National Consumer Cooperative Bank 10-Q 2005 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 2-99779

National Consumer Cooperative Bank

(Exact name of registrant as specified in its charter)

(12 U.S.C. Section 3001 et. seq.)	52-1157795
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1725 Eye Street N.W., Suite 600 Washington, D.C.	20006
(Address of principal executive offices)	(Zip Code)

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements of the past 90 days.
Yesþ Noo.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yeso Noþ .

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of June 30, 2005: Class B 1,374,512; Class C 227,877; Class D 1.

National Consumer Cooperative Bank

(doing business as National Cooperative Bank) and Subsidiaries

INDEX

		Page No.
PART I	FINANCIAL INFORMATION
Item 1	Consolidated Balance Sheets – June 30, 2005 (unaudited) and December 31, 2004		1
	Consolidated Statements of Income — for the three and six months ended June 30, 2005 and 2004 (unaudited)		2
	Consolidated Statements of Comprehensive Income — for the six months ended June 30, 2005 and 2004 (unaudited)		3
	Consolidated Statements of Changes in Members’ Equity — for the six months ended June 30, 2005 and 2004 (unaudited)		4
	Consolidated Statements of Cash Flows - for the six months ended June 30, 2005 and 2004 (unaudited)		5-6
	Condensed Notes to the Consolidated Financial Statements – June 30, 2005 (unaudited)		7-20
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations — for the six and three months ended June 30, 2005 and 2004 (unaudited)		21-32
Item 3	Quantitative and Qualitative Disclosures about Market Risk		33
Item 4	Controls and Procedures		33
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		33
Item 6	Exhibits		33
Signatures and Certifications

NATIONAL COOPERATIVE BANK

CONSOLIDATED BALANCE SHEETS

	June 30,
	2005			December 31,
	(Unaudited)			2004
Assets
Cash and cash equivalents	$	141,872,815		$	47,387,725
Restricted cash		5,053,892			4,997,073
Investment securities
Available-for-sale		88,529,772			87,216,695
Held-to-maturity		2,135,803			2,129,597
Loans held for sale		253,177,483			303,289,235
Loans and lease financing		1,182,425,698			1,114,658,055
Less: Allowance for loan losses		(20,090,970	)		(16,990,985	)
Net loans and lease financing		1,162,334,728			1,097,667,070
Other assets		73,136,490			70,182,613
Total assets	$	1,726,240,983		$	1,612,870,008
Liabilities and Members’ Equity
Liabilities
Deposits	$	679,415,852		$	605,926,774
Patronage dividends payable in cash		14,557,791			8,572,638
Other liabilities		52,648,970			44,573,159
Borrowings
Short-term		413,659,281			396,928,980
Long-term
Current		55,000,000			30,000,000
Non-current		119,615,815			145,215,360
Subordinated debt
Current		2,500,000			2,500,000
Non-current		123,085,841			123,083,358
Junior subordinated debt		50,597,000			50,580,333
Total borrowings		764,457,937			748,308,031
Total liabilities		1,511,080,550			1,407,380,602
Members’ equity
Common stock
Class B		137,451,243			137,716,156
Class C		22,787,745			22,758,249
Class D		100			100
Retained earnings
Allocated		21,133,284			12,340,281
Unallocated		30,036,784			29,111,785
Accumulated other comprehensive income		3,751,277			3,562,835
Total members’ equity		215,160,433			205,489,406
Total liabilities and members’ equity	$	1,726,240,983		$	1,612,870,008

The accompanying notes are an integral part of these financial statements.

1

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF INCOME

	Three months ended June 30,					Six months ended June 30,
	(Unaudited)					(Unaudited)
	2005			2004		2005			2004
Interest income
Loans and lease financing	$	23,433,800		$	16,478,618	$	44,040,222		$	32,660,284
Investment securities		1,332,202			1,113,235		2,409,383			2,503,703
Total interest income		24,766,002			17,591,853		46,449,605			35,163,987
Interest expense
Deposits		5,094,554			3,205,959		9,304,059			6,034,371
Short-term borrowings		3,185,364			1,210,715		5,668,773			2,470,934
Long-term debt, other borrowings and subordinated debt		5,657,703			4,942,270		11,426,054			10,586,143
Total interest expense		13,937,621			9,358,944		26,398,886			19,091,448
Net interest income		10,828,381			8,232,909		20,050,719			16,072,539
Provision for loan losses		(417,145	)		1,340,145		749,452			1,340,145
Net interest income after provision for loan losses		11,245,526			6,892,764		19,301,267			14,732,394
Non-interest income
Gain on sale of loans		6,653,222			5,914,042		16,045,940			12,981,140
(Loss) gain on sale of investments available-for-sale		(7,105	)		—		(7,176	)		3,464,955
Servicing fees		997,320			1,133,280		2,038,825			2,049,930
Letter of credit fees		831,101			977,774		1,759,617			1,902,398
Excess yield income		772,904			907,129		1,583,886			1,902,899
Other		869,059			1,097,092		1,402,174			2,255,697
Total non-interest income		10,116,501			10,029,317		22,823,266			24,557,019
Non-interest expense
Compensation and employee benefits		7,031,216			5,641,919		14,309,106			11,966,514
Contractual services		1,686,722			1,354,934		3,193,531			2,746,691
Occupancy and equipment		1,343,788			1,266,127		2,768,024			2,563,215
Corporate development		713,126			417,595		1,156,278			698,042
Information systems		586,166			663,934		1,329,973			1,189,269
Travel and entertainment		392,298			402,334		759,106			699,667
Other		648,626			786,355		1,496,895			1,772,048
Total non-interest expense		12,401,942			10,533,198		25,012,913			21,635,446
Income before income taxes		8,960,085			6,388,883		17,111,620			17,653,967
Provision for income taxes		620,913			603,406		1,297,922			1,231,732
Net income	$	8,339,172		$	5,785,477	$	15,813,698		$	16,422,235
Distribution of net income
Patronage dividends	$	7,602,560		$	5,779,090	$	14,778,156		$	16,008,272
Retained earnings		736,612			6,387		1,035,542			413,963
	$	8,339,172		$	5,785,477	$	15,813,698		$	16,422,235

The accompanying notes are an integral part of these financial statements.

2

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2005 and 2004
(Unaudited)

	2005			2004
Net income	$	15,813,698		$	16,422,235
Other comprehensive income
Unrealized holding gain (loss) before tax on available for sale investment securities and non-certificated interest only receivables		190,558			(2,337,319	)
Tax effect		(2,116	)		11,488
Comprehensive income	$	16,002,140		$	14,096,404

The accompanying notes are an integral part of the financial statements.

3

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
For the six months ended June 30, 2005 and 2004
(Unaudited)

									Accumulated
				Retained		Retained			Other		Total
	Common			Earnings		Earnings			Comprehensive		Members’
	Stock			Allocated		Unallocated			Income		Equity
Balance, December 31, 2004	$	160,474,505		$	12,340,281	$	29,111,785		$	3,562,835	$	205,489,406
Net income		—			—		15,813,698			—		15,813,698
Adjustment to prior year dividends		97,139			—		5,930			—		103,069
Cancellation of stock		(332,556	)		—		332,556			—		—
Other dividends declared		—			—		(449,029	)		—		(449,029	)
2005 patronage dividends
To be distributed in cash		—			—		(5,985,153	)		—		(5,985,153	)
Retained in form of equity		—			8,793,003		(8,793,003	)		—		—
Unrealized gain on available-for-sale investments securities and non-certificated interest-only receivables, net		—			—		—			188,442		188,442
Balance, June 30, 2005	$	160,239,088		$	21,133,284	$	30,036,784		$	3,751,277	$	215,160,433

										Accumulated
				Retained			Retained			Other			Total
	Common			Earnings			Earnings			Comprehensive			Members’
	Stock			Allocated			Unallocated			Income			Equity
Balance, December 31, 2003	$	149,946,788		$	16,732,958		$	22,059,352		$	4,018,417		$	192,757,515
Net income		—			—			16,422,235			—			16,422,235
Adjustment to prior year dividends		23,925			(23,925	)		66,092			—			66,092
Cancellation of stock		(6,126,132	)		—			5,406,819			—			(719,313	)
Other dividends declared		—			—			(245,425	)		—			(245,425	)
2004 patronage dividends
To be distributed in cash		—			—			(6,483,350	)		—			(6,483,350	)
Retained in form of equity		—			9,524,922			(9,524,922	)		—			—
Unrealized loss on available-for-sale investments securities and non-certificated interest-only receivables, net		—			—			—			(2,325,831	)		(2,325,831	)
Balance, June 30, 2004	$	143,844,581		$	26,233,955		$	27,700,801		$	1,692,586		$	199,471,923

The accompanying notes are an integral part of these financial statements.

4

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(Unaudited)

	2005			2004
Cash flows from operating activities
Net income	$	15,813,698		$	16,422,235
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		749,452			1,340,145
Recoveries of loans previously charged off		2,617,216			1,735,231
Provision for losses on unfunded commitments		(61,182	)		217,690
Amortization of interest-only-receivables and servicing rights		4,800,665			4,512,175
Depreciation and amortization, other		893,031			1,451,464
Gain on sale of loans		(16,045,940	)		(12,346,412	)
Loss (gain) on sale of investment securities available-for-sale		7,176			(3,464,955	)
Purchase of loans-held-for-sale		(8,244,018	)		—
Loans originated for sale net of principal collections		(414,984,416	)		(336,369,355	)
Proceeds from sale of loans held for sale		491,452,150			375,247,187
Increase in other assets		(3,815,479	)		(387,316	)
Increase (decrease) in other liabilities		4,028,525			(17,367,246	)
Net cash provided by operating activities		77,210,878			30,990,843
Cash flows from investing activities
(Increase) decrease in restricted cash		(56,819	)		4,061,600
Purchase of investment securities
Available-for-sale		(21,897,267	)		(103,187,061	)
Held-to-maturity		(46,730	)		(47,726	)
Proceeds from maturities of investment securities
Available-for-sale		14,615,157			91,036,625
Held-to-maturity		40,524			40,469
Proceeds from the sale of investment securities
Available-for-sale		3,532,454			81,207,181
Net increase in loans and lease financing		(67,678,134	)		(47,386,126	)
Repurchase of loans from grocery loan conduit program		—			(33,185,557	)
Purchases of premises and equipment		(860,440	)		(409,127	)
Net cash used in investing activities		(72,351,255	)		(7,869,722	)
Cash flows from financing activities
Net increase in deposits		73,489,078			104,966,996
Net increase (decrease) in borrowings		16,579,849			(55,585,000	)
Repayment of long-term debt		—			(50,000,000	)
Other dividend paid		(443,460	)		(229,751	)
Net cash provided by (used in) financing activities		89,625,467			(847,755	)
Increase in cash and cash equivalents		94,485,090			22,273,366
Cash and cash equivalents, beginning of year		47,387,725			54,973,344
Cash and cash equivalents, end of period	$	141,872,815		$	77,246,710

The accompanying notes are an integral part of these financial statements.

5

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(Unaudited)

Supplemental schedule of investing and financing activities:

	2005		2004
Unrealized gain (loss) on investment securities available–for-sale and non-certificated interest-only receivables, net of tax	$	188,442	$	(2,325,831	)
Warehouse loans transferred to portfolio	$	—	$	11,096,830
Transfer of grocery loans from warehouse to portfolio upon termination of the grocery loan conduit program with Rabobank International	$	—	$	23,826,307
Common stock cancelled and recovered against allowance for loan losses	$	—	$	719,313
Interest paid	$	26,602,244	$	20,727,785
Income taxes paid	$	816,826	$	606,523

The accompanying notes are an integral part of these financial statements.

6

NATIONAL COOPERATIVE BANK

CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)

1. BASIS OF PRESENTATION

     The interim consolidated financial statements presented in this Quarterly Report on Form 10-Q are in conformity with U.S. generally accepted accounting principles, which have been applied on a consistent basis and follow general practice within the banking industry. In our opinion these interim consolidated financial statements include all normal recurring adjustments necessary to fairly present our results of operations, financial condition and cash flows. The preparation of financial statements requires the use of estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and the results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for all of 2005. For comparability, certain prior period amounts have been reclassified to conform to current period presentation. The financial statements contained herein should be read in conjunction with the financial statements and accompanying notes in our Annual Report on Form 10-K.

2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     As noted above, management has prepared the consolidated interim financial statements in conformity with U.S. generally accepted accounting principles. Accordingly, management is required to make certain estimates, judgments and assumptions that it believes to be reasonable based upon the information available. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net interest income, non-interest income and non-interest expense. The following accounting policies comprise those that management believes involve estimates, judgments and assumptions that are the most critical to aid in fully understanding and evaluating our reported financial results: allowance for loan losses, servicing assets and interest-only receivables, derivative instruments and hedging, and income taxes.

     We discuss the assumptions involved in applying these policies in our Annual Report on Form 10-K. We evaluate our accounting estimates and assumptions on an on-going basis. As of June 30, 2005, we have not made any significant changes to the estimates and assumptions used in applying our critical accounting policies from our audited 2004 financial statements. While we believe our estimates and assumptions are reasonable based on historical experience and other factors, actual results could differ from those estimates and these differences could be material to the financial statements.

3. CASH AND CASH EQUIVALENTS

     The composition of cash and cash equivalents is as follows:

	June 30,		December 31,
	2005		2004
Cash	$	36,051,809	$	40,266,178
Cash equivalents		105,821,006		7,121,547
Total	$	141,872,815	$	47,387,725

     In addition, there was restricted cash of $5.1 million and $5.0 million as of June 30, 2005 and December 31, 2004, respectively.

7

4. INVESTMENT SECURITIES

     The composition of available-for-sale investment securities at June 30, 2005 is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury and agency obligations	$	40,035,771	$	—	$	408,788	$	39,626,983
Mortgage-backed securities		528		—		—		528
Corporate bonds		3,943,983		300		16,033		3,928,250
Mutual funds		1,421,542		—		120,681		1,300,861
Interest-only certificated receivables		42,293,507		1,385,758		6,115		43,673,150
Total	$	87,695,331	$	1,386,058	$	551,617	$	88,529,772

     The fair value of investment securities will change from period to period with changes in interest rates. NCB does not consider the unrealized losses at June 30, 2005 to be other-than-temporary because they relate to interest rates.

     The composition of available-for-sale investment securities at December 31, 2004 is as follows:

			Gross			Gross
	Amortized		Unrealized			Unrealized		Fair
	Cost		Gains			Losses		Value
U.S. Treasury and agency obligations	$	40,691,629	$	963		$	290,887	$	40,401,705
Mortgage-backed securities		573		—			—		573
Corporate bonds		3,463,867		4,648	��		6,600		3,461,915
Mutual funds		1,406,749		—			117,982		1,288,767
Interest-only certificated receivables		41,007,878		1,120,850			64,993		42,063,735
Total	$	86,570,696	$	1,126,461		$	480,462	$	87,216,695

     Interest-only receivables substantially pertain to blanket loans to cooperative housing corporations.

     During the six months ended June 30, 2005, there were $3.5 million of available-for-sale securities sold with a $7 thousand net loss compared to a net gain of $3.5 million from $81.2 million mortgage-backed securities sold for the six months ended June 30, 2004.

5. LOAN SERVICING

     Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans at June 30, 2005 and December 31, 2004 are $3.9 billion and $3.5 billion, respectively.

8

6. LOANS AND LEASE FINANCING

     Loans and leases outstanding by category are as follows:

	June 30,		December 31,
	2005		2004
Commercial loans	$	524,438,653	$	529,165,073
Real estate loans:
Residential
Cooperative single family		392,283,284		319,512,923
Cooperative multifamily		251,937,874		245,859,379
Commercial		4,099,542		4,148,278
Lease financing		9,666,345		15,972,402
Total	$	1,182,425,698	$	1,114,658,055

7. LOANS HELD FOR SALE

     Loans held for sale by category, are as follows:

	June 30,		December 31,
	2005		2004
Commercial loans	$	13,579,396	$	6,670,600
Real estate loans:
Residential
Cooperative single family		8,401,726		5,177,883
Cooperative multifamily		220,091,361		258,459,928
Commercial		11,105,000		32,980,824
Total	$	253,177,483	$	303,289,235

8. RECEIVABLES SOLD WITH RECOURSE

     In September 1998, NCB entered into a Credit Support and Collateral Pledge Agreement (“the Agreement”) with Fannie Mae in connection with NCB’s sale of conventional multifamily and multifamily cooperative mortgage loans to Fannie Mae and Fannie Mae’s issuance of Guaranteed Mortgage Pass-Through Securities backed by the loans sold by NCB. Under the Agreement, NCB agreed to be responsible for certain losses related to the loans sold to Fannie Mae and to provide collateral in the form of letters of credit to be held by a trustee to secure the obligation for such losses. The Agreement allows for reductions in the initial obligation as either losses are paid by NCB or when the obligation, as adjusted for any losses paid, exceeds 12% of the unpaid principal balance of the covered loans.

     The Letter of Credit maintained under the Agreement (as subsequently amended for additional sales) was approximately $12.4 million as of June 30, 2005 and December 31, 2004. The unpaid principal balance of the loans covered by the Agreement was $277.7 million as of June 30, 2005 compared with $280.6 million as of December 31, 2004. Since the inception of the Agreement, NCB has not been required to reimburse Fannie Mae for any losses. Additionally, the loans covered by the recourse obligations have not paid down substantially enough to warrant a reduction in the collateral provided by NCB under the terms of the Agreement.

     In January 2003, NCB purchased from NCB Development Corporation the recourse obligation under an agreement with Fannie Mae covering loans sold by NCB to Fannie Mae. As of June 30, 2005 the unpaid principal balance was $106.5 million. At December 31, 2004 the unpaid principal balance was $107.8 million. As collateral for the associated recourse, NCB was required to deposit $4.9 million in a restricted cash account with a designated custodian.

9

9. IMPAIRED ASSETS

     Impaired assets, comprising non-accrual loans and real estate owned, totaled $12.5 million and $17.8 million at June 30, 2005 and December 31, 2004, respectively. The average balance of impaired loans was $13.5 million and $7.5 million for the six months ended June 30, 2005 and June 30, 2004, respectively. Specific allowances of $3.8 million and $2.2 million were established at June 30, 2005 and December 31, 2004, respectively.

     Reserves at June 30, 2005 were deemed to be adequate to cover the estimated loss exposure related to the above loans.

     At June 30, 2005 and December 31, 2004, there were no commitments to lend additional funds to borrowers whose loans were impaired.

     At June 30, 2005, there was no real estate owned and there was $29 thousand of real estate owned at December 31, 2004.

10. ALLOWANCE FOR LOAN LOSSES AND UNFUNDED COMMITMENTS

     The following is a summary of the activity in the allowance for loan losses during the six months ended June 30:

	2005			2004
Balance at January 1	$	16,990,985		$	17,098,008
Provision for loan losses		749,452			1,340,145
Charge-offs		(266,683	)		(4,219,525	)
Recoveries of loans previously charged-off		2,617,216			1,735,231
Balance at June 30	$	20,090,970		$	15,953,859

     The allowance for loan losses was 1.7% and 1.5% of loans and lease financing, excluding loans held for sale, at June 30, 2005 and December 31, 2004, respectively.

     The following is a summary of the activity in the reserve for losses on unfunded commitments, which is included in other liabilities, during the six months ended June 30:

	2005			2004
Balance at January 1	$	1,814,306		$	1,090,374
Provision for losses		(61,182	)		217,690
Balance at June 30	$	1,753,124		$	1,308,064

10

11. OTHER ASSETS

     At June 30, 2005 and December 31, 2004, other assets consisted of the following:

	June 30,		December 31,
	2005		2004
Interest-only non-certificated receivables	$	36,450,820	$	37,832,967
Federal Home Loan Bank stock		7,525,500		5,569,200
Accrued interest receivables		7,152,196		6,374,384
Valuation of letters of credit		6,418,491		6,420,259
Premises and equipment		4,978,805		4,881,384
Mortgage servicing rights		4,416,559		3,099,316
Derivative assets		2,157,945		764,834
Equity investments		1,603,425		1,683,605
Prepaid assets		970,985		990,268
Deferred tax asset		240,027		804,091
Other		1,221,737		1,762,305
Total other assets	$	73,136,490	$	70,182,613

12. DEPOSITS

     Deposits consisted of the following:

	Average Rate Paid						Balance at
	June 30,			December					December 31,
	2005			31, 2004			June 30, 2005		2004
Non-interest bearing demand deposits		—			—		$	31,919,896	$	39,473,421
Interest-bearing demand deposits		2.43	%		1.70	%		224,263,115		197,656,706
Savings deposits		1.15	%		1.15	%		8,144,297		7,424,705
Certificates of deposits		3.61	%		3.12	%		415,088,544		361,371,942
Total deposits							$	679,415,852	$	605,926,774

     The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $252 million and $229 million at June 30, 2005 and December 31, 2004, respectively.

     At June 30, 2005, the scheduled maturities of certificates of deposits were as follows:

Within 3 months	$	55,521,097
Over 3 months through 6 months		43,909,682
Over 6 months through 12 months		66,195,132
Over 12 months		249,462,633
Total certificates of deposits	$	415,088,544

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     Interest expense for the six months ended June 30, 2005 and 2004 is summarized as follows:

	2005		2004
Demand deposits	$	2,482,418	$	1,363,439
Savings deposits		45,289		44,450
Other time deposits		6,776,352		4,626,482
Total deposit interest expense	$	9,304,059	$	6,034,371

13. REGULATORY CAPITAL AND RETAINED EARNINGS OF NCB, FSB

     In connection with the insurance of deposit accounts, NCB, FSB, a federally chartered, federally insured savings bank, is required to maintain minimum amounts of regulatory capital. If NCB, FSB fails to meet its minimum required capital, the appropriate regulatory authorities may take such actions, as they deem appropriate, to protect the Savings Association Insurance Fund (SAIF), NCB, FSB, and its depositors and investors. Such actions may include various operating restrictions, limitations on liability growth, limitations on deposit account interest rates, and investment restrictions.

     NCB, FSB’s capital exceeded the minimum capital requirements at June 30, 2005 and December 31, 2004, respectively. The following table summarizes NCB, FSB’s capital at June 30, 2005 and December 31, 2004 (dollars in thousands):

											To be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2005:
Tangible Capital (to tangible assets)	$	90,367		8.68	%	$	15,614		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)		94,473		12.06	%		62,657		8.00	%	$	78,322		10.00	%
Tier I Risk- Based Capital (to risk-weighted assets)		89,702		11.45	%		N/A		N/A			46,993		6.00	%
Core Capital (to adjusted tangible assets)		90,367		8.68	%		41,636		4.00	%		52,046		5.00	%
As of December 31, 2004:
Tangible Capital (to tangible assets)	$	77,172		8.56	%	$	13,521		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)		81,371		11.30	%		57,623		8.00	%	$	72,029		10.00	%
Tier I Risk- Based Capital (to risk-weighted assets)		77,010		10.69	%		N/A		N/A			43,218		6.00	%
Core Capital (to adjusted tangible assets)		77,172		8.56	%		36,057		4.00	%		45,071		5.00	%

     The Office of Thrift Supervision regulations impose certain restrictions on NCB, FSB’s payment of dividends. At June 30, 2005, because NCB, FSB’s capital exceeded the minimum capital requirements, substantially all retained earnings were available for dividend declaration without prior regulatory approval.

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14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

     NCB is a party to financial instruments with off-balance sheet risk. These financial instruments may include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the exposure that NCB has in particular classes of financial instruments. Unless noted otherwise, NCB does not require collateral or other security to support off-balance sheet financial instruments.

     NCB’s exposure to credit loss in the event of nonperformance by the other parties to the commitments to extend credit and standby letters of credit issued is represented by the contract or notional amounts of those instruments. NCB uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For interest rate swap transactions, forward commitments, and financial futures contracts, the contract or notional amounts do not represent exposure to credit loss.

     In the normal course of business, NCB makes loan commitments to extend credit that are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

     Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. NCB evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by NCB upon extension of credit, is based on management’s credit evaluation of the customer. Collateral varies but may include accounts receivable; inventory; property, plant and equipment; and residential and income-producing commercial properties.

     NCB also makes rate lock commitments to extend credit to borrowers for the origination of blanket loans made to cooperative housing corporations, cooperative share loans, and single-family residential loans. In the case of cooperative share loans and single-family residential loans, the rate lock commitments generally extend for a 30-day period. Some of these commitments will expire without being completed. For blanket loans, the rate lock commitments can extend for as long as 12 months, but there is generally little to no fall out prior to closing.

     Standby letters of credit can be either financial or performance-based. Financial standby letters of credit obligate NCB to disburse funds to a third party if the customer fails to repay an outstanding loan or debt instrument. Performance letters of credit obligate NCB to disburse funds if the customer fails to perform a contractual obligation including obligations of a non-financial nature. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

     Issuance fees associated with the standby letters of credit range from 0.6% to 5.0% of the commitment amount. The standby letters of credit mature throughout 2005 to 2009.

     The contract or commitment amounts and the respective estimated fair value of NCB’s commitments to extend credit and standby letters of credit at June 30, are as follows (dollars in thousands):

	Contract or				Estimated
	Commitment Amounts				Fair Value
	2005		2004		2005			2004
Financial instruments whose contract amounts represent credit risk:
Undrawn commitments to extend credit	$	664,669	$	545,656	$	3,323		$	2,728
Rate lock commitments to extend credit		148,574		175,583		(1,081	)		(1,360	)
Standby letters of credit		228,148		264,582		9,060			9,977

     In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantors, including Indirect Guarantees of Indebtedness of

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Others: an Interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34.” In accordance with FIN 45, an asset and a corresponding liability of $6.4 million were recorded in other assets and other liabilities in the Consolidated Balance Sheet at June 30, 2005 representing the fair value of standby letters of credit either issued or modified subsequent to December 31, 2002. The corresponding amount at December 31, 2004 was also $6.4 million. Many of the commitments may expire without being drawn upon. Such commitments are issued only upon careful evaluation of the financial condition of the customer.

Derivative Financial Instruments Held or Issued for Purposes Other Than Trading

     NCB uses derivative financial instruments in the normal course of business for the purpose of reducing its exposure to fluctuations in interest rates. These instruments include interest rate swaps, financial futures contracts, and forward loan sales commitments. Existing NCB policies prohibit the use of derivative financial instruments for any purpose other than managing interest rate risk.

     NCB enters into interest rate swaps, futures contracts, and forward loan sales commitments to hedge against changes in the fair value of fixed rate warehouse loans, mortgage-backed securities held for sale, rate lock commitments, and debt due to changes in benchmark interest rates.

     Results related to the hedging of warehouse loans, mortgage-backed securities held for sale, and rate lock commitments are summarized below and included in the caption entitled “Gain on Sale of Loans” in the accompanying consolidated statements of income for (dollars in thousands):

		Three months ended June 30,						Six months ended June 30,
		2005			2004			2005			2004
Unrealized (loss) gain on designated derivatives recognized		$	(11,016	)	$	5,747		$	(3,388	)	$	1,723
Increase (decrease) in value of warehouse loans			11,569			(5,862	)		3,423			(2,374	)
Increase in value of investment securities held-for sale			—			—			—			732
Net hedge ineffectiveness			553			(115	)		35			81
Unrealized gain (loss) on undesignated loan commitments recognized			3,397			(3,608	)		461			(3,078	)
(Loss) gain on undesignated derivatives recognized			(3,696	)		3,222			(844	)		2,531
Net loss on undesignated derivatives			(299	)		(386	)		(383	)		(547	)
Unrealized gain (loss) on non-hedging derivatives			27			186			99			(38	)
	��
Net SFAS 133 adjustment		$	281		$	(315	)	$	(249	)	$	(504	)

     Interest rate swaps are executed to manage the interest rate risk associated with specific assets or liabilities. An interest rate swap agreement commits each party to make periodic interest payments to the other based on an agreed-upon fixed rate or floating rate index. There are no exchanges of principal amounts. Entering into an interest rate swap agreement involves the risk of default by counterparties and interest rate risk resulting from unmatched positions. The

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amounts potentially subject to credit risk are significantly smaller than the notional amounts of the agreements. At June 30, 2005 NCB is exposed to credit loss in the event of nonperformance by its counterparties in the aggregate amount of $0.1 million representing the estimated cost of replacing, at current market rates, all outstanding swap agreements. NCB does not anticipate nonperformance by any of its counterparties. Income or expense from interest rate swaps is treated as an adjustment to interest expense/income on the hedged asset or liability.

     Financial futures are contracts for delayed delivery of specific securities at a specified future date and at a specified price or yield. NCB purchases and sells these contracts to hedge the interest rate risk associated with originating mortgage loans that will be held for sale. NCB has minimal credit risk exposure on these financial instruments since changes in market value of financial futures are settled in cash on the following business day, and payment is guaranteed by the clearinghouse.

     Forward loan sales commitments lock in the prices at which single-family residential loans and cooperative share loans will be sold to investors. Management limits the variability of a major portion of the change in fair value of these loans held for sale by employing forward loan sale commitments to minimize the interest rate and pricing risks associated with the origination and sale of such warehoused loans. Forward loan sale commitments are also used to hedge rate lock commitments to extend credit to borrowers for generally a 30-day period for the origination of single-family residential and cooperative share loans. Some of these rate lock commitments will ultimately expire without being completed. To the extent that a loan is ultimately granted and the borrower ultimately accepts the terms of the loan, these rate lock commitments expose NCB to variability in their fair value due to changes in interest rates. To mitigate the effect of this interest rate risk, NCB enters into offsetting forward loan sale commitments. Both the rate lock commitments and the forward loan sale commitments are undesignated derivatives, and accordingly are marked to market through earnings.

     The contract or notional amounts and the respective estimated fair value of NCB’s financial futures contracts, interest rate swaps and forward sales commitments at June 30, are as follows (dollars in thousands):

	Notional Amounts				Fair Value
	2005		2004		2005			2004
Financial instruments whose contract amounts exceed the amount of credit risk:
Financial futures contracts	$	10,200	$	8,200	$	(67	)	$	(78	)
Interest rate swap agreements	$	340,830	$	341,925	$	(8,889	)	$	2,675
Forward sales commitments
Cooperative single family	$	14,045	$	11,500	$	(45	)	$	(189	)
Cooperative multifamily	$	80,000	$	—	$	(2,045	)	$	—

15. 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, Retail and Consumer Lending 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. The Retail and Consumer Lending segment provides traditional banking services such as lending and deposit gathering to retail, corporate and commercial customers. The Other segment 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 detailed in our Annual Report on Form 10-K.

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     The following is the segment reporting for the six months ended June 30, 2005 and 2004 (dollars in thousands):

			Real				Retail and
	Commercial		Estate		Warehouse		Consumer					NCB
2005	Lending		Lending		Lending		Lending		Other			Consolidated
Net interest income
Interest income	$	18,019	$	8,510	$	9,060	$	9,780	$	1,081		$	46,450
Interest expense		10,238		3,959		7,717		4,235		250			26,399
Net interest income		7,781		4,551		1,343		5,545		831			20,051
Provision for loan losses		186		60		—		503		—			749
Non-interest income		3,022		1,678		16,613		1,321		189			22,823
Non-interest expense
Direct expense		2,668		1,325		2,499		2,412		11,376			20,280
Overhead and support		1,434		679		964		1,656		—			4,733
Total non-interest expense		4,102		2,004		3,463		4,068		11,376			25,013
Income (loss) before taxes	$	6,515	$	4,165	$	14,493	$	2,295	$	(10,356	)	$	17,112
Total average assets	$	524,508	$	249,934	$	264,839	$	386,779	$	200,873		$	1,626,933

			Real					Retail and
	Commercial		Estate			Warehouse		Consumer					NCB
2004	Lending		Lending			Lending		Lending		Other			Consolidated
Net interest income
Interest income	$	13,547	$	6,496		$	7,147	$	6,852	$	1,122		$	35,164
Interest expense		7,299		2,899			5,849		2,981		63			19,091
Net interest income		6,248		3,597			1,298		3,871		1,059			16,073
Provision for loan losses		1,133		(85	)		—		292		—			1,340
Non-interest income		3,638		1,608			17,566		1,610		135			24,557
Non-interest expense
Direct expense		3,578		2,244			2,524		1,852		6,652			16,850
Overhead and support		1,687		882			915		1,302		—			4,786
Total non-interest expense		5,265		3,126			3,439		3,154		6,652			21,636
Income (loss) before taxes	$	3,488	$	2,164		$	15,425	$	2,035	$	(5,458	)	$	17,654
Total average assets	$	481,602	$	210,872		$	269,557	$	260,312	$	167,764		$	1,390,107

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     The following is the segment reporting for the three months ended June 30, 2005 and 2004 (dollars in thousands):

				Real					Retail and
	Commercial			Estate		Warehouse			Consumer					NCB
2005	Lending			Lending		Lending			Lending		Other			Consolidated
Net interest income
Interest income	$	9,678		$	4,460	$	4,852		$	5,128	$	648		$	24,766
Interest expense		5,181			2,038		4,115	��		2,354		250			13,938
Net interest income		4,497			2,422		737			2,774		398			10,828
Provision for loan losses		(913	)		145		—			351		—			(417	)
Non-interest income		1,471			990		6,759			710		187			10,117
Non-interest expense
Direct expense		1,049			417		1,584			1,264		5,921			10,235
Overhead and support		645			305		445			772		—			2,167
Total non-interest expense		1,694			722		2,029			2,036		5,921			12,402
Income (loss) before taxes	$	5,187		$	2,545	$	5,467		$	1,097	$	(5,336	)	$	8,960
Total average assets	$	524,213		$	250,788	$	266,707		$	404,568	$	212,277		$	1,658,553

			Real					Retail and
	Commercial		Estate			Warehouse		Consumer					NCB
2004	Lending		Lending			Lending		Lending		Other			Consolidated
Net interest income
Interest income	$	6,851	$	3,532		$	3,058	$	3,568	$	583		$	17,592
Interest expense		3,624		1,513			2,588		1,588		46			9,359
Net interest income		3,227		2,019			470		1,980		537			8,233
Provision for loan losses		1,133		(85	)		—		292		—			1,340
Non-interest income		1,730		821			6,538		936		4			10,029
Non-interest expense
Direct expense		1,801		1,017			1,353		905		3,185			8,261
Overhead and support		703		389			535		645		—			2,272
Total non-interest expense		2,504		1,406			1,888		1,550		3,185			10,533
Income (loss) before taxes	$	1,320	$	1,519		$	5,120	$	1,074	$	(2,644	)	$	6,389
Total average assets	$	478,190	$	220,185		$	238,532	$	277,319	$	170,596		$	1,384,822

16. LOAN SALES AND SECURITIZATIONS

     NCB sells and services commercial loans and commercial and residential real estate loans. Interests in the securitized and sold loans are generally retained in the form of senior interest-only strips, escrow accounts and mortgage servicing rights.

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     During the six months ended June 30, 2005 and 2004, NCB sold receivables in securitizations of mortgage loans and retained interest-only receivables, which are considered retained interests in the securitization transactions. The proceeds from NCB’s 2005 sales of mortgage loans for securitization were $426.7 million and generated a total of $3.8 million in retained interests. In 2004, the proceeds from NCB’s sales of mortgage loans for securitization were $327.8 million and generated a total of $8.2 million in retained interests.

     During the six months ended June 30, 2005 NCB sold non-securitized multifamily cooperative loans. The proceeds from the sale of these non-securitized multifamily cooperative loans were $21.9 million and generated a total of $0.8 million in retained interest. There were no non-securitized multifamily cooperative loan sales for the six months ended June 30, 2004.

     During the six months ended June 30, 2005 NCB did not sell mortgage-backed securities. During the six months ended June 30, 2004 NCB sold mortgage-backed securities, generating proceeds of $81.2 million and retained interests of $3.1 million.

     Retained interest due to interest-only receivables activity is composed of the following (dollars in thousands):

	June 30,		December 31,
	2005		2004
Certificated interest-only receivables	$	43,673	$	42,064
Non-certificated interest-only receivables	$	36,451	$	37,833

     The amounts below reflect the sensitivity of the fair value of interest-only receivables to a 100, 200 and 300 basis points increase in interest rates at (dollars in thousands):

	June 30,			December 31,
	2005			2004
Impact of 100 basis points adverse change	$	(2,891	)	$	(2,915	)
Impact of 200 basis points adverse change	$	(5,623	)	$	(5,667	)
Impact of 300 basis points adverse change	$	(8,208	)	$	(8,270	)

     The following table reflects cash flows received for the six months ended June 30, (dollars in thousands) for:

	2005		2004
Net proceeds from new securitization	$	426,668	$	324,741
Net proceeds from other loan sales	$	64,784	$	47,346
Net proceeds from sale of mortgage backed securities	$	—	$	81,793
Servicing fees received	$	1,498	$	1,258
Cash flows received on interest-only receivables	$	7,204	$	8,246

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     Activity related to interest-only receivables and mortgage servicing rights for the six months ended June 30, 2005 and 2004, respectively, are as follows (in thousands):

	Certificated Interest-
	Only Receivables
	2005			2004
Balance at January 1	$	42,064		$	36,472
Additions		3,773			8,217
Amortization		(2,454	)		(2,402	)
Change in valuation allowance		324			(613	)
Writedown of asset due to prepayment		(34	)		(686	)
Balance at June 30	$	43,673		$	40,988

	Non-certificated
	Interest-Only
	Receivables
	2005			2004
Balance at January 1	$	37,833		$	39,249
Additions		772			3,129
Amortization		(1,960	)		(1,768	)
Change in valuation allowance		—			(1,173	)
Writedown of asset due to prepayment		(194	)		(113	)
Balance at June 30	$	36,451		$	39,324

	Mortgage Servicing Rights
	2005			2004
Balance at January 1	$	3,099		$	2,458
Additions		1,704			635
Amortization		(387	)		(342	)
Balance at June 30	$	4,416		$	2,751

17. NEW ACCOUNTING STANDARDS

     In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections(“SFAS 154”), which supersedes APB Opinion No. 20,Accounting Changesand SFAS No. 3,Reporting Accounting Changes in Interim Financial Statements.SFAS 154 changes the requirements for the accounting for and reporting of changes in accounting principle. The statement requires the retroactive application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. SFAS 154 does not change the guidance for reporting the correction of an error in previously issued financial statements or the change in an accounting estimate. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. NCB does not expect the adoption of SFAS 154 to have a material impact on its consolidated results of operations and financial condition.

     On March 3, 2005, the FASB Staff issued FASB Staff Position (“FSP”) FIN 46(R)-5,Implicit Variable Interests under FASB Interpretation No. 46 (FIN 46R — Revised December 2003), Consolidation of Variable Interest Entities (“VIE”). This FSP requires a reporting enterprise to consider the impact of implicit variable interests in determining whether the reporting enterprise may absorb variability of the VIE or potential VIE. This staff position was effective in the second quarter of 2005 and did not have a material impact on our consolidated financial statements.

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18. SUBSEQUENT EVENT

      On July 1, 2005, NCB repaid $102.0 million of short-term borrowings from the Federal Home Loan Bank.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The purpose of this analysis is to provide the reader with information relevant to understanding and assessing NCB’s results of operations. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and statistical data presented in this document.

Introduction

     NCB provides financial and technical assistance primarily to eligible cooperative enterprises or enterprises controlled by eligible cooperatives throughout the United States. A cooperative enterprise is an organization which is owned by its members and which is engaged in producing or furnishing goods, services, or facilities for the benefit of its members or voting stockholders who are the ultimate consumers or primary producers of such goods, services, or facilities. NCB is structured as a cooperative institution whose voting stock can only be owned by its members or those eligible to become its members.

     In the National Consumer Cooperative Bank Act, or the “Act”, Congress stated its finding that cooperatives have proven to be an effective means of minimizing the impact of inflation and economic hardship on members/owners by narrowing producer-to-consumer margins and price spreads, broadening ownership and control of economic organizations to a larger base of consumers, raising the quality of goods and services available in the marketplace and strengthening the nation’s economy as a whole. To further the development of cooperative businesses, Congress specifically directed NCB (1) to encourage the development of new and existing cooperatives eligible for its assistance by providing specialized credit and technical assistance; (2) to maintain broad-based control of NCB by its voting shareholders; (3) to encourage a broad-based ownership, control and active participation by members in eligible cooperatives; (4) to assist in improving the quality and availability of goods and services to consumers; and (5) to encourage ownership of its equity securities by cooperatives and others.

     NCB’s profitability is affected by the net interest income and non-interest income generated on earning assets, consumer usage patterns, credit quality, and operating efficiency. NCB’s revenues consist primarily of interest income on loans and securities and non-interest income consisting of servicing income on securitized loans, fees and gains on the securitizations of loans. Loan securitization transactions qualifying as sales under U.S. generally accepted accounting principles remove the loan receivables from the consolidated balance sheet. However, NCB continues to service the vast majority of the related accounts. NCB generates earnings from its managed loan portfolio that includes both on-balance sheet and off-balance sheet loans.

     NCB’s primary expenses are the costs of funding assets, provision for loan losses, operating expenses (including salaries and benefits), marketing expenses and income taxes.

Results of Operations
For the six months ended June 30, 2005 compared to the six months ended June 30, 2004.

Overview

     NCB’s net income for the six months ended June 30, 2005 was $15.8 million. This was a 3.7% or $0.6 million decrease compared with $16.4 million for the six months ended June 30, 2004. A $4.0 million increase in net interest income and a $3.1 million increase in gain on sale of loans were offset by a $3.5 million decline in gain on sale of investments available for sale. In addition, non-interest expense (primarily compensation and contractual services) increased by $3.4 million.

     Total assets increased 7.0% or $113.4 million to $1.73 billion at June 30, 2005 from $1.61 billion at December 31, 2004.

     The annualized return on average total assets was 1.9% and 2.4% for the six months ended June 30, 2005 and 2004, respectively. The annualized return on average members’ equity was 15.0% and 16.5% for the six months ended June 30, 2005 and 2004, respectively.

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Net Interest Income

     Net interest income for the six months ended June 30, 2005, increased $4.0 million or 24.8% to $20.1 million compared with $16.1 million for the six months ended June 30, 2004.

     For the six months ended June 30, 2005, interest income increased by 32.1% or $11.3 million, to $46.5 million compared with $35.2 million for the six months ended June 30, 2004. The total average earning balances increased by $239.9 million, aggregate yields increased from 5.18% in 2004 to 5.82% in 2005.

     Interest income from real estate loans increased by $7.1 million or 39.2%. An increase in average balances of $232.3 million or 36.1% contributed $6.7 million of the increase while an increase in the yield from 5.64% in 2004 to 5.77% in 2005 contributed $0.4 million. Commercial loans and lease interest income increased $4.3 million or 29.4%. Average balances increased by $38.6 million, contributing $1.2 million of the increase. The increase in the yield from 5.70% in 2004 to 6.86% in 2005 contributed $3.1 million to the year-over-year increase. Included within this was the recording of $68 thousand of interest income on the repayment of a loan previously in non-accrual status. Interest income from investment securities and cash equivalents decreased by $0.1 million. A $30.9 million or 15.1% decrease in average balances was partially offset by an increase in yields from 2.45% in 2004 to 2.78% in 2005.

     Interest expense for the six months ended June 30, 2005 increased $7.3 million or 38.3% from $19.1 million in 2004 to $26.4 million in 2005. Interest expense on deposits increased $3.3 million or 54.2% both due to an increase in average deposit balances, which grew by $114.8 million or 21.1% from June 30, 2004 to June 30, 2005 and also to a rise in average deposit rates from 2.22% in 2004 to 2.83% in 2005, contributing $1.8 million of additional expense. Interest expense on notes payable, which includes short and long term debt, increased by $3.3 million or 33.9%. Included within interest expense on notes payable is $2.5 million and $2.8 million of hedge swaps expense for the six months ended June 30, 2005 and 2004, respectively. Interest expense on subordinated debt increased by $0.7 million due primarily to an increase in average rate to 4.48% from 3.63% for the six months ended June 30, 2005 and 2004, respectively.

   See Table 1 and Table 2 for detailed information of the increases and decreases in interest income and interest expense for the six months ended June 30, 2005.

22

Table 1
Changes in Net Interest Income
For the six months ended June 30, 2005
(dollars in thousands)

				2005 Compared to 2004
				Increase (decrease)
				due to change in:
	Average			Average
	Volume*			Rate		Net**
Interest Income
Investment securities and cash equivalents	$	(405	)	$	311	$	(94	)
Commercial loans and leases		1,160			3,110		4,270
Real estate loans		6,690			420		7,110
Total interest income		7,445			3,841		11,286
Interest Expense
Deposits		1,426			1,844		3,270
Notes payable		2,948			378		3,326
Subordinated debt		(37	)		749		712
Total interest expense		4,337			2,971		7,308
Net interest income	$	3,108		$	870	$	3,978

*	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.

23

Table 2
Rate Related Assets and Liabilities
For the six months ended June 30,
(dollars in thousands)

	2005								2004
						Average								Average
	Average			Income/		Rate/			Average			Income/		Rate/
	Balance*			Expense		Yield			Balance*			Expense		Yield
Assets
Interest earning assets
Real estate loans	$	875,343		$	25,238		5.77	%	$	643,086		$	18,128		5.64	%
Commercial loans and leases		548,387			18,802		6.86	%		509,824			14,532		5.70	%
Total loans and leases		1,423,730			44,040		6.19	%		1,152,910			32,660		5.67	%
Investment securities, interest earning cash and cash equivalents		173,604			2,410		2.78	%		204,532			2,504		2.45	%
Total interest earning assets		1,597,334			46,450		5.82	%		1,357,442			35,164		5.18	%
Allowance for loan losses		(18,640	)							(16,596	)
Non-interest earning assets
Cash		14,442								19,744
Other		33,797								29,517
Total non-interest earning assets		48,239								49,261
Total assets	$	1,626,933							$	1,390,107
Liabilities and members’ equity
Interest bearing liabilities
Subordinated debt	$	176,173		$	3,944		4.48	%	$	178,217		$	3,232		3.63	%
Notes payable		526,635			13,151		4.99	%		408,094			9,825		4.82	%
Deposits		658,304			9,304		2.83	%		543,543			6,034		2.22	%
Total interest bearing liabilities		1,361,112			26,399		3.88	%		1,129,854			19,091		3.38	%
Other liabilities		55,659								61,596
Members’ equity		210,162								198,657
Total liabilities and members’ equity	$	1,626,933							$	1,390,107
Net interest earning assets	$	236,222							$	227,588
Net interest revenues and spread				$	20,051		1.94	%				$	16,073		1.80	%
Net yield on interest earning assets							2.51	%							2.37	%

* Based on monthly balances. Average loan balances include non-accrual loans.

Non-interest Income

     Total non-interest income decreased $1.8 million or 7.1% from $24.6 million during the six months ended June 30, 2004 to $22.8 million in 2005. Non-interest income is composed of letter of credit fees, prepayment penalty fees, gains or losses on sale of loans or securities, servicing fees, excess yield income, and other income. The decline was driven by lower commercial fees of $0.4 million, lower real estate fees of $0.4 million, lower excess yield income of $0.3 million as well as an increase in gain on sale of loans of $3.1 million netted with a decrease in gain on sale of investment securities of $3.5 million.

24

     Gains on sales of loans of $16.0 million for the six months ended 2005, represented 70.3% of non-interest income, and increased from $13.0 million in 2004. The increase resulted primarily from enhanced investor spreads as well as a 4.2% increase in loan sale volume in 2005.

     There were $3.5 million sales of investment securities available for sale for the six months ended June 30, 2005 with a loss of $7 thousand compared to a $3.5 million gain for the six months ended June 30, 2004. The investment securities sold for the six months ended June 30, 2004 were mortgage-backed securities (MBS), created from a swap with Fannie Mae in December 2003.

     The following table shows loans sold for the six months ended June 30, (dollars in thousands):

	2005		2004
Mortgage loans for securitization	$	403,491	$	402,369
Other loan sales		29,432		—
Single family and share loans		31,693		45,513
SBA loans		2,930		983
Total	$	467,546	$	448,865

     NCB’s net SFAS 133 adjustment, which is included in “Gain on Sale of Loans”, was a loss of $0.2 million for the six months ended June 30, 2005 compared to a loss of $0.5 million for the same period last year.

     For the six months ended June 30, 2005, the net loss on undesignated derivatives of $0.4 million was composed of a $0.4 million gain related to the change in value of rate lock commitments net of a $0.8 million loss related to the change in value of the undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments. For the six months ended June 30, 2004, the net loss on undesignated derivatives of $0.5 million was composed of a $3.0 million loss related to the change in value of rate lock commitments net of a $2.5 million gain related to the change in value of undesignated interest rate swaps and forward loan sales commitments.

     For the six months ended June 30, 2005 the net hedge ineffectiveness was a gain of $35 thousand compared to a net gain of $81 thousand for the same period in 2004.

      Other non-interest income includes those fees that NCB earns, related to late and pre-payment penalties. Other non-interest income was $1.4 million and $2.3 million for the six months ended June 30, 2005 and 2004, respectively. The $0.9 million decrease in other non-interest income is primarily due to a decrease in the real estate pre-payment penalty fees from $1.0 million to $51 thousand for the six months ended June 30, 2005 and 2004, respectively.

     In total, non-interest income amounted to 53.2% of total net revenue (net interest income plus non-interest income) for the six months ended June 30, 2005 compared with 60.4% in 2004.

Non-interest Expense

     Non-interest expense for the six months ended June 30, 2005, increased 15.6% or $3.4 million to $25.0 million compared with $21.6 million for the corresponding prior year period. Compensation and employee benefits, the single largest component of non-interest expense, increased 19.6% or $2.3 million to $14.3 million compared to $12.0 million for the six months ended June 30, 2004, principally as a result of increased headcount to support the growth in business.

     Contractual services increased 16.3% or $0.5 million to $3.2 million in 2005 from $2.7 million in 2004 due primarily to an increase in audit fees and consulting costs to support the Company’s Sarbanes-Oxley and other regulatory compliance.

     Non-interest expense as a percentage of average assets was 3.1% for the six months ended June 30, 2005 and 2004, respectively.

25

Results of Operations
For the three months ended June 30, 2005 compared to the three months ended June 30, 2004.

Overview

     NCB’s net income for the three months ended June 30, 2005 was $8.3 million. This was a 44.1% or $2.5 million increase compared with net income of $5.8 million for the three months ended June 30, 2004. The primary factors affecting this increase in net income were a $7.0 million increase in loan and lease financing interest income netted with a $1.9 million increase in deposits interest expense, a $2.0 million increase in short-term borrowing interest expense and a $0.3 million increase in contractual services.

     The annualized return on average total assets was 2.0% for the three months ended June 30, 2005. The annualized return on average members’ equity was 15.8% for the three months ended June 30, 2005.

Net Interest Income

     Net interest income for the three months ended June 30, 2005, increased $2.6 million or 31.5% to $10.8 million compared with $8.2 million for the three months ended June 30, 2004.

     For the three months ended June 30, 2005, interest income increased by 40.8% or $7.2 million, to $24.8 million compared with $17.6 million for the three months ended June 30, 2004. Average interest-earning assets increased by $279.5 million or 20.7%, while the yield on average earning assets increased from 5.21% in 2004 to 6.08% in 2005.

     Interest income from real estate loans increased by $4.4 million, or 49.5% from $8.9 million for the three months ended June 30, 2004 to $13.3 million for the three months ended June 30, 2005. This was due to an increase in average balances of $271.6 million or 43.6% contributing $4.0 million as well as an increase in yields from 5.74% in 2004 to 5.97% in 2005. Commercial loans and lease interest income increased by $2.5 million or 33.6% from $7.6 million for the three months ended June 20, 2004 to $10.1 million for the three months ended June 30, 2005. Average commercial loan and lease balances increased by $37.4 million as well as an increase in yields from 5.90% in 2004 to 7.35% in 2005. The increase in yields contributed $2.0 million of the increase. Interest income from investment securities and cash equivalents increased by $0.2 million. While the average investment securities and cash equivalents balance decreased marginally, the average yield increased from 2.07% in 2004 to 2.87% in 2005.

     Interest expense for the three months ended June 30, 2005 increased $4.6 million or 48.9% from $9.4 million in 2004 to $13.9 million in 2005. Interest expense on deposits increased $1.9 million or 58.9%. The overall rate on total interest bearing liabilities increased from 3.34% in 2004 to 4.01% in 2005. Additionally, there was a 17.7% growth in average deposit balances for the three months ended June 30, 2004 to June 30, 2005. Interest expense on notes payable, which includes short and long term debt, increased by $2.3 million or 50.3% due primarily to rates increasing from 4.94% to 5.10%. Included within interest expense on notes payable is $1.1 million and $1.2 million of hedge swap expense for the three months ended June 30, 2005 and 2004. Interest expense on subordinated debt increased $0.4 million or 25.3% due primarily to rates increasing from 3.65% to 4.62% for the three months ended June 30, 2004 to June 30, 2005.

   See Table 1A and Table 2A for detailed information of the increases and decreases in interest income and interest expense.

26

Table 1A
Changes in Net Interest Income
For the three months ended June 30, 2005
(dollars in thousands)

	2005 Compared to 2004
	Increase (decrease)
	due to change in:
	Average			Average
	Volume*			Rate		Net**
Interest Income
Investment securities and cash equivalents	$	(168	)	$	387	$	219
Commercial loans and leases		583			1,954		2,537
Real estate loans		4,040			378		4,418
Total interest income		4,455			2,719		7,174
Interest Expense
Deposits		636			1,253	$	1,889
Notes payable		2,125			154		2,279
Subordinated debt		(16	)		427		411
Total interest expense		2,745			1,834		4,579
Net interest income	$	1,710		$	885	$	2,595

*	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.

27

Table 2A
Rate Related Assets and Liabilities
For the three months ended June 30,
(dollars in thousands)

	2005								2004
						Average								Average
	Average			Income/		Rate/			Average			Income/		Rate/
	Balance*			Expense		Yield			Balance*			Expense		Yield
Assets
Interest earning assets
Real estate loans	$	894,217		$	13,346		5.97	%	$	622,612		$	8,928		5.74	%
Commercial loans and leases		549,216			10,088		7.35	%		511,810			7,551		5.90	%
Total loans and leases		1,443,433			23,434		6.49	%		1,134,422			16,479		5.81	%
Investment securities, interest earning cash and cash equivalents		185,857			1,332		2.87	%		215,338			1,113		2.07	%
Total interest earning assets		1,629,290			24,766		6.08	%		1,349,760			17,592		5.21	%
Allowance for loan losses		(19,568	)							(16,502	)
Non-interest earning assets
Cash		14,160								22,604
Other		34,671								28,960
Total non-interest earning assets		48,831								51,564
Total assets	$	1,658,553							$	1,384,822
Liabilities and members’ equity
Interest bearing liabilities
Subordinated debt	$	176,173		$	2,034		4.62	%	$	177,963		$	1,623		3.65	%
Notes payable		533,582			6,809		5.10	%		366,664			4,530		4.94	%
Deposits		679,915			5,095		3.00	%		577,470			3,206		2.22	%
Total interest bearing liabilities		1,389,670			13,938		4.01	%		1,122,097			9,359		3.34	%
Other liabilities		57,352								61,258
Members’ equity		211,531								201,467
Total liabilities and members’ equity	$	1,658,553							$	1,384,822
Net interest earning assets	$	239,620							$	227,663
Net interest revenues and spread				$	10,828		2.07	%				$	8,233		1.87	%
Net yield on interest earning assets							2.66	%							2.44	%

* Based on monthly balances. Average loan balances include non-accrual loans.

Non-interest Income

     Total non-interest income increased less than $0.1 million or 0.9% from $10.0 million during the three months ended June 30, 2004 to $10.1 million in 2005.

     Gains on sales of loans of $6.7 million for the three months ended June 30, 2005, represented 65.8% of non-interest income, and increased $0.8 million from $5.9 million in 2004. The volume of loans sold in the second quarter of 2005 was $248.8 million or 6.7% lower compared with $266.6 million sold in the second quarter of 2004. The increase was largely driven by higher Mortgage Servicing Rights recorded on the loan sale, resulting from the increase in the average size of the loans sold.

28

     The following table shows loans sold for the three months ended June 30 (dollars in thousands):

	2005		2004
Mortgage loans for securitization	$	217,185	$	239,423
Other loan sales		10,991		—
Single family and share loans		17,720		26,511
SBA loans		2,930		707
Total	$	248,826	$	266,641

     In total, non-interest income amounted to 48.3% of total net revenue (net interest income plus non-interest income) for the three months ended June 30, 2005 compared with 54.9% in 2004.

Non-interest Expense

     Non-interest expense for the three months ended June 30, 2005, increased 17.7% or $1.9 million to $12.4 million compared with $10.5 million for the corresponding prior year period. Compensation and employee benefits, the single largest component of non-interest expense, increased 24.6% or $1.4 million from $5.6 million in 2004 to $7.0 million for the three months ended June 30, 2005. The increase was primarily due to a growth in headcount.

     Contractual services increased 24.5% or $0.3 million in 2005 from $1.4 million in 2004 to $1.7 million in 2005, reflecting consulting costs to support the Company’s Sarbanes-Oxley and other regulatory compliance.

     Annualized non-interest expense as a percentage of average assets was 3.0% for the three months ended June 30, 2005 and June 30, 2004.

Credit Quality

     The allowance for loan losses increased 18.2% to $20.1 million as of June 30, 2005 from $17.0 million at December 31, 2004. The allowance for loan losses was deemed adequate as of June 30, 2005 and December 31, 2004. The allowance was impacted by loans charged-off of $0.3 million, and recoveries of loans previously charged-off of $2.6 million. The allowance as a percentage of loans and lease financing, excluding loans held for sale, was 1.7% and 1.5% at June 30, 2005 and December 31, 2004, respectively. A $0.7 million provision for loan losses was recorded in the six months ended June 30, 2005 compared with $1.3 million for the same period in 2004.

     Total impaired assets (non-accruing and foreclosed real estate owned) decreased to $12.5 million at June 30, 2005 from $17.8 million at December 31, 2004. The decrease was due principally to the repayments of a $3.8 million loan to a cellular telephone company and a $7.4 million loan to a social and health services organization, offset by the addition of a $4.8 million loan to a retail grocery chain. At June 30, 2005 and December 31, 2004, impaired assets as a percentage of Members’ Equity were 5.8% and 8.7%, respectively. The allowance as a percentage of non-accruing loans was 160.4% at June 30, 2005 compared with 95.7% at December 31, 2004.

See Table 3 for detailed information on impaired assets.

29

Table 3
IMPAIRED ASSETS
(dollars in thousands)

	June 30,			March 31,			December 31,			September 30,			June 30,
	2005			2005			2004			2004			2004
Real estate owned	$	—		$	7		$	29		$	77		$	—
Non-accruing loans		12,526			14,290			17,758			18,725			12,744
Total	$	12,526		$	14,297		$	17,787		$	18,802		$	12,744
As a percentage of loans and lease financing outstanding		1.06	%		1.24	%		1.60	%		1.77	%		1.27	%

Uses of Funds

Loans and Leases

     Loans and leases, including loans held for sale, outstanding were $1.4 billion at June 30, 2005 and December 31, 2004.

     The commercial loan and lease portfolio decreased 2.0% to $534.1 million at June 30, 2005 compared with $545.1 million at December 31, 2004. NCB’s commercial portfolio has a concentration in the food retailing and distribution industry. The loan types include lines of credit, revolving credits, and term loans. These loans are typically collateralized with general business assets (e.g., inventory, receivables, fixed assets, and leasehold interests). The loans are expected to be repaid from cash flows generated by the borrower’s operating activities. NCB’s exposure to credit loss in the event of nonperformance by the other parties to the loan is the carrying amounts of the loans.

     NCB’s real estate loan portfolio increased 13.8% to $648.3 million for the six months ended June 30, 2005 from $569.5 million at December 31, 2004 due primarily to an increase in cooperative share loans. The real estate portfolio is substantially composed of multifamily blanket mortgages and single-family mortgage and share loans.

Cash, Cash Equivalents, and Investment Securities

     Cash, cash equivalents, and investment securities increased 70.1% or $95.8 million to $232.5 million at June 30, 2005 compared with $136.7 million at December 31, 2004 due to higher cash operating account balances. $102.0 million was subsequently used on July 1, 2005 to pay down short-term debt with the Federal Home Loan Bank (FHLB).

Interest-Bearing Liabilities

     Per Table 4, interest-bearing liabilities increased $89.6 million from $1.35 billion at December 31, 2004 to $1.44 billion at June 30, 2005.

     For the six months ended June 30, 2005, deposits at NCB, FSB, increased 12.1% to $679.4 million from $605.9 million at December 31, 2004. The weighted average rate on deposits at June 30, 2005 was 3.02% compared to 2.40% at December 31, 2004. The average maturity of the certificates of deposit at June 30, 2005 was 25.7 months compared with 23.1 months at December 31, 2004 reflecting a continued shift to longer-term maturities.

30

Table 4
Interest-Bearing Liabilities
(dollars in thousands)

	June 30,		December 31,
	2005		2004		% Change
Deposits	$	679,416	$	605,927		12.1	%
Short-term debt*		471,159		429,429		9.7	%
Long-term debt		119,616		145,215		-17.6	%
Subordinated debt		123,086		123,083		0.0	%
Junior subordinated debt		50,597		50,580		0.0	%
Total	$	1,443,874	$	1,354,234		6.6	%

* includes current portion of long-term and subordinated debt.

     At June 30, 2005 total short-term and long-term borrowings (including subordinated debt) increased $16.2 million or 2.2% from $748.3 million at December 31, 2004 to $764.5 million at June 30, 2005.

     NCB, FSB had $248.0 million advances from the FHLB at June 30, 2005 compared to $200.5 million at December 31, 2004. At June 30, 2005, included in the short-term borrowings were revolving lines of credit of $40.0 million, commercial paper with a face value of $126.5 million and no borrowings from cooperative customers.

     At June 30, 2005 and December 31, 2004 NCB had $350.0 million of committed revolving lines of credit available of which $35.0 million and $40.0 million was outstanding, respectively. $175.0 million of this facility is available until May 7, 2006 and the remaining $175.0 million is available until May 7, 2008. In addition, NCB had bid lines available of $22.5 million of which $5.0 million was outstanding at June 30, 2005 and $7.5 million as of December 31, 2004.

     At both June 30, 2005 and December 31, 2004, under its Medium Term Note Program NCB had remaining authority to issue up to $176.0 million. As of June 30, 2005 and December 31, 2004, NCB had $40.0 million, outstanding under this program. In addition, as of June 30, 2005 and December 31, 2004, NCB had outstanding $135.0 million of private placement issued to various institutional investors. At June 30, 2005, NCB has $30.0 million remaining capacity of private placement issuances under an Uncommitted Master Shelf Agreement with an institutional investor.

31

Contractual Obligations

     NCB has various financial obligations, including contractual obligations that may require future cash payments. At June 30, 2005 there were no material changes to either the type or maturity of contractual obligations from December 31, 2004.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

     Discussion of NCB’s commitments, contingent liabilities, and off-balance sheet arrangements is included in Note 14 of the Notes to the Consolidated Financial Statements. Commitments to extend credit do not necessarily represent future cash requirements, as these commitments may expire without being drawn on based upon NCB’s historical experience.

Provision for Income Taxes

     The federal income tax provision is determined on the basis of non-member income generated by NCB, FSB and reserves set aside for dividends on Class C stock. NCB’s subsidiaries are also subject to varying levels of state taxation. The income tax provision was $1.3 million and $1.2 million for the six months ended June 30, 2005 and 2004, respectively.

32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     No material changes in NCB’s market risk profile occurred from December 31, 2004 to June 30, 2005.

ITEM 4. CONTROLS AND PROCEDURES

     (a) As of the end of the period covered by this report, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are functioning effectively to provide reasonable assurance that the Company can meet its obligations to disclose in a timely manner material information required to be included in the Company’s reports under the Exchange Act.

     (b) There have been no significant changes in the Company’s internal controls or in other factors, which could significantly affect those internal controls subsequent to the date the Company’s management carried out its evaluation.

Part II OTHER INFORMATION

Item 1. Legal Proceedings

     In the normal course of business we are involved in various types of litigation and disputes, which may lead to litigation. The Company has determined that pending or unasserted legal actions will not have a material impact on its financial condition or future operations.

Item 6. Exhibits

     The following exhibits are filed as part of this report:

Exhibit 31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Exhibit 31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Exhibit 32	Section 1350 Certifications

33

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:August 12, 2005

By:	/s/ Richard L. Reed
	Richard L. Reed, Executive Managing Director, Chief Financial Officer
By:	/s/ Dean Lawler
	Dean Lawler Senior Vice President, Corporate Controller

34