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, 2000 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.)
--------------------------------
(State or other jurisdiction of
incorporation or organization)
52-1157795
----------
(I.R.S. Employer
Identification No.)
1401 EYE STREET, NW, SUITE 700, WASHINGTON, D.C. 20005
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(Address of principal executive offices)
Registrant's telephone number, including area code (202)336-7700
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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, 2000
---------------------------------
CLASS C 223,678
- ------------------
(Common stock, $100.00 par value)
CLASS B 1,083,340
- ------------------
(Common stock, $100.00 par value)
CLASS D 3
- ------------------
(Common stock, $100.00 par value)
1
National Consumer Cooperative Bank
(doing business as National Cooperative Bank)
and Subsidiaries
INDEX
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PART I FINANCIAL INFORMATION
PAGE NO.
Item 1 Consolidated balance sheets - September 30, 2000 and December 31, 1999... 3
Consolidated statements of income - for the three and nine months
ended September 30, 2000 and 1999 ....................................... 4
Consolidated statements of comprehensive income - for the nine months
ended September 30, 2000 and 1999........................................ 5
Consolidated statements of cash flows - for the nine months ended
September 30, 2000 and 1999.............................................. 6-7
Condensed notes to the consolidated financial statements - September
30, 2000................................................................. 8-17
Item 2 Management's discussion and analysis of financial condition and
results of operations - for the three and nine months ended September
30, 2000 and 1999........................................................ 18-27
Item 3 Quantitative and qualitative disclosures about market risk............... 27
PART II OTHER INFORMATION
Item 6 Exhibit ................................................................. 28
Exhibit 27 - Financial Data Schedule
2
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
(Unaudited)
September 30, December 31,
ASSETS 2000 1999
-------------- ---------------
Cash and cash equivalents $ 37,557,361 $ 29,910,037
Restricted cash 3,903,864 4,887,213
Investment securities
Available-for-sale 44,419,212 46,283,045
Held-to-maturity 2,710,244 2,710,191
Loans held for sale 67,594,769 132,057,978
Loans and lease financing 882,449,396 815,840,439
Less: Allowance for loan loss (20,907,255) (18,693,670)
-------------- --------------
Net loans held for sale and
loans and lease financing 929,136,910 929,204,747
Other assets 39,527,951 43,514,663
-------------- --------------
Total assets $1,057,255,542 $1,056,509,896
============== ==============
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Deposits $ 133,555,730 $ 126,071,259
Patronage dividends payable in cash 1,935,778 5,642,040
Other liabilities 32,533,163 25,041,359
Borrowings
Short-term 263,845,090 283,589,354
Long-term 291,712,677 286,262,870
-------------- --------------
555,557,767 569,852,224
Subordinated debt 182,012,641 182,620,212
-------------- --------------
Total borrowings 737,570,408 752,472,436
-------------- --------------
Total liabilities 905,595,079 909,227,094
-------------- --------------
MEMBERS' EQUITY
Common stock
Class B 108,333,952 99,879,531
Class C 22,367,845 22,380,663
Class D 300 300
Retained earnings
Allocated 3,125,583 9,203,865
Unallocated 17,735,773 16,682,644
Accumulated other comprehensive
income 97,010 (864,201)
-------------- --------------
Total members' equity 151,660,463 147,282,802
-------------- --------------
Total liabilities and members' equity $1,057,255,542 $1,056,509,896
============== ==============
3
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
Interest income
Loans and lease financing $65,587,541 $54,839,740 $22,143,879 $19,410,026
Investment securities 3,573,296 3,986,922 1,241,653 1,280,051
----------- ----------- ----------- -----------
Total interest income 69,160,837 58,826,662 23,385,532 20,690,077
----------- ----------- ----------- -----------
Interest expense
Deposits 4,941,354 4,178,962 1,740,664 1,338,652
Short-term borrowings 15,283,180 11,223,800 4,736,002 4,044,890
Long-term and subordinated
debt and other borrowings 25,638,734 20,746,179 9,009,575 7,426,518
----------- ----------- ----------- -----------
Total interest expense 45,863,268 36,148,941 15,486,241 12,810,060
----------- ----------- ----------- -----------
Net interest income 23,297,569 22,677,721 7,899,291 7,880,017
Provision for loan losses 2,456,667 877,535 2,015,000 42,499
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 20,840,902 21,800,186 5,884,291 7,837,518
----------- ----------- ----------- -----------
Non-interest income
Gain on sale of loans 2,072,389 7,650,038 1,839,395 3,893,675
Loan and deposit servicing
fees 2,169,772 2,043,597 721,921 723,989
Other 2,581,851 3,284,674 1,329,383 706,851
----------- ----------- ----------- -----------
Total non-interest income 6,824,012 12,978,309 3,890,699 5,324,515
----------- ----------- ----------- -----------
Non-interest expense
Compensation and
employee benefits 11,515,643 10,680,740 4,028,223 3,202,212
Contractual services 3,489,450 3,263,969 1,202,540 1,158,627
Occupancy and equipment 3,697,996 3,507,983 1,178,012 1,226,056
Contribution to NCB
Development Corporation - 350,000 - 150,000
Other 1,988,175 2,023,425 668,716 623,209
----------- ----------- ----------- -----------
Total non-interest expense 20,691,264 19,826,117 7,077,491 6,360,104
----------- ----------- ----------- -----------
Income before income taxes 6,973,650 14,952,378 2,697,499 6,801,929
Provision for income taxes 1,417,500 1,136,679 612,043 409,083
----------- ----------- ----------- -----------
Net income $ 5,556,150 $13,815,699 $ 2,085,456 $ 6,392,846
=========== =========== =========== ===========
Distribution of net income
Patronage dividends $ 5,556,150 $13,815,699 $ 2,085,456 $ 6,392,846
Retained earnings - - - -
----------- ----------- ----------- -----------
$ 5,556,150 $13,815,699 $ 2,085,456 $ 6,392,846
=========== =========== =========== ===========
4
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the nine months ended September 30, 2000 1999
---------- -----------
Net income $5,556,150 $13,815,699
Other comprehensive income, net of tax:
Net unrealized holding
gains before tax 961,211 379,598
---------- -----------
Comprehensive income $6,517,361 $14,195,297
========== ===========
5
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30, 2000 1999
------------ --------------
Cash flows from operating activities
Net income $ 5,556,150 $ 13,815,699
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 2,456,667 877,535
Depreciation and amortization 4,243,623 4,949,394
Gain on sale of loans (2,072,389) (7,650,038)
Loans originated for sale (135,233,554) (234,002,641)
Proceeds from sale of loans held
for sale 201,408,277 268,120,970
Decrease (increase) in other assets 1,073,452 (6,423,224)
Increase (decrease) in other liabilities 7,491,804 (4,271,541)
------------ ------------
Net cash provided by operating activities 84,924,030 35,416,154
------------ ------------
Cash flows from investing activities
Decrease in restricted cash 983,349 3,385,179
Purchase of investment securities
Available-for-sale (5,060,916) (18,400,000)
Proceeds from maturities of investment
securities
Available-for-sale 4,790,134 7,698,534
Held-to-maturity - 165,596
Net increase in loans and leases (93,204,080) (257,143,975)
Proceeds from sale of portfolio loans 28,272,995 10,483,123
Purchases of premises and equipment (129,024) (608,391)
------------ ------------
Net cash used in investing activities (64,347,542) (254,419,934)
------------ ------------
Cash flows from financing activities
Net increase in deposits 7,484,471 7,781,108
Net (decrease) increase in
short-term borrowings (19,744,264) 157,141,414
Proceeds from issuance of long-term debt 49,768,128 45,000,000
Repayment on long term debt (44,500,000) (20,000,000)
Patronage dividends paid (5,654,452) (4,896,310)
Dividends paid (283,047) (246,861)
------------ -------------
Net cash (used in) provided by
financing activities (12,929,164) 184,779,351
------------- -------------
Increase (decrease) in
cash and cash equivalents 7,647,324 (34,224,429)
Cash and cash equivalents, beginning
of year 29,910,037 66,563,160
------------- -------------
Cash and cash equivalents, end of period $ 37,557,361 $ 32,338,731
============= =============
6
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental schedule of investing and financing activities:
For the nine months ended September 30, 2000 1999
----------- ----------- -
Unrealized gain on investment
available-for-sale $ 961,211 $ 379,598
Interest paid $42,810,934 $34,811,752
Income taxes paid $ 1,058,270 $ 1,104,268
7
NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2000
(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, 2000, NCB's portfolios of investment securities, cash
and cash equivalents had an average adjusted maturity of approximately 2.3 years
with interest rates in those portfolios varying from 5.23% to 8.13%.
Cash and Investments Investments
Cash Available- Held-to-
Equivalents For-Sale Maturity
----------- ---------- -----------
Cash $14,374,383 $ - $ -
Federal funds 4,844,540 - -
Money market securities 17,988,438 766,078 -
Private debt security - - 767,931
Mutual funds - 1,578,049 -
Certificates of deposit 350,000 - -
Mortgage-backed
securities - - 1,942,313
Corporate bonds - 8,419,498 -
U.S. Treasury and Agency
obligations - 15,160,775 -
Interest-only receivables - 18,494,812 -
----------- ----------- -----------
$37,557,361 $44,419,212 $2,710,244
=========== =========== ==========
8
As of December 31, 1999, NCB's portfolios of investment securities, cash
and cash equivalents were composed of the following:
Cash and Investments Investments
Cash Available- Held-to-
Equivalents For-Sale Maturity
----------- ---------- -----------
Cash $ 3,407,537 $ - $ -
Federal funds 11,763,202 - -
Money market securities 14,389,298 1,039,318 -
Private debt security - - 767,878
Mutual funds - 1,221,719 -
Certificates of deposit 350,000 - -
Mortgage-backed
securities - - 1,942,313
Corporate bonds - 4,721,038 -
U.S. Treasury and Agency
obligations - 18,447,345 -
Interest-only receivables - 20,853,625 -
----------- ----------- -----------
$29,910,037 $46,283,045 $2,710,191
=========== =========== ==========
At September 30, 2000 and December 31, 1999, the investments in the
available-for-sale portfolio were recorded at aggregate fair value.
Restricted cash of $3,903,864 and $4,887,213 at September 30, 2000 and
December 31, 1999, respectively, is held by a trustee for the benefit of
certificate holders in the event of a loss on certain loans sold in 1992 and
1993. At September 30, 2000 and December 31, 1999, the combined remaining
balance of 1992 and 1993 loans totaled $36,865,913 and $56,967,101,
respectively. The restricted cash will become available to NCB I, Inc. as the
principal balance of the respective loans decreases. The loans sold have
original maturities of ten to fifteen years.
Interest-only receivables substantially pertain to blanket loans to
cooperative housing corporations.
9
2. Loans and Lease Financing
Loans and leases outstanding by category were as follows:
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
Commercial loans $541,911,478 $470,913,210
Lease financing 53,119,256 60,104,256
Real estate loans
Residential 345,368,638 408,204,055
Commercial 9,644,793 8,676,896
------------ ------------
$950,044,165 $947,898,417
============ ============
At September 30, 2000 and December 31, 1999, loans held for sale were $67.6
million and $132.1 million, respectively.
3. Impaired Assets
Impaired loans, representing the non-accrual loans at September 30, 2000
and December 31, 1999, totaled $504,288 and $580,311, respectively, and averaged
$665,823 and $1,084,000 during the respective periods ending on these dates.
Specific allowances of $252,144 and $239,911 were established at September 30,
2000 and December 31, 1999, respectively. During 2000 and 1999, the interest
collected on the non-accrual loans was applied to reduce the outstanding
principal.
At September 30, 2000 and December 31, 1999, there were no commitments to
lend additional funds to borrowers whose loans are impaired.
At September 30, 2000 and December 31, 1999, NCB had real estate acquired
through foreclosure of $14,067 and $2,686,747, 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, 2000:
Balance at January 1, 2000 $18,693,670
Provision for loan losses 2,456,667
Charge-offs (676,958)
Recoveries of loans previously
charged-off 433,876
-----------
Balance at September 30, 2000 $20,907,255
===========
The allowance for loan losses as a percentage of average loans and lease
financing was 2.1% at September 30, 2000.
10
5. Statement of Changes in Members' Equity
The following is a summary of the activity in members' equity at September
30, 2000:
Retained Retained Total
Common Earnings Earnings Unrealized Members'
Stock Allocated Unallocated (Loss) Gain Equity
---------- ------------- -------------- ------------- ----------
Balance, December 31, 1999 $122,260,494 $9,203,865 $16,682,644 $(864,201) $147,282,802
Net income - - 5,556,150 - 5,556,150
1999 patronage dividends
distributed in stock 8,718,065 (8,718,065) - - -
Other dividends declared - - (292,107) - (292,107)
Cancellation of stock (276,462) - 91,409 - (185,053)
2000 patronage dividends
To be distributed in cash - - (1,662,540) - (1,662,540)
Retained in form of equity - 2,639,783 (2,639,783) - -
Unrealized gain on investment
securities available-for-
sale - - - 961,211 961,211
------------ ---------- ----------- --------- ------------
Balance, September 30, 2000 $130,702,097 $3,125,583 $17,735,773 $ 97,010 $151,660,463
============ ========== =========== ========= ============
11
6. Segment Reporting
NCB's reportable segments are strategic business units that provide diverse
products and services within the financial services industry. NCB has five
reportable segments: commercial lending, real estate lending, warehouse lending,
NCB Savings Bank and other. The commercial lending segment provides financial
services to cooperative and member-owned businesses. The real estate lending
segment originates and services multi-family cooperative real estate loans
nationally, with a concentration in New York City. The warehouse lending segment
originates real estate and commercial loans for sale in the secondary market.
The NCB Savings Bank segment provides traditional banking services such as
lending and deposit gathering to retail, corporate and commercial customers.
"Other" consists of NCB's unallocated parent company income and expense, and net
interest income from investments and corporate debt after allocations to
segments.
NCB evaluates segment performance based on net income before taxes. The
accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies in the most recent
annual report. Overhead and support expenses are allocated to each operating
segment based on number of employees, and other factors relevant to expenses
incurred. Also included in overhead and support is depreciation allocated based
on equipment usage.
12
The following is the segment reporting for the nine months ended September
30, 2000 and 1999 (dollars in thousands):
2000 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
----------- ----------- ----------- ---------- -------- --------------
Interest income $ 34,930 $ 9,975 $ 9,166 $ 9,497 $ 5,593 $ 69,161
Interest expense
Allocated 28,085 7,002 6,724 - (41,811) -
Direct - - - 5,878 39,985 45,863
---------- ---------- ---------- ---------- ---------- ----------
Net interest income 6,845 2,973 2,442 3,619 7,419 23,298
Provision (credit)for
loan losses 12,131 170 - 82 (9,926) 2,457
Non-interest income-
external 1,893 2,259 1,483 972 217 6,824
Non-interest expense
Direct expense 3,913 2,638 659 1,707 11,774 20,691
Overhead and
support 860 693 128 709 (2,390) -
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest
expense 4,773 3,331 787 2,416 9,384 20,691
---------- ---------- ---------- ---------- ---------- ----------
(Loss) income before
taxes $ (8,166) $ 1,731 $ 3,138 $ 2,093 $ 8,178 $ 6,974
========== ========== ========== ========== ========== ==========
Total average assets $ 592,405 $ 153,250 $ 145,961 $ 170,451 $ 62,168 $1,124,235
========== ========== ========== ========== ========== ==========
13
1999 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
----------- ----------- ---------- ---------- ----------- -------------
Interest income $ 28,127 $ 7,096 $ 10,670 $ 8,304 $ 4,630 $ 58,827
Interest expense
Allocated 20,363 5,135 6,977 - (32,475) -
Direct - - - 4,894 31,255 36,149
---------- ---------- ---------- ---------- ---------- ----------
Net interest income 7,764 1,961 3,693 3,410 5,850 22,678
Provision (credit) for loan
losses (771) 253 - 128 1,268 878
Non-interest income-external 2,635 3,143 7,939 682 (1,421) 12,978
Non-interest expense
Direct expense 3,626 2,003 969 1,495 11,733 19,826
Overhead and support 785 462 117 748 (2,112) -
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest
expense 4,411 2,465 1,086 2,243 9,621 19,826
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
taxes $ 6,759 $ 2,386 $ 10,546 $ 1,721 $ (6,460) $ 14,952
========== ========== ========== ========== ========== ==========
Total average assets $ 431,224 $ 137,781 $ 185,621 $ 149,041 $ 127,453 $1,031,120
========== ========== ========== ========== ========== ==========
14
The following is the segment reporting for the three months ended September 30,
2000 and 1999 (dollars in thousands):
2000 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
----------- ----------- ---------- ---------- ---------- ------------
Interest income $ 12,365 $ 3,488 $ 2,024 $ 3,214 $ 2,295 $ 23,386
Interest expense
Allocated 9,777 2,413 1,251 - (13,441) -
Direct - - - 2,069 13,418 15,487
---------- ---------- ---------- ---------- ---------- ----------
Net interest income 2,588 1,075 773 1,145 2,318 7,899
Provision (credit) for loan
losses 1,712 89 - 15 199 2,015
Non-interest income-external 831 1,464 915 467 214 3,891
Non-interest expense
Direct expense 1,356 938 253 596 3,934 7,077
Overhead and support 273 216 47 165 (701) -
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest expense
1,629 1,154 300 761 3,233 7,077
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes
$ 78 $ 1,296 $ 1,388 $ 836 $ (900) $ 2,698
========== ========== ========== ========== ========== ==========
Total average assets $ 582,841 $ 152,463 $ 156,885 $ 167,577 $ 67,355 $1,127,121
========== ========== ========== ========== ========== ==========
15
1999 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
-------- ---------- ----------- --------- ---------- --------------
Interest income $ 10,745 $ 2,310 $ 3,138 $ 3,025 $ 1,472 $ 20,690
Interest expense
Allocated 8,099 1,766 1,994 - (11,859) -
Direct - - - 1,842 10,968 12,810
---------- ---------- ---------- ---------- ---------- ----------
Net interest income 2,646 544 1,144 1,183 2,363 7,880
Provision (credit) for loan
losses 571 70 - 43 (644) 43
Non-interest income-external 979 1,949 3,385 199 (1,187) 5,325
Non-interest expense
Direct expense 1,054 457 202 151 4,496 6,360
Overhead and support 381 327 81 598 (1,387) -
---------- ---------- ---------- ---------- ---------- ----------
Total non-interest expense 1,435 784 283 749 3,109 6,360
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes $ 1,619 $ 1,639 $ 4,246 $ 590 $ (1,292) 6,802
========== ========== ========== ========== ========== ==========
Total average assets $ 342,325 $ 139,882 $ 140,992 $ 163,815 $ 269,144 $1,056,158
========== ========== ========== ========== ========== ==========
16
7. New Accounting Standards
In June 1998,Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued for
all fiscal periods beginning after June 15, 1999. In June 1999, SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities "Deferral of the
Effective Date of SFAS No. 133" was issued to amend SFAS No. 133 to be effective
for all fiscal years beginning after June 15, 2000. In June 2000, SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
was issued further amending SFAS No. 133. SFAS No. 133 and SFAS No. 138
establish accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
accounting criteria are met and the hedge is considered to be highly effective.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The statements are
effective for NCB for the fiscal quarter beginning January 1, 2001. NCB is
currently evaluating the requirements of these statements to determine the
potential impact on the consolidated financial statements.
17
NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
SUMMARY
NCB's net income for the nine months ended September 30, 2000 was $5.6
million. This was a 59.8% or $8.2 million decrease compared with $13.8 million
for the nine months ended September 30, 1999. The variance resulted from a
decrease of $6.2 million in non-interest income and increases in the provision
for loan losses, non-interest expense and taxes of $1.6 million, $865.1 thousand
and $280.8 thousand, respectively. This was partially offset by an increase in
net interest income of $619.8 thousand. For the three month period ending
September 30, 2000, net income decreased $4.3 million or 67.4% compared with the
same period in 1999. This decrease in net income was due to a decrease in
non-interest income of $1.4 million and increases in provision for loan losses
and non-interest expense of $2.0 million and $717.4 thousand, respectively.
Total assets increased .07% or $745.6 thousand to $1.1 billion at September
30, 2000 from year end December 31, 1999. This resulted from an increase in cash
and cash equivalents, restricted cash and investment securities of $4.8 million
partially offset by a $4.0 million decrease in other assets.
The annualized return on average total assets was .66% for the first nine
months of 2000 compared with 1.79% for the same period in 1999. The annualized
return on average equity for the periods ended September 30, 2000 and 1999 was
4.96% and 11.98%, respectively.
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 2000 was $23.3
million, an increase of 2.7% or $619.8 thousand compared with $22.7 million over
the same period a year ago.
For the nine months ending September 30, 2000, interest income increased
17.6% or $10.4 million to $69.2 million from $58.8 million in the prior year's
period. The majority of the increase was due to the growth of the commercial
loan and lease portfolios and a higher yield on real estate loans. Table 2 shows
that increases of $8.2 million and $2.2 million were volume and yield related,
respectively.
Interest expense increased $9.8 million to $45.9 million for the nine
months ended September 30, 2000 compared with $36.1 million for the nine months
ended September 30, 1999. Interest expense was up as a result of higher levels
of notes payable and deposits and
18
higher interest rates on them. The increased borrowings were required to fund
loan volume. As shown on Table 2, a $4.5 million increase in interest expense
was volume related while a $5.2 million increase was due to interest rates.
For the nine months ended September 30, 2000 and 1999, the average rate on
interest earning assets was 8.39% and 7.98%, respectively. Average rate on
interest bearing liabilities was up 80 basis points to 6.52% at September 30,
2000 compared with 5.72% for the same period in 1999.
For the three month period ended September 30, 2000 and 1999, net interest
income was flat at $7.9 million.
Interest income increased 13.0% or $2.7 million to $23.4 million for the
three months ended September 30, 2000 compared with $20.7 million for the same
period a year ago. The increase in interest income was due to a higher average
balance of interest earning assets.
For the quarter ended September 30, 2000, interest expense increased 20.9%
or $2.7 million to $15.5 million compared with $12.8 million for the quarter
ended September 30, 1999 due to higher short-term interest rates and increased
usage to fund loans. As shown on Table 2A, the increase in interest expense
amounting to $916.0 thousand was volume related while $1.8 million was yield
related.
For the quarter ended September 30, 2000, the average rate on interest
earning assets increased 41 basis points to 8.46% from 8.05% for the quarter
ended September 30, 1999. The average rate on interest bearing liabilities was
6.62% and 5.86% for the quarters ended September 30, 2000 and 1999,
respectively.
NON-INTEREST INCOME
Non-interest income for the three quarters ended September 30, 2000 of $6.8
million decreased 47.4% or $6.2 million from $13.0 million for the same period
last year. Non-interest income is composed of gains from sales of blanket
mortgages and share loans to secondary market investors, servicing fees, net
origination fees on loans sold, management fees and advisory and debt placement
fees.
For the nine months ended September 30, 2000, gain on sale of loans was
$2.1 million compared with $7.7 million in the same period last year. The
decrease resulted from a lower yield and lower volume of loans sold. Total loans
sold were $226.5 million and $290.7 million for the nine-month periods ended
September 30, 2000 and 1999, respectively.
19
Servicing fee income for the nine months ended September 30, 2000 increased
6.2% or $126.2 thousand to $2.17 million compared to $2.04 million in the prior
year. NCB serviced single and multi-family real estate and commercial loans for
investors in the amounts of $2.2 billion and $2.0 billion as of September 30,
2000 and 1999, respectively.
Other non-interest income for the three quarters ended September 30, 2000
was down 21.4% or $702.8 thousand to $2.6 million from $3.3 million for the same
period in the prior year. Commercial loan fees and miscellaneous income were
lower for the first nine months of 2000 by $733.2 thousand and $192.3 thousand,
respectively, compared with the same period of the prior year.
For the three month period ending September 30, 2000, non-interest income
decreased 26.9% or $1.4 million to $3.9 million from $5.3 million for the same
period in 1999. A decrease amounting to $2.1 million was related to lower volume
and lower profitability of loans sold during the period. This was offset by an
increase of $622.5 thousand in miscellaneous income.
NON-INTEREST EXPENSE
Non-interest expense for the nine months ended September 30, 2000 increased
4.4% or $865.1 thousand to $20.7 million compared with $19.8 million for the
nine months ended September 30, 1999. Compensation and benefits, the largest
component of non-interest expense, increased 7.8% or $834.9 thousand. As of
September 30, 2000 and 1999, NCB and its consolidated subsidiaries employed 203
and 183 employees, respectively. Contractual services and occupancy and
equipment increased 6.1% or $415.5 thousand primarily due to corporate and
marketing development and legal and supervisory examination fees. Other expenses
decreased by $35.3 thousand due to savings in corporate insurance premiums of
$83.2 thousand which was partially offset by an increase in loan costs of $42.7
thousand.
Excluding the voluntary contributions to NCB Development Corporation, which
was zero and $350.0 thousand during the first three quarters of 2000 and 1999,
respectively, non-interest expense as a percentage of average assets decreased
to 1.8% for the nine months ended September 30, 2000 compared with 1.9% for the
same period a year ago.
For the three months ended September 30, 2000, non-interest expense
increased 11.3% or $717.4 thousand to $7.1 million from $6.4 million for the
same period in 1999. The variance was due to an increase in compensation and
employee benefits of $826.0 thousand which was offset by a net decrease in
contractual services, occupancy and equipment and other expenses of $108.6
thousand.
20
Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Nine Months Ended September 30,
2000 1999
--------------------------------------------------------------------------
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expenses Rates
----------- -------- ------- ----------- -------- -----
Interest earning assets
Real estate loans $ 442,542 $26,619 8.02% $ 457,761 $25,855 7.53%
Commercial loans
and leases 576,480 38,969 9.01% 436,938 28,984 8.84%
---------- ------- ---------- -------
Total loans and
leases 1,019,022 65,588 8.58% 894,699 54,839 8.17%
Investment securities
and cash equivalents 79,782 3,573 5.97% 88,398 3,987 6.01%
---------- ------- ---------- -------
Total interest earning
assets 1,098,804 69,161 8.39% 983,097 58,826 7.98%
---------- ------- ---------- -------
Allowance for loan
losses (19,119) (18,187)
Non-interest earning assets
Cash 3,501 7,125
Other assets 41,049 59,085
---------- ----------
Total non-interest
earning assets 44,550 66,210
---------- ----------
Total assets $1,124,235 $1,031,120
========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Interest bearing liabilities
Subordinated debt $ 182,504 $ 8,469 6.19% $ 182,676 $ 7,750 5.66%
Notes payable 620,364 32,453 6.98% 537,017 24,220 6.01%
Deposits 135,192 4,941 4.87% 123,443 4,179 4.51%
---------- ------- ---------- -------
Total interest bearing
liabilities 938,060 45,863 6.52% 843,136 36,149 5.72%
------- -------
Other liabilities 36,711 34,271
Members' equity 149,464 153,713
---------- ----------
Total liabilities and
members' equity $1,124,235 $1,031,120
========== ==========
Net interest earning assets $ 160,744 $ 139,961
Net interest revenues and
spread $23,298 1.87% $22,677 2.26%
Net yield on interest
earning assets 2.83% 3.08%
21
Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Three Months Ended September 30,
2000 1999
-------------------------------------------------------------------------
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expenses Rates
----------- -------- ------- ----------- -------- -----
Interest earning assets
Real estate loans $ 421,114 $ 7,928 7.53% $ 435,048 $ 8,178 7.52%
Commercial loans
and leases 603,751 14,216 9.42% 505,229 11,232 8.89%
---------- ------- ---------- -------
Total loans and
leases 1,024,865 22,144 8.64% 940,277 19,410 8.26%
Investment securities
and cash equivalents 80,688 1,242 6.16% 88,289 1,280 5.81%
---------- ------- ---------- -------
Total interest earning
assets 1,105,553 23,386 8.46% 1,028,566 20,690 8.05%
----------- ------- ---------- -------
Allowance for loan
losses (19,673) (18,487)
Non-interest earning assets
Cash 1,688 1,538
Other assets 39,553 44,541
---------- ----------
Total non-interest
earning assets 41,241 46,079
---------- ----------
Total assets $1,127,121 $1,056,158
========== ==========
LIABILITIES AND MEMBERS'
EQUITY
Interest bearing liabilities
Subordinated debt $ 182,385 $ 3,027 6.64% $ 182,694 $ 2,630 5.76%
Notes payable 616,489 10,718 6.95% 572,682 8,841 6.18%
Deposits 136,799 1,741 5.09% 119,217 1,339 4.49%
---------- ------- ---------- -------
Total interest bearing
liabilities 935,673 15,486 6.62% 874,593 12,810 5.86%
------- -------
Other liabilities 40,335 33,126
Members' equity 151,113 148,439
---------- ----------
Total liabilities and
members' equity $1,127,121 $1,056,158
========== ==========
Net interest earning assets $ 169,880 $ 153,973
Net interest revenues and
spread $ 7,900 1.84% $ 7,880 2.19%
Net yield on interest
Earning assets 2.86% 3.06%
22
Table 2
Changes in Net Interest Income
(dollars in thousands)
For the nine months ended September 30, 2000 compared to 1999
Increase (decrease) due to change in:
------------------------------------------
Average Average
Volume* Yield Net**
------- ----- -----
Interest income
Cash equivalents and
investment securities $ (386) $ (28) $ (414)
Commercial loans and leases 9,423 562 9,985
Real estate loans (879) 1,642 763
------- ------- ------
Total interest income 8,158 2,176 10,334
------ ------- ------
Interest expense
Deposits 415 347 762
Notes payable 4,055 4,177 8,232
Subordinated debt (4) 724 720
------- ------- ------
Total interest expense 4,466 5,248 9,714
------ ------- ------
Net interest income $3,692 $(3,072) $ 620
====== ======= ======
* 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.
23
Table 2A
Changes in Net Interest Income
(dollars in thousands)
For the three months ended September 30, 2000 compared to 1999
Increase (decrease) due to change in:
------------------------------------------
Average Average
Volume* Yield Net**
------- ----- -----
Interest income
Cash equivalents and
investment securities $ (114) $ 76 $ (38)
Commercial loans and leases 2,290 694 2,984
Real estate loans (262) 12 (250)
-------- ------- -------
Total interest income 1,914 782 2,696
------- ------- ------
Interest expense
Deposits 211 191 402
Notes payable 709 1,168 1,877
Subordinated debt (4) 402 398
-------- ------- ------
Total interest expense 916 1,761 2,677
------- ------- ------
Net interest income $ 998 $ (979) $ 19
======= ======== ======
* 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.
24
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, 2000 increased to $1.4 million from a
provision of $1.1 million for the same period during 1999. The increase was due
to an increase in non-member income and payment of under accrual of 1999's
income tax.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities totaling $84.7 million at
September 30, 2000 increased $5.8 million or 7.3% from $78.9 million at year-end
1999. The increase was due to repayments on loans and leases received at the end
of September. As a percentage of earning assets, cash, cash equivalents and
investment securities increased to 8.9% at September 30, 2000 from 8.1% at
December 31, 1999.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 2000 increased 11.8% or $2.2
million to $20.9 million from $18.7 million at December 31, 1999. The allowance
during the period was impacted by loans charged-off amounting to $677.0
thousand, recoveries of loans previously charged-off of $433.9 thousand and the
provision of $2.5 million. NCB's annualized provision for loan losses as a
percentage of average loans and leases outstanding was .3% and .1% for the nine
months ended September 30, 2000 and 1999, respectively.
Criticized loans have grown to $98.0 million or 10.2% of the total loans
outstanding at September 30, 2000 from 4.3% of the total loans outstanding at
December 31, 1999. The growth in criticized loans came primarily from a package
of retail member loans purchased from a wholesale food cooperative and the
declining financial condition of a national hardware wholesaler.
The loan loss allowance as a percentage of loans and leases increased to
2.2% at September 30, 2000 from 2.0% at December 31, 1999. 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 84.1% from $3.3 million at December 31, 1999 to $518.0
thousand at September 30, 2000. Impaired assets as a percentage of loans and
leases outstanding plus real estate owned decreased to .05% at September 30,
2000 compared with .34% at year-end 1999. The allowance for loan losses as a
percentage of
25
impaired assets increased to 4,036.1% at September 30, 2000 from 572.2% at
December 31, 1999.
INTEREST BEARING LIABILITIES
Interest bearing liabilities
(dollars in thousands)
9/30/00 12/31/99 % Change
-------- ---------- ----------
Deposits $ 133,556 $126,071 5.9%
Short-term debt 263,845 283,589 (7.0)%
Long-term debt 291,713 286,263 1.9%
Subordinated debt 182,013 182,620 0.0%
---------- --------
Total $ 871,127 $878,543 (0.8)%
========== ========
Interest bearing liabilities decreased $7.4 million to $871.1 million at
September 30, 2000 from $878.5 million at December 31, 1999.
For the first nine months of 2000, deposits at NCBSB grew 5.9% to $133.6
million compared with $126.1 million at December 31, 1999. The growth was due to
local and national depositors and deposits from cooperative customers. Average
maturity of the certificates of deposits is 13.5 months. Funds generated by the
increased deposit activity were used to originate single-family loans and
increase liquidity.
At September 30, 2000, total short-term and long-term borrowings (including
subordinated debt) decreased 2.0% or $14.9 million to $737.6 million in
comparison to prior year-end 1999 of $752.5 million. At September 30, 2000, and
December 31, 1999, NCBSB had advances of $8.0 million and $15.0 million,
respectively, from the Federal Home Loan Bank. NCB had $255.8 million, net of
discount, and $268.6 million, net of discount, outstanding on its short-term
facilities at September 30, 2000 and December 31, 1999, respectively. At
September 30, 2000, included in the short-term borrowings were revolving lines
of credit of $31.0 million; commercial paper with a face value of $189.3 million
and $37.0 million in borrowings from a related entity and cooperative customers.
At December 31, 1999, included in the short-term borrowing were revolving lines
of credit of $79.5 million; commercial paper with face value of $172.4 million
and $17.2 million in borrowings from a related entity and cooperative customers.
Long-term debt increased 1.9% from year-end 1999 due to the issuance of an
additional $50.0 million in medium-term notes, net of maturity of $44.5 million
under the long-term facilities. At September 30, 2000, there was unused capacity
under short-term and long-term facilities of approximately $180.2 million and
$312.5 million, respectively. At December 31, 1999, unused capacity under the
short-term and long-term facilities was $183.3 million and $350.0 million,
respectively.
26
TABLE 3
Impaired assets
(dollars in thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2000 2000 2000 1999 1999
-------- -------- -------- -------- --------
Real estate owned $ 14 $ 125 $2,687 $2,687 $2,893
Non-accruing 504 707 795 580 685
------ ------ ------ ------ ------
$ 518 $ 832 $3,482 $3,267 $3,578
====== ====== ====== ====== ======
YEAR 2000
NCB undertook many actions intended to assure that its computer systems and
other equipment were capable of functioning in, and processing for, periods for
the Year 2000 and beyond. NCB experienced no operational problems as a result of
the changeover of the date 1999 to 2000. NCB has not incurred to date, and does
not expect to incur in the future, any material expenditures in connection with
identifying, evaluating or remediating Year 2000 compliance issues. Most of its
expenditures to date have related to the opportunity cost of time spent by NCB's
employees evaluating and remediating Year 2000 issues for the hardware and
software products purchased, the information technology used in its operations
and its non-IT Systems or embedded technology, such as building security, phone
system and other systems. Direct costs incurred by NCB have totaled
approximately $55,000. NCB did not incur any Year 2000 expenses in the nine
months ended September 30, 2000.
As of September 30, 2000, NCB has not experienced any material consequences
of failure of Year 2000 compliance, either by the Company, its suppliers, or
customers. However, Year 2000 compliance has many elements and potential
consequences, some of which may not be foreseeable or may be realized in future
periods. Therefore, there can be no assurance that unforeseen circumstances
could still not arise, or that NCB will not in the future identify equipment or
systems which are not Year 2000 compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in NCB's market risk profile occurred from December 31,
1999 to September 30, 2000.
27
ITEM 6. EXHIBIT
(a) The following exhibit is filed as part of this report:
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,
Managing Director,
Chief Financial Officer
By: /s/
-----------------------
Marietta J. Orcino
Vice President, Tax &
Regulatory Compliance
28