purchased from a wholesale food cooperative and
declining financial condition of a national hardware wholesaler.
The loan loss allowance as a percentage of loans and leases
decreased to 1.9% at June 30, 2000 from 2.0% at December 31,
1999. Management considers the current allowance to be adequate
to absorb known and inherent risks in the loan portfolio.
As shown in Table 3, total impaired assets (non-accruing loans
and real estate owned) decreased 74.5% from $3.3 million at
December 31, 1999 to $832.0 thousand at June 30, 2000. Impaired
assets as a percentage of loans and leases outstanding plus real
estate owned decreased to .08% at June 30, 2000 compared with
.34% at year-end 1999. The allowance for loan losses as a
percentage of impaired assets increased to 2,292.4% at June 30,
2000 from 572.2% at December 31, 1999.
INTEREST BEARING LIABILITIES
Interest Bearing liabilities
(dollars in thousands)
6/30/00 12/31/99 % Change
Deposits $ 142,482 $126,071 13.0%
Short-term debt 377,598 283,589 33.1%
Long-term debt 304,151 286,263 6.2%
Subordinated debt 182,498 182,620 0.0%
Total $1,006,729 $878,543 14.6%
Interest bearing liabilities increased $128.2 million to $1.0
billion at June 30, 2000 from $878.5 million at December 31,
1999.
For the six months of 2000, deposits at NCBSB grew 13.0% to
$142.5 million compared with $126.1 million at December 31, 1999.
The growth was due to local and national depositors and deposits
from cooperatives customers. Average maturity of the certificates
of deposits is 12.4 months. Funds generated by the increased
deposit activity were used to originate single-family loans and
increase liquidity.
At June 30, 2000, total short-term and long-term borrowings
(including subordinated debt) increased 14.9% or $111.8 million
to $864.2 million in comparison to prior year-end 1999 of $752.5
million. Proceeds from the borrowings were used to fund growth in
loans and leases. At June 30, 2000, and December 31, 1999, NCBSB
had advances of $29.0 million and $15.0 million, respectively,
from the Federal Home Loan Bank. NCB had $348.6 million, net
of discount and $268.6 million, net of discount outstanding on
its short-term facilities at June 30, 2000 and December 31, 1999,
respectively. At June 30, 2000, included in the short-term
borrowings were revolving lines of credit of $90.5 million;
commercial paper with a face value of $245.2 million and
$13.5 million in borrowing from a related entity and
cooperative customers. At December 31, 1999, included in the
short-term borrowing were revolving lines of credit of $79.5
million; commercial paper with face value of $172.4 million
and $17.2 million in borrowings from a related entity and
cooperative customers. Long-term debt increased 6.2% from year-
end 1999 due to the issuance of an additional $50.0 million in
medium term notes, net of a maturity payment of $32.0 million
under the long-term facilities. At June 30, 2000, there was
unused capacity under short-term and long-term facilities of
approximately $88.3 million and $300.0 million, respectively. At
December 31, 1999, unused capacity under the short-term and long-
term facilities was $183.3 million and $350.0 million,
respectively.
TABLE 3
Impaired assets
(dollars in thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2000 2000 1999 1999 1999
Real estate owned $ 125 $2,687 $2,687 $2,893 $3,334
Non-accruing 707 795 580 685 701
$ 832 $3,482 $3,267 $3,578 $4,035
YEAR 2000
NCB undertook many actions intended to assure that its
computer systems and other equipment were capable of functioning
in, and processing for, periods for the Year 2000 and beyond.
NCB experienced no operational problems as a result of the
changeover of the date 1999 to 2000. NCB has not incurred to
date, and does not expect to incur in the future, any material
expenditures in connection with identifying, evaluating or
remediating Year 2000 compliance issues. Most of its
expenditures to date have related to the opportunity cost of time
spent by NCB's employees evaluating and remediating Year 2000
issues for the hardware and software products purchased, the
information technology used in its operations and its non-IT
Systems or embedded technology, such as building security, phone
system and other systems. Direct costs incurred by NCB have
totaled approximately $55,000. NCB did not incur any Year 2000
expenses in the six months ended June 30, 2000.
As of June 30, 2000, NCB has not experienced any material
consequences of failure of Year 2000 compliance, either by the
Company, its suppliers, and customers. However, Year 2000
compliance has many elements and potential consequences, some of
which may not be foreseeable or may be realized in future
periods. Therefore, there can be no assurance that unforseen
circumstances could still not arise, or that NCB will not in the
future identify equipment or systems which are not Year 2000
compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in NCB's market risk profile occurred
from December 31, 1999 to June 30, 2000.
ITEM 6. EXHIBITS
(a) The following exhibit is filed as part of this report:
Exhibit 10-30 - Amendment No. 3 to Third Amended and
Restated Loan Agreement with Fleet Bank as Agent
Exhibit 27 - Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
NATIONAL CONSUMER COOPERATIVE BANK
Date:
By:/s/Richard L. Reed
Richard L. Reed,
Managing Director,
Chief Financial Officer
By:/s/Marietta J. Orcino
Marietta J. Orcino
Vice President, Tax &
Regulatory Compliance
