National Consumer Cooperative Bank 10-K 2005 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission File Number 2-99779

National Consumer Cooperative Bank

(Exact name of registrant as specified in its charter)

United States of America (12 U.S.C. Section 3001 et. seq.)	52-1157795
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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

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

None

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:o Yes     þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:o Yes     þ No

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. Yes þ     No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:

Large accelerated filero  Accelerated filero  Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in rule12b-2 of the Act):o Yes     þ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the place at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: the registrant’s voting and non-voting common equity is not traded on any market.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock at December 31, 2005: Class C 1,474,838 and Class B 233,839.

DOCUMENTS INCORPORATED BY REFERENCE: None

INDEX

PART I
Item 1	Business	1
Item 1A	Risk Factors	5
Item 2	Properties	10
Item 3	Legal Proceedings	10
Item 4	Submission of Matters to a Vote of Security Holders	10
PART II
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters	10
Item 6	Selected Financial Data	12
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	29
Item 8	Financial Statements and Supplementary Data	36
Item 9	Changes in and Disagreements with Accountants, on Accounting and Financial Disclosure	79
Item 9A	Controls and Procedures	79
Item 9B	Other Information	79
PART III
Item 10	Directors and Executive Officers of the Registrant	80
Item 11	Executive Compensation	84
Item 12	Security Ownership of Certain Beneficial Owners and Management	85
Item 13	Certain Relationships and Related Transactions	85
Item 14	Principal Accountant Fees and Services	86
PART IV
Item 15	Exhibits, Financial Statement Schedules and Reports on Form 8-K	87

PART 1

ITEM 1. BUSINESS

GENERAL

The National Consumer Cooperative Bank, which does business as the National Cooperative Bank (“NCB”), is a financial institution organized under the laws of the United States. NCB (sometimes referred to herein as “bank”) provides financial services to eligible cooperative enterprises or enterprises controlled by eligible cooperatives. 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 legislation chartering NCB (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 narrowingproducer-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.

The Act also provided for the formation of NCB Development Corporation (“NCBDC”), a related entity, which is a non-profit organization without capital stock organized under the laws of the District of Columbia pursuant to the Act. NCBDC provides loans and technical support to cooperative enterprises. NCBDC’s bylaws provide for a majority of the nine to fifteen members of the Board of Directors to be appointed by the members of NCBDC, who comprise the members of NCB’s Board, with a majority of directors to be appointed from among the members of the NCB Board. Consistent with the Act, NCB may make deductible, voluntary contributions to NCBDC.

NCB fulfills its statutory obligations in two fashions. First, NCB makes loans and offers other financing services, which afford cooperative businesses substantially the same financing opportunities currently available for traditional enterprises. Second, NCB provides financial and other assistance to NCBDC.

The Act was passed on August 20, 1978, and NCB commenced lending operations on March 21, 1980. In 1981, Congress amended the Act (the “Act Amendments”) to convert the Class A Preferred stock of NCB previously held by the United States to Class A notes as of December 31, 1981 (the “Final Government Equity Redemption Date”). NCB maintains its executive offices at 1725 Eye Street, N.W., Suite 600, Washington, D.C. 20006. The telephone number of its executive offices is (202) 336-7700. NCB also maintains regional offices in Anchorage, Hartford, New York City, and Oakland. NCB, FSB, previously named NCB Savings Bank, FSB, maintains its principal office in Hillsboro, Ohio and non-retail branches in New York City and Washington, D.C.

When used in this report, the words “believes”, “anticipates”, “expects”, “seeks” and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected, including: competition within each of NCB’s businesses, the effects of international, national and regional economic conditions, the availability of capital and other risks described from time to time in NCB’s filings with the Commission. Given these uncertainties, investors are cautioned not to place undue reliance on such statements. NCB also undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

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LOAN REQUIREMENTS, RESTRICTIONS AND POLICIES

Eligibility Requirements

Cooperatives, cooperative-like organizations, and legally chartered entities primarily owned and controlled by cooperatives are eligible to borrow from NCB under Section 108 of the Act if they are operated on a cooperative basis and are engaged in producing or furnishing goods, services or facilities primarily for the benefit of their members or voting stockholders who are the ultimate consumers of such goods, services or facilities. In addition to being eligible to borrow from NCB, the borrower must, among other things, (1) be controlled by its members or voting stockholders on a democratic basis; (2) agree not to pay dividends on voting stock or membership capital in excess of such percentage per annum as may be approved by NCB; (3) provide that its net savings shall be allocated or distributed to all members or patrons, in proportion to their patronage, or retain such savings for the actual or potential expansion of its services or the reduction of its charges to the patrons; and (4) make membership available on a voluntary basis, without any social, political, racial or religious discrimination and without any discrimination on the basis of age, sex, or marital status to all persons who can make use of its services and are willing to accept the responsibilities of membership. NCB may also purchase obligations issued by members of eligible cooperatives. NCB maintains member finance programs for members of distribution and purchasing cooperatives primarily in the food, franchise and hardware industries. In addition, organizations applying for loans must comply with other technical and financial requirements that are customary for similar loans from financial institutions.

NCB, both directly and acting through subsidiaries, also makes certain loans under the general lending authority and incidental powers provisions of Section 102 of the Act to entities other than eligible cooperatives, when NCB determines such loans to be incidental to and beneficial to lending programs designed for eligible cooperatives.

Lending Authorities

The Board of Directors establishes its policies governing the lending operations in compliance with the Act and management carries out the policies. Management in turn adopts and implements guidelines and procedures consistent with stated Board directives. The Board of Directors and management regularly review the lending policies and guidelines in order to make needed changes and amendments.

Management may approve individual credit exposures of up to 75% of the single borrower-lending limit, which is equal to 15% of NCB’s capital (using the definition of capital for national banks as set forth by the Office of the Comptroller of the Currency) without prior approval of the Board. The President may delegate authorities up to this limit to such committees and individual officers, as he may deem appropriate.

All loan approvals require at least two signatures and the Bank’s senior management approves credit commitments that exceed individual or team lending authority.

Cooperatives of Primary Producers

As provided by Section 105 of the Act the total dollar value of loans to cooperatives that produce, market and furnish goods, services and facilities on behalf of their members as primary producers (typically agricultural cooperatives) may not exceed 10% of the gross assets of NCB.

Interest Rates

NCB charges interest rates approximately equal to the market rates charged by other financial institutions for comparable types of loans. NCB seeks to price its loans to yield a reasonable risk adjusted return on its portfolio in order to build and maintain its financial viability and to encourage the development of new and existing cooperatives. In addition, to ensure that NCB will have access to additional sources of capital in order to sustain its growth, NCB seeks to maintain a portfolio that is competitively priced and of sound quality.

Interest Rates for Real Estate Loans

Real estate loans are priced under rate guidelines issued by NCB’s Capital Markets Group for specific types of loans with specific maturities. NCB takes the following factors into consideration in pricing its real estate loans: prevailing market conditions,loan-to-value ratios, lien position, borrower payment history, reserves, occupancy level and cash flow. NCB fixes

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rates based on a basis point spread over U.S. Treasury securities with yields adjusted to constant maturity of one, three, five or ten years. Interest rates may be fixed at the time of commitment for a period generally not exceeding 30 days. For cooperative multifamily loans, the rate lock commitments can extend 12 months or longer, but there is generally little to no fall out prior to closing.

Interest Rates on Commercial Loans

NCB makes commercial loans at fixed and variable interest rates. Loan pricing is based on prevailing market conditions, income and portfolio diversification objectives and the overall assessment of risk of the transaction. Typically, commercial loan repayment schedules are structured by NCB with flat monthly principal reduction plus interest on the outstanding balance.

Fees

NCB typically assesses fees to cover the costs to NCB of its consideration of and handling of loan transactions, and to compensate NCB for setting aside funds for future draws under a commitment. The fees paid to outside vendors such as appraisers, environmental consultants and legal counsel retained by NCB for loan transactions are typically charged to the borrower.

Underwriting

When evaluating credit requests, NCB seeks to determine whether a prospective borrower has and will have sound management, sufficient cash flow to service debt, assets in excess of liabilities and a continuing demand for its products, services or use of its facilities, so that the requested loan will be repaid in accordance with its terms.

NCB evaluates repayment ability based upon an analysis of a borrower’s historical cash flow and conservative projections of future cash flows from operations. This analysis focuses on determining the predictability of future cash flows as a primary source of repayment.

Security

Loans made by NCB are generally secured by specific collateral. If collateral security is required, the value of the collateral must be reasonably sufficient to protect NCB from loss, in the event that the primary sources of repayment of financing from the normal operation of the cooperative, or refinancing, prove to be inadequate for debt repayment. Collateral security alone is not a sufficient basis for NCB to extend credit. Unsecured loans normally are made only to borrowers with strong financial conditions, operating results and demonstrated repayment ability.

Loans Benefiting Low-Income Persons

Under the Act, the Board of Directors must use its best efforts to insure that at the end of each fiscal year at least 35% of NCB’s outstanding loans are to (1) cooperatives whose members are predominantly low-income persons, as defined by NCB, and (2) other cooperatives that propose to undertake to provide specialized goods, services, or facilities to serve the needs of predominantly low-income persons. NCB defines a “low-income person,” for these purposes, as an individual whose family’s income does not exceed 80% of the median family income, adjusted for family size for the area where the cooperative is located, as determined by the Department of Housing and Urban Development. During 2005, NCB and NCBDC either directly funded or arranged the funding of over $419.7 million to borrowers meeting the low-income definition.

Loans for Residential Purposes

The Act prohibits NCB from making loans for financing, construction, ownership, acquisition or improvement of any structure used primarily for residential purposes if, after giving effect to such loan, the aggregate amount of all loans outstanding for such purposes will exceed 30% of the gross assets of NCB.

To date, the 30% cap on residential real estate loans has not restricted NCB’s ability to provide financial services to residential borrowers. NCB has been able to maintain its position in the residential real estate market without increased real estate portfolio exposure by selling real estate loans to secondary market purchasers of such loans. The preponderance of NCB real estate origination volume in recent years has been predicated upon sale to secondary market purchasers. There

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can, however, be no assurance that NCB’s future lending for residential purposes will not be impaired by the statutory limit. As of December 31, 2005, approximately 5.7% of the total assets consisted of loans that are subject to the residential cap.

OPERATIONS OF SUBSIDIARIES

NCB also attempts to fulfill its statutory mission by providing financing opportunities to cooperatives through several subsidiaries.

NCB Financial Corporation (“NCBFC”) is a Delaware chartered, wholly-owned, unitary savings and loan holding company subsidiary of NCB whose sole subsidiary is NCB, FSB, previously known as NCB Savings Bank, FSB.

NCB, FSB, previously known as NCB Savings Bank, FSB (“NCB, FSB”), is a federally chartered, federally insured savings bank located in Hillsboro, Ohio, with retail branches in Ohio and non-retail branches in New York City and Washington, D.C.

NCB Capital Corporation (“NCBCC”) is a Delaware chartered wholly-owned subsidiary of NCB that originates loans to cooperatives and sells loans in the secondary market. The company’s name was changed from NCB Mortgage Corporation in November 1997.

NCB Financial Advisors doing business as Eos Financial Group, Inc., previously known as NCB Financial Advisors, Inc. (“NCBFA”), is a Delaware chartered wholly-owned subsidiary of NCB that provides independent, fee-based financial consulting services to the non-profit community.

COMPETITION

Congress created and capitalized NCB because it found that existing financial institutions were not making adequate financial services available to cooperative, not-for-profit business enterprises. However, NCB experiences considerable competition in lending to the most credit-worthy cooperative enterprises.

REGULATION

NCB is organized under the laws of the United States. The Farm Credit Administration examines NCB periodically, but that agency has no regulatory or enforcement powers over NCB. In addition, the Government Accountability Office is authorized to audit NCB. Reports of such examinations and audits are to be forwarded to Congress, which has the sole authority to amend or revoke NCB’s charter. The Office of Thrift Supervision (“OTS”) regulates NCB, FSB. As a savings and loan holding company, NCB is subject to limited regulatory and enforcement powers of and examination by the OTS pursuant to 12 U.S.C. § 1467a.

In connection with the insurance of deposit accounts, NCB, FSB, a 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 is also subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”).

The USA Patriot Act of 2001 and its related regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The statute and its regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants.

TAXES

The Act provides that NCB shall be treated as a cooperative within the meaning of Section 1381 (a)(2) of the Internal Revenue Code. As such and pursuant to the provisions of Subchapter T of the Internal Revenue Code and the Act, NCB, in determining its taxable income for federal income tax purposes, is allowed a deduction for an amount equal to any patronage refunds in the form of cash, Class B or Class C stock, or allocated surplus that are distributed or set aside by NCB

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during the applicable tax period. To date, NCB has followed the policy of distributing or setting aside such patronage refunds during the applicable tax period, which has reduced NCB’s federal income tax liability.

NCB has determined that under the Internal Revenue Code as amended by the Act, all income generated by NCB and its subsidiaries, with the exception of certain income of NCB, FSB, qualifies as patronage income under the Internal Revenue Code, with the consequence that NCB is able to issue tax deductible patronage refunds with respect to all such income.

Section 109 of the Act, as amended, provides that NCB, including its franchise, capital, reserves, surplus, mortgages or other security holding and income, is exempt from taxation by any state, county, municipality or local taxing authority, except that any real property held by NCB is subject to any state, county, municipal or local taxation to the same extent according to its value as other real property is taxed.

NCB’s subsidiaries are subject to state income and franchise taxes.

FURTHER INFORMATION

We make available free of charge on our internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after those reports have been electronically filed or submitted to the Securities and Exchange Commission (the “SEC”). These filings can be accessed on our website atwww.ncb.coop. These filings are also accessible on the SEC’s website atwww.sec.gov. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330.

ITEM 1A. RISK FACTORS

Like other financial companies, we are subject to a number of risks, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counterparties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect our financial condition or results of operation, (3) liquidity risk, which is the risk that NCB will have insufficient cash or access to cash to meet its operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events.

In addition to the other information included in this report, readers should carefully consider that the following important factors, among others, could materially impact our business, future results of operations, and future cash flows.

(1) Credit Risk

Defaults in the repayment of loans may negatively impact our business.

A borrower’s default on its obligations under one or more of our loans may result in lost principal and interest income and increased operating expenses as a result of the allocation of management time and resources to the foreclosure and collection or restructuring of the loan.

In certain situations, where collection efforts are unsuccessful or acceptable workout arrangements cannot be reached, we may have to write-off the loan in whole or in part. In such situations, we may acquire real estate or other assets, if any, which secure the loan through foreclosure or other similar available remedies. In such cases, the amount owed under the defaulted loan often exceeds the value of the assets acquired.

Our decisions regarding credit risk could be inaccurate and our allowance for loan losses may be inadequate, which could materially and adversely affect our business, financial condition, results of operations and future prospects.

Management periodically makes a determination of an allowance for loan losses based on available information, including the quality of our loan portfolios, certain economic conditions, the value of the underlying collateral and the level of non-accruing loans. Provisions to this allowance result in an expense for the period. If, as a result of general economic conditions or an increase in defaulted loans, management determines that additional increases in the allowance for loan losses are

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necessary, NCB will incur additional expenses. Bank regulatory agencies periodically review certain allowances for loan losses and the values they attribute to real estate acquired through foreclosure or other similar remedies. Such regulatory agencies may require NCB to adjust their determination of the value for these items. These adjustments could negatively impact our results of operations or financial condition.

In addition, NCB is engaged in making non-mortgage loans to commercial customers as well as making real estate loans and loans to individuals. Non-mortgage loans are generally considered not as safe as those loans secured by real estate.

NCB makes non-mortgage loans to small to medium-sized commercial customers primarily in the hardware, grocery, franchise, Employee Stock Option Plan (“ESOP”) and Alaska and Native American markets. These loans are secured by furniture, fixtures, and equipment (“FFE”), inventory, and other collateral generally not considered as secure as real estate in the event of liquidation. Should market conditions or other factors impair the cashflow and operations of our small to medium-sized commercial customers, NCB could face an increase in delinquencies, increased provision requirements and/or losses that may adversely impact financial performance.

(2) Market risk

We may not be able to attract and retain banking customers at current levels.

Competition in the banking industry coupled with our relatively small size may limit the ability of NCB to attract and retain real estate, commercial and retail banking customers.

In particular, NCB’s competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries have larger lending limits and are thereby able to serve the credit and investment needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits and range and quality of services provided. NCB also faces competition fromout-of-state financial intermediaries which have opened low-end production offices or which solicit deposits in their respective market areas.

Because NCB maintains smaller staff and has fewer financial and other resources than the larger institutions with which it competes, it may be limited in its ability to attract customers. In addition, some of NCB’s current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than NCB can accommodate.

If NCB is unable to attract and retain banking customers, it may be unable to continue its loan growth and its results of operations and financial condition may otherwise be negatively impacted.

NCB’s lines of business may be less diversified than its competitors.

NCB derives a significant amount of its earnings from blanket and share loan financing to housing cooperatives and then from members thereof. To the extent that cooperatives become a less favorable form of housing, become economically disadvantaged, or are negatively impacted by changing market conditions, NCB may be unable to attract and/or retain such banking customers and thereby may be unable to continue its loan growth and its results of operations and financial condition may be negatively impacted.

A downturn in real estate markets, particularly in New York City, could negatively impact our banking business.

The real estate portfolio contains a concentration of loans in the New York City area; however, the majority of loans are to financially sound housing cooperatives with lowloan-to-value ratios.

With a loan concentration in the New York City area, a decline in local economic conditions could adversely affect the values of our real estate collateral and our operating performance. Consequently, a decline in local economic conditions in the New York City area may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

In addition to considering the financial strength and cash flow characteristics of borrowers, we often secure loans with real estate collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by

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the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values in the New York City area, our earnings and capital could be adversely affected.

A significant amount of NCB’s commercial and residential mortgage loans are secured by property in the New York City area. Consequently, NCB’s ability to continue to originate real estate loans may be impaired by adverse changes in local and regional economic conditions in the New York City area real estate markets, or by acts of nature, including earthquakes, hurricanes, flooding and terrorist acts. Due to the concentration of real estate collateral, these events could have a material adverse impact on the ability of the borrowers of NCB to repay their loans and affect the value of the collateral securing these loans.

Fluctuations in interest rates may negatively impact our business.

Fluctuations in interest rates may negatively impact the business of NCB. A principal source of income from operations is net interest income, which is equal to the difference between the interest income received on interest bearing assets (usually loans and investment securities) and the interest expense incurred in connection with interest bearing liabilities (usually deposits and borrowings). These rates are highly sensitive to many factors beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities. The net interest income can be affected significantly by changes in market interest rates. Changes in relative interest rates may reduce the net interest income as the difference between interest income and interest expense decreases. As a result, we have adopted asset and liability management policies to manage the impact of changing interest rates on potential loans, investments and funding sources. However, even with these policies in place, fluctuations in interest rates can impact our results of operations or financial condition. An increase in interest rates could also have a negative impact on the results of operations by reducing the ability of borrowers to repay their current loan obligations, which could not only result in increased loan defaults, foreclosures and write-offs, but also necessitate further increases to allowances for loan losses. Decreases in interest rates, in certain circumstances, may lead to higher levels of loan prepayments, which may also have an adverse impact on our net interest income.

We engage in derivative transactions, which expose us to credit and market risk.

NCB is exposed to credit and market risk as a result of its use of derivative instruments. NCB maintains a risk management strategy that includes the use of derivative instruments to mitigate the risk to earnings caused by interest rate volatility. Use of derivative instruments is a component of NCB’s overall risk management strategy in accordance with a formal policy that is monitored by management.

The derivative instruments utilized include interest rate swaps, futures contracts and forward loan sales commitments. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties based upon a notional principal amount and maturity date. Interest rate futures generally involve exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the future at specified prices. Forward loan sales commitments lock in the prices at which loans will be sold to investors.

NCB uses interest rate swaps, futures contracts and forward loan sales commitments to hedge loan commitments prior to actually funding a loan. During the commitment period, the loan commitments and related interest rate swaps, futures contracts and forward loan sales commitments are accounted for as derivatives and therefore recorded at fair value through income. Once a commitment becomes a loan, the derivative associated with the commitment is designated as a hedge of the loan and is generally kept in place until such loan is committed for sale.

If the fair value of the derivative contract is positive, the counter party owes NCB and a repayment risk exists. If the fair value of the derivative contract is negative, NCB owes the counter party, so there is no repayment risk. NCB minimizes repayment risk by entering into transactions with financially stable counter parties that are specified by policy and reviewed periodically by management. When NCB has multiple derivative transactions with a single counter party, the netmark-to-market exposure represents the netting of positive and negative exposures with that counter party. The netmark-to-market exposure with a counter party is a measure of credit risk when there is a legally enforceable master netting agreement between NCB and the counter party. NCB uses master netting agreements with the majority of its counter parties.

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Market risk is the adverse effect that a change in interest rates or comparative currency values has on the fair value of a financial instrument or expected cash flows. NCB manages the market risk associated with the interest rate hedge contracts by establishing formal policy limits concerning the types and degree of risk that may be undertaken. Compliance with this policy is monitored by management and reported to the Board of Directors.

A decrease in the gains recorded from the sale of loans.

Another important source of income for NCB are gains recorded from the sale of multi-family cooperative and Commercial Real Estate loans. The gains are influenced by many variables, including changes in interest rates and the demand of investors to purchase securities backed by loans. NCB could be negatively impacted by market changes.

(3) Liquidity risk

An inability to borrow funds may negatively impact our business, such as meeting the cash flow requirements of our depositors and borrowers or meeting the operating cash needs to fund corporate expansion and other activities.

Prepayments of loans may negatively impact our business.

Customers with adjustable rate loans generally may prepay the principal amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of such prepayments, are within such customers’ discretion. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, our interest income will be reduced. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.

Our cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures.

Our cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures. NCB has traditionally obtained funds through the capital markets but more recently from deposits and through borrowings from the Federal Home Loan Bank. As a general matter, deposits are a cheaper source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates charged for borrowings. Historically and in comparison to commercial banking averages, NCB has had a higher percentage of its time deposits in denominations of $100,000 or more. Within the banking industry, the amounts of such deposits are generally considered more likely to fluctuate than deposits of smaller denominations. If, as a result of general economic conditions, market interest rates, competitive pressures or otherwise, the value of deposits at NCB decreases relative to its overall banking operations, NCB may have to rely more heavily on borrowings as a source of funds in the future.

(4) Operational risk

We are subject to extensive regulation and our business is highly regulated which could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

NCB operates in a highly regulated environment and we are subject to supervision and examination by federal and state regulatory agencies. The Farm Credit Administration examines NCB periodically, but that agency has no regulatory or enforcement powers over NCB. In addition, the Government Accountability Office is authorized to audit NCB. Reports of such examinations and audits are to be forwarded to Congress, which has the sole authority to amend or revoke NCB’s charter. NCB, FSB as a federal savings association is subject to regulation and supervision by the OTS.

Federal and state laws and regulations govern numerous matters including changes in the ownership or control of federal savings associations and of their holding companies, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts and terms of extension of credit and investments, permissible non-banking activities, the level of reserves against deposits and restrictions on dividend payments. The OTS possesses cease and desist powers to prevent or remedy unsafe or unsound practices or violations of law by bank and savings associations subject to its regulation. These and other restrictions limit the manner in which we may conduct business and obtain financing.

Furthermore, our business is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in monetary or legislative policies may affect the interest rates we must offer to attract deposits and the interest rates we must charge on loans, as well as the manner in which we offer deposits and makes loans. These

8

monetary policies have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally.

In addition, NCB, FSB is subject to the Community Reinvestment Act (“CRA”), which is used to evaluate the institution’s lending, service and investment activities as they relate to low-income constituencies. Failure to comply with CRA requirements could adversely impact our ability to grow and achieve our profitability and market share objectives.

We are subject to regulatory capital adequacy guidelines, and if we fail to meet these guidelines our financial condition would be adversely affected.

Under regulatory capital adequacy guidelines and other regulatory requirements, our subsidiary, NCB, FSB, must meet guidelines that include quantitative measures of assets, liabilities, and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and other factors. If we fail to meet these minimum capital guidelines and other regulatory requirements, our financial condition would be materially and adversely affected. In the future, the regulatory accords on international banking institutions to be reached by the Basel Committee on Banking Supervision may require us to meet additional capital adequacy measures. We cannot predict the final form of, or the effects of, the regulatory accords. Our failure to maintain the status of “well-capitalized” under our regulatory framework could affect the confidence of our customers and banking relationships, thus compromising our competitive position. In addition, failure to maintain the status of “well-capitalized” under our regulatory framework, or “well-managed” under regulatory examination procedures, could compromise our status as a bank holding company and related eligibility for a streamlined review process for acquisitions proposals. Our failure to maintain the status of “well-capitalized” under our regulatory framework could also impact NCB, FSB’s ability to expand its retail branching network.

Environmental liability associated with commercial real estate lending could result in losses.

In the course of its business, NCB may acquire, through foreclosure, properties securing loans it has originated or purchased which are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, NCB might be required to remove these substances from the affected properties at our sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on NCB’s business, results of operations and financial condition.

Changes in accounting standards could impact reported earnings.

The accounting standard setters, including the Financial Accounting Standards Board (“FASB”), the SEC, Public Accounting Oversight Board (“PCAOB”) and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of the NCB’s consolidated financial statements. These changes can be hard to predict and can materially impact how NCB records and reports its financial condition and results of operations.

NCB is exposed to reputation, legal and compliance risk.

NCB is exposed to many types of operational risks, including reputation risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record keeping errors or those resulting from faulty or disabled computer or telecommunications systems. Negative public opinion can result from NCB’s actual or alleged conduct in any number of activities, including lending practices and corporate governance and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect NCB’s ability to attract and keep customers and can expose it to litigation and regulatory action. Given the volume of transactions at NCB, certain errors may be repeated or compounded before they are discovered and successfully rectified. NCB’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. NCB may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. NCB

9

is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as is NCB) and to the risk that the NCB’s (or its vendors’) business continuity and data security systems prove to be inadequate.

Failure to retain key employees could negatively impact our business.

Certain members of the executive management team, together with other key managers, are important to implement NCB’s growth strategy. The failure to retain such people or replace them in the event of departure with people of equal or greater skills could have a material adverse impact on our business, profitability or financial condition.

ITEM 2. PROPERTIES

NCB leases space for its Washington, D.C. headquarters and for four principal regional offices located in Anchorage, Hartford, New York City, and Oakland. NCB also maintains a Disaster Recovery facility in Silver Spring, MD. NCB, FSB maintains its principal offices in Hillsboro, Ohio with retail branches in Ohio and non-retail branches at NCB offices in New York City and Washington, D.C. NCB’s headquarters is 48,700 square feet in size and regional offices range from 280 to 4,900 square feet. The rental expense for the fiscal year ended December 31, 2005 was $2.6 million for the headquarters and regional offices combined.

On December 29, 2005, in support of the future growth of the bank NCB entered into a lease for office space in Arlington, Virginia that was approved by the building lender and made effective on January 27, 2006. Over the next 12 months, NCB intends to move some of its operations and personnel from its headquarters in Washington, D.C. to the leased office space in Arlington, Virginia, but its principal office will remain in Washington, D.C. The lease provides for a term of 15 years and 8 months, commencing on January 1, 2006, with a rent commencement date of September 1, 2006. It provides for initial rentable office space of approximately 75,870 square feet on two floors of the Crystal Park I office building located at 2011 Crystal Drive, Arlington, Virginia 22202.

The lease provides NCB with an option to elect that Vornado Realty LP, a company related to the landlord, assume certain obligations to pay rent on NCB’s office space in Washington D.C. through the term of that lease, which expires in 2011. If NCB elects this option, NCB will be obligated to pay Vornado payments equal to an annual amount of $401,500 during the term of the lease.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business we are involved in various types of dispute, which may lead to litigation or other legal proceedings. NCB has determined that pending legal proceedings will not have a material impact on NCB’s financial condition or future operations.

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

At a special meeting of stockholders on May 11, 2005, stockholders voted to approve a change in Section 2.4 of NCB’s bylaws to permit removal of elected directors for good cause by votes of stockholders or disinterested directors.

PART II

ITEM 5. MARKET FOR REGISTRANT’S EQUITY AND RELATED STOCKHOLDER MATTERS

NCB currently has two classes of stock outstanding, the rights of which are summarized as follows:

Class B Stock — The Act permits Class B stock to be held only by borrowers of NCB and NCB, FSB and requires each borrower under Section 108 of the Act to hold Class B stock at the time the loan is made at a par value equal to 1% of its loan amount. The Act prohibits NCB from paying dividends on Class B stock. There are two series of Class B stock. Class B-1 stock is Class B stock purchased for cash at par value on or after June 29, 1984, while Class B-2 stock is all other Class B stock. Class B stock is transferable to another eligible holder only with the approval of NCB. NCB does not permit any transfers of Class B-2 stock and permits only such transfers, at the stock’s $100 par value, of Class B-1 stock as are required to permit new borrowers to obtain their required holdings of Class B stock. In each instance, NCB specifies which holder(s)

10

are permitted to transfer their stock to the new borrower, based upon which Class B stockholders with holdings of such stock beyond that required to support their loans have held such stock for the longest time. NCB also repurchased, at par value, any shares of Class B stock that it was required to repurchase from holders by the terms of the contracts under which such stock was originally sold by NCB. No such stock remains outstanding. Class B stock has voting rights, but such voting rights are limited in accordance with the weighted voting system described in Item 10.

Class C Stock — The Act permits Class C stock to be held only by cooperatives eligible to borrow from NCB. The Act allows NCB to pay dividends on Class C stock, but so long as any Class A notes are outstanding, limits dividends on Class C stock (or any other NCB stock) to the interest rate payable on such notes, which was 4.03% in 2005. In 1994, NCB adopted a policy under which annual cash dividends on Class C stock of up to 2% of NCB’s net income may be declared. The policy does not provide any specific method to determine the amount, if any, of such dividend. Whether any such dividends will be declared and if so, in what amount accordingly rests within the discretion of NCB’s Board of Directors. On April 21, 2005, the Board declared a cash dividend of $1.97 per Class C share payable on or before June 30, 2005 to holders of record as of March 31, 2005. In 2004, a cash dividend of $1.08 per Class C share was paid. In 1996, the Board approved a dividend de minimis provision which states that Class C stock dividends shall not be distributed to a stockholder until such time as the cumulative amount of the dividend payable to the stockholder is equal to, or exceeds, twenty-five dollars ($25.00) unless specifically requested by the stockholder. Class C stock is transferable to another eligible holder only with the approval of NCB. Class C stock has voting rights, but such voting rights are limited in accordance with the weighted voting system described in Item 10.

Class D Stock — Class D stock is non-voting stock that may be held by any person. As of December 31, 2005 there were no shares outstanding.

There is no established public trading market for any class of NCB’s common equity, and it is unlikely that any such market will develop in view of the restrictions on transfer of NCB’s stock discussed above. Holders of Class B stock may use such stock to meet the Class B stock ownership requirements established in the Act for borrowers from NCB and may be permitted by NCB, within the limits set forth above, to transfer Class B stock to another borrower from NCB.

As of December 31, 2005, there were 2,235 holders of Class B stock and 428 holders of Class C stock.

Under the Act, NCB must make annual patronage refunds to its patrons, which are those cooperatives from whose loans or other business NCB derived interest or other income during the year with respect to which a patronage refund is declared. NCB allocates its patronage refunds among its patrons generally in proportion to the amount of income derived during the year from each patron. NCB stockholders, as such, are not entitled to any patronage refunds. They are entitled to patronage refunds only in the years when they have patronized NCB, and the amount of their patronage does not depend on the amount of their stockholding. Under NCB’s patronage refund policy, patronage refunds may be paid only from taxable income and only in the form of cash, Class B or Class C stock, or allocated surplus.

Under NCB’s current patronage refund policy that became effective in 1995, as amended, NCB makes the non-cash portion of the refund in the form of Class B stock until a patron has holdings of Class B or Class C stock of 12.5% of its loan amount and thereafter in Class C stock. Under the current patronage refund policy, NCB generally intends to pay a minimum 35% of the patronage refund in cash to those patrons with stock holdings of up to 5% or less of their loan amount and up to 55% to those patrons with stock holding of 10% or more of their loan amount. There can, however, be no assurance that a cash patronage refund of any amount will be declared for any year.

The chart below shows the number of shares of stock issued by NCB during the past three years.

	2005		2004		2003
Class B Stock Issued		167,423		159,303		98,002
Class C Stock Issued		8,968		9,358		4,840

NCB plans to distribute a patronage refund for the year ended December 31, 2005 of approximately $22.8 million of which $9.5 million will be distributed in cash and $13.3 million will be distributed in Class B or Class C stock.

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ITEM 6. SELECT FINANCIAL DATA

For the Years Ended December 31,		2005			2004			2003			2002			2001
		(Dollars in thousands)
Profitability
Total interest income		$	96,479		$	72,442		$	64,946		$	73,284		$	85,333
Total interest expense			52,337			35,122			30,782			42,043			51,136
Net interest income			44,142			37,320			34,164			31,241			34,197
Net Margin			2.75	%		2.60	%		2.68	%		2.70	%		3.10	%
Non-interest income			37,203			33,134			52,652			34,930			21,644
Non-interest expense			53,086			44,142			49,012			45,607			38,544
Net Income			25,647			22,555			32,819			17,488			12,527
Ratios
	Return on average assets		1.6	%		1.5	%		2.5	%		1.5	%		1.1	%
	Return on average members’ equity		12.0	%		11.2	%		17.5	%		10.3	%		7.9	%
	Efficiency		65.3	%		62.7	%		56.5	%		68.9	%		69.0	%

At December 31,		2005			2004			2003			2002			2001
Supplemental Data
Loans held for sale		$	232,024		$	303,289		$	238,564		$	258,221		$	176,541
Loans and lease financing			1,263,703			1,114,658			890,174			751,829			821,951
Total assets			1,694,567			1,612,870			1,398,247			1,239,677			1,166,439
Subordinated debt			123,117			125,583			128,000			188,096			186,452
Junior Subordinated debt			50,614			50,580			50,547			—			—
Total borrowings			679,654			748,307			655,209			631,602			739,947
Members’ equity			219,008			205,490			192,758			175,477			162,120
Average Headcount			280			266			246			236			168
Average members’ equity as a percentage of
	Average total assets		13.0	%		13.7	%		14.4	%		14.1	%		14.0	%
	Average total loans and lease financing		14.8	%		16.1	%		17.5	%		16.5	%		15.8	%
Net average loans and lease financing to average total assets			86.7	%		83.8	%		81.0	%		83.6	%		86.7	%
Net average earnings assets to average total assets			96.8	%		96.7	%		96.6	%		94.2	%		95.7	%
Credit Quality
Allowance for loan losses			20,193			16,991			17,098			14,581			22,240
Allowance for loan losses to loans outstanding			1.4	%		1.2	%		1.5	%		1.4	%		2.2	%
Provision for loan losses			470			2,511			2,535			1,283			3,062
Provision for loan losses to average loans outstanding, excluding loans held for sale			0.0	%		0.2	%		0.3	%		0.2	%		0.3	%
Non-accrual loans			14,200			17,758			1,686			5,440			5,694
Real estate owned			10			29			74			—			—
Non-performing assets			14,210			17,787			1,760			5,440			5,694
Non-performing assets as a percentage of total assets			0.8	%		1.1	%		0.1	%		0.4	%		0.5	%

ITEM 7. 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 for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and statistical data presented in this document.

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Introduction

NCB provides financial services to eligible cooperatives or organizations controlled by eligible cooperatives throughout the United States. A cooperative 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, the voting stock of which can only be owned by its members or those eligible to become its members.

In 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 narrowingproducer-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 commercial, real estate, consumer loans and securities and non-interest income consisting of servicing income on loans sold, fees and gains on the sale of loans. Loan sale transactions qualifying as sales under U.S. generally accepted accounting principles (“GAAP”) 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.

2005 and 2004 Financial Summary

NCB’s net income for the year ended December 31, 2005 was $25.6 million. This was a 13.7% or $3.0 million increase compared with $22.6 million for the year ended December 31, 2004. The primary factors affecting the increase in the net income were a $6.8 million increase in net interest income, a $2.0 million decrease in the provision for loan losses and a $4.1 million increase in non-interest income. The increase from these factors was somewhat offset by an $8.9 million increase in non-interest expense. The tax provision also increased by $0.9 million.

Total assets increased 5.1% or $0.1 billion to $1.7 billion at December 31, 2005 from $1.6 billion at December 31, 2004. The increase in assets was the result of a $149.0 million increase in loan and lease financing primarily due to an increase in cooperative single family loan originations netted with a $71.3 million decrease in loans held for sale due to increased loan sale activity in 2005 from 2004.

The return on average total assets was 1.6% and 1.5% for the years ended December 31, 2005 and 2004. For the years ended December 31, 2005 and 2004, the return on average members’ equity was 12.0% and 11.2%, respectively.

     Net Interest Income

A principal source of revenue is net interest income, which is the difference between interest income on earning assets (primarily loans and securities) and interest expense on funding sources (including interest bearing deposits and borrowings). Earning asset balances and related funding, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Non-interest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of non-interest bearing sources of funds is captured in net interest margin, which is calculated as net interest income divided by average earning assets.

Net interest income was positively impacted in 2005 by the increase in short-term market interest rates. The overnight federal funds rate, which influences other short-term interest rates, rose to an average of 3.22% in 2005 from 1.35% in

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2004. Since more interest-earning assets than interest-bearing liabilities repriced upwards in response to the increase in short-term market interest rates, net interest income was favorably impacted during 2005 as compared to 2004.

Net interest income for the year ended December 31, 2005 increased $6.8 million or 18.3% to $44.1 million compared with $37.3 million for 2004.

For the year ended December 31, 2005, interest income increased 33.2% or $24.1 million, to $96.5 million compared with $72.4 million for the year ended December 31, 2004. The total average earning balances increased by $168.2 million and aggregate yields increased from 5.05% in 2004 to 6.02% in 2005. The increase resulted primarily from an increase in average real estate loan balances as well as an increase in average yields on commercial loan and lease balances.

Interest income from real estate loans increased $14.7 million or 44.0%. An increase in average balances of $164.2 million or 23.0% contributed $8.4 million of the increase while an increase in the yield from 4.67% in 2004 to 5.46% in 2005 contributed $6.3 million. Commercial loans and lease interest income increased $9.4 million or 30.3%. Average balances increased by $29.3 million, contributing $1.8 million to the increase. The increase in the yield from 5.81% in 2004 to 7.18% in 2005 contributed $7.6 million to the year over year increase. Interest income from investment securities and cash equivalents increased $0.5 million. A $22.2 million or 14.9% decrease in average balances was more than offset by a $1.2 million increase in yields from 3.08% in 2004 to 3.99% in 2005.

Other interest income, consisting only of excess yield, is generated from the Non-Certificated Interest-Only Receivables held by NCB. Emerging Issues Task Force Issue 99-20: Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (“EITF 99-20”) provides specific guidance on the treatment of this excess yield. Under paragraph 11 of EITF 99-20 NCB recognizes the excess of all cash flows attributable to the beneficial interest estimated at the transaction date over the initial investment (the accretable yield) as interest income over the life of the beneficial interest using the effective yield method. Thus, based on the terms in each Interest-Only Receivable, NCB is entitled to a cash interest payment. This is offset by the amortization of the Interest-Only Receivable. Non-Certificated Interest-Only Receivables are recorded in the same manner as available-for-sale investment securities in accordance with paragraph 14 of SFAS 140. Excess yield was $3.1 million and $3.6 million for the years ended December 31, 2005 and 2004, respectively, a decrease of $0.5 million. A $3.1 million decrease in the average balance contributed $0.3 million to the decrease while a decrease in the yield from 8.98% in 2004 to 8.42% in 2005 contributed $0.2 million to the decrease.

Interest expense increased $17.2 million or 49.0% from $35.1 million for the year ended December 31, 2004 compared to $52.3 million for the year ended December 31, 2005. Interest expense on deposits increased $7.9 million or 59.9%. Average deposit balances grew by $114.4 million or 20.2% from 2004 to 2005, accounting for $3.0 million of the increase. Additionally, average deposit cost increased by 77 basis points from 2.32% to 3.09%, accounting for $4.9 million of the increase. Interest expense on short-term borrowings increased by $6.4 million or 103.8%. The average balance on short-term borrowings increased by $58.6 million, which was primarily driven by higher FHLB advances and accounted for $1.5 million of the increase. In addition, the average cost of short-term borrowings increased from 2.25% to 3.77%, accounting for $4.9 million of the increase. Interest expense on long-term debt, other borrowings and subordinated debt increased $2.9 million due to an increase in average rate to 5.33% from 4.32% for 2005 and 2004, respectively, which contributed $3.6 million to the increase, offset by a $0.7 million decrease due to a decrease in average balances.

NCB recorded, as an offset to interest income, $3.4 million, $6.1 million and $7.5 million associated with its swap contracts relating to the hedging of loans and loan commitments for the years ended December 31, 2005, 2004 and 2003, respectively. In addition and over the same respective periods, NCB recorded as interest expense $1.0 million, $2.5 million and $5.0 million relating to the hedging of fixed-rate liabilities.

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See Table 1 and Table 2 for detailed information of the changes in interest income and interest expense for 2005 and 2004.

Table 1

CHANGES IN NET INTEREST INCOME

For the Year Ended December 31,

			2005 Compared to 2004									2004 Compared to 2003
									Increase									Increase
			Average			Average			(Decrease)			Average			Average			(Decrease)
			Volume*			Rate			Net**			Volume*			Rate			Net**
			(Dollars in thousands)
Interest Income
Real estate loans			$	8,415		$	6,265		$	14,680		$	5,421		$	2,032		$	7,453
Commercial loans and leases				1,781			7,590			9,371			3,259			(2,075	)		1,184
	Total loans and lease financing			10,196			13,855			24,051			8,680			(43	)		8,637
Investment securities and cash equivalents				(753	)		1,228			475			(426	)		(164	)		(590	)
Other interest income				(272	)		(217	)		(489	)		17			(568	)		(551	)
Total interest income				9,171			14,866			24,037			8,271			(775	)		7,496
Interest Expense
Deposits				2,991			4,893			7,884			3,041			628			3,669
Short-term borrowings				1,530			4,855			6,385			1,803			910			2,713
Long-term debt, other borrowings and subordinated debt				(646	)		3,592			2,946			(2,875	)		833			(2,042	)
Total interest expense				3,875			13,340			17,215			1,969			2,371			4,340
		Net interest income	$	5,296		$	1,526		$	6,822		$	6,302		$	(3,146	)	$	3,156

*  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.

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Table 2

RATE RELATED ASSETS AND LIABILITIES

For the Years Ended December 31,

		2005							2004							2003
		Average			Income/		Average		Average			Income/		Average		Average			Income/		Average
		Balance*			Expense		Rate/Yield		Balance*			Expense		Rate/Yield		Balance*			Expense		Rate/Yield
		(Dollars in thousands)
ASSETS
Interest earning assets
	Real estate loans	$	878,432		$	48,006		5.46%	$	714,208		$	33,326		4.67%	$	595,802		$	25,873		4.34%
	Commercial loans and leases		561,158			40,290		7.18%		531,828			30,919		5.81%		477,212			29,735		6.23%
	Total loans and lease financing		1,439,590			88,296		6.13%		1,246,036			64,245		5.16%		1,073,014			55,608		5.18%
	Investment securities and cash equivalents		127,485			5,090		3.99%		149,719			4,615		3.08%		163,402			5,205		3.19%
	Other interest income		36,740			3,093		8.42%		39,877			3,582		8.98%		39,710			4,133		10.41%
Total interest earning assets			1,603,815			96,479		6.02%		1,435,632			72,442		5.05%		1,276,126			64,946		5.09%
Allowance for loan losses			(19,879	)						(16,765	)						(15,306	)
Non-interest earning assets
	Cash		13,530							17,537							16,534
	Other		39,395							30,187							27,759
Total non-interest earning assets			52,925							47,724							44,293
Total assets		$	1,636,861						$	1,466,591						$	1,305,113
LIABILITIES AND MEMBERS’ EQUITY
Interest bearing liabilities
	Deposits	$	680,183		$	21,036		3.09%	$	565,804		$	13,152		2.32%	$	433,657		$	9,483		2.19%
	Short-term borrowings		332,491			12,538		3.77%		273,921			6,153		2.25%		188,279			3,440		1.83%
	Long-term debt, other borrowings and subordinated debt		351,783			18,763		5.33%		366,239			15,817		4.32%		433,554			17,859		4.12%
Total interest bearing liabilities			1,364,457			52,337		3.84%		1,205,964			35,122		2.91%		1,055,490			30,782		2.92%
Other liabilities			58,998							59,990							62,518
Members’ equity			213,406							200,637							187,105
Total liabilities and members’ equity		$	1,636,861						$	1,466,591						$	1,305,113
Net interest earning assets		$	239,358						$	229,668						$	220,636
Net interest revenues and spread					$	44,142		2.18%				$	37,320		2.14%				$	34,164		2.17%
Net yield on interest earning assets								2.75%							2.60%							2.68%

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

Credit Quality

To manage credit risk over a wide geographic area and lending in multiple industries, NCB uses a team-based approval process, which relies upon the expertise of lending teams familiar with particular segments of the industry in which we lend. Senior management approves those credit facilities exceeding delegated lending authority for each team in an attempt to ensure the quality of lending decisions. In order to keep abreast of economic events and market conditions throughout the United States, various lending teams regularly perform financial analysis of the industries and regions.

An inevitable aspect of the lending or risk assumption process is the fact that losses will be incurred. The extent to which losses occur depends on the risk characteristics of the loan portfolio. NCB emphasizes continuous credit risk management. Specific procedures have been established that seek to eliminate undue credit risk. They include a multilevel approval process, credit underwriting separate and apart from the approval process, and an ongoing assessment of the credit condition of the portfolio. In addition, a risk rating system is designed to classify each loan according to the risks unique to each credit facility.

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Loans with risk characteristics that make their full and timely payment uncertain are assigned to the Risk Management Department. The Risk Management Department determines, on a case-by-case basis, the best course of action to restore a credit to an acceptable risk rating or to minimize potential losses to NCB.

The allowance for loan losses is increased by the provision for loan losses and decreased by the amount of charge-offs, net of recoveries. The allowance for loan losses is determined based on risk ratings, current and future economic conditions, concentrations, diversification, portfolio size, collateral and guarantee support and level of non-performing and delinquent credits, among other relevant factors.

The consolidated allowance calculation on a loan-by-loan basis at December 31, 2005 was $20.2 million, which represents an increase of $3.2 million from December 31, 2004. The increase is due to net recoveries of $2.7 million and provisions of $0.5 million. The allowance for loan losses was 1.4% and 1.2% of total loans and lease financing and was 1.6% and 1.5% of loans and lease financing, excluding loans held for sale, at December 31, 2005 and 2004, respectively. The allowance for loan losses was 1.42 and 0.96 times the non-performing assets at December 31, 2005 and 2004, respectively.

The allowance as a percentage of impaired assets was 142.1% at December 31, 2005 compared with 95.5% at December 31, 2004. The increase is primarily due to a $3.2 million increase in the allowance for loan loss resulting from $9.2 million of increases in the allowance for risk rating downgrades, placement of credits on non-accrual status and specific reserve requirements among criticized credits, offset by $6.0 million of reductions primarily from loan payoffs of $3.3 million as well as a $1.2 million overall decrease in specific reserve requirements. The $3.6 million decrease in impaired assets also contributed slightly to the decrease of the allowance to impaired assets.

Table 3

SUMMARY OF ALLOWANCE FOR LOAN LOSSES

For the Years Ended December 31,

		2005			2004			2003			2002			2001
		(Dollars in thousands)
Balance at beginning of year		$	16,991		$	17,098		$	14,581		$	22,240		$	21,260
Charge-offs
	Commercial		(498	)		(4,711	)		(1,693	)		(8,013	)		(3,973	)
	Real Estate		(9	)		—			(855	)		—			—
Total charge-offs			(507	)		(4,711	)		(2,548	)		(8,013	)		(3,973	)
Recoveries
	Commercial		2,681			2,092			2,434			674			1,495
	Real Estate		558			1			96			65			396
Total Recoveries			3,239			2,093			2,530			739			1,891
Net recoveries (charge-offs)			2,732			(2,618	)		(18	)		(7,274	)		(2,082	)
	Provision for loan losses		470			2,511			2,535			1,283			3,062
Reclassified to reserve for unfunded commitments and lines of credit			—			—			—			(1,668	)		—
Balance at end of year		$	20,193		$	16,991		$	17,098		$	14,581		$	22,240

Risk rating downgrades, placement of credits on non-accrual status and increases in specific reserve requirements among criticized credits generated incremental reserve requirements of $9.2 million. The primary contributors to the increase in the reserve, by industry segment, were grocery retailers, contributing $3.4 million and Alaskan native corporations, contributing $1.0 million. The increase in the reserve was offset by $6.0 million of reductions primarily from loan payoffs from the telecom industry, commercial real estate and residential real estate segments, accounting for $2.4 million, as well as an overall decrease in specific reserve requirements for the retail grocery sector of $1.2 million. The net result of these increases and reductions to the allowance for loan losses was a $3.2 million increase in allowance requirements, which was funded by net recoveries of $2.7 million and net provisions of $0.5 million.

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Of the $3.2 million of recoveries that were received during 2005, $1.9 million related to the loan to an operator of senior living and health care facilities, $0.4 million related to the loan to a retail grocery store operator and $0.6 million related to an affordable housing operator loan. In addition, $0.5 million of charge-offs were made during the year that primarily resulted from a $0.2 million charge-off of a loan to an automotive related franchisee and a $0.1 million charge-off to a telecommunications business loan.

Net charge offs were 0.2%, 0.2%, 0.0%, 0.7% and 0.3% of the average loan and lease financing balance for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.

Table 4

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

At December 31,

	2005				2004				2003				2002				2001
			Percent of				Percent of				Percent of				Percent of				Percent of
	Amount		Total		Amount		Total		Amount		Total		Amount		Total		Amount		Total
	(Dollars in thousands)
Loan and lease financing
Commercial	$	574,124		45.4%	$	529,165		47.5%	$	440,359		49.5%	$	411,907		54.8%	$	466,026		56.7%
Real estate		684,951		54.2%		569,521		51.1%		407,718		45.8%		279,134		37.1%		273,371		33.3%
Lease financing		4,628		0.4%		15,972		1.4%		42,097		4.7%		60,788		8.1%		82,554		10.0%
Total loans and lease financing	$	1,263,703		100.0%	$	1,114,658		100.0%	$	890,174		100.0%	$	751,829		100.0%	$	821,951		100.0%
Allocation of allowance for loan losses
Commercial	$	14,780		73.2%	$	11,023		64.9%	$	11,340		66.3%	$	9,813		67.3%	$	14,276		64.2%
Real estate		5,413		26.8%		5,968		35.1%		5,113		29.9%		2,866		19.7%		7,072		31.8%
Unallocated		—		0.0%		—		0.0%		645		3.8%		1,902		13.0%		892		4.0%
Total allowance for loan losses	$	20,193		100.0%	$	16,991		100.0%	$	17,098		100.0%	$	14,581		100.0%	$	22,240		100.0%

Total impaired assets (non-accruing and foreclosed real estate owned) decreased to $14.2 million at December 31, 2005 from $17.8 million at December 31, 2004. The decrease of $3.6 million was primarily due to loan repayments of $4.1 million on a loan to a mobile phone service provider and $7.4 million on a loan to a provider of health care and senior living services. The decrease was primarily offset by two grocery retailer loans placed on non-accrual status totaling $7.4 million. Management has allocated specific reserves to impaired loans totaling $4.9 million and $2.2 million as of December 31, 2005 and 2004. The specific allowance includes $1.6 million related to a grocery chain loan, $1.2 million related to a grocery retailer loan, $0.2 million related to a warehousing and distribution loan and $0.1 million related to a construction contractor. NCB had $10 thousand of foreclosed real estate at December 31, 2005 and $29 thousand at December 31, 2004. At December 31, 2005 and 2004, impaired assets as a percentage of total capital were 6.5% and 8.7%, respectively.

Table 5

IMPAIRED ASSETS

At December 31,

	2005			2004			2003			2002			2001
	(Dollars in thousands)
Real estate owned	$	10		$	29		$	74		$	—		$	—
Non-accruing loans		14,200			17,758			1,686			5,440			5,694
Total	$	14,210		$	17,787		$	1,760		$	5,440		$	5,694
Percentage of loans and lease financing outstanding		1.12	%		1.60	%		0.20	%		0.72	%		0.69	%

NCB bases credit decisions on the cash flows of its customers and views collateral as a secondary source of repayment.

The real estate portfolio contains a concentration of loans in the New York City area; however, the majority of loans are to seasoned housing cooperatives with lowloan-to-value ratios. NCB also has minimal credit exposure to highly leveraged transactions, commercial real estate and construction loans. NCB has no foreign loan exposure.

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Non-interest Income

	Non-interest Income
	For the Years Ended
	December 31
	2005			2004
	(Dollars in thousands)
Gain on sale of loans	$	26,377		$	18,346
(Loss) gain on sale of investments available-for-sale		(13	)		3,470
Servicing fees		4,202			3,975
Letter of credit fees		3,454			3,821
Other		3,183			3,522
Total non-interest income	$	37,203		$	33,134

Non-interest income is composed of gains on sale of loans and securities, servicing fees, letter of credit fees and other income. Total non-interest income increased $4.1 million or 12.3% from $33.1 million for the year ended December 31, 2004 to $37.2 million in 2005. The increase was primarily driven by a $8.0 million increase in gain on loan sales due to increased loan sale activity, offset by a $3.5 million decrease in gain on sale of investments available for sale and a $1.0 million decrease in loan fee income.

Gains on sales of loans and investment securities of $26.4 million for the year ended December 31, 2005, represented 70.9% of non-interest income, and increased $4.6 million from $21.8 million in 2004. The increase resulted primarily from enhanced investor spreads as well as a 38.9% increase in loan sale volume in 2005. The increase in loan sale volume excludes $80.9 million of mortgage-backed securities sold during 2004. If the mortgage-backed security transactions were included in 2004 loan sales, the increase in loan sale volume from 2004 to 2005 would have been 57.2%.

The following table shows loans sold for the years ended December 31 (dollars in thousands):

	2005		2004
Mortgage loans for securitization	$	563,802	$	493,114
Other loan sales		309,808		116,240
Single family and share loans		80,243		78,614
Small Business Administration (“SBA”) loans		7,701		4,435
Total	$	961,554	$	692,403

There were $7.4 million of investment securities available-for-sale sold during 2005 with a net loss of $13 thousand compared to $80.9 million of available-for-sale securities sold during 2004 with a net gain of $3.5 million.

NCB participated in the mortgage-backed securities (“MBS”) program offered by Fannie Mae. This program allows mortgage originators to swap a pool of loans for an MBS. Specifically, in December 2003, NCB swapped cooperative multifamily loans for a Fannie Mae MBS. In the transaction, NCB received only beneficial interests in the loans being transferred to Fannie Mae in the form of an MBS. Pursuant to paragraph 9 of FAS 140, because only beneficial interests in the transferred assets were received in exchange for the transferred assets, it precluded sale treatment, as NCB had not relinquished control over the transferred assets. In this transaction, the beneficial interest received, the MBS was also NCB’s retained interest as no cash or other proceeds were received as part of the exchange. According to paragraph 10 of FAS 140, NCB carried any retained interests on its books by allocating the previous carrying amount between the assets sold, if any, and the retained interests, if any, based on relative fair values. Paragraph 58 expands on the guidance given in paragraph 10 regarding retained interests and offers examples of retained interests which include securities backed by transferred assets. Since NCB did not sell any assets as part of this transaction, NCB allocated the entire previous carrying amount to the retained interest or the MBS and no gain or loss was recognized. In January 2004, NCB sold the MBS, at which time a gain of $3.5 million was realized. The gain was determined by comparing the cash received in the transaction against the book value of the MBS at the time of sale.

The net SFAS 133 adjustment, which is included in Gain on Sale of Loans, was a loss of $0.3 million for the years ended December 31, 2005 and 2004.

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For the year ended December 31, 2005, the net gain on undesignated derivatives of $0.2 million was comprised of a $2.0 million loss related to the change in value of rate lock commitments net of a $2.2 million gain related to the change in value of undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments. For the year ended December 31, 2004, the net loss on undesignated derivatives of $0.6 million was comprised of a $0.9 million loss related to the change in value of rate lock commitments net of a $0.3 million gain related to the change in value of undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments.

For the year ended December 31, 2005 the net hedge ineffectiveness was a net loss of $0.4 million compared to net gain of $0.4 million for the year ended December 31, 2004.

Other non-interest income includes those fees that NCB earns related to late and pre-payment penalty fees. Other non-interest income decreased $0.3 million from $3.5 million for the year ended December 31, 2004 to $3.2 million for the year ended December 31, 2005.

In total, non-interest income amounted to 46.0% of total net revenue (net interest income plus non-interest income) for the year ended December 31, 2005 compared with 48.8% for the year ended December 31, 2004.

Non-interest Expense

	Non-interest Expense
	for the Years Ended
	December 31
	2005		2004
	(Dollars in thousands)
Compensation and employee benefits	$	29,001	$	23,777
Contractual services		6,399		5,006
Occupancy and equipment		5,861		5,195
Corporate development		2,942		1,756
Information systems		2,702		2,570
Travel and entertainment		1,596		1,569
Provision for unfunded commitments		791		724
Contribution to NCB Development Corporation		750		500
Other		3,044		3,045
Total non-interest expense	$	53,086	$	44,142

Non-interest expense for the year ended December 31, 2005 increased 20.3% or $8.9 million to $53.0 million compared with $44.1 million for the year ended December 31, 2004. Compensation and employee benefits, the single largest component of non-interest expense, increased 22.0% or $5.2 million from $23.8 million in 2004 to $29.0 million in 2005. The increase was driven in part by an increase in headcount to support the growth of business, but also reflects incentives from a strong sales performance, which results in a higher level of incentive compensation.

Contractual services increased 27.8% or $1.4 million to $6.4 million in the year ended December 31, 2005 from $5.0 million in 2004. The increase was primarily due to an increase in audit fees and consulting costs to support the Company’s Sarbanes-Oxley Act and other regulatory compliance.

Under the provisions of the Act, NCB makes tax deductible, voluntary contributions to NCBDC. These contributions are discretionary and are based upon the approval of NCB’s Board of Directors. NCB made a contribution of $0.8 million and $0.5 million to NCBDC in the years ended December 31, 2005 and 2004, respectively.

The provision for losses for unfunded commitments for the year ended December 31, 2005 primarily relates to changes in risk rating of five letters of credit and an increase in the specific reserve of one letter of credit, increasing the provision by $1.9 million. The provision for losses was offset by a $0.5 million reduction from the upgrade of one letter of credit and one revolving line of credit as well as an expiration of one letter of credit.

Non-interest expense as a percentage of average assets was 3.2% and 3.0% in 2005 and 2004, respectively.

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Income Taxes

Under the terms of the Act, NCB is exempt from most state and local taxes. In addition, under provisions of the Act and Subchapter T of the Internal Revenue Code, NCB substantially reduces its Federal tax liability through the issuance of annual patronage dividends. The federal income tax provision is determined on the basis of non-member income generated by NCB, FSB, and the reserves set aside for dividends on Class C stock. NCB’s subsidiaries are also subject to varying levels of state taxation. Note 22 “Income Taxes” to the consolidated financial statements contains additional discussions of NCB’s tax status.

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 principles. 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 third quarter of 2005 and does not impact our consolidated financial statements.

NCB transfers commercial mortgage loans to trusts that issue various classes of securities backed by the commercial mortgage loans to investors. Those trusts are designed to be qualifying special purpose entities (QSPE) as defined by Statement of Financial Accounting Standards No. 140 (FAS 140),“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” NCB has previously analyzed the governing pooling and servicing agreements for the commercial mortgage-backed securities (CMBS) trusts to which it transfers loans, and believes that their terms are consistent with the criteria in FAS 140 for QSPE status. Recently, regulators and standard setters have had discussions with industry participants and accounting firms regarding whether certain provisions that are common in CMBS structures satisfy the stringent QSPE criteria in FAS 140. As a result the FASB has added this issue to its agenda. If future guidance results in a determination that the CMBS trusts are not QSPEs, NCB’s transfers may be required to be accounted for as collateralized borrowings instead of as sales. Also, if such future guidance is issued, we cannot predict what the transition provisions for implementing such guidance will be. In addition, NCB owns subordinated classes of CMBS that amount to $1.6 million issued by entities that are designed to be qualifying special purpose entities.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (“SFAS 155”), which amends SFAS 133 and 140. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, establishes, among other things, the accounting for certain derivatives embedded in other financial instruments. A derivative embedded in another financial instrument is referred to as a hybrid financial instrument. The primary objectives of SFAS 155 with respect to SFAS 133 are to (1) simplify accounting for certain hybrid financial instruments by permitting fair value remeasurement for the hybrid financial instruments and (2) eliminate the interim guidance in SFAS 133 which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS 133. The primary objective of SFAS 155 with respect to SFAS 140 is to eliminate a restriction on the passive derivative instruments that a qualifyingspecial-purpose entity (SPE) may hold. SFAS 155 will be effective on January 1, 2007 for NCB; however, at this time, NCB does not believe it will impact our consolidated financial statements.

2004 and 2003 Financial Summary

The net income for the year ended December 31, 2004 was $22.5 million. This was a 31.3% or $10.3 million decrease compared with $32.8 million for the year ended December 31, 2003. The primary factors causing this decrease in net income were a $13.6 million decline in gain on sale of loans, due to both lower volume and lower yields on loans sold in 2004, and

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a $3.0 million decline in other non-interest income. In addition, 2003 benefited from a $3.7 million gain on the extinguishment of debt relating to the restructuring of the Class A Notes with Treasury. The decline was offset by an $8.6 million increase in loans and lease financing income. The tax provision also declined by $1.2 million.

Total assets increased 15.3% or $0.2 billion to $1.6 billion at December 31, 2004 from $1.4 billion at December 31, 2003. The increase in assets was primarily the result of a net increase in loan balances of $0.3 billion due primarily to the origination of cooperative single family loans, offset by a decrease in investment securities of $65.4 million due to the sale of a mortgage-backed security (“MBS”) created in 2003.

The return on average total assets was 1.5% and 2.5% for the year ended December 31, 2004 and 2003, respectively. For the same period, the return on average members’ equity was 11.2% and 17.5%, respectively.

Net Interest Income

Net interest income for the year ended December 31, 2004 increased $3.2 million or 9.23% to $37.3 million compared with $34.1 million for 2003.

For the year ended December 31, 2004, interest income increased 11.5% or $7.5 million, to $72.4 million compared with $64.9 million for the year ended December 31, 2003. The total average earning balances increased by $159.5 million and aggregate yields decreased from 5.09% in 2003 to 5.05% in 2004. The increase resulted primarily from an increase in average real estate loan balances offset by a decrease in average yields on commercial loan and lease balances.

Interest income from real estate loans increased $7.5 million or 28.8%. An increase in average balances of $118.4 million or 19.9% contributed $5.4 million of the increase while an increase in the yield from 4.34% in 2003 to 4.67% 2004 contributed $2.1 million. Commercial loans and lease interest income increased $1.2 million or 4.0%. Average balances increased by $54.6 million, contributing $3.3 million to the increase while a decrease in the yield from 6.23% in 2003 to 5.81% in 2004 contributed $2.1 million to the year over year increase. Interest income from investment securities and cash equivalents decreased $0.6 million. Average balances decreased $13.7 million or 8.4% contributing $0.4 million to the decrease in addition to yields decreasing from 3.19% in 2003 to 3.08% in 2004 contributing the remaining $0.2 million to the decrease.

Interest expense increased $4.3 million or 14.1% from $30.8 million for the year ended December 31, 2003 compared to $35.1 million for the year ended December 31, 2004. Interest expense on deposits increased $3.7 million or 38.7%. Average deposit balances grew by $132.1 million or 30.5% from 2003 to 2004, accounting for $3.1 million of the increase. Additionally, average deposit cost increased slightly from 2.19% to 2.32%, accounting for $0.6 million of the increase. Interest expense on short-term borrowings increased by $2.7 million or 78.9%. The average balance on short-term borrowings increased by $85.6 million, which was primarily driven by higher Federal Home Loan Bank advances, and accounted for $1.8 million of the $2.7 million increase. In addition, the average cost of short-term borrowings increased from 1.83% to 2.25%, accounting for $0.9 million of the increase. Interest expense on long-term debt, other borrowings and subordinated debt decreased $2.1 million primarily due to a $67.3 million decrease in average balance resulting from the payoff of various long-term debt during 2004, which contributed $2.9 million to the decrease in interest expense. An increase in average rate to 4.32% from 4.12% for 2004 and 2003, respectively, offset the decrease in volume and contributed the remaining $0.8 million to the decrease.

See Table 1 and Table 2 for detailed information of the fluctuations in interest income and interest expense for 2004 and 2003.

Non-Interest Income

Total non-interest income decreased $19.6 million or 37.1% from $52.7 million for the year ended December 31, 2003 to $33.1 million in 2004. The decrease was primarily driven by a $13.6 million decrease in gain on sale of loans and investment securities. Other non-interest income decreased by $3.0 million and a $3.7 million gain on extinguishment was recognized in 2003 relating to the restructuring of Class A Notes with Treasury.

Gains on sales of loans and investment securities of $21.8 million for the year ended December 31, 2004, represented 65.8% of non-interest income, and decreased $13.1 million from $34.9 million in 2003. The decrease resulted from a lower volume of loans sold in 2004 compared with 2003, and the gains on cooperative multifamily loan sale dropped from 3.8% of principal sold in 2003 to 3.2% in 2004. Of the total gain in 2004, $3.5 million relates to the sale of $81.2 million of

22

mortgage-backed securities (MBS), created from a swap with Fannie Mae in December 2003. Of the total gain in 2003, $3.0 million relates to the sale of $55.1 million of MBS.

The net SFAS 133 adjustment, which is included in Gain on Sale of Loans, was a loss of $0.2 million for the year ended December 31, 2004 compared to a loss of $0.5 million for the prior year. The decrease from 2003 to 2004 was due primarily to a decrease in the net loss on undesignated derivatives related to the implementation of SAB 105, which deals with the valuation of rate lock commitments.

For the year ended December 31, 2004, the net loss on undesignated derivatives of $0.6 million was composed of a $0.9 million loss related to the change in value of rate lock commitments net of a $0.3 million gain related to the change in value of the undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments. For the year ended December 31, 2003, the net loss on undesignated derivatives of $0.7 million was composed of a $1.1 million gain related to the change in value of rate lock commitments net of a $1.8 million loss related to the change in value of undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments.

Letter of credit fees increased by $0.8 million or 27.3% from 2003 to 2004 principally reflecting higher average issuance fees.

The servicing fee income decreased from $0.5 million in 2003 to $4.0 million for 2004. Although there was a $0.3 million increase in loan servicing fees from the growth in volume of cooperative multifamily and cooperative single family loans, this was offset by a $0.8 million reduction in lease related servicing income.

Other non-interest income includes those fees that NCB earns related to late and pre-payment penalty fees. In addition, other non-interest income includes fees earned by NCB from the administration of its grocery loan conduit program, which terminated in June 2004. For the year ended December 31, 2004, other non-interest income decreased $3.0 million from $6.5 million in 2003 to $3.5 million. The primary factor affecting the decrease was a $1.2 million decrease in other commercial fees from 2003 to 2004.

In total, non-interest income amounted to 52.1% of total net revenue (net interest income plus non-interest income) for the year ended December 31, 2004 compared with 67.4% in 2003.

Non-Interest Expense

Non-interest expense for the year ended December 31, 2004 decreased 9.9% or $4.9 million to $44.1 million compared with $49.0 million for the corresponding prior year. Salaries and employee benefits, the single largest component of non-interest expense, decreased 2.6% or $0.6 million from $24.4 million in 2003 to $23.8 million in 2004.

Contractual services decreased 18.7% or $1.2 million to $5.0 million in 2004 from $6.2 million in 2003. In 2003 significant expenses were incurred related to the conversion of NCB, FSB’s general ledger software and the upgrade of NCB, FSB’s computer network.

NCB made a contribution of $0.5 million and $1.0 million to NCBDC in 2004 and 2003, respectively. Non-interest expense, inclusive of NCBDC contributions, as a percentage of average assets was 3.0% and 3.8% in 2004 and 2003, respectively.

2005 and 2004 Fourth Quarter Results

Net income for the three months ended December 31, 2005 decreased $0.2 million from $5.5 million for the three months ended December 31, 2004 to $5.3 million for the three months ended December 31, 2005. For the three months ended December 31, 2005, net interest income increased 15.4% or $1.5 million to $11.5 million compared with $10.0 million for the three months ended December 31, 2004 due to a $2.9 million increase in real estate loan interest income and a $2.6 million increase in commercial loan interest income, offset by a $2.5 million increase in deposit interest expense and a $1.0 million increase in long-term debt interest expense.

For the three months ended December 31, 2005, interest income increased 28.9% or $5.8 million to $25.9 million compared with $20.1 million for the three months ended December 31, 2004. The increase was primarily due to a $2.9 million increase in real estate loan interest income and a $2.5 million increase in commercial loan interest income both resulting from increased loan volume during the three months ended December 31, 2005 compared to the same period in 2004. For the three months ended December 31, 2005, interest expense increased $4.3 million or 42.1% from $10.1 million for the three

23

months ended December 31, 2004 to $14.4 million for the three months ended December 31, 2005. The increase in interest expense resulted primarily from a $2.5 million increase in deposit interest expense resulting from an increase in deposit balances and a $1.0 increase in long-term borrowing interest expense for the three months ended December 31, 2005 compared to the same period in 2004.

For the three months ended December 31, 2005, total non-interest income decreased $1.2 million or 14.1% to $7.1 million compared to $8.3 million for the three months ended December 31, 2004. This decrease resulted primarily from a $0.4 million increase in real estate loan fees due to increased real estate loan volume during the three months ended December 31, 2005 compared to the same period in 2004. The $0.4 increase was offset by a $2.0 million decrease in gain on sale of loans during the three months ended December 31, 2005 compared to the same period in 2004 primarily due to most loan sale activity during 2005 occurring during the first three quarters of 2005.

Non-interest expense for the three months ended December 31, 2005 increased 16.3% or $2.0 million to $14.6 million compared with $12.5 million for the same period in 2004 primarily due to a $0.8 million increase in compensation and benefits resulting from an increase in headcount to support the growth of business and a strong sales performance and also resulted in a higher level of incentive compensation. The increase in non-interest expense for the three months ended December 31, 2005 compared to the same period in 2004 was also due to a $0.7 million increase in contractual services resulting from an increase in audit fees and consulting costs to support the Company’s Sarbanes-Oxley Act and other regulatory compliance as well as an $0.4 million increase in corporate development.

For the three months ended December 31, 2005 and December 31, 2004, a tax expense of $0.6 million and $0.2 million was recognized, respectively.

Table 6

CONSOLIDATED QUARTERLY FINANCIAL INFORMATION

For the Three Months Ended

	2005										2004
	Dec. 31			Sept. 30		June 30			Mar. 31		Dec. 31		Sept. 30			June 30		Mar. 31
	(Dollars in thousands)
Interest income	$	25,894		$	25,070	$	24,486		$	21,029	$	20,093	$	18,120		$	17,310	$	16,919
Interest expense		14,385			14,072		12,885			10,995		10,123		8,745			8,171		8,083
Net interest income		11,509			10,998		11,601			10,034		9,970		9,375			9,139		8,836
Provision for loan losses		(1,875	)		1,595		(417	)		1,167		124		1,047			1,340		—
Income after provision for loan losses		13,384			9,403		12,018			8,867		9,846		8,328			7,799		8,836
Non-interest income		7,146			8,817		9,344			11,896		8,322		2,157			9,122		13,533
Net revenue		20,530			18,220		21,362			20,763		18,168		10,485			16,921		22,369
Non-interest expense		14,579			13,494		12,402			12,611		12,534		9,973			10,533		11,102
Income before income taxes		5,951			4,726		8,960			8,152		5,634		512			6,388		11,267
Provision for income taxes		609			235		621			677		166		(152	)		603		629
Net income	$	5,342		$	4,491	$	8,339		$	7,475	$	5,468	$	664		$	5,785	$	10,638

Sources of Funds

Capital Markets Access

NCB maintains credit facilities provided by a consortium of banks. At both December 31, 2005 and 2004, NCB had $350.0 million of committed revolving lines of credit, of which there was none outstanding at December 31, 2005 and $47.5 million outstanding at December 31, 2004. In addition, NCB had uncommitted bid lines (borrowing facilities in which no commitment fee is paid and where the other party is not committed to lend to NCB) of $22.5 million at both December 31, 2005 and 2004 of which there was none outstanding at December 31, 2005 and December 31, 2004.

NCB, FSB is a member of the Federal Home Loan Bank of Cincinnati, Ohio (FHLB) and it has a pledge agreement with FHLB requiring advances to be secured by eligible mortgages with a principal balance of 135%-300% of such advances. NCB, FSB

24

had $98.8 million in available unused committed borrowing capacity with the FHLB as of December 31, 2005. There were outstanding advances of $181.6 million and $200.5 million at December 31, 2005 and 2004, respectively.

At both December 31, 2005 and 2004, NCB had authority to issue up to $250.0 million in commercial paper. As of year-end 2005 and 2004, the face value of the commercial paper outstanding was $132.2 million and $149.9 million, respectively.

Usage on all short-term borrowings, as measured by average outstanding balances during the year, increased from $273.9 million in 2004 to $332.5 million in 2005.

As of December 31, 2005 and 2004, NCB had authority to issue up to $176.0 million under a medium-term note program. As of December 31, 2005 and 2004, NCB had $40.0 million outstanding under this program.

At both December 31, 2005 and 2004, NCB had authority to issue up to $50.0 million in preferred stock or subordinated debt. There was no preferred stock or subordinated debt under this authority outstanding as of December 31, 2005 and 2004.

NCB’s loan sale activity is another source of funding. NCB originates most of its real estate cooperative multifamily loans, originated by NCB, FSB, for sale into the secondary market. During 2005 NCB sold $961.6 million of loans compared with $692.4 million during 2004.

NCB sells investment securities available-for-sale. During 2005, there were no mortgage-backed securities sold and during 2004, NCB sold $80.9 million mortgage-backed securities that were created from a swap with Fannie Mae.

Deposits

Deposits held by NCB, FSB increased 21.7% to $737.4 million at December 31, 2005 from $605.9 million at December 31, 2004. The weighted average rates on deposits at December 31, 2005 and 2004 were 3.5% and 2.4%, respectively. Deposits consist of both nonmaturity deposits having no contractual terms or maturity dates and certificates of deposits that do have contractual terms. Nonmaturity deposits may be interest-bearing or noninterest bearing. Nonmaturity deposits totaled $246.1 million and comprised 33.4% of total deposits at December 31, 2005 as compare to $244.6 million and 40.4% of total deposits at December 31, 2004 certificates of deposits totaled $491.3 million and $361.4 million at December 31, 2005 and 2004, respectively. The average maturity of the certificates of deposit at December 31, 2005 was 25.1 months compared with 23.1 months at December 31, 2004. Deposits were 52.0% of interest bearing liabilities in 2005 compared with 44.7% in 2004.

Uses of Funds

Loans and Leases

Loans and leases outstanding, including loans held for sale, increased 5.5% to $1.5 billion at December 31, 2005 from $1.4 billion at December 31, 2004.

The commercial loan and lease portfolio increased 6.1% to $553.8 million at December 31, 2005 compared with $522.0 million at December 31, 2004 due principally to an increase in commercial loan and lease portfolio loan originations.

The real estate portfolio increased 20.2% to $685.0 million at December 31, 2005 from $569.5 million at December 31, 2004 due to an increase in portfolio real estate loan originations during 2005. The real estate portfolio is substantially composed of multifamily cooperative mortgages, single-family mortgages and cooperative single-family loans.

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 will 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 less the realizable value of collateral.

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The commercial and real estate loan portfolio and loans held for sale are diversified both in terms of industry and geography. The following is the distribution of the loans outstanding at December 31:

	Commercial Loans				Real Estate Loans
	2005		2004		2005		2004
By Region:
North East		22.0%		18.5%		46.8%		58.2%
South East		23.4%		20.6%		15.9%		14.5%
Central		16.1%		13.2%		12.3%		9.5%
West		38.5%		47.7%		25.0%		17.8%
		100.0%		100.0%		100.0%		100.0%

		Percentage of Total
		Loan Portfolio
		2005		2004
By Borrower Type:
Real Estate
	Residential		57.4%		53.8%
	Commercial		7.7%		5.7%
Commercial
	Food retailing and distribution		11.5%		14.4%
	Employee Stock Ownership Plan		3.8%		4.2%
	Franchisee		0.3%		2.3%
	Hardware		1.4%		2.6%
	Financial Services		2.9%		1.2%
	Alaska Native Corporations		1.1%		2.2%
	Healthcare		3.0%		2.4%
	Non-Profit		1.5%		1.0%
	Lease Financing		0.8%		1.2%
	Other		8.6%		9.0%
			100.0%		100.0%

NCB originates multi-family cooperative mortgages to predominantly owner-occupied housing cooperatives. A significant portion of NCB’s mortgage loans is secured by real estate in New York City due to the city’s extensive cooperative market. As of December 31, 2005 and 2004, there were $350.0 million and $385.5 million of real estate loans secured by real estate in New York City, respectively, representing 23% and 27% of total loans and leases outstanding, respectively. The collateral for real estate loans consists of first mortgage liens on the land and improvements of cooperatively owned, multi-family residential properties and property leases. Furthermore, the real estate portfolio includes loans secured by second mortgage liens. In addition, certain unsecured lines of credit have been issued to Real Estate cooperative borrowers. The loans are repaid from operations of the real estate cooperative. NCB’s exposure to credit loss in the event of nonperformance by other parties to the loans is the carrying amounts of the loans less the value of the collateral.

See Table 7 for the maturity schedule of loans.

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Table 7

MATURITY SCHEDULE OF LOANS

As of December 31, 2005

		One Year		One to		Over
		or Less		Five Years		Five Years		Total
		(Dollars in thousands)
Consumer loans		$	11,521	$	9,219	$	4,219	$	24,959
Commercial loans			51,341		146,158		351,665		549,164
Real estate loans:
	Residential		12,334		37,793		582,055		632,182
	Commercial		2,564		6,801		43,404		52,769
Lease financing			718		3,911		—		4,629
Total loans and leases		$	78,478	$	203,882	$	981,343	$	1,263,703
Fixed interest rate loans		$	23,020	$	47,328	$	155,905	$	226,253
Variable interest rate loans			55,458		156,554		825,438		1,037,450
Total Loans		$	78,478	$	203,882	$	981,343	$	1,263,703

Cash, Cash Equivalents and Investment Securities

Cash, cash equivalents, and investment securities decreased 2.2% or $3.0 million to $133.7 million at December 31, 2005 compared with $136.7 million at December 31, 2004. The decrease resulted primarily from lower cash balances in 2005 as a result of an increase in loan originations during 2005 compared to 2004. NCB held $1.2 million and $1.2 million of mortgage-backed securities at December 31, 2005 and 2004, respectively. Cash, cash equivalents, and investment securities represent 8.3% of interest earning assets at December 31, 2005 compared with 8.8% at December 31, 2004.

Asset and Liability Management

Asset and liability management is the structuring of interest rate sensitivities of an entity’s assets and liabilities in order to manage the impact of changes in market interest rates on net interest income. NCB’s liquidity and internal rate of return are managed by the Asset Liability Committee (“ALCO”), composed of senior officers of NCB, which meets monthly. The fundamental role of the ALCO is to devise and implement business strategies designed to enhance earnings and the economic value of equity while simultaneously maintaining a prudent level of exposure to interest rate risk. The ALCO devises balance sheet strategies for managing loans, investments, deposits, borrowed funds and off-balance sheet transactions to achieve desired financial performance. The committee also develops strategies for pricing various products and services as well as ensuring compliance with related Board policies and established regulatory requirements.

Liquidity and Capital Resources

Liquidity is the ability to meet financial obligations either through the sale or maturity of existing assets or through the raising of additional funds. Maintaining adequate liquidity therefore requires careful coordination of the maturity of assets and liabilities.

Maintaining near-cash and short-term investments that can be converted to cash at little or no cost generally provides our asset liquidity. We manage liquidity and capital resources in order to provide funding for various types of loans, including commercial, real estate and consumer loans, and debt service on borrowings. The major sources of funds are loan sale proceeds, deposits from customers, repayments of loan originations and advances from the FHLB and other borrowings. The principal uses of cash are loan originations and purchases of investment securities. Additionally, NCB maintains a $350.0 million revolving line of credit under which the entire line was available at December 31, 2005.

For the year ended December 31, 2005, NCB’s primary source of funds was from loan sale proceeds. NCB sold $961.6 million and $692.4 of loans, resulting in a net gain of $26.4 million and $18.3 million for the years ended December 31, 2005 and 2004, respectively. Loans sold include mortgage loans for securitization, single family and cooperative single-family loans,

27

SBA loans and other loan sales. Mortgage loans for securitization were the majority of the loan sales comprising of $563.8 million or 58.6% and $493.1 or 71.2% for the years ended December 31, 2005 and 2004, respectively.

Total deposits, one of the other principal sources of funds, were $737.4 million and $605.9 million for the years ended December 31, 2005 and 2004, respectively. The majority of deposits are in the form of certificates of deposit, which accounted for $491.3 million or 66.6% and $361.4 million or 59.6% of our deposits as of December 31, 2005 and 2004, respectively. The aggregate amount of certificates of deposit with a minimum denomination of $100 thousand was $335.2 million and $229.3 million for the years ended December 31, 2005 and 2004, respectively. Interest-bearing demand deposits accounted for $212.5 million or 28.8% and $197.7 million or 32.6% of our total deposits as of December 31, 2005 and 2004, respectively. The average rate paid on NCB’s certificates of deposit was 3.99% and 3.12% for the years ended December 31, 2005 and 2004, respectively. The average rate paid on the interest-bearing demand deposits was 2.8% and 1.7% for the years ended December 31, 2005 and December 31, 2004, respectively.

For the year ended December 31, 2005, our principal use of funds was loans originated for the purpose of selling in the near future. During 2005, we originated $842.1 million of loans held for sale.

We utilized particular sources of funds based on comparative costs and availability. We generally manage the pricing of deposits to maintain a steady to increasing deposit portfolio in the aggregate. Based on warehouse funding requirements, we use the borrowing facility available from the FHLB. As of December 31, 2005, the balance of the FHLB facility was $181.6 million as compared to $200.5 million as of December 31, 2004.

As of December 31, 2005, there was $43.0 million of cash and equivalents, which was a decrease of $4.4 million from December 31, 2004. The decrease is primarily attributable to more cash used in 2005 on loan originations. As of December 31, 2005, we also had $5.2 million of cash that was in a restricted cash account as a result of a recourse obligation as discussed in Note 7.

Contractual Obligations

NCB has various financial obligations, including contractual obligations that may require future cash payments. Further discussion of the nature of each obligation is included in Notes 13 through 18 of the Notes to the Consolidated Financial Statements.

The following table presents, as of December 31, 2005, significant fixed and determinable contractual obligations to third parties by payment date (dollars in thousands):

	One Year		One to		Three to		Over
	or Less		Three Years		Five Years		Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	246,051	$	—	$	—	$	—	$	246,051
Certificates of deposit(1)		223,034		169,080		91,322		44,293		527,729
Short-term borrowings(2)		313,353		—		—		—		313,353
Long-term debt(2)		91,029		13,931		108,126		17,196		230,282
Subordinated debt(2)		6,952		13,632		34,369		109,844		164,797
Junior subordinated debt(2)		2,139		4,278		4,278		100,790		111,485
Operating leases		717		3,852		59		—		4,628
Total	$	883,275	$	204,773	$	238,154	$	272,123	$	1,598,325

(1)	Includes interest at the weighted average interest rate of the certificate.
(2)	Includes interest at the weighted average to be paid over the remaining term of the debt.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

Discussion of NCB’s commitments, contingent liabilities and off-Balance sheet arrangements is included in Note 24 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NCB’s principal market risk exposure is to interest rates.

NCB’s asset and liability management process manages NCB’s interest rate risk by structuring of the balance sheet and derivative portfolios to maximize net interest income while maintaining an acceptable level of risk to changes in market interest rates. The achievement of this goal requires a balance between profitability, liquidity, and interest rate risk.

Interest rate risk is managed by the “ALCO” in accordance with policies approved by NCB’s Board of Directors. The ALCO formulates strategies designed to ensure appropriate level of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates and liquidity, business strategies, and other factors. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activity, warehouse loans and commitments to originate loans (“mortgage pipeline”), and the maturities of investments and borrowings. Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of deposits, and consumer and commercial deposit activity.

To effectively measure and manage interest rate risk, NCB uses simulation analyses to determine the impact on net interest income of various interest rate scenarios, balance sheet trends, and strategies. From these simulations, interest rate risk is quantified and appropriate strategies are developed and implemented. Additionally, duration and market value sensitivity measures are utilized to provide additional insights concerning the interest rate risk management process. Executive management and NCB’s Board of Directors review the overall interest rate risk position and strategies on an ongoing basis. NCB has traditionally managed its business to maintain limited exposure to changes in interest rates.

NCB hedges a portion of its interest rate risk by entering into certain financial instruments including interest rate swaps, caps, floors, financial options, financial futures contracts, and forward delivery contracts. A hedge is a transaction to reduce risk by creating a relationship whereby changes in the value of the hedged asset or liability are offset in whole or in part by changes in the value of the financial instrument used for hedging. The impact of all hedging relationships is included in the following analysis.

The following tables present an analysis of the sensitivity NCB’s net interest income and economic value of portfolio equity (market value of assets, less liabilities and derivative instruments.) The interest rate scenarios presented in the table include interest rates at December 31, 2005 and December 31, 2004 as adjusted for instantaneous parallel rate changes upward and downward of up to 200 basis points.

Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, this analysis is not intended to be a forecast of the actual effect of a change in market interest rates. The net interest income variability reflects NCB’s interest sensitivity gap (defined below) and other factors.

2005
		Change In
Change In	Change In	Economic Value
Interest Rates	Net Interest Income	of Portfolio Equity
+200	2.0%	-6.3%
+100	1.2%	-2.8%
-100	-1.6%	1.5%
-200	-3.6%	3.1%

2004
		Change In
Change In	Change In	Economic Value
Interest Rates	Net Interest Income	of Portfolio Equity
+200	6.2%	-0.4%
+100	3.3%	0.3%
-100	-3.6%	-0.8%
-200	Not Meaningful	Not Meaningful

29

Key assumptions used in the sensitivity analysis of net interest income and economic value of portfolio equity include the following:

1. Balance sheet balances for various asset and liability classes are held constant for the net interest income simulations.

2. Prepayment assumptions are predicated on an analysis of historical prepayment behavior and management expectations.

3. Spread relationships between various interest rate indices and interest-earning assets and interest bearing liabilities estimated based on the analysis of historical relationships and management expectations.

The interest rate sensitivity gap (“gap”) is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. During a period of rising interest rates, a positive gap (where the amount of assets maturing and repricing within one year exceeds liabilities maturing or repricing within one year) would tend to have a positive impact on net interest income while a negative gap would tend to have a detrimental impact. During a period of declining interest rates, a negative gap would tend to have a positive impact on net interest income while a positive gap would tend to have a detrimental impact. NCB’s one-year cumulative gap analysis at December 31, 2005 and 2004 were positive $75.2 million or 4.43% of assets and positive $151.1 million or 9.3% of assets, respectively.

While the gap position is a useful tool in measuring interest rate risk, it is difficult to predict the effect of changing interest rates solely on that measure, without accounting for alterations in the maturity or repricing characteristics of the balance sheet that occur during changes in market interest rates. For example, the gap position reflects only the prepayment assumptions pertaining to the current rate environment. Assets tend to prepay more rapidly during periods of declining interest rates than during periods of rising interest rates. Because of this and other risk factors not contemplated by the gap position, an institution could have a matched gap position in the current rate environment and still have its net interest income exposed to interest rate risk.

The tables 8 and 9 set forth the expected maturity and repricing characteristics of NCB’s consolidated assets, liabilities and derivative contracts at December 31, 2005 and 2004.

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Table 8

INTEREST RATE SENSITIVITY

At December 31, 2005

																	Over
																	12 Months
		Interest-			Interest-			Interest-			Interest-			Interest-			and
		sensitivity			sensitivity			sensitivity			sensitivity			sensitivity			Non-Interest
		30 Days			3 Month			6 Month			12 Month			Total			Sensitive		Total
		(Dollars in thousands)
Interest-earning assets
	Cash and cash equivalents	$	11,835		$	—		$	—		$	—		$	11,835		$	36,317	$	48,152
	Investment securities		8,273			10,362			4,834			5,917			29,386			61,337		90,723
	Loans and leases*		136,687			453,800			70,805			105,786			767,078			708,456		1,475,534
Other assets — net			16,094			385			585			1,200			18,264			61,894		80,158
Total			172,889			464,547			76,224			112,903			826,563			868,004		1,694,567
Interest-bearing liabilities
	Deposits	$	178,660		$	68,208		$	41,248		$	78,905			367,021		$	344,436	$	711,457
	Short-term borrowings		288,271			24,611			—			—			312,882			—		312,882
	Long-term debt		—			20,000			5,000			55,000			80,000			113,041		193,041
	Subordinated debt		—			39,310			—			27,564			66,874			56,243		123,117
	Jr. Subordinated debt		50,614			—			—			—			50,614			—		50,614
Total			517,545			152,129			46,248			161,469			877,391			513,720		1,391,111
Other
	Other non-interest bearing, net		—			—			—			—			—			303,456		303,456
	Effect of interest rate swap and financial futures		(14,722	)		(71,258	)		—			(40,000	)		(125,980	)		125,980		—
Total liabilities & members’ equity, net of derivatives		$	502,823		$	80,871		$	46,248		$	121,469		$	751,411		$	943,156	$	1,694,567
Repricing differences		$	(329,934	)	$	383,676		$	29,976		$	(8,566	)	$	75,152
Cumulative gap		$	(329,934	)	$	53,742		$	83,718		$	75,152
Cumulative gap as % of total assets			(19.47	)%		3.17	%		4.94	%		4.43	%

*  Includes loans held for sale, net allowance for loan losses.

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Table 9

INTEREST RATE SENSITIVITY

At December 31, 2004

																	Over
																	12 Months
		Interest-			Interest-			Interest-			Interest-			Interest-			and
		sensitivity			sensitivity			sensitivity			sensitivity			sensitivity			Non-Interest
		30 Days			3 Month			6 Month			12 Month			Total			Sensitive		Total
		(Dollars in thousands)
Interest-earning assets
	Cash and cash equivalents	$	52,385		$	—		$	—		$	—		$	52,385		$	—	$	52,385
	Investment securities		7,156			11,315			3,614			5,165			27,250			62,097		89,347
	Loans and leases*		364,087			201,910			62,943			92,484			721,424			679,532		1,400,956
Other assets — net			193			390			591			1,203			2,377			67,805		70,182
Total			423,821			213,615			67,148			98,852			803,436			809,434		1,612,870
Interest-bearing liabilities
	Deposits	$	115,225		$	53,835		$	45,600		$	59,181			273,841		$	292,680	$	566,521
	Short-term borrowings		350,929			46,000			—			—			396,929			—		396,929
	Long-term debt		—			20,000			—			30,000			50,000			125,215		175,215
	Subordinated debt		—			39,310			—			20,718			60,028			65,555		125,583
	Jr. Subordinated debt		50,580			—			—			—			50,580			—		50,580
Total			516,734			159,145			45,600			109,899			831,378			483,450		1,314,828
Other
	Other non-interest bearing, net		—			—			—			—			—			298,042		298,042
	Effect of interest rate swap and financial futures		(42,507	)		(135,443	)		—			—			(177,950	)		177,950		—
Total liabilities & members’ equity, net of derivatives		$	474,227		$	23,702		$	45,600		$	109,899		$	653,428		$	959,442	$	1,612,870
Repricing differences		$	(50,406	)	$	189,913		$	21,548		$	(11,047	)	$	150,008
Cumulative gap		$	(50,406	)	$	189,913		$	21,548		$	(11,047	)
Cumulative gap as % of total assets			(3.13	)%		8.65	%		9.99	%		9.30	%

*  Includes loans held for sale, net allowance for loan losses.

Table 8 indicates that on December 31, 2005 NCB had gaps (as a percentage of total assets) of positive 4.43% and 4.94% at the one year and six month time horizons, respectively. Table 9 indicates that on December 31, 2004, NCB had a positive gap (as a percentage of total assets) of 9.30% and 9.99% at the one year and six month time horizons, respectively.

Capital

The company’s strong capital position should support growth and continuing access to financial markets and should allow for greater flexibility during difficult economic periods. The average equity to average assets was 13.0% at December 31, 2005 compared with 13.7% at December 31, 2004. The Act limits NCB’s outstanding debt to ten times its capital and surplus (including the subordinated debt). As of December 31, 2005, NCB, FSB maintained capital levels well in excess of regulatory requirements.

Patronage Policy

Each year, NCB, in accordance with the Act, declares patronage dividends approximately equal to its taxable net income thereby substantially reducing its Federal income tax. In September 2005, NCB distributed $20.9 million to its active member-borrowers. Of this total, approximately $8.7 million was distributed in cash.

32

Critical Accounting Policies

Allowance for Loan Losses

The allowance for loan losses is an estimate of known and inherent losses in our loan portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standards (SFAS) No. 5 “Accounting for Contingencies,” which requires that losses be accrued when they are probable of having occurred and reasonably estimable and (ii) SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the balance of loans which are impaired.

A loan is considered impaired when, based on current information, it is probable NCB will be unable to collect all amounts due under the contractual terms of the loan. Impairment is measured based upon the present value of future cash flows discounted for at the loan’s effective interest rate; or, the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.

Specific reserves are established for impaired loans based upon the above criteria or other loans criticized based upon established regulatory standards.

General reserves are calculated on a loan-by-loan basis based upon the probability of the default and the loss in the event of default for each risk rating, based on historical experience.

The unallocated allowance captures losses that are attributable to various economic events, industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in either the general or specific reserves. In determining the unallocated allowance NCB considers the recent loan loss experience, trends in credit quality and concentration and specific industry conditions within portfolio segments.

All loans are evaluated individually based upon risk rating assigned to the loan. A risk rating system is designed to classify each loan according to the risk unique to the credit facility. The expected loss for each risk rating is determined using historical loss factors and collateral position of the credit facility.

NCB charges off loans, i.e. reduces the loan balance, when the loans are deemed to be uncollectible at which time the allowance for loan losses is reduced.

Servicing Assets and Interest-Only Receivables

SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” (SFAS No. 140) requires that entities that acquire servicing assets through either purchase or origination of loans and sell or securitize those loans with servicing assets retained must allocate the total cost of the loans to the servicing assets and the loans (without the servicing assets) based on their relative fair value.

Servicing assets, stated net of accumulated amortization, are amortized in proportion to the remaining net servicing revenues estimated to be generated by the underlying loans. Furthermore, servicing assets are assessed for impairment based on lower of cost or fair value. In addition, mortgage-servicing assets must be stratified based on one or more predominant risk characteristics of the underlying loans and impairment is recognized through a valuation allowance for each impaired stratum.

Interest-only receivables are created when loans are sold and a portion of the interest retained by NCB does not depend on the servicing work being performed. The interest-only receivables are amortized to interest income using the interest method. Interest-only receivables that are certificated have been included as investment securities consistent with SFAS No. 115. Interest-only receivables that are not certificated are included as other assets.

Substantially all interest-only receivables pertain to cooperative multifamily loans made to cooperative housing corporations. These mortgages are typically structured with prepayment lockouts followed by prepayment penalties, yield maintenance provisions, or defeasance through maturity. In calculating interest-only receivables, NCB discounts the cash flows through the lockout or defeasance period. Cash flows beyond the lockout or defeasance period are included in the fair value of the interest-only receivable only to the extent that NCB is entitled to receive the prepayment or yield maintenance penalty.

33

Interest-only receivables that are certificated have been included as investment securities consistent with SFAS No. 115. Interest-only receivables that are not certificated are included as other assets.

Gains or losses on sales and securitizations depend, in part, on the previous carrying amount of the loans involved in the transfer and are allocated between the loans sold and the retained interests based on their relative fair value at the date of sale. Since quoted market prices are generally not available, NCB usually estimates fair value of these interest-only receivables by determining the present value of future expected cash flows using modeling techniques that incorporate management’s best estimates of key variables, including credit losses, prepayment speeds, prepayment lockouts and discount rates commensurate with the risks involved. Gains on sales and securitizations are reported in non-interest income.

The fair value of the interest-only receivables is determined using discounted future expected cash flows at various discount rates. In an effort to maximize the value of interest-only receivables, most cooperative mortgages have very strict prepayment restrictions. The most common prepayment protection is a lockout period, followed by either a fixed percentage penalty, or some form of yield maintenance. For loans that do not have prepayment options, the related interest-only receivable is adjusted at the time of prepayment.

The original discount rate varies for each loan sale transaction. The discounted rate of future expected cash flows is equal to a spread over the benchmark index at which the respective loans were priced. For quarterly valuations, the index is adjusted to reflect market conditions. An appropriate spread determined by Management is added to the index to determine the current discount rate.

The weighted average life of each interest-only receivable will vary based on the average life of the underlying collateral.

Interest-only receivables that are subject to prepayment risk such that NCB may not recover substantially all of its investment are recorded at fair value with subsequent adjustments reflected in other comprehensive income or in earnings if the fair value of the interest-only receivable has declined below its carrying amount and such decline has been determined to be other than temporary.

Accounting for Derivative Instruments and Hedging Activities

Effective January 1, 2001, NCB adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) as amended.

NCB maintains a risk management strategy that includes the use of derivative instruments to reduce unplanned earnings fluctuations caused by interest rate volatility. Use of derivative instruments is a component of NCB’s overall risk management strategy in accordance with a formal policy that is monitored by management, which has delegated authority over the interest rate risk management function.

The derivative instruments utilized include interest rate swaps, futures contracts and forward loan sales commitments. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties based upon a notional principal amount and maturity date. Interest rate futures generally involve exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the future at specified prices. Forward loan sales commitments lock in the prices at which loans will be sold to investors.

NCB uses interest rate swaps, futures contracts and forward loan sales commitments to offset changes in fair value associated with loan commitments prior to funding the related or underlying loan. During the commitment period, the loan commitments and related interest rate swaps, futures contracts and forward loan sales commitments are accounted for as derivatives and therefore recorded at fair value through income. Once funded the loan generally becomes the hedged item in a fair value hedging relationship.

NCB is exposed to credit and market risk as a result of its use of derivative instruments. If the fair value of the derivative contract is positive, the counterparty owes NCB and a repayment risk exists. If the fair value of the derivative contract is negative, NCB owes the counterparty, so there is no repayment risk. NCB minimizes repayment risk by entering into transactions with financially stable counterparties that are specified by policy and reviewed periodically by management. When NCB has multiple derivative transactions with a single counterparty, the netmark-to-market exposure represents the netting of positive and negative exposures with that counterparty. The netmark-to-market exposure with a counterparty is a measure of credit risk when there is a legally enforceable master netting agreement between NCB and the counterparty. NCB uses master netting agreements with the majority of its counterparties.

34

Market risk is the adverse effect that a change in interest rates, credit risk or comparative currency values has on the fair value of a financial instrument or expected cash flows. NCB manages the market risk associated with the interest rate hedge contracts by establishing formal policy limits concerning the types and degree of risk that may be undertaken. Compliance with this policy is monitored by management and reported to the Board of Directors.

All derivatives are recognized on the balance sheet at fair value. When a derivative contract is entered into, NCB determines whether or not it qualifies as a hedge. If the derivative contract qualifies as a hedge, NCB designates the derivative as a hedge of the fair value of a recognized asset or liability. At December 31, 2005 and 2004 NCB had not entered into any cash flow hedges.

For all derivative instruments the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized in current earnings during the period of the change in fair values.

When entering into hedging transactions, NCB documents the relationships between the hedging instruments and the hedged items to link all derivatives that are designated as fair value hedges to specific assets and liabilities on the balance sheet. NCB assesses, both at inception and on anon-going basis, the effectiveness of all hedges in offsetting changes in fair values of hedged items.

NCB discontinues hedge accounting prospectively when (1) the derivative is no longer effective in offsetting changes in fair value of a hedged item; or (2) the derivative matures or is sold, terminated or exercised.

When hedge accounting is discontinued because the derivative no longer qualifies as an effective fair value hedge, it will continue to be carried on the balance sheet at its fair value and the hedged asset or liability will no longer be adjusted to reflect changes in fair value attributed to the hedged risk. In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value with the changes in fair value recognized in earnings.

Income Taxes

The Act provides that NCB shall be treated as a cooperative and subject to the provisions of Subchapter T of the Internal Revenue Code. Under Subchapter T and the Act, NCB issues its member-borrowers patronage dividends, which are tax deductible to NCB thereby reducing its taxable income. NCB has determined that all income generated by NCB and its subsidiaries, with the exception of certain income of NCB, FSB, qualifies as patronage income under the Internal Revenue Code as amended by the Act with respect to NCB, with the consequence that NCB is able to issue tax deductible patronage refunds with respect to all such income. The Act also provides that NCB is exempt from state and local taxes with the exception of real estate taxes. Certain NCB subsidiaries, however, are subject to federal and state income taxes.

NCB provides for income taxes under SFAS No. 109, “Accounting for Income Taxes.” The asset and liability approach of SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts of the existing assets and liabilities and their respective tax bases.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NCB’s financial statements and notes thereto are set forth beginning on the following page. NCB is not subject to any of the requirements for supplementary financial information contained in Item 302 of Regulation S-K.

36

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Members of National Cooperative Bank:

We have audited the accompanying consolidated balance sheets of National Cooperative Bank and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income, comprehensive income, changes in members’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Cooperative Bank and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

McLean, Virginia

March 29, 2006

37

NATIONAL COOPERATIVE BANK

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004

			2005			2004
			(Dollars in thousands)
ASSETS
Cash and cash equivalents			$	43,001		$	47,388
Restricted cash				5,151			4,997
Investment securities
	Available-for-sale (amortized cost of $89,620 and $86,621)			89,083			87,267
	Held-to-maturity (fair value of $1,669 and $1,809)			1,640			1,739
Loans held for sale				232,024			303,289
Loans and lease financing				1,263,703			1,114,658
	Less: Allowance for loan losses			(20,193	)		(16,991	)
	Net loans and lease financing			1,243,510			1,097,667
Other assets				80,158			70,523
Total assets			$	1,694,567		$	1,612,870
LIABILITIES AND MEMBERS’ EQUITY
Liabilities
Deposits			$	737,383		$	605,927
Patronage dividends payable in cash				9,518			8,573
Other liabilities				49,004			44,573
Borrowings
	Short-term			312,882			396,929
	Long-term
		Current		80,000			30,000
		Non-current		113,041			145,215
	Subordinated debt
		Current		2,500			2,500
		Non-current		120,617			123,083
	Junior subordinated debt			50,614			50,580
	Total borrowings			679,654			748,307
	Total liabilities			1,475,559			1,407,380
Members’ equity
Common stock				170,868			160,475
Retained earnings
	Allocated			13,307			12,340
	Unallocated			33,423			29,112
Accumulated other comprehensive income				1,410			3,563
	Total members’ equity			219,008			205,490
	Total liabilities and members’ equity		$	1,694,567		$	1,612,870

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

38

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2005, 2004, and 2003

			2005			2004		2003
			(Dollars in thousands)
Interest income
	Loans and lease financing		$	88,296		$	64,245	$	55,608
	Investment securities			5,090			4,615		5,205
	Other interest income			3,093			3,582		4,133
		Total interest income		96,479			72,442		64,946
Interest expense
	Deposits			21,036			13,152		9,483
	Short-term borrowings			12,538			6,153		3,440
	Long-term debt, other borrowings and subordinated debt			18,763			15,817		17,859
		Total interest expense		52,337			35,122		30,782
	Net interest income			44,142			37,320		34,164
Provision for loan losses				470			2,511		2,535
	Net interest income after provision for loan losses			43,672			34,809		31,629
Non-interest income
	Gain on sale of loans			26,377			18,346		31,957
	(Loss) gain on sale of investments available-for-sale			(13	)		3,470		2,972
	Servicing fees			4,202			3,975		4,460
	Letter of credit fees			3,454			3,821		3,002
	Gain on extinguishment of debt			—			—		3,731
	Other			3,183			3,522		6,530
		Total non-interest income		37,203			33,134		52,652
Non-interest expense
	Compensation and employee benefits			29,001			23,777		24,422
	Contractual services			6,399			5,006		6,158
	Occupancy and equipment			5,861			5,195		5,098
	Corporate development			2,942			1,756		2,311
	Information systems			2,702			2,570		2,386
	Travel and entertainment			1,596			1,569		1,525
	Provision for unfunded commitments			791			724		(599	)
	Contribution to NCB Development Corporation			750			500		1,000
	Write down of loans held for sale			—			—		1,360
	Other			3,044			3,045		5,351
		Total non-interest expense		53,086			44,142		49,012
Income before income taxes				27,789			23,801		35,269
Provision for income taxes				2,142			1,246		2,450
Net income			$	25,647		$	22,555	$	32,819
Distribution of net income
	Patronage dividends		$	22,825		$	21,207	$	28,205
	Retained earnings			2,822			1,348		4,614
			$	25,647		$	22,555	$	32,819

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

39

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2005, 2004, and 2003

		2005			2004			2003
		(Dollars in thousands)
Net income		$	25,647		$	22,555		$	32,819
Other comprehensive income
	Unrealized holding loss before tax on available-for-sale investment securities and non-certificated interest-only receivables		(2,163	)		(468	)		(3,600	)
	Tax effect		10			13			1
Comprehensive income		$	23,494		$	22,100		$	29,220

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

40

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

For the Years Ended December 31, 2005, 2004, and 2003

											Accumulated Other
					Retained Earnings			Retained Earnings			Comprehensive			Total Members’
		Common Stock			Allocated			Unallocated			Income			Equity
		(Dollars in thousands)
Balance, December 31, 2002		$	140,276		$	10,199		$	17,385		$	7,617		$	175,477
Net income			—			—			32,819			—			32,819
Cancellation of stock			(613	)		36			410			—			(167	)
Other dividends paid			—			—			(349	)		—			(349	)
2002 patronage dividends distributed in stock			10,284			(10,284	)		—			—			—
2003 patronage dividends
	To be distributed in cash		—			—			(11,423	)		—			(11,423	)
	Retained in form of equity		—			16,782			(16,782	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes			—			—			—			(3,599	)		(3,599	)
Balance, December 31, 2003			149,947			16,733			22,060			4,018			192,758
Net income			—			—			22,555			—			22,555
Adjustment to prior year dividends			24			(24	)		73			—			73
Cancellation of stock			(6,362	)		(121	)		5,877			—			(606	)
Other dividends paid			—			—			(246	)		—			(246	)
2003 patronage dividends distributed in stock			16,866			(16,866	)		—			—			—
2004 patronage dividends
	To be distributed in cash		—			—			(8,589	)		—			(8,589	)
	Retained in form of equity		—			12,618			(12,618	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes			—			—			—			(455	)		(455	)
Balance, December 31, 2004			160,475			12,340			29,112			3,563			205,490
Net income			—			—			25,647			—			25,647
Adjustment to prior year dividends			96			(162	)		57			—			(9	)
Cancellation of stock			(1,881	)		—			1,881			—			—
Other dividends paid			—			—			(449	)		—			(449	)
2004 patronage dividends distributed in stock			12,178			(12,178	)		—			—			—
2005 patronage dividends
	To be distributed in cash		—			—			(9,518	)		—			(9,518	)
	Retained in form of equity		—			13,307			(13,307	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes			—			—			—			(2,153	)		(2,153	)
Balance, December 31, 2005		$	170,868		$	13,307		$	33,423		$	1,410		$	219,008

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

41

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005, 2004, and 2003

			2005			2004			2003
			(Dollars in thousands)
Cash flows from operating activities
Net income			$	25,647		$	22,555		$	32,819
Adjustments to reconcile net income to net cash provided by (used in) operating activities
	Provision for loan losses			470			2,511			2,535
	Provision for losses on unfunded commitments			791			724			(599	)
	Amortization of interest-only-receivables and servicing rights			10,200			9,070			10,292
	Depreciation and amortization, other			1,730			3,681			3,560
	Gain on sale of loans			(26,377	)		(18,346	)		(31,957	)
	Loss (gain) on sale of investment securities available-for-sale			13			(3,470	)		(2,972	)
	Purchase of loans-held-for-sale			(59,887	)		—			—
	Loans originated for sale, net of principal collections			(842,329	)		(717,111	)		(820,073	)
	Proceeds from sale of loans held for sale			989,646			625,806			747,328
	Write down of loan held for sale			—			—			1,360
	Increase in other assets			(9,345	)		(2,800	)		(6,448	)
	Increase (decrease) in other liabilities			5,491			(19,665	)		(6,915	)
Net cash provided by (used in) operating activities				96,050			(97,045	)		(71,070	)
Cash flows from investing activities
	(Increase) decrease in restricted cash			(154	)		4,028			(4,175	)
	Purchase of investment securities
		Available-for-sale		(59,430	)		(116,083	)		(45,488	)
		Held-to-maturity		—			(1,470	)		(75	)
	Proceeds from maturities of investment securities
		Available-for-sale		43,754			107,337			37,509
		Held-to-maturity		99			52			3,439
	Proceeds from the sale of investment securities
		Available-for-sale		7,285			81,207			52,931
	Net increase in loans and lease financing			(145,789	)		(155,851	)		(80,548	)
	Purchases of portfolio loans			—			(33,186	)		(50,028	)
	Purchases of premises and equipment			(1,895	)		(946	)		(1,740	)
Net cash used in investing activities				(156,130	)		(114,912	)		(88,175	)
Cash flows from financing activities
	Net increase in deposits			131,456			118,706			118,256
	Net (decrease) increase in short-term borrowings			(84,099	)		147,294			28,924
	Proceeds from issuance of long-term debt			50,000			—			65,000
	Proceeds from issuance of junior subordinated debt			—			—			51,547
	Repayment of long-term debt			(30,000	)		(50,000	)		(59,000	)
	Repayment of subordinated debt			(2,500	)		—			(53,553	)
	Patronage dividend paid			(8,715	)		(11,382	)		(8,615	)
	Other dividend paid			(449	)		(246	)		(303	)
Net cash provided by financing activities				55,693			204,372			142,256
Decrease in cash and cash equivalents				(4,387	)		(7,585	)		(16,989	)
Cash and cash equivalents, beginning of period				47,388			54,973			71,962
Cash and cash equivalents, end of period			$	43,001		$	47,388		$	54,973

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

42

NATIONAL COOPERATIVE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
	(Dollars in thousands)
Supplemental schedule of non-cash investing and financing activities:
Unrealized loss on investment securities available-for-sale and non-certificated interest-only receivables, net of tax	$	(2,153	)	$	(455	)	$	(3,599	)
Loans transferred to other real estate owned	$	10		$	29		$	74
Warehouse loans transferred to portfolio	$	—		$	11,097		$	4,789
Transfer of grocery loans from warehouse to portfolio upon termination of the grocery loan conduit program with Rabobank International	$	—		$	23,826		$	—
Common stock cancelled and loan losses recovered against allowance for loan losses	$	—		$	606		$	135
Supplemental information:
Interest paid	$	52,596		$	41,963		$	39,039
Income taxes paid	$	1,763		$	1,080		$	3,049

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

43

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004 and 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

National Consumer Cooperative Bank, doing business as National Cooperative Bank (“NCB”), is a U.S. Government-chartered corporation organized under the National Consumer Cooperative Bank Act (the “Act”). NCB provides loans and financial services primarily to cooperatives. NCB Capital Corporation (“NCBCC”), previously named NCB Mortgage Corporation, a wholly owned subsidiary, originates, sells and services real estate and commercial loans primarily for cooperatives. NCB Financial Corporation (“NCBFC”), a wholly owned subsidiary, is the holding company of NCB, FSB, previously known as NCB Savings Bank, FSB, a federally-chartered thrift institution. EOS Financial Group, Inc., previously known as NCB Financial Advisors, Inc., a wholly owned subsidiary, provides independent, fee-based financial consulting services to the nonprofit community, including educational institutions, museums, membership groups and community-based organizations.

The 1981 amendments to the Act also provided for the formation of NCB Development Corporation (“NCBDC”), a related entity, which is a non-profit organization without capital stock organized under the laws of the District of Columbia pursuant to the Act. NCBDC provides loans and technical support to cooperative enterprises. NCBDC’s bylaws provide for a majority of the nine to fifteen members of the Board of Directors to be appointed by the members of NCBDC, who comprise the members of NCB’s Board, with a majority of directors to be appointed from among the members of the NCB Board. Consistent with the Act, NCB makes deductible, voluntary contributions to NCBDC.

Borrowers from NCB under section 108 of the Act are required to own Class B stock in NCB. Stock owned by a borrower may be cancelled by NCB, at NCB’s sole discretion, in case of certain events, including default.

Principles of Consolidation

The consolidated financial statements include the accounts of NCB and its subsidiaries. All significant inter-company balances and transactions have been eliminated. The consolidated financial statements of NCB do not include the assets, liabilities or results of operations of NCBDC or NCB Capital Trust I (“Trust”), a Delaware statutory trust formed by NCB in 2003 in connection with the issuance of trust preferred securities.

In December 2003, the FASB issued FASB Interpretation No 46R (“FIN 46R”), which revised FIN 46. FIN 46R clarifies the application of Accounting Research Bulletin No. 51 “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Due to the adoption of FIN 46R, NCB does not consolidate its investment in the Trust.

NCB has a 50% interest in Cooperative Community Works, LLC (“CCW”). The remaining 50% interest is held by an unconsolidated affiliate, NCBDC, which at all times has the power to appoint an officer or employee to be Chair of the Board of Managers. Under Accounting Research Bulletin No. 51 (As Amended), NCB’s interest in CCW does not amount to a controlling financial interest and thus CCW is not consolidated. Furthermore, NCB has concluded that CCW is not a variable interest entity since it does not meet conditions (a), (b) or (c) of paragraph 5 of FASB Interpretation No. 46 (Revised December 2003) (“FIN 46R”).

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

44

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

For purposes of reporting cash flow, cash equivalents include cash on hand, amounts due from banks, federal funds sold and overnight investments. Cash equivalents have original maturities of 90 days or less.

Concentration of Credit Risk

The Federal Deposit Insurance Corporation (FDIC) insures bank balances up to $100,000 per banking institution. At various times, the amounts on deposit in the various bank accounts are in excess of the FDIC limit. Management monitors these balances and believes they do not represent a significant credit risk to the bank.

Investments

Securities are accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS No. 115). SFAS No. 115 requires, among other things, for NCB to classify and account for debt and equity securities as follows:

Available-for-sale securities that will be held for indefinite periods of time, including those that may be sold in response to changes in market interest rates and related changes in the security’s prepayment risk, needs for liquidity and changes in the availability and the yield of alternative investments are classified as available-for-sale. These assets are carried at fair value. Unrealized gains and losses are determined on an aggregate basis, excluded from earnings and reported as other comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the adjusted cost of the specific security sold and are included in earnings.

Held-to-maturity securities that management has the positive intent and ability to hold until maturity are classified asheld-to-maturity and are reported at amortized cost.

Derivative Instruments and Hedging Activities

Effective January 1, 2001, NCB adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) as amended.

NCB maintains a risk management strategy that includes the use of derivative instruments to reduce unplanned earnings fluctuations caused by interest rate volatility. Use of derivative instruments is a component of NCB’s overall risk management strategy in accordance with a formal policy that is monitored by management, which has delegated authority over the interest rate risk management function.

The derivative instruments utilized include interest rate swaps, futures contracts and forward loan sales commitments. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties based upon a notional principal amount and maturity date. Interest rate futures generally involve exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the future at specified prices. Forward loan sales commitments lock in the prices at which loans will be sold to investors.

NCB uses interest rate swaps, futures contracts and forward loan sales commitments to offset changes in fair value associated with loan commitments prior to funding the related or underlying loan. During the commitment period, the loan commitments and related interest rate swaps, futures contracts and forward loan sales commitments are accounted for as derivatives and therefore recorded at fair value through income. Once funded the loan generally becomes the hedged item in a fair value hedging relationship.

NCB is exposed to credit and market risk as a result of its use of derivative instruments. If the fair value of the derivative contract is positive, the counterparty owes NCB and a repayment risk exists. If the fair value of the derivative contract is negative, NCB owes the counterparty, so there is no repayment risk. NCB minimizes repayment risk by entering into transactions with financially stable counterparties that are specified by policy and reviewed periodically by management. When NCB has multiple derivative transactions with a single counterparty, the netmark-to-market exposure represents the

45

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

netting of positive and negative exposures with that counterparty. The netmark-to-market exposure with a counterparty is a measure of credit risk when there is a legally enforceable master netting agreement between NCB and the counterparty. NCB uses master netting agreements with the majority of its counterparties.

Market risk is the adverse effect that a change in interest rates or comparative currency values has on the fair value of a financial instrument or expected cash flows. NCB manages the market risk associated with the interest rate hedge contracts by establishing formal policy limits concerning the types and degree of risk that may be undertaken. Compliance with this policy is monitored by management and reported to the Board of Directors.

Accounting for Derivatives

All derivatives are recognized on the balance sheet at fair value. When a derivative contract is entered into, NCB determines whether or not it qualifies as a hedge. If the derivative contract qualifies as a hedge, NCB designates the derivative as a hedge of the fair value of a recognized asset or liability. At December 31, 2005 and 2004 NCB had not entered into any cash flow hedges.

For all derivative instruments the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings during the period of the change in fair values.

When entering into hedging transactions, NCB documents the relationships between the hedging instruments and the hedged items to link all derivatives that are designated as fair value hedges to specific assets and liabilities on the balance sheet. NCB assesses, both at inception and on an on-going basis, the effectiveness of all hedges in offsetting changes in fair values of hedged items.

NCB discontinues hedge accounting prospectively when (1) the derivative is no longer effective in offsetting changes in fair value of a hedged item; or (2) the derivative matures or is sold, terminated or exercised.

When hedge accounting is discontinued because the derivative no longer qualifies as an effective fair value hedge, the derivative will continue to be carried on the balance sheet at its fair value and the hedged asset or liability will no longer be adjusted to reflect changes in fair value attributable to the hedged risk. In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value with the changes in fair value recognized in earnings.

Loans and Lease Financing

Loans are carried at their principal amounts outstanding, except for loans held for sale, which are carried at the lower of cost or market as determined on an individual basis. NCB determines whether a loan would qualify as held for sale at the time the loan is originated. Interest income is calculated in accordance with the terms of each individual loans and lease. NCB typically discontinues the accrual of interest on loans when principal or interest are ninety days or more in arrears or sooner when there is reasonable doubt as to collectibility. Loans may be reinstated to accrual status when all payments are brought current and, in the opinion of management, collection of the remaining balance can be reasonably expected.

Leasing operations consist principally of leased equipment under direct financing leases expiring in various years through 2009. All lease-financing transactions are full payout direct financing leases. Lease income is recorded over the term of the lease contract, which provides a constant rate of return on the unrecovered investment. Lease financing is carried net of unearned income.

Allowance for Loan Losses

The allowance for loan losses is an estimate of known and inherent losses in our loan portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standards (SFAS) No. 5 “Accounting for Contingencies,” which requires that losses be accrued when they are probable of having occurred and reasonably estimable and (ii) SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the balance of loans which are impaired.

46

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A loan is considered impaired when, based on current information, it is probable NCB will be unable to collect all amounts due under the contractual terms of the loan. Impairment is measured based upon the present value of future cash flows discounted at the loan’s effective interest rate; or, the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.

Specific reserves are established for impaired loans based upon the above criteria or other criticized loans based upon established regulatory standards.

General reserves are calculated on a loan-by-loan basis based upon the probability of the default and the loss in the event of default for each risk rating, based on historical experience.

The unallocated allowance captures losses that are attributable to various economic events, industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in either the general or specific reserves. In determining the unallocated allowance, NCB considers the recent loan loss experience, trends in credit quality and concentration and specific industry conditions within portfolio segments.

All loans are evaluated individually based upon risk rating assigned to the loan. A risk rating system is designed to classify each loan according to the risk unique to the credit facility. The expected loss for each risk rating is determined using historical loss factors and collateral position of the credit facility.

NCB charges off loans, i.e. reduces the loan balance, when the loans are deemed to be uncollectable at which time the allowance for loan losses is reduced.

Loan-Origination Fees, Commitment Fees, and Related Costs

Loan fees received and direct origination costs are accounted for in accordance with SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income over the contractual life of the loans or, with respect to loans held for sale, as an adjustment to gain on sale of loans. The remaining unamortized fees on paid off loans are recognized as interest income. If a commitment is exercised during the commitment period, the remaining net fee or cost at the time of exercise is recognized over the life of the loan as an adjustment of yield.

Servicing Assets and Interest-Only Receivables

SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” (SFAS No. 140) requires that entities that acquire servicing assets through either purchase or origination of loans and sell or securitize those loans with servicing assets retained must allocate the total cost of the loans to the servicing assets and the loans (without the servicing assets) based on their relative fair value.

Servicing assets, stated net of accumulated amortization, are amortized in proportion to the remaining net servicing revenues estimated by the underlying loans. Servicing assets are assessed for impairment based on lower of cost or fair value. In addition, mortgage-servicing assets must be stratified based on one or more predominant risk characteristics of the underlying loans and impairment is recognized through a valuation allowance for each impaired stratum.

Interest-only strips are created when loans are sold and a portion of the interest retained by NCB does not depend on the servicing work being performed.

Substantially all interest-only receivables pertain to cooperative multifamily loans made to cooperative housing corporations. These mortgages are typically structured with prepayment lockouts followed by prepayment penalties, yield maintenance provisions, or defeasance through maturity. In calculating interest-only receivables, NCB discounts the cash flows through the lockout or defeasance period. Cash flows beyond the lockout period are included in the fair value of the interest-only receivable only to the extent that NCB is entitled to receive the prepayment or yield maintenance penalty.

47

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest-only receivables that are certificated have been included as investment securities consistent with SFAS No. 115. Interest-only receivables that are not certificated are included as other assets.

Gains or losses on sales and securitizations depend, in part, on the previous carrying amount of the loans involved in the transfer and are allocated between the loans sold and the retained interests based on their relative fair value at the date of sale. Since quoted market prices are generally not available, NCB usually estimates fair value of these interest-only receivables by determining the present value of future expected cash flows using modeling techniques that incorporate management’s best estimates of key variables, including credit losses, prepayment speeds, prepayment lockouts and discount rates commensurate with the risks involved. Gains on sales and securitizations are reported in non-interest income.

The fair value of the interest-only receivables is determined using discounted future expected cash flows at various discount rates. In an effort to maximize the value of interest-only receivables, most cooperative mortgages have very strict prepayment restrictions. The most common prepayment protection is a lockout period, followed by either a fixed percentage penalty, or some form of yield maintenance. For loans that do not have prepayment options, the related interest-only receivable is adjusted at the time of prepayment.

The original discount rate varies for each loan sale transaction. The discounted rate of future expected cash flows is equal to a spread over the benchmark index at which the respective loans were priced. For quarterly valuations, the index is adjusted to reflect market conditions. An appropriate spread determined by management is added to the index to determine the current discount rate.

The weighted average life of each interest-only receivable will vary with the mortgage terms that back the transaction.

Interest-only receivables that are subject to prepayment risk such that NCB may not recover substantially all of its investment are recorded at fair value with subsequent adjustments reflected in other comprehensive income or in earnings if the fair value of the interest-only receivable has declined below its carrying amount and such decline has been determined to be other than temporary.

Other Assets

Foreclosed property pending disposition is carried at fair value less estimated costs to sell. Included in other assets is goodwill in the amount of $0.1 million.

Premises and equipment are carried at cost less accumulated depreciation and include equipment owned under lease financing arrangements. Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the leases or the useful lives of improvements. Furnishings, equipment, and software are depreciated using an accelerated method over seven, five, and three years, respectively.

Income Taxes

The Act provides that NCB shall be treated as a cooperative and subject to the provisions of Subchapter T of the Internal Revenue Code. Under Subchapter T and the Act, NCB issues its member-borrowers patronage dividends, which are tax deductible to NCB thereby reducing its taxable income. NCB has determined that all income generated by NCB and its subsidiaries, with the exception of certain income of NCB, FSB, qualifies as patronage income under the Internal Revenue Code as amended by the Act with respect to NCB, with the consequence that NCB is able to issue tax deductible patronage refunds with respect to all such income. The Act also provides that NCB is exempt from state and local taxes with the exception of real estate taxes. Certain NCB subsidiaries, however, are subject to federal and state income taxes.

NCB provides for income taxes under SFAS No. 109, “Accounting for Income Taxes”. The asset and liability approach of SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts of the existing assets and liabilities and their respective tax bases.

48

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications

Prior year amounts have been reclassified, where necessary, to conform to the 2005 presentation.

2. CASH AND CASH EQUIVALENTS

The composition of cash and cash equivalents at December 31 is as follows (dollars in thousands):

	2005		2004
Cash	$	36,067	$	40,266
Cash equivalents		6,934		7,122
Total	$	43,001	$	47,388

There was restricted cash of $5.2 million and $5.0 million as of December 31, 2005 and December 31, 2004, which relates to a recourse obligation under an agreement with Fannie Mae as discussed in Note 7.

3. INVESTMENT SECURITIES

The composition of available-for-sale investment securities at December 31 is as follows (dollars in thousands):

	2005
	Amortized		Gross Unrealized		Gross Unrealized		Fair
	Cost		Gains		Losses		Value
Interest-only certificated receivables	$	41,931	$	486	$	390	$	42,027
U.S. Treasury and agency obligations		40,760		1		478		40,283
Corporate bonds		4,163		—		36		4,127
Mutual funds		1,446		—		124		1,322
Mortgage-backed securities		1,270		—		29		1,241
Equity securities		50		33		—		83
Total	$	89,620	$	520	$	1,057	$	89,083

	2004
	Amortized		Gross Unrealized		Gross Unrealized		Fair
	Cost		Gains		Losses		Value
Interest-only certificated receivables	$	41,007	$	1,121	$	65	$	42,063
U.S. Treasury and agency obligations		38,716		1		274		38,443
Corporate bonds		3,464		5		7		3,462
Mutual funds		1,407		—		118		1,289
Mortgage-backed securities		1,977		—		17		1,960
Equity securities		50		—		—		50
Total	$	86,621	$	1,127	$	481	$	87,267
					��

The fair value of investment securities will fluctuate with the changes in interest rates. NCB does not consider the unrealized losses at December 31, 2005 on its investment securities to be other-than-temporary because they relate to interest rates.

49

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables present the fair value of available-for-sale investment securities with unrealized losses and the related unrealized loss amounts. The tables also disclose whether these securities have had unrealized losses for less than 12 consecutive months or for 12 consecutive months or longer at December 31 (dollars in thousands):

	2005
	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Interest-only certificated receivables	$	23,990	$	389	$	19	$	1	$	24,009	$	390
U.S. Treasury and agency obligations		7,122		85		24,176		393		31,298		478
Corporate bonds		1,964		13		1,162		23		3,126		36
Mutual funds		—		—		1,322		124		1,322		124
Mortgage-backed securities		—		—		1,227		29		1,227		29
Total	$	33,076	$	487	$	27,906	$	570	$	60,982	$	1,057

	2004
	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Interest-only certificated receivables	$	—	$	—	$	11,417	$	65	$	11,417	$	65
U.S. Treasury and agency obligations		33,956		274		—		—		33,956		274
Corporate bonds		2,460		7		—		—		2,460		7
Mutual funds		—		—		1,288		118		1,288		118
Mortgage-backed securities		1,960		17		—		—		1,960		17
Total	$	38,376	$	298	$	12,705	$	183	$	51,081	$	481

The maturities of available-for-sale U.S. Treasury and agency obligations and corporate bond investment securities at December 31 are as follows (dollars in thousands):

	2005
			Weighted
	Amortized		Average		Fair
	Cost		Yield		Value
Within 1 year	$	25,615		3.10%	$	25,465
After 1 year through 5 years		19,308		3.38%		18,945
Total	$	44,923		3.22%	$	44,410

	2004
			Weighted
	Amortized		Average		Fair
	Cost		Yield		Value
Within 1 year	$	11,268		1.79%	$	11,241
After 1 year through 5 years		30,912		2.42%		30,664
Total	$	42,180		2.23%	$	41,905

Mutual funds, equity securities, mortgage-backed securities, and interest-only receivables are excluded from the maturity table. Mutual funds do not have contractual maturities. Mortgage-backed securities, equity securities and interest-only receivables have contractual maturities, which differ from actual maturities because borrowers may have the right to call or

50

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

prepay obligations. Interest-only certificated receivables pertain to cooperative multifamily loans to cooperative housing corporations.

During 2005, there were $7.3 million of available-for-sale securities sold with a net loss of $13 thousand. During 2004 there were $80.9 million of available-for-sale securities sold with a net gain of $3.5 million and during 2003 there were $52.9 million of available-for-sale securities sold with a net gain of $3.0 million. NCB held no callable investment securities at December 31, 2005, 2004, and 2003.

The composition of held to maturity investment securities at December 31 is as follows (dollars in thousands):

	2005		2004
Mortgage-backed securities	$	1,178	$	1,178
Corporate debt securities and other		462		561
Total	$	1,640	$	1,739

The maturities of security held to maturity investments at December 31 are as follows (dollars in thousands):

	2005
			Weighted
	Amortized		Average		Fair
	Cost		Yield		Value
Within 1 year	$	—		0.00%	$	—
After 1 year through 5 years		462		7.05%		471
Over 10 years		1,178		8.06%		1,198
Total	$	1,640		7.78%	$	1,669

	2004
			Weighted
	Amortized		Average		Fair
	Cost		Yield		Value
Within 1 year	$	—		0.00%	$	—
After 1 year through 5 years		357		7.40%		375
After 5 years through 10 years		204		6.50%		214
Over 10 years		1,178		8.06%		1,220
Total	$	1,739		7.78%	$	1,809

Mortgage-backed securities have contractual maturities, which differ from actual maturities because borrowers may have the right to call or prepay obligations.

4. LOAN SERVICING

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans at December 31, 2005 and 2004 are $4.2 billion and $3.6 billion, respectively.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Changes in portfolio of loans serviced for others were as follows (dollars in thousands):

	2005			2004
Balance at January 1	$	3,550,294		$	3,129,566
Additions		902,836			693,910
Loan payments and payoffs		(289,506	)		(273,182	)
Balance at December 31	$	4,163,624		$	3,550,294

See Note 27 for a discussion of Mortgage Servicing Rights.

5. LOANS AND LEASE FINANCING

Loans and leases outstanding by category are as follows (dollars in thousands):

		2005		2004
Consumer loans		$	24,959	$	23,133
Commercial loans			549,164		506,032
Real estate loans:
	Residential		632,182		531,321
	Commercial		52,769		38,200
Lease financing			4,629		15,972
Total		$	1,263,703	$	1,114,658

Commercial loans have a geographic concentration in the West region (the largest component of which is California) of 38.4% at December 31, 2005 compared to 47.7% at December 31, 2004. The largest borrower type for our commercial loans is food retailing and distribution at 13.4%. No other borrower type exceeds 4.5%. Real Estate Residential loans have a geographical concentration of 40.3% at December 31, 2005 in the North Eastern United States (primarily New York City) compared to 58.2% at December 31, 2004.

6. LOANS HELD FOR SALE

Loans held for sale by category at December 31, are as follows (dollars in thousands):

		2005		2004
Commercial loans		$	13,077	$	6,670
Real estate loans:
	Residential		156,244		269,427
	Commercial		62,703		27,192
Total		$	232,024	$	303,289

52

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity related to loans held for sale for the years ended December 31, are as follows (dollars in thousands):

	2005			2004
Balance at January 1	$	303,289		$	238,564
Originations		842,329			717,111
Purchases		59,887			—
Sales*		(965,877	)		(655,919	)
Change in valuation		(7,604	)		3,533
Balance at December 31	$	232,024		$	303,289

*  Includes write-off of unamortized fees and costs.

7. 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 December 31, 2005 and December 31, 2004. The unpaid principal balance of the loans covered by the Agreement was $274.6 million as of December 31, 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 December 31, 2005 and 2004 the unpaid principal balance was $103.1 million and $107.8 million, respectfully. As collateral for the associated recourse, NCB was required to deposit $4.9 million in a restricted cash account with a designated custodian in January of 2003.

8. IMPAIRED ASSETS

Impaired assets, composed of non-accrual loans and real estate owned, totaled $14.2 million and $17.8 million at December 31, 2005 and December 31, 2004, respectively. The average balance of impaired loans was $13.0 million, $11.2 million, and $3.1 million for the years ended December 31, 2005, 2004, and 2003, respectively. The interest income that was earned, but not recognized on impaired loans was $1.0 million, $1.3 million and $0.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. Specific allowances of $4.9 million and $2.2 million were established at December 31, 2005 and December 31, 2004 against the entire amounts disclosed above. Reserves at December 31, 2005 were deemed to be adequate to cover the estimated loss exposure related to the above loans.

Real estate owned was $10 thousand at December 31, 2005 and $29 thousand at December 31, 2004.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. ALLOWANCE FOR LOAN LOSSES

The following is a summary of the components of the allowance for loan losses as of December 31, 2005, 2004, and 2003 (dollars in thousands):

	2005		2004		2003
Specific Reserves on Impaired Loans	$	4,915	$	2,205	$	3,992
Specific Reserve on Criticized Loans		—		780		1,169
General Allocation		15,278		14,006		11,937
Unallocated		—		—		—
Total Allowance for Loan Losses	$	20,193	$	16,991	$	17,098

The following is a summary of the activity in the allowance for loan losses during the years ended December 31 (dollars in thousands):

		2005			2004			2003
Balance at January 1		$	16,991		$	17,098		$	14,581
Charge-offs
	Commercial		(498	)		(4,711	)		(2,519	)
	Real Estate		(9	)		—			(29	)
Total charge-offs			(507	)		(4,711	)		(2,548	)
Recoveries
	Commercial		2,681			2,092			2,434
	Real Estate		558			1			96
Total Recoveries			3,239			2,093			2,530
Net recoveries/(charge-offs)			2,732			(2,618	)		(18	)
	Provision for loan losses		470			2,511			2,535
Balance at December 31		$	20,193		$	16,991		$	17,098

The following is a summary of the activity in the reserve for losses on unfunded commitments, which is included in other liabilities, during the years ended December 31 (dollars in thousands):

	2005		2004		2003
Balance at January 1	$	1,814	$	1,090	$	1,689
Provision for losses		791		724		(599	)
Balance at December 31	$	2,605	$	1,814	$	1,090

10. TRANSACTIONS WITH RELATED PARTIES

Section 103 of the Act, as amended, requires that holders of Classes B and C stock elect twelve of the fifteen members of NCB’s Board of Directors and that they have actual cooperative experience. NCB voting stock is, by law, owned only by borrowers and entities eligible to borrow. The election rules require that candidates for the Board of Directors have experience as a director or senior officer of a cooperative organization that currently holds Class B or Class C stock. Therefore, it is not unusual for Board members to be directors or employees of NCB borrowers. NCB therefore has conflict of interest policies, which require, among other things, that a Board member be disassociated from decisions, which pose a conflict of interest or the appearance of a conflict of interest. Loan requests from cooperatives with which members of the

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

board may be affiliated are subject to the same eligibility and credit criteria, as well as the same loan terms and conditions, as all other loan requests.

In addition, NCB through its subsidiary, NCB, FSB, enters into transactions in the normal course of business with its directors, officers, employees, and their immediate family members.

For the years ended December 31, 2005 and December 31, 2004, activity related to loans and leases, including loans held for sale, to affiliated cooperatives, directors, officers, employees, and their immediate family members is as follows (dollars in thousands):

	January 1,						December 31,
	2005		Additions		Deductions		2005
Outstanding balances	$	119,386	$	54,742	$	55,904	$	118,224

	January 1,						December 31,
	2004		Additions		Deductions		2004
Outstanding balances	$	145,494	$	32,865	$	58,973	$	119,386

During 2005, 2004, and 2003, NCB recorded interest income of $5.8 million, $6.3 million, and $8.8 million, respectively, on loans to related parties.

11. PREMISES AND EQUIPMENT

Premises and equipment are included in other assets and consist of the following as of December 31 (dollars in thousands):

	2005			2004
Furniture and equipment	$	4,609		$	3,455
Leasehold improvements		3,790			3,439
Premises		1,699			1,639
Other		436			320
Total premises and equipment		10,534			8,853
Less: Accumulated depreciation and amortization		(5,361	)		(3,972	)
Total premises and equipment, net	$	5,173		$	4,881

Depreciation and amortization of premises and equipment included in non-interest expense for the years ended December 31, 2005, 2004, and 2003 totaled $1.6 million, $1.5 million, and $1.4 respectively. During 2005 NCB added $1.1 million of new assets and had disposals of $0.3 million, which included equipment of $0.1 million and leasehold improvements of $0.2 million.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. OTHER ASSETS

At December 31, 2005 and 2004, other assets consisted of the following (dollars in thousands):

		2005		2004
Interest-only non-certificated receivables		$	35,671	$	37,833
Valuation of letters of credit			7,939		6,420
Accrued interest receivables			8,167		6,374
Federal Home Loan Bank stock			7,728		5,569
Premises and equipment			5,173		4,881
Mortgage servicing rights			5,803		3,099
Equity method investments			2,135		2,025
Prepaid assets			1,223		1,345
Net deferred tax asset			261		371
Derivative assets			4,035		765
Other			2,023		1,841
	Total other assets	$	80,158	$	70,523

13. LEASES

Minimum future rental payments on premises and office equipment under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2005 are as follows (dollars in thousands):

	Amount
2006	$	3,603
2007		3,701
2008		3,811
2009		3,912
2010		3,943
2011 and thereafter		21,482
Total payments	$	40,452

Rental expense on premises and office equipment in 2005, 2004, and 2003 was $2.6 million, $2.3 million, and $2.1 million, respectively.

During 2002, NCB deferred incentives received in connection with the headquarters lease for office space. These incentives are being amortized over the ten-year life of the lease. At December 31, 2005 and 2004, the unamortized lease incentives totaled $2.4 million and $2.6 million, respectively.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. DEPOSITS

Deposits as of December 31 are summarized as follows (dollars in thousands):

		2005		Average			2004		Average
		Balance		Rate Paid			Balance		Rate Paid
Non-interest bearing demand deposits		$	25,926		—		$	39,406		—
Interest-bearing demand deposits			212,524		2.80	%		197,724		1.70	%
Savings deposits			7,601		1.08	%		7,425		1.15	%
Certificates of deposit			491,332		3.99	%		361,372		3.12	%
	Total deposits	$	737,383				$	605,927

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $335.2 million and $229.3 million at December 31, 2005 and 2004, respectively.

At December 31, the scheduled maturities of certificates of deposit with a minimum denomination of $100,000 were as follows (dollars in thousands):

	2005		2004
Within 3 months	$	75,170	$	42,496
Over 3 months through 6 months		17,406		17,276
Over 6 months through 12 months		38,934		22,090
Over 12 months		203,707		147,392
Total certificates of deposit	$	335,217	$	229,254

Interest expense for the years ended December 31, 2005, 2004, and 2003 is summarized as follows (dollars in thousands):

	2005		2004		2003
Interest-bearing demand deposits	$	5,718	$	3,148	$	1,787
Savings deposits		89		88		97
Certificates of deposit		15,229		9,916		7,599
Total deposit interest expense	$	21,036	$	13,152	$	9,483

The remaining contractual maturities of certificates of deposit at December 31 are as follows (dollars in thousands):

	2005
	Less than		$100,000
	$100,000		and Greater		Total
2006	$	85,100	$	131,510	$	216,610
2007		50,024		39,513		89,537
2008		14,615		52,926		67,541
2009		3,010		41,510		44,520
2010		2,849		33,383		36,232
2011 and thereafter		517		36,375		36,892
Total	$	156,115	$	335,217	$	491,332

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2004
	Less than		$100,000
	$100,000		and Greater		Total
2005	$	88,416	$	81,862	$	170,278
2006		19,197		21,872		41,069
2007		18,014		20,459		38,473
2008		3,951		49,656		53,607
2009		1,482		39,494		40,976
2010 and thereafter		1,058		15,911		16,969
Total	$	132,118	$	229,254	$	361,372

15. SHORT-TERM BORROWINGS

The carrying amounts and weighted average rates for short-term borrowings as of December 31 are as follows (dollars in thousands):

	2005						2004
				Weighted					Weighted
				Average					Average
	Outstanding			Rate			Outstanding		Rate
Lines of Credit(1)	$	(516	)		—		$	46,745		3.10	%
Commercial paper		131,798			4.44	%		149,684		2.44	%
FHLB advances		181,600			3.13	%		200,500		2.20	%
Total short-term borrowings	$	312,882			3.77	%	$	396,929		2.25	%

(1)  2005 Outstanding balance represents debt issuance costs.

Additional information related to short-term borrowings at December 31 is as follows (dollars in thousands):

		2005			2004
Short-term borrowings outstanding at December 31		$	312,882		$	396,929
Unused capacity at December 31*		$	316,592		$	195,114
Average short-term borrowings outstanding during the year		$	332,491		$	273,921
Maximum short-term borrowings during the year		$	501,700		$	433,610
Weighted average short term borrowings rate:
	During the year		3.77	%		2.25	%
	At December 31		4.32	%		2.40	%

*  Defined as total available committed capacity for all short-term debt less 100% of commercial paper outstanding and the amounts outstanding under the customer short-term borrowings program.

Revolving Credit Facilities

At December 31, 2005, NCB had $350.0 million of committed revolving lines of credit available of which none were outstanding. There is $175.0 million of this facility available until May 7, 2006 and the remaining $175.0 million is available until May 7, 2008. In addition, NCB had $22.5 million of uncommitted bid lines (borrowing facilities in which no commitment fee is paid and where the other party is not committed to lend to NCB) available at December 31, 2005 and December 31, 2004. None of the bid lines were outstanding as of December 31, 2005 and $7.5 million was outstanding at December 31, 2004.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest expense from borrowings under the revolving line of credit facilities was $1.1 million, $1.4 million and $0.5 million, in 2005, 2004 and 2003, respectively.

Borrowing rates under the revolving credit facility are based on the prime rate, federal funds rate or the London Interbank Offered Rate (LIBOR) and vary with the amount of borrowings outstanding. In addition, a change in agency ratings could also impact borrowing rates. As of December 31, 2005, commitment fees paid for the line of credit were 0.25% of the commitment balance and ranged between 0.20% and 0.25% of the commitment balance for 2004. Total commitment fees paid for revolving credit facilities were $0.9 million, $0.9 million, and $0.8 million, in 2005, 2004 and 2003, respectively. All borrowings under the facility, which are outstanding at expiration of the facility, are due at that time.

At December 31, 2005, NCB is required under these revolving line of credit agreements to maintain $25.0 million of cash, cash equivalents, and investments and have, among other items, total members’ equity plus subordinated debt of not less than $363.1 million.

Other Short-term Borrowings

NCB, through its subsidiary NCB, FSB, has a pledge agreement with the Federal Home Loan Bank of Cincinnati, Ohio (FHLB) requiring advances to be secured by eligible mortgages and securities with a principal balance of 135%-300% of such advances. The FHLB facility was $287.1 million at December 31, 2005 and $246.1 million at December 31, 2004. Outstanding advances at December 31, 2005 and 2004 were $181.6 million and $200.5 million, respectively. Interest expense on advances for the years ended December 31, 2005 and 2004 was $5.4 million and $1.2 million, respectively.

In an effort to reduce NCB’s cost of funds, NCB developed a program under which it borrows, on a short-term basis, from certain customers. At December 31, 2005 and 2004, there were no short-term borrowings outstanding under this program. NCB also has a commercial paper program in place to further reduce NCB’s cost of funds. At December 31, 2005 and 2004, the commercial paper outstanding balance totaled $131.8 million and $149.7 million, respectively.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. LONG-TERM DEBT

Long-term debt consists of the following (dollars in thousands):

	December 31,
	2005			2004
Prudential Long-Term Private Placements
6.99% fixed rate debt due December 2006	$	55,000		$	55,000
5.60% fixed rate debt due December 2010		50,000			—
7.68% fixed rate debt due December 2005		—			30,000
Total Prudential Long-Term Private Placements		105,000			85,000
Other Long-Term Private Placements
5.52% fixed rate debt due January 2009		50,000			50,000
Total Long-Term Private Placement Notes		50,000			50,000
Medium Term Notes
6.96% fixed rate debt due May 2006		5,000			5,000
3 month LIBOR plus 155 bps floating rate debt due June 2006		20,000			20,000
5.67% fixed rate debt due May 2013, first callable May 2006		15,000			15,000
Total Medium Term Notes		40,000			40,000
SFAS No. 133 valuation		(1,471	)		898
Debt issuance costs		(488	)		(683	)
Total Long Term Debt	$	193,041		$	175,215

As of December 31, 2005, none of the long-term debt has priority over the other, none of the long-term debt is convertible and there are no contingencies on the payments of principal and interest.

NCB entered into Master Shelf agreements with Prudential Insurance Company in 1999 and 2001, which allowed NCB to issue private placement senior note debt. NCB issued long-term, fixed rate debt on this facility in 1999, 2001, and 2005. $30.0 million was issued in 1999 and matured in December 2005. An additional $55.0 million was issued in 2001 at a fixed rate of 6.99% and will mature in December 2006. Most recently, NCB issued $50.0 million in December 2005 at a fixed rate of 5.60% and this tranche will mature in December 2010. All of these notes require semi-annual payments of interest only.

NCB entered into an agreement with various insurance agencies in January 2003 to issue $50.0 million in private placement note debt. The debt was issued at a fixed rate of 5.52% and matures in January 2009. All of these notes require semi-annual payments of interest only.

NCB has a shelf agreement in which it can issue Medium Term Notes through various agents. These notes can be issued with either a fixed or floating rate with any maturity within the shelf agreement. NCB issued $5.0 million of these notes through Wachovia Securities, Inc. in May 2001. These notes have a fixed rate of 6.96% and mature in May 2006. In June 2001 NCB issued $20.0 million in floating rate notes through Wachovia Securities, Inc. and Morgan Stanley & Co., Inc. that mature in June 2006. This debt is based on the3-month LIBOR rate and the rate resets every3-months. The rate at December 31, 2005 was 6.04%. Finally, in May 2003 NCB issued $15.0 million of fixed rate notes through Wachovia Securities, Inc. The rate is 5.67% and these notes include a call provision in May 2006 and ultimately mature in May 2013. The $5.0 million and $15.0 million fixed rate notes require semi-annual payments of interest only and the $20.0 million floating rate note requires quarterly payments of interest only.

At December 31, 2005 NCB had entered into a series of interest rate swap agreements, which have a combined notional amount of $100.0 million. The effect of the agreements is to convert $100.0 million of the long-term debt from a weighted

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

average fixed rate of 6.15% to a floating rate based on the three-month LIBOR rate plus a spread, which repriced throughout the year. At December 31, 2005, the weighted average three-month LIBOR on the swaps was 4.39% with an effective weighted average spread of 1.49%. At December 31, 2005, the notional amount by maturity date is as follows (dollars in thousands):

Notional		Maturity
Amount		Date		Libor Index
$	55,000		2006		Three month
	25,000		2009		Three month
	20,000		2010		Three month
$	100,000

At December 31, 2004 NCB had entered into a series of interest rate swap agreements, which have a combined notional amount of $80.0 million. The effect of the agreements was to convert $80.0 million of the long-term debt from a weighted average fixed rate of 6.28% to a floating rate based on the three-month LIBOR rate plus a spread, which repriced throughout the year. At December 31, 2004, the weighted average three-month LIBOR on the swaps was 2.34% with an effective weighted average spread of 1.66%. At December 31, 2004, the notional amount by maturity date is as follows (dollars in thousands):

Notional		Maturity
Amount		Date		Libor Index
$	55,000		2006		Three month
	25,000		2009		Three month
$	80,000

17. SUBORDINATED DEBT

On December 31, 1981, NCB issued unsecured subordinated debt to the U.S. Treasury (“Treasury”) in the amount of $184.3 million as provided in the Act, as amended, in the form of Class A notes in full redemption of the Class A Preferred stock previously owned by the Government.

In November 2003 NCB entered into a definitive Amended and Restated Financing Agreement (the “Amended Financing Agreement”), with the Treasury relating to repayment of and interest payable on the Class A notes maturing in 2020 that were originally issued by NCB to Treasury on December 31, 1981. In December 2003, NCB caused the issuance of $50.0 million in Trust Preferred Securities due January 7, 2034 to initial purchasers in a private offering pursuant to Bear Stearns & Co. Inc.’s Pooled Trust Preferred Program.

In December 2003, NCB, pursuant to the Amended Financing Agreement, made a $53.6 million payment to Treasury to prepay its91-day renewing Class A note. Also on that date, NCB replaced the remaining three Class A notes outstanding, in the aggregate amount of $129.0 million, by issuing, five new replacement Class A notes of renewing maturities.

At maturity, each note is replaced with a reissued note for the same term, with an interest rate based upon the yield on Treasury securities of comparable maturities, as of the date of repricing, plus 100 basis points, subject to the final maturity date of October 31, 2020, on which date all remaining balances under the notes are due.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The interest payments for each tranche are determined in accordance with the following schedule, which also includes the carrying amounts of the subordinated debt at December 31, (dollars in thousands):

2005
				Next Repricing		Carrying
Index	Index Rate			Date		Amount
91 - day Treasury rate		3.90	%		15-Mar-06	$	39,310
2 - year Treasury rate		4.37	%		15-Dec-07		18,218
3 - year Treasury rate		2.41	%		15-Dec-06		27,564
7 - year Treasury rate		3.79	%		15-Dec-10		32,847
10 - year Treasury rate		4.28	%		15-Dec-13		6,050
							123,989
Debt issuance costs							(872	)
Total						$	123,117

2004
				Next Repricing		Carrying
Index	Index Rate			Date		Amount
91 - day Treasury rate		2.22	%		15-Mar-05	$	39,310
2 - year Treasury rate		1.88	%		15-Dec-05		20,718
3 - year Treasury rate		2.41	%		15-Dec-06		27,564
7 - year Treasury rate		3.79	%		15-Dec-10		32,847
10 - year Treasury rate		4.28	%		15-Dec-13		6,050
							126,489
Debt issuance costs							(906	)
Total						$	125,583

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows, pursuant to the Amended Financing Agreement, the amortization schedule of the five Class A notes (dollars in thousands):

Debt Amortization
	Beginning		Annual		Periodic		Ending
Year	Balance		Amortization		Amortization		Balance
2005	$	126,489	$	2,500	$	—	$	123,989
2006		123,989		2,500		—		121,489
2007		121,489		2,500		—		118,989
2008		118,989		2,500		—		116,489
2009		116,489		2,500		—		113,989
2010		113,989		—		23,989		90,000
2011		90,000		5,000		—		85,000
2012		85,000		5,500		—		79,500
2013		79,500		6,050		—		73,450
2014		73,450		6,655		—		66,795
2015		66,795		7,321		—		59,474
2016		59,474		8,053		—		51,421
2017		51,421		8,858		—		42,563
2018		42,563		9,744		—		32,819
2019		32,819		10,718		—		22,101
2020		22,101		—		22,101		—
Total				80,399		46,090

At December 31, 2005 and 2004, the non-current balance of the subordinated debt was $121.5 million and $124.0 million, respectively. The Class A notes and all related payments are subordinate to any secured and unsecured notes and debentures thereafter issued by NCB, but the notes and subordinated debt issued by NCB that by its terms are junior to the Class A notes have first preference with respect to NCB’s assets over all classes of stock issued by NCB. NCB currently cannot pay any dividend on any class of stock at a rate greater than the statutory interest rate payable on the Class A notes (See Note 23).

The Act also states that the amount of NCB borrowings, which may be outstanding at any time, shall not exceed 10 times the paid-in capital and surplus that, as defined by the Act, includes the subordinated debt.

18. JUNIOR SUBORDINATED DEBT

In December 2003, NCB sold $50.0 million of trust preferred securities through a statutory business trust, NCB Capital Trust I (“Trust”). NCB owns all of the common securities of this Delaware trust. The Trust has no independent assets or operations and exists for the sole purpose of issuing preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by NCB. The junior subordinated debentures, which are the sole assets of the Trust, are unsecured obligations of NCB, and are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of NCB. This debt is based on the3-month LIBOR rate plus 290 bps and the rate resets every 3 months.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a schedule of outstanding Junior Subordinated debt at December 31, 2005 and 2004 (dollars in thousands):

						Carrying
						Amount
Index	Index Rate			Maturity Date		2005
3-month LIBOR		4.15	%		07-Jan-34	$	51,547
Debt issuance costs							(933	)
						$	50,614

				Carrying
				Amount
				2004
3-month LIBOR	2.07	%	07-Jan-34	$	51,547
Debt issuance costs					(967	)
				$	50,580

19. COMMON STOCK AND MEMBERS’ EQUITY

NCB’s common stock consists of Class B stock owned by its borrowers, Class C stock owned by entities eligible to borrow from NCB, and Class D non-voting stock owned by others. During 2005 the one share of Class D stock outstanding was converted to Class C stock.

The following relates to common stock at December 31, 2005 and 2004:

	2005				2004
	Class B		Class C		Class B		Class C		Class D
Par value per share	$	100	$	100	$	100	$	100	$	100
Shares authorized		1,700,000		300,000		1,600,000		300,000		100,000
Shares issued and outstanding		1,474,838		233,839		1,377,162		227,582		1

The changes in Class B and C common stock are described below (dollars in thousands):

	Class B			Class C			Total
Balance, December 31, 2002	$	117,969		$	22,307		$	140,276
2002 patronage dividends distributed in common stock		9,800			484			10,284
Cancellation of stock		(613	)		—			(613	)
Balance, December 31, 2003		127,156			22,791			149,947
2003 patronage dividends distributed in common stock		15,930			936			16,866
Cancellation of stock		(5,394	)		(968	)		(6,362	)
Adjustment to prior year dividends		24			—			24
Balance, December 31, 2004		137,716			22,759			160,475
2004 patronage dividends distributed in common stock		11,281			897			12,178
Cancellation of stock		(1,575	)		(306	)		(1,881	)
Adjustment to prior year dividends		62			34			96
Balance, December 31, 2005	$	147,484		$	23,384		$	170,868

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Members’ equity currently includes the two classes of common stock, allocated and unallocated retained earnings, and accumulated other comprehensive income. Allocated retained earnings have been designated for patronage dividend distribution, whereas unallocated retained earnings have not been designated for patronage dividend distribution.

20. 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 December 31, 2005 and 2004. The following table summarizes NCB, FSB’s capital at December 31, 2005 and 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 December 31, 2005:
Tangible Capital (to tangible assets)	$	96,430		9.32	%	$	15,527		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)		103,624		12.17	%		68,134		8.00	%	$	85,168		10.00	%
Tier I Risk-Based Capital (to risk-weighted assets)		95,864		11.26	%		N/A		N/A			51,101		6.00	%
Core Capital (to adjusted tangible assets)		96,430		9.32	%		41,405		4.00	%		51,756		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 December 31, 2005, NCB, FSB’s capital exceeded the minimum capital requirements; therefore, substantially all retained earnings were available for dividend declaration without prior regulatory approval.

21. EMPLOYEE BENEFITS

Substantially all employees are covered by a non-contributory, defined contribution retirement plan. Total expense for the retirement plan for 2005, 2004, and 2003 was $0.9 million, $0.8 million, and $0.7 million, respectively.

NCB maintains an employee thrift plan organized under Internal Revenue Code Section 401(k) and contributes up to 6% of each participant’s salary. Participants receive vesting credit (non-forfeitable rights to the money in their 401(k) account) based on their number of years of employment with NCB. Contributions and expenses for 2005, 2004, and 2003 were $0.8 million, $0.9 million and $0.8 million, respectively.

65

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Participant matching contributions and earnings are vested in accordance with the following schedule:

Years of Service	Vesting
less than 2 years		0	%
2		20	%
3		50	%
4		70	%
5		85	%
6		100	%

Effective January 1, 1997, the Board of Directors approved the Executive Long-Term Incentive Plan (the Plan) to provide incentive compensation to certain key executives of NCB. The Plan’s terms were revised by the Board of Directors effective January 1, 1999 and revised again effective January 1, 2002. NCB expensed $1.3 million, $1.2 million, and $1.3 million for the Plan in 2005, 2004, and 2003, respectively.

22.     INCOME TAXES

Each year under the Act, NCB must declare tax-deductible patronage refunds in the form of cash, stock, or allocated surplus, which effectively reduce NCB’s federal income tax liability. In 2006, NCB is required to make patronage dividend payouts of approximately $22.8 million of 2005 earnings. The anticipated cash portion of the 2005 patronage dividend is included in patronage dividends payable at December 31, 2005. The estimated stock portion of the patronage dividend of 2005 earnings to be distributed has been added to allocated retained earnings at December 31, 2005. Patrons of NCB receiving such patronage dividends consent to include them in their taxable income.

The provision for income tax expense for the years ended December 31, consists of the following (dollars in thousands):

	2005			2004			2003
Current tax expense
Federal	$	884		$	326		$	824
State and local		1,148			748			1,979
Total current		2,032			1,074			2,803
Deferred tax (benefit) provision
Federal		(16	)		(81	)		(52	)
State and local		126			253			(301	)
Total deferred		110			172			(353	)
Provision for income tax expense	$	2,142		$	1,246		$	2,450

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences for the years ended December 31 (dollars in thousands):

	2005			2004			2003
Statutory U.S. tax rate	$	9,229		$	8,092		$	10,502
Patronage dividends		(8,342	)		(7,546	)		(9,756	)
State and local taxes		1,273			1,001			1,678
Other		(18	)		(301	)		26
Provision for income tax expense	$	2,142		$	1,246		$	2,450

66

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets net of liabilities, included in other assets, are composed of the following at December 31, 2005 and 2004 (dollars in thousands):

	2005			2004
Allowance for loan losses	$	393		$	445
Deferred commitment fees		318			270
Mark to market adjustments		269			213
Other		83			45
Gross deferred tax assets		1,063			973
Mortgage servicing rights		(300	)		(161	)
Federal Home Loan Bank stock dividends		(490	)		(425	)
Premises and equipment		(12	)		(16	)
Gross deferred tax liabilities		(802	)		(602	)
Net deferred tax asset	$	261		$	371

Management has concluded that it is more likely than not that all deferred tax assets will be realized based on NCB’s history of earnings and management’s expectations that NCB will generate sufficient taxable income in future years to offset the reversal of temporary differences.

23. INCOME AVAILABLE FOR DIVIDENDS ON STOCK

Under existing senior debt agreements, the aggregate amount of cash dividends on Class C or Class D stock, together with patronage dividends payable in cash, is limited to the sum of $15,000,000 plus 50% of NCB’s consolidated adjusted net income accumulation (or minus 100% of NCB’s consolidated adjusted net income in the case of a deficit) from January 1, 1992 through the end of the most current fiscal year ended. If the aggregate amount of cash dividends and patronage dividends payable in cash exceeds the limitation previously described, total patronage dividends payable in cash and cash dividends payable on any calendar year may not exceed 20% of NCB’s taxable income for such calendar year. At December 31, 2005, NCB was not limited by the restrictions detailed above and thus the amount available for dividends on stock was approximately $116.0 million.

Notwithstanding the above restriction, NCB is prohibited by law from paying dividends on its Class C stock at a rate greater than the statutory interest rate payable on the subordinated Class A notes. Those rates for 2005, 2004, and 2003 are 4.03%, 3.40% and 3.65%, respectively. Consequently, the amounts available for payment on the Class C stock for 2005, 2004, and 2003 are $0.9 million, $0.8 million, and $0.8 million, respectively. In addition, under the Act and its bylaws, NCB may not pay dividends on its Class B stock.

24. 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 notional 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. Rather, our exposure is limited to the estimated fair value in the following table.

67

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the normal course of business, NCB makes loan commitments to extend credit 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 cooperative multifamily loans to cooperative housing corporations, cooperative single-family loans, and single-family residential loans. In case of cooperative single-family loans and single-family residential loans, rate lock commitments generally extend for a30-day period. Some of these commitments will expire without being completed. For cooperative multifamily loans, the rate lock commitments can extend for 12 months or longer, 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.

Issuance fees associated with the standby letters of credit range from 0.63% to 5.00% of the commitment amount. The standby letters of credit mature throughout 2006 to 2010.

The contract or commitment amounts and the respective estimated fair value of NCB’s commitments to extend credit and standby letters of credit at December 31, are as follows (dollars in thousands):

		Contract or Commitment Amounts				Estimated Fair Value
		2005		2004		2005		2004
Financial instruments whose contract amounts represent credit risk:
Undrawn commitments to extend credit		$	711,217	$	624,310	$	3,556	$	3,122
Rate lock commitments to extend credit
	Cooperative single family		4,687		21,171		37		557
	Cooperative multifamily		115,790		121,460		46		(59	)
Standby letters of credit			242,830		241,170		9,709		9,852

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 Others: an Interpretation of FASB Statement No. 5, 57 and 107 and rescission of FASB Interpretation No. 34.” In accordance with FIN 45, a liability of $7.9 million was recorded in Other liabilities in the Consolidated Balance Sheet at December 31, 2005. The corresponding amount at December 31, 2004 was $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.

NCB reserved $2.6 million and $1.8 million as of December 31, 2005 and 2004 to cover its loss exposure to unfunded commitments.

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.

68

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NCB enters into interest rate swaps and futures contracts and forward loan sales commitments to offset changes in fair value associated with fixed rate warehouse loans, mortgage-backed securities held for sale, rate lock commitments and debt due to changes in benchmark interest rates. Some of these interest rate swaps and futures contracts are the designated derivatives hedging commitments in a fair value hedging relationship.

Operating results related to the activities entered into to hedge (both economically and for accounting purposes) changes in fair value attributable to changes in benchmark interest rates related to warehouse loans, mortgage-backed securities held for sale, rate lock commitments, designated and undesignated derivatives and other non-hedging derivatives are summarized below and included in the caption entitled “Gain On Sale of Loans” in the accompanying consolidated statements of income for the years ended December 31 (dollars in thousands):

	2005			2004
Unrealized gain (loss) on designated derivatives recognized(1)	$	5,452		$	(4,236	)
(Decrease) Increase in value of warehouse loans(2)		(5,898	)		3,915
Increase in value of investment securities held-for sale(3)		—			732
Net hedge ineffectiveness(4)		(446	)		411
Unrealized (loss) gain on undesignated loan commitments recognized(5)		(2,039	)		(913	)
Gain on undesignated derivatives recognized(6)		2,273			314
Net gain (loss) on undesignated derivatives		234			(599	)
Unrealized loss on non-hedging derivatives(7)		(128	)		(21	)
Net SFAS 133 adjustment	$	(340	)	$	(209	)

(1)	Includes the results of derivatives, which are designated and accounted for as hedges. It quantifies the change in value of the swap over the period presented.
(2)	Quantifies the change in value of the loans being hedged (i.e. resulting from the change in the benchmark rate over the period presented).
(3)	Quantifies the change in the value of mortgage-backed securities being hedged, which were created from an exchange of loans for an investment security with Fannie Mae in December 2003.
(4)	Summarizes the net ineffectiveness that results from the extent to which the change in value of the hedged item is not offset by the change in value of the derivative.
(5)	Quantifies the change in value of the loan commitment from the date the borrower entered into the loan commitment or from the beginning of the period whichever is later.
(6)	Quantifies the change in value of the swap or forward sales commitment over the period presented.
(7)	Represents the changes in value of other derivative instruments that do not qualify for hedge accounting.

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 counter parties and interest rate risk resulting from unmatched positions. The amounts potentially subject to credit risk are significantly smaller than the notional amounts of the agreements. NCB is exposed to credit loss in the event of nonperformance by its counter parties in the aggregate amount of $0.8 million at December 31, 2005 representing the estimated cost of replacing, at current market rates, all outstanding swap agreements. NCB does not anticipate nonperformance by any of its counter parties. Income or expense from interest rate swaps is treated as an adjustment to interest expense/ income on the hedged asset or liability.

69

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Financial futures are contracts for delayed delivery of specific securities at a specified future date and at a specified price or yield. NCB purchases/ sells these contracts to economically 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 single-family loans will be sold to investors. Management offsets the variability of a major portion of the change in fair value of these loans held for sale by entering into 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 economically hedge rate lock commitments to extend credit to borrowers for generally a30-day period for the origination of single-family residential and cooperative single-family loans. Some of these rate lock commitments will ultimately expire without being completed. 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 both 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 December 31, are as follows (dollars in thousands):

		Notional Amounts				Fair Value
		2005		2004		2005			2004
Financial futures contracts		$	22,200	$	10,900	$	(189	)	$	10
Interest rate swap agreements		$	391,191	$	409,817	$	(1,043	)	$	(4,160	)
Forward sales commitments
	Cooperative single family	$	12,920	$	11,000	$	(38	)	$	(192	)
	Cooperative multifamily	$	43,000	$	39,570	$	(176	)	$	(425	)

25. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, “Disclosure about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available for identical or comparable instruments, fair values are based on estimates using the present value of estimated cash flows using a discount rate commensurate with the risks involved or other valuation techniques. The resultant fair values are affected by the assumptions used, including the discount rate and estimates as to the amounts and timing of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

Cash and cash equivalents — The carrying amount approximates fair value.

Restricted Cash — The carrying amount approximates fair value.

Investments — Fair values are based on quoted market prices for identical or comparable securities.

Non-certificated interest-only receivables — The fair value of interest-only receivables is estimated by discounting the future cash flows using current market investor pass-through rates for similar securities.

70

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Servicing Assets — The fair value of servicing assets is based on discounted future net cash flows received for servicing mortgages at current market rates offered by purchasers of mortgage servicing rights.

Loans and lease financing — The fair market value of adjustable rate loans is estimated by discounting the future cash flows assuming that the loans mature on the next repricing date using the rates at which similar loans would be made to borrowers with similar credit quality and the same stated maturities. The fair value of fixed rate commercial and other loans and leases, excluding loans held for sale, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit quality and for the same remaining maturities.

Loans held-for-sale and rate lock commitments — The fair values are based on commitments on hand from investors or prevailing market rates. The fair value of loans held for sale is based on market prices for similar loans sold in the secondary market adjusted for differences in loan characteristics.

Interest rate swap agreements — The fair value of interest rate swaps is the estimated amount that NCB would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counter parties.

Financial futures and forward contracts — The fair value of interest rate futures is based on the closing price of the Chicago Board of Trade at December 31, 2005 and 2004. The fair value of forward commitments is based on current market prices for similar contracts.

Accrued interest receivable and accrued interest payable — The carrying value of accrued interest payable is deemed to approximate fair value.

Deposit liabilities — The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date (that is, their carrying amount). The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposits of similar remaining maturities.

Short-term and other borrowings — The carrying amounts approximate fair value.

Long-term debt — The fair value of long-term debt is estimated by discounting the future cash flows using the current borrowing rates at which similar types of borrowing arrangements with the same remaining maturities could be obtained by NCB.

Subordinated debt — The fair value of subordinated debt is estimated by discounting the future cash flows using the current borrowing rates at which similar types of borrowing arrangements with the same remaining maturities could be obtained by NCB.

Junior subordinated debt — The carrying amount is deemed to approximate fair value due to the fact that this is a floating-rate debt that reprices quarterly.

Commitments to extend credit, standby letters of credit, and financial guarantees written — The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the customers at the reporting date.

71

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated fair values of NCB’s financial instruments as of December 31 are as follows (dollars in thousands):

		2005						2004
		Carrying			Fair			Carrying			Fair
		Amount			Value			Amount			Value
Financial Assets:
Cash and cash equivalents		$	43,001		$	43,001		$	47,388		$	47,388
Restricted cash			5,151			5,151			4,997			4,997
Investment securities
	Available-for-sale		89,083			89,083			87,267			87,267
	Held-to-maturity		1,640			1,669			1,739			1,809
Non-certificated interest-only receivables			35,671			35,671			37,833			37,833
Servicing assets			5,803			7,623			3,099			3,383
Loans held for sale			232,024			235,525			303,289			313,021
Loans and lease financing			1,243,510			1,227,432			1,097,667			1,109,590
Interest rate swap agreements			(1,043	)		(1,043	)		(4,160	)		(4,160	)
Financial futures			(189	)		(189	)		10			10
Forward sale commitments			(214	)		(214	)		(617	)		(617	)
Accrued interest receivables			8,167			8,167			6,374			6,374
Financial Liabilities:
Deposits			737,383			719,718			605,927			589,399
Short-term borrowings			312,882			312,882			396,929			396,929
Long-term debt			193,041			190,220			175,215			181,766
Subordinated debt			123,117			121,132			125,583			119,958
Junior subordinated debt			50,614			50,614			50,580			50,580
Accrued interest payable			3,190			3,190			3,448			3,448

	Contract or		Estimated		Contract or		Estimated
	Commitment		Fair		Commitment		Fair
Off-Balance Sheet Financial Instruments:	Amounts		Value		Amounts		Value
Undrawn commitments to extend credit	$	711,217	$	3,556	$	624,310	$	3,122
Standby letters of credit		242,830		9,709		241,170		9,852
Ratelock commitments to extend credit		120,477		83		142,631		498

26. 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, Consumer and Local 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 and Local 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 earnings before taxes. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies.

72

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is the segment reporting for the years ended December 31, 2005, 2004 and 2003 (dollars in thousands):

		Commercial			Real Estate		Warehouse		Retail Consumer
2005		Lending			Lending		Lending		Lending		Other			NCB Consolidated
Net interest income
	Interest income	$	38,204		$	18,984	$	15,800	$	20,904	$	2,587		$	96,479
	Interest expense		20,186			8,069		11,766		10,218		2,098			52,337
Net interest income			18,018			10,915		4,034		10,686		489			44,142
Provision for loan losses			(825	)		317		—		978		—			470
Non-interest income			6,135			3,182		25,019		2,867		—			37,203
Non-interest expense
	Direct expense		7,205			2,552		5,333		5,052		16,375			36,517
	Overhead and support		4,630			1,948		4,822		5,169		—			16,569
Total non-interest expense			11,835			4,500		10,155		10,221		16,375			53,086
Income (loss) before taxes		$	13,143		$	9,280	$	18,898	$	2,354	$	(15,886	)	$	27,789
Total average assets		$	549,269		$	269,759	$	346,994	$	405,258	$	65,580		$	1,636,861
Total assets		$	546,429		$	285,513	$	220,734	$	478,650	$	163,241		$	1,694,567

		Commercial		Real Estate		Warehouse		Retail Consumer
2004		Lending		Lending		Lending		Lending		Other			NCB Consolidated
Net interest income
	Interest income	$	28,768	$	13,840	$	12,777	$	14,947	$	2,110		$	72,442
	Interest expense		17,172		6,110		4,347		6,915		578			35,122
Net interest income			11,596		7,730		8,430		8,032		1,532			37,320
Provision for loan losses			1,860		87		—		564		—			2,511
Non-interest income			8,268		1,520		19,731		2,984		631			33,134
Non-interest expense
	Direct expense		8,864		6,479		3,317		4,041		11,399			34,100
	Overhead and support		3,643		1,880		1,790		2,729		—			10,042
Total non-interest expense			12,507		8,359		5,107		6,770		11,399			44,142
Income (loss) before taxes		$	5,497	$	804	$	23,054	$	3,682	$	(9,236	)	$	23,801
Total average assets		$	497,098	$	221,916	$	263,747	$	276,598	$	207,232		$	1,466,591
Total assets		$	535,774	$	253,516	$	276,357	$	348,602	$	198,621		$	1,612,870

73

NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Commercial		Real Estate		Warehouse		Retail Consumer
2003		Lending		Lending		Lending		Lending		Other			NCB Consolidated
Net interest income
	Interest income	$	27,294	$	12,219	$	13,236	$	9,945	$	2,252		$	64,946
	Interest expense		16,168		5,468		3,460		5,326		360			30,782
Net interest income			11,126		6,751		9,776		4,619		1,892			34,164
Provision for loan losses			750		250		—		1,535		—			2,535
Non-interest income			10,344		3,549		30,999		4,371		3,389			52,652
Non-interest expense
	Direct expense		10,467		7,562		1,671		5,375		16,349			41,424
	Overhead and support		3,256		1,357		1,762		1,213		—			7,588
Total non-interest expense			13,723		8,919		3,433		6,588		16,349			49,012
Income (loss) before taxes		$	6,997	$	1,131	$	37,342	$	867	$	(11,068	)	$	35,269
Total average assets		$	473,551	$	197,394	$	268,303	$	176,367	$	189,498		$	1,305,113
Total assets		$	455,337	$	195,439	$	294,384	$	243,015	$	210,072		$	1,398,247

27. LOAN SALES AND SECURITIZATIONS

NCB sells commercial loans and commercial and residential real estate loans. When NCB sells loans it generally retains the MSRs and, depending on the nature of the sale, may also retain interest-only securities.

During 2005 and 2004, NCB sold loans through securitized transactions and retained interest-only receivables, which are considered retained interests in the securitization transactions. The net proceeds from NCB’s 2005 sale of loans through securitized transactions were $586.8 million and generated a total of $7.0 million in retained interests. The proceeds from NCB’s 2004 sales of loans through securitized transactions were $506.3 million and generated a total of $11.1 million in retained interests.

NCB also undertakes loan sales where the loans sold are not securitized. During the years ended December 31, 2005 and 2004, NCB sold loans through non-securitized transactions. The net proceeds from the sale of these loans were $402.8 million and generated a total of $5.5 million in retained interests for the years ended December 31, 2005. The net proceeds from the sale of these loans were $119.5 million and generated a total of $1.0 million in retained interests for the year ended December 31, 2004.

In total NCB generated a gain on the sale of loans of $26.4 million and $18.3 million for the years ended December 31, 2005 and 2004, respectively.

During 2005, NCB did not sell any mortgage-backed securities. In 2004 NCB sold mortgage backed securities generating net proceeds of $81.8 million and retained interests of $3.1 million, respectively, and a gain on sale of $3.5 million.

See Note 4 — Loan Servicing for a presentation of loan balances that NCB services.

Mortgage Servicing Rights (“MSRs”)

MSRs arise from contractual agreements between NCB and investors (or their agents) related to securities and loans. MSRs represent assets when the benefits of servicing are expected to be more than adequate compensation for NCB’s servicing of the related loans. Under these contracts, NCB performs loan servicing functions in exchange for fees and other remuneration. The servicing functions typically performed include: collecting and remitting loan payments, responding to borrower inquiries, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and insurance premiums, counseling delinquent mortgagors, supervising foreclosures and property dispositions, and generally

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

administering the loans. For performing these functions, NCB receives a servicing fee ranging generally from 0.08% to 0.38% annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from the monthly payments made by the borrowers. In addition, NCB generally receives other remuneration consisting of float benefits derived from collecting and remitting mortgage payments, as well as rights to various mortgagor-contracted fees such as late charges and prepayment penalties. In addition, NCB generally has the right to solicit the borrowers for other products and services.

Per paragraph 63 of FAS 140 MSRs are periodically tested for impairment. The impairment test is segmented into the risk tranches, which are stratified, based upon the predominant risk characteristics of the loans.

Activity related to MSRs for the years ended December 31, 2005 and 2004, respectively, are as follows (dollars in thousands):

	Mortgage Servicing Rights
	2005			2004
Balance at January 1	$	3,099		$	2,458
Additions		3,452			1,351
Amortization		(748	)		(710	)
Balance at December 31	$	5,803		$	3,099

NCB services three types of loans; cooperative single-family loans, cooperative multifamily loans and commercial real estate loans. At December 31, 2005 and 2004 the MSR balance relating to the servicing of cooperative single family loans was $2.0 million and $2.0 million respectively. At December 31, 2005 and 2004 the MSR balance relating to the servicing of cooperative multifamily loans and commercial real estate loans was $3.8 million and $1.1 million respectively. To date, no principal losses relating to a NCB originated cooperative blanket or commercial real estate loan originated for sale has ever occurred.

Changes in the valuation allowance for MSRs were as follows (dollars in thousands):

		Year Ended December 31,
		2005		2004			2003
Balance at January 1		$	—	$	—		$	—
	Impairment		—		69			295
	Reversal of Impairment		—		(69	)		(295	)
Balance at December 31,		$	—	$	—		$	—

Considerable judgment is required to determine the fair values of our retained interests because these assets are generally not actively traded in stand-alone markets.

NCB’s MSR valuation process combines the use of sophisticated discounted cash flow models to arrive at an estimate of fair value at the time of the loan sale and each subsequent balance sheet date. The key assumptions used in the valuation of MSRs are mortgage prepayment speeds, the discount rate of residual cash flows and the earnings rate of P&I float, escrows and replacement reserves. These variables can and generally will change from quarter to quarter as market conditions and projected interest rates change. Multiple models are required to reflect the nature of the MSR of the different types of loans that we service.

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Key economic assumptions used in determining the fair value of MSRs at the time of securitization are as follows:

	Years Ended December 31,
	2005			2004			2003
Weighted-average life (in years)		7.8			5.1			3.9
Weighted-average annual prepayment speed		6.9	%		17.6	%		22.7	%
Residual cash flow discount rate (annual)		10.6	%		10.4	%		10.3	%
Earnings rate P&I float, escrows and replacement reserves		4.2	%		3.8	%		3.7	%

Key economic assumptions used in measuring the period-end fair value of the Company’s MSRs at December 31, 2005 and 2004 and the effect on the fair value of those MSRs from adverse changes in those assumptions, are as follows (dollars in thousands):

		December 31,
		2005			2004
Fair value of mortgage servicing rights		$	7,623		$	3,383
Weighted-average remaining life (in years)			6.4			4.1
Weighted-average annual prepayment speed			7.1	%		17.6	%
	Impact on fair value of 10% adverse change	$	(270	)	$	(146	)
	Impact on fair value of 20% adverse change	$	(431	)	$	(275	)
Residual cash flows discount rate (annual)			10.6	%		10.4	%
	Impact on fair value of 10% adverse change	$	(389	)	$	(93	)
	Impact on fair value of 20% adverse change	$	(662	)	$	(182	)
Earnings Rate of P&I float, escrow and replacement			4.4	%		3.8	%
	Impact on fair value of 10% adverse change	$	(389	)	$	(120	)
	Impact on fair value of 20% adverse change	$	(682	)	$	(239	)

Interest Only receivables

Activity related to interest-only receivables for the years ended December 31, 2005 and 2004, respectively, is as follows (dollars in thousands):

	Certificated Interest-
	Only Receivables
	2005			2004
Balance at January 1	$	42,063		$	36,472
Additions		5,069			10,224
Reclass		898			—
Amortization		(5,007	)		(4,783	)
Change in valuation allowance		(961	)		1,154
Writedown of asset due to prepayment		(35	)		(1,004	)
Balance at December 31	$	42,027		$	42,063

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Non-certificated Interest-
	Only Receivables
	2005			2004
Balance at January 1	$	37,833		$	39,249
Additions		4,115			3,523
Reclass		(898	)		—
Amortization		(3,973	)		(3,658	)
Change in valuation allowance		(969	)		(1,079	)
Writedown of asset due to prepayment		(437	)		(202	)
Balance at December 31	$	35,671		$	37,833

Prepayment fees of $0.4 million and $1.4 million for the years ending December 31, 2005 and 2004, respectively, offset the writedown of the interest only receivables.

For interest only receivables, NCB estimates fair value both at initial recognition and on an ongoing basis through the use of discounted cash flow models. The key assumption used in the valuation of its other retained interests is the discount rate.

Key economic assumptions used in determining the fair value of interest only receivables at the time of securitization are as follows:

	December 31,
	2005			2004			2003
Weighted-average life (in years)		9.3			9.0			9.6
Weighted-average annual discount rate		5.44	%		5.61	%		5.42	%

Key economic assumptions used in subsequently measuring the fair value of the Company’s other retained interests at December 31, 2005 and 2004, and the effect on the fair value of those other retained interests from adverse changes in those assumptions are as follows (dollars in thousands):

		December 31,
		2005			2004
Fair value of other retained interest		$	77,698		$	79,896
Weighted-average life (in years)			7.4			7.9
Weighted average annual discount rate			5.93	%		5.56	%
	Impact on fair value of 10% adverse change	$	(1,679	)	$	(1,655	)
	Impact on fair value of 20% adverse change	$	(3,300	)	$	(3,256	)

At December 31, 2005 and 2004 the total principal amount outstanding of the underlying loans of the interest only receivables are $3.3 billion and $2.6 billion, respectively. At December 31, 2005 there was $7.6 million, or 0.2%, of delinquent loans. At December 31, 2004 none of the underlying loans was delinquent.

The interest only receivables that NCB holds relate almost exclusively to cooperative multifamily loans that NCB originated and sold. Most cooperative multifamily loans have a lockout period during which the borrower cannot prepay the loan. Many loans have a defeasance clause that allows the borrower to prepay its loan only by replacing the secured collateral with U.S. securities, which will produce cash flows sufficient to make all loan payments. Prepayment rates are thus considered to have a Conditional Prepayment Rate (CPR) of 0% during the lockout and defeasance period, regardless of the note rate of the loan. Other loans have yield maintenance or fixed penalties in conjunction with lockout periods. NCB retains an interest in most fixed penalties and yield maintenance penalties to offset any cash flow reduction, as it would relate to a prepayment, which mitigates prepayment risk. Cooperative multifamily loans, in general do not have the homogenous characteristics that one would find on single-family loans. Due to the highly negotiated nature of each individual transaction

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NATIONAL COOPERATIVE BANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

an event considered to be adverse is not consistent across all of our interest only receivables and thus severely limits any sensitivity analysis relating to prepayment speeds.

All of the sensitivities above are hypothetical and should be used with caution. The effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another factor, which might compound or counteract the sensitivities.

The following table summarizes the cash flows received from loan sale activity and retained interests for the years ended December 31, (dollars in thousands):

	2005		2004
Net proceeds from loans sold through securitization	$	586,796	$	506,326
Net proceeds from other loan sales	$	402,850	$	119,480
Net proceeds from sale of mortgage-backed securities	$	—	$	81,793
Servicing fees received	$	4,118	$	3,860
Cash flows received on interest-only receivables	$	14,562	$	14,412

28. LEGAL PROCEEDINGS

NCB is involved in various litigation arising from the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on NCB’s consolidated financial position, results of operations, or liquidity.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

The NCB’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the NCB’s disclosure controls and procedures as of December 31, 2005 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the NCB’s Chief Executive Officer and Chief Financial Officer concluded that the NCB’s disclosure controls and procedures are functioning effectively to provide reasonable assurance that the NCB can meet its obligations to disclose in a timely manner material information required to be included in the NCB’s reports under the Exchange Act.

There has been no change in NCB’s internal control over financial reporting that occurred during NCB’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NCB’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of NCB and the positions held by each are as follows:

		Year First
		Elected or		End of
	Position	Appointed		Term		Age
Stephanie McHenry	Chairperson of the Board of Directors and Director		2001		2007		43
William F. Casey, Jr.	Vice Chairperson of the Board of Directors and Director		2002		2008		61
Charles E. Snyder	President and Chief Executive Officer		1983		—		52
Allan J. Baum	Director		2004		2009		50
Roger Collins	Director		2005		2008		57
Irma Cota	Director		2003		2007		52
Rafael Cuellar*	Director		2002		2005		36
Steven Cunningham	Director		2005		2008		64
William Hampel	Director		2004		2007		54
Grady B. Hedgespeth	Director		2003		2006		50
H. Jeffrey Leonard	Director		2002		2008		51
Rosemary Mahoney	Director		2003		2008		45
Richard A. Parkinson	Director		2003		2006		56
Alfred A. Plamann*	Director		2003		2006		63
Andrew Reicher	Director		2003		2006		54
Michael D. Scott*	Director		2002		2005		42
Steven A. Brookner	Executive Managing Director, NCB; Chief Executive Officer, NCB, FSB		1997		—		42
Charles H. Hackman	Managing Director, Chief Credit Officer, NCB; President, NCB Capital Corporation and NCB Financial Corporation		1984		—		60
Mark W. Hiltz	Managing Director, Chief Risk Officer		1982		—		57
Richard L. Reed	Executive Managing Director, Chief Financial Officer, NCB; Chief Financial Officer, NCB Capital Corporation, NCB Financial Corporation and NCB, FSB		1985		—		47
Patrick N. Connealy	Managing Director, Corporate Banking Group		1986		—		49
Kathleen M. Luzik	Managing Director, NCB; Chief Operating Officer, NCB, FSB		1991		—		42

*  Presidentially appointed Directors who will serve until their successors are appointed and confirmed.

Stephanie McHenry is President of Cleveland Banking Region, ShoreBank. Prior to the merger of ShoreBank affiliated institutions, she was President and Chief Operating Officer of ShoreBank in Cleveland, OH. Prior to joining ShoreBank Ms. McHenry was director of Minority Business Development of Greater Cleveland Growth Association and Executive Director of Northern Ohio Minority Business Council since 1998.

William F. Casey, Jr., is the President of the Co-operative Central Bank and the Co-operative Bank Investment Fund since April 2000. At the Co-operative Central Bank, he also held the positions of Executive Vice President and Treasurer for sixteen years and Financial Vice President for seven years.

Charles E. Snyder was named President and Chief Executive Officer of NCB in January 1992. He had been Corporate Vice President and Chief Financial Officer of NCB from 1983 to December 1991.

Allan J. Baum is President of Weathervane Development Corporation since 1987 and formerly a Managing Director of Credit Suisse First Boston, retiring January 2002. Mr. Baum holds a bachelor’s degree from Dartmouth College and an MBA from

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Columbia University’s Graduate School of Business. He has 18 years of experience in public finance and real estate investment banking. Mr. Baum is formerly Director of NCB Development Corporation and has participated in NCB’s Mission Banking planning.

Roger B. Collins is President and Chief Executive Officer of Harp’s Foodstores, Inc., a regional grocery chain located in Arkansas, Oklahoma and Missouri. He currently serves on the Board of Directors of Associated Wholesale Grocers (AWG). Mr. Collins has a bachelor’s degree in economics from Rice University, Houston, Texas and a master’s in business administration from the University of Texas in Austin, Texas.

Irma Cota is Chief Executive Officer of North County Health, formerly President of California Primary Care Association and immediate past President of the San Diego Council of Community Clinics. Ms. Cota holds a masters degree in public health from San Diego State University. Having over thirty years of experience specializing in health/medical, Ms. Cota has extensive experience in working with non-profit boards of directors, currently serving on the Alliance Health Care Foundation Board.

Rafael E. Cuellar, a Presidential Appointee to the Board, has been President and Chief Financial Officer of ECO & Sons, Inc. from 1996 to 2005. He is currently President and Chief Executive Officer of Shoprite. Prior to that, he was a Lieutenant in the U.S. Navy for nine years. Mr. Cuellar has served on the Board of Directors of the Bergen County Hispanic Chamber of Commerce, the New Jersey State Chamber of Commerce, the North Jersey Regional Chamber of Commerce and the William Paterson University Foundation, et. al.

Steven F. Cunningham is President and Chief Executive Officer of IMARK Group, Inc., a purchasing cooperative of independently owned electrical suppliers and equipment wholesalers. He currently serves as President and Director of Elite Distributors Insurance Co., located in Grand Cayman. He also serves as a director of Mutual Services Cooperative and is currently first vice chair of the National Cooperative Business Association’s Board of Directors. Mr. Cunningham has a bachelor’s degree in accounting from Lehigh University, Bethlehem, Pennsylvania.

William F. Hampel is Senior Vice President for Research and Policy Analysis and Chief Economist of Credit Union National Association. Mr. Hampel holds a bachelor of arts degree in economics from University of Dallas and a Ph.D in economics from Iowa State University. Mr. Hampel was a member of the board of CUNA Credit Union from 1991 to 2004 serving as secretary, treasurer, vice president, and chair. Mr. Hampel is also a member of CUNA’s regulatory and legislative advocacy team.

Grady B. Hedgespeth is a consultant for Seedco and was formerly the Chief Financial Officer of Seedco. Prior to that, he was President and Executive Director of ICA Group, a national nonprofit economic development intermediary in Brookline, MA. Prior to his position at ICA, Mr. Hedgespeth designed and established BankBoston Development Company (now Fleet Development Ventures), the nation’s first bank-owned urban investment bank.

H. Jeffrey Leonard has been President, founding shareholder and Director of Global Environmental Fund Management Corporation since 1989. He is also the President of Global Environment Fund since 1989, and is the Chairman of the Board of Beacon House Community Ministry since 1994. Prior to the founding of GEF Management, he served as Vice President at World Wildlife Fund and Conservation Foundation.

Rosemary K. Mahoney is a consultant of MainStreet Cooperative Group, LLC. Ms. Mahoney is a member of the Board of Directors of the National Cooperative Business Association.

Richard A. Parkinson is the President and Chief Executive Officer of Associated Food Stores, Inc., in Salt Lake City, Utah. Mr. Parkinson also served as a member of the executive committee of the Board at Associated Food Stores.

Alfred A. Plamann, a Presidential Appointee to the Board, is the President and Chief Executive Officer of Unified Western Grocers, formerly known as Certified Grocers of California, Ltd. in Commerce, CA. He was the Senior Vice President and Chief Financial Officer of Certified Grocers from 1989 to 1993. He has served in an executive capacity with Atlantic Richfield Co. (ARCO) and has served on the Board of Directors of several of Unified’s subsidiaries. Additionally, he has served on the Board of Directors of the National American Wholesale Grocers Association (NAWGA) and the California Grocer’s Association (CGA), and has been a member of the Industry Relations Committee of the Food Marketing Institute (FMI).

Andrew Reicher is the Executive Director of the Urban Homesteading Assistance Board, Inc. (UHAB) where he has served for nearly 25 years. UHAB supports affordable housing and community development in New York City.

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Michael D. Scott, a Presidential Appointee to the Board, is a Senior Advisor at the U.S. Department of the Treasury. Prior to joining the Administration of George W. Bush, he worked extensively in investments, capital markets, corporate finance, corporate strategy, commercial finance and lending.

Steven A. Brookner is the Chief Executive Officer of NCB, FSB since November 2001 and Executive Managing Director at NCB responsible for overseeing the real estate originations, capital markets, servicing and investor reporting functions of NCB. From 1997 through September 1998, he was a Managing Director responsible for strategic initiatives and new product development. Previously, he was a partner of Hamilton Securities Group for one year and Co-founder and Principal of BNC & Associates, a financial and management consulting firm, for five years.

Charles H. Hackman is a Managing Director and Chief Credit Officer of NCB. He was formerly Corporate Vice President and Chief Financial Officer from 1992 to 1994. He was Corporate Vice President, Credit Policy, of NCB from 1984 to 1992, President of NCB Financial Corporation and NCB Capital Corporation.

Mark W. Hiltz is a Managing Director and Chief Risk Officer of NCB. He was a Corporate Vice President and Manager of Special Assets from 1994 to 1998 and a Senior Vice President of the Special Assets Department from 1986 to 1994. Previously he was Vice President of Loan Administration from 1983 to 1986 and General Auditor from 1982 to 1983.

Richard L. Reed is Executive Managing Director and Chief Financial Officer of NCB. He was named Senior Vice President and Chief Financial Officer in 1994. Prior to that, he was Vice President and Treasurer from 1992 to 1994. He was Vice President, Treasury from 1989 to 1992.

Patrick N. Connealy is a Managing Director and the head of the Corporate Banking Group of NCB. Prior to joining NCB in 1986, he worked as a supervisory officer with the Farm Credit Administration in Washington, DC, and as assistant vice president and loan officer for the Farm Credit Bank of Omaha.

Kathleen M. Luzik is a Managing Director of NCB, and Chief Operating Officer of NCB, FSB. Ms. Luzik joined NCB in 1991, and has held positions as a real estate underwriter and lender, business development officer, vice president of secondary marketing, and managing director of real estate loan servicing. In 1999, she was named managing director of NCB’s Real Estate Group where she was responsible for all operational activities of the Real Estate Group, overseeing the National Real Estate and Master Servicing Teams. Prior to joining NCB, Ms. Luzik was a financial analyst for the Patrician Financial Company.

Non-Incumbent Nominees for Directorships

Barbara R. Meskunas

Doris Spencer

Jay Sletson

Barbara R. Meskunas is currently self-employed and was formerly employed as a policy analyst and program director for the Institute of Contemporary Studies in California. She has served as Board member of the California Association of Housing Cooperatives and the National Association of Housing Cooperatives. Ms. Meskunas served as Commission President of the San Francisco Housing Authority from 1993 to 1996 and currently is a member of the Redevelopment Agency’s Citizen Advisory Committee.

Doris Spencer is currently the Education Director for Amalgamated and Park Reservoir Housing in New York and has worked for the cooperative for more than 18 years. Ms. Spencer is also Executive Director of the Herman Liebman Memorial Fund, Inc., which promotes community education, recreational and cultural activities and she is actively involved with Coordinating Council of Cooperatives in New York City.

Jay Sletson is executive director and secretary/treasury of FPA Cooperatives, Inc. a purchasing cooperative owned and operated by Pennsylvania State University fraternities, sororities and non-profit agencies in Centre County, Pennsylvania.

COMPOSITION OF BOARD OF DIRECTORS

The Act provides that the Board of Directors of NCB shall consist of 15 persons serving three-year terms. An officer of NCB may not also serve as a director. The President of the United States is authorized to appoint three directors with the advice and consent of the Senate. No director may be elected to more than two consecutive full terms. After expiration of the term

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of a director, he or she may continue to serve until a successor has been elected or has been appointed and qualified. Of the Presidential appointees, one must be selected from among proprietors of small business concerns that are manufacturers or retailers; one must be selected from among the officers of the agencies and departments of the United States; and one must be selected from among persons having extensive experience representing low-income cooperatives eligible to borrow from NCB. Rafael E. Cuellar is the Presidential appointee from among proprietors of small business concerns. Michael D. Scott is the Presidential appointee from among the officers of U.S. agencies and departments. Alfred A. Plamann is the Presidential appointee from among persons representing low-income cooperatives.

The holders of Class B and Class C stock elect the remaining 12 directors. Under the bylaws of NCB, each stockholder-elected director must have at least three years experience as a director or senior officer of the class of cooperatives that he or she represents. The five classes of cooperatives are: (a) housing, (b) consumer goods, (c) low-income cooperatives, (d) consumer services, and (e) all other eligible cooperatives. At all times each class must have at least one, but not more than three, directors representing it on the Board.

COMMITTEES OF THE BOARD

The Board of Directors directs the management of NCB and establishes the policies of NCB governing its funding, lending, and other business operations. In this regard, the Board has established a number of committees, such as Audit/ Risk Management, Mission Banking/ Low Income, Executive/ Compensation, Nominating and Strategic Planning Committees.

The Audit/ Risk Management Committee assists the Board of Directors in fulfilling its statutory and fiduciary responsibilities. It is responsible for overseeing all examinations and audits, monitoring all accounting and financial reporting practices, determining that there are adequate administrative and internal accounting controls and assuring that NCB, its subsidiaries and affiliate are operating within prescribed policies and procedures and in conformance with the applicable conflict of interest policies. The members of the committee are William F. Casey, Jr. (Chair), Stephanie McHenry, Michael D. Scott, William F. Hampel, Richard A. Parkinson, Allan Baum and Roger B. Collins. The Board of Directors has determined that William F. Casey, Jr, is an “audit committee financial expert” and is “independent,” as those terms are defined in applicable regulations of the Securities and Exchange Commission (Item 401(h) under Regulation S-K).

The Mission Banking/ Low Income Committee is responsible for evaluating NCB’s best efforts to achieve 35 percent of loans outstanding to low income cooperatives in accordance with established policies and for recommending to management ways in which NCB can further leverage its resources to have maximum impact on low income communities. The Committee is also responsible for collaborating with NCB Development Corporation to establish a plan for the creation and implementation of a development banking strategy that integrates and focuses resources across NCB and NCBDC, resulting in a range of development banking financial services that can be delivered to low income communities and other community development financial institutions. The members of the committee are H. Jeffrey Leonard (Chair), Irma Cota, Grady B. Hedgespeth, Rosemary K. Mahoney, Alfred A. Plamann, Andrew Reicher and Steven F. Cunningham.

The Executive/ Compensation Committee exercises all powers of the Board of Directors when failure to act until the next regular meeting will adversely affect the best interests of NCB, authorizes actions on fast moving issues when authority is granted by the entire Board, reviews and approves loans in excess of management authority and loan policy exceptions, serves as the appeal authority for loan turndowns, recommends nominees to the Board to fill unexpired terms of previously elected board members and reviews and recommends for board approval the consolidated annual budget. The members are Stephanie McHenry (Chair), William F. Casey, Jr., H. Jeffrey Leonard, Richard Parkinson and Irma Cota.

The Committee is also responsible for assuring that the senior executives are compensated effectively in a manner consistent with the stated compensation strategy of NCB. The Committee also communicates to the members the compensation policies and the reasoning behind such policies, and recommends to the Board retainer and meeting fees for the Board of Directors and Committees of the Board. They also review NCB’s compensation strategy for executive council and matters relating to management succession. The Committee reviews NCB’s employee benefit programs.

The Nominating Committee annually oversees the election for NCB directors. The committee periodically drafts election rules on behalf of the Board of Directors and reviews modifications and election materials. The Committee reviews the eligibility of nominees taking into consideration financial experience, size of constituency, organization represented and leadership and ability. The members of the committee are Allan Baum (Chair) and all members not running for election.

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The Strategic Planning Committee monitors and reviews all NCB-related entities’ planning activities delegated to them by the Board. The members of the committee are Stephanie McHenry (Chair) and the full Board of Directors.

CODE OF ETHICS

NCB has adopted a code of conduct and ethics that includes an NCB Senior Financial Officers’ Code of Ethics that applies to NCB’s principal executive officer, principal financial officer and principal accounting officer. A copy of the code is filed as an exhibit to this annual report.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF THE OFFICERS

The following table sets forth the compensation during the last three fiscal years of NCB’s Chief Executive Officer and its four other most highly compensated executive officers.

								Long-term
						Compensation		Incentive Plan		All Other
Name and Principal Position		Year		Annual Salary		Bonus		Payouts		Compensation*
Charles E. Snyder			2005	$	465,890	$	248,063		—	$	223,850
	President & CEO		2004		446,066		224,952		639,896		212,636
			2003		438,048		219,300		—		205,738
Steven A. Brookner			2005		308,081		138,125		—		124,700
	Executive Managing Director & CEO of NCB, FSB		2004		262,431		160,864		247,406		127,720
			2003		258,495		210,500		—		116,760
Richard L. Reed			2005		265,371		116,875		—		27,930
	Executive Managing Director & CFO		2004		222,478		94,300		222,876		22,773
			2003		210,962		119,947		—		25,660
Charles H. Hackman			2005		255,863		109,956		—		26,700
	Managing Director & CCO		2004		246,514		101,995		251,876		22,127
			2003		238,433		101,660		—		25,660
Kathleen M. Luzik			2005		229,720		102,638		—		26,700
	Managing Director & COO		2004		204,103		111,100		183,233		30,687
			2003		196,428		145,000		—		20,825

*  The “All Other Compensation” reported for 2005 consists of NCB’s contributions to the defined contribution retirement plan accounts of the named officers. Also included within this category for Mr. Snyder and Mr. Brookner are $183,900 and $98,000 respective premiums for life insurance policies, a $13,250 car allowance for Mr. Snyder and a $1,230 service award for Mr. Reed. NCB’s matching contributions to the 401 (k) plan accounts of the named officers, and NCB’s payments of insurance premiums for the named officers are as follows:

	Retirement Plan		Matching 401(k)		Insurance
	Contribution		Contribution		Premiums
Mr. Snyder	$	12,600	$	12,600	$	1,500
Mr. Brookner		12,600		12,600		1,500
Mr. Reed		12,600		12,600		1,500
Mr. Hackman		12,600		12,600		1,500
Ms. Luzik		12,600		12,600		1,500

EMPLOYMENT-RELATED CONTRACT

NCB has entered into a severance agreement with Charles E. Snyder, President and CEO. Under the Agreement, in the event of a termination of Mr. Snyder’s employment as President of NCB for any reason other than termination for cause or voluntary resignation, NCB will provide to Mr. Snyder a severance benefit, which is generally for an18-month period at a rate equal to his salary (including deferred compensation) in effect at the time of termination of employment (or in certain circumstances his salary 60 days prior to notice). In addition, for the first six months, he will be entitled to certain other

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benefits. The agreement provides for a resignation allowance in the amount of one year’s salary payable over three years after voluntary resignation. The agreement includes other terms and conditions, including non-competition provisions and reductions under certain circumstances.

COMPENSATION OF THE BOARD

Under the Act, directors appointed by the President from among proprietors of small businesses and from persons with experience in low-income cooperatives, are entitled to (1) compensation at the daily equivalent of the compensation of a GS18 civil servant (now “Senior Executive Service”) which amounted in 2005 to $560 a day, and (2) travel expenses. Typically, they receive compensation for no more than nine days a year. Directors elected by shareholders are entitled to (1) annual compensation of $10,000, (2) $1,000 for the chairman of each committee, (3) $1,000 for each board meeting attended, (4) $250 for each committee meeting attended up to two meetings only, and (5) travel expenses. The Chairman of the Board is entitled to $8,000 in compensation in addition to the above amounts. Directors of subsidiary corporations are entitled to (1) $500 for each board meeting attended when not held in conjunction with NCB board meetings and (2) travel expenses. Chairs of affiliate/subsidiary boards are entitled to an additional compensation of $3,000 per year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Stock Ownership of Certain Stockholders and Management

Three of NCB’s stockholders own in excess of 5% of the outstanding shares of NCB’s Class B or Class C stock. The shareholders purchased a portion of this stock in connection with sizable loans made by NCB to them and received a portion of the stock as patronage dividends from NCB. NCB’s voting policy, however, does not allocate voting rights solely based on the number of shares of Class B or Class C stock held and prohibits any one stockholder from being allocated more than five percent of the votes allocated in connection with any stockholder action.

The following table shows those cooperatives that owned more than 5 percent of NCB’s Class B or Class C stock as of December 31, 2005.

	Class B Stock				Class C Stock
			Percent of				Percent of
Name and Address of Shareholders	Shares		Class		Shares		Class
The Co-operative Central Bank		30,500		2.07%		29,119		12.45%
Greenbelt Homes, Inc.		14,440		0.98%		29,518		12.62%
Group Health, Inc.*		14,227		0.96%		14,544		6.22%

*  Included in Group Health, Inc. is Central Minnesota Group Health Plan’s (who is affiliated with Group Health, Inc.) Class B and Class C shares of stock in the amount of $5,469 and $3,063, respectively.

Because the Act restricts ownership of NCB’s Class B and Class C stock to eligible cooperatives, NCB’s officers and directors do not own any Class B or Class C stock, although cooperatives with which they are affiliated may own such stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Transactions

In the ordinary course of business, NCB has made loans at prevailing interest rates and terms to directors and executive officers of NCB and to certain entities to which these individuals are related. At December 31, 2005 and 2004, loans to executive officers and directors of our company and its affiliates, including loans to their associates, totaled $92.5 million and $91.7 million, respectively. During 2005, loan additions were $49.2 million and loan repayments were $48.4 million. There were no related party loans that were impaired, nonaccrual, past due, restructured or potential problems at December 31, 2005 or December 31, 2004.

NCB has a $5.0 million committed line of credit facility and a $7.5 million bid line with theCo-operative Central Bank of which Mr. Casey is the President and CEO. There was no outstanding balance as of December 31, 2005.

NCB has a $3.6 million term loan with the CentralCo-operative Bank ESOP Plan Trust, a member of theCo-operative Central Bank of which Mr. Casey is President and CEO. There was $2.7 million outstanding on the loan at December 31, 2005.

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NCB has entered into agreements with Grocers Capital Company (GCC) and United Resources, Inc. (URI), finance subsidiaries of Unified Western Grocers (UWG) of which Mr. Plamann is President and Chief Executive Officer, to purchase member loans originated by GCC and URI, and/or originate loans directly to members’ of UWG. The outstanding amount as of December 2005 is $63.5 million. NCB also has a $10.0 million revolving line of credit to GCC. There was no balance outstanding on this facility as of December 31, 2005.

NCB has a revolving line of credit with National Cooperative Business Association of which Mr. Snyder, President and CEO of NCB, and Mr. Cunningham, President and CEO of IMARK Group, Inc. are Board Members. The commitment for the loan is $675,000 and NCB participates $250,000 of the facility to another financial institution, non-recourse.

NCB has a letter of credit with IMARK Group, Inc. of which Mr. Cunningham is President and CEO. As of December 31, 2005, the exposure with the letter of credit is $2.06 million.

NCB has term loans with Harp’s Foodstores, Inc. of which Mr. Collins is President and CEO. As of December 31, 2005, the term loans had outstanding balances totaling $5.49 million.

NCB has two loans with GEF Management Corporation of which H. Jeffrey Leonard is President. As of December 31, 2005, the ESOP term loan has a balance of $1.9 million and the $6.0 million revolving line of credit had no balance outstanding.

NCB believes that the foregoing transactions contain terms comparable to those obtainable in an arm’s length transaction. NCB had determined that these loans were made in the ordinary course of business on substantially the same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present unfavorable features; made in accordance with NCB’s lending policies, and regulatory requirements; properly approved; and evaluated for disclosure in the financial statements.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

NCB has paid or expects to pay the following fees to KPMG LLP for work performed in 2005 and 2004 (in thousands):

	2005		2004
Audit fees	$	349	$	385
Audit-related fees		126		—
Tax fees		—		—
All other fees		—		—
Total fees	$	475	$	385

Audit fees include fees for services that normally would be provided by the accountant in connection with the statutory and regulatory filings or engagements and that generally only an independent accountant can provide. In addition to fees for an audit or review in accordance with generally accepted auditing standards, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC. Audit-related fees are assurance related services that are traditionally performed by the independent accountant, such as: employee benefit plan audits, due diligence related to mergers and acquisitions, internal control reviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. Tax fees would relate to the review of corporate tax filings. No other fees have been incurred by NCB.

The audit committee has reviewed the fees paid to KPMG LLP. These policies and procedures involve annual pre-approval by the Audit Committee of the types of services to be provided by NCB’s independent auditor and fee limits for each type of service on both a per engagement and aggregate level. Additional service engagements that exceed these pre-approved limits must be submitted to the Audit Committee for further pre-approval.

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PART IV

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

Financial Statements:

      (a)(1) The following financial statements are filed as a part of this report.

      Financial Statements as of December 31, 2005, 2004, and 2003.

Page #
	31	Report of Independent Registered Public Accountants
	32	Consolidated Balance Sheets
	33	Consolidated Statements of Income
	34	Consolidated Statements of Comprehensive Income
	35	Consolidated Statements of Changes in Members’ Equity
	36-37	Consolidated Statements of Cash Flows
	38-67	Notes to the Consolidated Financial Statements

      (a)(2) Not applicable

      Form 10-K Items 15(a)(3) and 15(b)

      (a)(3) The following exhibits are filed as a part of this report.

Exhibit
Number
	(a) 3	.1	National Consumer Cooperative Bank Act, as amended through 1981
	(c) 3	.2	1989 Amendment to National Consumer Cooperative Bank Act
	(t) 3	.3	Bylaws of NCB
	(t) 4	.1	Election Rules of the NCB. For other instruments defining the rights of security holders, see Exhibits 3.1 and 3.2
	(h) 4	.11	Form of Indenture for Debt Securities
	(i) 4	.12	Form of Fixed Rate Medium-term Note
	(j) 4	.13	Form of Floating Rate Medium-term Note
	*(x) 10	.3	Deferred Compensation Agreement with Charles E. Snyder
	*(x) 10	.4	Severance Agreement with Charles E. Snyder
	(b) 10	.7	Subordination Agreement with Consumer Cooperative Development Corporation (now NCB Development Corporation)
	(l) 10	.8	Master Shelf Agreement with Prudential Insurance Co. of America et al. (June 1997)
	(o) 10	.12	Lease on Headquarters of NCB
	*(x) 10	.13	NCB Executive Long-Term Incentive Plan Approved 7/28/03
	(m) 10	.23	Note Purchase Agreement with Prudential Insurance Company of America (Dec. 1999)
	(n) 10	.25	Note Purchase and Uncommitted Master Shelf Agreement with Prudential (Dec. 2001)
	(p) 10	.31	Split Dollar Agreement with Chief Executive Officer
	(q) 10	.32	Fourth Amended and Restated Loan Agreement with Fleet Bank as Agent
	*(x) 10	.33	NCB Executive Short-Term Incentive Plan for 2004
	(t) 10	.34	$50 million Note Purchase Agreement (Jan. 2003)
	(u) 10	.35	First Amendment to Fourth Amended and Restated Loan Agreement with Fleet Bank as Agent
	(v) 10	.36	Second Amendment to Fourth Amended and Restated Loan Agreement with Fleet Bank as Agent
	(w) 10	.37	Amended and Restated Financing Agreement with U.S. Treasury dated November 26, 2003
	(x) 10	.38	First Amendment to Master Shelf Agreement with Prudential dated December 28, 1999

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Exhibit
Number
	(x) 10	.39	Amendment No. 3 to Fourth Amended and Restated Loan Agreement with Fleet Bank as Agent dated December 5, 2003
	(x) 10	.40	First Amendment dated December 15, 2003 to Note Purchase Agreement dated
	(x) 10	.41	Second Amendment dated December 9, 2003 to Master Shelf Agreement with Prudential
	(x) 10	.42	First Amendment dated December 9, 2003 to Note Purchase Agreement with Prudential
	(x) 10	.43	First Amendment dated December 9, 2003 to Note Purchase and Uncommitted Master Shelf Agreement with Prudential
	(x) 10	.44	Purchase Agreement relating to Trust Preferred Securities dated December 15, 2003
	(x) 10	.45	Indenture related to Junior Subordinated Debt Securities dated December 17, 2003
	(x) 10	.46	Guarantee Agreement dated December 17, 2003
	*(x) 10	.47	Memorandum of Understanding with Respect to Tax Treatment of Employer Payments under Split Dollar Arrangement with CEO, dated December 30, 2003
	(x) 10	.48	Blanket Agreement for Advances with Federal Home Loan Bank Board of Cincinnati
	(x) 10	.49	Commercial Real Estate Addendum to Blanket Agreement for advances with Federal Home Loan Bank Board of Cincinnati
	(y) 10	.50	Amendment No. 4 dated May 5, 2004 to Fourth Amended and Restated Loan Agreement with Fleet Bank
	(z) 10	.51	Second Amendment dated December 31, 2004 to Prudential Note Purchase and Uncommitted Master Shelf Agreement
	*(z) 10	.52	Memorandum of Understanding With Respect to Tax Treatment of Employer Payments Under Split-Dollar Agreement with Charles Snyder
	*(z) 10	.53	Memorandum of Understanding With Respect to Tax Treatment of Employer Payments Under Split-Dollar Agreement with Terry Simonette
	*(z) 10	.54	Agreement to Provide Supplemental Retirement Benefits for CEO of NCB, FSB
	(bb) 10	.55	Lease for 2011 Crystal Drive, Arlington, Virginia 22202
	(aa) 13		2004 Annual Report
	(cc) 14		NCB Senior Financial Officers’ Code of Ethics
	(dd) 21	.1	List of Subsidiaries and Affiliates of the NCB
	(cc) 23	.1	Consent of KPMG LLP
	(n) 24	.11	Power of Attorney by Stephanie McHenry
	(t) 24	.15	Power of Attorney by Michael D. Scott
	(t) 24	.16	Power of Attorney by Rafael E. Cuellar
	(t) 24	.17	Power of Attorney by William F. Casey, Jr.
	(t) 24	.18	Power of Attorney by H. Jeffery Leonard
	(x) 24	.19	Power of Attorney by Irma Cota
	(x) 24	.20	Power of Attorney by Grady B. Hedgespeth
	(x) 24	.21	Power of Attorney by Rosemary Mahoney
	(x) 24	.22	Power of Attorney by Richard A. Parkinson
	(x) 24	.23	Power of Attorney by Alfred A. Plamann
	(x) 24	.24	Power of Attorney by Andrew Reicher
	(z) 24	.25	Power of Attorney by Allan J. Baum
	(z) 24	.26	Power of Attorney by William Hampel
	(cc) 24	.27	Power of Attorney of Roger Collins
	(cc) 24	.28	Power of Attorney of Steven Cunningham
	(cc) 31	.1	Rule 15d-14(a) Certifications
	(cc) 31	.2	Rule 15d-14(a) Certifications

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Exhibit
Number
	(cc) 32		Section 1350 Certifications
	(cc) 99	.1	Registrant’s 2005 Election Materials

*	Exhibits marked with an asterisk are management contracts or compensatory plans.
(a)	Incorporated by reference to the exhibit of the same number filed as part of Registration Statement No. 2-99779 (Filed August 20, 1985).
(b)	Incorporated by reference to the exhibit of the same number filed as part of Amendment No. 1 to Registration Statement No. 2-99779 (Filed May 7, 1986).
(c)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1989 (File No. 2-99779).
(d)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report on Form 10-Q for the three months ended June 30, 1992 (File No. 2-99779).
(e)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1994 (File No. 2-99779).
(f)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1995 (File No. 2-99779).
(g)	Incorporated by reference to Exhibit 10.16 filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1989 (File No. 2-99779).
(h)	Incorporated by reference to Exhibit 4.1 filed as part of Amendment No. 1 to Registration Statement No. 333-17003 (Filed January 21, 1997).
(i)	Incorporated by reference to Exhibit 4.2 filed as part of Amendment No. 1 to Registration Statement No. 333-17003 (Filed January 21, 1997).
(j)	Incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K filed February 11, 1997 (File No. 2-99779).
(k)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1997 (File No. 2-99779).
(l)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 1999 (File No. 2-99779).
(m)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 1999 (File No. 2-99779).
(n)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 2001 (File No. 2-99779).
(o)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2002 (File No. 2-99779).
(p)	Incorporated by reference to exhibit 17 filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2002 (File No. 2-99779).
(q)	Incorporated by reference to exhibit 20 filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2002 (File No. 2-99779).
(r)	Incorporated by reference to exhibit 28 filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2002 (File No. 2-99779).
(s)	Incorporated by reference to exhibit 99 filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended September 30, 2002 (File No. 2-99779).
(t)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 2002 (File No. 2-99779).
(u)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2003 (File No. 2-99779).

89

(v)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2003 (File No. 2-99779).
(w)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s report on Form 8-K filed December 23, 2003 (File No. 2-99779).
(x)	Incorporated by reference to the exhibit of the same number filed as part the registrant’s annual report on Form 10-K for the year ended December 31, 2003 (File No. 2-99779).
(y)	Incorporated by reference to the exhibit of the same number filed as part the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2004 (File No. 2-99779).
(z)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s annual report on Form 10-K for the year ended December 31, 2004 (File No. 2-99779)
(aa)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s quarterly report Form 10-Q for the period ended March 31, 2005 (File No. 2-99779)
(bb)	Incorporated by reference to the exhibit of the same number filed as part of the registrant’s report on Form 8-K, January 30, 2006 (File No. 2-99779)
(cc)	Filed herewith
(dd)	Included in Part I of this report on Form 10-K.

* * * * * * * * * *

      (b) The registrant filed no reports on Form 8-K during the last quarter of 2005.

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements, or the notes thereto.

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SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.

NATIONAL CONSUMER COOPERATIVE BANK

By  /s/ Charles E. Snyder

Charles E. Snyder

President and Chief Executive Officer

Date: March 30, 2006

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

Signature	Title	Date
/s/ *Stephanie McHenry Stephanie McHenry	Chairperson of the Board of Directors and Director	03/30/06
/s/ *William F. Casey, Jr. William F. Casey, Jr.	Vice Chairperson of the Board of Directors and Director	03/30/06
/s/ Charles E. Snyder Charles E. Snyder	President and Chief Executive Officer	03/30/06
/s/ *Allan J. Baum Allan J. Baum	Director	03/30/06
/s/ *Roger Collins Roger Collins	Director	03/30/06
/s/ *Irma Cota Irma Cota	Director	03/30/06
/s/ *Ralph E. Cuellar Ralph E. Cuellar	Director	03/30/06
/s/ *Steven Cunningham Steven Cunningham	Director	03/30/06
/s/ *William Hampel William Hampel	Director	03/30/06
/s/ *Grady B. Hedgespeth Grady B. Hedgespeth	Director	03/30/06

91

Signature		Title	Date
/s/ *H. Jeffrey Leonard H. Jeffrey Leonard		Director	03/30/06
/s/ *Rosemary Mahoney Rosemary Mahoney		Director	03/30/06
/s/ *Richard A. Parkinson Richard A. Parkinson		Director	03/30/06
/s/ *Alfred A. Plamann Alfred A. Plamann		Director	03/30/06
/s/ *Andrew Reicher Andrew Reicher		Director	03/30/06
/s/ *Michael D. Scott Michael D. Scott		Director	03/30/06
/s/ Richard L. Reed Richard L. Reed		Executive Managing Director, Principal Financial Officer	03/30/06
/s/ Dean Lawler Dean Lawler		Senior Vice President, Principal Accounting Officer	03/30/06
*By	/s/ Richard L. Reed Richard L. Reed (Attorney-in-Fact)

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS,

WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT

With this report, the registrant is furnishing to the Commission for its information the registrant’s election materials for its 2006 annual meeting. The registrant has not yet distributed the 2005 annual report to stockholders and will furnish such report to the Commission when it is sent to security holders.

Exhibit Index

Ex. No.		Exhibit
	14	NCB Senior Financial Officers’ Code of Ethics
	23.1	Consent of KPMG LLP
	24.27	Power of Attorney of Roger Collins
	24.28	Power of Attorney of Steven Cunningham
	31.1	Rule 15d-14(a) Certifications
	31.2	Rule 15d-14(a) Certifications
	32	Section 1350 Certifications
	99.1	Registrant’s 2006 Election Materials

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