FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1994 Commission file number 2-99779
National Consumer Cooperative Bank
(Exact name of registrant as specified in its charter)
United States of America 52-1157795
(12 U.S.C. Section 3001 et seq.) (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
1401 Eye St., NW, Suite 700, Washington, D.C. 20005
(Address of principal executive offices)
Registrant's telephone number, including area code (202)336-7700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 x No________.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at March 31, 1994
Class C 205,738
(Common stock, $100.00 par value)
Class B 596,908
(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 Page No.
Item 1 Consolidated balance sheets-
March 31, 1994 and December 31, 1993 ........... 3
Consolidated statements of income -
for the three months ended March 31, 1994 and 1993
................................................ 4
Consolidated statements of cash
flows - for the three months ended March 31,
1994 and 1993................................... 5-6
Condensed notes to the consolidated financial
statements - March 31, 1994.................... 7-9
Item 2 Management's discussion and analysis of
financial condition and results of operations -
for the three months ended March 31,
1994 and 1993................................... 10-16
PART II OTHER INFORMATION
No applicable items.
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
Assets 1994 1993
Cash and cash equivalents $ 40,235,005 $ 22,938,795
Restricted cash 8,361,519 8,361,519
Investment securities
Trading account
Available-for sale 25,962,094 26,406,171
Held-to-maturity 1,395,770 3,380,698
Loans and lease financing 409,311,771 417,438,593
Loans held for sale 13,558,874 40,274,829
Less:Allowance for loan losses (12,928,226) (12,309,359)
------------ -----------
409,942,419 445,404,063
Excess servicing fees receivable 17,045,539 20,722,861
Premises and equipment, net 2,170,551 2,028,044
Other assets 10,048,025 6,524,825
------------ ------------
Total assets $515,160,922 $535,766,976
============ ============
Liabilities and Members' Equity
Liabilities
Deposits $ 50,436,254 $ 66,931,434
Patronage dividends payable in cash 4,617,273 3,147,860
Other liabilities 13,969,245 8,722,495
Borrowings
Short-term 19,039,690 31,541,577
Long-term 130,311,874 130,354,889
Other 1,868,632 2,040,406
----------- -----------
151,220,196 163,936,872
Subordinated Class A notes 182,970,302 182,989,162
----------- -----------
Total borrowings 334,190,498 346,926,034
----------- -----------
Total liabilities 403,213,270 425,727,823
----------- -----------
Members' Equity
Common stock
Class B 59,690,818 59,671,095
Class C 20,573,753 20,573,753
Class D 300 300
Retained earnings
Allocated 16,186,851 12,844,968
Unallocated 15,718,199 16,949,037
Unrealized loss on investment
securitites available for sale (222,269)
------------ ------------
Total members' equity 111,947,652 110,039,153
------------ ------------
Total liabilities and
members' equity $515,160,922 $535,766,976
============ ============
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1994 and 1993
1994 1993
Interest income
Loans and lease financing $ 9,224,777 $ 9,422,471
Investment securities 589,441 636,121
---------- -----------
Total interest income 9,814,218 10,058,592
---------- -----------
Interest expense
Deposits 424,513 477,460
Short-term borrowings 426,063 343,955
Long-term debt, other borrowings
and subordinated Class A notes 3,869,736 4,670,564
--------- ---------
Total interest expense 4,720,312 5,491,979
--------- ---------
Net interest income 5,093,906 4,566,613
Provision for loan losses 490,100 299,287
--------- ---------
Net interest income after
provision for loan losses 4,603,806 4,267,326
--------- ---------
Non-interest income
Gain on sale of loans 2,746,706 1,367,160
Loan and deposit servicing fees 362,945 297,978
Other 841,309 426,496
--------- ---------
Total non-interest income 3,950,960 2,091,634
--------- ---------
Non-interest expenses
Compensation and employee benefits 2,527,583 2,051,783
Contractual services 697,995 652,977
Occupancy and equipment 684,988 681,965
Contribution to NCB
Development Corporation 233,785
Other 477,773 362,005
--------- ---------
Total non-interest expenses 4,388,339 3,982,515
--------- ---------
Income before income taxes 4,166,427 2,376,445
Provision for income taxes 503,307 272,385
----------- ------------
Net income $ 3,663,120 $ 2,104,060
----------- ------------
Distribution of net income
Patronage dividends $ 3,266,030 $ 2,111,436
Retained earnings 397,090 (7,376)
----------- ------------
$ 3,663,120 $ 2,104,060
=========== ============
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
1994 1993
Cash flows from operating activities
Interest received $ 10,459,723 $11,042,592
Commitment charges and other fees received 5,166,414 2,483,725
Proceeds from sales of loans held for sale 60,003,683 82,625,614
Loans originated for sale (31,438,406) (46,894,700)
Gain on hedges of loans held for sale 138,218 418,807
Increase in trading account securities, net 237,158
Interest paid 762,142 (1,823,798)
Transfer to restricted cash account (1,844,978)
Cash paid to suppliers and employees (7,763,996) (10,230,414)
----------- -----------
Net cash used in operating activities 35,803,494 36,014,006
----------- -----------
Cash flows from investing activities
Proceeds from sales of investments available
for sale 9,151,971
Purchase of investments available for sale (8,905,151)
Proceeds from investments held to maturity 1,984,928
Proceeds from sales of portfolio loans 3,153,436
Net decrease in loans and lease financing 5,568,100 7,756,509
Capital expenditures (281,969) (63,301)
----------- ----------
Net cash used in investing activities 10,671,315 7,693,208
----------- ----------
Cash flows from financing activities
Net decrease in deposits (16,493,851) (952,109)
Net decrease in short-term borrowings (12,501,887) (26,043,917)
Repayment on long-term debt (7,000,000)
Repayment on other borrowings (171,774) (194,767)
Redemption of common stock (11,087) (46,612)
------------ ------------
Net cash provided by financing activities (29,178,599) (34,237,405)
------------ ------------
Increase in cash and cash equivalents 17,296,210 9,469,809
Cash and cash equivalents, beginning of year 22,938,795 23,888,148
------------ ------------
Cash and cash equivalents, end of period $40,235,005 $33,357,957
=========== ============
NATIONAL COOPERATIVE BANK
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
1994 1993
Net income $ 3,663,120 $ 2,104,060
Adjustments to reconcile net income to net
cash provided by (used in)operating
activities
Increase in restricted cash account (1,844,978)
Increase (decrease) in accrued interest
receivable (114,235) 271,317
Net trading account activity 237,158
Increase in loans held for sale 28,565,277 35,730,914
Increase in other assets, net of
real estate estate owned (3,467,520) (4,410,281)
Increase (decrease) in accounts
payable and other accrued expenses 453,966 (714,815)
Increase in accrued interest payable 4,792,783 4,673,299
Provision for loan losses 490,100 299,287
Depreciation and amortization, net 3,662,179 978,643
Gain on sale of assets, net (2,422,880) (824,866)
Increase on hedges of loans
held for sale 138,218 418,807
Other, net 42,486 (904,539)
------------ -----------
Net cash used in operating activities $35,803,494 $36,014,006
============ ===========
NATIONAL COOPERATIVE BANK
Condensed Notes to the Consolidated
Financial Statements
March 31, 1994
(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 NCB, 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 statement and the notes thereto included in NCB's most
current annual report.
1. Cash, Cash Equivalents and Investment Securities
As of March 31, 1994, NCB's portfolio of investment securities, cash
and cash equivalents had an average adjusted maturity of 438 days with
interest rates in those portfolios varying from 3.2% to 9.6%.
Cash and Investment Available Investments held
Cash Equivalents for Sale to maturity
---------------- -------------------- ----------------
Cash $ 6,937,787
Corporate bonds $14,907,931
Federal funds 29,000,000
Money market
securities and
commercial paper 2,297,218 530,170
Eurodollar
certificates and
repurchase
agreements 2,000,000 1,395,770
US Treasury and
agency
obligations 10,523,993
------------ ------------ -----------
$ 40,235,005 $ 25,962,094 $ 1,395,770
============ ============ ===========
At March 31, 1994, the investments available for sale portfolio were
recorded at aggregate market value. Restricted cash of $8,361,519 is held by a
trustee for the benefit off certificate holders in the event of loss on
certain loans and will become available to NCB as the principal balance of
the respective loan decreases. The loans sold have original maturities
of ten to fifteen years.
2. Loans, Lease Financing and Non-performing Assets
Loans and leases outstanding by category at March 31, 1994 were:
Commercial loans $214,126,407
Lease financing 6,618,921
Real estate loans:
Residential 185,911,696
Construction 5,709,586
Commercial 10,504,035
-----------
$422,870,645
============
At March 31, 1994 and December 31, 1993 real estate loans held for sale
were $13.6 million and $40.3 million, respectively. The loan portfolio includes
loans which were not currently accruing any interest. The total
outstanding principal of these loans at March 31, 1994 and the effect on income
for the three months ended March 31, 1994 is shown below:
Principal outstanding $ 875,506
==========
Gross amount of income which
would have been recorded
under original terms $ 55,046
Less interest received 12,565
----------
Interest not recorded $ 42,481
==========
The loan portfolio includes loans that are renegotiated with a reduced
interest rate or with an extension of payment of interest and principal. The
total outstanding principal of these loans at March 31, 1994 and the effect
on income for the three months ended March 31, 1994 is shown below:
Principal outstanding $2,273,399
==========
Gross amount of income which
would have been recorded
under original terms $ 73,832
Less interest received 31,889
---------
Interest not recorded $ 41,943
==========
3. Allowance for Loan Losses
The following is a transaction summary of the allowance for loan
losses during the three months ended March 31, 1994:
Balance at December 31, 1993 $12,309,359
Provision for loan losses 490,100
Charge-offs ( 4,283)
Recoveries of loans previously charged off 133,050
----------
Balance at March 31, 1994 $12,928,226
===========
The allowance for loan losses as a percentage of loans outstanding at
March 31, 1994 was 3.1%.
NATIONAL COOPERATIVE BANK
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
SUMMARY
NCB's net income for the three months ended March 31, 1994 was $3.7 million.
This was a 76.2% or $1.6 million increase over the three months ended March 31,
1993. The increase primarily resulted from an increase in non-interest
income of $1.8 million.
Total assets decreased by $20.6 million or 3.8% to $515.2 million at
March 31, 1994 from $535.8 million at December 31, 1993. The decrease resulted
from a significant real estate loan sale of $54 million in March 1994.
Loans and leases outstanding at March 31, 1994 decreased 7.6% to $422.9
million from $457.7 million at December 31, 1993.
NET INTEREST INCOME
Net interest income increased $0.5 million to $5.1 million from the same
period the prior year. As shown on Table 1, the net yield on interest-earning
assets increased to 4.05% from 3.59% as higher yielding warehoused real
estate loans held in the portfolio were funded by interest-bearing liabilities
that were sensitive to short term interest rate movements. As shown on Table 2,
declining rates caused a positive variance of $.5 million. In comparison to
prior year-end and the prior quarter, average commercial balances have increased
due to strengthening origination in the cooperative loan market.
Interest income decreased $.2 million to $9.8 million for the three months
ended March 31, 1994. In general, average rates on interest-earning assets
decreased to 7.81% in the 1994 period from 7.91% in the 1993 period due to
declining market rates. Declining average rates accounted for a $.10 million
negative variance. Average rates on the commercial loan portfolio dropped
59 basis points as interest sensitive assets in the commercial portfolio
reacted to declining short term market rates. Real estate rates increased by 32
basis points as existing portfolio loans repriced at higher rates that
occurred during the latter quarters in 1993 and the first quarter in 1994.
Interest expense decreased $ .8 million to $4.7 million for the three months
ended March 31, 1994 due to the maturity of $10 million in intermediate term
debt in the third quarter of 1993 andthe repricing of a $36.9 million
tranche of the US Class A notes during October 1993 at the prevailing US 3 year
Treasury rate. Average rates on interest-bearing liabilities decreased to
4.80% from 5.36%.
Table 1
Rate Related Assets and Liabilities
( in thousands )
Three Months Ended March 31,
------------------------------------------------------------------
1994 1993
------------------------------------------------------------------
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates
----------------------------------------------------------------
Interest-earning assets
Real estate loans $228,488 $ 5,123 8.97% $249,422 $ 5,395 8.65%
Commercial loans &
leases 222,950 4,102 7.36% 202,733 4,028 7.95%
------- ----- ------- -----
451,438 9,225 8.17% 452,155 9,423 8.33%,
Investment securities
and cash equivalents 51,220 589 4.60% 56,498 636 4.50%
------- ----- ------- -----
Total interest-earning
assets 502,658 9,814 7.81% 508,653 10,059 7.91%
Allowance for loan loss (12,632) (10,648)
Non-interest earning assets
Cash 3,689 2,270
Other assets 33,412 28,624
------ ------
Total non-interest
earning assets 37,101 30,894
-------- --------
Total assets $527,127 $528,899
======== ========
LIABILITIES AND MEMBERS' EQUITY
Interest-bearing liabilities
Subordinated Class A
notes $182,979 2,214 4.84% $183,291 2,536 5.54%
Notes payable 156,578 2,075 5.30% 175,160 2,478 5.66%
Deposits 53,865 432 3.21% 51,648 477 3.70%
-------- ----- ------- -----
Total interest-bearing
liabilities 393,422 4,721 4.80% 410,099 5,491 5.36%
-------- ----- ------- -----
Other liabilities 23,012 13,754
Members' equity 110,693 105,046
-------- --------
Total liabilities &
members' equity $527,127 $528,899
======== ========
Net interest revenue $ 5,093 $ 4,568
Net interest spread 3.01% 2.52%
Net yield on interest-earning assets 4.05% 3.59%
Table 2
Changes in Net Interest Income
( in thousands )
March 31, 1994 compared to March 31,1993
----------------------------------------
Increase ( decrease ) due to changes in:
----------------------------------------
Average Average
Volume Yield Net
-------- ------- --------
Interest income
Cash equivalents and investment securities $ (61) $ 14 $ (47)
Commercial loans and leases 385 (310) 75
Real estate loans (464) 192 (272)
------- ------- --------
Total interest income (140) (104) (244)
------- -------- --------
Interest expense
Deposits 20 ( 66) (46)
Notes payable (232) (171) (403)
Subordinated Class A notes (4) (318) (322)
----- ----- -------
Total interest expense (216) (555) (771)
Net interest income $ 76 $ 451 $ 527
===== ===== =====
NON-INTEREST INCOME
Non-interest income increased 90.5% to $4.0 million for the three months
ended March 31,1994 from $2.1 million for the three months ended March 31,
1993. Gains from the sales of loans resulted in an increase of $1.4 million
from the prior year. Servicing fee income and excess servicing fees
receivable accounted for the remaining increase in non-interest income.
NON-INTEREST EXPENSES
Non-interest expenses for the three months ended March 31, 1994, increased
12.8% to $4.4 million from $3.9 million as of March 31, 1993. Non-interest
expenses as a percentage of average assets increased to 3.3% at March 31,
1994 from 3.0% at March 31, 1993 due to an increase in salary and benefit
expenses during the first quarter 1994.
Salaries and benefits expenses increased due to the accrual of
first quarter employee and senior management incentive bonuses.
PROVISION FOR INCOME TAXES
The provision for income taxes is driven by taxes due on non-member income
earned by NCB and by state and local income taxes owed by NCB's subsidiaries.
The federal income tax provision has increased by $231 thousand from the
prior year reflecting additional non- member income generated by NCB
Mortgage Corporation and NCB Savings Bank.
LOANS AND LEASE PORTFOLIO
Consolidated Loans and Leases Outstanding (millions)
%
3/31/94 12/31/93 Change
------- -------- ------
Commercial $214.1 $223.7 -4.3%
Real estate 202.1 227.2 -11.0
Leases 6.6 6.8 -2. 9
------ ------
Total: $422.8 $457.7 - 7.6%
======= ======
Total loans and leases outstanding at March 31, 1994, were $422.8 million,
down 7.6% from $457.7 million at December 31, 1993. Real estate loans
decreased by $25.1 million or 11% from year-end due to a $54 million loan
sale in March 1994.
Commercial loans and leases decreased by almost $9.6 million
or 4.3% from year-end due to collections on commercial accounts.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities increased 24.2% to $75.9
million at March 31, 1994 from $61.1 million at year-end 1993. NCB
used the proceeds available from loan sales to maintain cash reserves during
the period. As a percentage of earning assets, cash, cash equivalents, and
investment securities increased slightly to 14.4% from 11.2% at
December 31, 1993.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1994 increased 4.9% to $12.9
million from $12.3 million at December 31, 1993. The allowance was impacted
primarily by the $.5 million loan loss provision taken during the first three
months of the year. The provision for loan losses increased to $.5 million
for the three months ended March 31, 1994 from $.3 million for the three months
ended March 31, 1993. NCB's provision for loan losses as a percentage of
average loans and leases outstanding has increased to .4% in 1994 from .3% in
1993.
The allowance as a percentage of loans outstanding at March 31, 1994
increased from 2.57% and 2.69% at March 31, 1993 and December 31, 1993,
respectively to 3.05% at March 31, 1994. The increase is due primarily to
declining real estate assets as compared to the prior year and year end 1994.
As shown in Table 3, total nonperforming assets ( renegotiated and
non-accruing loans, REO, and in- substance foreclosures ) remained flat at $3.3
million at March 31, 1994 from December 31, 1993. Nonperforming assets as a
percentage of loans and leases outstanding plus REO and in-substance
foreclosures increased slightly to .8% at March 31, 1994 from .7% at December
31, 1993. The allowance for loan loss as a percentage of nonperforming
loans has increased to 416% at March 31, 1994 from 384% from December 31, 1993.
Table 3
Nonperforming assets
( in thousands )
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
1994 1993 1993 1993 1993
------- -------- -------- -------- --------
Nonaccrual loans
Commercial $ 20 $ 10 $ 17 $ 431 $ 285
Real estate- construction 0 0 0 0 0
Real estate- commercial 0 0 0 0 0
Real estate- residential 855 876 1,592 1,574 4,096
----- ----- ----- ----- -----
Total nonaccrual loans 875 886 1,609 2,005 4,381
Restructured loans 2,273 2,283 2,309 2,339 3,397
------ ----- ----- ----- -----
Total nonperforming loans 3,148 3,169 3,918 4,344 7,778
Real estate acquired
through foreclosure
and insubstance
foreclosure 171 172 217 341 2,527
----- ----- ----- ------ -----
Total nonperforming
assets $ 3,319 $ 3,341 $ 4,315 $ 4,685 $10,305
======= ======= ======= ======= =======
Non- performing
assets/ Loans plus
REO and insubstance
foreclosure .8% .7% 1.1% 1.0% 2.5%
Allowance/ non performing
loans 416% 384% 298% 235% 138%
INTEREST-BEARING LIABILITIES
Interest-Bearing Liabilities %
(millions) 3/31/94 12/31/93 Change
-------- -------- ------
Class A notes $ 182.98 $182.99 -0.8%
Short-term 19.00 31.54 -39.8
Deposits 50.45 66.93 24.6
Non-current term debt 75.33 75.35 -0.1
Current term debt 55.00 55.00 -
Other borrowings 1.87 2.04 -8.3
------- -------
Totals $384.63 $413.85 -7.1%
======= =======
Interest-bearing liabilities decreased by $29.2 million to $385 million at
March 31, 1994. A portion of the proceeds of the aforementioned loan sale was
used to decrease the outstanding balance on NCB's bank line of credit by
$12.5 million. Unused capacity under the line of credit ( $ 161 million )
is sufficient to meet anticipated commitments. The decrease in deposits is due
to large demand deposits that occurred at year-end 1993 that
were subsequently liquidated in the first quarter of 1994.
Signatures
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 thereunto duly authorized.
NATIONAL CONSUMER COOPERATIVE BANK
Date: May 15, 1994
By: /s/ Richard L. Reed
(Richard L. Reed,
Chief Financial Officer )
/s/ Marietta J. Orcino
(Marietta J. Orcino, Controller/
Principal Accounting Officer)