NATIONAL CONSUMER COOPERATIVE BANK /DC/ - 10-Q Quarterly Report

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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended JUNE 30, 2002 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 52-1157795
(12 U.S.C. SECTION 3001 ET SEQ.) ----------
- -------------------------------- (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)

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 .
--- ---

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

National Consumer Cooperative Bank
(doing business as National Cooperative Bank)
and Subsidiaries

INDEX

PART I FINANCIAL INFORMATION

NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

3

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

4

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

5

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Unaudited)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

6

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

7

NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

1. Basis of Presentation

The interim consolidated financial statements presented in this Quarterly
Report on Form 10-Q are in conformity with accounting principles generally
accepted in the United States of America which have been applied on a consistent
basis and follow general practice within the banking industry. In our opinion
these interim consolidated financial statements include all normal recurring
adjustments necessary to fairly present our results of operations, financial
condition and cash flows. The preparation of financial statements requires the
use of estimates and assumptions that affect the amounts reported. Actual
results could differ from those estimates and the results of operations for the
three and six months ended June 30, 2002 are not necessarily indicative of the
results to be expected for all of 2002. For comparability, certain prior period
amounts have been reclassified to conform to current period presentation. The
financial statements contained herein should be read in conjunction with the
financial statements and accompanying notes in our Annual Report on Form 10-K.

2. Critical Accounting Policies and Estimates

Allowance for Loan Losses

NCB maintains an allowance for loan losses, which is intended to be adequate
to absorb known and inherent losses in the loans and lease portfolio. The
allowance is reduced by actual credit losses and is increased by the
provision for credit losses and recoveries of previous losses. The provision
for credit losses is charged to earnings to bring the total allowance for
loan losses to a level considered by management as adequate.

At June 30, 2002, this reserve totaled $18.5 million, or 2.3% of the loans
and lease portfolio. Subject to the disclosure in the following paragraph,
NCB believes this reserve is adequate to absorb losses inherent in the
portfolio and bases its evaluation primarily on an ongoing review of large
credit relationships within the portfolio and our historical experience with
smaller, homogeneous credits. NCB believes that it complies in all material
respects with the requirements of SEC Staff Accounting Bulletin No. 102
("Selected Loan Loss Allowance methodology and Documentation Issues").

Credit losses are, however, inherent in our business and, while NCB believes its
credit monitoring procedures are adequate, it is possible there may be
unidentified losses in the loan portfolio at June 30, 2002 that may become
apparent at a future date. The establishment of an allowance for loan losses for
problem credits that are currently unidentified or unanticipated would
negatively impact future earnings. A charge, if any is needed, would generally
be recorded in the segment in which the loan is recorded.

3. Cash, Cash Equivalents and Investment Securities

As of June 30, 2002, NCB's portfolios of cash, cash equivalents and
investment securities, had an average adjusted maturity of approximately 481
days with interest rates in those portfolios

8

varying from 1.930% to 8.125%.

9

As of December 31, 2001, NCB's portfolios of cash, cash equivalents and
investment securities were comprised of the following:

At June 30, 2002 and December 31, 2001, the investments in the
available-for-sale portfolio were recorded at aggregate fair value.

Restricted cash of $3.8 million as of June 30, 2002 and December 31, 2001
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 June 30, 2002 and December 31,
2001, the combined remaining balance of 1992 and 1993 loans totaled $13.3
million and $30.4 million, respectively. The restricted cash will become
available to NCB I, Inc. as the principal balance of the respective loans
decrease. The loans sold have original maturities of ten to fifteen years.

In addition, restricted cash of $6.2 million and $10.0 million as of June
30, 2002 and December 31, 2001, respectively, is held for the benefit of MBIA
Insurance Corporation (MBIA) in the event of a loss on certain loans sold under
the terms of a Loan Purchase and Sale Agreement dated June 29, 2001 (the
"Agreement"). The restricted cash replaces a first loss letter of credit that
NCB had issued for the benefit of MBIA under a pre-existing agreement. At June
30, 2002 and December 31, 2001, the remaining balance of the loans owned by MBIA
under the terms of the Agreement totaled $6.2 million and $10.9 million,
respectively. The restricted cash will become available to NCB Retail Finance
Corporation as the principal balance of the respective loans decrease. The loans
sold have original maturities of five to seven years.

Finally, restricted cash of $4.1 million as of June 30, 2002 and December
31, 2001, is held for the benefit of Rabobank International under the terms of
the Agreement. The restricted cash is in the form of an Equity Reserve Account

10

maintained at Allfirst Bank and represents 3% of the loan purchase capacity
under the terms of the Agreement.

4. Loans and Lease Financing

Loans and leases outstanding by category, including loans held for sale,
were as follows:

5. Impaired Assets

Impaired loans, representing the non-accrual loans at June 30, 2002 and
December 31, 2001, totaled $10.9 million and $5.7 million, respectively, and
averaged $7.9 million and $3.3 million, respectively. Specific allowances of
$2.3 million and $1.4 million were established at June 30, 2002 and December 31,
2001, respectively. During the first half of 2002 and 2001, the interest
collected on the non-accrual loans was applied to reduce the outstanding
principal.

At June 30, 2002 there was a commitment to lend additional funds of $9.7
million to a borrower whose loan was impaired. At December 31, 2001, there were
no commitments to lend additional funds to borrowers whose loans were impaired.

At June 30, 2002 and December 31, 2001, there was no real estate owned
property.

11

6. Allowance for Loan Losses

The following is a summary of the activity in the allowance for loan losses
during the six months ended June 30:

The allowance for loan losses as a percentage of average loans and lease
financing, excluding loans held for sale, as of June 30, 2002 and December
31, 2001 was 2.3% and 2.5%, respectively. As of June 30, 2002, $1.7 million
in reserves was reclassified to a separate reserve included in other
liabilities to cover exposures on unfunded commitments and lines of credit.
Included in the January 1, 2002 balance is $1.6 million in reserves for
unfunded commitments and lines of credit.

7. 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, FSB (NCBSB) 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, FSB
segment provides traditional banking services such as lending and deposit
gathering to retail, corporate and commercial customers. The Other segment
consists of NCB's unallocated parent company income and expense, and net
interest income from investments and corporate debt that are not attributable to
the other segments.

NCB evaluates segment performance based on net income before taxes. The
accounting policies of the segments are 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 six months ended June 30,
2002 and 2001 (dollars in thousands):

13

The following is the segment reporting for the three months ended June 30,
2002 and 2001 (dollars in thousands):

14

8. Accounting for Derivatives

Adoption of SFAS 133

Effective January 1, 2001, NCB adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," as amended, and recorded a cumulative
effect adjustment of $1.7 million gain to recognize the fair value of interest
rate swaps with an offsetting cumulative effect adjustment 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.

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 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 of the loan.

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
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.

15

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 comprehensive 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 warehouse loans and debt due to changes
in benchmark interest rates.

Results related to the hedging of warehouse loans are summarized below and
included in the caption entitled "Gain On Sale of Loans" in the accompanying
consolidated statements of income (in thousands):

Interest rate swaps are executed to manage the interest rate risk associated
with specific assets or liabilities. An interest rate swap agreement commits
each party to make periodic interest payments to the other based on an
agreed-upon fixed rate or floating rate index. There are no exchanges of
principal amounts. Entering into an interest rate swap agreement involves the
risk of default by counterparties and interest rate risk resulting from
unmatched positions. The amounts potentially subject to credit risk are
significantly smaller than the notional amounts of the agreements. NCB is
exposed to credit loss in the event of nonperformance by its counterparties in
the aggregate amount of $3.8 million at June 30, 2002 representing the estimated
cost of replacing, at current market rates, all outstanding swap agreements. NCB
does not anticipate nonperformance by any of its counterparties. Income or
expense from interest rate swaps is treated as an adjustment to interest
expense/income on the hedged asset or liability.

Financial futures are contracts for delayed delivery of specific securities
at a specified future date and at a specified price or yield. NCB
purchases/sells these contracts to hedge the interest rate risk associated with
originating mortgage loans that will be held for sale. NCB has minimal credit
risk exposure on these financial instruments since changes in market value of
financial futures are settled in cash on the following business day, and payment
is guaranteed by the clearinghouse.

16

The contract or notional amounts and the respective estimated fair value of
NCB's financial future contracts and interest rate swaps at June 30, 2002 and
2001 are as follows (dollars in thousands):

In September 1998, NCB entered into a Credit Support and Collateral Pledge
Agreement (the Agreement) with Fannie Mae in connection with NCB's sale of
$86.3 million in conventional multifamily and multifamily cooperative mortgage
loans to Fannie Mae and Fannie Mae's issuance of Guaranteed Mortgage
Pass-Through Securities backed by the loans sold by NCB. Under the Agreement,
NCB agreed to be responsible for certain losses related to the loans sold to
Fannie Mae and to provide collateral in the form of letters of credit to be
held by a trustee to secure the obligation for such losses. The obligation
was initially established at 4% of the unpaid principal balance of the loans
or approximately $3.5 million. The Agreement allows for reductions in the
initial obligation as either losses are paid by NCB or when the obligation,
as adjusted for any losses paid, exceeds 12% of the unpaid principal balance
of the covered loans.

The Letter of Credit maintained under the Agreement (as subsequently amended)
was approximately $12.4 million as of June 30, 2002 and December 31, 2001. The
unpaid principal balance of the loans covered by the Agreement was $295.8
million as of June 30, 2002 compared with $298.2 million as of December 31,
2001. Since the inception of the Agreement, NCB has not been required to
reimburse Fannie Mae for any losses. Additionally, the loans covered by the
recourse obligations have not paid down substantially enough to warrant a
reduction in the collateral provided by NCB under the terms of the Agreement.

10. New Accounting Standards

SFAS No. 142 eliminates amortization of goodwill associated with business
combinations completed after June 30, 2001. SFAS No. 142 also provides
additional guidance on acquired intangibles that should be separately recognized
and amortized. During the transition period from July 1, 2001 through December
31, 2001, goodwill associated with business combinations completed prior to July
1, 2001 continued to be amortized through the income statement. Effective
January 1, 2002 goodwill amortization expense ceased and goodwill will be
assessed for impairment at least annually at the reporting unit level by
applying a fair-value-based test. Adoption of SFAS No. 142 did not have a
material effect on the financial statements.

17

NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

SUMMARY

NCB's net income for the six months ended June 30, 2002 was $14.6 million.
This was a $7.8 million increase compared with net income of $6.8 million for
the six months ended June 30, 2001. The variance resulted from an increase in
gain on sale of loans and an increase in net excess yield income of $11.1
million and $1.7 million, respectively. The variance was partially offset by a
decrease in loan fees of $1.3 million and an increase in non-interest expense of
$3.0 million.

Total assets were $1.18 billion at June 30, 2002, an increase of $16.5
million from December 31, 2001. This resulted primarily from an increase in cash
and cash equivalents and interest-only receivables of $42.6 million and $5.6
million, respectively, offset by a decrease in the net loans and lease portfolio
of $28.7 million.

The annualized return on average total assets was 2.43% for the first six
months of 2002 compared with 1.24% for the same period in 2001. The annualized
return on average equity for the six months ended June 30, 2002 and June 30,
2001 was 17.59% and 8.67%, respectively.

NET INTEREST INCOME

Net interest income for the first six months of 2002 was $16.0 million, a
decrease of 2.3% or $376 thousand compared with $16.4 million over the same
period a year ago.

For the six months ended June 30, 2002, interest income decreased 14.8% or
$6.5 million to $37.3 million from $43.8 million in the prior year's period. The
majority of the decrease was due to the lower yield on loans and lease
portfolios.

Interest expense decreased $6.0 million to $21.3 million for the six months
ended June 30, 2002 compared with $27.3 million for the six months ended June
30, 2001. The variance is a result of decreasing interest rates for short-term
facilities, such as deposits, short-term debt and revolving lines. Interest
expense related to deposits, revolving lines, commercial paper, and short-term
borrowings decreased $5.1 million from 2001; interest expense on long-term
borrowings increased $1.0 million from 2001.

As shown in Table 1, for the six months ended June 30, 2002 and 2001, the
average rate on interest earning assets was 6.60% and 8.16%, respectively. The
average rate on interest bearing liabilities was down 172 basis points to 4.29%
for the first half of 2002 compared with 6.01% for the same period in 2001.

18

For the three months ended June 30, 2002, net interest income decreased
7.5% or $629 thousand to $7.8 million compared with $8.4 million for the same
period ended June 30, 2001.

Interest income decreased 15.5% or $3.4 million to $18.1 million for the
three months ended June 30, 2002 compared with $21.5 million for the same period
ended June 30, 2001. The decrease in interest income was due to lower yields on
loans and lease portfolios.

For the three months ended June 30, 2002, interest expense decreased 20.8%
or $2.7 million to $10.3 million compared with $13.0 million for the three
months ended June 30, 2001 due to lower short-term interest rates and increased
funding from deposits.

For the three months ended June 30, 2002, the average rate on interest
earning assets was down 135 basis points to 6.43% from 7.78% for the same
quarter ended June 30, 2001. The average rate on interest bearing liabilities,
for the quarter ended June 30, 2002, was down 142 basis points to 4.18% from
5.60% for the same period ended June 30, 2001.

NON-INTEREST INCOME

Non-interest income for the six months ended June 30, 2002 of $21.5 million
increased $11.6 million from $9.9 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. The
majority of the increase resulted from gains on loans sold.

For the six months ended June 30, 2002, gain on sale of loans was $14.6
million, an increase of 315.3% from $3.5 million for the same period last year.
The increase resulted from the timing and volume of loans sold. Total loans sold
were $357.9 million and $201.2 million for the six months ended June 30, 2002
and 2001, respectively.

Servicing fee income for the six months ended June 30, 2002 increased 6.1%
or $98 thousand to $1.7 million compared to $1.6 million in the prior year. NCB
serviced single and multi-family real estate and commercial loans for investors
in the amounts of $2.8 billion and $2.4 billion as of June 30, 2002 and 2001,
respectively.

Other non-interest income for the six months ended June 30, 2002 increased
$447 thousand from $4.7 million to $5.2 million due primarily to an increase of
$1.7 million in excess yield income offset by a decrease in loan fees of $1.3
million.

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NON-INTEREST EXPENSE

Non-interest expense for the six months ended June 30, 2002 increased 17.7%
or $3.0 million to $20.3 million compared with $17.2 million for the six months
ended June 30, 2001. Compensation and benefits, which remains the single largest
component of non-interest expense, increased 15.3% or $1.5 million. Contractual
services increased 37.8% or $852 thousand to $3.1 million at June 30, 2002 from
$2.3 million at the same period a year ago. Compensation and employee benefits
accounted for 55.4% and 56.5% of non-interest expense for the six months ended
June 30, 2002 and June 30, 2001, respectively.

Non-interest expense as a percentage of average assets increased to 3.4% on
an annualized basis for the six months ended June 30, 2002 compared with 3.1%
for the same period a year ago.

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Table 1
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)

21

Table 1A
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)

22

Table 2
Changes in Net Interest Income
(dollars in thousands)

For the six months ended June 30, 2002 compared to 2001

* 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 June 30, 2002 compared to 2001

* 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.

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PROVISION FOR INCOME TAXES

The federal income tax provision is determined on the basis of non-member
income generated by NCB, FSB(NCBSB) and reserves set aside for the retirement of
Class A notes and dividends on Class C stock. NCB's subsidiaries are also
subject to varying levels of state taxation. The income tax provision for the
six months ended June 30, 2002 was $778.3 thousand compared with the prior
year's provision of $771.5 thousand.

CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES

Cash, cash equivalents and investment securities (including restricted
cash) of $174.9 million as of June 30, 2002 increased $39.3 million or 29.0%
from $135.6 million at December 31, 2001, primarily due to growth of
deposits. As a percentage of earning assets, cash, cash equivalents and
investment securities increased to 15.5% at June 30, 2002 from 11.9% at
December 31, 2001.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses at June 30, 2002 was $18.5 million, down by
16.6% from $22.2 million at December 31, 2001. The allowance during the period
was impacted by loans charged-off of $4.1 million, recoveries of loans
previously charged-off of $243 thousand and the provision of $1.8 million. The
$4.1 million of loans charged-off includes $2.1 million from a borrower, which
was charged-off in June. In addition, $1.7 million in reserves was reclassified
to a separate reserve included in other liabilities to cover exposures on
unfunded commitments and lines of credit. NCB's annualized provision for credit
losses as a percentage of average loans and leases outstanding was 0.36% for the
six months ended June 30, 2002 and 0.30% for the six months ended June 30, 2001.

The loan loss allowance as a percentage of average loans and lease
financing, excluding loans held for sale, was 2.3% at June 30, 2002 and 2.5%
at December 31, 2001. 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 92.0% from $5.7 million at December 31, 2001 to $10.9
million at June 30, 2002. Impaired assets as a percentage of loans and leases
outstanding, excluding loans held for sale, was 1.4% at June 30, 2002 compared
with 0.69% at year-end 2001. The allowance for loan losses as a percentage of
impaired assets decreased to 170% at June 30, 2002 from 391% at December 31,
2001.

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INTEREST BEARING LIABILITIES

Interest Bearing Liabilities
(dollars in thousands)

Interest bearing liabilities decreased $2.5 million to $960.3 million at
June 30, 2002 from $962.8 million at December 31, 2001.

For the six months of 2002, deposits at NCB, FSB (NCBSB) increased 25.0% to
$278.7 million compared with $222.9 million at December 31, 2001. The growth was
due to an on-going strategic campaign to attract local and national deposit
accounts and cooperative customers. Average maturity of the certificates of
deposits is 8.8 months. Deposits as a percentage of interest bearing liabilities
was 29.0% and 23.1% at June 30, 2002 and December 31, 2001, respectively.

At June 30, 2002, total short-term and long-term borrowings (including
subordinated debt) decreased 7.9% or $58.3 million to $681.6 million in
comparison to December 31, 2001 of $739.9 million. Proceeds from the loan
maturities were used to reduce borrowings. At June 30, 2002 and December 31,
2001, NCBSB had advances of zero from the Federal Home Loan Bank. At June 30,
2002, included in the short-term borrowings were revolving lines of credit of
$92.5 million; commercial paper with a face value of $134.1 million and $16.3
million in borrowings from a related entity and cooperative customers. At
December 31, 2001, included in the short-term borrowings were revolving lines of
credit of $50.5 million; commercial paper with a face value of $190.6 million
and $16.1 million in borrowings from a related entity and cooperative customers.
Long-term debt decreased 14.7% from year-end 2001 due to a maturity of $45
million under the long-term facilities. At June 30, 2001, there was unused
capacity under short-term and long-term facilities of approximately $134.6
million and $231 million, respectively. At December 31, 2001, unused capacity
under the short-term and long-term facilities was $90.3 million and $231.0
million, respectively.

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TABLE 3
Impaired assets
(dollars in thousands)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

No material changes in NCB's market risk profile occurred from
December 31, 2001 to June 30, 2002.

Part II OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business we are involved in various types of
litigation and disputes, which may lead to litigation. The Company has
determined that pending or unasserted legal actions will not have a material
impact on its financial condition or future operations.

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ITEM 2. EXHIBITS

(a). The following exhibits are filed as part of this report:

Exhibit 17 - Split Dollar Life Insurance Policy

Exhibit 20 - Fourth Amended and Restated Loan Agreement with Fleet
Bank as Agent

Exhibit 28 - NCB Executive Short-Term Incentive Plan

Exhibit 99 - Additional exhibits

99.1 - Certification Statement of Chief Executive Officer of
the National Cooperative Bank pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

99.2 - Certification Statement of Chief Financial Officer of
the National Cooperative Bank pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

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/
-----------------------------------
E. Michael Ramberg
Vice President,

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