National Cooperative Bank
2000 Annual Report
"Seeing the Possibilities"
TABLE OF CONTENTS
Five Years in Brief 1
About NCB 2
Letter from the President 4
Real Estate 7
Commercial 9
Small Business 11
Community Development 13
Retail Banking & Depository Services 15
Financial Information 17
Board of Directors 21
Corporate Information 23
Contact Information 24
Five Years in Brief
(in thousands)
For the years ended December 31, 2000 1999 1998 1997 1996
Net interest income $ 32,184 $ 30,157 $ 25,627 $ 26,843 $ 25,966
Non-interest income 9,558 15,667 14,067 14,564 10,986
Non-interest expense 29,329 28,565 24,770 24,065 23,007
Net income 7,333 14,714 12,628 12,462 11,199
Provision for loan losses 3,207 909 843 3,504 1,950
At December, 31
Loans and leases outstanding $ 978,537 $ 947,898 $ 795,174 $ 773,768 $ 750,094
Total capital* 335,995 329,825 322,838 314,376 307,714
Total assets 1,086,486 1,056,510 933,415 869,304 839,336
Allowance for loan
losses to loans
outstanding 2.2% 2.0% 2.2% 2.3% 2.1%
Managed assets** 3,335,000 3,130,000 2,696,000 2,354,000 2,136,000
* Capital includes members' equity and subordinated debt
** Balance sheet assets combined with loans sold and serviced
1
ABOUT NATIONAL COOPERATIVE BANK
National Cooperative Bank (NCB) is a unique financial services company,
providing products and services to the nation's cooperatives and their
members. Whether our customers are small or large, urban or rural, NCB crafts
creative financial solutions to meet their needs.
NCB was chartered by Congress in 1978 to address the financial requirements
of an underserved niche: cooperatives - businesses that are founded,
capitalized, operated and owned by the people they serve. In 1981, NCB was
privatized as a cooperative financial institution and today is owned by 1,710
of our customers.
NCB's capital base is funded by long-term subordinated notes; medium-term
notes and commercial paper; loans from our banking partners and customers;
deposits through our subsidiary, NCB Savings Bank, FSB; and, stock purchased
by NCB customers. NCB's medium-term notes and commercial paper carry
investment-grade ratings from Standard & Poors, Moody's and Fitch IBCA.
Real Estate
NCB is active in the commercial real estate arena, providing financial products
to primarily multi-family properties, from housing cooperatives to condominium
and homeowner associations, as well as to other real estate ventures, including
office buildings, retail strip centers, industrial and mixed-use properties.
Commercial
With services that include working capital, equipment finance, revolving lines
of credit and private placement capabilities, our goal is to craft financial
solutions that make sense for our commercial cooperative customers. We serve a
wide range of industries including Alaska Native Corporations, employee stock
ownership plans (ESOPs), cultural institutions, community-owned schools,
retailers and wholesalers, mutual insurance companies and senior living
communities.
Small Business
For our small to mid-sized business customers that want fast delivery on loan
needs of $25,001 to $1 million, NCB offers a broad array of financial services
from conventional to government-guaranteed to lease financing.
Community Development
We have a special commitment to strengthening those communities that are most
at-risk. Through our affiliate, NCB DEVELOPMENT CORPORATION (NCBDC), we offer a
unique blend of financial and development services that enables low-income
communities to enjoy affordable housing and assisted living, quality healthcare,
a wide range of educational opportunities and vital retail services.
Depository Services & Retail Banking
We offer our customers depository products through our subsidiary, NCB SAVINGS
BANK, FSB (NCBSB). In addition, NCBSB offers consumers a
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variety of retail banking products, including co-op apartment financing
(share loans).
Financial Advisory Service
A recent addition to the NCB family, the Eos Financial Group is one of the
nation's only financial advisory service providers focused solely on the
nonprofit community. Eos solicits, selects and executes various funding
alternatives for membership organizations, cultural institutions and educational
facilities.
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Letter from the President
"The theme of our annual report is "seeing the possibilities" - for our
customers, their industries, the cooperative community as a whole and NCB
itself. In the pages that follow, we attempt to communicate the vision we
have for continuing to add value to each of our customer segments."
Dear Member,
The year 2000 was dynamic and challenging for NCB. It was a period of growth
and opportunity but also a year when the market environment grew less
favorable. This put pressure on earnings, and our financial results fell
below target.
Net income for 2000 was $7.3 million. Assets remained steady at $1.1 billion.
When assets are combined with loans sold and serviced, NCB currently manages
$3.3 billion.
A changing climate
Early in the year, market conditions worsened, and our cost of funds increased.
As a result, our net interest income decreased. Rising interest rates and a
slower economy also lowered the volume of loans we originated for the year.
To give us more protection against interest rate fluctuations and future market
volatility, we made changes in the way we hedge our real estate portfolio. We
also developed strategies to reduce the time we hold thinly priced real estate
loans before we sell them in the secondary market. Further, we installed a new
model to ensure we are accurately pricing loan products according to risk and
market conditions. As we made these changes, our net interest income margin
improved and returned to levels of the previous year.
Managing credit risk
When the economy started to falter in 2000, we increased our provision for
credit losses to reflect the impact on our customers' businesses. Although
credit quality deteriorated, portfolio statistics for classified loans at
year-end were approximately equal to our long-standing benchmark levels.
Non-performing assets to total assets remained very low, decreasing slightly to
0.2 percent. At year-end, NCB's allowance for credit losses was 2.2 percent,
representing a very strong 827 percent of non-performing loans. Total
charge-offs net of recoveries were minimal for the year at 0.1 percent of total
loans and leases outstanding.
With the economy cooling, we will monitor our credit risk very closely. As a
safeguard, we will scale back loan growth through tighter credit standards. We
will also maintain our conservative leverage ratio of 14 percent.
Positioning NCB for the future
4
While we implemented defensive strategies to see us through an economic
slowdown, we also put into place several growth initiatives that will enhance
our prospects for 2001 and beyond. To better serve you and compete
successfully in the future, we must continue to diversify our funding
sources, deepen our current customer relationships, develop new products and
markets, and use technology wisely.
Diversifying our funding
As we go forward, we plan to use the capital markets for a smaller portion of
our funding. At the same time, we will increase our investment in NCB Savings
Bank so that we can fund more of our real estate loans through deposits and
loans from the Federal Home Loan Bank.
Increasingly, we will use federal loan guarantee programs from the Federal
Housing Administration (FHA) and the Small Business Administration (SBA) to
meet customer needs. Our affiliate, NCB Development Corporation, already has
a substantial pipeline of FHA transactions. And our small business lending
team will use its affinity relationships to market SBA-guaranteed loans.
Strengthening customer relationships
NCB operates in highly targeted customer segments. Over the past year we
evaluated each of them, measuring the value we add to ensure we are adept at
meeting customer needs.
Our disciplined approach allows us to allocate resources more efficiently as
we seek to grow customer segments that provide reasonable return on capital
and de-emphasize those that do not. In addition, it enables us to take a more
holistic approach to delivering the appropriate mix of finance, deposit and
other financial services to our customers.
Creating new products, markets and cooperatives
We continue to look for new lines of business that strengthen our mission of
providing solutions to our cooperative customers. We also seek opportunities to
increase our fee income and reduce our reliance on net interest income.
A venture meeting these criteria is our partnership with Cooperative Solutions
(CS), a federated cooperative for incubating new business co-ops. We invested in
the start-up of CS and are actively developing several new business
cooperatives.
For many years, NCB has financed community-owned nonprofits including
educational institutions and cultural centers. Many do not have significant
financial expertise in-house. To assist them, we started a new company called
Eos Financial Group whose mission is to provide fee-based advisory services to
the nonprofit community.
Using the Internet to advantage
NCB is embracing new Internet-related technologies but is doing so with care. We
believe the greatest advantage of the Internet for our cooperative members is
the ease with which they can join together to
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create value through economies of scale. Through two new ventures, we are
helping our customers do precisely that. Co-opSolutions.com creates on line
purchasing communities, and CapitalAvenue.com will provide a one-stop
business lending platform.
Many thanks
I would like to thank Jim Burns for his leadership as Chair for the past two
years. His banking experience was very valuable to me and NCB. I also welcome
our new incoming Chair Kirby Erickson. The year 2000 required NCB employees to
work extra hard adapting to a changing market environment and embracing new
strategic directions. My thanks to all of them. And thank you for your continued
support of NCB. While it was a challenging year, we kept our unwavering
commitment to continuously improve and add more value to you, our members.
Charles E. Snyder
President & CEO
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Real Estate
What if co-op buildings, from 100 percent owner occupied to low-sold, could
obtain the right combination of financing to address their needs?
What if community associations facing major repairs had an alternative to
enacting burdensome special assessments?
What if borrowers had access to accomplished loan servicers who understood
the intricacies of co-ops?
What if this was no hypothetical wish-list?
-----
NCB's real estate loan originations remained solid at $268 million for 2000 as
NCB continued to diversify its product line and reach out to new customers.
Also, one of the world's leading rating agencies formally validated NCB's
ability to service co-op housing loans after they are sold to investors in the
capital market.
Gaining Customers
For most of 2000, higher interest rates dampened the demand for refinancing
first mortgages, reducing the overall dollar volume of NCB's co-op real estate
lending. Nonetheless, in New York City, where 85 percent of the nation's housing
co-ops are located, many customers took out second mortgages and lines of credit
to finance facade repairs required by local laws. This subordinated financing
helped NCB retain its share of the overall market and increase the number of
customers served.
NCB was able to add to its customer base because it is one of the few lenders
offering a creative mix of financial products to the cooperative real estate
community. Customers range from 100 percent owner occupied buildings with
prestigious addresses on Manhattan's Upper East Side to properties contending
with a high proportion of sublet units.
For the low-sold portion of the market, where co-op buildings have ownership
levels between 15 and 49 percent, the Bank offers a unique multifaceted
solution. NCB provides mortgages and lines of credit to the housing co-op
corporation, share loan financing to the individual unit owners through NCB
Savings Bank, and bulk share loan financing to foster the sale of unsold units.
Again, in 2000, this combination helped many determined co-ops improve the
outlook for their buildings.
Market Innovation
NCB is applying lessons learned through co-op real estate lending to another
segment of the housing industry - condominiums and other community association
forms of homeownership. NCB was the first to create a national program offering
community associations the option of borrowing funds for capital repairs and
improvements instead of imposing hefty special assessments on residents or
postponing work altogether.
7
To generate "grassroots" interest in the program, NCB is in the early stages
of establishing a network of broker-correspondents to market the products to
community associations in select states where NCB does not have a strong
local presence. It is part of a greater strategy to spread the word to
condominium and homeowner associations about the new alternative they have --
borrowing for their capital needs and lessening the financial burden on their
members.
Adding Credentials
NCB became part of an elite group in 2000 when it was accorded primary, master
and special servicing ratings for loans secured by housing co-ops. The ratings
by Fitch IBCA were in recognition of NCB's specialized knowledge of the co-op
real estate market and strong commitment to new technology and customer service.
They confirm NCB's strategy of retaining the right to service the co-op housing
loans it pools for sale to investors as commercial mortgage backed securities
(CMBS). A benefit to borrowers is reassurance their loans will continue to be
serviced by NCB rather than turned over to another entity that may not be
familiar with the special nature of cooperatives.
NCB obtained the servicing ratings as a prelude to its joint venture with
Credit Suisse First Boston and Morgan Stanley in the July 2000 sale of $1.1
billion in commercial mortgage backed securities. NCB sold loans under its
own name, gaining important exposure in the CMBS investment community.
Contributing a mix of cooperative and commercial mortgages, NCB also served
as joint master and special servicer on the collateral, an industry first.
8
Commercial
What if not-for-profit organizations could obtain top-notch financial advice?
What if worthwhile projects could proceed because a financial institution
took care to understand the business environment?
What if capital markets expertise could enable retail members of wholesale
co-ops to receive very competitive financing?
What if none of this scenario was the least bit fanciful?
-----
Commercial loans totaled $347 million for 2000, as NCB formed a financial
advisory company to serve the not-for-profit community, positioned lines of
business for continued growth and enhanced its capacity for loan portfolio
management by increasing the percentage of loans sold into the capital market.
Filling A Gap
Many community-based organizations have superb management capabilities but lack
depth in financial expertise. This limitation often prevents them from
fulfilling their potential. To address this need, NCB created Eos Financial
Group, one of the few companies delivering sophisticated financial advice
exclusively to the not-for-profit world.
As a fee-based business with no capital of its own, Eos functions independently
of NCB, seeking out efficient sources of capital to craft creative financing
solutions. As an example, Eos was chosen to be official advisor to the Orange
County High School of the Arts in Santa Ana, California. With the help of Eos,
the school was able to acquire $20 million in tax-exempt funding at favorable
rates to build a new campus. In addition to educational facilities of this kind,
Eos serves museums, science centers and other mid-sized cultural institutions as
well as membership-based organizations.
Growth Potential
Through its commercial lines of business, NCB focuses on select market segments
where it can bring special knowledge and skills to bear. Following are a few
examples:
ESOPs. Financing Employee Stock Ownership Plans (ESOPs) for small companies
requiring loans of $1 million to $10 million is an underserved market. NCB
has established a reputation as the only ESOP expert with a national
program aimed at small to mid-sized business customers. As more and more of
these companies come to view ESOPs as a powerful tax-advantaged solution
for achieving their goals, NCB becomes a natural choice for financing.
After all, as a financial institution serving cooperatively structured
businesses, NCB is unrivaled in its understanding of the benefits of
democratic ownership.
9
Pledge Financing. A common problem for many educational and cultural
institutions is an inability to move ahead on major projects because
pledged monies have not yet been received. The go-ahead to build new
facilities has to wait until the money promised is collected from
foundations and individuals. The delay can jeopardize even the worthiest of
projects. NCB is solving this problem for many organizations, including
schools, museums and science centers, by providing bridge financing secured
by the pledges to proceed with project construction. As pledges are
converted to cash, the loan is automatically repaid.
Senior Living. NCB partners with not-for-profit sponsors of retirement
communities. With the oncoming surge in the elderly population, these
"grassroots" pioneers of the industry are preparing for a new breed of
older American, accustomed to independent living, who demands more choices
in the kinds of retirement facilities available. NCB's experience and
leadership in financing residential housing and healthcare allows it to add
significant value to this market, helping not-for-profit sponsors upgrade
their retirement communities with alternative housing options suited to the
lifestyles and tastes of this new generation.
Retail Grocery. Independent grocery stores served by retailer-owned cooperative
wholesalers have long been a strong market for NCB, constituting the largest
portion of NCB's commercial business. To manage this loan portfolio more
efficiently, NCB sells retail grocery loans to investors in the capital markets
through a commercial paper conduit known as NCB Retail Finance Corporation. The
total cap on these loan sales is being raised from $56 million to $136 million,
thereby strengthening the flow of competitively priced financing available to
independent grocers as they build their businesses.
10
Small Business
What if a financial institution with a long history of service to small
businesses could have the benefits of one-stop shopping for all their
financial needs?
What if a national company emphasized small business lending and demonstrated
the flexibility to grow with the needs of customers?
What if small business owners could have the benefits of one-stop shopping
for all their financial needs?
What if these possibilities were fast becoming a reality?
-----
In 2000, NCB continued to expand services to the small business members of
its cooperative affinity partners. NCB forged new strategic alliances,
unveiled innovative product offerings and made plans to form joint ventures
with additional customer groups and looked to vastly increase exposure to the
small business community through Internet-based initiatives.
Alliances off to a Fast Start
Affinity relationships, loosely called "partnerships," serve an important
purpose, allowing NCB to develop defined marketing channels and collaborate on
the customization of products and services for specific membership communities.
NCB added three important relationships to its affinity mix in 2000.
NCB formed an affinity partnership with Ace Hardware, one of the nation's
premier dealer-owned cooperatives. In the first four months alone, NCB generated
approximately $4 million in affinity business from the hardware giant's retail
members. Normally it takes at least a year for a new affinity partnership of
this kind to reach such a high volume of activity.
In April, Allied Domecq Quick Service Restaurants - parent company of Dunkin'
Donuts, Baskin-Robbins and Togo's Eateries - selected NCB as a National
Financing Partner. One of only three institutions to be chosen, NCB has had an
immediate impact on the market. Providing innovative financing solutions, NCB is
helping fuel system-wide growth by enabling new unit development, upgrades of
older units, real estate purchases and refinancing of existing loans.
Also, in 2000 NCB launched a new strategic alliance with the credit union
community designed to bring small business lending to their members. The
Commercial Credit Partner Program (CCP) was rolled out nationwide, generating
close to $10 million in small business loans to credit union members during the
year. Marketed through state credit union leagues, the program proved to be so
popular that 12 leagues and 30 credit unions signed on, double the number
originally anticipated, with more expected to come on line in 2001.
11
New Products Debut
Small businesses can now turn to NCB for loans backed by the Small Business
Administration (SBA), the federal agency dedicated to helping small businesses
get started and grow. The attraction is obvious. SBA-guaranteed loans provide
greater flexibility and longer terms than more conventional financing. And these
loans are easier to apply for than in the past. The SBA loan experts at NCB
streamline the process, responding to applications within five days. The
addition of SBA products is not only enhancing NCB's ability to serve its
existing customer base but to bring in new customers as well.
Another new product option initiated by NCB is equipment leasing. Through a
newly formed partnership, NCB is able to help small business customers navigate
the tricky waters of small to mid-sized equipment leasing. And by arranging the
leases through NCB, many customers avoid costly draws on the lines of credit
they have with their primary bank.
Leveraging the Internet
NCB made preparations during 2000 to kick off a major Internet-based marketing
effort in the first half of 2001. With an Internet services capability as its
hub, NCB is looking to form joint ventures with affinity groups, thus creating
direct access to their small business members. The first joint venture, called
Capital Avenue, will target independent insurance agents whose sales force will
be enlisted to market NCB's financial product line to their business customers.
Other joint ventures with additional customer groups are planned, vastly
increasing NCB's exposure to the small business community and allowing the Bank
to successfully leverage e-business practices and technology.
12
Community Development
What if social investment to address some of America's biggest challenges
could be regarded as good business?
What if more and more people, including policy makers, could be informed
about the advantages of applying the co-op model to affordable housing?
What if low-income communities could access a full range of development
expertise and financial resources to help them grow?
What if these goals were already being met?
-----
NCB and its affiliate, NCB Development Corporation (NCBDC), continued in 2000 to
apply a unique battery of resources and strategies to address some of the most
critical challenges facing low-income Americans. Lending results remained strong
with $165 million extended to low-income businesses across all customer segments
- - from affordable housing and small business development to healthcare and
Alaska Native Corporations.
It Takes More Than Lending
Whether helping to revitalize at-risk communities or ensure that low-income
Americans have access to affordable housing, assisted living, proper healthcare
and good schools, NCB recognizes that to have an impact, financial assistance is
only part of the equation. Bringing about change also requires public policy
initiatives, development expertise and an ability to forge strategic
partnerships among key constituencies. NCB's leadership role in the Cooperative
Housing Coalition is an example.
The cooperative model is one of the most versatile blueprints for extending
housing to low- and moderate-income families. To promote public policies
favorable to the spread of affordable cooperative housing, NCB and NCBDC have
joined with the National Association of Housing Cooperatives and the National
Cooperative Business Association to form the Cooperative Housing Coalition, an
organization dedicated to systematically tracking legislation and lobbying on
key issues.
The Coalition held a kickoff summit in 2000 to bring attention to the value of
cooperative housing in helping to improve conditions in low-income communities.
The organization also inaugurated a website for the exchange of information
among members and plans to add an online advocacy component linking members
directly with their congresspersons so that concerns on particular action items
or pending legislation may be registered.
The goal is to highlight the benefits and spark the growth of cooperative
housing in the country and thereby enhance the quality of life for many low-
and moderate-income Americans.
13
Coming Home
NCBDC's work to bring assisted living options to the nation's low-income seniors
is another illustration of how NCB is taking skills, knowledge and experience
developed in building its traditional business and transferring them to the
community development arena. Through the Coming Home Program, funded by the
Robert Wood Johnson Foundation, NCBDC has demonstrated how assisted living
options can be developed for seniors with annual incomes under $25,000 living in
rural communities. NCBDC has also promoted modifications in public policies at
the state level to encourage the growth of affordable assisted living. Further,
NCBDC is creating a template for the rapid roll out of new units in states where
policies are conducive to the promotion of assisted living for low-income
elderly.
For the future, NCB, working with NCBDC, will seek to enhance its social impact
by attracting even more resources, both financial and technical, to the causes
it champions. All of its community development activities derive from the firm
conviction that social investment is good business when done properly.
14
Retail Banking and Depository Services
What if co-op and credit union members could enjoy a wide choice of products
and services for deposits?
What if thousands of buyers and sellers of co-op apartments could have ready
access to financing?
What if a financial institution could successfully combine a deep commitment
to its small local community with a nationwide focus on serving cooperatives?
What if this future was already here?
-----
NCB's subsidiary, NCB Savings Bank (NCBSB) of Hillsboro, Ohio, sparked national
deposit growth in 2000 through targeted marketing campaigns, while its
origination of share loans to finance co-op apartment purchases outpaced the
performance of the market as a whole.
Growing Deposits
NCB, which has depended primarily on the capital markets for its funding, now
sees deposit growth through its subsidiary, NCB Savings Bank, playing a larger
role. A greater reliance on deposits lowers NCB's cost of funding, which
translates into more competitive pricing for customers.
NCB Savings Bank provides a broad spectrum of competitively priced depository
products - including checking accounts, certificates of deposit, money market
and savings accounts - to cooperatively structured businesses nationwide. These
deposits grew 18 percent in 2000, as NCBSB and NCB coordinated closely on
marketing efforts aimed at bringing more deposit banking services to their
customer base.
The targeted group for depository products includes housing co-ops, credit
unions, small businesses and retailer-owned wholesale co-ops. Wherever possible,
NCB's affinity marketing relationships are leveraged to gain additional access
to customers who may need NCBSB's financing offerings.
At year end, national deposits had grown to more than 57 percent of NCBSB's
total assets of $169.9 million.
Adding further marketing impetus, NCBSB has opened a deposit production office
at NCB headquarters in Washington, DC. The new office is designed to foster
continued synergy between NCBSB and its parent as both organizations look for
opportunities to cross sell depository services to NCB's universe of cooperative
customers.
Bridging the Gap
NCBSB is using the Internet as a platform to build community with its national
customer base as well as market deposit products and banking services. The
result is a decrease of the geographic barriers that have previously inhibited
NCBSB from fully serving this audience.
15
Working with experienced Internet banking advisors, NCBSB plans to upgrade
its current website, offering easier account set-up and accessibility as well
as new commercial banking products, including online cash management services.
Financing Co-op Ownership
NCBSB provides a vital component of NCB's real estate business -- share loans to
individuals for the purchase or refinancing of co-op apartment units. When
NCBSB's share loans are offered as part of NCB's total real estate package of
underlying mortgage loans, second mortgages, lines of credit and other products,
the mixture is a powerful instrument for ensuring the continued viability of the
nation's co-op housing industry.
NCBSB's total share loan origination -- $70.4 million -- was down only 1 percent
from 1999, a strong showing considering the interest rate environment for most
of 2000. And since its share loan numbers compare very favorably with the
performance of the mortgage banking industry as a whole, NCBSB actually captured
an increased share of the market during the year.
A Local Touch
Besides focusing on the nation's cooperatively structured businesses, NCBSB
serves the banking needs of its local community in south central Ohio as well.
Here too growth was up across the board, including a 21 percent rise in area
deposits for 2000. And the opening of a new branch in the local Kroger
supermarket should give this side of NCBSB's business additional lift in the
months to come.
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The Numbers
2000 Financial Review
NCB experienced a challenging year in 2000. Net income for the year totaled
$7.3 million, a decrease of 50 percent from 1999. Three factors combined to
give us these results. First, interest rate increases during the first half
of the year resulted in lower net interest margins. NCB took steps early in
2000 to mitigate the impact of increased interest rates, and by year-end, net
interest margins had recovered. For the year, NCB's margin was 2.96 percent
compared with 2.98 percent in 1999.
The second factor that affected NCB's earnings in 2000 was lower credit
quality. The credit deterioration of two significant wholesalers and the
impact of their deterioration on member loans which NCB had purchased
resulted in the need for a $2.4 million increase in the provision for
possible loan losses compared with 1999. Non-performing loans (real estate
owned and those loans for which NCB has discontinued the accrual of interest)
amounted to 0.3 percent of total loans outstanding at year-end, the same
level as year-end 1999. NCB believes that the reserves which have been
established are adequate to cover any future losses which may result in its
portfolio.
The third factor which impacted our earnings in 2000 was lower than expected
profitability in the mortgage banking segment of NCB's business. In addition
to the impact of higher interest rates during the first half of the year,
increased market volatility and lower than expected origination volume
resulted in a decline in loan sale gain income of $6.0 million when compared
with 1999. Steps taken in 2000 should mitigate the impact of future market
volatility. Volume increased significantly in the fourth quarter and is
expected to remain strong well into 2001. As a result, loan sale
profitability should improve in 2001.
Despite the lower level of earnings, there were positives in 2000. NCB
provided or arranged $615 million in capital for our customers. This included
$268 million in real estate financing and $347 million in commercial
financing. We distributed a patronage refund of $14.8 million in September
2000, based on 1999 earnings. And, we expect to distribute a patronage refund
of $8.8 million in September 2001, based on 2000 earnings. Finally, we
created NCB Funding Corporation, a special-purpose corporation to warehouse
NCB originated multi-family cooperative housing and commercial real estate
loans off balance sheet.
NCB is well positioned to continue to serve the needs of its members in 2001.
The abbreviated financial statements found on the following pages provide
further information on NCB's 2000 business volume, credit quality and
earnings. For more detailed information, please review NCB's 2000 SEC Form
10-K.
Richard L. Reed
Chief Financial Officer
17
CONDENSED BALANCE SHEET
Years ended December 31, 2000 1999
- --------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 36,494,978 $ 29,910,037
Restricted cash 3,875,549 4,887,213
Investment securities
Available-for-sale 44,505,034 46,283,045
Held-to-maturity 2,923,694 2,710,191
Loans held for sale 99,077,161 132,057,978
Loans and lease financing 879,459,566 815,840,439
Less: Allowance for loan losses (21,260,284) (18,693,670)
------------------------------------------------------
Net loans held for sale and
loans and lease financing 957,276,443 929,204,747
Other assets 41,410,785 43,514,663
------------------------------------------------------
Total assets $1,086,486,483 $1,056,509,896
======================================================
Liabilities and members' equity
Liabilities
Deposits $ 148,960,621 $ 126,071,259
Short-term borrowings 269,579,985 283,589,354
Long-term debt 291,826,520 286,262,870
Other liabilities 40,644,169 30,683,399
Subordinated debt 182,022,471 182,620,212
-----------------------------------------------------
Total liabilities 933,033,766 909,227,094
-----------------------------------------------------
Members' equity
Common stock 129,458,463 122,260,494
Retained earning 23,994,254 25,022,308
-----------------------------------------------------
Total members' equity 153,452,717 147,282,802
-----------------------------------------------------
Total liabilities and members'
equity $1,086,486,483 $1,056,509,896
======================================================
18
CONDENSED STATEMENT OF INCOME
Years ended December 31, 2000 1999
- --------------------------------------------------------------------------------------------------
Interest income
Loans and lease financing $88,422,307 $74,673,172
Investment securities 4,813,809 5,243,761
-----------------------------------------------------
Total interest income 93,236,116 79,916,933
-----------------------------------------------------
Interest expense
Deposits 6,671,325 5,642,331
Short-term borrowings 20,085,848 15,690,813
Long-term debt, other borrowings
and subordinated debt 34,295,391 28,426,982
-----------------------------------------------------
Total interest expense 61,052,564 49,760,126
-----------------------------------------------------
Net interest income 32,183,552 30,156,807
Provision for loan losses 3,206,667 908,868
-----------------------------------------------------
Net interest income after
provision for loan losses 28,976,885 29,247,939
Non-interest income
Gain on sale of loans 2,379,809 8,413,595
Other 7,178,356 7,253,687
-----------------------------------------------------
Total non-interest income 9,558,165 15,667,282
-----------------------------------------------------
Non-interest expense
Compensation and employee
benefits 15,834,737 14,402,289
Other 13,494,607 14,162,316
-----------------------------------------------------
Total non-interest expense 29,329,344 28,564,605
-----------------------------------------------------
Net income before taxes 9,205,706 16,350,616
Provision for income taxes 1,872,767 1,636,509
-----------------------------------------------------
Net income $ 7,332,939 $14,714,107
======================================================
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Selected Financial Data
(In Thousands)
At December 31, 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Balance sheet data
Loans and leases
outstanding $ 978,537 $ 947,898 $795,174 $773,768 $750,094
Total assets 1,086,486 1,056,510 933,415 869,304 839,336
Total capital * 335,995 329,825 322,838 314,376 307,714
Subordinated debt ** 182,542 182,542 182,542 182,542 182,542
Members' equity 153,453 147,283 140,296 131,833 125,172
Other borrowed funds
including deposits 710,367 695,923 575,265 531,740 515,257
For the years ended
December 31,
- -------------------------------------------------------------------------------------------------------------------------
Statement of income data
Total interest income $ 93,236 $ 79,917 $ 71,187 $ 68,787 $ 61,265
Net interest income 32,184 30,157 25,627 26,843 25,966
Net income 7,333 14,714 12,628 12,462 11,199
Ratios
Capital * to assets 30.9% 31.2% 34.6% 36.2% 36.7%
Return on average
assets 0.7% 1.4% 1.4% 1.5% 1.5%
Return on average
member's equity 4.9% 10.1% 9.3% 9.7% 9.2%
Net yield on interest
earning assets 3.0% 3.0% 2.9% 3.3% 3.7%
Average members' equity
as a percentage of
Average total assets 13.5% 14.1% 14.8% 15.3% 16.5%
Average total loans
and lease financing 14.3% 15.8% 17.5% 17.9% 19.2%
Net average total loans
and lease financing to
average total assets 94.4% 89.0% 84.9% 85.5% 84.3%
Net average earning to
average total assets 99.8% 97.4% 96.0% 95.9% 92.4%
Allowance for loan
losses to loans
outstanding 2.2% 2.0% 2.2% 2.3% 2.1%
Provision for loan
losses to average
loans and leases
outstanding 0.3% 0.1% 0.1% 0.5% 0.3%
* Capital includes members' equity and subordinated debt
** Subordinated debt excludes deferred hedge gains or losses
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NCB Board of Directors
NCB's Board of Directors consists of 15 individuals. Twelve are elected by NCB
members and represent cooperative endeavors in industry sectors that include
housing, consumer goods, low-income and consumer services, as well as other
eligible cooperatives. The three remaining seats are available for appointment
by the President of the United States. Presidential appointees represent small
business, agencies or departments of the federal government, and entities that
represent low-income areas. Currently, one seat is vacant.
Harry J. Bowie
President and Chief Executive Officer
Delta Foundation, Inc.
Greenville, Mississippi
NCB Board member since 1999*
James L Burns, Jr., Chair
Retired President & Chief Executive Officer
The Co-operative Central Bank and Co-operative Bank Investment Fund
Boston, Massachusetts
NCB Board member since 1996 (2)
Joseph Cabral
President
Chatsworth Products, Inc.
Westlake Village, California
NCB Board member since 1995 (1)
Kirby J. Erickson, Vice Chair
Senior Executive
HealthPartners, Inc.
Bloomington, Minnesota
NCB Board member since 1997 (3)
Eben Hopson, Jr.
Executive Director
Arctic Slope Native Association
Barrow, Alaska
NCB Board member since 1999 (2)
Jackie Jenkins-Scott
President & Chief Executive Officer
Dimock Community Health Center
Roxbury, Massachusetts
NCB Board member since 1997 (3)
Marilyn J. McQuaide
Vernon, Vermont
NCB Board member since 1996 (2)
Michael J. Mercer
President & Chief Executive Officer
Georgia Credit Union Affiliates
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Duluth, Georgia
NCB Board member since 1998 (1)
Alex N. Miller
President Cornerstone Cooperatives
Atlanta, Georgia
NCB Board member since 1998 (1)
Alfred A. Plamann
President & Chief Executive Officer
Unified Western Grocers, Inc.
Commerce, California
NCB Board member since 1995 (1)
Stuart M. Saft
Chairman
Council of New York Cooperatives and Condominiums
Wolf Haldenstein Adler Freeman & Herz LLP
New York, New York
NCB Board member since 1999 (2)
Sheila A. Smith
President
ARC Global Technologies, Inc.
Chair
Barat Education Foundation
Chicago, Illinois
NCB Board member since 1995*
Peter C. Young
Executive Director
Area Cooperative Educational Services
North Haven, Connecticut
NCB Board member since 1997 (3)
Thomas K. Zaucha
President & Chief Executive Officer
National Grocers Association
Reston, Virginia
NCB Board member since 1997 (3)
(1) Term ending 2001; (2) Term ending 2002; (3) Term ending 2003
*Appointed by the President of the United States
22
Corporate Information
Account Information
You can view account information online in the Members Only section at
www.ncb.com. If you have specific questions regarding your account, please
contact your loan administrator.
Annual Meeting
The Annual Meeting of National Cooperative Bank will be held on Thursday, April
26, 2001 at 4:00 p.m. at the U.S. Chamber of Commerce in Washington, DC.
Inquiries
For general information on National Cooperative Bank, please contact the
Marketing Communications Team at (202) 336-7652 or marcom@ncb.com.
Corporate Legal Counsel
Shea & Gardner
Washington, DC
NCB Annual Report
To receive additional copies of NCB's 2000 Annual Report, please send a written
request to NCB's Marketing Communications at our Washington, DC address or,
access a copy online in the publications section of www.ncb.com.
NCBDC Annual Report
To receive a copy of NCBDC's 2000 Annual Report, please send a written request
to NCBDC Communications at its Washington, DC address or, access a copy online
at www.ncbdc.org.
Patronage Refund
The Patronage Refund for 2000 will be mailed to NCB members before September 15,
2001. For details on how NCB members can directly deposit the cash portion of
their refund at NCB Savings Bank, call (800) 322-1251.
Subsidiaries
NCB subsidiaries include: Eos Financial Group, NCB Financial Corporation, NCB
Savings Bank, FSB, NCB Capital Corporation, NCB Insurance Brokers, Inc., and NCB
Retail Finance Corporation.
SEC Form 10-K
Copies of NCB's Form 10-K or Form 10-Q, filed with the U.S. Securities and
Exchange Commission, are available online at www.ncb.com or by contacting NCB's
Treasury Department at (202) 336-7660.
World Wide Web
www.ncb.com
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Contact Information
HEADQUARTERS
- ------------
National Cooperative Bank
1725 Eye Street, NW, Suite 600
Washington, DC 20006
(800) 955-9622; (202) 336-7700
fax (202) 336-7622
www.ncb.com
NCB Development Corporation
1725 Eye Street, NW, Suite 600
Washington, DC 20006
(202) 336-7680
fax (202) 336-7804
www.ncbdc.org
NCB Savings Bank
139 South High Street
Hillsboro, Ohio 45133
(800) 322-1251; (937) 393-4246
fax (937) 393-4064
www.ncbsavingsbank.com
REGIONAL OFFICES
- ----------------
National Cooperative Bank
3000 A Street, Suite 406
Anchorage, Alaska 99501
(800) 478-0777; (907) 561-0777
fax (907) 562-3200
National Cooperative Bank
6 Central Row, 4th Floor
Hartford, Connecticut 06103
(800) 501-7384; (860) 297-0208
fax (860) 547-0054
National Cooperative Bank
1333 Broadway, Suite 602
Oakland, California 94612
(510) 496-2200
fax (510) 496-0404
National Cooperative Bank
250 Park Avenue, Suite 950
New York, New York 10177
(212) 808-0880
fax (212) 808-4396
CREDITS
- -------
Project Management: NCB Marketing Communications
Print Design and Production: TFW Design, Inc.
Web Design: NCB InfoTech
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Writing: Dan Crampton
Illustration: Bryan Leister
Board Photography: Peter Krogh
Printing: Westland Enterprises
Copyright National Cooperative Bank, 2000.
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