National Consumer Cooperative Bank 10-Q 2001 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

For the quarter ended June 30, 2001

Commission file number 2-99779

National Consumer Cooperative Bank
(Exact name of registrant as specified in its charter)

United States of America (12 U.S.C. Section 3001 et seq.)		52-1157795
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
	1725 Eye Street, NW, Suite 600, Washington D.C. 20006
	(Address of principal executive offices)
	(202)336-7700
	Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý  No  o  .

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

	Outstanding at June 30, 2001
Class C	220,115
(Common stock, $100.00 par value)
Class B	1,073,383
(Common stock, $100.00 par value)
Class D	3
(Common stock, $100.00 par value)

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

INDEX

PART I	FINANCIAL INFORMATION
Item 1	Consolidated balance sheets – June 30, 2001and December 31, 2000
	Consolidated statements of income - for  the three and six months ended June 30, 2001 and 2000.
	Consolidated statements of comprehensive income - for the six months ended June 30, 2001 and 2000
	Consolidated statements of cash flows -for the six months ended June 30, 2001 and 2000
	Condensed notes to the consolidated financial statements – June 30,2001
Item 2	Management's discussion and analysis of financial condition and results of operations - for the three and six months ended June 30, 2001 and 2000
Item 3	Quantitative and qualitative disclosures about market risk
	PART II OTHER INFORMATION
Item 6	Exhibits
		Exhibit 10-11 – Amendment No. 4 to Third Amended and Restated Loan Agreement with Fleet Bank as Agent
		Exihibit 10-16 – Amendment to Term Loan Agreement dated November 5, 1998 with Greenwich Funding Corporation and Credit Suisse First Boston

NATIONAL COOPERATIVE BANKCONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000
(Unaudited)

							June 30,			December 31,
							2001			2000
Assets
Cash and cash equivalents							$	51,958,977		$	36,494,978
Restricted cash							3,835,107			3,875,549
Investment securities
		Available-for-sale					42,656,595			44,505,034
		Held-to-maturity					2,923,694			2,923,694
Loans held for sale							115,137,732			99,077,161
Loans and lease financing							896,721,042			879,459,566
		Less: Allowance for loan losses					(21,899,714		)	(21,260,284		)
	Net loans held for sale and oans and lease financing						989,959,060			957,276,443
Other assets							49,428,968			41,410,785
					Total assets		$	1,140,762,401		$	1,086,486,483
Liabilities and Members’ Equity
Liabilities
Deposits							$	177,036,394		$	148,960,621
Patronage dividends payable in cash							5,910,234			3,330,296
Other liabilities							19,592,651			37,313,873
Borrowings
					Short-term		314,258,517			269,579,985
					Long-term
						Current	123,333,333			147,991,796
						Non-current	160,586,107			143,834,724
					Subordinated debt		182,042,612			182,022,471
					Total borrowings		780,220,569			743,428,976
				Total liabilities			982,759,848			933,033,766
Members’ equity
Common stock
				Class B			107,338,280			107,440,170
				Class C			22,011,521			22,017,993
				Class D			300			300
Retained earnings
				Allocated			8,579,393			5,433,641
			Unallocated				18,205,681			16,804,590
Accumulated other comprehensive income							1,867,378			1,756,023
			Total members’ equity				158,002,553			153,452,717
			Total liabilities and members’ equity				$	1,140,762,401		$	1,086,486,483

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

				Six Months Ended June 30,				Three Months Ended June 30,
				2001		2000		2001		2000
Interest income
		Loans and lease financing		$	41,568,286	$	43,443,662	$	20,289,339	$	22,862,582
		Investments securities		2,178,153		2,331,643		1,175,078		1,090,231
			Total interest income	43,746,439		45,775,305		21,464,417		23,952,813
Interest expense
		Deposits		3,904,964		3,200,690		1,991,040		1,742,364
		Short-term borrowings		8,979,065		10,547,178		4,486,434		5,841,421
	Long-term debt, other borrowings and subordinated debt			14,449,782		16,629,159		6,565,470		8,515,237
			Total interest expense	27,333,811		30,377,027		13,042,944		16,099,022
			Net interest income	16,412,628		15,398,278		8,421,473		7,853,791
Provision for loan losses				1,500,000		441,667		750,000		429,167
			Net interest income after provision for loan losses	14,912,628		14,956,611		7,671,473		7,424,624
Non-interest income
		Gain on sale of loans		3,437,984		232,994		1,355,998		237,063
		Loan and deposit servicing fees		1,604,867		1,447,851		806,699		635,918
		Other		6,014,253		3,363,332		3,428,231		1,687,874
			Total non-interest income	11,057,104		5,044,177		5,590,928		2,560,855
Non-interest expense
	Compensation and employee benefits			9,300,701		7,487,420		4,517,288		3,234,188
		Contractual services		4,398,810		4,397,774		2,304,714		2,285,156
		Occupancy and equipment		2,903,113		2,519,984		1,613,150		1,278,394
		Other		1,479,513		1,319,459		799,578		789,664
		Total non-interest expense		18,082,137		15,724,637		9,234,730		7,587,402
Net income before income taxes				7,887,595		4,276,151		4,027,671		2,398,077
Provision for income taxes				771,537		805,457		333,949		427,193
Net income				$	7,116,058	$	3,470,694	$	3,693,722	$	1,970,884
Distribution of net income
			Patronage dividends	$	7,116,058	$	3,470,694	$	3,693,722	$	1,970,884
			Retained earnings	-		-		-		-
				$	7,116,058	$	3,470,694	$	3,693,722	$	1,970,884

 NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

For the six months ended June 30,		2001		2000
Net income		$	7,116,058	$	3,470,694
Other comprehensive income, net of tax:
	Net unrealized holding gains before tax	111,355		648,328
Comprehensive income		$	7,227,413	$	4,119,022

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the six months ended June 30,						2001			2000
Cash flows from operating activities
Net income						$	7,116,058		$	3,470,694
Adjustments to reconcile net income to net cash used in operating activities
		Provision for loan losses				1,500,000			441,667
		Depreciation and amortization				3,111,627			3,432,986
		Gain on sale of loans				(4,029,877		)	(232,994		)
		Loans originated for sale				(210,817,721		)	(115,896,466		)
		Proceeds from sale of loans held for sale				199,656,610			40,398,910
		(Increase) decrease in other assets				(10,632,789		)	2,826,011
		(Decrease) increase in other liabilities				(14,490,633		)	3,026,290
Net cash used in operating activities						(28,586,725		)	(62,532,902		)
Cash flows from investing activities
	Decrease in restricted cash					40,442			29,606
			Purchase of investment securities
					Available-for-sale	(3,585,313		)	(2,260,916		)
			Proceeds from maturities of investments securities
				Available-for-sale		3,794,405			2,752,681
	Net increases in loans and lease financing					(17,242,929		)	(80,564,806		)
	Proceeds from sale of portfolio loans					-			13,823,937
	Purchases of premises and equipment					(501,777		)	(73,460		)
Net cash used in investing activities						(17,495,172		)	(66,292,958		)
Cash flows from financing activities
	Net increase in deposits					28,075,773			16,410,899
	Net increase in short-term borrowings					44,678,532			94,009,063
	Proceeds from issuance of long-term debt					49,763,049			49,768,128
	Repayment on long term debt					(60,833,333		)	(32,000,000		)
	Dividends paid					(138,125		)	(287,630		)
Net cash provided by financing activities						61,545,896			127,900,460
Increase (decrease) in cash and cash equivalents						15,463,999			(925,400		)
Cash and cash equivalents, beginning of year						36,494,978			29,910,037
Cash and cash equivalents, end of period						$	51,958,977		$	28,984,637

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Supplemental schedule of investing and financing activities:

For the six months ended June 30,	2001		2000
Unrealized gain on investment available-for-sale	$	111,355	$	648,328
Interest paid	$	30,364,013	$	29,247,787
Income taxes paid	$	638,960	$	731,970

NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)

             The accompanying financial statements have been prepared without audit and reflect all adjustments (consisting only of normal recurring adjustments) which were, in the opinion of management, necessary to a fair statement of the results of the interim period presented.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  Accordingly, these condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in National Cooperative Bank’s (NCB’s) most current annual report. The results of operations for the interim periods are not necessarily indicative of the results of the entire year.

             Certain prior year amounts have been reclassified to conform to the 2001 presentation.

1.          Cash, Cash Equivalents and Investment Securities

             As of June 30, 2001, NCB's portfolios of investment securities, cash and cash equivalents had an average adjusted maturity of approximately 1.9 years with interest rates in those portfolios varying from 5.00% to 8.13%.

	Cash and		Investments		Investments
	Cash		Available-		Held-to-
	Equivalents		for-Sale		Maturity
Cash	$	3,369,724	$	-	$	-
Federal funds	32,264,623		-		-
Money market securities	15,974,630		807,059		-
Private debt security	-		-		792,931
Mutual funds	-		1,658,846		-
Certificates of deposit	350,000		-		-
Mortgage-backed securities	-		-		2,130,763
Corporate bonds	-		8,941,461		-
U.S. Treasury and Agency obligations	-		15,469,070		-
Interest-only receivables	-		15,780,159		-
	$	51,958,977	$	42,656,595	$	2,923,694

             As of December 31, 2000, NCB's portfolios of investment securities, cash and cash equivalents were comprised of the following:

	Cash and		Investments		Investments
	Cash		Available-		Held-to-
	Equivalents		for-Sale		Maturity
Cash	$	3,344,711	$	-	$	-
Federal funds	19,636,506		-		-
Money market securities	13,163,761		1,273,601		-
Private debt security	-		-		792,931
Mutual funds	-		1,115,860		-
Certificates of deposit	350,000		-		-
Mortgage-backed securities	-		-		2,130,763
Corporate bonds	-		2,148,400		-
U.S. Treasury and Agency obligations	-		22,302,795		-
Interest-only receivables	-		17,664,378		-
	$	36,494,978	$	44,505,034	$	2,923,694

             At June 30, 2001 and December 31, 2000, the investments in the available-for-sale portfolio were recorded at aggregate fair value.

             Restricted cash of $3,835,107 and $3,875,549 at June 30, 2001 and December 31, 2000, respectively, is held by a trustee for the benefit of certificate holders in the event of a loss on certain loans sold in 1992 and 1993. At June 30, 2001 and December 31, 2000, the combined remaining balance of 1992 and 1993 loans totaled $32,752,720 and $33,284,777, respectively. The restricted cash will become available to NCB I, Inc. as the principal balance of the respective loans decreases. The loans sold have original maturities of ten to fifteen years.

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

2.      Loans and Lease Financing

             Loans and leases outstanding by category were as follows:

		June 30, 2001		December 31, 2000
Commercial loans		$	516,430,075	$	519,725,819
Lease financing		87,566,464		83,562,445
Real estate loans
	Residential	403,244,601		370,510,903
	Commercial	4,617,634		4,737,560
		$	1,011,858,774	$	978,536,727

             At June 30, 2001 and December 31, 2000, loans held for sale were $115.1 million and $99.1 million, respectively.

3.          Impaired Assets

            Impaired loans, representing the non-accrual loans at June 30, 2001 and December 31, 2000, totaled $3,198,183 and $2,570,135, respectively, and averaged $3,279,872 and $1,180,000 during the respective periods ending on these dates. Specific allowances of $1,312,661 and $1,185,960 were established at June 30, 2001 and December 31, 2000, respectively. During the first half of 2001 and 2000, the interest collected on the non-accrual loans was applied to reduce the outstanding principal.

             At June 30, 2001 and December 31, 2000, there were no commitments to lend additional funds to borrowers whose loans were impaired.

             At June 30, 2001 and December 31, 2000, there was no real estate owned property.

4.          Allowance for Loan Losses

             The following is a summary of the activity in the allowance for loan losses during the six months ended June 30, 2001:

Balance at January 1, 2001	$	21,260,284
Provision for loan losses	1,500,000
Charge-offs	(1,428,588		)
Recoveries of loans previously charged-off	568,018
Balance at June 30, 2001	$	21,899,714

             The allowance for loan losses as a percentage of average loans and lease financing, and loans held for sale at June 30, 2001 was 2.20%.

5.          Statement of Changes in Members’ Equity

The following is a summary of the activity in members’ equity for the six months ended June 30, 2001:

					Retained		Retained					Total
		Common			Earnings		Earnings			Unrealized		Members'
		Stock			Allocated		Unallocated			Gain		Equity
Balance, December 31, 2000		$	129,458,463		$	5,433,641	$	16,804,590		$	1,756,023	$	153,452,717
Net income							7,116,058					7,116,058
Adjustments to dividends paid							10,723					10,723
Cancellation and redemption of stock		(108,362		)								(108,362		)
Unrealized gain on investment securities available-for-sale										111,355		111,355
2001 patronage dividends
	to be distributed in cash						(2,579,938		)			(2,579,938		)
	retained in form of equity				3,145,752		(3,145,752		)			0
Balance, June 30, 2001		$	129,350,101		$	8,579,393	$	18,205,681		$	1,867,378	$	158,002,553

6.          Segment Reporting

             NCB’s reportable segments are strategic business units that provide diverse products and services within the financial services industry. NCB has five reportable segments: commercial lending, real estate lending, warehouse  lending, NCB Savings Bank and other. The commercial lending segment provides financial services to cooperative and member-owned businesses. The real estate lending segment originates and services real estate loans nationally, with a concentration in New York City. The warehouse lending segment originates real estate and commercial loans for sale in the secondary market. The NCB Savings Bank segment provides traditional banking services such as lending and deposit gathering to retail, corporate and commercial customers. “Other” consists of NCB’s unallocated parent company income and expense, and net interest income from investments and corporate debt after allocations to segments.

             NCB evaluates segment performance based on net income before taxes. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies in the most recent annual report. Overhead and support expenses are allocated to each operating segment based on number of employees, and other factors relevant to expenses incurred. Also included in overhead and support is depreciation allocated based on equipment usage.

               The following is the segment reporting for the six months ended June 30, 2001 and June 30, 2000 (dollars in thousands):

2001		Commercial Lending				Real Estate Lending				Warehouse Lending				NCBSB				Other						NCB Consolidated
Net interest income
	Interest income	$		24,844		$		7,582		$		3,945		$		6,104		$		1,272
	Allocated interest expense	16,633				5,051				2,521				-				(24,205				)
	Interest expense	-				-				-				3,909				23,425
Net interest income			8,211				2,531				1,424				2,195				2,052						16,413
Provision (credit) for loan losses		153			85						-				-				1,262						1,500
Non-interest income-external		2,601			2,921						2,718				883				1,934						11,057
Non-interest expense
	Direct expense	4,470			2,187						635				1,310				9,480						18,082
	Overhead and support	821			528						137				535				(2,021				)		-
Total non-interest expense		5,291			2,715						772				1,845				7,459						18,082
Income (loss) before taxes		$		5,368	$				2,652		$		3,370		$		1,233		$		(4,735		)		$	7,888
Total average assets		$		555,144	$				184,723		$		80,517		$		171,820		$		106,706				$	1,098,910

2000			Commercial Lending			Real Estate Leading		Warehouse Lending		NCBSB		Other			NCB Consolidated
Net interest income
		Interest income	$	22,565		$	6,487	$	7,142	$	6,283	$	3,298
		Allocated interest expense	18,308			4,589		5,473		-		(28,370)
		Interest expense	-			-		-		3,809		26,568
Net interest income			4,257			1,898		1,669		2,474		5,100			15,398
Provision (credit) for loan losses			10,419			81		-		67		(10,125		)	442
Non-interest income-external			1,061			797		568		505		3			2,934
Non-interest expense
	Direct expense		2,556			1,700		406		1,111		7,841			13,614
	Overhead and support		587			477		81		544		(1,689		)	-
Total non-interest expense			3,143			2,177		487		1,655		6,152			13,614
Income (loss) before taxes			$	(8,244	)	$	437	$	1,750	$	1,257	$	9,076		$	4,276
Total average assets			$	573,277		$	151,677	$	167,808	$	164,703	$	74,748		$	1,132,213

  The following is the segment reporting for the three months ended June 30, 2001 and June 30, 2000 (dollars in thousands):

2001		Commercial Lending		Real Estate Lending			Warehouse Lending		NCBSB		Other			NCB Consolidated
Net interest income
	Interest income	$	11,807	$	3,911		$	1,981	3,007		$	758
	Allocated interest expense	7,420		2,437			1,270		-		(11,127)
	Interest expense	-		-			-		1,991		11,051
Net interest income		4,387		1,474			711		1,016		834			8,422
Provision (credit) for loan losses		586		(13		)	-		-		177			750
Non-interest income-external		1,608		1,687			753		483		1,060			5,591
Non-interest expense
	Direct expense	2,746		1,215			329		684		4,261			9,235
	Overhead and support	473		292			69		242		(1,076		)	-
Total non-interest expense		3,219		1,507			398		926		3,185			9,235
Income (loss) before taxes		$	2,190	$	1,667		$	1,066	$	573	$	(1,468	)	$	4,028
Total average assets		$	531,290	$	193,094		$	82,805	$	181,846	$	137,528		$	1,126,563

2000		Commercial		Real Estate		Warehouse							NCB
		Lending		Leading		Lending		NCBSB		Other			Consolidated
Net interest income
	Interest income	$	11,142	$	3,402	$	3,659	$	3,350	$	2,400
	Allocated interest expense	9,435		2,421		3,180		-		(15,036		)
	Interest expense	-		-		-		2,106		13,993
Net interest income		1,707		981		479		1,244		3,443			7,854
Provision (credit) for loan losses		4,471		11		-		54		(4,107		)	429
Non-interest income-external		404		327		386		279		113			1,509
Non-interest expense
	Direct expense	1,337		760		194		557		3,688			6,536
	Overhead and support	300		266		39		270		(875		)	-
Total non-interest expense		1,637		1,026		233		827		2,813			6,536
Income (loss) before taxes		$	(3,997)	$	271	$	632	$	642	$	4,850		$	2,398
Total average assets		$	564,483	$	150,243	$	157,568	$	161,369	$	141,082		$	1,174,745

7.          Accounting for Derivatives

Adoption of SFAS No. 133

             NCB adopted SFAS No. 133, “Accounting for Derivative Investments and Hedging Activities”, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to SFAS No. 133”, as of January 1, 2001.  On that date, NCB recorded a cumulative effect adjustment of $1.7 million gain to recognize the fair value of interest rate swaps with an offsetting cumulative effect of $1.7 million loss to recognize the change in fair value of related hedged debt due to changes in benchmark interest rates.  Additionally, NCB recorded a cumulative effect adjustment of $4.5 million loss to recognize derivatives at fair value and a cumulative effect adjustment of $4.6 million gain to recognize the change in fair value of related loans held for sale and loan commitments due to changes in benchmark interest rates.  The net of these amounts was recorded in Other Non-Interest Income.

             NCB uses interest rate swaps to hedge loan commitments prior to actually funding a loan.  During the commitment period, the loan commitments and related interest rate swaps are accounted for as derivatives and therefore recorded at fair value through income.  Once a commitment becomes a loan, the derivative associated with the commitment is designated as a hedge on the loan.

Derivative Instruments and Hedging

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

             The derivative instruments utilized include interest rate swaps and futures contracts.  Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties based upon a notional principal amount and maturity date.  Interest rate futures generally involve exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the future at specified prices.

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

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

Accounting for Derivatives

             All derivatives are recognized on the Balance Sheet at fair value. When a derivative contract is entered into, NCB determines whether or not it qualifies as a hedge.  If it does, NCB designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or (2) a hedge of actual or forecasted cash flows.

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

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

             When hedge accounting is discontinued because the derivative no longer qualifies as an effective fair value hedge, it will continue to be carried on the Balance Sheet at its fair value and the hedged asset or liability will no longer be adjusted to reflect changes in fair value.  When hedge accounting is discontinued because it is probable a forecasted transaction will not occur, any gains or losses accumulated in Other Comprehensive Income will be recognized immediately in earnings as will any change in the fair value of the derivative subsequent to the discontinuation of hedge accounting. In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value with the changes in fair value recognized in income.

Fair-Value Hedges

             NCB enters into interest rate swaps and futures contracts to hedge against changes in the fair value of fixed rate loans and debt due to changes in benchmark interest rates.

             For the six months ending June 30, 2001, NCB recognized a net loss of $596.6 thousand for the ineffective portion of all fair value hedges.  This amount is included in Other Non-interest Income in the accompanying Consolidated Statement of Income.

8.          New Accounting Standards

             On April 1, 2001, Emerging Issues Task Force (EITF) No. 99-20, “Recognition of Interest Income and Impairment of Purchased and Retained Beneficial Interests in Securitized Financial Assets” was effective.  This statement addresses the recognition of income when assumptions are changed which relate to expected future cash flows of assets with calculated income yields.  The changes in income yields primarily relate to prepayments, which adjust the initial yield.  NCB currently recognizes prepayments as a catch-up adjustment within the same period.

NATIONAL COOPERATIVE BANK
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000

SUMMARY

             NCB's net income for the six months ended June 30, 2001 was $7.1 million.  This was a $3.6 million increase compared with $3.5 million for the six months ended June 30, 2000.  The variance resulted from an increase in gain on sale of loans and an increase in net interest income of $3.2 million and $1.0 million, respectively.  The variance was partially offset by increases to provision for loan losses and non-interest expenses of $1.1 million and $2.4 million, respectively.

             Total assets were $1.1 billion at June 30, 2001, up $54.3 million from December 31, 2000. This resulted primarily from increases in loans and lease balances of $17.3 million and loans available for sale of $16.1 million and from increased interest-only receivables from loans sold.

             The annualized return on average total assets was 1.30% for the first six months of 2001 compared with .61% for the same period in 2000.  The annualized return on average equity for the period ended June 30, 2001 and June 30, 2000 was 9.08% and 4.67%, respectively.

NET INTEREST INCOME

             Net interest income for the first six months of 2001 was $16.4 million, an increase of 6.6% or $1.0 million compared with $15.4 million over the same period a year ago.

             For the six months ending June 30, 2001, interest income decreased 4.4% or $2.0 million to $43.7 million from $45.8 million in the prior year’s period. The majority of the decrease was due to the lower yield on commercial loan and lease portfolios and lower volume on real estate loans. Table 2 shows that decreases of $1.3 million and $765 thousand were volume and yield related, respectively.

             Interest expense decreased $3.1 million to $27.3 million for the six months ended June 30, 2001 compared with $30.4 million for the six months ended June 30, 2000. Interest expense was down as a result of efforts to grow deposits, which are normally at a lower rate than other sources of funds, as well as, decreases in the rates at which NCB borrows short-term and long-term debt.  As shown on Table 2, a $3.0 million decrease in interest expense was both volume and yield related.

             For the six months ended June 30, 2001 and 2000, the average rate on interest earning assets was 8.16% and 8.28%, respectively.  Average rate on interest bearing liabilities was down 39 basis points to 6.01% for the first half of 2001 compared with 6.40% for the same period in 2000. 

             For the three month period ended June 30, 2001, net interest income increased 7.2% or $567.7 thousand from the same period in 2000.

             Interest income decreased $2.5 million to $21.5 million for the three months ended June 30, 2001 compared with $24.0 million for the same period ended June 30, 2000. The decrease in interest income was due to a lower average balance of interest earning assets and lower related yields.

             For the second quarter ended June 30, 2001, interest expense decreased 19.0% or $3.1 million to $13.0 million compared with $16.1 million for the second quarter ended June 30, 2000 due to lower short-term interest rates and increased funding from deposits. As shown on Table 2A, the decrease in interest expense amounting to $0.9 million was volume related while $2.1 million was yield related.

             For the quarter ended June 30, 2001, the average rate on interest earning assets was down 56 basis points to 7.78% from 8.34% for the same quarter ended June 30, 2000. Average rate on interest bearing liabilities was 5.60% and 6.51% for the periods ended June 30, 2001 and 2000, respectively.

NON-INTEREST INCOME

             Non-interest income for the six months ended June 30, 2001 of $11.1 million  increased $6.1 million from $5.0 million for the same period last year. Non-interest income is composed of gains from sales of blanket mortgages and share loans to secondary market investors, servicing fees, net origination fees on loans sold, management fees and advisory and debt placement fees.  The majority of the increase resulted from gains on loans sold.

             For the six months ended June 30, 2001, gain on sale of loans was $3.4 million compared with $233.0 thousand in the same period last year.  The increase resulted from the timing and volume of loans sold.  Total loans sold were $185.6 million and $55.8 million for the periods ended June 30, 2001 and 2000, respectively.

             Servicing fee income for the six months ended June 30, 2001 increased 10.8% or $157.0 thousand to $1.60 million compared to $1.45 million in the prior year.  NCB serviced single and multi-family real estate and commercial loans for investors in the amounts of $2.4 billion and $2.1 billion as of June 30, 2001 and 2000, respectively.

             Other non-interest income for the six months ended June 30, 2001 was up $2.7 million from $3.4 million due primarily to increases in excess yield and prepayment penalties received.

NON-INTEREST EXPENSE

             Non-interest expense for the six months ended June 30, 2001 increased 15.0% or $2.4 million to $18.1 million compared with $15.7 million for the six months ended June 30, 2000. Compensation and benefits, the largest component of non-interest expense, increased 24.2% or $1.8 million due to a higher employee base and salary increases. Total number of employees has increased 13.2% or 26 people to 223 for the six months ended June 30, 2001 from 197 total employees, as of June 30, 2000.

             Non-interest expense as a percentage of average assets increased to 1.6% for the six months ended June 30, 2001 compared with 1.4% for the same period a year ago.

             For the three months ended June 30, 2001, non-interest expense increased 21.7% or $1.6 million to $9.2 million from $7.6 million for the same period in 2000.  The variance was primarily due to the increased employee base and salary increases.

Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)

			Six Months Ended June 30,
			2001							2000
ASSETS			Average    Balance			Income/ Expenses		Yields/ Rates		Average   Balance			Income/ Expenses		Yields/ Rates
Interest earning assets
	Real estate loans		$	402,421		$	16,562	8.23	%	$	462,519		$	18,691	8.08	%
	Commercial loans and leases		592,164			25,006		8.45	%	563,606			24,753		8.78	%
	Total loans and leases		994,585			41,568		8.36	%	1,026,125			43,444		8.47	%
	Investment securities and cash equivalents		78,208			2,178		5.57	%	78,988			2,331		5.90	%
	Total interest earning assets		1,072,793			43,746		8.16	%	1,105,113			45,775		8.28	%
Allowance for loan  losses			(21,757		)					(18,796		)
Non-interest earning assets
		Cash	2,539							4,446
		Other assets	45,335							41,450
Total non-interest earning assets			47,874							45,896
Total assets			$	1,098,910						$	1,132,213
LIABILITIES AND MEMBERS’ EQUITY
Interest bearing liabilities
	Subordinated debt		$	182,129		$	5,065	5.56	%	$	182,571		$	5,441	5.96	%
	Notes payable		577,722			18,364		6.36	%	631,347			21,735		6.89	%
	Deposits		149,998			3,905		5.21	%	135,315			3,201		4.73	%
	Total interest bearing liabilities		909,849			27,334		6.01	%	949,233			30,377		6.40	%
Other liabilities			32,351							34,415
Members’ equity			156,710							148,565
	Total liabilities and members’ equity		$	1,098,910						$	1,132,213
Net interest earning assets			$	162,944						$	155,880
Net interest revenues and spread						$	16,412	2.15	%				$	15,398	1.88	%
Net yield on interest earning assets								3.06	%						2.79	%

Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)

					Three Months Ended June 30,
		2001							2000
ASSETS		Average   Balance			Income/ Expenses		Yields/ Rates		Average  Balance			Income/ Expenses		Yields/ Rates
Interest earning assets
	Real estate loans	$	425,633		$	8,471	7.96	%	$	482,955		$	10,055	8.33	%
	Commercial loans and leases	592,878			11,818		7.97	%	584,048			12,808		8.77	%
	Total loans and leases	1,018,511			20,289		7.97	%	1,067,003			22,863		8.57	%
	Investment securities and cash equivalents	85,627			1,175		5.49	%	82,414			1,090		5.29	%
	Total interest earning assets	1,104,138			21,464		7.78	%	1,149,417			23,953		8.34	%
Allowance for loan  losses		(21,927		)					(18,868		)
Non-interest earning assets
	Cash	2,791							3,923
	Other assets	41,561							40,273
Total non-interest earning assets		44,352							44,196
Total assets		$	1,126,563						$	1,174,745
LIABILITIES AND MEMBERS’ EQUITY
Interest bearing liabilities
	Subordinated debt	$	182,034		$	2,437	5.36	%	$	182,541		$	2,795	6.13	%
	Notes payable	593,622			8,615		5.80	%	664,430			11,562		6.96	%
	Deposits	155,159			1,991		5.13	%	141,923			1,742		4.91	%
	Total interest bearing liabilities	930,815			13,043		5.60	%	988,894			16,099		6.51	%
Other liabilities		38,455							36,607
Members’ equity		157,293							149,244
	Total liabilities and members’ equity	$	1,126,563						$	1,174,745
Net interest earning assets		$	173,323						$	160,523
Net interest revenues and spread					$	8,421	2.18	%				$	7,854	1.83	%
Net yield on interest earning assets							3.05	%						2.73	%

Table 2
Changes in Net Interest Income
(dollars in thousands)

For the six months ended June 30, 2001 compared to 2000

		Increase (decrease) due to change in:
		Average Volume*			Average Yield			Net**
Interest Income
Cash equivalents and investment securities		$	(23	)	$	(130	)	$	(153	)
Commercial loans and leases		1,227			(974		)	253
Real estate loans		(2,468		)	339			(2,129		)
	Total interest income	(1,264		)	(765		)	(2,029		)
Interest expense
Deposits		365			339			704
Notes payable		(1,772		)	(1,599		)	(3,371		)
Subordinated debt		(13		)	(363		)	(376		)
	Total interest expense	(1,420		)	(1,623		)	(3,043		)
Net interest income		$	156		$	858		$	1,014

*	Average monthly balances
**	Changes in interest income and interest expense due to changes in rate and volume have been allocated to "change in average volume" and "change in average rate" in proportion to the absolute dollar amounts in each.

Table 2A
Changes in Net Interest Income
(dollars in thousands)

For the three months ended June 30, 2001 compared to 2000

		Increase (decrease) due to change in:
		Average Volume*			Average Yield			Net**
Interest Income
Cash equivalents and investment securities		$	43		$	42		$	85
Commercial loans and leases		191			(1,181		)	(990		)
Real estate loans		(1,155		)	(429		)	(1,584		)
	Total interest income	(921		)	(1,568		)	(2,489		)
Interest expense
Deposits		167			82			249
Notes payable		(1,152		)	(1,795		)	(2,947		)
Subordinated debt		(8		)	(350		)	(358		)
	Total interest expense	(993		)	(2,063		)	(3,056		)
Net interest income		$	72		$	495		$	567

*	Average monthly balances
**	Changes in interest income and interest expense due to changes in rate and volume have been allocated to "change in average volume" and "change in average rate" in proportion to the absolute dollar amounts in each.

PROVISION FOR INCOME TAXES

             The federal income tax provision is determined on the basis of non-member income generated by NCB Savings Bank, FSB(NCBSB) and reserves set aside for the retirement of Class A notes and dividends on Class C stock. NCB's subsidiaries are also subject to varying levels of state taxation.  The income tax provision for the six months ended June 30, 2001 was $771.5 thousand compared with the prior year's provision of $805.4 thousand.

CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES

 ��           Cash, cash equivalents and investment securities totaling $97.5 million at June 30, 2001 increased $13.6 million or 16.2% from $83.9 million at year-end 2000.  The increase was due mostly to operating cash for NCB Savings Bank.  As a percentage of earning assets, cash, cash equivalents and investment securities increased to 8.8% at June 30, 2001 from 8.2% at December 31, 2000.

ALLOWANCE FOR LOAN LOSSES

             The allowance for loan losses at June 30, 2001 was $21.9 million, up slightly by 3.0% from December 31, 2000. The allowance during the period was impacted by loans charged-off of $1.4 million, recoveries of loans previously charged-off of $568 thousand and the provision of $1.5 million. NCB's annualized provision for loan losses as a percentage of average loans and leases outstanding was .3% for the six months ended June 30, 2001 and less than .1% for the six months ended June 30, 2000.

             The loan loss allowance as a percentage of average loans and leases remained 2.2% at June 30, 2001 and at December 31, 2000. Management considers the current allowance to be adequate to absorb known and inherent risks in the loan portfolio.

             As shown in Table 3, total impaired assets (non-accruing loans and real estate owned) increased 24.4% from $2.6 million at December 31, 2000 to $3.2 million at June 30, 2001.  Impaired assets as a percentage of loans and leases outstanding plus real estate owned was .32% at June 30, 2001 compared with .26% at year-end 2000.  The allowance for loan losses as a percentage of impaired assets decreased to 685% at June 30, 2001 from 827% at December 31, 2000.

INTEREST BEARING LIABILITIES

Interest Bearing liabilities
(dollars in thousands)
		6/30/01		12/31/00		%  Change
Deposits		$	177,036	$	148,961	18.8	%
Short-term debt		314,259		269,580		16.6	%
Long-term debt		283,919		291,827		(2.7	)%
Subordinated debt		182,043		182,022		0.0	%
	Total	$	957,257	$	892,390	7.3	%

             Interest bearing liabilities increased $64.9 million to $957.3 million at June 30, 2001 from $892.4 million at December 31, 2000.

             For the six months of 2001, deposits at NCBSB grew 18.8% to $177 million compared with $149 million at December 31, 2000. The growth was due to an on-going strategic campaign to attract local and national deposit accounts and cooperatives customers. Average maturity of the certificates of deposits is 14.3 months. Deposits are a major portion of interest bearing liabilities – 18.5% and 16.7% at June 30, 2001 and December 31, 2000, respectively.  Funds generated by the increased deposit activity were used to originate single-family loans and increase liquidity.

             At June 30, 2001, total short-term and long-term borrowings (including subordinated debt) increased 4.9% or $36.8 million to $780.2 million in comparison to prior year-end 2000 of $743.4 million. Proceeds from the borrowings were used to fund growth in loans and leases. At June 30, 2001 and December 31, 2000, NCBSB had advances of zero and $5 million, respectively, from the Federal Home Loan Bank. At June 30, 2001, included in the short-term borrowings were revolving lines of credit of $153.5 million; commercial paper with a face value of $145.2 million and $16 million in borrowing from a related entity and cooperative customers. At December 31, 2000, included in the short-term borrowing were revolving lines of credit of $132.5 million; commercial paper with face value of $108.3 million and $24.2 million in borrowings from a related entity and cooperative customers. Long-term debt decreased 2.7% from year-end 2000 due to a maturity of $28.3 million under the long-term facilities which was offset by a SFAS No. 133 valuation of $3 million. At June 30, 2001, there was unused capacity under short-term and long-term facilities of approximately $45.8 million and $250 million, respectively. At December 31, 2000, unused capacity under the short-term and long-term facilities was $152.5 million and $312.5 million, respectively.

TABLE 3
Impaired assets
(dollars in thousands)

	June 30, 2001		March 31, 2001		Dec. 31, 2000		Sept. 30, 2000		June 30, 2000
Real estate owned	$	0	$	0	$	0	$	14	$	125
Non-accruing	3,198		3,347		2,570		504		707
	$	3,198	$	3,347	$	2,570	$	518	$	832

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             No material changes in NCB’s market risk profile occurred from December 31, 2000 to June 30, 2001.

ITEM 6. EXHIBITS

(a)	The following exhibits are filed as part of this report:
	Exhibit 10-11 – Amendment No. 4 to Third Amended and Restated Loan Agreement with Fleet Bank as Agent
	Exhibit 10-16 – First Amendment to Term Loan Agreement Dated November 5, 1998 with Greenwich Funding Corporation And Credit Suisse First Boston

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, 2001
	By:	/s/ Richard L. Reed
		Richard L. Reed,
		Managing Director,
		Chief Financial Officer
	By:	/s/ Marietta J. Orcino
		Marietta J. Orcino
		Vice President, Tax &
		Regulatory Compliance