FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2001 Commission file number 2-99779
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National Consumer Cooperative Bank
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(Exact name of registrant as specified in its charter)
United States of America
(12 U.S.C. Section 3001 et seq.) 52-1157795
- -------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1725 Eye Street, NW, Suite 600, Washington, D.C. 20006
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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 .
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at March 31, 2001
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Class C 220,180
- ------------------
(Common stock, $100.00 par value)
Class B 1,074,401
- ------------------
(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
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PART I FINANCIAL INFORMATION
PAGE NO.
--------
Item 1 Consolidated balance sheets - March 31,
2001 (unaudited) and December 31, 2000..... 3
Consolidated statements of income - for
the three months ended March 31, 2001
(unaudited) and 2000 ...................... 4
Consolidated statements of comprehensive
income - for the three months ended
March 31, 2001 (unaudited) and 2000........ 5
Consolidated statements of cash flows -
for the three months ended
March 31, 2001 (unaudited) and 2000........ 6-7
Condensed notes to the consolidated
financial statements - March 31,
2001 (unaudited)........................... 8-16
Item 2 Management's discussion and analysis
of financial condition and results of
operations - for the three months
ended March 31, 2001 and 2000.............. 17-23
Item 3 Quantitative and qualitative disclosures
about market risk.......................... 23
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of
Security Holders....................... 23
Item 6 Exhibit 24
Exhibit 13 - 2000 Annual Report
NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
March 31, December 31,
2001 2000
(Unaudited)
-------------- --------------
ASSETS
Cash and cash equivalents $ 31,050,739 $ 36,494,978
Restricted cash 3,835,107 3,875,549
Investment securities
Available-for-sale 43,754,436 44,505,034
Held-to-maturity 2,923,694 2,923,694
Loans held for sale 98,509,700 99,077,161
Loans and lease financing 882,431,581 879,459,566
Less: Allowance for loan losses (21,576,163) (21,260,284)
-------------- --------------
Net loans held for sale and
loans and lease financing 959,365,118 957,276,443
Other assets 44,738,538 41,410,785
-------------- --------------
Total assets $1,085,667,632 $1,086,486,483
============== ==============
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Deposits $ 146,669,049 $ 148,960,621
Patronage dividends payable in cash 4,573,018 3,330,296
Other liabilities 22,985,563 37,313,873
Borrowings
Short-term 305,932,163 269,579,985
Long-term
Current 165,236,810 147,991,796
Non-current 102,085,034 143,834,724
Subordinated debt 182,032,493 182,022,471
-------------- --------------
Total borrowings 755,286,500 743,428,976
-------------- --------------
Total liabilities 929,514,130 933,033,766
-------------- --------------
MEMBERS' EQUITY
Common stock
Class B 107,440,170 107,440,170
Class C 22,017,993 22,017,993
Class D 300 300
Retained earnings
Allocated 6,946,615 5,433,641
Unallocated 17,480,648 16,804,590
Accumulated other comprehensive
income 2,267,776 1,756,023
-------------- --------------
Total members' equity 156,153,502 153,452,717
-------------- --------------
Total liabilities and members' equity $1,085,667,632 $1,086,486,483
============== ==============
3
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended March 31, 2001 2000
----------- -----------
Interest income
Loans and lease financing $21,278,947 $20,581,080
Investment securities 1,003,075 1,241,412
----------- -----------
Total interest income 22,282,022 21,822,492
----------- -----------
Interest expense
Deposits 1,913,924 1,458,326
Short-term borrowings 4,492,631 4,705,757
Long-term debt, other borrowings
and subordinated debt 7,884,312 8,113,922
----------- -----------
Total interest expense 14,290,867 14,278,005
----------- -----------
Net interest income 7,991,155 7,544,487
Provision for loan losses 750,000 12,500
------------ ----------
Net interest income after
provision for loan losses 7,241,155 7,531,987
----------- -----------
Non-interest income
Gain (loss) on sale of loans 2,081,986 (4,069)
Loan and deposit servicing fees 798,168 811,933
Other 2,586,022 1,675,458
------------- -----------
Total non-interest income 5,466,176 2,483,322
----------- -----------
Non-interest expense
Compensation and employee benefits 4,783,413 4,253,232
Contractual services 2,094,096 2,112,618
Occupancy and equipment 1,289,963 1,241,590
Other 679,936 529,795
----------- -----------
Total non-interest expense 8,847,408 8,137,235
----------- -----------
Net income before income taxes 3,859,924 1,878,074
Provision for income taxes 437,588 378,264
----------- -----------
Net income $ 3,422,336 $ 1,499,810
=========== ===========
Distribution of net income
Patronage dividends $ 3,422,336 $ 1,499,810
Retained earnings - -
----------- -----------
$ 3,422,336 $ 1,499,810
=========== ===========
4
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the three months ended March 31, 2001 2000
---------- ----------
Net income $3,422,336 $1,499,810
Other comprehensive income:
Net unrealized holding
gain before tax 511,753 533,624
---------- ----------
Comprehensive income $3,934,089 $2,033,434
========== ==========
5
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended March 31, 2001 2000
------------ -------------
Cash flows from operating activities
Net income $ 3,422,336 $ 1,499,810
Adjustments to reconcile net income to net cash
used in operating activities
Provision for loan losses 750,000 12,500
Depreciation and amortization 1,500,571 1,688,537
(Gain) loss on sale of loans (2,081,986) 4,069
Loans originated for sale (78,075,012) (39,968,174)
Proceeds from sale of loans held for sale 83,569,572 3,592,351
Increase in other assets (4,647,990) (553,308)
(Decrease) increase in other liabilities (12,467,030) 11,850,095
------------- -------------
Net cash used in operating activities ( 8,029,539) (21,874,120)
------------- -------------
Cash flows from investing activities
Redemption of restricted cash 40,442 -
Purchase of investment securities
Available-for-sale (3,515,336) (650,000)
Proceeds from maturities of investment
securities
Available-for-sale 3,787,728 2,055,341
Net increase in loans and lease financing (2,963,981) (79,713,118)
Proceeds from sale of portfolio loans - 7,950,098
Purchases of premises and equipment (490,826) (51,925)
------------ -------------
Net cash used in investing activities (3,141,973) (70,409,604)
----------- -------------
Cash flows from financing activities
Net (decrease) increase in deposits (2,291,572) 8,195,558
Net increase in short-term
borrowings 36,352,178 126,516,701
Repayment on long-term debt (28,333,333) (32,000,000)
------------ -------------
Net cash provided by financing activities 5,727,273 102,712,259
------------ -------------
(Decrease) increase in cash and cash equivalents (5,444,239) 10,428,535
Cash and cash equivalents, beginning of year 36,494,978 29,910,037
------------ -------------
Cash and cash equivalents, end of period $ 31,050,739 $ 40,338,572
============ =============
6
NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental schedule of investing and financing activities:
For the three months ended March 31, 2001 2000
----------- -----------
Unrealized gain on investment
available-for-sale $ 511,753 $ 533,624
Interest paid $12,953,055 $11,667,706
Income taxes paid $ 2,560 $ 970
7
NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2001
(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 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.
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
1. Cash, Cash Equivalents and Investment Securities
As of March 31, 2001, NCB's portfolios of investment securities, cash and
cash equivalents had an average adjusted maturity of 669 days with interest
rates in those portfolios varying from 5.00% to 8.125%.
Cash and Investments Investments
Cash Available- Held-to-
Equivalents For-Sale Maturity
----------- ---------- -----------
Cash $ 5,649,591 $ - $ -
Federal funds 10,847,616 - -
Money market securities 14,203,532 796,432 -
Private debt security - - 792,931
Mutual funds - 1,643,184 -
Certificates of deposits 350,000 - -
Mortgage-backed
securities - - 2,130,763
Corporate bonds - 8,944,142 -
U.S. Treasury and Agency
obligations - 15,514,123 -
Interest-only receivables - 16,856,555 -
----------- ----------- ----------
$31,050,739 $43,754,436 $2,923,694
=========== =========== ==========
8
As of December 31, 2000, NCB's portfolios of investment securities, cash
and cash equivalents were comprised of the following:
Cash and Investments Investments
Cash Available- Held-to-
Equivalents for-Sale Maturity
----------- ----------- -----------
Cash $ 3,344,711 $ - $ -
Federal funds 19,636,506 - -
Money market securities 13,163,761 1,273,601 -
Private debt security - - 792,931
Mutual funds - 1,115,860 -
Certificates of deposit 350,000 - -
Mortgage-backed
securities - - 2,130,763
Corporate bonds - 2,148,400 -
U.S. Treasury and Agency
obligations - 22,302,795 -
Interest-only receivables - 17,664,378 -
---------- ----------- ----------
$36,494,978 $44,505,034 $2,923,694
=========== =========== ==========
At March 31, 2001 and December 31, 2000, the investments in the
available-for-sale portfolio were recorded at aggregate fair value.
Restricted cash of $3,835,107 and $3,875,549 at March 31, 2001 and December
31, 2000, 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 March
31, 2001 and December 31, 2000, the combined remaining balances of 1992 and 1993
loans totaled $27,834,877 and $33,284,777, 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.
2. Loans and Lease Financing
Loans and leases outstanding, including loans held for sale, by category,
were as follows:
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
Commercial loans $510,049,265 $519,725,819
Lease financing 75,325,955 83,562,445
Real estate loans
Residential 390,896,681 370,510,903
Commercial 4,669,380 4,737,560
------------ ------------
$980,941,281 $978,536,727
============ ============
9
At March 31, 2001 and December 31, 2000, loans held for resale were $98.5
million and $99.1 million, respectively.
3. Impaired Assets
Impaired loans, representing non-accrual loans at March 31, 2001 and
December 31, 2000, totaled $3,346,858 and $2,570,135, respectively, and averaged
$2,886,508 and $1,180,000 during the respective periods ending on these dates.
Specific allowances of $1,547,727 and $1,185,960 were established at March 31,
2001 and December 31, 2000, respectively. During the first quarters of 2001 and
2000, the interest collected on the non-accrual loans was applied to reduce the
outstanding principal.
At March 31, 2001 and December 31, 2000, there were no commitments to lend
additional funds to borrowers whose loans were impaired.
At March 31, 2001 and December 31, 2000, there was no real estate owned
property.
4. Allowance for Loan Losses
The following is a summary of the activity in the allowance for loan losses
during the three months ended March 31, 2001:
Balance at January 1, 2001 $21,260,284
Provision for loan losses 750,000
Charge-offs (481,125)
Recoveries of loans previously
charged-off 47,004
-----------
Balance at March 31, 2001 $21,576,163
===========
The allowance for loan losses as a percentage of average loans and lease
financing and loans held for sale at March 31, 2001 and December 31, 2000 was
2.20%.
10
5. Statement of Changes in Members' Equity
The following is a summary of the activity in members' equity for the three
months ended March 31, 2001:
Retained Retained Total
Common Earnings Earnings Unrealized Members'
Stock Allocated Unallocated Gain Equity
------------ ----------- ------------ ---------- ------------
Balance, December 31, 2000 $129,458,463 $5,433,641 $16,804,590 $1,756,023 $153,452,717
Net income - - 3,422,336 - 3,422,336
Adjustments to dividends
paid - - 9,418 - 9,418
2001 patronage dividends
To be distributed in cash - - (1,242,722) - (1,242,722)
Retained in form of equity - 1,512,974 (1,512,974) - -
Unrealized gain on investment
securities available-for-
sale - - - 511,753 511,753
------------ ----------- ------------ ---------- ------------
Balance, March 31, 2001 $129,458,463 $6,946,615 $17,480,648 $2,267,776 $156,153,502
============ =========== ============ ========== ============
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 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 three months ended March
31, 2001 and March 31, 2000 (dollars in thousands):
2001 Commercial Real Estate Warehouse NCB
Lending Lending Lending NCBSB Other Consolidated
-------- -------- -------- -------- -------- ----------
Net interest income
Interest income $ 13,037 $ 3,671 $ 1,964 $ 3,097 $ 514
Allocated interest expense 9,213 2,614 1,251 - (13,078)
Interest expense - - - 1,918 12,374
-------- -------- -------- -------- --------
Net interest income 3,824 1,057 713 1,179 1,218 $ 7,991
Provision (credit) for loan
losses (433) 98 - - 1,085 750
Non-interest income-external 993 1,234 1,965 400 874 5,460
Non-interest expense
Direct expense 1,724 972 306 626 5,219 8,847
Overhead and support 348 236 68 293 (945) -
-------- -------- -------- -------- -------- ----------
Total non-interest expense 2,072 1,208 374 919 4,274 8,847
-------- -------- -------- -------- -------- ----------
Income (loss) before taxes $ 3,178 $ 985 $ 2,304 $ 660 $ (3,273) $ 3,860
======== ======== ======== ======== ========= ==========
Total average assets $537,889 $176,225 $ 77,961 $154,287 $124,675 $1,071,037
======== ======== ======== ======== ======== ==========
2000 Commercial Real Estate Warehouse NCB
Lending Leading Lending NCBSB Other Consolidated
--------- --------- -------- -------- -------- ------------
Net interest income
Interest income $ 11,423 $ 3,086 $ 3,483 $ 2,933 $ 898
Allocated interest expense 8,873 2,168 2,293 - (13,334)
Interest expense - - - 1,703 12,575
--------- --------- -------- -------- --------
Net interest income 2,550 918 1,190 1,230 1,657 $ 7,545
Provision (credit) for loan
losses (829) 70 - 13 899 13
Non-interest income-external 657 411 241 226 948 2,483
Non-interest expense
Direct expense 1,219 941 211 554 5,212 8,137
Overhead and support 287 210 42 274 (813) -
--------- --------- -------- -------- -------- ----------
Total non-interest expense 1,506 1,151 253 828 4,399 8,137
--------- --------- -------- -------- -------- ----------
Income (loss) before taxes $ (4,248) $ 108 $ 1,178 $ 615 $ 4,225 $ 1,878
========== ========= ======== ======== ======== ==========
Total average assets $543,059 $148,810 $147,327 $158,034 $ 88,067 $1,085,297
======== ======== ======== ======== ======== ==========
13
7. Accounting for Derivatives
Adoption of FAS 133
NCB adopted SFAS No. 133, "Accounting for Derivative Investments and
Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment to SFAS No.
133", as of January 1, 2001. On that date, NCB recorded a cumulative effect
adjustment of $1.7 million gain to recognize the fair value of interest rate
swaps with an offsetting cumulative effect of $1.7 million loss to recognize the
change in fair value of related hedged debt due to changes in benchmark interest
rates. Additionally, NCB recorded a cumulative effect adjustment of $4.5 million
loss to recognize derivatives at fair value and a cumulative effect adjustment
of $4.6 million gain to recognize the change in fair value of related loans held
for sale and loan commitments due to changes in benchmark interest rates. The
net of these amounts was recorded in Other Non-Interest Income.
NCB uses interest rate swaps to hedge loan commitments prior to
actually funding a loan. During the commitment period, the loan commitments and
related interest rate swaps are accounted for as derivatives and therefore
recorded at fair value through income. Once a commitment becomes a loan, the
derivative associated with the commitment is designated as a hedge on the loan.
Derivative Instruments and Hedging
NCB maintains a risk management strategy that includes the use of
derivative instruments to reduce unplanned earnings fluctuations caused by
interest rate volatility. Use of derivative instruments is a component of NCB's
overall risk management strategy in accordance with a formal policy that is
monitored by management, which has delegated authority over the interest rate
risk management function.
The derivative instruments utilized include interest rate swaps, and
futures contracts. Interest rate swaps involve the exchange of fixed and
variable rate interest payments between two parties based upon a notional
principal amount and maturity date. Interest rate futures generally involve
exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the
future at specified prices.
NCB is exposed to credit and market risk as a result of its use of
derivative instruments. If the fair value of the derivative contract is
positive, the counterparty owner owes NCB and a repayment risk exists. If the
fair value of the derivative contract is negative, NCB owes the counterparty, so
there is no repayment risk. NCB minimizes repayment risk by entering into
transactions with financially stable counterparties that are specified by policy
and reviewed periodically by management. When NCB has multiple derivative
transactions with a single counterparty, the net mark-to-market exposure
represents the netting of positive and negative exposures with that
counterparty. The net mark-to-market exposure with a counterparty is a measure
of credit risk when there is a legally
14
enforceable master netting agreement between NCB and the counterparty. NCB uses
master netting agreements with the majority of its counterparties.
Market risk is the adverse effect that a change in interest rates or
comparative currency values has on the fair value of a financial instrument or
expected cash flows. NCB manages the market risk associated with the interest
rate hedge contracts by establishing formal policy limits concerning the types
and degree of risk that may be undertaken. Compliance with this policy is
monitored by management and reported to the Board of Directors.
Accounting for Derivatives
All derivatives are recognized on the Balance Sheet at fair value. When
a derivative contract is entered into, NCB determines whether or not it
qualifies as a hedge. If it does, NCB designates the derivative as (1) a hedge
of the fair value of a recognized asset or liability or (2) a hedge of actual or
forecasted cash flows.
When entering into hedging transactions, NCB documents the
relationships between the hedging instruments and the hedged items to link all
derivatives that are designated fair value or cash flow hedges to specific
assets and liabilities on the Balance Sheet. NCB assesses, both at inception and
on an on-going basis, the effectiveness of all hedges in offsetting changes in
fair values or cash flows of hedged items.
NCB discontinues hedge accounting prospectively when (1) the derivative
is no longer effective in offsetting changes in fair value or cash flows of a
hedged item; or (2) the derivative matures or is sold, terminated or exercised.
When hedge accounting is discontinued because the derivative no longer
qualifies as an effective fair value hedge, it will continue to be carried on
the Balance Sheet at its fair value and the hedged asset or liability will no
longer be adjusted to reflect changes in fair value. When hedge accounting is
discontinued because it is probable a forecasted transaction will not occur, NCB
will continue to carry the derivative on the Balance Sheet at its fair value and
any gains or losses accumulated in Other Non-Interest Income will be recognized
immediately in earnings. In all other situations in which hedge accounting is
discontinued, the derivative will be carried at fair value with the changes in
fair value recognized in income.
Fair-Value Hedges
NCB enters into interest rate swaps and future contracts to hedge
against changes in the fair value of fixed rate loans and debt due to changes in
benchmark interest rates.
15
For the quarter ending March 31, 2001, NCB recognized a net loss of
$166 thousand for the ineffective portion of all fair value hedges. This amount
is included in Other Non-interest Income in the Statement of Income.
8. New Accounting Standards
In July 2000, Emerging Issues Task Force (EITF) No. 99-20, "Recognition
of Interest Income and Impairment of Purchased and Retained Beneficial Interests
in Securitized Financial Assets" was issued. This statement addresses the
recognition of income when assumptions are changed which relate to expected
future cash flows of assets with calculated income yields. The changes in income
yields primarily relate to prepayments, which adjust the initial yield. NCB
currently recognizes prepayments as a catch-up adjustment within the same
period. NCB does not believe that the statement will have material impact on its
results of operations based on previous experience with these types of
adjustments. EITF No. 99-20 will become effective starting April 1, 2001.
16
NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
SUMMARY
NCB's net income for the three months ended March 31, 2001 was $3.4
million. This was an increase of $1.9 million over the $1.5 million for the
three months ended March 31, 2000. The variance resulted from an increase in
gain on sale of loans and commercial loan fees of $2.1 million and $1.1 million,
respectively. The variance was partially offset by increases to provision for
loan losses and non-interest expenses of $740 thousand and $710 thousand,
respectively.
Total assets were $1.086 billion at March 31, 2001, down $819 thousand
from December 31, 2000. This resulted primarily from a decrease in cash and cash
equivalents of $5.4 million related to a decrease in overnight investments and
federal funds sold which was offset by increases in net loans and other assets
of $2.1 million and $3.3 million, respectively.
The annualized return on average total assets was 1.28% for the first
three months of 2001 compared with .55% for the same period in 2000. The
annualized return on average equity for the period ended March 31, 2001 and
March 31, 2000 was 8.79% and 4.05%, respectively.
NET INTEREST INCOME
Net interest income for the first three months of 2001 increased $447
thousand or 5.9% over the same period of 2000.
For the three months ended March 31, 2001, total interest income
increased 2.1% or $460 thousand from the prior year's first quarter to $22.3
million. The majority of the increase was due to growth and higher yield on
commercial loan and lease portfolios.
Interest expense increased only $13 thousand over the same period as
last year. The small variance is a result of decreasing interests rates for
short-term facilities, such as deposits, short-term debt and revolving lines.
Interest expense related to deposits, revolving lines, and short-term borrowings
increased $1.3 million from 2000; interest expense on commercial paper and
long-term borrowing decreased by $1.3 million from 2000.
See Table 1 for detailed information on the increases and decreases in
interest income and interest expense.
As shown in Table 1, the net interest spread increased 36 basis points
to 2.06% from 1.70% for the three months ended March 31, 2000. The net interest
yield on
17
earning assets was 3.04% and 2.78% for the three months ended March 31, 2001 and
March 31, 2000, respectively.
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2001 of $5.5
million increased $3.0 million from $2.5 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, net origination fees
on loans sold, management fees, advisory and debt placement fees and other
income. The majority of the increase resulted from gains on loans sold and $535
thousand received as a prepayment penalty. Loans sold in the first quarter of
2001 were $84.8 million compared to $11.7 million in the first quarter of 2000.
Servicing fee income for the quarter ended March 31, 2001 was $798
thousand, which was $14 thousand below the quarter ended March 31, 2000. NCB
serviced single and multi-family real estate and commercial loans for investors
in the amounts of $2.30 billion and $2.0 billion, at March 31, 2001 and March
31, 2000, respectively.
Other income for the quarter ended March 31, 2001, was up 54% or $911
thousand to $2.6 million from $1.7 million for the quarter ended March 31, 2000
due primarily to increases in excess yield and the prepayment penalty received.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 2001 increased
8.7% or $710 thousand to $8.8 million compared with $8.1 million for the three
months ended March 31, 2000. Compensation and employee benefits, which remains
the single largest component of non-interest expense, increased 12.5% or $530
thousand due to a higher employee base and salary increases. Compensation and
employee benefits accounted for 54.1% and 52.3% of non-interest expense for the
three months ended March 31, 2001 and March 31, 2000, respectively.
Non-interest expense as a percentage of average assets was 3.3% and 3.0%
for the three months ended March 31, 2001 and March 31, 2000, respectively.
18
Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)
Three Months Ended March 31,
2001 2000
--------------------------------------------------------------------
ASSETS Average Income/ Yields/ Average Income/ Yields/
Balance Expenses Rates Balance Expenses Rates
---------- ------- ------- ----------- -------- --------
Interest earning assets
Real estate loans $ 378,017 $ 8,091 8.56% $ 442,086 $ 8,636 7.81%
Commercial loans
and leases 601,325 13,188 8.77% 563,528 11,945 8.48%
---------- ------- ---------- -------
Total loans and
leases 979,342 21,279 8.69% 1,005,614 20,581 8.19%
Investment securities
and cash equivalents 70,758 1,003 5.67% 78,663 1,241 6.31%
---------- ------- ---------- -------
Total interest earning
assets 1,050,100 22,282 8.49% 1,084,277 21,822 8.05%
---------- ------- ---------- -------
Allowance for loan
losses (21,587) (18,694)
Non-interest earning assets
Cash 5,650 2,912
Other assets 37,095 16,802
---------- ----------
Total non-interest
earning assets 42,745 19,714
---------- ----------
Total assets $1,071,258 $1,085,297
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Interest bearing liabilities
Subordinated debt $ 182,230 $ 2,628 5.77% $ 182,610 $ 2,646 5.80%
Notes payable 561,627 9,749 6.94% 590,111 10,173 6.90%
Deposits 144,846 1,914 5.29% 126,889 1,459 4.60%
---------- -------- ---------- -------
Total interest bearing
liabilities 888,703 14,291 6.43% 899,610 14,278 6.35%
-------- -------
Other liabilities 26,864 37,540
Members' equity 155,691 148,147
---------- ----------
Total liabilities and
members' equity $1,071,258 $1,085,297
========== ==========
Net interest earning assets $ 161,397 $ 184,667
Net interest revenues and spread $ 7,991 2.06% $ 7,544 1.70%
Net yield on interest earning assets 3.04% 2.78%
19
PROVISION FOR INCOME TAXES
The federal income tax provision is determined on the basis of
non-member income generated by NCB Savings Bank, FSB and the 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 three months ended March 31, 2001 was $438 thousand
compared with the prior year's provision of $378 thousand.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
Cash, cash equivalents and investment securities totaling $77.7 million
at March 31, 2001 decreased $6.2 million or 7.4% from $83.9 million at year-end
2000 primarily due to funding of loans and leases. As a percentage of earning
assets, cash, cash equivalents and investment securities decreased to 7.7% at
March 31, 2001 from 8.2 % at December 31, 2000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 2001 was $21.6 million, up
slightly by 1.5% from December 31, 2000. The allowance during the period was
impacted by loans charged-off of $481.1 thousand, recoveries of loans previously
charged-off of $47 thousand and the provision of $750 thousand. NCB's annualized
provision for loan losses as a percentage of average loans and leases
outstanding was .3% for the quarter ended March 31, 2001 and less than .1% for
the quarter ended March 31, 2000.
The loan loss allowance as a percentage of average loans and leases
remained 2.2% at March 31, 2001 and at December 31, 2000. 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) increased 30.2% from $2.6 million at December 31, 2000 to $3.3
million at March 31, 2001. Impaired assets as a percentage of loans and leases
outstanding plus real estate owned was .34% at March 31, 2001 compared with .26%
at year-end 2000. The allowance for loan losses as a percentage of impaired
assets decreased to 645% at March 31, 2001 from 827% at December 31, 2000.
20
Table 2
Changes in Net Interest Income
(dollars in thousands)
For the three months ended March 31, 2001 compared to 2000
Increase (decrease) due to change in:
-------------------------------------
Average Average
Volume* Yield Net**
------- ----- -----
Interest Income
Cash equivalents and
investment securities $ (118) $ (120) $ (238)
Commercial loans and leases 819 424 1,243
Real estate loans (1,324) 779 (545)
------ ------- ------
Total interest income (623) 1,083 460
------- ------- ------
Interest expense
Deposits 221 234 455
Notes payable (186) (238) (424)
Subordinated debt (6) (12) (18)
------- -------- ------
Total interest expense 29 (16) 13
------- -------- ------
Net interest income $ (652) $ 1,099 $ 447
======= ======= ======
* 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.
21
INTEREST BEARING LIABILITIES
Interest Bearing Liabilities
(dollars in thousands)
3/31/01 12/31/00 % CHANGE
-------- -------- --------
Deposits $146,669 $148,961 (1.5%)
Short-term debt 305,932 269,580 13.5%
Long-term debt 267,322 291,827 (8.4%)
Subordinated debt 182,032 182,022 0.0%
-------- --------
Total $901,955 $892,390 1.1%
======== ========
Interest bearing liabilities increased $9.6 million to $902 million at
March 31, 2001 from $892.4 million at December 31, 2000.
For the first three months of 2001, deposits at NCB Saving Bank, FSB
(NCBSB) declined 1.5% to $146.7 million compared with $149 million at December
31, 2000. The decrease was attributable to maturity of the certificates of
deposit held by local and national depositors. Average maturity of the
certificates of deposits is 14.6 months. Although NCB relies heavily on funds
raised through the capital markets, deposits are a major portion of interest
bearing liabilities - 16.3% and 16.7% at March 31, 2001 and December 31, 2000,
respectively.
At March 31, 2001, total short-term and long-term borrowings (including
subordinated debt) increased 1.6% or $11.9 million to $755.3 million in
comparison to prior year-end 2000 of $743.4 million. Proceeds from the
borrowings were used to fund growth in loans and leases. At March 31, 2001 and
December 31, 2000, NCBSB had advances of zero and $5 million, respectively, from
the Federal Home Loan Bank. At March 31, 2001, included in the short-term
borrowings were revolving lines of credit of $152.5 million; commercial paper
with a face value of $118.4 million and $35.5 million in borrowings from a
related entity and cooperative customers. At December 31, 2000, included in the
short-term borrowings were revolving lines of credit of $132.5 million;
commercial paper with a face value of $108.3 million and $24.2 million in
borrowings from a related entity and cooperative customers. Long-term debt
decreased 8.4% from year-end 2000 due to a maturity of $28.3 million under the
long-term facilities which was offset by a FAS 133 valuation of $3.8 million. At
March 31, 2001, there was unused capacity under the short-term and long-term
facilities of approximately $111.2 million and $312.5 million, respectively. At
December 31, 2000, unused capacity under the short-term and long-term facilities
was $152.5 million and $312.5 million, respectively.
22
TABLE 3
Impaired assets
(dollars in thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2001 2000 2000 2000 2000
-------- ------- -------- ------- ----------
Real estate owned $ 0 $ 0 $ 14 $ 125 $2,687
Non-accruing 3,347 2,570 504 707 795
------ ------ ------ ------ ------
$3,347 $2,570 $ 518 $ 832 $3,482
====== ====== ====== ====== ======
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in NCB's market risk profile occurred from December
31, 2000 to March 31, 2001.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
NCB held its annual meeting on April 26, 2001. Shareholders previously
elected the following persons to serve as directors:
Lynn Marie Hoopingarner
Dean Janeway
Stephanie McHenry-Lucky
The following directors continued in office after this meeting:
James L. Burns, Jr.
Harry J. Bowie
Kirby J. Erickson
Eben Hopson, Jr.
Jackie Jenkins-Scott
Marilyn J. McQuiade
Michael J. Mercer
Stuart M. Saft
Shiela A. Smith
Peter C. Young
Thomas K. Zaucha
23
ITEM 6. EXHIBIT
(a). The following exhibit is filed as part of this report:
Exhibit 13 - 2000 Annual Report
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: May 15, 2001
By: /s/Richard L. Reed,
Managing Director,
Chief Financial Officer
By: /s/Marietta J. Orcino
Vice President, Tax &
Regulatory Compliance
24