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 September 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 September 30, 1999
Class C 223,807
(Common stock, $100.00 par value)
Class B 1,000,005
(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 - September 30,
1999 and December 31, 1998 ............. 4
Consolidated statements of income - for
the three and nine months ended September 30, 1999
and 1998............................... 5
Consolidated statements of comprehensive
income - for the nine months ended
September 30, 1999 and 1998................. 6
Consolidated statements of cash flows -
for the nine months ended
September 30, 1999 and 1998................. 7-8
Condensed notes to the consolidated
financial statements - September 30,
1999.................................... 9-17
Item 2 Management's discussion and analysis
of financial condition and results of
operations - for the three and nine months
ended September 30, 1999 and 1998........... 18-29
Item 3 Quantitative and qualitative disclosures
about market risk............................ 29
PART II OTHER INFORMATION
Item 6 Exhibits ............................. 29
Exhibit 10-17 - Second Amendment Agreement to Note
Purchase Agreement with Lutheran Brotherhood et al.
(June 1999)
Exhibit 10-24 - First Amendment Agreement to Note
Purchase Agreement with First AUSA Life Insurance et
al. (June 1999)
Exhibit 27 - Financial Data Schedule
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Unaudited)
September 30, December 31,
Assets 1999 1998
Cash and cash equivalents $ 32,338,731 $ 66,563,160
Restricted cash 9,817,546 13,202,725
Investment securities
Available-for-sale 47,773,573 39,127,948
Held-to-maturity 2,726,716 2,892,312
Loans held for sale 157,532,038 184,000,331
Loans and lease financing 858,508,831 611,174,140
Less: Allowance for loan losses (18,503,652) (17,426,450)
Net loans and lease financing 840,005,179 593,747,690
Other assets 38,242,355 33,881,044
Total assets $1,128,436,138 $933,415,210
Liabilities and Member's Equity
Liabilities
Deposits $ 131,200,651 $123,419,544
Patronage dividends payable in
cash 6,154,283 5,275,325
Other liabilities 25,601,113 29,872,655
Borrowings
Short-term 377,793,600 220,652,186
Long-term 256,330,228 231,193,174
634,123,828 451,845,360
Subordinated debt 182,647,172 182,706,417
Total borrowings 816,771,000 634,551,777
Total liabilities 979,727,047 793,119,301
Members' equity
Common stock
Class B 100,000,463 92,209,648
Class C 22,380,663 22,199,604
Class D 300 300
Retained earnings
Allocated 6,204,971 7,245,656
Unallocated 18,199,497 17,097,102
Accumulated other comprehensive
income 1,923,197 1,543,599
Total members' equity 148,709,091 140,295,909
Total liabilities and
members' equity $1,128,436,138 $933,415,210
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
Interest income
Loans and lease financing $54,839,740 $49,219,198 $19,410,026 $16,961,818
Investments securities 3,986,922 4,407,079 1,280,051 1,392,289
Total interest income 58,826,662 53,626,277 20,690,077 18,354,107
Interest expense
Deposits 4,178,962 3,465,479 1,338,652 1,343,115
Short-term borrowings 11,223,800 11,014,736 4,044,890 4,325,657
Long-term debt, other
borrowings and
subordinated debt 20,746,179 19,623,263 7,426,518 6,452,345
Total interest expense 36,148,941 34,103,478 12,810,060 12,121,117
Net interest income 22,677,721 19,522,799 7,880,017 6,232,990
Provision for loan losses 877,535 812,881 42,499 30,000
Net interest income after
provision for loan losse 21,800,186 18,709,918 7,837,518 6,202,990
Non-interest income
Gain on sale of loans 7,650,038 4,017,035 3,893,675 95,680
Loan and deposit servicing
fees 2,043,597 1,891,524 723,989 639,341
Other 3,284,674 3,571,969 706,851 1,168,414
Total non-interest income 12,978,309 9,480,528 5,324,515 1,903,435
Non-interest expense
Compensation and
employee benefits 10,680,740 11,218,378 3,202,212 3,378,087
Contractual services 3,263,969 3,085,029 1,158,627 1,146,493
Occupancy and equipment 3,507,983 3,157,296 1,226,056 1,023,399
Contribution to NCB
Development Corporation 350,000 - 150,000 -
Other 2,023,425 2,011,133 623,209 697,510
Total non-interest
expense 19,826,117 19,471,836 6,360,104 6,245,489
Income before income
taxes 14,952,378 8,718,610 6,801,929 1,860,936
Provision for income taxes 1,136,679 1,074,328 409,083 404,454
Net income $13,815,699 $ 7,644,282 $ 6,392,846 $ 1,456,482
Distribution of net income
Patronage dividends $13,815,699 $ 7,644,282 $ 6,392,846 $ 1,456,482
Retained earnings - - - -
$13,815,699 $ 7,644,282 $ 6,392,846 $ 1,456,482
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the nine months ended September 30, 1999 1998
Net income $13,815,699 $7,644,282
Other comprehensive income, net of tax:
Net unrealized holding
gains before tax 379,598 310,820
Comprehensive income $14,195,297 $7,955,102
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30, 1999 1998
Cash flows from operating activities
Net income $ 13,815,699 $ 7,644,282
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 877,535 812,881
Depreciation and amortization 4,949,394 4,161,146
Gain on sale of loans (7,650,038) (4,017,035)
Loans originated for sale (234,002,641) (496,969,928)
Proceeds from sale of loans held for sale 268,120,970 510,044,276
Increase in other assets (6,423,224) (3,271,561)
(Decrease) increase in other liabilities (4,271,541) 14,223,887
Net cash used in operating activities 35,416,154 32,627,948
Cash flows from investing activities
Redemption of restricted cash 3,385,179 1,220,192
Purchases of premise and equipment (608,391) -
Purchase of investment securities
Available-for-sale (18,400,000) -
Proceeds from maturities of investments
securities
Available-for-sale 7,698,534 16,586,761
Held-to-maturity 165,596 -
Net increases in loans and lease financing (257,143,975) (12,000,764)
Proceeds from sale of portfolio loans 10,483,123 8,156,399
Net cash (used in) provided by investing
activities (254,419,934) 13,962,588
Cash flows from financing activities
Net increase in deposits 7,781,108 30,137,741
Net increase (decrease) in short-term
borrowings 157,141,414 (4,098,138)
Proceeds from issuance of long-term debt 45,000,000 34,800,078
Repayment on long term debt (20,000,000) (48,000,000)
Dividends paid (246,861) (256,961)
Patronage dividends paid (4,896,310) (5,620,332)
Net cash provided by financing
activities 184,779,351 6,962,388
(Decrease) increase in cash and cash equivalents (34,224,429) 53,552,924
Cash and cash equivalents, beginning of year 66,563,160 21,689,245
Cash and cash equivalents, end of period $ 32,338,731 $ 75,242,169
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental schedule of investing and financing activities:
For the nine months ended September 30, 1999 1998
Unrealized gain on investment
available-for-sale $ 397,598 $ 310,820
Interest paid $34,811,752 $32,201,761
Income taxes paid $ 1,104,268 $ 890,000
Loans charged off $ 52,989 $ 1,111,172
NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
September 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 September 30, 1999, NCB's portfolios of investment
securities, cash and cash equivalents had an average adjusted
maturity of approximately three years and three months 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 $ 7,640,818 $ - $ -
Federal funds 13,250,371 - -
Money market
securities 11,097,542 721,581 -
Private debt
security - - 784,404
Mutual funds - 1,533,346 -
Certificates of
deposits 350,000 - -
Mortgage-backed
securities - - 1,942,312
Corporate bonds - 6,806,225 -
U.S. Treasury and
Agency obligations - 14,981,966 -
Interest-only
receivables - 23,730,455 -
$32,338,731 $47,773,573 $2,726,716
As of December 31, 1998, NCB's portfolios of investment
securities, cash and cash equivalent were comprised of the
following:
Cash and Investments Investments
Cash Available- Held-to-
Equivalents for-Sale Maturity
Cash $ 9,416,039 $ - $ -
Federal funds 33,570,870 - -
Money market
securities - 1,016,838 -
Private debt
security - - 950,000
Mutual funds - 1,192,934 -
Overnight investments 23,576,251 - -
Mortgage-backed
securities - - 1,942,312
Corporate bonds - 7,332,741 -
U.S. Treasury and
Agency obligations - 4,172,651 -
Interest-only
receivables - 25,412,784 -
$66,563,160 $39,127,948 $2,892,312
At September 30, 1999 and December 31, 1998, the investments
in the available-for-sale portfolio were recorded at aggregate
fair value.
Of the restricted cash totalling $9,817,546, $4,887,213 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 $4,907,028 is held by a trustee in the event
of a loss on certain loans sold in July 1999. At September 30,
1999, the remaining balances of the loans sold in 1992, 1993 and
1999 totalled approximately $24,700,000, $49,150,000 and
$122,600,000 , respectively. The restricted cash will become
available to NCB and 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, including loans held for sale,
by category were as follows:
September 30, 1999 December 31, 1998
Commercial loans $ 508,129,808 $353,768,337
Lease financing 52,973,185 47,490,749
Real estate loans
Residential 447,816,713 386,565,503
Commercial 7,121,163 7,349,882
$1,016,040,869 $795,174,471
At September 30, 1999 and December 31, 1998 loans held for
sale were $157.5 million and $184.0 million, respectively.
3. Impaired Assets
Impaired loans, representing the nonaccrual loans at September
30, 1999 and December 31, 1998, totalled $684,934 and $2,384,691,
respectively, and averaged $1,254,000 and $3,097,000 during the
respective periods ending on these dates. Specific allowances of
$267,846 and $557,267 were established at September 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 September 30, 1999 and December 31, 1998, there were no
commitments to lend additional funds to borrowers whose loans are
impaired.
At September 30, 1999 and December 31, 1998, NCB had real
estate acquired through foreclosure of $2,893,489 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 nine months ended September 30, 1999:
Balance at December 31, 1998 $17,426,450
Provision for loan losses 877,535
Charge-offs (52,989)
Recoveries of loans previously
charged-off 252,656
Balance at September 30, 1999 $18,503,652
The allowance for loan losses as a percentage of loans and
lease financing at September 30, 1999 was 2.2%.
5. Statement of Changes in Members' Equity
The following is a summary of the activity in members' equity at September
30, 1999:
Retained Retained Total
Common Earning Earning 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 - - 13,815,699 - 13,815,699
1998 patronage dividends
distributed in common
stock 7,971,874 (7,745,438) - - 226,436
Other dividends - - (250,885) - (250,885)
1999 patronage dividends
To be distributed in cash - - (5,757,666) - (5,757,666)
Retained in form of equity - 6,704,753 (6,704,753) - -
Unrealized gain on investment
securities available-for-
sale - - - 379,598 379,598
Balance, September 30, 1999 $122,381,426 $ 6,204,971 $18,199,497 $1,923,197 $148,709,091
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 nine months
ended September 30, 1999 and 1998 (dollars in thousands):
1999 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 28,127 $ 17,766 $ 8,304 $ 4,631
Allocated interest
expense 20,363 12,112 - (32,474)
Interest expense - - 4,894 31,255
Net interest income 7,764 5,654 3,410 5,850 $ 22,678
Provision for loan
losses (771) 253 128 1,268 878
Non-interest income-
external 2,546 9,623 682 127 12,978
Non-interest expense
Direct expense 3,806 3,294 2,243 10,483 19,826
Overhead and support 605 257 - (862) -
Total non-interest
expense 4,411 3,551 2,243 9,621 19,826
Income (loss) before
taxes $ 6,670 $ 11,473 $ 1,721 $ (4,912) $ 14,952
Total average assets $431,224 $323,402 $149,041 $127,453 $1,031,120
1998 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 22,186 $ 20,042 $ 6,287 $ 5,112
Allocated interest
expense 16,750 14,232 - (30,982)
Interest expense - - 3,467 30,637
Net interest income 5,436 5,810 2,820 5,457 $ 19,523
Provision for loan
losses (1,456) (171) 95 2,345 813
Non-interest income
(expense)-external 2,586 9,405 669 (3,179) 9,481
Non-interest expense
Direct expense 3,724 3,533 1,997 10,218 19,472
Overhead and support 491 266 - (757) - -
Total non-interest
expense 4,215 3,799 1,997 9,461 19,472
Income (loss) before
taxes $ 5,263 $ 11,587 $ 1,397 $ (9,528) $ 8,719
Total average assets $351,798 $335,598 $109,148 $113,101 $909,645
The following is the segment reporting for the three months
ended September 30, 1999 and 1998 (dollars in thousands):
1999 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 10,628 $ 6,037 $ 3,025 $ 1,590
Allocated interest
expense 8,098 3,760 - (11,858)
Interest expense - - 1,842 10,968
Net interest income 2,530 2,277 1,183 2,480 $ 8,470
Provision for loan
losses (818) 70 43 747 42
Non-interest income
(expense)-external 895 4,835 198 (1,193) 4,735
Non-interest expense
Direct expense 1,234 982 747 3,397 6,360
Overhead and support 202 86 - (288) -
Total non-interest
expense 1,436 1,068 747 3,109 6,360
Income (loss) before
taxes $ 2,807 $ 5,974 $ 591 $ (2,569) $ 6,803
Total average assets $342,325 $280,874 $163,815 $232,796 $1,019,810
1998 Commercial Real Estate NCB
Lending Lending NCBSB Other Consolidated
Net interest income
Interest income $ 7,605 $ 6,954 $ 2,210 $ 1,584
Allocated interest
expense 6,095 5,139 - (11,234)
Interest expense - - 1,343 10,778
Net interest income 1,510 1,815 867 2,040 $ 6,232
Provision for loan
losses (950) (81) 30 1,031 30
Non-interest income
(expense)-external 912 3,813 302 (3,123) 1,904
Non-interest expense
Direct expense 1,350 1,008 720 3,168 6,246
Overhead and support 218 118 - (336) -
Total non-interest
expense 1,568 1,126 720 2,832 6,246
Income (loss) before
taxes $ 1,804 $ 4,583 $ 419 $ (4,946) $ 1,860
Total average assets $362,094 $360,701 $122,179 $ 98,549 $943,523
7. SUBSEQUENT EVENT
In October 1999, $4,907,028 of the restricted cash account
was replaced by a letter of credit.
Additionally, in October 1999, NCB sold approximately $59.5 million of
blanket mortgages. The gain on these sales will be reflected in
the fourth quarter results.
On November 5, 1999, NCB filed Form S-3 with the Securities and
Exchange Commission to register $350.0 million of debt securities and
preferred stock.
NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SUMMARY
NCB's net income for the nine months ended September 30, 1999
was $13.8 million. This was an 80.7% or $6.2 million increase
compared with $7.6 million for the nine months ended September
30, 1998. The variance resulted primarily from $3.2 million and
$3.5 million increases in net interest income and non-interest
income, respectively, which was partially offset by a combined
increase in provisions for loan losses and income taxes and non-
interest expense of $481.3 thousand. For the three month period,
net income increased $4.9 million or 338.9% due to increases in
net interest income and non-interest income of $1.6 million and
$3.4 million, respectively.
Total assets were $1.1 billion at September 30, 1999, up 21.0%
or $195.0 million from $933.4 million at December 31, 1998. This
resulted from an increase in net loans and lease financing and
other assets of $250.6 million partially offset by a decrease in
cash and cash equivalents, restricted cash and investment
securities and loan held for sale of $55.6 million.
The annualized return on average total assets was 1.79% for
the first nine months of 1999 compared with 1.60% for the same
period in 1998. The annualized return on average equity for the
periods ended September 30, 1999 and 1998 was 11.98% and 10.73%,
respectively.
NET INTEREST INCOME
Net interest income for the nine months ended September 30,
1999 increased 16.2% or $3.2 million over the same period a year
ago. As shown on Table 1, the net interest spread increased 9
basis points to 2.15% from 2.06% while net interest yield on
interest earning assets was 3.08% and 2.96% for the nine months
ended September 30, 1999 and 1998, respectively. Table 2 contains
more detailed information on the $3.2 million increase.
For the three months ending September 30, 1999, net interest
income increased 26.4% or $1.6 million from the same period in
1998. As shown on Table 2A, the increase was largely due to an
increase in volume of commercial loans and leases.
For the nine months ending September 30, 1999, interest income
increased 9.7% or $5.2 million to $58.8 million from $53.6
million for the prior year's period. As shown on Table 2, the
increase in interest income is attributable to an increase in
average volume due to growth in real estate loans (most of which
were held for sale) and in the commercial loan and lease
portfolio, which was partially offset by a drop in average yield
on real estate loans.
For the three month period ended September 30, 1999, interest
income rose 12.7% or $2.3 million from $18.4 million to $20.7
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 $2.0 million or 6.0% to $36.1
million for the nine months ended September 30, 1999 compared
with $34.1 million for the nine months ended September 30, 1998.
The interest expense was up as a result of higher levels of notes
payable and deposits. The average rate on interest bearing
liabilities decreased from 5.72% to 5.83%. As shown on Table 2, a
$4.03 million increase in interest expense was volume related
while a $2.0 million decrease was due to interest rates.
For the quarter ended September 30, 1999, interest expense
increased 5.7% or $688.9 thousand to $12.8 million compared with
$12.1 million for the third quarter of the prior year due to
increased funding of loans. The average rate on interest bearing
liabilities decreased to 5.86% compared with 6.11% in the same
quarter a year ago.
NON-INTEREST INCOME
Non-interest income for the nine months ended September 30,
1999 of $13.0 million increased 36.9% or $3.5 million from $9.5
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. Gain on
sale of loans totalled $7.7 million compared with $4.0 million
for the nine months ended September 30, 1998. Loans sold totalled
$290.1 million compared with $493.8 million during the nine
months ended September 30, 1998. Servicing fee income for the
period ended September 30, 1999 increased 8.0% or $152.1 thousand
to $2.0 million compared with $1.9 million for the same period
ended September 30, 1998 based on loans serviced for others of
$2.0 billion and $1.5 billion at September 30, 1999 and 1998,
respectively.
Other income for the nine months ended September 30, 1999
decreased 8.0% to $3.3 million from $3.6 million for the same
nine months in the prior year due primarily to a write down to
appraised value of a real estate owned property.
For the three month period ended September 30, 1999, non-
interest income increased 179.7% or $3.4 million from $1.9
million for the same period in 1998. The majority of the
increase was related to the sale of loans to the secondary
markets net of a write down of a real estate owned property.
NON-INTEREST EXPENSE
Non-interest expense for the nine months ended September 30,
1999 increased 1.8% or $354.3 thousand to $19.8 million compared
with $19.5 million for the nine months ended September 30, 1998.
Compensation and benefits, the largest component of non-interest
expense, decreased 4.8% or $537.6 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 6.6% or $541.9 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 $350 thousand and zero during the first
three quarters of 1999 and 1998, respectively, non-interest
expense as a percentage of average assets decreased to 1.9% for
the nine months ended September 30, 1999 compared with 2.1% for
the same period a year ago.
For the three months ended September 30, 1999, non-interest
expense increased 1.8% or $114.6 thousand from $6.2 million for
the same period in 1998. The increase, primarily due to the
voluntary contributions to NCB Development Corporation of $150.0
thousand, was partially offset by a decrease of $35.4 thousand of
the other components of non-interest expense.
Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Nine Months Ended September 30,
1999 1998
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expense Rates
Interest earning assets
Real estate loans $ 457,761 $ 25,855 7.53% $417,481 $25,497 8.14%
Commercial loans
and leases 436,938 28,984 8.84% 358,380 23,722 8.83%
Total loans and
leases 894,699 54,839 8.17% 775,861 49,219 8.46%
Investment securities
and cash equivalents 88,398 3,987 6.01% 103,231 4,407 5.69%
Total interest earning
assets 983,097 58,826 7.98% 879,092 53,626 8.13%
Allowance for loans
losses (18,187) (17,799)
Non-interest earning assets
Cash 7,125 2,026
Other assets 59,085 46,326
Total non-interest
earning assets 66,210 48,352
Total assets $1,031,120 $909,645
LIABILITIES AND MEMBER'S EQUITY
Interest bearing liabilities
Subordinated debt $ 182,676 $ 7,750 5.66% $182,542 $ 8,207 5.99%
Notes payable 537,017 24,220 6.01% 465,814 22,431 6.42%
Deposits 123,443 4,179 4.51% 101,368 3,465 4.56%
Total interest bearing
liabilities 843,136 36,149 5.72% 749,724 34,103 6.07%
Other liabilities 34,271 23,948
Member's equity 153,713 135,973
Total liabilities and
members' equity $1,031,120 $909,645
Net interest earning
assets $ 139,961 $129,368
Net interest revenues
and spread $22,677 2.15% $ 19,523 2.06%
Net yield on interest earning
assets 3.08% 2.96%
Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Three Months Ended September 30,
1999 1998
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expense Rates
Interest earning assets
Real estate loans $ 435,048 $ 8,178 7.52% $442,468 $ 8,851 8.00%
Commercial loans
and leases 505,229 11,232 8.89% 367,968 8,111 8.82%
Total loans and
leases 940,277 19,410 8.26% 810,436 16,962 8.37%
Investment securities
and cash equivalents 88,289 1,280 5.81% 108,549 1,392 5.13%
Total interest earning
assets 1,028,566 20,690 8.05% 918,985 18,354 7.99%
Allowance for loans
losses (18,487) (17,667)
Non-interest earning assets
Cash 1,538 804
Other assets 44,541 41,401
Total non-interest
earning assets 46,079 42,205
Total assets $1,056,158 $943,523
LIABILITIES AND MEMBER'S EQUITY
Interest bearing liabilities
Subordinated debt $ 182,694 $ 2,630 5.76% $182,542 $ 2,922 6.40%
Notes payable 572,682 8,841 6.18% 497,786 7,856 6.31%
Deposits 119,217 1,339 4.49% 113,176 1,343 4.75%
Total interest bearing
liabilities 874,593 12,810 5.86% 793,504 12,121 6.11%
Other liabilities 33,126 13,547
Member's equity 148,439 136,472
Total liabilities and
members' equity $1,056,158 $943,523
Net interest earning
assets $ 153,973 $125,481
Net interest revenues
and spread $ 7,880 2.19% $ 6,233 1.88%
Net yield on interest earning
assets 3.06% 2.71%
Table 2
Changes in Net Interest Income
(dollars in thousands)
For the nine months ended September 30, 1999 compared to 1998
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ (659) $ 239 $ (420)
Commercial loans and leases 5,211 51 5,262
Real estate loans 2,356 (1,998) 358
Total interest income 6,908 (1,708) 5,200
Interest expense
Deposits 748 (34) 714
Notes payable 3,275 (1,486) 1,789
Subordinated debt 6 (463) (457)
Total interest expense 4,029 (1,983) 2,046
Net interest income $2,879 $ 275 $ 3,154
* 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 September 30, 1999 compared to 1998
Increase (decrease) due to change in:
Average Average
Volume* Yield Net**
Interest Income
Cash equivalents and
investment securities $ (280) $ 168 $ (112)
Commercial loans and leases 3,051 70 3,121
Real estate loans (146) (526) (672)
Total interest income 2,625 (288) 2,337
Interest expense
Deposits 70 (74) (4)
Notes payable 1,160 (174) 986
Subordinated debt 2 (295) (293)
Total interest expense 1,232 (543) 689
Net interest income $1,393 $ 255 $1,648
* 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 nine months ended September 30, 1999 was $1.14 million
compared with the prior year's provision of $1.07 million.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities totalled $82.8
million at September 30, 1999, a decrease of $25.7 million or
23.7% from $108.6 million at year-end 1998. This decrease was due
mostly to the funding of loans and lease financing. As a
percentage of earning assets, cash, cash equivalents and
investment securities decreased to 7.5% at September 30, 1999
from 13.5% at December 31, 1998.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1999 increased
6.2% 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 $53.0 thousand, recoveries of loans previously
charged-off of $252.7 thousand and the provision of $877.5
thousand. Overall, loan portfolio quality remained both strong
and stable at the end of the nine months of 1999 and 1998. NCB's
annualized provision for loan losses as a percentage of average
loans and leases outstanding remained at .1% for the nine months
ended September 30, 1999 and 1998.
The loan loss allowance as a percentage of average loans and
leases decreased to 2.1% at September 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 46.8% from $6.7 million at
December 31, 1998 to $3.6 million at September 30, 1999.
Impaired assets as a percentage of loans and leases outstanding
plus real estate owned decreased to .4% at September 30, 1999
compared with .8% at year-end 1998. The allowance for loan
losses as a percentage of impaired assets increased to 517% at
September 30, 1999 from 259% at December 31, 1998.
INTEREST BEARING LIABILITIES
Interest Bearing liabilities
(dollars in thousands)
9/30/99 12/31/98 % Change
Deposits $131,201 $123,420 6.3%
Short-term debt 377,794 220,652 71.2%
Long-term debt 256,330 231,193 10.9%
Subordinated debt 182,647 182,706 0.0%
Total $947,972 $757,971 25.1%
Interest bearing liabilities increased $190.0 million to $948.0
million at September 30, 1999 from $758.0 million at December 31,
1998.
For the nine months of 1999, deposits at NCBSB increased 6.3%
to $131.2 million compared with $123.4 million at December 31,
1998. The increase was due to an increase in local and national
deposit accounts and deposits from cooperative customers. Average
maturity of the certificates of deposits is 14.1 months. Funds
generated by the increased deposit activity were used to
originate single-family loans and increase liquidity. Although
NCB relies heavily on funds raised through the capital markets,
deposits are a major portion of interest bearing liabilities -
13.9% and 16.3% at September 30, 1999 and December 31,1998,
respectively.
At September 30, 1999, total short-term and long-term
borrowings (including subordinated debt) increased 28.7% or
$182.2 million to $816.8 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 September 30, 1999, NCBSB
had advances of $39.0 million from the Federal Home Loan Bank and
NCB had $338.8 million, net of discount, outstanding on its short-
term facilities. Included in the short-term borrowings were
revolving lines of credit of $120.5 million; commercial paper
with a face value of $177.0 million and $41.9 million in the
short term borrowing program, which are from NCB Development
Corporation and cooperative customers. Long-term debt increased
$25.1 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 September 30, 1999,
there was unused capacity under the short-term facilities of
approximately $63.0 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.
On November 5, 1999, NCB filed Form S-3 with the Securities
and Exchange Commission to register $350.0 million of debt
securities and preferred stock.
* 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)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
1999 1999 1999 1998 1998
Real estate owned $2,893 $3,334 $3,355 $4,343 $4,155
Non-accruing 685 701 2,371 2,385 819
$3,578 $4,035 $5,726 $6,728 $4,974
YEAR 2000
A significant challenge facing NCB, its subsidiaries and NCB
Development Corporation 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. The plan was tested in August and
September 1999. The plan was complete and supportive of core
business process by individual units throughout NCB. The plan
will be updated as the year progresses.
Table (A)
Total Mission Critical Systems (MCS) 61
Number of MCS:
Repaired 6
Replaced 0
Retired 0
Vendor Upgraded 55
Tested Only 0
Outsourced 0
Table (B)
Phase Completion Status As of September 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 September 30, 1999.
ITEM 6. EXHIBITS
(a) The following exhibits are filed as part of this report:
Exhibit 10-17 - Second Amendment Agreement to Note Purchase
Agreement with Lutheran Brotherhood et al. (June 1999)
Exhibit 10-24 - First Amendment Agreement to Note Purchase
Agreement with First AUSA Life Insurance et al. (June 1999)
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:
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