National Consumer Cooperative Bank 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2006

or

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

Commission File Number 2-99779

National Consumer Cooperative Bank

(Exact name of registrant as specified in its charter)

(12 U.S.C. Section 3001 et. seq.)	52-1157795
(State or other jurisdiction of 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements of the past 90 days.
Yesþ Noo.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See Definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filero     Accelerated filero     Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of September 30, 2006: Class B 1,628,416; Class C 244,938.

National Consumer Cooperative Bank
(doing business as National Cooperative Bank) and Subsidiaries

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1	Consolidated Balance Sheets — September 30, 2006 (unaudited) and December 31, 2005		1
	Consolidated Statements of Income (unaudited) — for the three and nine months ended September 30, 2006 and 2005		2
	Consolidated Statements of Comprehensive Income (unaudited) — for the nine months ended September 30, 2006 and 2005		3
	Consolidated Statements of Changes in Members’ Equity (unaudited) — for the nine months ended September 30, 2006 and 2005		4
	Consolidated Statements of Cash Flows (unaudited) — for the nine months ended September 30, 2006 and 2005		5-6
	Condensed Notes to the Consolidated Financial Statements (unaudited) — September 30, 2006		7-26
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited) — for the nine and three months ended September 30, 2006 and 2005		27-43
Item 3	Quantitative and Qualitative Disclosures about Market Risk		44
Item 4	Controls and Procedures		44
PART II OTHER INFORMATION
Item 1	Legal Proceedings		44
Item 1A	Risk Factors		44
Item 6	Exhibits		44
	Signatures		45

NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30, 2006			December 31, 2005
	(Unaudited)
Assets
Cash and cash equivalents	$	50,613		$	43,001
Restricted cash		5,332			5,151
Investment securities
Available-for-sale		89,762			89,083
Held-to-maturity		1,647			1,640
Loans held for sale		139,120			232,024
Loans and lease financing		1,356,942			1,263,703
Less: Allowance for loan losses		(20,847	)		(20,193	)
Net loans and lease financing		1,336,095			1,243,510
Other assets		80,383			80,158
Total assets	$	1,702,952		$	1,694,567
Liabilities and Members’ Equity
Liabilities
Deposits	$	753,862		$	737,383
Patronage dividends payable in cash		5,429			9,518
Other liabilities		58,509			49,004
Borrowings
Short-term		269,100			312,882
Long-term
Current		55,000			80,000
Non-current		162,892			113,041
Subordinated debt
Current		2,500			2,500
Non-current		120,661			120,617
Junior subordinated debt		50,639			50,614
Total borrowings		660,792			679,654
Total liabilities		1,478,592			1,475,559
Members’ equity
Common stock		187,335			170,868
Retained earnings
Allocated		7,876			13,307
Unallocated		28,205			33,423
Accumulated other comprehensive income		944			1,410
Total members’ equity		224,360			219,008
Total liabilities and members’ equity	$	1,702,952		$	1,694,567

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

1

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Interest income
Loans and lease financing	$	27,903		$	23,035		$	80,146		$	64,558
Investment securities		1,762			1,250			5,100			3,659
Other interest income		737			785			2,233			2,369
Total interest income		30,402			25,070			87,479			70,586
Interest expense
Deposits		7,487			5,509			21,675			14,813
Short-term borrowings		5,123			3,767			14,126			9,435
Long-term debt, other borrowings and subordinated debt		6,162			4,796			17,229			13,704
Total interest expense		18,772			14,072			53,030			37,952
Net interest income		11,630			10,998			34,449			32,634
Provision for loan losses		5,276			1,596			3,835			2,345
Net interest income after provision for loan losses		6,354			9,402			30,614			30,289
Non-interest income
Gain on sale of loans		6,184			6,079			15,597			22,125
Servicing fees		1,262			1,118			3,513			3,156
Letter of credit fees		910			904			2,684			2,664
Prepayment Fees		71			(89	)		1,161			(160	)
Other		863			806			2,603			2,272
Total non-interest income		9,290			8,818			25,558			30,057
Non-interest expense
Compensation and employee benefits		8,269			7,217			23,851			21,526
(Credit) provision for unfunded commitments		(2,365	)		780			(953	)		719
Occupancy and equipment		3,312			1,593			6,431			4,361
Contractual services		1,523			1,489			4,361			4,682
Corporate development		566			739			1,975			1,895
Information systems		718			667			2,126			1,997
Travel and entertainment		316			335			1,005			1,094
Other		322			674			2,040			2,235
Total non-interest expense		12,661			13,494			40,836			38,509
Income before income taxes		2,983			4,726			15,336			21,837
(Benefit) provision for income taxes		(49	)		235			1,117			1,533
Net income	$	3,032		$	4,491		$	14,219		$	20,304
Distribution of net income
Patronage dividends	$	3,919		$	3,529		$	13,305		$	18,327
Retained earnings		(887	)		962			914			1,977
	$	3,032		$	4,491		$	14,219		$	20,304

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

2

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the nine months ended September 30,
(in thousands)
(Unaudited)

	2006			2005
Net income	$	14,219		$	20,304
Other comprehensive income
Unrealized holding loss before tax on available-for-sale investment securities and non-certificated interest-only receivables		(472	)		(2,060	)
Tax effect		6			9
Comprehensive income	$	13,753		$	18,253

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

3

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
For the nine months ended September 30, 2006 and 2005
(in thousands)
(Unaudited)

										Accumulated
				Retained			Retained			Other			Total
	Common			Earnings			Earnings			Comprehensive			Members’
	Stock			Allocated			Unallocated			Income			Equity
Balance, December 31, 2005	$	170,868		$	13,307		$	33,423		$	1,410		$	219,008
Net income		—			—			14,219			—			14,219
Adjustment to prior year dividends		—			4,063			(6,537	)		—			(2,474	)
Cancellation of stock		(903	)		—			900			—			(3	)
Other dividends declared		—			—			(495	)		—			(495	)
2005 patronage dividends
distributed in stock		17,370			(17,370	)		—			—			—
2006 patronage dividends
To be distributed in cash		—			—			(5,429	)		—			(5,429	)
Retained in form of equity		—			7,876			(7,876	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes		—			—			—			(466	)		(466	)
Balance, September 30, 2006	$	187,335		$	7,876		$	28,205		$	944		$	224,360

										Accumulated
				Retained			Retained			Other			Total
	Common			Earnings			Earnings			Comprehensive			Members’
	Stock			Allocated			Unallocated			Income			Equity
Balance, December 31, 2004	$	160,474		$	12,340		$	29,112		$	3,563		$	205,489
Net income		—			—			20,304			—			20,304
Adjustment to prior year dividends		97			(162	)		26			—			(39	)
Cancellation of stock		(971	)		—			971			—			—
Other dividends declared		—			—			(449	)		—			(449	)
2004 patronage dividends distributed in stock		12,178			(12,178	)		—			—			—
2005 patronage dividend
To be distributed in cash		—			—			(7,642	)		—			(7,642	)
Retained in form of equity		—			10,685			(10,685	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes		—			—			—			(2,051	)		(2,051	)
Balance, September 30, 2005	$	171,778		$	10,685		$	31,637		$	1,512		$	215,612

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

4

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(in thousands)
(Unaudited)

	2006			2005
Cash flows from operating activities
Net income	$	14,219		$	20,304
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		3,835			2,345
(Credit) provision for losses on unfunded commitments		(953	)		719
Amortization of interest-only-receivables and servicing rights		7,553			7,688
Depreciation and amortization, other		2,456			993
Gain on sale of loans		(15,597	)		(22,125	)
Loss on sale of investments available-for-sale		10			9
Purchase of loans held for sale		(138,753	)		(30,563	)
Loans originated for sale, net of principal collections		(625,628	)		(656,080	)
Proceeds from sale of loans held for sale		869,349			756,768
Increase in other assets		(543	)		(6,705	)
Increase in other liabilities		7,409			9,103
Net cash provided by operating activities		123,357			82,456
Cash flows from investing activities
Increase in restricted cash		(181	)		(104	)
Purchase of investment securities
Available-for-sale		(84,638	)		(38,795	)
Held-to-maturity		(17	)		(76	)
Proceeds from maturities of investment securities
Available-for-sale		81,697			25,615
Held-to-maturity		9			100
Proceeds from the sale of investment securities
Available-for-sale		2,100			6,870
Net increase in loans and lease financing		(96,431	)		(110,286	)
Purchases of premises and equipment		(3,480	)		(992	)
Net cash used in investing activities		(100,941	)		(117,668	)
Cash flows from financing activities
Net increase in deposits		16,479			91,694
Net decrease in short-term borrowings		(43,780	)		(59,929	)
Repayments from maturities of long-term borrowings		(25,000	)		—
Proceeds from the issuance of long-term borrowings		50,000			—
Patronage dividend paid		(11,991	)		(8,715	)
Other dividend paid		(512	)		(443	)
Net cash (used in) provided by financing activities		(14,804	)		22,607
Increase (decrease) in cash and cash equivalents		7,612			(12,605	)
Cash and cash equivalents, beginning of period		43,001			47,388
Cash and cash equivalents, end of period	$	50,613		$	34,783

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

5

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(in thousands)
(Unaudited)

Supplemental schedule of non-cash investing and financing activities:

	2006			2005
Unrealized loss on investment securities available-for-sale and non-certificated interest-only receivables, net of tax	$	(466	)	$	(2,051	)
Supplemental information:
Interest paid	$	47,750		$	37,834
Income taxes paid	$	1,264		$	1,486

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

6

NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)

1. BASIS OF PRESENTATION

     The interim consolidated financial statements presented in this Quarterly Report on Form 10-Q are in conformity with U.S. generally accepted accounting principles, which have been applied on a consistent basis and follow general practices within the banking industry. In our opinion, these interim consolidated financial statements include all normal recurring adjustments necessary to fairly present our results of operations, financial condition and cash flows. The preparation of financial statements requires the use of estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and the results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for all of 2006. For comparability, certain prior period amounts have been reclassified to conform to current period presentation. The financial statements contained herein should be read in conjunction with the financial statements and accompanying notes in our Annual Report on Form 10-K.

2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     As noted above, management has prepared the consolidated interim financial statements in conformity with U.S. generally accepted accounting principles. Accordingly, management is required to make certain estimates, judgments and assumptions that it believes to be reasonable based upon the information available. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net interest income, non-interest income and non-interest expense.

     The following accounting policies comprise those that management believes involve estimates, judgments and assumptions that are the most critical to aid in fully understanding and evaluating our reported financial results: allowance for loan losses, servicing assets and interest-only receivables, derivative instruments and hedging, and income taxes.

     We discuss the assumptions involved in applying these policies in our Annual Report on Form 10-K. We evaluate our accounting estimates and assumptions on an on-going basis. As of September 30, 2006, we have not made any significant changes to the estimates and assumptions used in applying our critical accounting policies from our audited 2005 financial statements.

     While we believe our estimates and assumptions are reasonable based on historical experience and other factors, actual results could differ from those estimates and these differences could be material to the financial statements.

3. CASH AND CASH EQUIVALENTS

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

	September 30,		December 31,
	2006		2005
Cash	$	45,633	$	36,067
Cash equivalents		4,980		6,934
Total	$	50,613	$	43,001

     In addition, there was restricted cash of $5.3 million as of September 30, 2006 and $5.2 million as of December 31, 2005, which relates to a recourse obligation under an agreement with Fannie Mae as discussed in Note 8.

7

4. INVESTMENT SECURITIES

     The composition of available-for-sale investment securities at September 30, 2006 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Interest-only certificated receivables	$	41,190	$	594	$	(428	)	$	41,356
U.S. Treasury and agency obligations		40,144		30		(361	)		39,813
Corporate notes		5,595		—		(17	)		5,578
Mutual funds		1,491		—		(126	)		1,365
Mortgage-backed securities		1,597		—		(29	)		1,568
Equity securities		50		32		—			82
Total	$	90,067	$	656	$	(961	)	$	89,762

     The fair value of investment securities could change from period to period due to factors such as a change in the general level of interest rates, a deterioration in the credit quality of the issuer or in the business conditions of the issuer. NCB does not consider the unrealized losses at September 30, 2006 to be other-than-temporary in accordance with Emerging Issues Task Force (“EITF”) Issue Number 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” as detailed below.

Interest-only certificated receivables

     The unrealized losses on NCB’s interest-only certificated receivables were caused by interest rate increases. The certificated interest-only strips were created when NCB securitized loans and the portion retained by NCB did not depend on the servicing work being performed. Because the decline in market value is attributable to changes in interest rates and not credit quality and because NCB has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, NCB does not consider the certificated interest-only strips to be other-than-temporarily impaired at September 30, 2006.

U.S. Treasury and agency obligations, Corporate notes, Mutual funds and Mortgage-backed securities

     At September 30, 2006, NCB held U.S. treasury and agency obligations, with an aggregate fair value of $39.8 million. Since these securities are guaranteed by the full faith and credit of the U.S. government and its agencies, NCB considers the loss of $0.4 million as interest-rate related. At September 30, 2006, NCB held mortgage-backed securities, issued by Freddie Mac and Fannie Mae, which had a fair value of $1.6 million. NCB considers the loss of $29 thousand to be interest-rate related. At September 30, 2006, NCB held investment-grade corporate notes, with an aggregate fair value of $5.6 million. Given the current credit ratings, NCB considers the loss of $17 thousand to be interest-rate related. NCB considers the loss of $126 thousand on the mutual funds and equity securities to be interest-rate related. Additionally, NCB has the ability and intent to hold the corporate notes, mutual funds and mortgage-backed securities until a recovery of fair value, which may be maturity, and thus concludes that individually, and as a group, the losses are not other-than-temporary.

8

     The composition of available-for-sale investment securities at December 31, 2005 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		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 notes		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

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

     During the nine months ended September 30, 2006, there was $2.1 million of available-for-sale securities sold compared with $6.9 million of available-for-sale securities sold during the nine months ended September 30, 2005.

     During the three months ended September 30, 2006, there were $1.3 million of available-for-sale securities sold compared with $3.3 million of available-for-sale securities sold during the three months ended September 30, 2005.

     The composition of held-to-maturity investment securities at September 30, 2006 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	1,178	$	289		—	$	1,467
Corporate debt securities and other		469		12		—		481
Total	$	1,647	$	301	$	—	$	1,948

     The composition of held-to-maturity investment securities at December 31, 2005 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	1,178	$	20	$	—	$	1,198
Corporate debt securities and other		462		9		—		471
Total	$	1,640	$	29	$	—	$	1,669

9

5. LOAN SERVICING

     Loans serviced for others are not included in the accompanying consolidated balance sheets.

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

	2006			2005
Balance at January 1	$	4,089,667		$	3,474,646
Additions		720,239			693,768
Loan payments and payoffs		(207,241	)		(282,179	)
Balance at September 30	$	4,602,665		$	3,886,235

     Refer to Note 16 for an analysis of Mortgage Servicing Rights related to the above portfolio of loans serviced for others.

6. LOANS AND LEASE FINANCING

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

	September 30,		December 31,
	2006		2005
Consumer loans	$	31,780	$	24,959
Commercial loans		533,865		549,164
Real estate loans:
Residential		631,753		541,076
Commercial		158,833		143,875
Lease financing		711		4,629
Total	$	1,356,942	$	1,263,703

7. LOANS HELD FOR SALE

     Loans held for sale by category are as follows (dollars in thousands):

	September 30,		December 31,
	2006		2005
Consumer	$	1,746	$	1,169
Commercial loans		16,231		11,908
Real estate loans:
Residential		112,492		156,384
Commercial		8,651		62,563
Total	$	139,120	$	232,024

8. RECEIVABLES SOLD WITH RECOURSE

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

10

     The Letter of Credit maintained under the Agreement (as subsequently amended for additional sales) was approximately $12.4 million as of September 30, 2006 and December 31, 2005. The unpaid principal balance of the loans covered by the Agreement was $269.8 million as of September 30, 2006 compared with $274.6 million as of December 31, 2005. Since the inception of the Agreement, NCB has not been required to reimburse Fannie Mae for any losses.

     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 September 30, 2006 and December 31, 2005, the unpaid principal balance of loans subject to this recourse obligation was $101.1 million and $103.1 million, respectively. As collateral for the associated recourse, NCB was required to deposit $4.9 million in a restricted cash account with a designated custodian.

9. IMPAIRED ASSETS

     Impaired assets, composed of non-accrual loans and real estate owned, totaled $22.3 million and $14.2 million at September 30, 2006 and December 31, 2005, respectively. The average balance of impaired loans was $17.2 million and $13.6 million for the nine months ended September 30, 2006 and 2005, respectively. The interest income that was earned, but not recognized (including the subsequent recognition of interest on loans released from non-accrual status) on impaired loans was $1.5 million and $0.7 million for the nine months ended September 30, 2006 and 2005, respectively. At September 30, 2006 NCB had a specific allowance of $3.5 million related to $10.4 million of impaired loans and a general allowance of $3.9 million related to $11.7 million of impaired loans. At December 31, 2005 NCB had a specific allowance of $2.8 million related to $8.8 million of impaired loans and a general allowance of $2.1 million related to $5.4 million of impaired loans.

     As of September 30, 2006, there were not any commitments to lend additional funds to borrowers whose loans were impaired.

     Real estate owned was $193 thousand at September 30, 2006 and $10 thousand at December 31, 2005.

11

10. ALLOWANCE FOR LOAN LOSSES AND UNFUNDED COMMITMENTS

     The following is a summary of the components of the allowance for loan losses as of September 30, 2006 and December 31, 2005 (dollars in thousands):

	September 30, 2006		December 31, 2005
Specific Reserves on Impaired Loans	$	3,515	$	2,809
Specific Reserve on Criticized Loans		541		2,106
Unallocated		—		—
General Allocation		16,791		15,278
Total Allowance for Loan Losses	$	20,847	$	20,193

     The following is a summary of the activity in the allowance for loan losses during the nine months ended September 30 (dollars in thousands):

	2006			2005
Balance at January 1	$	20,193		$	16,991
Charge-offs
Commercial		(3,406	)		(483	)
Real Estate		(32	)		(9	)
Total charge-offs		(3,438	)		(492	)
Recoveries
Commercial		257			2,211
Real Estate		—			558
Total Recoveries		257			2,769
Net (charge-offs) recoveries		(3,181	)		2,277
Provision for loan losses		3,835			2,345
Balance at September 30	$	20,847		$	21,613

     Included within the provision for loan losses for the nine months ended September 30, 2006 is $2.4 million related to the reclassification of a provision for unfunded commitments. The reclassification was the result of a letter of credit that was drawn on during the third quarter of 2006. Simultaneously, $2.4 million of the loan balance relating to the draw of the letter of credit was charged-off and is reflected in the $3.4 million of commercial charge-offs for the three and nine months ended September 30, 2006.

     The following is a summary of the activity in the reserve for losses on unfunded commitments, which is included in other liabilities, during the nine months ended September 30 (dollars in thousands):

	2006			2005
Balance at January 1	$	2,605		$	1,814
(Credit) provision for unfunded commitments		(953	)		719
Balance at September 30	$	1,652		$	2,533

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11. OTHER ASSETS

     Other assets consisted of the following as of (dollars in thousands):

	September 30,		December 31,
	2006		2005
Non-certificated interest-only receivables	$	32,894	$	35,671
Accrued interest receivables		9,414		8,167
Mortgage servicing rights		8,428		5,803
Federal Home Loan Bank stock		8,296		7,728
Premises and equipment, net		6,053		5,173
Valuation of letters of credit		5,722		7,939
Derivative assets		2,979		4,035
Equity method investments		2,128		2,135
Prepaid assets		2,004		1,223
Other		2,465		2,284
Total other assets	$	80,383	$	80,158

     Within premises and equipment is $1.5 million which relates to the acceleration of depreciation expense and the corresponding accumulated depreciation for the fixed assets at NCB’s current Washington, D.C. headquarters. Offsetting this acceleration is $1.9 million of build-out expenditure relating to NCB’s new offices in Arlington, VA.

12. DEPOSITS

     Deposits consisted of the following (dollars in thousands):

	Average Rate Paid						Balance
	September 30,			December 31,			September 30,		December 31,
	2006			2005			2006		2005
Non-interest bearing demand deposits		—			—		$	39,896	$	25,926
Interest-bearing demand deposits		3.86	%		2.80	%		204,082		212,524
Savings deposits		1.37	%		1.08	%		6,256		7,601
Certificates of deposit		4.49	%		3.99	%		503,628		491,332
Total deposits							$	753,862	$	737,383

     The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $362.7 million and $335.2 million at September 30, 2006 and December 31, 2005, respectively. At September 30, 2006 and December 31, 2005, the scheduled maturities of certificates of deposit with a minimum denomination of $100,000 were as follows (dollars in thousands):

	September 30, 2006		December 31, 2005
Within 3 months	$	76,263	$	75,170
Over 3 months through 6 months		36,242		17,406
Over 6 months through 12 months		51,671		38,934
Over 12 months		198,511		203,707
Total certificates of deposit	$	362,687	$	335,217

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     Deposit interest expense is summarized as follows (dollars in thousands):

	For the three months				For the nine months
	ended September 30,				ended September 30,
	2006		2005		2006		2005
Interest-bearing demand deposits	$	2,103	$	1,594	$	5,800	$	4,076
Savings deposits		23		23		67		68
Certificates of deposit		5,361		3,892		15,808		10,669
Total deposit interest expense	$	7,487	$	5,509	$	21,675	$	14,813

13. REGULATORY CAPITAL AND RETAINED EARNINGS OF NCB, FSB

     In connection with the insurance of deposit accounts, NCB, FSB, a federally chartered, federally insured savings bank, is required to maintain minimum amounts of regulatory capital. If NCB, FSB fails to meet its minimum required capital, the appropriate regulatory authorities may take such actions, as they deem appropriate, to protect the Deposit Insurance Fund (DIF), 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 September 30, 2006 and December 31, 2005. The following table summarizes NCB, FSB’s capital and pro-forma minimum capital requirements (ratios and dollars) at September 30, 2006 and December 31, 2005 (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 September 30, 2006:
Tangible Capital (to tangible assets)	$	125,716		11.53	%	$	16,352		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)		133,344		14.86	%		71,784		8.00	%	$	89,730		10.00	%
Tier I Risk-Based Capital (to risk-weighted assets)		125,203		13.95	%		N/A		N/A			53,838		6.00	%
Core Capital (to adjusted tangible assets)		125,716		11.53	%		43,606		4.00	%		54,507		5.00	%
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	%

     The Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings institution, including cash dividends. NCB, FSB must provide prior notice to the Office of Thrift Supervision of the capital distribution if, like NCB,FSB, it is a subsidiary of a holding company. If NCB,FSB’s capital were ever to fall below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice. At September 30, 2006, no such limitations or restrictions existed.

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

     NCB is a party to financial instruments with off-balance sheet risk. These financial instruments may include commitments to extend credit and standby letters of credit and 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.

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

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

     NCB also makes rate lock commitments to extend credit to borrowers for the origination of cooperative multifamily loans made to cooperative housing corporations, cooperative single-family loans, and single-family residential loans. In the case of cooperative single-family loans and single-family residential loans, the rate lock commitments generally extend for a 30-day period. Some of these commitments will expire due to the purchase of the commitments not being completed within 30 days. 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 0.50% to 3.50% of the commitment amount. The standby letters of credit mature throughout 2006 to 2016.

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

	Contract or				Estimated
	Commitment Amounts				Fair Value
	2006		2005		2006			2005
Financial instruments whose contract amounts represent credit risk:
Undrawn commitments to extend credit	$	749,193	$	739,507	$	3,746		$	3,698
Rate lock commitments to extend credit:
Single family	$	4,970	$	8,161	$	(5	)	$	34
Commercial real estate	$	187,018	$	120,075	$	1,847		$	(403	)
Standby letters of credit	$	201,279	$	232,577	$	6,937		$	8,776

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     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 $5.6 million was recorded in Other liabilities in the Consolidated Balance Sheet at September 30, 2006. The corresponding amount at December 31, 2005 was $7.9 million.

     NCB reserved $1.7 million and $2.6 million as of September 30, 2006 and December 31, 2005, respectively, to cover its loss exposure to unfunded commitments.

Derivative Financial Instruments Held

     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 for NCB or any of its customers.

     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 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, 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 three and nine months ended September 30 (dollars in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Unrealized (loss) gain on designated derivatives recognized(1)	$	(3,807	)	$	9,705		$	(2,542	)	$	6,317
Increase (decrease) in value of warehouse loans(2)		3,946			(10,105	)		2,626			(6,682	)
Net hedge ineffectiveness(3)		139			(400	)		84			(365	)
Unrealized gain (loss) on undesignated loan commitments recognized(4)		7,485			(3,776	)		2,480			(3,315	)
(Loss) gain on undesignated derivatives recognized(5)		(7,883	)		4,326			(2,491	)		3,483
Net (loss) gain on undesignated derivatives		(398	)		550			(11	)		168
Unrealized (loss) gain on other non-hedging derivatives(6)		(228	)		244			65			343
Net SFAS 133 adjustment	$	(487	)	$	394		$	138		$	146

(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)	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.
(4)	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.
(5)	Quantifies the change in value of the swap or forward sales commitment over the period presented.
(6)	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

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agreement involves the risk of default by counterparties 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. At September 30, 2006 NCB is exposed to credit loss in the event of nonperformance by its counterparties in the aggregate amount of $13.0 thousand. NCB does not anticipate nonperformance by any of its counterparties. Income or expense from interest rate swaps is treated as an adjustment to interest expense/income on the hedged asset or liability.

     Financial futures are contracts for delayed delivery of specific securities at a specified future date and at a specified price or yield. NCB purchases and sells these contracts to 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. For the periods presented, futures contracts have served as economic hedges. These futures contracts have not been designated as accounting hedges under FAS 133, as amended.

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

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

	Notional Amounts				Fair Value
	2006		2005		2006			2005
Financial futures contracts	$	10,400	$	19,300	$	(123	)	$	282
Interest rate swap agreements	$	323,513	$	347,748	$	(5,050	)	$	1,374
Forward sales commitments:
Cooperative single family	$	17,573	$	16,122	$	(101	)	$	44
Cooperative multifamily	$	43,000	$	40,000	$	(1,143	)	$	549

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15. SEGMENT REPORTING

     NCB’s reportable segments are strategic business units that provide diverse products and services within the financial services industry. NCB has five reportable segments: Commercial Lending, Real Estate Lending, Warehouse Lending, Retail and Consumer Lending and Other. The Commercial Lending segment provides financial services to cooperative and member-owned businesses. The Real Estate Lending segment originates and services multi-family cooperative real estate loans nationally, with a concentration in New York City. The Warehouse Lending segment originates commercial real estate loans for sale in the secondary market. The Retail and Consumer Lending segment provides traditional banking services such as lending and deposit gathering to retail, corporate and commercial customers. The Other segment consists of NCB’s unallocated administrative 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 detailed in NCB’s Annual Report on Form 10-K for the year ended December 31, 2005.

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     The following is the segment reporting for the nine months ended September 30 (dollars in thousands):

								Retail and
	Commercial		Real Estate			Warehouse		Consumer						NCB
2006	Lending		Lending			Lending		Lending			Other			Consolidated
Net interest income:
Interest income	$	31,076	$	17,060		$	16,074	$	20,238		$	3,031		$	87,479
Interest expense		17,579		8,293			12,988		11,830			2,340			53,030
Net interest income		13,497		8,767			3,086		8,408			691			34,449
Provision (credit) for loan losses		5,187		(113	)		—		(1,239	)		—			3,835
Non-interest income		4,364		3,477			15,537		2,180			—			25,558
Non-interest expense:
Direct expense		4,454		3,304			3,567		4,328			15,700			31,353
Overhead and support		2,735		2,091			1,897		2,760			—			9,483
Total non-interest expense		7,189		5,395			5,464		7,088			15,700			40,836
Income (loss) before taxes	$	5,485	$	6,962		$	13,159	$	4,739		$	(15,009	)	$	15,336
Total average assets	$	528,287	$	287,289		$	266,411	$	480,279		$	196,284		$	1,758,550
Total assets	$	529,875	$	308,825		$	223,388	$	519,138		$	121,726		$	1,702,952

							Retail and
	Commercial		Real Estate		Warehouse		Consumer					NCB
2005	Lending		Lending		Lending		Lending		Other			Consolidated
Net interest income:
Interest income	$	27,143	$	13,448	$	13,480	$	14,693	$	1,822		$	70,586
Interest expense		12,640		5,467		10,550		7,665		1,630			37,952
Net interest income		14,503		7,981		2,930		7,028		192			32,634
Provision for loan losses		1,553		69		—		723		—			2,345
Non-interest income		4,599		2,434		20,891		2,133		—			30,057
Non-interest expense:
Direct expense		5,090		2,432		3,089		3,736		14,772			29,119
Overhead and support		2,956		1,589		1,969		2,876		—			9,390
Total non-interest expense		8,046		4,021		5,058		6,612		14,772			38,509
														��
Income (loss) before taxes	$	9,503	$	6,325	$	18,763	$	1,826	$	(14,580	)	$	21,837
Total average assets	$	508,093	$	245,097	$	311,384	$	396,453	$	184,158		$	1,645,185
Total assets	$	527,357	$	242,792	$	326,868	$	456,107	$	106,388		$	1,659,512

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     The following is the segment reporting for the three months ended September 30 (dollars in thousands):

									Retail and
	Commercial			Real Estate			Warehouse		Consumer					NCB
2006	Lending			Lending			Lending		Lending		Other			Consolidated
Net interest income:
Interest income	$	10,471		$	6,175		$	5,507	$	7,168	$	1,081		$	30,402
Interest expense		6,036			3,024			4,459		4,380		873			18,772
Net interest income		4,435			3,151			1,048		2,788		208			11,630
Provision (credit) for loan losses		4,897			(3	)		—		382		—			5,276
Non-interest income		1,452			1,161			6,000		677		—			9,290
Non-interest expense:
Direct expense		1,425			1,103			1,315		1,597		5,352			10,792
Overhead and support		503			397			391		578		—			1,869
Total non-interest expense		1,928			1,500			1,706		2,175		5,352			12,661
(Loss) income before taxes	$	(938	)	$	2,815		$	5,342	$	908	$	(5,144	)	$	2,983
Total average assets	$	528,582		$	301,864		$	253,064	$	499,180	$	184,110		$	1,766,800
Total assets	$	529,875		$	308,825		$	223,388	$	519,138	$	121,726		$	1,702,952

							Retail and
	Commercial		Real Estate		Warehouse		Consumer					NCB
2005	Lending		Lending		Lending		Lending		Other			Consolidated
Net interest income:
Interest income	$	9,893	$	4,244	$	4,825	$	5,459	$	649		$	25,070
Interest expense		4,760		1,867		4,014		2,962		469			14,072
Net interest income		5,133		2,377		811		2,497		180			10,998
Provision for loan losses		1,347		29		—		220		—			1,596
Non-interest income		1,504		874		5,628		812		—			8,818
Non-interest expense:
Direct expense		2,251		1,155		655		1,368		4,361			9,790
Overhead and support		1,178		980		318		1,228		—			3,704
Total non-interest expense		3,429		2,135		973		2,596		4,361			13,494
Income (loss) before taxes	$	1,861	$	1,087	$	5,466	$	493	$	(4,181	)	$	4,726
Total average assets	$	522,000	$	229,326	$	318,374	$	356,539	$	263,699		$	1,689,938
Total assets	$	527,357	$	242,792	$	326,868	$	456,107	$	106,388		$	1,659,512

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16. LOAN SALES AND SECURITIZATIONS

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

     During the nine months ended September 30, 2006 and 2005, 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 sale of loans through securitized transactions were $603.5 million and generated a total of $5.5 million in retained interests for the nine months ended September 30, 2006. The proceeds from NCB’s sales of loans through securitized transactions were $426.7 million and generated a total of $5.4 million in retained interests for the nine months ended September 30, 2005.

     During the nine months ended September 30, 2006 and 2005, NCB also sold loans through non-securitized transactions. The net proceeds from the sale of these loans were $265.9 million and generated a total of $1.9 million in retained interests for the nine months ended September 30, 2006. The net proceeds from the sale of these loans were $322.6 million and generated a total of $4.4 million in retained interests for the nine months ended September 30, 2005.

     NCB does not retain the servicing rights on auto loan sales, which generated net proceeds of $138.2 million and $59.2 million for the nine and three months ended September 30, 2006, respectively.

     In total, NCB generated a gain on the sale of loans of $15.6 million and $22.1 million for the nine months ended September 30, 2006 and 2005, respectively. NCB generated a gain on the sale of loans of $6.2 million and $6.1 million for the three months ended September 30, 2006 and 2005, respectively.

     See Note 5 — 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 administering the loans. For performing these functions, NCB receives a servicing fee ranging generally from 0.06% to 0.53% 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 nine months ended September 30, 2006 and 2005 are as follows (dollars in thousands):

	Mortgage Servicing Rights
	2006			2005
Balance at January 1	$	5,803		$	3,099
Additions		3,211			2,716
Amortization		(586	)		(573	)
Balance at September 30	$	8,428		$	5,242

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     NCB services three types of loans: cooperative single family loans, cooperative multifamily loans and commercial real estate loans. At September 30, 2006 and December 31, 2005 the MSR balance relating to the servicing of cooperative single family loans was $2.1 million and $2.0 million respectively. At September 30, 2006 and December 31, 2005 the MSR balance relating to the servicing of cooperative multifamily loans and commercial real estate loans was $6.3 million and $3.8 million, respectively. To date, no principal loss relating to an NCB originated cooperative blanket or commercial real estate loan originated for sale has ever occurred.

     No valuation allowance was established for MSRs at September 30, 2006 and 2005. Additionally, during the nine months ended September 30, 2006 and 2005, there was no impairment or reversal of impairment recorded.

     Key economic assumptions used in determining the fair value of MSRs at the time of securitization for the nine months ended September 30, are as follows:

	Nine months ended			Nine months ended
	September 30, 2006			September 30, 2005
Weighted-average life (in years)		8.4			8.9
Weighted-average annual prepayment speed		2.9	%		3.6	%
Residual cash flow discount rate (annual)		10.9	%		10.9	%
Earnings rate P&I float, escrows and replacement reserves		5.1	%		4.3	%

     Key economic assumptions used in measuring the period-end fair value of the Company’s MSRs at September 30, 2006 and December 31, 2005 and the effect on the fair value of those MSRs from adverse changes in those assumptions, are as follows (dollars in thousands):

	September 30,			December 31,
	2006			2005
Fair value of mortgage servicing rights	$	11,406		$	7,623
Weighted-average remaining life (in years)		6.3			6.4
Weighted-average annual prepayment speed		7.0	%		7.1	%
Impact on fair value of 10% adverse change	$	(188	)	$	(270	)
Impact on fair value of 20% adverse change	$	(360	)	$	(431	)
Residual cash flows discount rate (annual)		10.7	%		10.6	%
Impact on fair value of 10% adverse change	$	(454	)	$	(389	)
Impact on fair value of 20% adverse change	$	(879	)	$	(662	)
Earnings Rate of P&I float, escrow and replacement		5.2	%		4.4	%
Impact on fair value of 10% adverse change	$	(534	)	$	(389	)
Impact on fair value of 20% adverse change	$	(1,067	)	$	(682	)

22

     Interest-Only receivables

     Activity related to interest-only receivables for the nine months ended September 30, 2006 and 2005 is as follows (dollars in thousands):

	Certificated Interest-Only
	Receivables
	2006			2005
Balance at January 1 at fair value	$	42,027		$	42,063
Additions		3,005			3,928
Amortization		(3,743	)		(3,745	)
Change in valuation allowance		72			(1,132	)
Writedown of asset due to prepayment		(5	)		(34	)
Balance at September 30 at fair value	$	41,356		$	41,080

	Non-certificated Interest-Only
	Receivables
	2006			2005
Balance at January 1 at fair value	$	35,671		$	37,833
Additions		1,146			3,579
Amortization		(3,052	)		(2,957	)
Change in valuation allowance		(701	)		(630	)
Writedown of asset due to prepayment		(170	)		(377	)
Balance at September 30 at fair value	$	32,894		$	37,448

     The prepayment that triggered the write-down of the interest-only receivables also triggered the payment of prepayment fees of $1.3 million and $0.3 million for the nine months ended September 30, 2006 and 2005, respectively.

     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:

	September 30,
	2006			2005
Weighted-average life (in years)		9.3			9.3
Weighted-average annual discount rate		7.42	%		5.18	%

23

Key economic assumptions used in subsequently measuring the fair value of the Company’s interest-only receivables at September 30, 2006 and December 31, 2005, and the effect on the fair value of those interest-only receivables from adverse changes in those assumptions are as follows (dollars in thousands):

	September 30,			December 31,
	2006			2005
Fair value of other retained interest	$	74,217		$	77,698
Weighted-average life (in years)		7.0			7.4
Weighted average annual discount rate		6.22	%		5.93	%
Impact on fair value of 10% adverse change	$	(1,571	)	$	(1,679	)
Impact on fair value of 20% adverse change	$	(3,089	)	$	(3,300	)

     At September 30, 2006 and December 31, 2005 the total principal amount outstanding of the underlying loans of the interest-only receivables was $4.0 billion and $3.3 billion, respectively. At September 30, 2006 there was $5.9 million, or 0.1%, of delinquent loans. At December 31, 2005 there was $7.6 million, or 0.2%, of delinquent loans.

     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 nine months ended September 30, (dollars in thousands):

	2006		2005
Net proceeds from loans sold through securitization	$	603,467	$	426,668
Net proceeds from auto loan sales	$	138,176	$	27,577
Net proceeds from other loan sales	$	127,698	$	295,015
Servicing fees received	$	4,055	$	3,678
Cash flows received on interest-only receivables	$	10,938	$	10,872

17. NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 155

     In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which provides the following: 1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, 2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” 3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, 4) clarifies that concentrations of credit in the form of subordination are not embedded derivatives, and 5) amends Statement of Financial Accounting Standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities; a replacement of FASB Statement 125” to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for NCB beginning January 1, 2007. Adoption of SFAS 155 is not expected to have a material impact on NCB.

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Statement of Financial Accounting Standards No. 156

     In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS 156”), which provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized, 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, 4) upon initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value, and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. Statement No. 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including interim financial statements for any period of that fiscal year. NCB plans to adopt this statement on January 1, 2007 and is in the process of assessing the impact, if any, of the adoption of this statement on the financial results.

FASB Staff Position FASB Interpretation No. 48

     In June 2006, the FASB issued FASB Staff Position FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which will be effective as of the beginning of the first fiscal year beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. NCB is still evaluating the impact on the results of operations from the application of this guidance.

Statement of Financial Accounting Standards No. 157

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. NCB is currently evaluating the impact, if any, that SFAS 157 will have on its financial condition and results of operations.

SAB No. 108, Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements

     In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that misstatements be quantified based upon their impact on each of our financial statements and related disclosures. SAB 108 is effective as of the first fiscal year ending after November 15, 2006, allowing a one-time transitional cumulative effect adjustment to retained earnings as of the beginning of the year of adoption (2007 for NCB), for errors that were not previously deemed material, but are material under the guidance in SAB No. 108. NCB is currently evaluating the impact, if any, that SAB No. 108 will have on our results of operations and financial position.

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Other

     NCB transfers commercial mortgage loans to trusts that issue various classes of securities backed by the commercial 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. 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 added this issue to its agenda in December 2005. At a July, 2006 meeting, FASB combined this project with a wider project on the Transfers of Financial Assets. 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.

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

Overview

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

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

Results of Operations
For the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005.

Overview

     NCB’s net income for the nine months ended September 30, 2006 was $14.2 million. This was a 30.0% or $6.1 million decrease compared with $20.3 million for the nine months ended September 30, 2005. A $1.8 million increase in net interest income was offset by a $1.5 million increase in the provision for loan losses and a $6.5 million decrease in gain on sale of loans.

     Total assets increased 0.5% or $8.4 million to $1.70 billion at September 30, 2006 from $1.69 billion at December 31, 2005.

     The annualized return on average total assets was 1.1% and 1.6% for the nine months ended September 30, 2006 and 2005, respectively. The annualized return on average members’ equity was 8.2% and 13.4% for the nine months ended September 30, 2006 and 2005, respectively.

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Selected Financial Data
(Dollars In Thousands)

	For the three months ended September 30,						For the nine months ended September 30,
Profitability	2006			2005			2006			2005
Net interest income	$	11,630		$	10,998		$	34,449		$	32,634
Net yield on interest earning assets		2.69	%		2.68	%		2.69	%		2.71	%
Non-interest income	$	9,290		$	8,818		$	25,558		$	30,057
Non-interest expense		12,661			13,494			40,836			38,509
Net income		3,032			4,491			14,219			20,304
Return on average assets		0.7	%		1.1	%		1.1	%		1.6	%
Return on average members’ equity		5.2	%		8.7	%		8.2	%		13.4	%
Efficiency ratio		60.5	%		68.1	%		68.1	%		61.4	%

Supplemental Data	September 30, 2006			December 31, 2005
Loans held for sale	$	139,120		$	232,024
Loans and lease financing		1,356,942			1,263,703
Total assets		1,702,952			1,694,567
Total borrowings		660,792			679,654
Headcount		291			294
Average members’ equity as a percentage of
Average total assets		13.1	%		12.3	%
Average total loans and lease financing		14.9	%		13.9	%
Net average loans and lease financing to average total assets		87.4	%		87.0	%
Net average earning assets to average total assets		96.1	%		95.6	%

Credit Quality	September 30, 2006			December 31, 2005
Allowance for loan losses	$	20,847		$	20,193
Allowance for loan losses to loans outstanding		1.4	%		1.4	%
Provision for loan losses	$	3,835		$	470
Non-accrual loans		22,063			14,200
Real estate owned		193			10
Total non-performing assets		22,256			14,210
Non-performing assets as a percentage of total assets		1.3	%		0.8	%

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Net Interest Income

     Net interest income for the nine months ended September 30, 2006 increased $1.8 million or 5.6% to $34.4 million compared with $32.6 million for the nine months ended September 30, 2005.

     For the nine months ended September 30, 2006, interest income increased by 23.9% or $16.9 million to $87.5 million compared with $70.6 million for the nine months ended September 30, 2005. The total average earning balances increased by $107.3 million and aggregate yields increased from 5.87% in 2005 to 6.82% in 2006.

     Interest income from real estate loans increased $10.9 million or 30.6%. An increase in average balances of $68.2 million or 7.5% contributed $2.9 million of the increase, while an increase in the yield from 5.22% in 2005 to 6.34% in 2006 contributed $8.0 million. Commercial loans and lease interest income increased $4.7 million or 16.2%. Average balances increased by $27.9 million, contributing $1.6 million of the increase in income. The increase in the yield from 7.03% in 2005 to 7.77% in 2006 contributed $3.1 million to the year-over-year increase in income. Interest income from investment securities and cash equivalents increased by $1.4 million. A $14.2 million or 13.3% increase in average balances contributed $0.5 million to the increase, while the increase in the yield from 4.58% in 2005 to 5.64% in 2006 contributed $0.9 million to the year-over-year increase.

     Other interest income is primarily generated from the Non-Certificated Interest-Only Receivables held by NCB, as described in NCB’s Annual Report on Form 10-K for the year ended December 31, 2005. Other interest income was $2.2 million and $2.4 million for the nine months ended September 30, 2006 and 2005, respectively.

     Interest expense for the nine months ended September 30, 2006 increased $15.0 million or 39.7% from $38.0 million in 2005 to $53.0 million in 2006. Interest expense on deposits increased $6.9 million or 46.3%. Average deposit balances grew by $80.3 million or 11.6% from 2005 to 2006, accounting for $2.0 million of the increase. Additionally, the average deposit cost increased by 89 basis points from 2.87% to 3.76%, accounting for $4.9 million of the increase. The growth of deposits remains a key component of NCB’s funding capability.

     Interest expense on short-term borrowings increased by $4.7 million or 49.7%. The average balance on short-term borrowings decreased by $18.8 million; however, the average cost of borrowing increased from 3.63% to 5.74%, accounting for $5.4 million of the increase in interest expense. Included within this was the write off of $0.5 million of unamortized debt issuance costs relating to the termination of a revolving credit facility. Interest expense on long-term debt, other borrowings and subordinated debt increased $3.5 million or 25.7%. The average balance increased by $20.6 million or 5.9%, accounting for $1.0 million of the increase. In addition, the average cost of borrowing increased 98 basis points from 5.20% to 6.18%, accounting for $2.5 million of the increase in interest expense.

     NCB recorded, as an offset to interest income, $0.3 million and $3.2 million associated with its swap contracts relating to the hedging of loans and loan commitments for the nine months ended September 30, 2006 and 2005, respectively. In addition, and over the same respective periods, NCB recorded to interest expense an increase of $0.3 million and a decrease of $0.9 million relating to the hedging of fixed-rate liabilities.

     See Table 1 and Table 2 for detailed information of the increases and decreases in interest income and interest expense for the nine months ended September 30, 2006.

29

Table 1
Changes in Net Interest Income
For the nine months ended September 30,
(Dollars in thousands)

	2006 Compared to 2005
							Increase (Decrease)
	Average Volume			Average Rate			Net**
Interest Income
Real estate loans	$	2,954		$	7,974		$	10,928
Commercial loans and leases		1,546			3,114			4,660
Total loans and lease financing		4,500			11,088			15,588
Investment securities and cash equivalents		544			897			1,441
Other interest income		(191	)		55			(136	)
Total interest income		4,853			12,040			16,893
Interest Expense
Deposits		1,993			4,869			6,862
Short-term borrowings		(659	)		5,350			4,691
Long-term debt, other borrowings and subordinated debt		968			2,557			3,525
Total interest expense		2,302			12,776			15,078
Net interest income	$	2,551		$	(736	)	$	1,815

** 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 nine months ended September 30,
(Dollars in thousands)

	2006								2005
	Average Balance*			Income/Expense		Average Rate/Yield			Average Balance*			Income/Expense		Average Rate/Yield
Assets
Interest earning assets
Real estate loans*	$	981,916		$	46,694		6.34	%	$	913,763		$	35,765		5.22	%
Commercial loans and leases*		573,985			33,452		7.77	%		546,134			28,793		7.03	%
Total loans and lease financing*		1,555,901			80,146		6.87	%		1,459,897			64,558		5.90	%
Investment securities and cash equivalents		120,607			5,100		5.64	%		106,420			3,659		4.58	%
Other interest income		33,862			2,233		8.79	%		36,793			2,369		8.58	%
Total interest earning assets		1,710,370			87,479		6.82	%		1,603,110			70,586		5.87	%
Allowance for loan losses		(19,594	)							(19,178	)
Non-interest earning assets
Cash		21,432								25,240
Other		46,342								36,013
Total non-interest earning assets		67,774								61,253
Total assets	$	1,758,550							$	1,645,185
Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	769,467		$	21,675		3.76	%	$	689,190		$	14,813		2.87	%
Short-term borrowings		328,141			14,126		5.74	%		346,916			9,435		3.63	%
Long-term debt, other borrowings and subordinated debt		371,796			17,229		6.18	%		351,187			13,704		5.20	%
Total interest bearing liabilities		1,469,404			53,030		4.81	%		1,387,293			37,952		3.65	%
Other liabilities		57,924								55,515
Members’ equity		231,222								202,377
Total liabilities and members’ equity	$	1,758,550							$	1,645,185
Net interest earning assets	$	240,966							$	215,817
Net interest revenues and spread				$	34,449		2.01	%				$	32,634		2.22	%
Net yield on interest earning assets							2.69	%							2.71	%

* Average loan balances include non-accrual loans.

31

Non-interest Income
(dollars in thousands)

	Non-interest income for
	the nine months ended
	September 30,
	2006		2005
Gain on sale of loans	$	15,597	$	22,125
Servicing fees		3,513		3,156
Letter of credit fees		2,684		2,664
Prepayment fees		1,161		(160	)
Other		2,603		2,272
Total	$	25,558	$	30,057

     Total non-interest income decreased $4.5 million or 15.0% from $30.1 million during the nine months ended September 30, 2005 to $25.6 million for the nine months ending September 30, 2006. The decline was primarily driven by a decrease of $6.5 million in gain on sale of loans from $22.1 million for the nine months ended September 30, 2005 to $15.6 million for the nine months ending September 30, 2006. Although a similar volume of commercial real estate loans was sold, the percentage gain, as a percent of sold principal balance of commercial real estate loans, declined from 3.4% in the first nine months of 2005 to 2.2% in the first nine months of 2006 due to increased competition in the commercial mortgage market. Based on current market conditions, NCB does not anticipate the percentage gain of commercial real estate principal sold reverting back to the levels experienced in 2005.

     The following table shows the unpaid principal balance of loans sold during the nine months ended September 30 (dollars in thousands):

	2006		2005
Commercial real estate (CRE) loans:
CRE loans for securitization	$	593,474	$	403,491
Other CRE loan sales		68,500		228,390
Total commercial real estate	$	661,974	$	631,881
Auto loans		138,176		27,577
Single family residential and cooperative loans		51,246		55,996
SBA loans		7,019		5,891
Total	$	858,415	$	721,345

     The auto loan sales represent the sale, at par, of participations in auto loans. NCB purchases and sells these notes purchased within a 30 day cycle. The primary economic benefit to NCB of this program is the net interest income it earns while these notes are on the balance sheet for this 30 day period.

     There were $2.1 million of investment securities available-for-sale sold during the nine months ended September 30, 2006 compared to $6.9 million sold during the nine months ended September 30, 2005.

     NCB’s net SFAS 133 adjustment, which is included in “Gain on Sale of Loans,” was a gain of $0.1 million for the nine months ended September 30, 2006 and 2005.

     Prepayment fees increased by $1.3 million for the nine months ended September 30, 2006 from the same period during 2005. This increase primarily relates to two large prepayment fees on multi-family residential real estate loans generating prepayment fees of $0.5 million and $0.3 million, in addition to $0.5 million of other prepayment fees collected year to date. The $0.2 million prepayment fee loss recorded for the nine months ended September 30, 2005 reflects a greater write down of the interest-only receivable than the prepayment fee received.

     In total, non-interest income amounted to 42.6% of total net revenue (net interest income plus non-interest income) for the nine months ended September 30, 2006 compared with 47.9% for the same period during 2005.

32

Non-interest Expense
(dollars in thousands)

	Non-interest expense for
	the nine months ended
	September 30,
	2006			2005
Compensation and employee benefits	$	23,851		$	21,526
(Credit) provision for unfunded commitments		(953	)		719
Occupancy and equipment		6,431			4,361
Contractual services		4,361			4,682
Corporate development		1,975			1,895
Information systems		2,126			1,997
Travel and entertainment		1,005			1,094
Other		2,040			2,235
Total	$	40,836		$	38,509

     Non-interest expense for the nine months ended September 30, 2006, increased 6.0% or $2.3 million to $40.8 million compared with $38.5 million for the corresponding prior year period primarily due to a $2.3 million increase in compensation and employee benefits, a $2.0 million increase in occupancy and equipment, netted with a decrease of $1.7 million in the provision for unfunded commitments. Non-interest expense as a percentage of average assets was 3.1% for the nine months ended September 30, 2006 and 2005.

     Compensation and employee benefits, increased 10.8% or $2.3 million to $23.9 million compared to $21.5 million for the nine months ended September 30, 2005. This was largely driven by a $1.1 million increase in base salary adjustments for the year in addition to a $0.9 million decrease in the FAS 91 loan origination fees and costs deferral for the nine months ending September 30, 2006 compared to the same period ending September 30, 2005. The decrease or credit to the provision for unfunded commitments of $1.7 million resulted primarily from a $2.4 million reclassification from the provision for unfunded commitments to the provision for loan losses for a draw on a letter of credit, netted with additional provisions recorded during 2006.

     Occupancy and equipment for the nine months ended September 30, 2006 increased $2.0 million or 47.5% to $6.4 million compared with $4.4 million for the corresponding prior year period. The increase resulted from the acceleration of depreciation relating to fixed assets at NCB’s current 1725 Eye Street, Washington, D.C. headquarters (“1725 Eye Street”).

     In January 2006 NCB entered into a lease for office space in Arlington, Virginia with First Crystal Park Associates Limited Partnership, a Virginia limited partnership (the “Landlord”). The lease agreement was filed as an exhibit to NCB’s Form 8-K filing on January 30, 2006. NCB expects to vacate its offices at 1725 Eye Street in late December 2006. The majority of NCB’s operational activities will be moved to Arlington, Virginia. NCB’s principal executive offices will relocate to 601 Pennsylvania Avenue, NW, Washington, DC. The lease agreement provided NCB with the option to have the Landlord assume the economic obligation for the remaining 1725 Eye Street lease term. In August 2006, NCB exercised this option. Effective with the date NCB vacates the 1725 Eye Street office, the Landlord will obtain control over the current office space, including the rights to all furniture and fixtures. NCB will not receive consideration for the value of the furniture and fixtures. Therefore, NCB accelerated the amortization and depreciation of its furniture and fixtures and leasehold improvements over the remaining service period resulting in the recognition of $1.5 million of expense for the nine months ending September 30, 2006.

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Credit Quality

     During the first nine months of 2006, the allowance for loan losses increased by $0.7 million, or 3.2%, to $20.8 million. This included $0.3 million of recoveries received and $3.4 million of charge-offs.

     During the second quarter of 2006, NCB refined the allowance for loan loss calculation for its single-family loan portfolio. The loan loss allowance was adjusted to reduce the allocation for those single-family loans with specific ratings from 50 basis points to 10 basis points of the loan balance. This change in estimate was a direct result of NCB’s loan loss history for these types of loans due to its conservative underwriting. NCB did not experience any losses during 2005 from these types of loans.

     During the second quarter of 2006, NCB also refined the methodology employed to calculate the allowance for loan loss for commercial and commercial real estate loans. The refinement results in the use of more current information to estimate the expected loss for each loan.

     Included within the provision for loan losses for the three and nine months ended September 30, 2006 is $2.4 million related to the reclassification of a provision for unfunded commitments. The reclassification was the result of a letter of credit that was drawn on during the third quarter of 2006. Simultaneously, $2.4 million of the loan balance relating to the draw of the letter of credit was charged-off.

     Also during the third quarter, NCB increased the reserve allocation on all substandard small business loans from 20% to 100% of the unguaranteed or under-collateralized portions of the loans. NCB now records a reserve on the full, unpaid balance of these loans as opposed to only the unguaranteed portion of the loan.

     The net effect of the preceding changes in estimates, in addition to other charge-offs during the year, resulted in a charge of $3.8 million to the allowance for loan losses for the first nine months of 2006 compared to a $2.3 million charge for the same period in 2005.

     The allowance for loan losses represented 1.5 % and 1.6% of total loans and lease financing, excluding loans held for sale at September 30, 2006 and December 31, 2005, respectively.

     Total impaired assets (non-accruing and foreclosed real estate owned) increased to $22.3 million at September 30, 2006 from $14.2 million at December 31, 2005. At September 30, 2006 and December 31, 2005, impaired assets as a percentage of Members’ Equity were 9.9% and 6.5%, respectively. The allowance as a percentage of non-accruing loans was 94.5% at September 30, 2006 compared with 142.2% at December 31, 2005.

Table 3
IMPAIRED ASSETS
(dollars in thousands)

	September 30,			June 30,			March 31,			December 31,			September 30,
	2006			2006			2006			2005			2005
Real estate owned	$	193		$	62		$	25		$	10		$	10
Non-accrual loans		22,063			18,681			13,059			14,200			11,336
Total	$	22,256		$	18,743		$	13,084		$	14,210		$	11,346
As a percentage of loans and lease financing outstanding		1.64	%		1.42	%		1.01	%		1.12	%		0.92	%

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     Impaired assets, composed of non-accrual loans and real estate owned, totaled $22.3 million and $14.2 million at September 30, 2006 and December 31, 2005, respectively. The increase was largely a result of downgrades of $6.2 million of loans to a retail grocery chain and a $2.4 million loan to a natural foods cooperative. In addition, a $4.5 million loan to a retirement community was added to non-accrual status during the third quarter. Partially offsetting the increase in non-accrual loans was a $4.6 million payoff of a single non-accrual commercial loan. Real estate owned at September 30, 2006 and December 31, 2005 was $193 thousand and $10 thousand, respectively. The average balance of impaired loans was $17.2 million and $13.6 million for the nine months ended September 30, 2006 and September 30, 2005, respectively.

     NCB’s consolidated allowance calculation on a loan-by-loan basis at September 30, 2006 was $20.8 million, which represents an increase of $0.7 million from December 31, 2005. This was a result of an increase of $1.5 million in the general allowance netted with a $0.8 million decrease in specific reserves.

Results of Operations

For the three months ended September 30, 2006 compared to the three months ended September 30, 2005.

Overview

     NCB’s net income for the three months ended September 30, 2006 was $3.0 million. This was a 32.5% or $1.5 million decrease compared with $4.5 million for the three months ended September 30, 2005. The decrease was primarily driven by a $0.6 million increase in net interest income, a $3.1 million decrease in the provision for unfunded commitments offset with a $3.7 million increase in the provision for loan losses and a $1.7 million increase in occupancy and equipment.

     The annualized return on average total assets was 0.7% and 1.1% for the three months ended September 30, 2006 and 2005, respectively. The annualized return on average members’ equity was 5.2% and 8.7% for the three months ended September 30, 2006 and 2005, respectively.

Net Interest Income

     Net interest income for the three months ended September 30, 2006, increased $0.6 million or 5.7% to $11.6 million compared with $11.0 million for the three months ended September 30, 2005.

     For the three months ended September 30, 2006, interest income increased by 21.3% or $5.3 million, to $30.4 million compared with $25.1 million for the three months ended September 30, 2005. The total average earning balances increased by $92.4 million and aggregate yields increased from 6.12% in 2005 to 7.02% in 2006.

     Interest income from real estate loans increased $4.0 million or 31.9%. An increase in average balances of $57.6 million or 6.1% contributed $0.9 million of the increase while an increase in the yield from 5.35% in 2005 to 6.65% in 2006 contributed $3.1 million. Commercial loans and lease interest income increased $0.9 million or 8.3%. Average balances increased by $15.4 million or 2.7% contributing $0.3 million of the increase. The increase in the yield from 7.43% in 2005 to 7.84% in 2006 contributed $0.6 million to the year-over-year increase. Interest income from investment securities and cash equivalents increased by $0.5 million. A $22.9 million or 22.7% increase in average balances contributed $0.3 million to the increase, while an increase in yield from 4.96% in 2005 to 5.70% in 2006 contributed $0.2 million to the year-over-year increase.

     Other interest income was $0.7 million and $0.8 million for the three months ended September 30, 2006 and 2005.

     Interest expense for the three months ended September 30, 2006 increased $4.7 million or 33.4% from $14.1 million in 2005 to $18.8 million in 2006. Interest expense on deposits increased $2.0 million or 35.9% for the three months ended September 30, 2006. Average deposit balances grew by $52.5 million or 7.4% from 2005 to 2006, accounting for $0.5 million of the increase for the three months ended September 30, 2006. Additionally, the average deposit cost increased by 85 basis points from 3.10% to 3.95%, accounting for $1.5 million of the increase for the same period. The growth of deposits remains a key component of NCB’s funding strategy.

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     Interest expense on short-term borrowings increased by $1.4 million or 36.0%. The average balance on short-term borrowings decreased by $24.2 million, accounting for $0.3 million of the decrease. Offsetting the decrease in average balance was an increase in the average cost of borrowing from 4.15% to 6.05%, accounting for $1.7 million of the increase in interest expense. Interest expense on long-term debt, other borrowings and subordinated debt increased $1.4 million or 28.5%. The average balance increased by $34.3 million, accounting for $0.6 million of the increase. In addition, the average cost of borrowing increased from 5.46% to 6.39%, accounting for $0.8 million of the increase in interest expense.

     NCB recorded, as an offset to interest income, $36 thousand and $697 thousand associated with its swap contracts relating to the hedging of loans and loan commitments for the three months ended September 30, 2006 and 2005, respectively. In addition, and over the same respective periods, NCB recognized interest expense of $240 thousand and as an offset to interest expense, $205 thousand relating to the hedging of fixed-rate liabilities.

     See Table 1A and Table 2A for detailed information of the increases and decreases in interest income and interest expense for the three months ended September 30, 2006.

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Table 1A
Changes in Net Interest Income
For the three months ended September 30,
(Dollars in thousands)

	2006 Compared to 2005
							Increase (Decrease)
	Average Volume			Average Rate			Net**
Interest Income
Real estate loans	$	865		$	3,134		$	3,999
Commercial loans and leases		293			576			869
Total loans and lease financing		1,158			3,710			4,868
Investment securities and cash equivalents		305			207			512
Other interest income		(77	)		29			(48	)
Total interest income		1,386			3,946			5,332
Interest Expense
Deposits		465			1,513			1,978
Short-term borrowings		(308	)		1,664			1,356
Long-term debt, other borrowings and subordinated debt		550			816			1,366
Total interest expense		707			3,993			4,700
Net interest income	$	679		$	(47	)	$	632

** 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 2A
Rate Related Assets and Liabilities
For the three months ended September 30,
(Dollars in thousands)

	2006								2005
Assets	Average Balance*			Income / Expense		Average Rate/Yield			Average Balance*			Income / Expense		Average Rate/Yield
Interest earning assets
Real estate loans*	$	995,161		$	16,541		6.65	%	$	937,544		$	12,542		5.35	%
Commercial loans and leases*		579,968			11,362		7.84	%		564,602			10,493		7.43	%
Total loans and lease financing*		1,575,129			27,903		7.09	%		1,502,146			23,035		6.13	%
Investment securities and cash equivalents		123,707			1,762		5.70	%		100,814			1,250		4.96	%
Other interest income		32,761			737		9.00	%		36,215			785		8.67	%
Total interest earning assets		1,731,597			30,402		7.02	%		1,639,175			25,070		6.12	%
Allowance for loan losses		(18,694	)							(20,336	)
Non-interest earning assets
Cash		12,811								26,571
Other		41,086								44,528
Total non-interest earning assets		53,897								71,099
Total assets	$	1,766,800							$	1,689,938
Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	757,258		$	7,487		3.95	%	$	704,759		$	5,509		3.13	%
Short-term borrowings		338,981			5,123		6.05	%		363,147			3,767		4.15	%
Long-term debt, other borrowings and
subordinated debt		385,447			6,162		6.39	%		351,148			4,796		5.46	%
Total interest bearing liabilities		1,481,686			18,772		5.07	%		1,419,054			14,072		3.97	%
Other liabilities		53,797								64,155
Members’ equity		231,317								206,729
Total liabilities and members’ equity	$	1,766,800							$	1,689,938
Net interest earning assets	$	249,911							$	220,121
Net interest revenues and spread				$	11,630		1.95	%				$	10,998		2.15	%
Net yield on interest earning assets							2.69	%							2.68	%

* Average loan balances include non-accrual loans.

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Non-interest Income
(dollars in thousands)

	Non-interest income for
	the three months ended September 30,
	2006		2005
Gain on sale of loans	$	6,184	$	6,079
Servicing fees		1,262		1,118
Letter of credit fees		910		904
Prepayment Fees		71		(89	)
Other		863		806
Total	$	9,290	$	8,818

     Total non-interest income increased $0.5 million or 5.4% from $8.8 million during the three months ended September 30, 2005 to $9.3 million in 2006. The decline was primarily driven by an increase of $0.1 million in gain on sale of loans from $6.1 million for the three months ended September 30, 2005 to $6.2 million for the three months ended September 30, 2006, in addition to various other small variances in non-interest income.

     As a percentage, the gain on sale of mortgage loans for securitization was 2.6% of the unpaid principal balance sold for the three months ended September 30, 2006. There were no sales of mortgage loans for securitization during the three months ended September 30, 2005.

     The following table shows the unpaid principal balance of loans sold during the three months ended September 30 (dollars in thousands):

	2006		2005
Mortgage loans for securitization	$	178,416	$	—
Auto loan sales		65,320		19,886
Other loan sales		68,500		206,649
Single family residential and cooperative loans		17,999		24,303
SBA loans		1,586		2,961
Total	$	331,821	$	253,799

     There were $1.3 million of investment securities available-for-sale sold during the three months ended September 30, 2006 compared to $3.3 million sold during three months ended September 30, 2005.

     NCB’s net SFAS 133 adjustment, which is included in “Gain on Sale of Loans,” was a loss of $0.5 million for the three months ended September 30, 2006 compared to a gain of $0.4 million for the same period last year.

     Prepayment fees increased by $160 thousand for the three months ended September 30, 2005 to 2006. This increase primarily relates to three small prepayment fees on multi-family residential real estate loans. The $89 thousand prepayment fee loss recorded for the three months ended September 30, 2005 reflects a greater write down of the interest-only receivable than the prepayment fee received.

     In total, non-interest income amounted to 44.4% of total net revenue (net interest income plus non-interest income) for the three months ended September 30, 2006 compared with 44.5% in 2005.

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Non-interest Expense
(dollars in thousands)

	Non-interest expense for
	the three months ended
	September 30,
	2006			2005
Compensation and employee benefits	$	8,269		$	7,217
(Credit) provision for unfunded commitments		(2,365	)		780
Occupancy and equipment		3,312			1,593
Contractual services		1,523			1,489
Corporate development		566			739
Information systems		718			667
Travel and entertainment		316			335
Other		322			674
Total	$	12,661		$	13,494

     Non-interest expense for the three months ended September 30, 2006, decreased 6.2% or $0.8 million to $12.7 million compared with $13.5 million for the corresponding prior year period primarily due to a $3.1 million decrease or credit to the provision for unfunded commitments, offset by a $1.1 million increase in compensation and employee benefits and a $1.7 million increase in occupancy and equipment. Non-interest expense as a percentage of average assets was 2.9% and 3.2% for the three months ended September 30, 2006 and 2005, respectively.

     Compensation and employee benefits increased 14.6% or $1.1 million to $8.3 million compared to $7.2 million for the three months ended September 30, 2005. This was largely driven by a $0.3 million increase in base salary adjustments, a $0.4 million decrease in the FAS 91 loan origination fees and costs deferral and a $0.1 million increase in bonuses and incentives for the three months ending September 30, 2006 compared to the same period ending September 30, 2005. The decrease or credit to the provision for unfunded commitments of $3.1 million resulted primarily from a $2.4 million reclassification from the provision for unfunded commitments to the provision for loan losses for a draw on a letter of credit, netted with additional provisions recorded during 2006.

     Occupancy and equipment for the three months ended September 30, 2006 increased $1.7 million or 107.9% to $3.3 million compared with $1.6 million for the corresponding prior year period. The increase resulted from the acceleration of depreciation relating to fixtures and furnishings and leasehold improvements at NCB’s current 1725 Eye Street, Washington, D.C. headquarters (“1725 Eye Street”).

     In January 2006 NCB entered into a lease for office space in Arlington, Virginia with First Crystal Park Associates Limited Partnership, a Virginia limited partnership (the “Landlord”). The lease agreement was filed as an exhibit to NCB’s Form 8-K filing on January 30, 2006. NCB expects to vacate its offices at 1725 Eye Street in late December 2006. The majority of NCB’s operational activities will be moved to Arlington, Virginia. NCB’s principal executive offices will relocate to 601 Pennsylvania Avenue, NW, Washington, DC. The lease agreement provided NCB with the option to have the Landlord assume the economic obligation for the remaining 1725 Eye Street lease term. In August 2006, NCB exercised this option. Effective with the date NCB vacates the 1725 Eye Street office, the Landlord will obtain control over the current office space, including the rights to all furniture and fixtures. NCB will not receive consideration for the value of the furniture and fixtures. Therefore, NCB accelerated the amortization and depreciation of its furniture and fixtures and leasehold improvements over the remaining service period resulting in the recognition of $1.5 million of expense for the three months ending September 30, 2006.

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Liquidity and Capital Resources

Cash Requirements

     NCB uses cash primarily for providing loans to eligible cooperative enterprises or enterprises controlled by eligible cooperatives, debt payments and patronage dividends to stockholders. NCB depends primarily on loan sales, deposits from our customers and debt borrowings to finance future growth.

     Cash Balances.As of September 30, 2006, NCB had $50.6 million of cash and equivalents, which was an increase of $7.6 million from December 31, 2005.

     As of September 30, 2006, NCB also had $5.3 million of cash that was restricted as a result of a recourse obligation as discussed in Note 8.

     Debt Repayments and Refinancing.During the second quarter of 2006, NCB terminated its previous revolving credit agreement and entered into a new credit agreement on May 1, 2006. Included in interest expense for the nine months ended September 30, 2006 is $0.5 million of deferred costs related to the previous revolving line of credit. The new revolving credit agreement has a total facility available of $350.0 million and matures on April 29, 2011. As of September 30, 2006, $145.0 million was outstanding under the new revolving line of credit. NCB also has letter of credit availability under the revolver of which $5.0 million was outstanding as of September 30, 2006. Additionally, the commercial paper program was terminated on June 30, 2006.

     Loan Fundings.NCB is continually funding various types of loans, including commercial, real estate and consumer loans.

Sources and Uses of Cash

     NCB’s principal sources of cash are loan sales, interest on loans, deposits from customers and debt borrowings. The principal uses of cash are loan fundings and purchases of investment securities.

     Cash Provided by Operating Activities.NCB’s net cash provided by operating activities for the nine months ended September 30, 2006 was $123.4 million against $82.5 million for the nine months ended September 30, 2005. This increase in cash provided was primarily due to a $108.2 million increase in cash used in the purchase of loans held for sale, a $30.5 million decrease in cash used to originate loans for sale, net of principal collections and a $112.6 million increase in cash proceeds from sale of loans held for sale.

     Cash Used in Investing Activities.NCB’s net cash used in investing activities for the nine months ended September 30, 2006 was $100.9 million compared to $117.7 million for the nine months ended September 30, 2005. This decrease in cash used was primarily due to a $13.9 million decrease in cash used in net new loans.

     Cash (Used in) Provided by Financing Activities.NCB’s net cash used in financing activities for the nine months ended September 30, 2006 was $14.8 million against $22.6 million of net cash provided by financing activities for the nine months ended September 30, 2005 primarily due a $75.2 million decrease in cash from deposits, offset by a $41.1 million net increase in cash proceeds from the issuance of debt.

Uses of Funds

Loans and Leases

     Loans and leases, including loans held for sale, outstanding were $1.5 billion at September 30, 2006 and December 31, 2005.

41

     The commercial loan and lease portfolio decreased 3.5% to $534.6 million at September 30, 2006 compared with $553.8 million at December 31, 2005. NCB’s commercial portfolio has a concentration in the food retailing and healthcare markets, the latter being mostly residential care facilities. The loan types include lines of credit, revolving credits, and term loans. These loans are typically collateralized with general business assets (e.g., inventory, receivables, fixed assets, and leasehold interests). The loans are generally expected to be repaid from cash flows generated by the borrower’s operating activities. NCB’s exposure to credit loss in the event of nonperformance by the other parties to the loan is the carrying amounts of the loans less the realizable value of the collateral.

     NCB’s real estate loan portfolio increased 15.4% to $790.6 million for the nine months ended September 30, 2006 from $685.0 million at December 31, 2005. The real estate portfolio is substantially composed of multifamily cooperative mortgages, single-family mortgage and cooperative single-family loans.

Cash, Cash Equivalents, and Investment Securities

     Cash, cash equivalents, and investment securities increased 6.2% or $8.3 million to $142.0 million at September 30, 2006 compared with $133.7 million at December 31, 2005.

Interest-Bearing Liabilities

     Per Table 4, interest-bearing liabilities slightly decreased to $1.41 billion at September 30, 2006 from $1.42 billion at December 31, 2005.

     For the nine months ended September 30, 2006, deposits, all of which are held at NCB, FSB, increased 2.2% to $753.9 million from $737.4 million at December 31, 2005. The weighted average rate on deposits at September 30, 2006 was 4.1% compared to 3.5% at December 31, 2005. The average maturity of the certificates of deposit at September 30, 2006 was 21.5 months compared with 25.1 months at December 31, 2005.

     At September 30, 2006 NCB had two depositors, each having deposits in excess of 5% of NCB’s total deposits, of 13.5% and 6.7% of total deposits respectively. Of the $152.2 million of total deposits from these two depositors, $0.2 million relates to non-interest bearing demand deposits, $32.3 million relates to interest bearing demand deposits and $119.7 million relates to certificate of deposits with early withdrawal penalties. Of the $119.7 million of certificates of deposit, $17.7 million matures within 3 months and $102.0 million has a maturity ranging from 16 months to 94 months. Thus, NCB does not consider this concentration a significant liquidity risk.

Table 4
Interest-Bearing Liabilities
(dollars in thousands)

	September 30,		December 31,
	2006		2005		% Change
Deposits	$	753,862	$	737,383		2.2	%
Short-term debt		269,100		312,882		-14.0	%
Long-term debt		217,892		193,041		12.9	%
Subordinated debt		123,161		123,117		0.0	%
Junior subordinated debt		50,639		50,614		0.0	%
Total	$	1,414,654	$	1,417,037		-0.2	%

     At September 30, 2006 total short-term and long-term borrowings (including subordinated debt) decreased $18.9 million or 2.8% from $679.7 million at December 31, 2005 to $660.8 million at September 30, 2006.

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     NCB, FSB had $168.0 million advances from the FHLB, of which $50.0 million were long-term, at September 30, 2006 compared to $181.6 million at December 31, 2005, none of which was long-term. NCB also has letter of credit availability under the FHLB of which $10.6 million was outstanding at September 30, 2006.

     At September 30, 2006 NCB had $350.0 million of committed revolving lines of credit available with $145.0 million outstanding. NCB also has letter of credit availability under the revolver of which $5.0 million was outstanding at September 30, 2006. At December 31, 2005, no balance was outstanding on the previous revolving lines of credit.

     NCB had $20.0 million of bid lines (borrowing facilities in which no commitment fee is paid and where the other party is not committed to lend to NCB) available of which $7.0 million was outstanding at September 30, 2006. There were no bid lines outstanding at December 31, 2005.

     At September 30, 2006 NCB had no commercial paper borrowings outstanding as the program was terminated. At December 31, 2005 there were $132.2 million of commercial paper borrowings outstanding.

     At September 30, 2006 and December 31, 2005, under its Medium Term Note Program NCB had authority to issue up to $151.0 million and $176.0 million of medium term notes, respectively. As of September 30, 2006 and December 31, 2005, NCB had $15.0 million and $40.0 million of medium term notes outstanding under this program, respectively. In addition, as of September 30, 2006 and December 31, 2005, NCB had $155.0 million of privately placed debt issued to various institutional investors outstanding. At September 30, 2006, NCB had $10.0 million remaining capacity of private placement issuances under an Uncommitted Master Shelf Agreement with an institutional investor.

Contractual Obligations

     NCB has various financial obligations, including contractual obligations that may require future cash payments. In January 2006 NCB entered into a lease for office space in Arlington, Virginia with First Crystal Park Associates Limited Partnership, a Virginia limited partnership. The lease agreement was filed as an exhibit to NCB’s Form 8-K filing on January 30, 2006. At September 30, 2006 there were no other material changes to either the type or maturity of contractual obligations from December 31, 2005.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

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

Patronage Dividends

     In connection with the annual patronage dividend, NCB is required to distribute all patronage related income, less reserves designated for dividends on Class C stock. The actual patronage distributed was $6.5 million greater than the recorded estimate at December 31, 2005 due to differences between book income and taxable income.

Provision for Income Taxes

     The federal income tax provision is determined on the basis of non-member income generated by NCB, FSB and reserves set aside for dividends on Class C stock. NCB’s subsidiaries are also subject to varying levels of state taxation. The income tax provision was $1.1 million and $1.5 million for the nine months ended September 30, 2006 and 2005, respectively.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     No material changes in NCB’s market risk profile occurred from December 31, 2005 to September 30, 2006.

ITEM 4. CONTROLS AND PROCEDURES

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

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

Part II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

     There have been no material changes in the risk factors described in Item 1A (“Risk Factors”) of NCB’s Annual Report on Form 10-K for the year ended December 31, 2005.

Item 6. Exhibits

     The following exhibits are filed as part of this report:

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

NATIONAL CONSUMER COOPERATIVE BANK

Date:          November 14, 2006

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

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