National Consumer Cooperative Bank 10-Q 2007 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2007

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.)

601 Pennsylvania Avenue, N.W., North Building, Suite 750, Washington, D.C.	20004
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:(202) 349-7444

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

Yes  þ     No  o.

Indicate by check mark 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 filer     o               Accelerated filer     o               Non-accelerated filer     þ

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

Yes  o     No  þ.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of June 30, 2007: Class B 1,627,361; Class C 244,938.

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

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1	Consolidated Balance Sheets — June 30, 2007 (unaudited) and December 31, 2006	1
	Consolidated Statements of Income (unaudited) — for the three and six months ended June 30, 2007 and 2006	2
	Consolidated Statements of Comprehensive Income (unaudited) — for the six months ended June 30, 2007 and 2006	3
	Consolidated Statements of Changes in Members’ Equity (unaudited) — for the six months ended June 30, 2007 and 2006	4
	Consolidated Statements of Cash Flows (unaudited) — for the six months ended June 30, 2007 and 2006	5-6
	Condensed Notes to the Consolidated Financial Statements (unaudited) — June 30, 2007	7-27
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited) — for the six and three months ended June 30, 2007 and 2006	28-44
Item 3	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4	Controls and Procedures	45
PART II OTHER INFORMATION
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 6	Exhibits	45
	Signatures	46

NATIONAL CONSUMER COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
(in thousands)

	June 30, 2007			December 31, 2006
	(Unaudited)
Assets
Cash and cash equivalents	$	55,238		$	47,756
Restricted cash		5,530			5,398
Investment securities
Available-for-sale		86,447			85,708
Held-to-maturity		1,595			1,647
Loans held for sale		312,774			242,949
Loans and lease financing		1,418,254			1,380,636
Less: Allowance for loan losses		(18,591	)		(19,480	)
Net loans and lease financing		1,399,663			1,361,258
Other assets		100,274			84,863
Total assets	$	1,961,521		$	1,829,477
Liabilities and Members’ Equity
Liabilities
Deposits	$	970,090		$	806,453
Patronage dividends payable in cash		10,980			7,118
Other liabilities		47,387			44,299
Borrowings
Short-term		312,542			354,673
Long-term		217,315			217,773
Subordinated debt
Current		2,500			2,500
Non-current		118,205			118,176
Junior subordinated debt		50,664			50,647
Total borrowings		701,226			743,769
Total liabilities		1,729,683			1,601,639
Members’ equity
Common stock		187,230			187,230
Retained earnings
Allocated		15,931			10,328
Unallocated		29,261			29,388
Accumulated other comprehensive (loss) income		(584	)		892
Total members’ equity		231,838			227,838
Total liabilities and members’ equity	$	1,961,521		$	1,829,477

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

1

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

	Three months ended						Six months ended
	June 30,						June 30,
	2007			2006			2007			2006
Interest income
Loans and lease financing	$	30,037		$	26,618		$	61,576		$	52,243
Investment securities		1,940			1,769			3,897			3,338
Other interest income		746			724			1,463			1,496
Total interest income		32,723			29,111			66,936			57,077
Interest expense
Deposits		10,524			7,251			19,447			14,188
Short-term borrowings		4,306			4,807			9,921			9,003
Long-term debt, other borrowings and subordinated debt		6,111			5,669			12,158			11,067
Total interest expense		20,941			17,727			41,526			34,258
Net interest income		11,782			11,384			25,410			22,819
Provision (credit) for loan losses		438			(1,428	)		51			(1,441	)
Net interest income after provision (credit) for loan losses		11,344			12,812			25,359			24,260
Non-interest income
Gain on sale of loans		4,411			5,129			11,411			9,413
Loss on sale of investments available-for-sale		(15	)		—			(15	)		(8	)
Servicing fees		1,136			1,156			2,232			2,251
Letter of credit fees		717			1,047			1,737			1,774
Prepayment fees		689			170			676			1,090
Other		1,165			937			2,266			1,748
Total non-interest income		8,103			8,439			18,307			16,268
Non-interest expense
Compensation and employee benefits		9,390			7,553			18,300			15,582
Lease termination costs		3,148			—			3,148			—
Occupancy and equipment		2,017			1,559			4,192			3,119
Contractual services		1,878			1,201			3,127			2,838
Deferred rent recognition related to lease termination		(1,860	)		—			(1,860	)		—
Information systems		1,117			660			1,963			1,313
Lower of cost or market adjustment		1,003			304			804			249
Corporate development		878			810			1,637			1,409
Travel and entertainment		383			343			693			689
(Credit) provision for unfunded commitments		(261	)		1,348			(196	)		1,412
Other		932			820			1,928			1,564
Total non-interest expense		18,625			14,598			33,736			28,175
Income before income taxes		822			6,653			9,930			12,353
Provision for income taxes		206			661			208			1,166
Net income	$	616		$	5,992		$	9,722		$	11,187
Distribution of net income
Patronage dividends	$	2,038		$	5,175		$	9,465		$	9,386
Retained earnings		(1,422	)		817			257			1,801
	$	616		$	5,992		$	9,722		$	11,187

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

2

NATIONAL CONSUMER COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the six months ended June 30,
(in thousands)
(Unaudited)

	2007			2006
Net income	$	9,722		$	11,187
Other comprehensive income
Unrealized holding loss before tax on available-for- sale investment securities and non-certificated interest- only receivables		(1,479	)		(1,972	)
Tax effect		3			9
Comprehensive income	$	8,246		$	9,224

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

3

NATIONAL CONSUMER COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
For the six months ended June 30, 2007 and 2006
(in thousands)
(Unaudited)

								Accumulated
			Retained		Retained			Other			Total
	Common		Earnings		Earnings			Comprehensive			Members’
	Stock		Allocated		Unallocated			Income			Equity
Balance, December 31, 2006	$	187,230	$	10,328	$	29,388		$	892		$	227,838
Net income		—		—		9,722			—			9,722
Other dividends declared		—		—		(384	)		—			(384	)
2007 patronage dividends
To be distributed in cash		—		—		(3,862	)		—			(3,862	)
Retained in form of equity		—		5,603		(5,603	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes		—		—		—			(1,476	)		(1,476	)
Balance, June 30, 2007	$	187,230	$	15,931	$	29,261		$	(584	)	$	231,838

									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		—			—		11,187			—			11,187
Adjustment to prior year dividends		—			3		(3	)		—			—
Cancellation of stock		(76	)		—		76			—			—
Other dividends declared		—			—		(512	)		—			(512	)
2006 patronage dividends
To be distributed in cash		—			—		(3,916	)		—			(3,916	)
Retained in form of equity		—			5,470		(5,470	)		—			—
Unrealized loss on available-for-sale investment securities and non-certificated interest-only receivables, net of taxes		—			—		—			(1,963	)		(1,963	)
Balance, June 30, 2006	$	170,792		$	18,780	$	34,785		$	(553	)	$	223,804

4

NATIONAL CONSUMER COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(in thousands)
(Unaudited)

	2007			2006
Cash flows from operating activities
Net income	$	9,722		$	11,187
Adjustments to reconcile net income to net cash provided by operating activities
Provision (credit) for loan losses		51			(1,441	)
(Credit) provision for losses on unfunded commitments		(196	)		1,412
Amortization of interest-only receivables and servicing rights		5,462			4,886
Depreciation and amortization, other		438			1,536
Gain on sale of loans		(11,411	)		(9,413	)
Loss on sale of investments available-for-sale		15			8
Purchase of loans held for sale		(102,886	)		(75,003	)
Loans originated for sale, net of principal collections		(483,823	)		(403,996	)
Net proceeds from sale of loans held for sale		514,660			532,267
Tenant improvement allowance		3,656			—
Lease termination incentive		3,148			—
Lease termination costs		(1,585	)		—
Deferred rent recognition related to lease termination		(1,860	)		—
(Increase) decrease in other assets		(1,154	)		326
Increase (decrease) in other liabilities		967			(6,403	)
Net cash (used in) provided by operating activities		(64,796	)		55,366
Cash flows from investing activities
Increase in restricted cash		(132	)		(113	)
Purchase of investment securities
Available-for-sale		(13,765	)		(64,951	)
Held-to-maturity		—			(17	)
Proceeds from maturities of investment securities
Available-for-sale		9,637			62,759
Held-to-maturity		52			49
Proceeds from the sale of investment securities
Available-for-sale		1,060			842
Net increase in loans and lease financing		(37,965	)		(59,245	)
Purchases of premises and equipment		(7,501	)		(1,451	)
Net cash used in investing activities		(48,614	)		(62,127	)
Cash flows from financing activities
Net increase (decrease) in deposits		163,528			(2,471	)
Net (decrease) increase in short-term borrowings		(42,200	)		9,515
Repayments of long-term debt		—			(25,000	)
Proceeds from the issuance of long-term debt		—			30,000
Incurrence of financing costs		(50	)		(1,053	)
Other dividends paid		(386	)		(512	)
Net cash provided by financing activities		120,892			10,479
Increase in cash and cash equivalents		7,482			3,718
Cash and cash equivalents, beginning of period		47,756			43,001
Cash and cash equivalents, end of period	$	55,238		$	46,719

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

5

NATIONAL CONSUMER COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(in thousands)
(Unaudited)

Supplemental schedule of non-cash investing and financing activities:

	2007			2006
Unrealized loss on investment securities available-for-sale and non-certificated interest-only receivables, net of taxes	$	(1,476	)	$	(1,963	)
Loans transferred to other real estate owned	$	143		$	62
Supplemental information:
Interest paid	$	39,789		$	33,767
Income taxes paid	$	434		$	972

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

6

NATIONAL CONSUMER COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2007
(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 NCB’s results of operations, financial condition and cash flows. 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 NCB’s 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 NCB’s reported financial results: allowance for loan losses, servicing assets and interest-only receivables, derivative instruments and hedging, and income taxes.

     The assumptions involved in applying these policies are discussed in the Annual Report on Form 10-K. We evaluate the accounting estimates and assumptions on an on-going basis. As of June 30, 2007, NCB has not made any significant changes to the estimates and assumptions used in applying the critical accounting policies from the audited 2006 financial statements.

     While NCB believes the 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):

	June 30,		December 31,
	2007		2006
Cash	$	30,644	$	24,747
Cash equivalents		24,594		23,009
Total	$	55,238	$	47,756

     In addition, there was restricted cash of $5.5 million as of June 30, 2007 and $5.4 million as of December 31, 2006, which relates to a recourse obligation under an agreement with Fannie Mae as discussed in Note 18.

7

4. INVESTMENT SECURITIES

     The composition of available-for-sale investment securities at June 30, 2007 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Interest-only certificated receivables	$	38,329	$	224	$	(1,113	)	$	37,440
U.S. Treasury and agency obligations		39,699		5		(210	)		39,494
Corporate notes		5,598		1		(45	)		5,554
Mutual funds		1,537		—		(133	)		1,404
Mortgage-backed securities		2,399		28		(33	)		2,394
Equity securities		51		110		—			161
Total	$	87,613	$	368	$	(1,534	)	$	86,447

     The composition of available-for-sale investment securities at December 31, 2006 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Interest-only certificated receivables	$	39,891	$	545	$	(486	)	$	39,950
U.S. Treasury and agency obligations		37,526		12		(257	)		37,281
Corporate notes		5,659		8		(33	)		5,634
Mutual funds		1,503		—		(124	)		1,379
Mortgage-backed securities		1,406		7		(36	)		1,377
Equity securities		50		37		—			87
Total	$	86,035	$	609	$	(936	)	$	85,708

     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 June 30, 2007 to be other-than-temporary in accordance with U.S. generally accepted accounting principles.

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 sold loans directly into securitizations 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 June 30, 2007. Interest-only certificated receivables substantially pertain to loans to cooperative housing corporations.

8

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

     At June 30, 2007, NCB held U.S. treasury and agency obligations that were guaranteed by the full faith and credit of the U.S. government and its agencies and therefore, NCB considers the loss on these items to be interest-rate related. At June 30, 2007, NCB held mortgage-backed securities, issued by Freddie Mac and Fannie Mae and considers the loss on those items to be interest-rate related. At June 30, 2007, NCB held investment-grade corporate notes and given the current credit ratings of these companies, NCB considers the loss on the notes to be interest-rate related. NCB considers the loss on the mutual funds to be interest-rate related. Unless a credit rating downgrade occurs related to particular investments that would cause those investments to be sold below fair value, NCB has the ability and intent to hold the U.S. treasury notes and obligations, 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.

     During the six months ended June 30, 2007, there were $1.1 million of available-for-sale securities sold compared with $0.9 million of available-for-sale securities sold during the six months ended June 30, 2006.

     During the three months ended June 30, 2007, there were $1.1 million of available-for-sale securities sold compared with no available-for-sale securities sold during the three months ended June 30, 2006.

     The composition of held-to-maturity investment securities at June 30, 2007 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	1,178	$	228		—	$	1,406
Corporate debt securities		417		32		—		449
Total	$	1,595	$	260	$	—	$	1,855

     The composition of held-to-maturity investment securities at December 31, 2006 is as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	1,178	$	254	$	—	$	1,432
Corporate debt securities		469		9		—		478
Total	$	1,647	$	263	$	—	$	1,910

5. LOAN SERVICING

     The unpaid principal balance of 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):

	2007			2006
Balance at January 1	$	4,682,056		$	4,086,526
Additions		407,115			453,737
Loan payments and payoffs		(159,499	)		(99,699	)
Balance at June 30	$	4,929,672		$	4,440,564

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

9

6. LOANS AND LEASE FINANCING

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

	June 30,		December 31,
	2007		2006
Consumer loans	$	11,494	$	10,605
Commercial loans		523,597		521,649
Real estate loans:
Residential		734,105		701,311
Commercial		148,508		146,435
Lease financing		550		636
Total	$	1,418,254	$	1,380,636

7. LOANS HELD FOR SALE

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

	June 30,		December 31,
	2007		2006
Consumer		3,283	$	1,484
Commercial loans		18,677		10,026
Real estate loans:
Residential		148,894		180,862
Commercial		141,920		50,577
Total	$	312,774	$	242,949

8. IMPAIRED LOANS

     A loan is considered impaired when, based on current information, it is probable NCB will be unable to collect all amounts due under the contractual terms of the loan. Impaired loans totaled $19.4 million and $21.6 million at June 30, 2007 and December 31, 2006, respectively. The average balance of impaired loans was $18.8 million and $18.3 million at June 30, 2007 and December 31, 2006, respectively. The interest income that was due, but not recognized on impaired loans was $1.4 million and $0.9 million for the six months ended June 30, 2007 and 2006, respectively. At June 30, 2007 NCB had a specific allowance of $5.1 million related to $12.4 million of impaired loans and a general allowance of $1.2 million related to $7.0 million of impaired loans. At December 31, 2006 NCB had a specific allowance of $6.4 million related to $19.1 million of impaired loans and a general allowance of $0.3 million related to $2.5 million of impaired loans. Reserves at June 30, 2007 were deemed adequate to cover the estimated loss exposure related to the above loans.

     Of the $12.4 million of impaired loans with a specific allowance at June 30, 2007, $1.9 million was for a loan that was not in non-accrual status. However, the loan was deemed impaired due to the debt being restructured during the second quarter and the realizable cash flows being significantly lower than the current outstanding principal balance of the loan at June 30, 2007.

     As of June 30, 2007, there were no commitments to lend additional funds to borrowers whose loans were impaired.

     Real estate owned was $143 thousand at June 30, 2007 and $193 thousand at December 31, 2006.

10

9. ALLOWANCE FOR LOAN LOSSES AND UNFUNDED COMMITMENTS

     The following is a summary of the components of the allowance for loan losses as of June 30, 2007 and December 31, 2006 (dollars in thousands):

	June 30,		December 31,
	2007		2006
Specific allowance on impaired loans	$	5,146	$	6,443
General allowance on impaired loans		1,198		325
General allowance		12,247		12,712
Total allowance for loan losses	$	18,591	$	19,480

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

	2007			2006
Balance at January 1	$	19,480		$	20,193
Charge-offs
Consumer		(157	)		(29	)
Commercial		(976	)		(851	)
Real estate		—			(32	)
Total charge-offs		(1,133	)		(912	)
Recoveries
Consumer		30			1
Commercial		163			203
Real estate		—			—
Total recoveries		193			204
Net charge-offs		(940	)		(708	)
Provision (credit) for loan losses		51			(1,441	)
Balance at June 30	$	18,591		$	18,044

     The $1.1 million of charge-offs includes $0.9 million related to a partial charge-off of one loan to a grocery retailer.

11

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

	2007			2006
Balance at January 1	$	1,528		$	2,605
(Credit) provision for unfunded commitments		(196	)		1,412
Balance at June 30	$	1,332		$	4,017

     Included in the change in the reserve for losses on unfunded commitments from June 30, 2006 to June 30, 2007 was a $2.4 million reclassification to the allowance for loan losses as the result of a draw on a letter of credit during the third quarter of 2006.

12

10. OTHER ASSETS

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

	June 30,		December 31,
	2007		2006
Non-certificated interest-only receivables	$	31,529	$	33,053
Premises and equipment, net		14,038		7,316
Accrued interest receivables		11,337		10,044
Mortgage servicing rights		11,010		9,362
Derivative assets		9,620		2,210
Federal Home Loan Bank stock		9,274		8,421
Valuation of letters of credit		6,517		6,914
Equity method investments		2,498		2,391
Prepaid assets		1,900		2,397
Other		2,551		2,755
Total other assets	$	100,274	$	84,863

     In January 2006 NCB entered into a lease for office space in Arlington, Virginia (“Arlington Lease”). The Arlington Lease agreement provided NCB with the option to have the Arlington landlord assume the economic obligation for the remaining term of its existing headquarters lease at 1725 Eye Street, NW, Washington, D.C. (“1725 Eye Street Lease”). In August 2006, NCB exercised this option. NCB vacated its offices at 1725 Eye Street in April 2007 and relocated the majority of NCB’s operational activities to Arlington, Virginia. Concurrently, NCB’s principal executive offices relocated to 601 Pennsylvania Avenue, NW, Washington, D.C.

     Also, during the second quarter of 2007, NCB agreed to the termination of the 1725 Eye Street Lease. The termination agreement required the payment of $1.562 million by the Arlington landlord directly to the 1725 Eye Street landlord and the payment of $1.585 million by NCB to the 1725 Eye Street landlord. Through an amendment to the Arlington Lease, NCB simultaneously received reimbursement of its payment of $1.585 million from the Arlington landlord. In accordance with the FASB’s Technical Bulletin No. 88-1, the payments made to the 1725 Eye Street landlord were recognized as a lease termination cost in the consolidated statements of income and a lease incentive liability on the consolidated balance sheet. The lease incentive liability will be amortized on a straight-line basis over the fifteen-year term of the Arlington Lease totaling $3.148 million. NCB recognized the remaining deferred rent liability associated with the vacated 1725 Eye Street premises that amounted to $1.9 million.

     Within premises and equipment at June 30, 2007 is $8.1 million of building expenditures relating to NCB’s new operations center in Arlington, Virginia and new headquarters in Washington, D.C.

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11. DEPOSITS

     Deposits consisted of the following (dollars in thousands):

	June 30, 2007					December 31, 2006
			Average					Average
	Balance		Rate Paid			Balance		Rate Paid
Non-interest bearing demand deposits	$	40,815		—		$	39,596		—
Interest-bearing demand deposits		265,699		4.05	%		214,824		3.60	%
Savings deposits		6,969		1.28	%		6,493		1.26	%
Certificates of deposit		656,607		4.84	%		545,540		4.61	%
Total deposits	$	970,090				$	806,453

     The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $514.3 million and $398.0 million at June 30, 2007 and December 31, 2006, respectively.

     At June 30, 2007 and December 31, 2006, the scheduled maturities of certificates of deposit with a minimum denomination of $100,000 were as follows (dollars in thousands):

	June 30, 2007		December 31, 2006
Within 3 months	$	122,846	$	77,901
Over 3 months through 6 months		73,687		34,974
Over 6 months through 12 months		120,551		53,124
Over 12 months		197,210		231,524
Total certificates of deposit	$	514,294	$	397,523

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

	For the three months ended				For the six months ended
	June 30,				June 30,
	2007		2006		2007		2006
Interest-bearing demand deposits	$	2,785	$	1,973	$	4,914	$	3,696
Savings deposits		22		24		43		44
Certificates of deposit		7,717		5,254		14,490		10,448
Total deposit interest expense	$	10,524	$	7,251	$	19,447	$	14,188

12. 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.

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     NCB, FSB’s capital exceeded the minimum capital requirements at June 30, 2007 and December 31, 2006. The following table summarizes NCB, FSB’s capital and pro-forma minimum capital requirements (ratios and dollars) at June 30, 2007 and December 31, 2006 (dollars in thousands):

											To be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2007:
Tangible Capital (to tangible assets)	$	137,300		10.01	%	$	20,575		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)	$	143,694		12.10	%	$	95,029		8.00	%	$	118,786		10.00	%
Tier I Risk- Based Capital (to risk-weighted assets)	$	136,801		11.52	%		N/A		N/A		$	71,271		6.00	%
Core Capital (to adjusted tangible assets)	$	137,300		10.01	%	$	54,867		4.00	%	$	68,584		5.00	%
As of December 31, 2006:
Tangible Capital (to tangible assets)	$	130,128		10.74	%	$	18,173		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)	$	134,892		14.09	%	$	76,599		8.00	%	$	95,749		10.00	%
Tier I Risk- Based Capital (to risk-weighted assets)	$	129,619		13.54	%		N/A		N/A		$	57,450		6.00	%
Core Capital (to adjusted tangible assets)	$	130,128		10.74	%	$	48,462		4.00	%	$	60,577		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 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 June 30, 2007, no such limitations or restrictions existed.

13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

     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.

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     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 to customers 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 housing corporation loans, single-family cooperative loans, and single-family residential loans. In the case of single-family cooperative 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 housing corporation 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 2007 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 are as follows (dollars in thousands):

	Contract or				Estimated
	Commitment Amounts				Fair Value
	June 30,		December 31,		June 30,			December 31,
	2007		2006		2007			2006
Financial instruments whose contract amounts represent credit risk:
Undrawn commitments to extend credit	$	844,995	$	809,869	$	4,225		$	4,049
Rate lock commitments to extend credit:
Single-family	$	6,298	$	5,153	$	7		$	11
Commercial real estate	$	86,910	$	107,306	$	(877	)	$	(632	)
Standby letters of credit	$	214,704	$	219,456	$	7,466		$	5,837

     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 $6.4 million was recorded in other liabilities and a corresponding asset of $6.5 million was recorded in other assets in the Consolidated Balance Sheet at June 30, 2007. In accordance with FIN 45, a liability of $6.8 million was recorded in other liabilities and a corresponding asset of $6.9 million was recorded in other assets in the Consolidated Balance Sheet at December 31, 2006.

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     NCB reserved $1.3 million and $1.5 million as of June 30, 2007 and December 31, 2006, respectively, to cover its loss exposure to unfunded commitments.

14. DERIVATIVE FINANCIAL INSTRUMENTS

     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, rate lock commitments and debt due to changes in benchmark interest rates. Some of these interest rate swaps and futures contracts hedge commitments in an economic 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 six months ended June 30 (dollars in thousands):

	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
Unrealized gain (loss) on designated derivatives recognized(1)	$	8,495		$	(1,712	)	$	8,375		$	1,265
(Decrease) increase in value of warehouse loans(2)		(8,786	)		1,686			(8,669	)		(1,320	)
Net hedge ineffectiveness(3)		(291	)		(26	)		(294	)		(55	)
Unrealized loss on undesignated loan commitments recognized(4)		(251	)		(1,650	)		(347	)		(5,005	)
Gain on undesignated derivatives recognized(5)		858			1,935			1,580			5,392
Net gain on undesignated derivatives		607			285			1,233			387
Unrealized (loss) gain on other non-hedging derivatives(6)		(86	)		50			(238	)		293
Net SFAS 133 adjustment	$	230		$	309		$	701		$	625

(1)	Includes the results of derivatives, which are designated and accounted for as hedges. It quantifies the change in value of the derivative 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 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 June 30, 2007, NCB is exposed to credit loss in the event of nonperformance by its counter parties in the aggregate amount of $7.2 million. 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.

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     Financial futures are contracts for delayed delivery of specific securities at a specified future date and at a specified price or yield. NCB purchases/sells these contracts to economically hedge the interest rate risk associated with originating mortgage loans that will be held for sale. NCB has minimal credit risk exposure on these financial instruments since changes in market value of financial futures are settled in cash on the following business day, and payment is guaranteed by the clearinghouse. 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 forward sell 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 June 30, are as follows (dollars in thousands):

	Notional Amounts				Fair Value
	2007		2006		2007			2006
Financial futures contracts	$	27,000	$	12,700	$	(12	)	$	104
Interest rate swap agreements	$	413,126	$	332,038	$	6,282		$	1,743
Forward sales commitments:
Cooperative single-family	$	19,141	$	15,644	$	157		$	68
Cooperative multifamily	$	18,395	$	56,500	$	(151	)	$	1,788

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 and community association loans (included in commercial loans in Note 6) 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 income consists of NCB’s unallocated administrative income and expense and net interest income from investments and corporate debt after allocations to segments. The Other segment assets consist mostly of unallocated cash and cash equivalents, investment securities, Federal Home Loan Bank stock, premises and equipment and equity investment securities. 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, 2006.

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

								Retail and
	Commercial			Real Estate		Warehouse		Consumer					NCB
2007	Lending			Lending		Lending		Lending		Other			Consolidated
Net interest income:
Interest income	$	20,031		$	17,524	$	12,140	$	14,636	$	2,605			66,936
Interest expense		10,693			9,755		9,599		9,262		2,217			41,526
Net interest income		9,338			7,769		2,541		5,374		388			25,410
(Credit) provision for loan losses		(720	)		379		—		392		—			51
Non-interest income		2,144			2,308		12,244		604		1,007			18,307
Non-interest expense:
Direct expense		3,949			1,797		2,571		1,729		13,130			23,176
Overhead and support		4,416			1,950		2,264		1,930		—			10,560
Total non-interest expense		8,365			3,747		4,835		3,659		13,130			33,736
Income (loss) before taxes	$	3,837		$	5,951	$	9,950	$	1,927	$	(11,735	)	$	9,930
Total average assets	$	451,351		$	464,412	$	380,476	$	488,777	$	142,233		$	1,927,249
Total assets	$	461,612		$	470,119	$	393,331	$	495,657	$	140,802		$	1,961,521

								Retail and
	Commercial		Real Estate			Warehouse		Consumer						NCB
2006	Lending		Lending			Lending		Lending			Other			Consolidated
Net interest income:
Interest income	$	18,156	$	14,243		$	10,567	$	12,162		$	1,949		$	57,077
Interest expense		10,559		5,851			10,019		6,348			1,481			34,258
Net interest income		7,597		8,392			548		5,814			468			22,819
Provision (credit) for loan losses		291		(110	)		—		(1,622	)		—			(1,441	)
Non-interest income		2,908		2,308			9,472		1,503			77			16,268
Non-interest expense:
Direct expense		3,029		2,201			2,253		2,731			10,347			20,561
Overhead and support		2,275		1,711			1,485		2,143			—			7,614
Total non-interest expense		5,304		3,912			3,738		4,874			10,347			28,175
Income (loss) before taxes	$	4,910	$	6,898		$	6,282	$	4,065		$	(9,802	)	$	12,353
Total average assets	$	485,802	$	310,874		$	347,185	$	469,492		$	141,037		$	1,754,390
Total assets	$	476,054	$	364,057		$	263,589	$	504,293		$	104,212		$	1,712,205

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

							Retail and
	Commercial		Real Estate		Warehouse		Consumer					NCB
2007	Lending		Lending		Lending		Lending		Other			Consolidated
Net interest income:
Interest income	$	9,827	$	8,700	$	5,625	$	7,274	$	1,297		$	32,723
Interest expense		5,209		4,991		4,746		4,778		1,217			20,941
Net interest income		4,618		3,709		879		2,496		80			11,782
Provision (credit) for loan losses		346		7		—		85		—			438
Non-interest income		951		1,368		4,933		311		540			8,103
Non-interest expense:
Direct expense		2,150		966		1,246		846		6,935			12,143
Overhead and support		2,830		1,332		1,190		1,130		—			6,482
Total non-interest expense		4,980		2,298		2,436		1,976		6,935			18,625
Income (loss) before taxes	$	243	$	2,772	$	3,376	$	746	$	(6,315	)	$	822
Total average assets	$	450,221	$	476,429	$	366,422	$	491,558	$	147,855		$	1,932,485
Total assets	$	461,612	$	470,119	$	393,331	$	495,657	$	140,802		$	1,961,521

								Retail and
	Commercial		Real Estate			Warehouse		Consumer						NCB
2006	Lending		Lending			Lending		Lending			Other			Consolidated
Net interest income:
Interest income	$	9,225	$	7,532		$	5,042	$	6,229		$	1,083		$	29,111
Interest expense		5,822		2,933			4,659		3,353			961			17,728
Net interest income		3,403		4,599			383		2,876			122			11,383
Provision (credit) for loan losses		323		(61	)		—		(1,690	)		—			(1,428	)
Non-interest income		1,640		1,094			4,594		812			299			8,439
Non-interest expense:
Direct expense		1,385		1,312			883		1,338			5,047			9,965
Overhead and support		1,336		1,323			596		1,378			—			4,633
Total non-interest expense		2,721		2,635			1,479		2,716			5,047			14,598
Income (loss) before taxes	$	1,999	$	3,119		$	3,498	$	2,662		$	(4,626	)	$	6,652
Total average assets	$	492,245	$	296,464		$	321,184	$	477,449		$	151,265		$	1,738,607
Total assets	$	476,054	$	364,057		$	263,589	$	504,293		$	104,212		$	1,712,205

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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 continues to hold the mortgage servicing rights and, depending on the nature of the sale, may also continue to hold interest-only securities (retained interests).

     During the six months ended June 30, 2007 and 2006, 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 $200.7 million and generated a total of $2.0 million in retained interests for the six months ended June 30, 2007. The proceeds from NCB’s sales of loans through securitized transactions were $420.2 million and generated a total of $3.7 million in retained interests for the six months ended June 30, 2006.

     During the six months ended June 30, 2007 and 2006, NCB also sold loans through non-securitized transactions. The net proceeds from the sale of these loans were $212.8 million and generated a total of $2.6 million in retained interests for the six months ended June 30, 2007. The net proceeds from the sale of these loans were $39.2 million and generated a total of $0.3 million in retained interests for the six months ended June 30, 2006.

  ��  NCB does not retain the servicing rights on auto loan sales, which generated net proceeds of $101.1 million and $72.9 million for the six months ended June 30, 2007 and 2006, respectively.

     In total, NCB generated a gain on the sale of loans of $11.4 million and $9.4 million for the six months ended June 30, 2007 and 2006, respectively. NCB generated a gain on the sale of loans of $4.4 million and $5.1 million for the three months ended June 30, 2007 and 2006, 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 0.34% 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.

     In accordance with 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.

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     Activity related to MSRs for the six months ended June 30, 2007 and 2006 was as follows (dollars in thousands):

	Mortgage Servicing Rights
	2007			2006
Balance at January 1	$	9,362		$	5,803
Additions		2,213			1,886
Amortization		(565	)		(378	)
Balance at June 30	$	11,010		$	7,311

     NCB services three types of loans: cooperative single-family loans, cooperative multifamily loans and commercial real estate loans. At June 30, 2007 and December 31, 2006 the MSR balance relating to the servicing of cooperative single-family loans was $2.7 million and $2.4 million respectively. At June 30, 2007 and December 31, 2006 the MSR balance relating to the servicing of cooperative multifamily loans and commercial real estate loans was $8.3 million and $7.0 million, respectively.

     No valuation allowance was established for MSRs at June 30, 2007 and 2006. Additionally, during the six months ended June 30, 2007 and 2006, there was no impairment or reversal of impairment recorded.

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

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

     Key economic assumptions used in determining the fair value of MSRs at the time of securitization for the six months ended June 30, were as follows:

	2007			2006
Weighted-average life (in years):
Single-family loans		5.4			7.5
Cooperative multifamily and commercial loans		8.6			9.0
Weighted-average annual prepayment speed:
Single-family loans		19.1	%		13.9	%
Cooperative multifamily and commercial loans		4.0	%		1.4	%
Residual cash flow discount rate (annual):
Single-family loans		10.0	%		10.0	%
Cooperative multifamily and commercial loans		10.2	%		11.0	%
Earnings rate P&I float, escrows and replacement reserves:
Single-family loans		5.0	%		5.0	%
Cooperative multifamily and commercial loans		5.4	%		5.0	%

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     Key economic assumptions used in measuring the period-end fair value of NCB’s MSRs at June 30, 2007 and December 31, 2006 and the effect on the fair value of those MSRs from adverse changes in those assumptions, were as follows (dollars in thousands):

	June 30,			December 31,
	2007			2006
Fair value of mortgage servicing rights:
Single-family loans	$	4,594		$	3,868
Cooperative multifamily and commercial loans	$	13,324		$	8,192
Weighted-average life (in years):
Single-family loans		6.9			5.7
Cooperative multifamily and commercial loans		7.7			7.9
Weighted-average annual prepayment speed:
Single-family loans		15.4	%		19.5	%
Cooperative multifamily and commercial loans		2.2	%		2.3	%
Impact on fair value of 10% adverse change:
Single-family loans	$	(179	)	$	(164	)
Cooperative multifamily and commercial loans	$	(52	)	$	(26	)
Impact on fair value of 20% adverse change:
Single-family loans	$	(344	)	$	(313	)
Cooperative multifamily and commercial loans	$	(102	)	$	(53	)
Residual cash flows discount rate (annual):
Single-family loans		10.0	%		10.3	%
Cooperative multifamily and commercial loans		9.0	%		11.0	%
Impact on fair value of 10% adverse change:
Single-family loans	$	(151	)	$	(112	)
Cooperative multifamily and commercial loans	$	(478	)	$	(365	)
Impact on fair value of 20% adverse change:
Single-family loans	$	(294	)	$	(218	)
Cooperative multifamily and commercial loans	$	(929	)	$	(705	)
Earnings rate of P&I float, escrow and replacement:
Single-family loans		5.0	%		5.0	%
Cooperative multifamily and commercial loans		5.3	%		5.3	%
Impact on fair value of 10% adverse change:
Single-family loans	$	(110	)	$	(2	)
Cooperative multifamily and commercial loans	$	(637	)	$	(475	)
Impact on fair value of 20% adverse change:
Single-family loans	$	(219	)	$	(3	)
Cooperative multifamily and commercial loans	$	(1,274	)	$	(950	)

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Interest-Only receivables

     Activity related to interest-only receivables for the six months ended June 30, 2007 and 2006 was as follows (dollars in thousands):

	Certificated
	Interest-Only Receivables
	2007			2006
Balance at January 1 at fair value	$	39,950		$	42,027
Additions		1,107			2,054
Amortization		(2,650	)		(2,464	)
Change in mark-to-market		(948	)		(633	)
Writedown of asset due to prepayment		(19	)		(6	)
Balance at June 30 at fair value	$	37,440		$	40,978

	Non-certificated
	Interest-Only Receivables
	2007			2006
Balance at January 1 at fair value	$	33,053		$	35,671
Additions		1,339			—
Amortization		(2,178	)		(2,068	)
Change in mark-to-market		(635	)		(1,205	)
Writedown of asset due to prepayment		(50	)		(6	)
Balance at June 30 at fair value	$	31,529		$	32,392

     The portion of the prepayment fees for the six months ended June 30, 2007 and 2006 that triggered the write-down of the interest-only receivables was $0.3 million and $1.1 million, 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 assumptions used in the valuation of NCB’s interest-only receivables is the discount rate and the life of the estimated cash flows.

     Key economic assumptions used in determining the fair value of interest-only receivables at the time of sale were as follows:

	June 30,
	2007			2006
Weighted-average life (in years)		8.5			9.4
Weighted-average annual discount rate		6.26	%		8.25	%

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     Key economic assumptions used in subsequently measuring the fair value of NCB’s other retained interests at June 30, 2007 and December 31, 2006, and the effect on the fair value of those other retained interests from adverse changes in those assumptions were as follows (dollars in thousands):

	June 30,			December 31,
	2007			2006
Fair value of other retained interest	$	68,969		$	73,003
Weighted-average life (in years)		6.4			6.8
Weighted average annual discount rate		6.91	%		6.25	%
Impact on fair value of 10% adverse change	$	(1,529	)	$	(1,529	)
Impact on fair value of 20% adverse change	$	(3,005	)	$	(3,007	)

     At June 30, 2007 and December 31, 2006 the total principal amount outstanding of the underlying loans of the interest-only receivables was $4.0 billion and $3.9 billion, respectively. At June 30, 2007 there was $7.3 million or 0.2% of delinquent loans. At December 31, 2006 there was $3.6 million or 0.1% 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 six months ended June 30, (dollars in thousands):

	2007		2006
Net proceeds from loans sold through securitization	$	200,718	$	420,215
Net proceeds from other loan sales	$	212,842	$	39,196
Net proceeds from auto loan sales	$	101,100	$	72,856
Servicing fees received	$	2,797	$	2,599
Cash flows received on interest-only receivables	$	7,363	$	7,251

17. NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 156

     NCB adopted FASB Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS 156”), effective January 1, 2007. SFAS 156 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. NCB did not elect, subsequent to its initial measurement, to measure any of its servicing assets at fair value.

FASB Staff Position FASB Interpretation No. 48

     NCB adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), effective January 1, 2007. 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. The adoption of FIN 48 did not have any impact on the consolidated financial statements of NCB.

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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. NCB is currently evaluating the impact, if any, that SFAS 157 will have on its financial condition and results of operations.

Statement of Financial Accounting Standards No. 159

     On February 15, 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). Under this standard, NCB may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. Once elected, the election is irrevocable. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS 133 hedge accounting are not met. SFAS 159 is effective for fiscal years beginning after November 15, 2007. NCB will adopt SFAS 159 on January 1, 2008 and is currently evaluating the impact, if any, that SFAS 159 will have on its financial condition and results of operations.

FASB Staff Position FASB Interpretation No. 39-1

     In June 2007 the FASB amended the interpretation of FASB Interpretation (“FIN”) No. 39-1 “Offsetting of Amounts Related to Certain Contracts” (“FIN 39-1”), to permit a reporting entity that is party to a master netting arrangement to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that were offset under paragraph 10 of FIN 39. Neither FIN 39 nor FIN 39-1 had any impact on the consolidated financial statements of NCB.

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.

18. SUBSEQUENT EVENTS

     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.

26

     The Letter of Credit maintained under the Agreement was approximately $12.4 million as of June 30, 2007 and December 31, 2006. The unpaid principal balance of the loans covered by the Agreement was $260.0 million as of June 30, 2007 compared with $268.1 million as of December 31, 2006.

     In January 2003, NCB purchased from NCB Capital Impact (previously known as NCB Development Corporation) the recourse obligation under an agreement with Fannie Mae covering loans sold by NCB to Fannie Mae. As of June 30, 2007 and December 31, 2006, the unpaid principal balance of loans subject to this recourse obligation was $72.2 million and $100.4 million respectively. As collateral for the associated recourse, NCB was required to deposit amounts in a restricted account with a designated custodian.

     In July 2007, NCB terminated the Agreement. As a result, $5.5 million of restricted cash was returned to NCB for the release of the recourse obligation. Also, the letter of credit that was required to be held by a trustee to secure the obligation for any losses was terminated.

27

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 and the December 31, 2006 audited consolidated financial statements and the accompanying notes included in NCB’s recent Annual Report on Form 10-K.

     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.

     Well-publicized issues in the overall residential mortgage lending market (particularly sub-prime lending) have had a pronounced negative effect on the mortgage securitization market and other credit markets. None of NCB’s loans held for sale are considered sub-prime, nonetheless, NCB’s financial results, particularly its gain on loan sales, for the remainder of 2007, may be adversely impacted by changes in market conditions in the commercial mortgage-backed securities marketplace.

Highlights — Financial Performance for the six months ended June 30, 2007

• Strong commercial real estate loan sale gains netting 2.57% of sold principal balance for the six months ended June 30, 2007 compared to 1.93% for the same period in 2006, though comparable gains are not expected to endure for the remainder of 2007.

• Deposit growth of 20.3% from December 31, 2006.

• Net interest margin of 2.70% vs. 2.68% for the same period last year primarily due to the recognition of $1.1 million in interest income from a $7.6 million loan in non-accrual status that was paid off during 2007.

• Solid credit quality — Non-performing assets of 1.0% of total assets at June 30, 2007 vs. 1.2% at December 31, 2006.

• A lease termination expense of $3.1 million was recorded in connection with NCB’s relocation of its operations center and headquarters during 2007.

Results of Operations
For the six months ended June 30, 2007 compared to the six months ended June 30, 2006

Overview

     NCB’s net income for the six months ended June 30, 2007 was $9.7 million. This was a 13.1% or $1.5 million decrease compared to $11.2 million for the six months ended June 30, 2006. A $2.7 million increase in salaries and benefits expense and a $3.1 million lease termination expense was partially offset by a $2.6 million increase in net interest income and a $2.0 million increase in gain on the sale of loans.

     Total assets increased 7.2% or $132.0 million to $1.96 billion at June 30, 2007 from $1.83 billion at December 31, 2006.

     The annualized return on average total assets was 1.0% and 1.3% for the six months ended June 30, 2007 and 2006, respectively. The annualized return on average members’ equity was 8.5% and 9.7% for the six months ended June 30, 2007 and 2006, respectively.

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Selected Financial Data
(Dollars In Thousands)

	For the three months ended June 30,						For the six months ended June 30,
Profitability	2007			2006			2007			2006
Net interest income	$	11,782		$	11,384		$	25,410		$	22,819
Net yield on interest earning assets		2.49	%		2.70	%		2.70	%		2.68	%
Non-interest income	$	8,103		$	8,439		$	18,307		$	16,268
Non-interest expense		18,625			14,598			33,736			28,175
Net income		616			5,992			9,722			11,187
Return on average assets		0.1	%		1.4	%		1.0	%		1.3	%
Return on average members’ equity		1.1	%		10.3	%		8.5	%		9.7	%
Efficiency ratio		93.7	%		73.6	%		77.2	%		72.1	%

	June 30,			December 31,
Supplemental Data	2007			2006
Loans held for sale	$	312,774		$	242,949
Loans and lease financing		1,418,254			1,380,636
Total assets		1,961,521			1,829,477
Total borrowings		701,226			743,769
Full time equivalent employees		341			306
Average members’ equity as a percentage of average total assets		11.9	%		12.8	%
Average members’ equity as a percentage of average total loans and lease financing		13.4	%		14.3	%
Net average loans and lease financing to average total assets		87.7	%		88.2	%
Net average earning assets to average total assets		96.7	%		97.3	%

	June 30,			December 31,
Credit Quality	2007			2006
Allowance for loan losses	$	18,591		$	19,480
Allowance for loan losses to loans outstanding		1.1	%		1.2	%
Provision for loan losses	$	51		$	3,667
Impaired assets		19,369			21,600
Real estate owned		143			193
Total non-performing assets		19,512			21,793
Non-performing assets as a percentage of total assets		1.0	%		1.2	%

29

Net Interest Income

     Net interest income for the six months ended June 30, 2007 increased $2.6 million or 11.4% to $25.4 million compared with $22.8 million for the six months ended June 30, 2006. The net yield on interest earning assets increased from 2.68% for the six months ended June 30, 2006 to 2.70% for the same period in 2007.

     For the six months ended June 30, 2007, interest income increased by 17.3% or $9.9 million to $66.9 million compared with $57.1 million for the six months ended June 30, 2006. Continued balance sheet growth resulted in an increase in average earning balances by $182.0 million and an increase in aggregate yields from 6.72% in 2006 to 7.11% in 2007. A portion of the increase was due to the recognition of the $1.1 million of interest income from a loan previously in non-accrual status that accounted for 26.7% of the increase in aggregate yields. In addition, the majority of NCB’s loan portfolio is indexed to rates, predominantly LIBOR and prime, that have re-priced upwards over the duration of the two reporting periods.

     Interest income from real estate loans increased $7.6 million or 25.0%. An increase in average balances of $133.8 million or 13.0%, primarily in the commercial real estate segment, contributed $4.2 million of the increase, while an increase in the yield from 5.97% in 2006 to 6.60% in 2007 contributed $3.4 million. Commercial loans and lease interest income increased $1.7 million or 7.8%. The increase in the yield from 8.29% in 2006 to 8.47% in 2007 contributed $0.5 million to the year-over-year increase in income, while a slight increase in average balances of $28.9 million or 5.5% (primarily in the community association loan market) contributed $1.2 million to the increase in interest income. Interest income from investment securities and cash equivalents increased by $0.6 million. A $21.3 million or 16.7% increase in average balances contributed $0.6 million, while the decrease in the yield from 5.61% in 2006 to 5.55% in 2007 offset $35 thousand of the year-over-year increase.

     Other interest income, consisting only of excess yield, is 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, 2006. Other interest income was $1.5 million for the six months ended June 30, 2007 and 2006, respectively.

     Interest expense for the six months ended June 30, 2007 increased $7.2 million or 21.2% from $34.3 million in 2006 to $41.5 million in 2007. Interest expense on deposits increased $5.2 million or 37.1% from $14.2 million in 2006 to $19.4 million in 2007. Average deposit balances grew by $135.4 million or 17.5% from 2006 to 2007, accounting for $2.7 million of the increase. Additionally, the average deposit cost increased by 61 basis points from 3.66% to 4.27% accounting for $2.5 million of the increase. This was due to both an increase in short-term interest rates and the strong competition for deposits.

     Interest expense on short-term borrowings increased by $0.9 million or 10.2% from $9.0 million in 2006 to $9.9 million in 2007. The average balance on short-term borrowings, primarily advances from the Federal Home Loan Bank, increased by $13.2 million accounting for $0.4 million of the increase in interest expense. The average cost of borrowing increased from 5.58% to 5.91% accounting for $0.5 million of the increase in interest expense. Interest expense on long-term debt, other borrowings and subordinated debt increased $1.1 million or 9.9%. The average balance increased by $26.1 million, accounting for $0.8 million of the increase. In addition, the average cost of borrowing increased 15 basis points, again as the result of an increase in interest rates, accounting for $0.3 million of the increase.

     NCB recorded interest income of $0.2 million and an offset to interest income of $0.4 million associated with its swap contracts relating to the hedging of loans and loan commitments for the six months ended June 30, 2007 and 2006, respectively. In addition, and over the same respective periods, NCB recorded to interest expense an increase of $0.5 million and a decrease of $78.0 thousand 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 six months ended June 30, 2007.

30

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

	2007 Compared to 2006
	Change in			Change in			Increase
	average			average			(Decrease)
	volume			rate			Net**
Interest Income
Real estate loans	$	4,204		$	3,433		$	7,637
Commercial loans and leases		1,214			482			1,696
Total loans and lease financing		5,418			3,915			9,333
Investment securities and cash equivalents		594			(35	)		559
Other interest income		(88	)		55			(33	)
Total interest income		5,924			3,935			9,859
Interest Expense
Deposits		2,685			2,574			5,259
Short-term borrowings		380			538			918
Long-term debt, other borrowings and subordinated debt		802			289			1,091
Total interest expense		3,867			3,401			7,268
Net interest income	$	2,057		$	534		$	2,591

** 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 six months ended June 30,
(Dollars in thousands)

	2007								2006
	Average			Income /		Average			Average			Income /		Average
	Balance*			Expense		Rate/Yield			Balance*			Expense		Rate/Yield
Assets
Interest earning assets
Real estate loans*	$	1,156,677		$	38,173		6.60	%	$	1,022,895		$	30,536		5.97	%
Commercial loans and leases*		552,350			23,403		8.47	%		523,398			21,707		8.29	%
Total loans and lease financing*		1,709,027			61,576		7.21	%		1,546,293			52,243		6.76	%
Investment securities and cash equivalents		140,311			3,897		5.55	%		119,031			3,338		5.61	%
Other interest income		32,431			1,463		9.02	%		34,422			1,496		8.69	%
Total interest earning assets		1,881,769			66,936		7.11	%		1,699,746			57,077		6.72	%
Allowance for loan losses		(18,640	)							(20,051	)
Non-interest earning assets
Cash		6,743								25,817
Other		57,377								48,878
Total non-interest earning assets		64,120								74,695
Total assets	$	1,927,249							$	1,754,390
Liabilities and members’ equity
Interest bearing liabilities Deposits	$	910,627		$	19,447		4.27	%	$	775,216		$	14,188		3.66	%
Short-term borrowings		335,860			9,921		5.91	%		322,631			9,003		5.58	%
Long-term debt, other borrowings and subordinated debt		390,978			12,158		6.22	%		364,857			11,067		6.07	%
Total interest bearing liabilities		1,637,465			41,526		5.07	%		1,462,704			34,258		4.68	%
Other liabilities		60,784								60,787
Members’ equity		229,000								230,899
Total liabilities and members’ equity	$	1,927,249							$	1,754,390
Net interest earning assets	$	244,304							$	237,042
Net interest revenues and spread				$	25,410		2.04	%				$	22,819		2.03	%
Net yield on interest earning assets							2.70	%							2.68	%

* Average loan balances include non-accrual loans.

32

Non-interest Income
(dollars in thousands)

	Non-interest income for
	the six months ended June 30,
	2007			2006
Gain on sale of loans	$	11,411		$	9,413
Loss on sale of investments available-for-sale		(15	)		(8	)
Servicing fees		2,232			2,251
Letter of credit fees		1,737			1,774
Prepayment fees		676			1,090
Other		2,266			1,748
Total	$	18,307		$	16,268

     Total non-interest income increased $2.0 million or 12.5% from $16.3 million during the six months ended June 30, 2006 to $18.3 million for the six months ending June 30, 2007. This was primarily driven by an increase of $2.0 million in gain on sale of loans from $9.4 million for the six months ended June 30, 2006 to $11.4 million for the six months ending June 30, 2007.

     The gain as a percentage of the sold principal balance of commercial real estate loans increased from 1.93% in the first six months of 2006 to 2.57% in the first six months of 2007. This was due to what NCB believes to be an unusually profitable portfolio of loans sold in the first quarter combined with improved market conditions in the commercial mortgage secondary market during the early part of 2007. NCB did not experience the same levels of return during the second quarter and expects substantially reduced returns for the remainder of 2007.

     There were $1.1 million of investment securities available-for-sale sold during the six months ended June 30, 2007 compared to $0.9 million sold during the six months ended June 30, 2006.

     NCB’s net SFAS 133 adjustment, which is included in “Gain on Sale of Loans,” was a gain of $0.7 million and $0.6 million for the six months ended June 30, 2007 and 2006, respectively.

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

	2007		2006
Commercial and residential real estate (CRRE) loans:
CRRE loans for securitization	$	196,685	$	415,058
Other CRRE loan sales		155,001		—
Total commercial real estate		351,686		415,058
Auto loans		101,100		72,856
Single-family residential and cooperative loans		52,147		33,247
SBA loans		3,283		5,433
Total	$	508,216	$	526,594

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     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.

Non-interest Expense
(dollars in thousands)

	Non-interest expense for
	the six months ended June 30,
	2007			2006
Compensation and employee benefits	$	18,300		$	15,582
Lease termination costs		3,148			—
Occupancy and equipment		4,192			3,119
Contractual services		3,127			2,838
Deferred rent recognition related to lease termination		(1,860	)		—
Information systems		1,963			1,313
Lower of cost or market adjustment		804			249
Corporate development		1,637			1,409
Travel and entertainment		693			689
(Credit) provision for unfunded commitments		(196	)		1,412
Other		1,928			1,564
Total	$	33,736		$	28,175

     Non-interest expense for the six months ended June 30, 2007, increased 19.7% or $5.5 million to $33.7 million compared with $28.2 million for the corresponding prior year period primarily due to a $2.7 million increase in compensation and employee benefits and a $1.1 million increase in occupancy and equipment and the $3.1 million lease termination expense. The increase was slightly offset by the $1.9 million deferred rent recognition related to the lease termination. Annualized non-interest expense as a percentage of average assets was 3.5% for the six months ended June 30, 2007 and 2006.

     Compensation and employee benefits increased 17.4% or $2.7 million to $18.3 million compared to $15.6 million for the six months ended June 30, 2006. This was driven primarily by a $3.2 million increase in base salary adjustments, benefits and incentives for the year, a direct result of an increase in average headcount over the period, partially offset by a $0.3 million increased deferral of the FAS 91 loan origination costs for the six months ending June 30, 2007 compared to the same period ending June 30, 2006.

     In January 2006 NCB entered into a lease for office space in Arlington, Virginia (“Arlington Lease”). The Arlington Lease agreement provided NCB with the option to have the Arlington landlord assume the economic obligation for the remaining term of its existing headquarters lease at 1725 Eye Street, NW, Washington, D.C. (“1725 Eye Street Lease”). In August 2006, NCB exercised this option. NCB vacated its offices at 1725 Eye Street in April 2007 and relocated the majority of NCB’s operational activities to Arlington, Virginia. Concurrently, NCB’s principal executive offices relocated to 601 Pennsylvania Avenue, NW, Washington, D.C.

34

     Also, during the second quarter of 2007, NCB agreed to the termination of the 1725 Eye Street Lease. The termination agreement required the payment of $1.562 million by the Arlington landlord directly to the 1725 Eye Street landlord and the payment of $1.585 million by NCB to the 1725 Eye Street landlord. Through an amendment to the Arlington Lease, NCB simultaneously received reimbursement of its payment of $1.585 million from the Arlington landlord. In accordance with the FASB’s Technical Bulletin No. 88-1, the payments made to the 1725 Eye Street landlord were recognized as a lease termination cost in the consolidated statements of income and a lease incentive liability on the consolidated balance sheet. The lease incentive liability will be amortized on a straight-line basis over the fifteen-year term of the Arlington Lease totaling $3.148 million. NCB recognized the remaining deferred rent liability associated with the vacated 1725 Eye Street premises that amounted to $1.9 million.

     Occupancy and equipment for the six months ended June 30, 2007 increased $1.1 million or 34.4% to $4.2 million compared with $3.1 million for the corresponding prior year period. The increase resulted from additional rent on the new operations center in Arlington, Virginia, while simultaneously incurring rent expense on the 1725 Eye Street lease through April 2007.

35

Credit Quality

     During the first six months of 2007, the allowance for loan losses decreased by $0.9 million, or 4.6% to $18.6 million. This included $193.0 thousand of recoveries received and $1.1 million of charge-offs.

     The allowance for loan losses represented 1.3% and 1.4% of total loans and lease financing, excluding loans held for sale at June 30, 2007 and December 31, 2006, respectively. The allowance as a percentage of non-accruing loans was 96.0% at June 30, 2007 compared with 90.2% at December 31, 2006.

Table 3
IMPAIRED ASSETS
(dollars in thousands)

	June 30			March 31,			December 31,			September 30,			June 30,
	2007			2007			2006			2006			2006
Real estate owned	$	143		$	166		$	193		$	193		$	62
Impaired assets		19,369			16,402			21,600			22,063			18,681
Total	$	19,512		$	16,568		$	21,793		$	22,256		$	18,743
As a percentage of loans and lease financing outstanding		1.38	%		1.18	%		1.58	%		1.64	%		1.42	%

     Impaired assets and real estate owned totaled $19.5 million and $21.8 million at June 30, 2007 and December 31, 2006, respectively. The decrease was largely a result of the payoff of a $7.6 million grocery retail loan and an upgrade of a $2.2 million natural foods cooperative loan, partially offset by the addition of $0.5 million of impaired assets resulting from a $1.4 million loan to another grocery retailer (net of a $0.9 million charge-off during the first quarter), a $1.9 million addition of a loan to a pharmaceutical company and $0.6 million in loans to a hardware company. Real estate owned at June 30, 2007 and December 31, 2006 was $143 thousand and $193 thousand, respectively. The average balance of impaired loans was $18.8 million and $18.3 million at June 30, 2007 and December 31, 2006, respectively.

     Of the $12.4 million of impaired loans with a specific allowance at June 30, 2007, $1.9 million was for a loan that was not in non-accrual status. However, the loan was deemed impaired due to the loan terms being restructured during the second quarter and the realizable expected cash flows being significantly lower than the current outstanding principal balance of the loan at June 30, 2007.

For the three months ended June 30, 2007 compared to the three months ended June 30, 2006.

Overview

     NCB’s net income for the three months ended June 30, 2007 was $0.6 million. This was a 89.7% or $5.4 million decrease compared with $6.0 million for the three months ended June 30, 2006. This decrease was due to a $1.5 million decrease in net interest income (after provisions or credit for loan losses), a $1.8 million increase in compensation and employee benefits, a $3.1 million lease termination expense, partially offset by a $1.9 million recognition of deferred rent as a result of the lease termination.

36

     The annualized return on average total assets was 0.1% and 1.4% for the three months ended June 30, 2007 and 2006, respectively. The annualized return on average members’ equity was 1.1% and 10.3% for the three months ended June 30, 2007 and 2006, respectively.

Net Interest Income

     Net interest income for the three months ended June 30, 2007 increased $0.4 million or 3.5% to $11.8 million compared with $11.4 million for the three months ended June 30, 2006.

     For the three months ended June 30, 2007, interest income increased by 12.4% or $3.6 million to $32.7 million compared with $29.1 million for the three months ended June 30, 2006. The total average earning balances increased by $203.1 million and aggregate yields increased from 6.90% in 2006 to 6.93% in 2007.

     Interest income from real estate loans increased $3.2 million or 2.0%. An increase in average balances of $163.8 million or 16.5% primarily in the commercial real estate segment, contributed $2.6 million of the increase, while an increase in the yield from 6.28% in 2006 to 6.50% in 2007 contributed $0.6 million to the increase. Commercial loans and lease interest income increased $0.2 million or 2.1%. A slight increase in average balances of $21.4 million or 4.0% (primarily in the community association loan market) contributed $0.4 million to the increase in commercial loans and lease interest income while a decrease in the yield from 8.32% in 2006 to 8.17% in 2007 offset $0.2 million of the increase. Contributing to the decrease in yield from June 30, 2006 to June 30, 2007 was the recognition of interest income during the three months ended June 30, 2006 from a loan that was previously in non-accrual status. Interest income from investment securities and cash equivalents increased by $0.2 million. A $19.4 million or 14.9% increase in average balances contributed $0.3 million, while a decrease in the yield from 5.42% in 2006 to 5.17% in 2007 slightly offset the quarter-over-quarter increase. The decrease in yield was due to changes in the yields and terms of those investments in 2007 that replaced sold or matured investments in 2006.

     Other interest income, consisting only of excess yield, is 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, 2006. Other interest income was $0.7 million for the three months ended June 30, 2007 and 2006.

     Interest expense for the three months ended June 30, 2007 increased $3.2 million or 18.1% from $17.7 million in 2006 to $20.9 million in 2007. Interest expense on deposits increased $3.3 million or 45.1%. Average deposit balances grew by $188.9 million or 24.6% from 2006 to 2007, accounting for $2.0 million of the increase. Additionally, the average deposit cost increased by 62 basis points from 3.77% to 4.39%, accounting for $1.3 million of the increase. This was due to both an increase by the Federal Reserve of the federal funds rate and also the strong competition for deposits.

     Interest expense on short-term borrowings decreased by $0.5 million or 10.4%. The average balance on short-term borrowings, primarily advances from the Federal Home Loan Bank, decreased by $23.8 million accounting for $0.4 million of the decrease in interest expense. The average cost of borrowing decreased from 6.21% to 6.03% accounting for $0.1 million of the decrease in interest expense. Contributing to the decrease in yield from June 30, 2006 to June 30, 2007 was the recognition of $0.5 million of unamortized debt issuance costs in the second quarter of 2006 relating to the termination of NCB’s previous revolving credit facility. Interest expense on long-term debt, other borrowings and subordinated debt increased $0.4 million or 7.8%. The average balance increased by $28.1 million, which accounted for substantially all of the increase.

     Overall, the average cost of borrowing increased 20 basis points, again as the result of NCB’s significant deposit growth and the yields on those deposits from 2006 to 2007.

     NCB recorded interest income of $0.1 million and an offset to interest income of $0.1 million associated with its swap contracts relating to the hedging of loans and loan commitments for the three months ended June 30, 2007 and 2006, respectively. In addition, and over the same respective periods, NCB recorded to interest expense an increase of $0.2 million and $0.1 million 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 June 30, 2007.

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

	2007 Compared to 2006
	Change in average volume			Change in average rate			Increase (Decrease) Net**
Interest Income
Real estate loans	$	2,616		$	570		$	3,186
Commercial loans and leases		441			(208	)		233
Total loans and lease financing		3,057			362			3,419
Investment securities and cash equivalents		257			(86	)		171
Other interest income		(34	)		56			22
Total interest income		3,280			332			3,612
Interest Expense
Deposits		1,927			1,346			3,273
Short-term borrowings		(365	)		(136	)		(501	)
Long-term debt, other borrowings and subordinated debt		438			4			442
Total interest expense		2,000			1,214			3,214
Net interest income	$	1,280		$	(882	)	$	398

** 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 June 30,
(Dollars in thousands)

	2007								2006
	Average			Income /		Average			Average			Income /			Average
	Balance*			Expense		Rate/Yield			Balance*			Expense			Rate/Yield
Assets
Interest earning assets
Real estate loans*	$	1,155,401		$	18,763		6.50	%	$	991,647		$	15,577			6.28	%
Commercial loans and leases*		552,151			11,274		8.17	%		530,750			11,041			8.32	%
Total loans and lease financing*		1,707,552			30,037		7.04	%		1,522,397			26,618			6.99	%
Investment securities and cash equivalents		150,102			1,940		5.17	%		130,662			1,769			5.42	%
Other interest income		32,021			746		9.32	%		33,547			724			8.63	%
Total interest earning assets		1,889,675			32,723		6.93	%		1,686,606			29,111			6.90	%
Allowance for loan losses		(18,396	)							(19,642	)
Non-interest earning assets
Cash		3,437								39,246
Other		57,769								32,397
Total non-interest earning assets		61,206								71,643
Total assets	$	1,932,485							$	1,738,607
Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	958,319		$	10,524		4.39	%		769,424		$	7,251			3.77	%
Short-term borrowings		285,646			4,306		6.03	%		309,476			4,807			6.21	%
Long-term debt, other borrowings and subordinated debt		391,006			6,111		6.25	%		362,946			5,669			6.25	%
Total interest bearing liabilities		1,634,971			20,941		5.12	%		1,441,846			17,727			4.92	%
														��
Other liabilities		65,265								63,271
Members’ equity		232,249								233,490
Total liabilities and members’ equity	$	1,932,485							$	1,738,607
Net interest earning assets	$	254,704							$	244,760
Net interest revenues and spread				$	11,782		1.79	%				$	11,384			1.99	%
Net yield on interest earning assets							2.49	%								2.70	%

* Average loan balances include non-accrual loans.

39

Non-interest Income
(dollars in thousands)

	Non-interest income for
	the three months ended
	June 30,
	2007			2006
Gain on sale of loans	$	4,411		$	5,129
Loss on sale of investments available-for-sale		(15	)		—
Servicing fees		1,136			1,156
Letter of credit fees		717			1,047
Prepayment fees		689			170
Other		1,165			937
Total	$	8,103		$	8,439

     Total non-interest income decreased $0.3 million or 4.0% from $8.4 million during the three months ended June 30, 2006 to $8.1 million for the three months ending June 30, 2007. This was primarily driven by a decrease of $0.7 million in gain on sale of loans from $5.1 million for the three months ended June 30, 2006 to $4.4 million for the three months ending June 30, 2007.

     The gain as a percentage of the sold principal balance of commercial real estate loans was 2.11% in the second quarter of 2006. There were no securitized loan sales in the second quarter of 2007.

     There were $1.1 million of investment securities available-for-sale sold during the three months ended June 30, 2007 compared to none sold during the three months ended June 30, 2006.

     NCB’s net SFAS 133 adjustment, which is included in “Gain on Sale of Loans,” was a gain of $0.2 million and $0.3 million for the three months ended June 30, 2007 and 2006, respectively.

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

	2007		2006
Commercial and residential real estate (CRRE) loans:
CRRE loans for securitization	$	—	$	209,930
Other CRRE loan sales		128,501		—
Total commercial real estate		128,501		209,930
Auto loans		52,768		44,087
Single-family residential and cooperative loans		30,413		17,262
SBA loans		674		2,317
Total	$	212,356	$	273,596

     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.

40

Non-interest Expense
(dollars in thousands)

	Non-interest expense for
	the three months ended
	June 30,
	2007			2006
Compensation and employee benefits	$	9,390		$	7,553
Lease termination costs		3,148			—
Occupancy and equipment		2,017			1,559
Contractual services		1,878			1,201
Deferred rent recognition related to lease termination		(1,860	)		—
Information systems		1,117			660
Lower of cost or market adjustment		1,003			304
Corporate development		878			810
Travel and entertainment		383			343
(Credit) provision for unfunded commitments		(261	)		1,348
Other		932			820
Total	$	18,625		$	14,598

     Non-interest expense for the three months ended June 30, 2007, increased 27.6% or $4.0 million to $18.6 million compared with $14.6 million for the corresponding prior year period primarily due to a $1.8 million increase in compensation and employee benefits and a $3.1 million lease termination fee. Annualized non-interest expense as a percentage of average assets was 1.9% for the three months ended June 30, 2007 and 2006.

     Compensation and employee benefits increased 24.3% or $1.8 million to $9.4 million compared to $7.6 million for the three months ended June 30, 2006. This was driven by a $1.8 million increase in base salary adjustments, benefits and incentives for the quarter, a direct result of an increase in average headcount over the period.

     In January 2006 NCB entered into a lease for office space in Arlington, Virginia (“Arlington Lease”). The Arlington Lease agreement provided NCB with the option to have the Arlington landlord assume the economic obligation for the remaining term of its existing headquarters lease at 1725 Eye Street, NW, Washington, D.C. (“1725 Eye Street Lease”). In August 2006, NCB exercised this option. NCB vacated its offices at 1725 Eye Street in April 2007 and relocated the majority of NCB’s operational activities to Arlington, Virginia. Concurrently, NCB’s principal executive offices relocated to 601 Pennsylvania Avenue, NW, Washington, D.C.

     Also, during the second quarter of 2007, NCB agreed to the termination of the 1725 Eye Street Lease. The termination agreement required the payment of $1.562 million by the Arlington landlord directly to the 1725 Eye Street landlord and the payment of $1.585 million by NCB to the 1725 Eye Street landlord. Through an amendment to the Arlington Lease, NCB simultaneously received reimbursement of its payment of $1.585 million from the Arlington landlord. In accordance with the FASB’s Technical Bulletin No. 88-1, the payments made to the 1725 Eye Street landlord were recognized as a lease termination cost in the consolidated statements of income and a lease incentive liability on the consolidated balance sheet. The lease incentive liability will be amortized on a straight-line basis over the fifteen-year term of the Arlington Lease totaling $3.148 million. NCB recognized the remaining deferred rent liability associated with the vacated 1725 Eye Street premises that amounted to $1.9 million. —

41

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 June 30, 2007, NCB had $55.2 million of cash and equivalents, which was an increase of $7.4 million from December 31, 2006.

     As of June 30, 2007, NCB also had $5.5 million of cash that was restricted as a result of a recourse obligation. Refer to Note 18 for further discussion.

Sources and Uses of Funds

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

     Cash (Used in) Provided by Operating Activities.NCB’s net cash used in operating activities for the six months ended June 30, 2007 was $64.8 million against net cash provided by operating activities of $55.4 million for the six months ended June 30, 2006. This $120.2 million increase in cash used was primarily due to a $79.8 million increase in loans originated for sale, net of principal collections, in addition to an increase of $27.9 million in cash used for the purchase of loans held for sale.

     Cash Used in Investing Activities.NCB’s net cash used in investing activities for the six months ended June 30, 2007 was $48.6 million compared to $62.1 million for the six months ended June 30, 2006. This $13.5 million decrease in cash used was primarily due to a $6.1 million increase in cash used for the purchase of premises and equipment, primarily related to NCB’s new operations center in Arlington, Virginia, offset by a $21.3 million decrease in cash used for loans and lease financing.

     Cash Provided by Financing Activities.NCB’s net cash provided by financing activities for the six months ended June 30, 2007 was $120.9 million against $10.5 million for the six months ended June 30, 2006 primarily due to a $166.0 million increase in cash from deposits, offset by a $51.7 million net increase in cash used to repay short-term borrowings.

Loans and Leases

     Loans and leases, including loans held for sale, outstanding were $1.7 billion and $1.6 billion at June 30, 2007 and December 31, 2006, respectively.

     The commercial loan and lease portfolio slightly increased 0.4% to $524.1 million at June 30, 2007 compared with $522.3 million at December 31, 2006. 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 4.1% to $882.6 million at June 30, 2007 from $847.7 million at December 31, 2006. NCB’s real estate portfolio has continued to grow as it has continued to expand its lending capabilities in the commercial real estate market. The real estate portfolio is substantially composed of multifamily cooperative mortgages, single-family mortgage and cooperative single-family loans.

42

Interest-Bearing Liabilities

     Per Table 4 below, interest-bearing liabilities increased 7.8% to $1.7 billion at June 30, 2007 compared with $1.6 billion at December 31, 2006.

     In 2007, NCB has made deposit growth to fund loans a strategic focus. As a result, for the six months ended June 30, 2007, deposits, all of which are held at NCB, FSB, increased 20.3% to $970.1 million from $806.5 million at December 31, 2006. The weighted average rate on deposits at June 30, 2007 was 4.4% compared to 4.3% at December 31, 2006. The average maturity of the certificates of deposit at June 30, 2007 was 16.4 months compared with 20.2 months at December 31, 2006.

     At June 30, 2007 NCB had two depositors with deposits in excess of 5% of NCB’s total deposits. These two depositors had deposits of 12.1% and 5.5% of NCB’s total deposits. Of the $170.1 million of total deposits from these two depositors, $0.5 million relates to non-interest bearing demand deposits, $34.2 million relates to interest bearing demand deposits, and $135.4 million relates to certificates of deposit with early withdrawal penalties. Of the $135.4 million of certificates of deposit, $18.4 million matures within 3 months and $117.0 has a maturity ranging from 6 months to 84 months. Thus, NCB does not consider this concentration a significant liquidity risk.

Table 4
Interest-Bearing Liabilities
(dollars in thousands)

	June 30,		December 31,
	2007		2006		% Change
Deposits	$	970,090	$	806,453		20.3	%
Short-term debt		312,542		354,673		-11.9	%
Long-term debt		217,315		217,773		-0.2	%
Subordinated debt		120,705		120,676		0.0	%
Junior subordinated debt		50,664		50,647		0.0	%
Total	$	1,671,316	$	1,550,222		7.8	%

     At June 30, 2007 total short-term and long-term borrowings (including subordinated debt) decreased $42.5 million or 5.7% from $743.8 million at December 31, 2006 to $701.2 million at June 30, 2007 as the increase in the deposit base allowed NCB to reduce short-term borrowings with the Federal Home Loan Bank.

     NCB had $241.3 million of advances from the FHLB, of which $50.0 million were long-term, at June 30, 2007 compared to $249.5 million at December 31, 2006, of which $50.0 million were long-term. NCB also has letter of credit availability under the FHLB of which $14.8 million and $8.6 million was outstanding at June 30, 2007 and December 31, 2006, respectively.

     At June 30, 2007 NCB had $116.0 million outstanding under its revolving line of credit. In addition, NCB has letter of credit availability under the revolver of which $17.4 million was outstanding at June 30, 2007. At December 31, 2006, $156.0 million was outstanding on the revolving line of credit with $5.0 million outstanding on the letter 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 $6.0 million was outstanding at June 30, 2007. There were no bid lines outstanding at December 31, 2006.

43

     At June 30, 2007 and December 31, 2006, under its Medium Term Note Program, NCB had authority to issue up to $151.0 million of medium term notes. As of June 30, 2007 and December 31, 2006, NCB had $15.0 million of medium term notes outstanding under this program.

     In addition, as of June 30, 2007 and December 31, 2006, NCB had $155.0 million of privately placed debt issued to various institutional investors outstanding. At June 30, 2007 and December 31, 2006, NCB had $10.0 million remaining capacity of private placement issuances under an Uncommitted Master Shelf Agreement with an institutional investor.

Contractual Obligations

     At June 30, 2007 the only material change to either the type or maturity of contractual obligations from December 31, 2006 was the termination of the 1725 Eye Street lease. Although NCB had been relieved of the economic obligation of the 1725 Eye Street lease in August 2006, the termination of the lease, in the second quarter of 2007, relieved NCB of the contractual obligation.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

     Discussion of NCB’s commitments, contingent liabilities and off-balance sheet arrangements is included in Notes 13 and 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 for dividends on Class C stock, for interest on and redemption of Class A Notes, and for losses.

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 $0.2 million and $1.2 million for the six months ended June 30, 2007 and 2006, respectively. NCB’s effective tax rate on consolidated operations was 2.1% and 9.4% for the six months ending June 30, 2007 and 2006, respectively. The effective tax rate decreased for the 2007 reporting period because the proportion of NCB’s taxable earnings in the taxable subsidiaries was greater in the six months ending June 30, 2006 than in the six months ending June 30, 2007.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Incorporated by reference to the discussion contained under the caption “Overview” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 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, 2006.

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:August 14, 2007

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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