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 June 30, 1999 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 Street, 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 June 30, 1999
Class C 221,996
(Common stock, $100.00 par value)
Class B 922,096
(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 - June 30,
1999 and December 31, 1998 ............ 4
Consolidated statements of income - for
the three and six months ended June 30, 1999
and 1998............................... 5
Consolidated statements of comprehensive
income - for the six months ended
June 30, 1999 and 1998................. 6
Consolidated statements of cash flows -
for the six months ended
June 30, 1999 and 1998................. 7-8
Condensed notes to the consolidated
financial statements - June 30,
1999.................................... 9-16
Item 2 Management's discussion and analysis
of financial condition and results of
operations - for the three and six months
ended June 30, 1999 and 1998........... 17-28
Item 3 Quantitative and qualitative disclosures
about market risk...................... 28
PART II OTHER INFORMATION
Item 6 Exhibits ............................. 28
Exhibit 10-21 - Amendment No. 2 to Third Amended and
Restated Loan Agreement with Fleet Bank as Agent
Exhibit 10-22 - First Amendment to Term Loan Agreement
with Greenwich Funding Corporation and Credit Suisse
First Boston
Exhibit 10-27 - Executive Long-Term Incentive Plan
Exhibit 27 - Financial Data Schedule
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(Unaudited)
June 30, December 31,
Assets 1999 1998
Cash and cash equivalents $ 40,898,668 $ 66,563,160
Restricted cash 5,690,096 13,202,725
Investment securities
Available-for-sale 32,994,837 39,127,948
Held-to-maturity 2,726,716 2,892,312
Loans held for sale 200,556,806 184,000,331
Loans and lease financing 793,019,180 611,174,140
Less: Allowance for loan losses (18,457,847) (17,426,450)
Net loans and lease financing 774,561,333 593,747,690
Other assets 40,012,268 33,881,044
Total assets $1,097,440,724 $933,415,210
Liabilities and Member's Equity
Liabilities
Deposits $ 118,961,902 $123,419,544
Patronage dividends payable in
cash 8,312,823 5,275,325
Other liabilities 18,413,916 29,872,655
Borrowings
Short-term 367,053,527 220,652,186
Long-term 256,283,953 231,193,174
623,337,480 451,845,360
Subordinated debt 182,667,320 182,706,417
Total borrowings 806,004,800 634,551,777
Total liabilities 951,693,441 793,119,301
Members' equity
Common stock
Class B 92,209,648 92,209,648
Class C 22,199,604 22,199,604
Class D 300 300
Retained earnings
Allocated 10,625,930 7,245,656
Unallocated 17,851,157 17,097,102
Accumulated other comprehensive
income 2,860,644 1,543,599
Total members' equity 145,747,283 140,295,909
Total liabilities and members'
equity $1,097,440,724 $933,415,210
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
Interest income
Loans and lease financing $35,429,714 $32,257,380 $18,415,896 $16,395,484
Investments securities 2,706,871 3,014,790 1,218,099 1,500,049
Total interest income 38,136,585 35,272,170 19,633,995 17,895,533
Interest expense
Deposits 2,840,310 2,122,364 1,389,586 1,131,042
Short-term borrowings 7,178,910 6,689,079 3,595,484 3,567,391
Long-term debt, other
borrowings and
subordinated debt 13,319,661 13,170,918 7,489,756 6,760,332
Total interest expense 23,338,881 21,982,361 12,474,826 11,458,765
Net interest income 14,797,704 13,289,809 7,159,169 6,436,768
Provision for loan losses 835,036 782,881 417,536 430,002
Net interest income after
provision for loan losses 13,962,668 12,506,928 6,741,633 6,006,766
Non-interest income
Gain on sale of loans 3,756,363 3,921,355 3,691,893 291,233
Loan and deposit
servicing fees 1,319,608 1,252,183 599,013 638,218
Other 2,577,823 2,403,555 1,721,661 1,124,211
Total non-interest
income 7,653,794 7,577,093 6,012,567 2,053,662
Non-interest expense
Compensation and
employee benefits 7,478,528 7,840,291 3,864,642 4,021,268
Contractual services 2,105,342 1,938,536 1,038,296 1,021,556
Occupancy and equipment 2,281,927 2,133,897 1,232,147 1,184,866
Contribution to NCB
Development Corporation 200,000 - 150,000 -
Other 1,400,216 1,313,623 793,836 776,532
Total non-interest
expense 13,466,013 13,226,347 7,078,921 7,004,222
Income before income
taxes 8,150,449 6,857,674 5,675,279 1,056,206
Provision for income taxes 727,596 669,874 403,182 377,341
Net income $ 7,422,853 $ 6,187,800 $ 5,272,097 $ 678,865
Distribution of net income
Patronage dividends $ 7,422,853 $ 6,187,800 $ 5,272,097 $ 678,865
Retained earnings - - - -
$ 7,422,853 $ 6,187,800 $ 5,272,097 $ 678,865
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the six months ended June 30, 1999 1998
Net income $7,422,853 $6,187,800
Other comprehensive income, net of tax:
Net unrealized holding
gains before tax 1,317,045 193,517
Comprehensive income $8,739,898 $6,381,317
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30, 1999 1998
Cash flows from operating activities
Net income $ 7,422,853 $ 6,187,800
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 835,035 782,881
Depreciation and amortization 2,802,052 2,516,843
Gain on sale of loans (4,345,651) (3,921,355)
Loans originated for sale (143,984,908) (315,866,638)
Proceeds from sale of loans
held for sale 131,774,082 230,613,858
Increase in other assets (6,868,407) (1,195,459)
(Decrease) increase in other
liabilities (11,458,739) 2,231,203
Net cash used in operating
activities (23,823,683) (78,650,867)
Cash flows from investing activities
Redemption of restricted cash 7,512,629 1,003,495
Purchases of premise and
equipment (421,096) -
Purchase of investment securities
Available-for-sale (1,000,000) -
Proceeds from maturities of investments
securities
Available-for-sale 6,558,083 10,913,301
Held-to-maturity 165,596 -
Net increases in loans and
lease financing (191,831,996) (14,525,039)
Proceeds from sale of portfolio
loans 10,483,123 8,156,400
Net cash (used in) provided by
investing activities (168,533,661) 5,548,157
Cash flows from financing activities
Net (decrease) increase
in deposits (4,457,641) 24,838,171
Net increase in short-term
borrowings 146,401,341 64,466,340
Proceeds from issuance of
long-term debt 45,000,000 34,800,078
Repayment on long term debt (20,000,000) (21,000,000)
Dividends paid (250,848) (250,112)
Net cash provided by financing
activities 166,692,852 102,854,477
(Decrease) increase in cash and
cash equivalents (25,664,492) 29,751,767
Cash and cash equivalents,
beginning of year 66,563,160 21,689,245
Cash and cash equivalents,
end of period $ 40,898,668 $ 51,441,012
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental schedule of investing and financing activities:
For the six months ended June 30, 1999 1998
Unrealized gain on investment
available-for-sale $ 1,317,045 $ 193,518
Interest paid $23,374,647 $21,502,177
Income taxes paid $ 614,694 $ 600,000
Loans charged off $ 52,739 $ 1,272,829
NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1999
(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.
1. Cash, Cash Equivalents and Investment Securities
As of June 30, 1999, NCB's portfolios of investment
securities, cash and cash equivalents had an average adjusted
maturity of approximately two years with interest rates in those
portfolios varying from 4.15% to 8.38%.
Cash and Investments Investments
Cash Available- Held-to-
Equivalents for-Sale Maturity
Cash $ 7,760,031 $ - $ -
Federal funds 2,707,381 - -
Money market
securities 30,081,256 713,936 -
Private debt
security - - 784,404
Mutual funds - 1,520,587 -
Certificates of
deposits 350,000 - -
Mortgage-backed
securities - - 1,942,312
Corporate bonds - 4,278,226 -
U.S. Treasury and Agency
obligations - 1,484,060 -
Interest-only
receivables - 24,998,028 -
$40,898,668 $32,994,837 $ 2,726,716
At June 30, 1999, the investments in the available-for-sale
portfolio were recorded at aggregate fair value. Restricted cash
of $5,690,096 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, the remaining balance of which totalled $41,936,184 and
$49,256,028, 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. In January 1999, $7,512,630
of the restricted cash account was replaced by a letter of
credit.
Interest-only receivables substantially pertain to blanket
loans to cooperative housing corporations.
2. Loans and Lease Financing
Loans and leases outstanding by category at June 30, 1999
were:
Commercial loans $481,353,150
Lease financing 51,266,948
Real estate loans
Residential 453,753,033
Commercial 7,202,855
$993,575,986
At June 30, 1999 and December 31, 1998 loans held for sale
were $200.6 million and $184.0 million, respectively.
3. Impaired Assets
Impaired loans, representing the nonaccrual loans at June 30,
1999 and December 31, 1998, totalled $700,669 and $2,384,691,
respectively, and averaged $1,535,670 and $3,097,000 during the
respective periods ending on these dates. Specific allowances of
$350,334 and $557,267 were established at June 30, 1999 and
December 31, 1998, respectively. During 1999 and 1998, the
interest collected on the nonaccrual loans was applied to reduce
the outstanding principal.
At June 30, 1999 and December 31, 1998, there were no
commitments to lend additional funds to borrowers whose loans are
impaired.
At June 30, 1999 and December 31, 1998, NCB had real estate
acquired through foreclosure of $3,334,465 and $4,342,739,
respectively, which is classified as other assets.
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, 1999:
Balance at January 1, 1999 $17,426,450
Provision for loan losses 835,036
Charge-offs (52,739)
Recoveries of loans previously
charged-off 249,100
Balance at June 30, 1999 $18,457,847
The allowance for loan losses as a percentage of loans and
lease financing at June 30, 1999 was 1.9%.
5. Statement of Changes in Members' Equity
The following is a summary of the activity in members' equity at June 30,
1999:
Retained Retained Total
Common Earnings Earnings Unrealized Members'
Stock Allocated Unallocated Gain(Loss) Equity
Balance, December 31, 1998 $114,409,552 $ 7,245,656 $17,097,102 $1,543,599 $140,295,909
Net income - - 7,422,853 - 7,422,853
Other dividends declared - - (250,885) - (250,885)
1999 patronage dividends
to be distributed in cash - - (3,037,639) - (3,037,639)
Retained in form of equity - 3,380,274 (3,380,274) - -
Unrealized gain on investment
securities available-for-
sale - - - 1,317,045 1,317,045
Balance, June 30, 1999 $114,409,552 $10,625,930 $17,851,157 $2,860,644 $145,747,283
6. SEGMENT REPORTING
NCB's reportable segments are strategic business units that
provide diverse products and services within the financial
services industry. NCB has four reportable segments: commercial
lending, real estate 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, sells and services real estate loans
nationally, with a concentration in New York City. 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, 1999 and 1998 (dollars in thousands):
1999 Commercial Real Estate NCBSB Other NCB
Lending Lending Consolidated
Net interest income
Interest income $ 17,382 $ 12,318 $ 5,279 $ 3,158
Allocated interest
expense 12,264 8,352 - (20,616)
Interest expense - - 3,052 20,287
Net interest
income 5,118 3,966 2,227 3,487 $ 14,798
Provision for
loan losses (1,342) 183 85 1,909 835
Non-interest income-
external 1,656 5,748 483 (234) 7,653
Non-interest expense
Direct expense 2,572 2,313 1,344 7,237 13,466
Overhead and
support 404 171 150 (725) -
Total non-interest
expense 2,976 2,484 1,494 6,512 13,466
Income (loss) before
taxes $ 5,140 $ 7,047 $ 1,131 $ (5,168) $ 8,150
Total average assets $396,804 $329,939 $141,576 $133,625 $1,001,944
1998 Commercial Real Estate NCB
Lending Leading NCBSB Other Consolidated
Net interest income
Interest income $ 14,432 $ 13,376 $ 4,076 $ 3,389
Allocated interest
expense 10,583 9,165 - (19,748)
Interest expense - - 2,124 19,859
Net interest income 3,849 4,211 1,952 3,278 $ 13,290
Provision for loan (505) 90 65 1,133 783
Non-interest
income-external 1,674 4,791 367 745 7,577
Non-interest expense
Direct expense 1,920 2,706 1,129 7,471 13,226
Overhead and
support 229 152 148 (529) -
Total non-interest
expense 2,149 2,858 1,277 6,942 13,226
Income (loss) before
taxes $ 3,879 $ 6,054 $ 977 $ (4,052) $ 6,858
Total average assets $350,081 $315,541 $ 99,346 $111,437 $876,405
The following is the segment reporting for the three months
ended June 30, 1999 and 1998 (dollars in thousands):
1999 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 9,538 $ 5,071 $ 2,842 $ 2,183
Allocated interest
expense 6,777 3,873 - (10,650)
Interest expense - - 1,598 10,877
Net interest income 2,761 1,198 1,244 1,956 $ 7,159
Provision for loan
losses 727 (10) 42 (342) 417
Non-interest income-
external 1,047 5,543 232 (810) 6,012
Non-interest expense
Direct expense 1,424 1,202 682 3,771 7,079
Overhead and
support 287 83 75 (445) -
Total non-interest
expense 1,711 1,285 757 3,326 7,079
Income (loss) before
taxes $ 1,370 $ 5,466 $ 677 $ (1,838) $ 5,675
Total average assets $407,892 $306,668 $151,236 $149,448 $1,015,244
1998 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 7,439 $ 6,789 $ 2,113 $ 1,556
Allocated interest
expense 5,487 4,906 - (10,393)
Interest expense - - 1,132 10,328
Net interest income 1,952 1,883 981 1,621 $ 6,437
Provision for loan
losses (279) (204) 30 884 431
Non-interest
income-external 801 643 204 406 2,054
Non-interest expense
Direct expense 978 1,635 549 3,842 7,004
Overhead and
support 102 68 98 (268) -
Total non-interest
expense 1,080 1,703 674 3,574 7,004
Income (loss) before
taxes $ 1,952 $ 1,027 $ 508 $ (2,431) $ 1,056
Total average assets $365,458 $319,252 $ 99,955 $114,094 $898,759
7. SUBSEQUENT EVENT
In July 1999, NCB sold approximately $122.7 million of
blanket mortgages. The gain on these sales will be reflected in
the third quarter results.
NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
SUMMARY
NCB's net income for the six months ended June 30, 1999 was
$7.4 million. This was a 19.96% or $1.2 million increase
compared with $6.2 million for the six months ended June 30,
1998. The variance resulted primarily from $1.5 million and
$76.7 thousand increases in net interest income and non-interest
income, respectively, which was partially offset by a combined
increase in provision for loan losses and non-interest expense of
$291.8 thousand. For the three month period, net income increased
$4.6 million due primarily to an increase in non-interest income.
Total assets were $1.1 billion at June 30, 1999, up 17.6% or
$164.0 million from $933.4 million at December 31, 1998. This
resulted from an increase in loans held for sale, loans and lease
financing and other assets of $203.5 million partially offset by
a decrease in cash and cash equivalents, restricted cash and
investment securities of $39.5 million.
The annualized return on average total assets was 1.48% for
the first six months of 1999 compared with 1.41% for the same
period in 1998. The annualized return on average equity for the
periods ended June 30, 1999 and 1998 was 10.38% and 9.18%,
respectively.
NET INTEREST INCOME
Net interest income for the first six months of 1999 increased
11.3% or $1.5 million over the same period a year ago. As shown
on Table 1, the net interest spread increased 1 basis point to
2.20% from 2.19% for the six months ended June 30, 1999 while net
interest yield on interest earning assets was 3.07% and 3.12% for
the six months ended June 30, 1999 and 1998, respectively. Table
2 contains more detailed information on the $1.5 million
increase.
For the three months ending June 30, 1999, net interest income
increased 11.2% or $722.4 thousand from the same period in 1998.
As shown on Table 2A, the increase was largely due to an increase
in volume of loans and leases.
For the six months ending June 30, 1999, interest income
increased 8.1% or $2.9 million to $38.1 million from $35.3
million for the prior year's period. As shown on Table 2, an
increase in average volume which was due to growth in real estate
loans (most of which were held for sale) and in the commercial
loan and lease portfolio, was partially offset by a drop in
average yield on real estate loans.
For the three month period ended June 30, 1999, interest
income went up 9.7% or $1.74 million from $17.9 million to $19.6
million. The increase in interest income was mostly due to a
higher average balance of the interest earning assets for the
time period.
Interest expense increased $1.4 million to $23.3 million for
the six months ended June 30, 1999 compared with $22.0 million
for the six months ended June 30, 1998. The interest expense was
up as a result of higher levels of notes payable and deposits.
While interest expense was up due to the higher usage of notes
payable required to fund loan volume and higher level of
deposits, such increase was offset by lower interest rates on
them. As shown on Table 2, a $2.6 million increase in interest
expense was volume related while a $1.3 million decrease was due
to interest rates.
For the second quarter ended June 30, 1999, interest expense
increased 8.9% or $1.0 million to $12.5 million compared with
$11.5 million for the second quarter ended June 30, 1998 due to
increased funding of loans. The average rate on interest bearing
liabilities decreased to 5.96% compared with 6.20% in the same
quarter a year ago.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1999 of
$7.7 million increased 1% or $77.0 thousand from $7.6 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, origination fees,
management fees and advisory and debt placement fees. The
majority of the increase resulted from fees received on the
servicing of loans. Servicing fee income for the period ended
June 30, 1999 increased 5.4% or $67.4 thousand to $1.32 million
compared with $1.25 million for the six months ended June 30,
1998 based on loans serviced for others of $1.9 billion and $1.5
billion at June 30, 1999 and 1998, respectively.
Other income for the six months ended June 30, 1999 was up
7.2% to $2.6 million from $2.4 million for the same six months in
the prior year due to gain on sale of a real estate note and
increased excess yield amortization offset by a net decrease in
other loan fees.
For the three month period ended June 30, 1999, non-interest
income increased 192.8% or $3.96 million from $2.05 million for
the same period in 1998. The majority of the increase was
related to the sale of loans to the secondary markets. Loans sold
during the three month period ended June 30, 1999 and 1998 were
$154.0 million and $54.4 million, respectively.
NON-INTEREST EXPENSE
Non-interest expense for the six months ended June 30, 1999
increased 1.8% or $239.7 thousand to $13.5 million compared with
$13.2 million for the six months ended June 30, 1998.
Compensation and benefits, the largest component of non-interest
expense, decreased 4.6% or $361.8 thousand due to a lower
employee base and lower bonus accruals than in the year-earlier
period. Contractual services, occupancy and equipment, and other
expenses increased 7.5% or $401.4 thousand primarily due to
equipment and technology costs, corporate and marketing
development, placement and compensation survey fees.
Excluding the voluntary contributions to NCB Development
Corporation, which was $200 thousand and zero during the first
two quarters of 1999 and 1998, respectively, non-interest expense
as a percentage of average assets decreased to 1.3% for the six
months ended June 30, 1999 compared with 1.5% for the same period
a year ago.
For the three months ended June 30, 1999, non-interest expense
increased 1.1% or $74.7 thousand from $7.0 million for the same
period in 1998. The increase was primarily due to the voluntary
contributions to NCB Development Corporation of $150.0 thousand
partially offset by a decrease of $75.3 thousand of the other
components of non-interest expense.
Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Six Months Ended June 30,
1999 1998
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rate Balance Expenses Rate
Interest earning
assets
Real estate loans $ 473,710 $17,678 7.46% $395,449 $16,498 8.34%
Commercial loans
and leases 402,231 17,752 8.83% 357,019 15,759 8.83%
Total loans and
leases 875,941 35,430 8.09% 752,468 32,257 8.57%
Investment securities
and cash equivalents 87,438 2,707 6.19% 99,367 3,015 6.07%
Total interest
earning assets 963,379 38,137 7.92% 851,835 35,272 8.28%
Allowance for loan
losses (18,037) (17,865)
Non-interest earning assets
Cash 10,955 2,636
Other assets 45,647 39,799
Total non-interest
earning assets 56,602 42,435
Total assets $1,001,944 $876,405
LIABILITIES AND MEMBER'S EQUITY
Interest bearing liabilities
Subordinated debt $ 182,668 $ 5,119 5.61% $182,542 $ 5,449 5.97%
Notes payable 507,913 15,379 6.06% 449,380 14,411 6.41%
Deposits 125,591 2,840 4.52% 89,624 2,122 4.74%
Total interest bearing
liabilities 816,172 23,338 5.72% 721,546 21,982 6.09%
Other liabilities 42,743 20,108
Members' equity 143,029 134,751
Total liabilities and
members' equity $1,001,944 $876,405
Net interest earning
assets $ 147,207 $130,289
Net interest revenues
and spread $14,799 2.20% $ 13,290 2.19%
Net yield on interest
earning assets 3.07% 3.12%
Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Three Months Ended June 30,
1999 1998
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rate Balance Expenses Rate
Interest earning
assets
Real estate loans $ 488,965 $ 8,973 7.34% $398,570 $ 8,209 8.24%
Commercial loans
and leases 413,230 9,443 9.14% 371,659 8,186 8.81%
Total loans and
leases 902,195 18,416 8.16% 770,229 16,395 8.51%
Investment securities
and cash equivalents 72,122 1,218 6.76% 94,540 1,500 6.35%
Total interest
earning assets 974,317 19,634 8.06% 864,769 17,895 8.28%
Allowance for loan
losses (18,355) (17,827)
Non-interest earning assets
Cash 11,038 3,215
Other assets 48,424 48,602
Total non-interest
earning assets 59,462 51,817
Total assets $1,015,244 $898,759
LIABILITIES AND MEMBER'S EQUITY
Interest bearing liabilities
Subordinated debt $ 182,694 $ 2,531 5.54% $182,542 $ 2,767 6.06%
Notes payable 529,676 8,554 6.46% 468,521 7,561 6.46%
Deposits 125,160 1,390 4.44% 88,250 1,131 5.13%
Total interest
bearing liabilities 837,530 12,475 5.96% 739,313 11,459 6.20%
Other liabilities 33,354 24,022
Members' equity 144,540 135,424
Total liabilities and
members' equity $1,015,424 $898,759
Net interest earning
assets $ 136,787 $125,456
Net interest revenues
and spread $ 7,159 2.10% $ 6,436 2.08%
Net yield on interest
earning 2.94% 2.98%
Table 2
Changes in Net Interest Income
(dollars in thousands)
For the six months ended June 30, 1999 compared to 1998
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ (368) $ 60 $ (308)
Commercial loans and leases 1,996 (3) 1,993
Real estate loans 3,041 (1,861) 1,180
Total interest income 4,669 (1,804) 2,865
Interest expense
Deposits 817 (99) 718
Notes payable 1,803 (835) 968
Subordinated debt 4 (334) (330)
Total interest expense 2,624 (1,268) 1,356
Net interest income $2,045 $ (536) $1,509
* 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, 1999 compared to 1998
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ (374) $ 92 $ (282)
Commercial loans and leases 942 315 1,257
Real estate loans 1,725 (961) 764
Total interest income 2,293 (554) 1,739
Interest expense
Deposits 426 (167) 259
Notes payable 988 5 993
Subordinated debt 2 (238) (236)
Total interest expense 1,416 (400) 1,016
Net interest income $ 877 $ (154) $ 723
* 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, 1999 was $727.6 thousand
compared with the prior year's provision of $669.9 thousand.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities totalling
$76.6 million at June 30, 1999 decreased $32.0 million or 29.4%
from $108.6 million at year-end 1998 due mostly to the funding of
loans and lease financing. As a percentage of earning assets,
cash, cash equivalents and investment securities decreased to
7.1% at June 30, 1999 from 13.5% at December 31, 1998.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 1999 increased 5.9%
to $18.5 million from $17.4 million at December 31, 1998. The
allowance during the period was impacted by loans charged-off
amounting to $52.7 thousand, recoveries of loans previously
charged-off of $249.1 thousand and the provision of $835.0
thousand. Overall, loan portfolio quality remained both strong
and stable at the end of the first six months of 1999 and 1998.
NCB's annualized provision for loan losses as a percentage of
average loans and leases outstanding remained at .2% for the six
months ended June 30, 1999 and 1998.
The loan loss allowance as a percentage of loans and leases
decreased to 1.9% at June 30, 1999 from 2.2% at December 31,
1998. 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) decreased 40.0% from $6.7 million at
December 31, 1998 to $4.0 million at June 30, 1999. Impaired
assets as a percentage of loans and leases outstanding plus real
estate owned decreased to .4% at June 30, 1999 compared with .8%
at year-end 1998. The allowance for loan losses as a percentage
of impaired assets increased to 457.4% at June 30, 1999 from 259%
at December 31, 1998.
INTEREST BEARING LIABILITIES
Interest Bearing liabilities
(dollars in thousands)
6/30/99 12/31/98 % Change
Deposits $118,962 $123,420 (3.6%)
Short-term debt 367,054 220,652 66.3%
Long-term debt 256,284 231,193 10.9%
Subordinated debt 182,677 182,706 0.0%
Total $924,977 $757,971 22.0%
Interest bearing liabilities increased $167.0 million to $925.0
million at June 30, 1999 from $758.0 million at December 31,
1998.
For the six months of 1999, deposits at NCBSB declined 3.6% to
$119.0 million compared with $123.4 million at December 31, 1998.
The decrease was due to the maturity of certificates of deposits
held by local and national depositors. Average maturity of the
certificates of deposits is 13.9 months. Although NCB relies
heavily on funds raised through the capital markets, deposits and
the short term borrowing program are a major portion of interest
bearing liabilities - 16.4% and 20.9% at June 30,1999 and
December 31,1998, respectively.
At June 30, 1999, total short-term and long-term borrowings
(including subordinated debt) increased 27.0% or $171.5 million
to $806.0 million in comparison to prior year-end 1998 of $634.6
million. Proceeds from the borrowings were used to fund growth
in loans and leases. At June 30, 1999, NCBSB had advances of
$28.0 million from the Federal Home Loan Bank and NCB had $339.1
million, net of discount, outstanding on its short-term
facilities. Included in the short-term borrowings were revolving
lines of credit of $181.5 million; commercial paper with a face
value of $125.0 million and $32.8 million in the short term
borrowing program, which are from NCD Development Corporation and
cooperative customers. Long-term debt increased $25.0 million or
10.9% from year-end 1998 due to the issuance of $45.0 million of
medium term notes and the maturity of $20.0 million under long-
term facilities. At June 30, 1999, there was unused capacity
under short-term facilities of approximately $58.2 million.
In April 1999, NCB received Board approval to increase the
size of several funding programs. The new maximum amounts under
NCB's programs are as follows:
Short term facilities to $500.0 million
Commercial paper program to $250.0 million*
Medium term note program to $300.0 million
Long term facilities to $275.0 million
In August 1999, NCB received Board approval for an additional
increase in the medium term note program from $300.0 million to
$400.0 million. NCB also received approval to issue up to $50
million in trust preferred securities, preferred stock or
subordinated debt.
* NCB maintains available committed capacity, under its short
term facilities, in an amount not less than the outstanding
commercial paper balance.
TABLE 3
Impaired assets
(dollars in thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
1999 1999 1998 1998 1998
Real estate owned $3,334 $3,355 $4,343 $4,155 $4,272
Non-accruing 701 2,371 2,385 819 3,445
$4,035 $5,726 $6,728 $4,974 $7,717
YEAR 2000
A significant challenge facing NCB, its subsidiaries and
affiliate as well as all companies, is the readiness of its
computer systems for the next millennium. NCB is dependent upon
its internal computer systems and has external interdependencies
with other financial institutions and customers.
NCB has surveyed all mission critical internal software and
systems (See Table (A)) and has determined a remediation
strategy. Table (B) reflects the phase completion with respect
to all mission critical systems. All testing was completed by May
31, 1999.
With respect to "non-information technology items", NCB has
surveyed the vendors/providers with the results shown in Table
(C).
NCB has surveyed all associated banks and financial
institutions with which a mission critical interdependence
exists. Based upon the results of this survey, NCB took actions
which involved testing of key systems or transitioning to
alternative institutional systems. All associated respondents
indicated that they were already Year 2000 compliant by December
31, 1998.
To date, direct costs relative to the Year 2000 efforts have
totalled less than $100,000. NCB does not anticipate exceeding
this amount in addressing all associated Year 2000 issues. All
costs to date are and in the future will be funded through
operating income and are not considered material. NCB converted
to a new Year 2000 compliant loan accounting system in November
1998 which replaced its existing systems that were not Year 2000
compliant. The cost of this replacement was less than $500,000.
NCB has surveyed the major portion of its customer base to
determine the ability of its customers to continue debt service
coverage and will follow with a specific review of annual
financial statements for Year 2000 disclosure. A primary risk for
NCB lies in the ability of its customers to continue debt service
payment on schedule in the Year 2000. To date, survey results
indicated that the issue is being addressed.
NCB has substantially completed all core systems testing.
Test results to date have indicated the systems to be Year 2000
ready. Management completed and the Board approved a business
continuity plan in April 1999 which will be tested prior to
October 1, 1999 and updated as the year progresses.
Table (A)
Total Mission Critical Systems (MCS) 61
Number of MCS to be:
Repaired 6
Replaced 0
Retired 0
Vendor Upgraded 55
Tested Only 0
Outsourced 0
Table (B)
Phase Completion Status As of June 30, 1999:
Phase Percent Complete Estimate or Actual #of MCS in Phase
Awareness 100.0% A 61
Assessment 100.0% A 61
Renovation 100.0% A 61
Validation 100.0% A 61
Implementation 100.0% A 61
Table (C)
Non-Information Technology Items (Infrastructure Items)
Compliant (Y=Yes)
Kastle System Y
Montgomery Kone(HVAC) Y
TRANE(Elevators) Y
Willtel(Phone) Y
PEPCO Y
Sungard Business Recovery Y
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in NCB's market risk profile occurred
from December 31, 1998 to June 30, 1999.
ITEM 6. EXHIBITS
(a) The following exhibits are filed as part of this report:
Exhibit 10-21 - Amendment No. 2 to Third Amended and
Restated Loan Agreement with Fleet Bank as Agent
Exhibit 10-22 - First Amendment to Term Loan Agreement with
Greenwich Funding Corporation and Credit Suisse First Boston
Exhibit 10-27 - Executive Long-Term Incentive Plan
Exhibit 27 - Financial Data Schedule
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:
s/Richard L. Reed
By:
Richard L. Reed,
Managing Director,
Chief Financial Officer
s/Marietta J. Orcino
By:
Marietta J. Orcino
Vice President, Tax & Regulatory
Compliance