SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Eye Street N.W., Suite 700 Washington, D.C. 20005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202)336-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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 X No_____.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: the registrant's voting stock
is not traded on any market. A subsidiary of the registrant
holds 2.97% of its Class B stock. All registrant's Class C and
Class D stock is held by non-affiliates.
( Cover Continued on Next Page )
( Cover Continued )
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Outstanding at December 31, 1997
Class C
(Common stock, $100.00 par value) 219,044
Class B
(Common stock, $100.00 par value) 840,045
Class D
(Common stock, $100.00 par value) 3
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
At December 31, 1997 1996 1995 1994 1993
Loans and leases outstanding $773,768 $750,094 $597,190 $501,090 $457,713
Allowance for loan losses 17,638 15,505 14,554 13,031 12,309
Total assets 869,304 839,336 684,532 567,321 535,767
Total capital* 314,376 307,714 300,995 295,749 292,581
Subordinated debt** 182,542 182,542 182,542 182,542 182,542
Long-term borrowings, including
subordinated debt 387,335 384,679 337,230 287,899 312,897
Members' equity 131,833 125,172 118,453 113,207 110,039
Other borrowed funds
including deposits 531,740 515,257 365,288 256,315 230,868
For the Years Ended December 31, 1997 1996 1995 1994 1993
Total interest income $ 68,787 $ 61,265 $ 52,770 $ 41,714 $ 39,451
Total interest expense 41,944 35,299 30,753 20,609 20,633
Net interest income 26,843 25,966 22,017 21,105 18,788
Net income 12,462 11,199 9,083 8,877 8,616
Ratios
Capital to assets 36.2% 36.7% 44.0% 52.3% 54.6%
Return on average assets 1.5% 1.5% 1.5% 1.7% 1.6%
Return on average members'
equity 9.7% 9.2% 7.8% 7.9% 8.0%
Net yield on interest
earning assets 3.3% 3.7% 3.7% 4.2% 3.8%
Average members' equity as a percent of
Average total assets 15.3% 16.5% 18.9% 21.5% 20.4%
Average total loans and
lease financing 17.9% 19.2% 21.9% 25.0% 24.3%
Net average loans and lease
financing to average
total assets 85.5% 84.3% 84.0% 83.4% 81.9%
Net average earning assets to
average total assets 95.9% 92.4% 92.7% 94.8% 93.9%
Allowance for loan losses
to loans outstanding 2.3% 2.1% 2.5% 2.6% 2.7%
Provision for loan losses
to average loans outstanding 0.5% 0.3% 0.4% 0.2% 0.3%
* - Capital includes members' equity and subordinated debt
** - Excludes deferred hedge gains
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial summary
1997 vs. 1996
Net income of $12.5 million in 1997 increased 11.3% from
$11.2 million in 1996. The growth in net income was due to
increased volume of commercial and mortgage lending activities,
servicing fees and other non-interest income. The impact of the
increase in net interest income was partially offset by increases
in the provision for loan losses, non-interest expenses and
provision for income taxes.
Credit quality in NCB's lending portfolio remained
strong during 1997. Nonperforming assets amounted to 1.3% of
total assets at year end. Net chargeoffs as a percentage of
total loans and leases outstanding at December 31, 1997 was .18%.
The provision for loan losses as a percentage of average loans
and leases increased to .5% in 1997 from .3% in 1996. In this
same period, the allowance for loan losses as a percentage of
loans and leases has increased to 2.3% in 1997 from 2.1% in 1996.
The return on average assets remained unchanged in 1997 and 1996
at 1.5%. The return on average equity increased to 9.7% compared
with 9.2% in 1996.
Total assets increased 3.6% or $30.0 million to $869.3
million as of December 31, 1997 from $839.3 million at year end
1996. Loans outstanding showed a 3.2% increase over last year
primarily due to growth in real estate loans held for sale and
lease financing.
Net Interest Income
Net interest income for the year ended December 31, 1997
increased 3.4% or $0.9 million from the same period in the prior
year. The increase resulted primarily from higher volume of loans
and leases outstanding.
As shown on Table 2, the net yield on interest earning
assets dropped 33 basis points to 3.32% from 3.65% for the year
ended December 31, 1996. The yields on average interest earning
assets dropped to 8.52% in 1997 from 8.61% in 1996 due
to a declining market interest rates on interest bearing assets.
Yields on interest bearing liabilities increased from 6.01% in
1996 to 6.20% in 1997 due to the repricing of the subordinated
debt and higher volume and interest rates on our borrowings. As a
result, the net spread decreased 28 basis points to 2.32% at year
end December 31, 1997 compared with 2.60% at the prior year end.
For the year ended December 31, 1997, interest income
increased 12.3% to $68.8 million compared with $61.3 million from
the prior year. The increase in interest income was mostly due
to a higher average balance of interest earning assets. Average
loans and leases outstanding at December 31, 1997 increased to
$720.3 million compared with $633.4 million at December 31, 1996.
Total interest expense increased $6.6 million to $41.9
million for the year ended December 31, 1997 from $35.3 million
in 1996. As shown on Table 2, the average rate on interest
bearing liabilities at December 31, 1997 went up 19 basis points
to 6.20% compared with 6.01% at December 31, 1996. The increase
was primarily due to the repricing of $53.5 million of
subordinated debt and increased use of long term facilities.
See Table 1 & Table 2
Table 2
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
For the years ended December 31,
1997 1996 1995
Average Average Average
Assets Average Income/ Rate/ Average Income/ Rate Average Income/ Rate/
Balance* Expense Yield Balance* Expense Yield Balance* Expense Yield
Interest earning assets
Real estate loans $355,160 $30,951 8.71% $316,015 $28,565 9.04% $256,564 $23,524 9.17%
Commercial loans and
leases 365,143 31,599 8.65% 317,427 27,106 8.54% 275,352 25,039 9.09%
Total loans and
leases 720,303 62,550 8.68% 633,442 55,671 8.79% 531,916 48,563 9.13%
Investment securities and
cash equivalents 87,386 6,237 7.14% 77,955 5,594 7.17% 55,890 4,207 7.52%
Total interest earning
assets 807,689 68,787 8.52% 711,397 61,265 8.61% 587,806 52,770 8.97%
Allowance for loan
losses (16,747) (14,976) (13,309)
Non-interest earning assets
Cash 5,028 4,577 5,023
Other 46,176 32,992 37,518
Total non-interest earning
assets 51,204 37,569 42,541
Total assets $842,146 $733,990 $617,038
Liabilities and members' equity
Interest bearing liabilities
Subordinated debt $182,542 $10,455 5.73% $182,943 $ 9,849 5.38% $182,915 $10,897 5.96%
Note payable 409,767 27,518 6.72% 321,080 21,341 6.65% 229,963 16,398 7.13%
Deposits 84,147 3,971 4.72% 83,056 4,109 4.95% 70,596 3,458 4.90%
Total interest bearing
liabilities 676,456 41,944 6.20% 587,079 35,299 6.01% 483,474 30,753 6.36%
Other liabilities 36,754 25,038 17,178
Members' equity 128,936 121,873 116,386
Total liabilities and
members' equity $842,146 $733,990 $617,038
Net interest earning
assets $131,233 $124,289 $104,332
Net interest revenues
and spread $26,843 2.32% $25,966 2.60% $22,017 2.61%
Net yield on interest earning
assets 3.32% 3.65% 3.74%
*Based on monthly balances. Average loan balances includes nonaccrual loans.
The allowance for loan losses increased 13.8% to $17.6
million in 1997. The allowance as a percentage of loans and
leases outstanding increased to 2.3% at December 31, 1997 from
2.1% at December 31, 1996. The allowance as a percentage of
non-performing loans ( restructured and non-accruing loans )
increased to 303% in 1997 compared with 200% in the prior year.
Total non-performing assets ( non-accruing and
restructured loans and real estate owned(REO)) increased to $10.9
million at December 31, 1997 from $8.1 million at December 31,
1996. Non-performing assets as a percentage of loans and leases
outstanding plus REO increased to 1.4% in 1997 from 1.1% in 1996.
Non-performing assets as a percentage of total capital increased
to 8.3% in 1997 from 6.5% in 1996.
See Table 3 & Table 4
Non-accruing loans, as a percentage of loans and leases,
were .4% and .3% at year-end 1997 and 1996, respectively. Restructured loans
decreased to $2.8 million in 1997 compared with $5.1 million in
1996 due to a repayment of a real estate loan in July 1997. As
of year end, all restructured loans were current.
The majority of NCB's loans are to cooperatives in
industries such as owner-occupied multi-family residential
housing, food distribution, health care, and financial services.
NCB bases credit decisions on the cash flows of its customers and
views collateral as a secondary source of repayment.
The real estate portfolio contains a concentration of
loans in the New York City area; however, the majority of loans
are to seasoned housing cooperatives with low loan-to-value
ratios. NCB also has minimal credit exposure to highly leveraged
transactions, commercial real estate and construction loans. NCB
has no foreign loan exposure.
See Table 5
Non-interest income
Non-interest income increased by 32.6% to $14.6 million
in 1997. Non-interest income is composed of gains from sales of
blanket mortgages and share loans to secondary market investors,
servicing fees, origination fees, and advisory fees. The majority
of the increase was caused by the higher amount of asset sales to
the secondary market. Gains on sales of loans were $7.2 million
in 1997 which represented 49.6% of non-interest income. Real
estate loan sales in 1997 of $320.4 million reflected an increase
of 85.0% or $147.2 million compared with $173.2 million in 1996.
NCB maintains a conservative interest rate risk policy;
Table 4
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
At December 31, 1997 1996 1995 1994 1993
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
Loans and lease
financing
Commercial * $347,658 44.9% $342,211 45.6% $327,215 54.8% $246,797 49.3% $223,682 48.8%
Real estate-
residential * 389,153 50.3 384,035 51.2 247,524 41.5 234,526 46.7 216,625 47.4
Real estate
commercial 7,025 1.0 8,742 1.2 9,361 1.6 10,301 2.1 10,577 2.3
Lease financing 29,932 3.8 15,106 2.0 13,090 2.1 9,466 1.9 6,829 1.5
Total loans and
lease financing $773,768 100.0% $750,094 100.0% $597,190 100.0% $501,090 100.0% $457,713 100.0%
Allocation of allowance for loan losses
Commercial $ 10,348 58.7% $ 7,826 50.5% $ 7,158 49.2% $ 0 0.0% $ 0 0.0%
Real estate-
residential 6,971 39.5 6,963 44.9 5,820 40.0 0 0.0 0 0.0
Lease financing 319 1.8 151 1.0 250 1.7 0 0.0 0 0.0
Unallocated 0 0.0 564 3.6 1,326 9.1 13,031 100.0 12,309 100.0
Total allowance for
loan losses $17,638 100.0% $15,504 100.0% $ 14,554 100.0% $ 13,031 100.0% $ 12,309 100.0%
*Includes loans held for sale
Non-interest income for the quarter increased to $7.9 million in
1997 from $1.9 million in 1996 due primarily to the timing of
gains realized in loan sales. This increase however was
partially offset by an increase in the provision for loan losses
and non-interest expenses of $.5 million and $.8 million,
respectively.
See Table 6
Sources of Funds
Capital Markets Access
NCB maintains line of credit facilities provided by
a consortium of banks. At year end, total borrowing capacity
under these facilities was $320 million, and the outstanding
balance at December 31, 1997 was $206.0 million compared with an
outstanding balance of $218.0 million at December 31, 1996.
Usage, as measured by average outstanding balances during the
year, increased from $120.6 million in 1996 to $186.2 million in
1997 due to growth in commercial loan volume and additional
activity to fund warehoused real estate loans.
In 1996, NCB developed a program under which it borrows, on
a short-term basis, from certain of its customers. At December
31, 1997 and 1996, the short-term borrowings outstanding were
$12.2 million and $6.5 million, respectively.
In 1997, steps were taken to move into the medium term note
market. In January, 1997, NCB received approval to issue up to
$100 million under the medium term note program. As of December
31, 1997, NCB had $40 million outstanding under this program. In
addition, during 1997, NCB implemented a commercial paper program
of which a face value of $25.0 million was outstanding at year
end.
NCB's loan sale activity is another source of funding.
NCB originates most of its real estate loans, including share
loans originated by NCB Savings Bank, FSB, for sale into the
secondary market. In 1997, NCB sold $366.2 million compared to
$173.2 million of cooperative real estate, commercial and share
loans sold in the prior year.
In 1998, NCB expects to sell $390 million of cooperative
real estate, commercial, and share loans. Actual sales through
February, 1998 were $126.9 million.
Deposits
At NCB's wholly-owned subsidiary, NCB Savings Bank, FSB,
deposits declined 5.4% to $83.8 million in 1997 from $88.6
million a year earlier. The decrease was attributable to
scheduled maturities of the certificate of deposits. The weighted
average rates on deposits at December 31, 1997 and 1996 were 4.9%
and 4.8%, respectively. Although NCB relies heavily on funds
raised through the capital markets, deposits are a major portion
of interest bearing liabilities -- 11.7% in 1997 compared with
12.7% in 1996. Management anticipates that deposits will
represent an increasing portion of its funding structure.
Uses of funds
Loans and leases
Loans and leases outstanding increased 3.2% to $773.8
million at year-end 1997 from $750.1 million in 1996.
NCB's commercial loan portfolio expanded with new
business opportunities. The commercial loan and lease portfolio
increased 5.7% to $377.6 million at December 31, 1997 compared
with $357.3 a year earlier. The commercial loan portfolio
reflects an increase in the food processing and distribution
areas even though $19.0 million of loans were sold through the
retail loan securitization program. Decreases in the areas of
financial services and other, which includes native Alaskan and
hardware wholesale cooperatives, were due to scheduled loan
repayments and maturities.
NCB's real estate portfolio increased 1.0% to $396.2
million at the end of 1997 from $392.8 million at same period
last year. The real estate portfolio was substantially composed
of multifamily blanket mortgages and single family share
loans. NCB does not invest in speculative commercial real estate
transactions.
For 1998, NCB expects continued strength in its
origination and secondary marketing activities. Net loan volume
is expected to increase approximately $37 million based on new
loan originations (net of scheduled amortization) of $427
million and sales of $390 million.
Cash, Cash Equivalents, and Investment Securities
Cash, cash equivalents, and investments increased 6.4%
or $5.5 million to $91.8 million compared with $86.3 million in
1996. Cash, cash equivalents, and investment securities,
represent 10.6% of interest earning assets in 1997 compared with
10.3% in 1996.
Asset and Liability Management
Asset and liability management is the structuring of
interest rate sensitivities of the balance sheet to maximize net
interest income under the constraints of liquidity and
interest-rate risk ("IRR"). NCB's liquidity and IRR
are managed by the Risk Management Committee which meets
quarterly. The purpose of the committee is to develop and
implement strategies, including the buying and selling of
off-balance sheet instruments such as interest rate swaps and
financial futures contracts, and to ensure sufficient reward for
known and controlled risk.
Overall, NCB's Risk Management Committee adheres to the
philosophy that a consistently balanced position results in the
safest and most predictable net interest earnings stream over
various interest rate cycles.
Liquidity
Liquidity is the ability to meet financial obligations
either through the sale or maturity of existing assets or through
the raising of additional funds. Maintaining adequate liquidity
therefore requires careful coordination of the maturity of assets
and liabilities.
NCB's asset liquidity is generally provided by
maintaining near-cash and short-term investments which can be
converted to cash at little or no cost. These investments
include: fed funds, eurodollar investments, commercial paper,
certificates of deposit, and other short term obligations. These
securities normally have a maturity of less than ninety days and
are not subject to price variations. At December 31, 1997, NCB
held $21.7 million in cash and cash equivalents compared with
$17.2 million in cash and cash equivalents at year end 1996.
These funds are normally used to fund business operations.
NCB had at year end a $32.5 million investment
portfolio which is a second source of asset liquidity. The
portfolio consists of high-grade corporate and government
obligations. The weighted average period to maturity remained at
5 years for 1997 and 1996.
Aside from its principal amortization (scheduled and
non-scheduled) and maturities, the loan portfolio is an excellent
source of liquidity as demonstrated by NCB's success in asset
securitization. In fact, NCB has been instrumental in developing
the secondary market for loans made to cooperatives.
NCB also has $320 million of revolving lines of credit,
$130 million of which are committed until May 27, 2000 and $130
million committed until May 27, 1998. The remaining balance of
$60 million is uncommitted at December 31, 1997. Average
outstanding balances were $186.2 million in 1997 compared
with $120.6 million in 1996.
The following loans and leases were made in the
ordinary course of NCB's business on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons and did not involve more than the normal risk of
uncollectability or present other unfavorable features.
National Cooperative Bank Largest Interest
Balance Balance as Rate as
in of of
1997 12/31/97 12/31/97
Leo H. Barlow Sealaska Timber Corp $7,953,690 $6,389,603 9.18%
Sealaska Corp 1,519,226 1,074,584 9.15%
Sealaska Corp 5,800,000 3,816,666 8.10%
James L. Burns, Jr. Co-op Central Bank 15,00,000 0
Joseph Cabral Chatsworth Products 325,200 111,600 8.97%
Chatsworth Products 411,714 241,350 8.97%
Chatsworth Products 616,724 477,081 8.97%
Chatsworth Products 3,824,602 3,440,471 8.97%
Kirby J. Erickson Central Minnesota
Group Health 3,474,220 3,123,085 8.10%
Central Minnesota
Group Health 3,008,280 3,008,280 7.63%
Alfred A. Plamann Grocers Cap Revolver 1,250,000 0
Grocers Cap Revolver 1,750,000 0
Mollie Stone 7,151,227 7,102,455 9.50%
K.V. Mart 1,964,244 1,964,244 9.87%
Major Market 732,790 574,512 10.00%
Andronico's 2,363,603 2,091,188 8.84%
Andronico's 2,915,000 2,420,000 8.84%
Andronico's 2,400,000 2,340,000 8.38%
Superior Warehouse 9,425,130 8,450,520 9.00%
Grocers Cap Program
Purchase 5,815,949 4,701,140 7.25%
Mary Ann Rothman 110-118 Riverside
Tenants 1,000,000 0
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf of the undersigned,
thereunto duly authorized.
NATIONAL CONSUMER COOPERATIVE BANK
DATE April 2, 1998 BY/s/Charles E. Snyder
Charles E. Snyder
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates noted:
Signature Title Date
*/s/Alfred A. Plamann Chairman of the Board and 4/2/98
Alfred A. Plamann Director
/s/Richard L. Reed Managing Director, 4/2/98
Richard L. Reed (Principal Financial Officer)
/s/Marietta J. Orcino Vice President, Tax & 4/2/98
Marietta J. Orcino Regulatory Compliance
/s/Patricia A. Ferrick Vice President (Principal 4/2/98
Patricia A. Ferrick Accounting Officer)
*/s/Leo H. Barlow Director 4/2/98
Leo H. Barlow
*/s/Harry J. Bowie Director 4/2/98
Harry J. Bowie
*/s/James L. Burns, Jr. Director 4/2/98
James L. Burns, Jr.
*/s/Joseph Cabral Director 4/2/98
Joseph Cabral
*/s/Kirby J. Erickson Director 4/2/98
Kirby J. Erickson
*/s/Jackie Jenkins-Scott Director 4/2/98
Jackie Jenkins-Scott
Signature Title Date
*/s/Marilyn J. McQuiade Director 4/2/98
Marilyn J. McQuiade
*/s/Michael J. Mercer Director 4/2/98
Michael J. Mercer
*/s/Mary Ann Rothman Director 4/2/98
Mary Ann Rothman
*/s/Anthony J. Scallon Director 4/2/98
Anthony J. Scallon
*/s/Sheila A. Smith Director 4/2/98
Sheila A. Smith
*/s/Peter C. Young Director 4/2/98
Peter C. Young
*/s/Thomas K. Zaucha Director 4/2/98
Thomas K. Zaucha
* By /s/Richard L. Reed
Richard L. Reed
(Attorney-in-Fact)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
With this report, the registrant is furnishing to the
Commission for its information the registrant's election
materials for its 1998 annual meeting. The registrant has not yet
distributed an 1997 annual report to security holders and will
furnish such report to the Commission when it is sent to security
holders.