UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 2-99779

National Consumer Cooperative Bank

(Exact name of registrant as specified in its charter)

1725 Eye Street N.W., Suite 600 Washington, D.C. 20006

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (202) 336-7700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

      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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements of the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o          No þ.

      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the place at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: the registrant’s voting and non-voting common equity is not traded on any market.

      Indicate the number of shares outstanding of each of the registrant’s classes of common stock at December 31, 2004: Class C 227,582 Class B 1,377,162 Class D 1.

DOCUMENTS INCORPORATED BY REFERENCE: None

INDEX

PART I

ITEM 1. BUSINESS

GENERAL

      The National Consumer Cooperative Bank, which does business as the National Cooperative Bank (“NCB”), is a financial institution organized under the laws of the United States. NCB provides financial and technical assistance to eligible cooperative enterprises or enterprises controlled by eligible cooperatives. A cooperative enterprise is an organization which is owned by its members and which is engaged in producing or furnishing goods, services, or facilities for the benefit of its members or voting stockholders who are the ultimate consumers or primary producers of such goods, services, or facilities. NCB is structured as a cooperative institution whose voting stock can only be owned by its members or those eligible to become its members.

      In the legislation chartering NCB (the National Consumer Cooperative Bank Act or the “Act”), Congress stated its finding that cooperatives have proven to be an effective means of minimizing the impact of inflation and economic hardship on members/owners by narrowing producer-to-consumer margins and price spreads, broadening ownership and control of economic organizations to a larger base of consumers, raising the quality of goods and services available in the marketplace and strengthening the nation’s economy as a whole. To further the development of cooperative businesses, Congress specifically directed NCB (1) to encourage the development of new and existing cooperatives eligible for its assistance by providing specialized credit and technical assistance; (2) to maintain broad-based control of NCB by its voting shareholders; (3) to encourage a broad-based ownership, control and active participation by members in eligible cooperatives; (4) to assist in improving the quality and availability of goods and services to consumers; and (5) to encourage ownership of its equity securities by cooperatives and others.

      The Act also provided for the formation of NCB Development Corporation (“NCBDC”), a related entity, which is a non-profit organization without capital stock organized under the laws of the District of Columbia pursuant to the Act. NCBDC provides loans and technical support to cooperative enterprises. NCBDC’s bylaws provide for six directors from the NCB board to serve on the NCBDC board, along with three outside directors elected by NCB directors. Consistent with the Act, NCB may make deductible, voluntary contributions to NCBDC.

      NCB fulfills its statutory obligations in two fashions. First, NCB makes loans and offers other financing services, which afford cooperative businesses substantially the same financing opportunities currently available for traditional enterprises. Second, NCB provides financial and other assistance to NCBDC.

      The Act was passed on August 20, 1978, and NCB commenced lending operations on March 21, 1980. In 1981, Congress amended the Act (the “Act Amendments”) to convert the Class A Preferred stock of NCB previously held by the United States to Class A notes as of December 31, 1981 (the “Final Government Equity Redemption Date”). Since the Final Government Equity Redemption Date, NCB’s capital stock, except for one share of non-voting Class D stock, has been owned by borrowers or entities eligible to borrow from NCB. NCB maintains its executive offices at 1725 Eye Street, N.W., Suite 600, Washington, D.C. 20006. The telephone number of its executive offices is (202) 336-7700. NCB also maintains regional offices in Anchorage, Hartford, New York City, and Oakland. NCB, FSB, previously named NCB Savings Bank, FSB, maintains its principal office in Hillsboro, Ohio and non-retail branches in New York City and Washington, D.C.

      When used in this report, the words “believes”, “anticipates”, “expects”, “seeks” and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected, including: competition within each of NCB’s businesses, the effects of international, national and regional economic conditions, the availability of capital and other risks described from time to time in NCB’s filings with the Commission. Given these uncertainties, investors are cautioned not to place undue reliance on such

statements. NCB also undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

LOAN REQUIREMENTS, RESTRICTIONS AND POLICIES

      Cooperatives, cooperative-like organizations, and legally chartered entities primarily owned and controlled by cooperatives are eligible to borrow from NCB under Section 108 of the Act if they are operated on a cooperative basis and are engaged in producing or furnishing goods, services or facilities primarily for the benefit of their members or voting stockholders who are the ultimate consumers of such goods, services or facilities. In addition to being eligible to borrow from NCB, the borrower must, among other things, (1) be controlled by its members or voting stockholders on a democratic basis; (2) agree not to pay dividends on voting stock or membership capital in excess of such percentage per annum as may be approved by NCB; (3) provide that its net savings shall be allocated or distributed to all members or patrons, in proportion to their patronage, or retain such savings for the actual or potential expansion of its services or the reduction of its charges to the patrons and (4) make membership available on a voluntary basis, without any social, political, racial or religious discrimination and without any discrimination on the basis of age, sex, or marital status to all persons who can make use of its services and are willing to accept the responsibilities of membership. NCB may also purchase obligations issued by members of eligible cooperatives. NCB maintains member finance programs for members of distribution and purchasing cooperatives primarily in the food, franchise and hardware industries. In addition, organizations applying for loans must comply with other technical and financial requirements that are customary for similar loans from financial institutions.

      NCB, both directly and acting through subsidiaries, also makes certain loans under the general lending authority and incidental powers provisions of Section 102 of the Act to entities other than eligible cooperatives, when NCB determines such loans to be incidental to and beneficial to lending programs designed for eligible cooperatives.

      The Board of Directors establishes its policies governing the lending operations in compliance with the Act and management carries out the policies. Management in turn adopts and implements guidelines and procedures consistent with stated Board directives. The Board of Directors and management regularly review the lending policies and guidelines in order to make needed changes and amendments.

      Management may approve individual credit exposures of up to 75% of the single borrower-lending limit, which is equal to 15% of NCB’s capital (using the definition of capital for national banks as set forth by the Office of the Comptroller of the Currency) without prior approval of the Board. The President may delegate authorities up to this limit to such committees and individual officers, as he may deem appropriate.

      All loan approvals require at least two signatures and the Bank’s senior management approves credit commitments that exceed individual or team lending authority.

      As provided by Section 105 of the Act the total dollar value of loans to cooperatives that produce, market and furnish goods, services and facilities on behalf of their members as primary producers may not exceed 10% of the gross assets of NCB.

      NCB charges interest rates approximately equal to the market rates charged by other financial institutions for comparable types of loans. NCB seeks to price its loans to yield a reasonable risk adjusted return on its portfolio in order to build and maintain its financial viability and to encourage the development of new and existing cooperatives. In addition, to ensure that NCB will have access to additional sources of capital in order to sustain its growth, NCB seeks to maintain a portfolio that is competitively priced and of sound quality.

      Real estate loans are priced under rate guidelines issued by NCB’s Capital Markets Group for specific types of loans with specific maturities. NCB takes the following factors into consideration in pricing its real estate loans: prevailing market conditions, loan-to-value ratios, lien position, borrower payment history, reserves, occupancy level and cash flow. NCB fixes rates based on a basis point spread over U.S. Treasury securities with yields adjusted to constant maturity of one, three, five or 10 years. Interest rates may be fixed at the time of commitment for a period generally not exceeding 30 days. For blanket loans, the rate lock commitments can extend as a long as 12 months, but there’s generally little to no fall out prior to closing.

      NCB makes commercial loans at fixed and variable interest rates. Loan pricing is based on prevailing market conditions, income and portfolio diversification objectives and the overall assessment of risk of the transaction. Typically, commercial loan repayment schedules are structured by NCB with flat monthly principal reduction plus interest on the outstanding balance.

      NCB typically assesses fees to cover the costs to NCB of its consideration of and handling of loan transactions, and to compensate NCB for setting aside funds for future draws under a commitment. The fees paid to outside vendors such as appraisers, environmental consultants and legal counsel retained by NCB for loan transactions are typically charged to the borrower.

      When evaluating credit requests, NCB seeks to determine whether a prospective borrower has and/or will have sound management, sufficient cash flow to service debt, assets in excess of liabilities and a continuing demand for its products, services or use of its facilities, so that the requested loan will be repaid in accordance with its terms.

      NCB evaluates repayment ability based upon an analysis of a borrower’s historical cash flow and conservative projections of future cash flows from operations. This analysis focuses on determining the predictability of future cash flows as a primary source of repayment.

      Loans made by NCB are generally secured by specific collateral. If collateral security is required, the value of the collateral must be reasonably sufficient to protect NCB from loss, in the event that the primary sources of repayment of financing from the normal operation of the cooperative, or refinancing, prove to be inadequate for debt repayment. Collateral security alone is not a sufficient basis for NCB to extend credit. Unsecured loans normally are made only to borrowers with strong financial conditions, operating results and demonstrated repayment ability.

      Under the Act, the Board of Directors must use its best efforts to insure that at the end of each fiscal year at least 35% of NCB’s outstanding loans are to (1) cooperatives whose members are predominantly low-income persons, as defined by NCB, and (2) other cooperatives that propose to undertake to provide specialized goods, services, or facilities to serve the needs of predominantly low-income persons. NCB defines a “low-income person,” for these purposes, as an individual whose family’s income does not exceed 80% of the median family income, adjusted for family size for the area where the cooperative is located, as determined by the Department of Housing and Urban Development. During 2004, NCB and NCBDC either directly funded or arranged the funding of over $383.6 million to borrowers meeting the low-income definition.

      The Act prohibits NCB from making loans for financing, construction, ownership, acquisition or improvement of any structure used primarily for residential purposes if, after giving effect to such loan, the aggregate amount of all loans outstanding for such purposes will exceed 30% of the gross assets of NCB.

      To date, the 30% cap on residential real estate loans has not restricted NCB’s ability to provide financial services to residential borrowers. NCB has been able to maintain its position in the residential real estate market without increased real estate portfolio exposure by selling real estate loans to secondary market purchasers of such loans. The preponderance of NCB real estate origination volume in recent years has been predicated upon sale to secondary market purchasers. There can, however, be no assurance that NCB’s future lending for residential purposes will not be impaired by the statutory limit. As of December 31, 2004, approximately 6.3% of NCB’s total assets consisted of loans that are subject to the residential cap.

OPERATIONS OF SUBSIDIARIES

      NCB also attempts to fulfill its statutory mission by providing financing opportunities to cooperatives through several subsidiaries.

      NCB Financial Corporation (“NCBFC”) is a Delaware chartered, wholly-owned, unitary thrift holding company subsidiary of NCB whose sole subsidiary is NCB, FSB, previously known as NCB Savings Bank, FSB.

      NCB, FSB, previously known as NCB Savings Bank, FSB (“NCB, FSB”), is a federally chartered, federally insured savings bank located in Hillsboro, Ohio, with non-retail branches in New York City and Washington, D.C.

      NCB Capital Corporation (“NCBCC”) is a Delaware chartered wholly-owned subsidiary of NCB that originates loans to cooperatives and sells loans in the secondary market. The company’s name was changed from NCB Mortgage Corporation in November 1997. Where incidental to NCB financing programs for cooperatives, and to the development of cooperatives, NCBCC may make loans to entities that are not operating on a cooperative basis.

      Eos Financial Group, Inc., previously known as NCB Financial Advisors, Inc. (“NCBFA”), is a Delaware chartered wholly-owned subsidiary of NCB that provides independent, fee-based financial consulting services to the nonprofit community, including educational institutions, museums, membership groups and community-based organizations.

      NCB Retail Finance Corporation (“NCBRFC”) is a Delaware chartered wholly owned special purpose corporation subsidiary of NCB that participates in the securitization and sale of loans to customers involved in the grocery business. NCBRFC was subsequently dissolved in February 2005.

COMPETITION

      Congress created and capitalized NCB because it found that existing financial institutions were not making adequate financial services available to cooperative, not-for-profit business enterprises. However, NCB experiences considerable competition in lending to the most credit-worthy cooperative enterprises.

REGULATION

      NCB is organized under the laws of the United States. The Farm Credit Administration examines NCB annually, but that agency has no regulatory or enforcement powers over NCB. In addition, the Government Accountability Office is authorized to audit NCB. Reports of such examinations and audits are to be forwarded to Congress, which has the sole authority to amend or revoke NCB’s charter. The Office of Thrift Supervision regulates NCB, FSB. As a savings and loan holding company, NCB is subject to limited regulatory and enforcement powers of and examination by the Office of Thrift Supervision pursuant to 12 U.S.C.§ 1467a.

      In connection with the insurance of deposit accounts, NCB, FSB, a federally insured savings bank, is required to maintain minimum amounts of regulatory capital. If NCB, FSB fails to meet its minimum required

capital, the appropriate regulatory authorities may take such actions, as they deem appropriate, to protect the Savings Association Insurance Fund (SAIF), NCB, FSB, and its depositors and investors. Such actions may include various operating restrictions, limitations on liability growth, limitations on deposit account interest rates, and investment restrictions. NCB, FSB is also subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).

TAXES

      The Act provides that NCB shall be treated as a cooperative within the meaning of Section 1381 (a)(2) of the Internal Revenue Code. As such and pursuant to the provisions of Subchapter T of the Internal Revenue Code and the Act, NCB, in determining its taxable income for federal income tax purposes, is allowed a deduction for an amount equal to any patronage refunds in the form of cash, Class B or Class C stock, or allocated surplus that are distributed or set aside by NCB during the applicable tax period. To date, NCB has followed the policy of distributing or setting aside such patronage refunds during the applicable tax period, which has reduced NCB’s federal income tax liability.

      NCB has determined that under the Internal Revenue Code as amended by the Act, all income generated by NCB and its subsidiaries, with the exception of certain income of NCB, FSB, qualifies as patronage income under the Internal Revenue Code, with the consequence that NCB is able to issue tax deductible patronage refunds with respect to all such income.

      Section 109 of the Act, as amended, provides that NCB, including its franchise, capital, reserves, surplus, mortgages or other security holding and income, is exempt from taxation by any state, county, municipality or local taxing authority, except that any real property held by NCB is subject to any state, county, municipal or local taxation to the same extent according to its value as other real property is taxed.

      NCB’s subsidiaries are subject to state income and franchise taxes.

FURTHER INFORMATION

      For financial information concerning NCB’s strategic business units, please see note 26 — Segment Reporting to the Consolidated Financial Statements.

      Further information about NCB can be found on company’s website, www.ncb.coop.

ITEM 2. PROPERTIES

      NCB leases space for its Washington, D.C. headquarters and for four regional offices located in Anchorage, Hartford, New York City, and Oakland. NCB, FSB maintains its principal offices in Hillsboro, Ohio with non-retail branches at NCB offices in New York City and Washington, D.C. NCB’s headquarters is 48,700 square feet in size and regional offices range from 280 to 4,900 square feet. The rental expense for the fiscal year ended December 31, 2004 was $2,338,603 for NCB’s headquarters and regional offices combined. NCB considers the regional offices suitable for its needs and the facilities are fully utilized in its operations. During 2004, NCB entered into a lease for new office space of 2921 square feet in Hartford, CT to commence April 1, 2005.

      Minimum future rental payments, assuming present leased office space is retained for the next five years, without subtracting payments made to NCB under subleases of such space, are as follows for the fiscal years ended December 31:

ITEM 3. LEGAL PROCEEDINGS

      In the normal course of business we are involved in various types of litigation and disputes, which may lead to litigation or other legal proceedings. NCB has determined that pending legal proceedings will not have a material impact on NCB’s financial condition or future operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE

OF SECURITY HOLDERS

      NCB did not submit any matters to a vote of its security holders during the fourth quarter of 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT’S EQUITY AND

RELATED STOCKHOLDER MATTERS

      NCB currently has three classes of stock outstanding, the rights of which are summarized as follows:

      Class B Stock — The Act permits Class B stock to be held only by borrowers of NCB and NCB, FSB and requires each borrower under Section 108 of the Act to hold Class B stock at the time the loan is made at a par value equal to 1% of its loan amount. The Act prohibits NCB from paying dividends on Class B stock. There are two series of Class B stock. Class B-1 stock is Class B stock purchased for cash at par value on or after June 29, 1984, while Class B-2 stock is all other Class B stock. Class B stock is transferable to another eligible holder only with the approval of NCB. NCB does not permit any transfers of Class B-2 stock and permits only such transfers, at the stock’s $100 par value, of Class B-1 stock as are required to permit new borrowers to obtain their required holdings of Class B stock. In each instance, NCB specifies which holder(s) are permitted to transfer their stock to the new borrower, based upon which Class B stockholders with holdings of such stock beyond that required to support their loans have held such stock for the longest time. NCB also repurchased, at par value, any shares of Class B stock that it was required to repurchase from holders by the terms of the contracts under which such stock was originally sold by NCB. No such stock remains outstanding. Class B stock has voting rights, but such voting rights are limited in accordance with the weighted voting system described in Item 10.

      Class C Stock — The Act permits Class C stock to be held only by cooperatives eligible to borrow from NCB. The Act allows NCB to pay dividends on Class C stock, but so long as any Class A notes are outstanding, limits dividends on Class C stock (or any other NCB stock) to the interest rate payable on such notes, which was a blended rate of 3.40% during 2004. In 1994, NCB adopted a policy under which annual cash dividends on Class C stock of up to 2% of NCB’s net income may be declared. The policy does not provide any specific method to determine the amount, if any, of such dividend. Whether any such dividends will be declared and if so, in what amount accordingly rests within the discretion of NCB’s Board of Directors. On April 27, 2004, the Board declared a cash dividend of $1.08 per Class C share payable on or before June 30, 2004 to holders of record as of March 31, 2004. In 2003, cash dividend of $1.56 per Class C share was paid. In 1996, the Board approved a dividend de minimis provision which states that Class C stock dividends shall not be distributed to

a stockholder until such time as the cumulative amount of the dividend payable to the stockholder is equal to, or exceeds, twenty-five dollars ($25.00) unless specifically requested by the stockholder. Class C stock is transferable to another eligible holder only with the approval of NCB. Class C stock has voting rights, but such voting rights are limited in accordance with the weighted voting system described in Item 10.

      Class D Stock — Class D stock is non-voting stock that may be held by any person. Only one share is outstanding. The Act permits NCB to pay dividends on Class D stock but NCB has no present intention to declare any such dividends. Class D stock is transferable only with the approval of NCB. No requests for approval of such transfers have been made to NCB.

      There is no established public trading market for any class of NCB’s common equity, and it is unlikely that any such market will develop in view of the restrictions on transfer of NCB’s stock discussed above. Holders of Class B stock may use such stock to meet the Class B stock ownership requirements established in the Bank Act for borrowers from NCB and may be permitted by NCB, within the limits set forth above, to transfer Class B stock to another borrower from NCB.

      As of December 31, 2004, there were 2,087 holders of Class B stock, 409 holders of Class C stock, and 1 holder of Class D stock.

      Under the Act, NCB must make annual patronage refunds to its patrons, which are those cooperatives from whose loans or other business NCB derived interest or other income during the year with respect to which a patronage refund is declared. NCB allocates its patronage refunds among its patrons generally in proportion to the amount of income derived during the year from each patron. NCB stockholders, as such, are not entitled to any patronage refunds. They are entitled to patronage refunds only in the years when they have patronized NCB, and the amount of their patronage does not depend on the amount of their stockholding. Under NCB’s patronage refund policy, patronage refunds may be paid only from taxable income and only in the form of cash, Class B or Class C stock, or allocated surplus.

      Under NCB’s current patronage refund policy that became effective in 1995, as amended, NCB makes the non-cash portion of the refund in the form of Class B stock until a patron has holdings of Class B or Class C stock of 12.5% of its loan amount and thereafter in Class C stock. Under the current patronage refund policy, NCB generally intends to pay a minimum 35% of the patronage refund in cash to those patrons with stock holdings of up to 5% or less of their loan amount and up to 55% to those patrons with stock holding of 10% or more of their loan amount. There can, however, be no assurance that a cash patronage refund of any amount will be declared for any year.

      The chart below shows the number of shares of stock issued by NCB during the past three years.

      NCB plans to declare a patronage refund for the year ended December 31, 2004 of approximately $21.2 million of which $8.6 million will be distributed in cash and $12.6 million will be distributed in Class B or Class C stock.

ITEM 6. SELECT FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The purpose of this analysis is to provide the reader with information relevant to understanding and assessing NCB’s results of operations for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and statistical data presented in this document.

Introduction

      NCB provides financial and technical assistance to eligible cooperative enterprises or enterprises controlled by eligible cooperatives throughout the United States. A cooperative enterprise is an organization which is owned by its members and which is engaged in producing or furnishing goods, services, or facilities for the benefit of its members or voting stockholders who are the ultimate consumers or primary producers of such goods, services, or facilities. NCB is structured as a cooperative institution whose voting stock can only be owned by its members or those eligible to become its members.

      In the Act, Congress stated its finding that cooperatives have proven to be an effective means of minimizing the impact of inflation and economic hardship on members/owners by narrowing producer-to-consumer margins and price spreads, broadening ownership and control of economic organizations to a larger base of consumers, raising the quality of goods and services available in the marketplace and strengthening the nation’s economy as a whole. To further the development of cooperative businesses, Congress specifically directed NCB (1) to encourage the development of new and existing cooperatives eligible for its assistance by providing specialized credit and technical assistance; (2) to maintain broad-based control of NCB by its voting shareholders; (3) to encourage a broad-based ownership, control and active participation by members in eligible cooperatives; (4) to assist in improving the quality and availability of goods and services to consumers; and (5) to encourage ownership of its equity securities by cooperatives and others.

      NCB’s profitability is affected by the net interest income and non-interest income generated on earning assets, consumer usage patterns, credit quality, and operating efficiency. NCB’s revenues consist primarily of interest income on commercial, real estate and consumer loans and securities and non-interest income consisting of servicing income on securitized loans, fees and gains on the securitizations of loans. Loan securitization transactions qualifying as sales under accounting principles generally accepted in the United States (“GAAP”) remove the loan receivables from the consolidated balance sheet. However, NCB continues to service the vast majority of the related accounts. NCB generates earnings from its managed loan portfolio that includes both on-balance sheet and off-balance sheet loans. Interest income, fees, and recoveries in excess of the interest paid to investors and charge-offs generated from off-balance sheet loans are recognized as servicing and securitizations income.

      NCB’s primary expenses are the costs of funding assets, provision for loan losses, operating expenses (including salaries and benefits), marketing expenses and income taxes.

2004 and 2003 Financial Summary

      NCB’s net income for the year ended December 31, 2004 was $22.5 million. This was a 31.3% or $10.3 million decrease compared with $32.8 million for the year ended December 31, 2003. The primary factor affecting this decrease in net income was a $13.6 million decline in gain on sale of loans, due to both a lower volume and lower yield of loans sold in 2004. In addition, 2003 benefited from a $3.7 million gain on the extinguishment of debt relating to the restructuring of the Class A Notes with Treasury. Other income also decreased $3.0 million due to lower commercial fees. This decline was offset by a $3.7 million increase in net interest income due to higher balance of average net interest earning assets in spite of a decrease in the net interest margin. There was also a $4.9 million decline in non-interest expense due principally to $1.2 million lower contractual services in 2004. In addition, there were no write-downs of loans held for sale in 2004, versus a $1.4 million write-down in 2003. The tax provision also declined by $1.2 million.

      Total assets increased 15.3% or $214.6 million to $1.6 billion at December 31, 2004 from $1.4 billion at December 31, 2003. The increase in assets was primarily the result of a net increase in loan balances of $289.3 million due primarily to the origination of cooperative share loans, offset by a decrease in investment securities of $65.4 million due to the sale of a mortgage-backed security (“MBS”) created in 2003.

      The return on average total assets was 1.5% and 2.5% for the year ended December 31, 2004 and 2003, respectively. For the same period, the return on average members’ equity was 11.2% and 17.7%, respectively.

Net Interest Income

      Net interest income for the year ended December 31, 2004 increased $3.7 million or 12.3% to $33.7 million compared with $30.0 million for 2003.

      For the year ended December 31, 2004, interest income increased 9.7% or $6.6 million to $74.9 million compared with $68.3 million for the year ended December 31, 2003. The increase resulted from higher interest income on real estate loans, commercial loans and leases, partially offset by lower interest income from investment securities and cash equivalents. Interest income from commercial loans and leases was $1.1 million higher in 2004 compared to 2003. An increase in average commercial loan and lease balances of $52.8 million or 11.2% was partially offset by a decline in average yields from 6.09% in 2003 to 5.69% in 2004. Interest income from real estate loans was $6.1 million higher in 2004 compared to 2003. Although yields declined from 5.81% in 2003 to 5.61% in 2004, the average balances increased $129.3 million or 21.8% from $592.5 million in 2003 to $721.8 million in 2004, resulting in higher interest income. Interest income from investment securities and cash equivalents was $0.6 million lower in 2004 compared to 2003 due to a decrease in yields from 3.05% in 2003 to 2.49% in 2004 partially offset by an increase in average balances of $14.9 million or 8.8%.

      Interest expense increased $2.9 million or 7.6% from $38.3 million for the year ended December 31, 2003 compared to $41.2 million for the year ended December 31, 2004. The increase resulted from higher volume of interest bearing liabilities needed to fund increased loan volume partially offset by a decrease in rates in 2004. Interest expense on notes payable, which includes short and long-term debt, declined $0.5 million primarily due to lower rates from 5.03% in 2003 to 4.58% in 2004. The effect of the lower yield was partially offset by an increase of $30.1 million or 6.9% in average notes payable balances. Interest expense on subordinated debt decreased $0.3 million due to a $10.0 million or 5.3% decline in average balance, while rates were almost unchanged from 2003. Interest expense on deposits increased $3.7 million due to a $141 million or 33.3% increase in average balances that generated $3.3 million higher interest expense, as well as an increase in deposit rates from 2.23% in 2003 to 2.32% in 2004.

See Table 1 and Table 2

Table 1

CHANGES IN NET INTEREST INCOME

For the Year Ended December 31,

Table 2

RATE RELATED ASSETS AND LIABILITIES

For the Years Ended December 31,

Credit Quality

      To manage credit risk over a wide geographic area and lending in multiple industries, NCB uses a team-based approval process, which relies upon the expertise of lending teams familiar with particular segments of the industry in which we lend. Senior management approves those credit facilities exceeding delegated lending authority for each team in an attempt to ensure the quality of lending decisions. In order to keep abreast of economic events and market conditions throughout the United States, various lending teams regularly perform financial analysis of the industries and regions.

      An inevitable aspect of the lending or risk assumption process is the fact that losses will be incurred. The extent to which losses occur depends on the risk characteristics of the loan portfolio. NCB emphasizes continuous credit risk management. Specific procedures have been established that seek to eliminate undue credit risk. They include a multilevel approval process and an ongoing assessment of the credit condition of the portfolio. In addition, a risk rating system is designed to classify each loan according to the risks unique to each credit facility.

      Loans with risk characteristics that make their full and timely payment uncertain are assigned to the Risk Management Department. The Risk Management Department determines, on a case-by-case basis, the best course of action to restore a credit to an acceptable risk rating or to minimize potential losses to NCB.

      The allowance for loan losses is increased by the provision for loan losses and decreased by the amount of charge-offs, net of recoveries. The adequacy of the allowance for loan losses is determined based on risk ratings, current and future economic conditions, concentrations, diversification, portfolio size, collateral and guarantee support and level of non-performing and delinquent credits, among other relevant factors.

      The allowance as a percentage of impaired assets was 96% at December 31, 2004 compared with 971% at December 31, 2003. The decrease is due to a significant increase in impaired assets from 2003 to 2004. In September 2004, the $4.8 million outstanding balance of a separate grocery chain loan was placed in non-accrual status as a response to poor operating performance by the organization. In June 2004 NCB charged $2.2 million of the outstanding balance of $6.3 million of a loan to a telecommunications provider to the allowance for loan losses. The remaining balance of $4.1 million was placed in non-accrual status. In February 2004, a non-profit continuing care provider filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. At the time of the bankruptcy filing the company was indebted to NCB in the amount

of $9.4 million. As a result of the filing the loan was placed in non-accrual status. NCB charged $1.9 million to the allowance for loan losses. As new information regarding the bankruptcy proceedings become available, reserve levels may be adjusted accordingly. The remaining outstanding balance of $7.4 million is in non-accrual status. The loan is unsecured, as were all creditors at the time of the bankruptcy filing. Since December 31, 2004 impaired assets totaling $3.8 million have been collected. Management believes impaired assets will continue to decline, and expect full collection of one impaired asset totaling $7.4 million prior to June 30, 2005. The allowance for loan losses was deemed adequate as of December 31, 2004. The provision for loan losses was $2.5 million in 2004 and 2003 reflecting continued growth in portfolio loans. The provision as a percentage of average loans and lease financing, excluding loans held for sale, was .25% and .33% in 2004 and 2003, respectively.

See Table 3.

      The allowance for loan losses decreased $0.1 million to $17.0 million as of December 31, 2004 from $17.1 million in 2003. During 2004, the allowance was impacted by loans charged-off of $4.7 million, recoveries of $2.1 million and the provision of $2.5 million. The allowance as a percentage of loans and lease financing, excluding loans held for sale, was 1.5% at December 31, 2004 and 1.9% at December 31, 2003.

      Total impaired assets (non-accruing and foreclosed real estate owned) increased to $17.8 million at December 31, 2004 from $1.8 million at December 31, 2003. Management has allocated specific reserves to impaired assets totaling $2.2 million. NCB had $29 thousand of foreclosed real estate at December 31, 2004 and $0.1 million at December 31, 2003. At December 31, 2004 and 2003, impaired assets as a percentage of total capital were 8.6% and 0.9%, respectively.

Table 3

SUMMARY OF ALLOWANCE FOR LOAN LOSSES

For the Years Ended December 31,

Table 4

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

At December 31,

Table 5

IMPAIRED ASSETS

At December 31,

      The majority of NCB’s loans are to cooperatives such as multi-family owner-occupied residential housing, commercial, food distribution, and health care. NCB bases credit decisions on the cash flows of its customers and views collateral as a secondary source of repayment.

      The real estate portfolio contains a concentration of loans in the New York City area; however, the majority of loans are to seasoned housing cooperatives with low loan-to-value ratios. NCB also has minimal credit exposure to highly leveraged transactions, commercial real estate and construction loans. NCB has no foreign loan exposure.

Non-interest Income

      Total non-interest income decreased $20.1 million or 35.3% from $56.8 million for the year ended December 31, 2003 to $36.7 million in 2004. Non-interest income is composed of letter of credit fees, gains on sale of loans and securities, servicing fees, excess yield income, and other income.

      Gains on sales of loans and investment securities of $21.8 million for the year ended December 31, 2004, represented 59.4% of non-interest income, and decreased $13.1 million from $34.9 million in 2003. The decrease resulted from lower volume of loans sold in 2004 compared with 2003, and the gains on blanket loan sale dropped from 3.8% of principal sold in 2003 to 3.2% in 2004. Of the total gain in 2004, $3.5 million relates to the sale of $81.2 million of mortgage-backed securities (MBS), created from a swap

with Fannie Mae in December 2003. Of the total gain in 2003, $3.0 million relates to the sale of $55.1 million of MBS.

      The following table shows loans sold for the years ended December 31 (dollars in thousands):

      NCB’s net SFAS 133 adjustment, which is included in Gain on Sale of Loans, was a loss of $0.2 million for the year ended December 31, 2004 compared to a loss of $0.5 million for the prior year. The change from the 2003 to 2004 was due primarily to an increase in the net loss on undesignated derivatives related to the implementation of SAB 105, which deals with the valuation of rate lock commitments (Note 24).

      For the year ended December 31, 2004, the net loss on undesignated derivatives of $0.6 million was comprised of a $0.9 million loss related to the change in value of rate lock commitments net of a $0.3 million gain related to the change in value of the undesignated interest rate swaps and forward loan sales commitments hedging the rate lock commitments. For the year ended December 31, 2003, the net loss on undesignated derivatives of $0.7 million was comprised of a $1.1 million gain related to the change in value of rate lock commitments net of a $1.8 million loss related to the change in value of undesignated interest rate swaps and forward loan sales commitments.

      Letter of credit fees increased by $0.8 million or 27.3% from 2003 to 2004 principally reflecting higher average issuance fees.

      NCB’s servicing fee income decreased from $4.5 million in 2003 to $4.0 million for 2004. Although there was a $0.3 million increase in loan servicing fees from the growth in volume of blanket and share loans, this was offset by a $0.8 million reduction in lease related servicing income.

      Other non-interest income includes those fees that NCB earns related to late and pre-payment penalty fees. In addition, other non-interest income includes fees earned by NCB from the administration of its grocery loan conduit program, which terminated in June 2004. For the year ended December 31, 2004, other non-interest income decreased $3.0 million from $6.5 million in 2003 to $3.5 million. The primary factors affecting the decrease were a $0.7 million decrease in commercial prepayment fees and a $1.2 million decrease in other commercial fees.

      In total, non-interest income amounted to 52.1% of total net revenue (net interest income plus non-interest income) for the year ended December 31, 2004 compared with 65.4% in 2003.

Non-interest Expense

      Non-interest expense for the year ended December 31, 2004 decreased 9.9% or $4.9 million to $44.1 million compared with $49.0 million for the corresponding prior year. Salaries and employee benefits, the single largest component of non-interest expense, decreased 2.6% or $0.6 million from $24.4 million in 2003 to $23.8 million in 2004.

      Contractual services decreased 18.7% or $1.2 million to $5.0 million in 2004 from $6.2 million in 2003. In 2003 significant expenses were incurred related to the conversion of NCB, FSB’s general ledger software and the upgrade of NCB, FSB’s computer network.

      Under the provisions of the Act, NCB makes tax deductible, voluntary contributions to NCBDC. These contributions are discretionary and are based upon the approval of NCB’s Board of Directors. NCB made a contribution of $0.5 million and $1.0 million to NCBDC in 2004 and 2003, respectively. Non-interest

expense, inclusive of NCBDC contributions, as a percentage of average assets was 3.0% and 3.8% in 2004 and 2003, respectively.

Income Taxes

      Under the terms of the Act, NCB is exempt from most state and local taxes. In addition, under provisions of the Act and Subchapter T of the Internal Revenue Code, NCB substantially reduces its Federal tax liability through the issuance of annual patronage dividends. The federal income tax provision is determined on the basis of non-member income generated by NCB, FSB, and the reserves of Class C stock dividends set aside. NCB’s subsidiaries are also subject to varying levels of state taxation.

      Note 22 to the consolidated financial statements contains additional discussions of NCB’s tax status.

New Accounting Standards

      NCB enters into rate lock commitments to originate loans whereby the interest rate on the loan is set prior to funding. In March 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105 (SAB 105), which provides guidance regarding loan commitments that are accounted for as derivative instruments under Financial Accounting Standards Board (“FASB”) No. 133 (as amended), Accounting for Derivative Instruments and Hedging Activities. In this Bulletin, the SEC ruled that the amount of the expected servicing rights should not be included when determining the fair value of derivative interest rate lock commitments. This guidance must be applied to rate locks initiated after March 31, 2004. In anticipation of this Bulletin, NCB prospectively changed its accounting policy for derivative rate lock commitments on January 1, 2004. Under the new policy, the value expected to be created from the eventual sale of the loan that had previously been recorded at the initiation of the rate lock is not recognized until the underlying loans are sold. If NCB had not implemented this new policy the impact on NCB’s results of operations in the first quarter of 2004 would have been to increase non-interest income by $1.6 million. The impact the new policy will have on NCB’s results of operations in future periods will be significantly influenced by the volume of salable rate lock commitments and by the timing of when loan sales are executed. Rate locks are highly sensitive to changes in interest rates and the timing of loan sales may be affected by market conditions.

      Effective March 31, 2004, Emerging Issues Task Force Issue No. 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”) was issued. EITF 03-1 provides guidance for determining the meaning of “other-than-temporarily impaired” and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”) and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired.

      On September 30, 2004, the FASB decided to delay the effective date for the measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The disclosure guidance in Issue 03-1 was not delayed.

      As of December 31, 2004, NCB does not believe it has any other-than-temporary impairments as defined in Issue 03-1 as currently drafted.

2003 and 2002 Financial Summary

      NCB’s net income for the year ended December 31, 2003 was $32.8 million. This was an 87.7% or $15.3 million increase compared with $17.5 million for the year ended December 31, 2002. The primary

factors affecting this increase were a $12.8 million increase in gain on sale of loans and investments and a $3.7 million gain from the termination of interest rate swaps previously hedging subordinated debt that was extinguished in the Class A Notes restructuring (see Note 17).

      NCB makes tax deductible, voluntary contributions to NCB Development Corporation (NCBDC). These contributions are discretionary and are based upon the approval of NCB’s Board of Directors. In 2003, a $1.0 million contribution was accrued to fund certain NCBDC business activities compared to $2.0 million in 2002.

      Total assets increased 12.8% or $158.6 million to $1.40 billion at December 31, 2003 from $1.24 billion at December 31, 2002. The increase in assets was primarily the result of a net increase in loan balances ($50 million of which represents the bulk purchase of single family loans). The return on average total assets was 2.5% and 1.5% for the year ended December 31, 2003 and 2002, respectively. For the same period the return on average members’ equity was 17.7% and 10.3%, respectively.

      Net interest income for year ended December 31, 2003 decreased $1.2 million or 3.9% to $30.0 million compared with $31.2 million for 2002.

      For the year ended December 31, 2003, interest income decreased 6.8% or $5.0 million to $68.3 million compared with $73.3 million for the year ended December 31, 2002. The decline resulted from lower interest income on commercial loans and leases and real estate loans, partially offset by higher interest income from investment securities and cash. Interest income from commercial loans and leases was $6.1 million lower in 2003 compared to 2002 due to a decline in yields from 6.81% in 2002 to 6.09% in 2003 that resulted in $3.5 million lower interest income and a $39.0 million or 7.6% decrease in average balances that generated $2.6 million lower interest income. Interest income from real estate loans was $1.0 million lower in 2003 compared to 2002 as a decline in yields from 6.85% in 2002 to 5.81% in 2003 resulted in $5.8 million lower interest income, substantially offset by $4.8 million higher interest income from a $75.0 million or 14.5% increase in average balances. Interest income from investment securities and cash equivalents was $2.1 million higher in 2003 compared to 2002 due to an increase in yields from 2.41% in 2002 to 3.05% in 2003 that generated $0.8 million higher interest income and an increase in average balances of $42.5 million or 33.1% that produced $1.3 million higher interest income.

      Interest expense decreased $3.7 million or 8.9% from $42.0 million for the year ended December 31, 2002 compared to $38.3 million for the year ended December 31, 2003. The decline resulted from lower interest expense on notes payable and subordinated debt, partially offset by higher interest expense on deposits. Interest expense on notes payable, which includes short and long term debt, declined $4.2 million due to a $93.0 million decrease in average balances that resulted in $4.7 million lower interest expense offset by an increase in rates from 4.95% in 2002 to 5.03% in 2003 that resulted in $0.5 million higher interest expense. Interest expense on subordinated debt decreased $1.0 million due to a decline in rates from 4.31% in 2002 to 3.74% in 2003, as average balances were almost unchanged from 2002. Interest expense on deposits increased $1.5 million due to $148.4 million or 53.7% higher average balances, which generated a $3.6 million higher interest expense partially offset by a decline in deposit rates from 2.89% in 2002 to 2.23% in 2003 that resulted in $2.1 million lower interest expense.

2004 and 2003 Fourth Quarter Results

      Net income for the three months ended December 31, 2004 increased $0.8 million from $4.7 million for the same period in 2003 to $5.5 million. For the three months ended December 31, 2004, net interest income increased 14.9% or $1.2 million to $9.2 million compared with $8.0 million for the three months ended December 31, 2003 due to higher average net interest earning assets with an offset of lower rates.

      For the three months ended December 31, 2004, interest income increased 12.6% or $2.4 million to $20.8 million compared with $18.4 million for the three months ended December 31, 2003. Over the same respective periods, interest expense increased $1.1 million or 10.9% from $10.5 million.

      For the three months ended December 31, 2004 total non-interest income decreased $4.0 million or 30% to $9.1 million compared to $13.1 million for the three months ended December 31, 2003. In 2003,

there was a gain of $3.7 million from the extinguishment of debt related to the restructuring of the Class A Notes (see note 17).

      Non-interest expense for the three months ended December 31, 2004 decreased 18.7% or $2.9 million to $12.5 million compared with $15.4 million for the prior year due primarily to $0.5 million lower contribution to NCB Development Corporation in 2004, and $1.3 million lower contractual services.

      For the three months ended December 31, 2004, a tax expense of $0.2 million was recognized.

Table 6

CONSOLIDATED QUARTERLY FINANCIAL INFORMATION

For the Three Months Ended

Sources of Funds

      NCB maintains credit facilities provided by a consortium of banks. At both December 31, 2004 and 2003, NCB had $350.0 million of committed revolving lines of credit, of which $40.0 million and $25.0 million were outstanding, respectively. In addition, NCB had uncommitted bid lines of $22.5 million at both December 31, 2004 and 2003. Total outstanding under these bid lines were $7.5 million and $0 million at December 31, 2004 and 2003, respectively.

      NCB, FSB is a member of the Federal Home Loan Bank of Cincinnati, Ohio (FHLB) and it has a blanket pledge agreement with FHLB requiring advances to be secured by eligible mortgages with a principal balance of 135% – 300% of such advances. NCB, FSB had $246.1 million in borrowing capacity with FHLB as of December 31, 2004. There were outstanding advances of $200.5 million and $102.0 million at December 31, 2004 and 2003, respectively.

      NCB developed a program under which it borrows, on a short-term basis, from certain of its customers. At December 31, 2004 and 2003, the short-term borrowings outstanding were $0 million and $12.0 million, respectively.

      In 1999, NCB received Board approval to issue up to $250.0 million in commercial paper. At year-end 2004 and 2003, face values of $149.9 million and $111.6 million, respectively, were outstanding. The FHLB facility available to NCB was $246.1 million at December 31, 2004 and $174.4 million at December 31, 2003.

      Usage on all short-term borrowings, as measured by average outstanding balances during the year, increased from $186.0 million in 2003 to $254.8 million in 2004.

      In 1999, NCB received Board approval to issue up to $400.0 million under a medium-term note program. As of December 31, 2004 and 2003, NCB had $40.0 million and $70.0 million, respectively outstanding under this program.

      In August 1999, NCB also received Board approval to issue up to $50.0 million in preferred stock or subordinated debt. There was no outstanding issuance at December 31, 2004 and 2003.

      In 2003 NCB received Board approval to establish a Delaware statutory business trust, NCB Capital Trust I, and cause the issuance of $50.0 million in trust preferred securities in connection with a payment of Class A Notes under the Amended Financing Agreement with Treasury. That issuance occurred in December 2003.

      As of December 31, 2004, unused capacity under the short-term and long-term facilities of approximately $195.1 million and $216.0 million, respectively, is sufficient to meet anticipated disbursements in 2005. At December 31, 2004 there was $34.9 million of available unused committed borrowing capacity related to the FHLB facility.

      NCB’s loan sale activity is another source of funding. NCB originates most of its real estate cooperative blanket loans, originated by NCB, FSB, for sale into the secondary market. In 2004, NCB sold $620.4 million of cooperative real estate, commercial and share loans compared with $740.7 million in the prior year.

      NCB also sells investment securities available-for-sale. In 2004 $81.2 million of mortgage-backed securities created from a swap with Fannie Mae in December 2003 were sold. In 2003, there were $55.1 million mortgage-backed securities sold, which were created from a swap with Fannie Mae in December 2002.

      In 2005, NCB expects to sell approximately $631.1 million of commercial, real estate, and share loans in the secondary market, some of which will be originated subsequent to December 31, 2004.

      At NCB’s wholly owned subsidiary, NCB, FSB, deposits increased 24.4% to $605.9 million at December 31, 2004 from $487.2 million a year earlier. The growth was attributable to an ongoing strategic campaign to attract local and national deposit accounts and cooperative customers. The weighted average rates on deposits at December 31, 2004 and 2003 were 2.4% and 2.1%, respectively. The average maturity of the certificates of deposit at December 31, 2004 was 23.1 months compared with 19.8 months at December 31, 2003 reflecting a continued shift to longer-term CD’s. Deposits are 44.7% of interest bearing liabilities in 2004 compared with 42.6% in 2003.

Uses of Funds

      Loans and leases outstanding, including loans held for sale, increased 25.6% to $1.4 billion at year-end 2004 from $1.1 billion in 2003.

      The commercial loan and lease portfolio increased 13.0% to $545.1 million at December 31, 2004 compared with $482.4 million in 2003 due principally to the termination of the off-balance sheet grocery loan conduit program in June 2004. $33.2 million of loans were repurchased out of this program and an additional $23.8 million were transferred from loans held for sale into the portfolio. Total commercial loan and lease disbursements increased 6.3% from $139.8 million in 2003 to $148.6 million in 2004 .

      NCB’s real estate portfolio increased 39.7% to $569.5 million at December 31, 2004 from $407.7 million at same period last year due to primarily to an increase in cooperative share loans. The real estate portfolio is substantially composed of multifamily blanket mortgages, single-family mortgages and share loans.

      NCB’s commercial portfolio has a concentration in the food retailing and distribution industry. The loan types include lines of credit, revolving credits, and term loans. These loans are typically collateralized with general business assets (e.g., inventory, receivables, fixed assets, and leasehold interests). The loans are expected to be repaid from cash flows generated by the borrower’s operating activities. NCB’s exposure to credit loss in the event of nonperformance by the other parties to the loan is the carrying amounts of the loans.

      NCB’s commercial and real estate loan portfolio and loans held for sale are diversified both in terms of industry and geography. The following is the distribution of the loans outstanding at December 31:

      NCB originates multi-family blanket mortgages to predominantly owner-occupied housing cooperatives. A significant portion of NCB’s mortgage loans is secured by real estate in New York City due to that city’s extensive cooperative market. As of December 31, 2004 and 2003, $385.5 million and $275.6 million of real estate loans are secured by real estate in New York City, respectively representing 27% and 31% of total loans and leases outstanding, respectively. The collateral for almost all of the real estate loans consists of first mortgage liens on the land and improvements of cooperatively owned, multi-family residential properties and property leases. The real estate portfolio also includes loans secured by second mortgage lines. In addition, certain unsecured lines of credit have been issued to Real Estate cooperative borrowers. The loans are repaid from operations of the real estate cooperative. NCB’s exposure to credit loss in the event of nonperformance by other parties to the loans is the carrying amounts of the loans less the value of the collateral.

      For 2005, NCB expects disbursements in its commercial and real estate lines of business to be approximately $209.2 million and $654.0 million, respectively.

See Table 7 for the maturity schedule of loans.

Table 7

MATURITY SCHEDULE OF LOANS

      Cash, cash equivalents, and investment securities decreased 34.8% or $73.0 million to $136.7 million at December 31, 2004, compared with $209.7 million in 2003. The decrease resulted primarily from lower investment securities held by NCB. NCB held no mortgage-backed securities at December 31, 2004 compared to $81.1 million at December 31, 2003. Cash, cash equivalents, and investment securities represent 8.8% of interest earning assets in 2004 compared with 16.2% in 2003.

Asset and Liability Management

      Asset and liability management is the structuring of interest rate sensitivities of the balance sheet to maximize net interest income under the constraints of liquidity and interest-rate risk (“IRR”). NCB’s liquidity and IRR are managed by the Asset Liability Committee (“ALCO”), which meets monthly. The fundamental role of the ALCO is to devise and implement business strategies designed to enhance earnings and the economic value of equity while simultaneously maintaining a prudent level of exposure to interest rate risk. The ALCO devises balance sheet strategies for managing loans, investments, deposits, borrowed funds and off-balance sheet transactions to achieve desired financial performance. The committee also develops strategies for pricing various products and services as well as ensuring compliance with related Board policies and established regulatory requirements.

      Overall, NCB’s Asset Liability Committee adheres to the philosophy that a consistently balanced position results in the safest and most predictable net interest earnings stream over various interest rate cycles.

      Liquidity is the ability to meet financial obligations either through the sale or maturity of existing assets or through the raising of additional funds. Maintaining adequate liquidity therefore requires careful coordination of the maturity of assets and liabilities.

      Maintaining near-cash and short-term investments that can be converted to cash at little or no cost generally provides NCB’s asset liquidity. These investments include: federal funds, overnight investments, Eurodollar investments, commercial paper, certificates of deposit, and other short-term obligations. These securities normally have a maturity of less than ninety days and are not subject to price variations. At

December 31, 2004, NCB held $47.4 million in cash and cash equivalents compared with $55.0 million in cash and cash equivalents at year-end 2003. These funds are normally used to fund business operations.

      At December 31, 2004 and 2003, NCB had $89.3 million and $154.7 million, respectively, of investment securities, which are a second source of asset liquidity. The portfolio consists of high-grade corporate and government obligations. The weighted average period to maturity was approximately 1.7 years and 1.2 years for 2004 and 2003, respectively.

      Aside from its principal amortization (scheduled and non-scheduled) and maturities, the loan portfolio is an excellent source of liquidity as demonstrated by NCB’s success in asset securitization.

      NCB maintains available committed capacity, under its short-term facilities, in an amount not less than the outstanding commercial paper balance.

      For additional discussion, see Sources of Funds section.

      Finally, NCB’s wholly owned subsidiary, NCB, FSB raises both local and national deposits from NCB members, which also serve as a source of liquidity.

      NCB has various financial obligations, including contractual obligations that may require future cash payments. Further discussion of the nature of each obligation is included in Notes 13 to 18 of the Notes to the Consolidated Financial Statements.

      The following table presents, as of December 31, 2004, significant fixed and determinable contractual obligations to third parties by payment date (dollars in thousands):

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

      Discussion of NCB’s commitments, contingent liabilities, and off-Balance sheet arrangements is included in Note 24 of the Notes to the Consolidated Financial Statements. Commitments to extend credit do not necessarily represent future cash requirements, as these commitments may expire without being drawn on based upon NCB’s historical experience.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      NCB’s principal market risk exposure is to interest rates.

      NCB’s asset and liability management process is utilized to manage NCB’s interest rate risk through the structuring of the balance sheet and derivative portfolios to maximize net interest income while maintaining

an acceptable level of risk to changes in market interest rates. The achievement of this goal requires a balance between profitability, liquidity, and interest rate risk.

      Interest rate risk is managed by the Asset Liability Committee (“ALCO”), which is composed of senior officers of NCB, in accordance with policies approved by NCB’s Board of Directors. The ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates and liquidity, business strategies, and other factors. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activity, warehouse loans and commitments to originate loans (“mortgage pipeline”), and the maturities of investments and borrowings. Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of deposits, and consumer and commercial deposit activity.

      To effectively measure and manage interest rate risk, NCB uses simulation analyses to determine the impact on net interest income under various interest rate scenarios, balance sheet trends, and strategies. From these simulations, interest rate risk is quantified and appropriate strategies are developed and implemented. Additionally, duration and market value sensitivity measures are utilized when they provide added value to the overall interest rate risk management process. Executive management and NCB’s Board of Directors on an ongoing basis review the overall interest rate risk position and strategies. NCB has traditionally managed its business to maintain limited exposure to changes in interest rates.

      NCB hedges its exposure to interest rates by entering into certain financial instruments including interest rate swaps, caps, floors, financial options, financial futures contracts, and forward delivery contracts. A hedge is an attempt to reduce risk by creating a relationship whereby changes in the value of the hedged asset or liability are expected to be offset in whole or in part by changes in the value of the financial instrument used for hedging. See Note 24 to the Consolidated Financial Statements.

      The following tables present an analysis of the sensitivity inherent in NCB’s net interest income and market value of portfolio equity (market value of assets, less liabilities and derivative instruments.) The interest rate scenarios presented in the table include interest rates at December 31, 2004 and December 31, 2003 as adjusted for each year-end by instantaneous parallel rate changes upward and downward of up to 200 basis points.

      Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, this analysis is not intended to be a forecast of the actual effect of a change in market interest rates. The net interest income variability reflects NCB’s interest sensitivity gap (defined below).

      Assumptions with respect to the model’s projections of the effect of changes in interest rates on net interest income include:

      The interest rate sensitivity gap (“gap”) is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. During a period of rising interest rates, a positive gap (where the amount of assets maturing and repricing within one year exceeds liabilities maturing or repricing within one year) would tend to have a positive impact on net interest income while a negative gap would tend to have a detrimental impact. During a period of declining interest rates, a negative gap would tend to have a positive impact on net interest income while a positive gap would tend to have a detrimental impact. NCB’s one-year cumulative gap positions at December 31, 2004 and 2003 were positive $150.2 million or 9.3% of assets and positive $216.5 million or 15.5% of assets, respectively.

      While the gap position is a useful tool in measuring interest rate risk, it is difficult to predict the effect of changing interest rates solely on that measure, without accounting for alterations in the maturity or repricing characteristics of the balance sheet that occur during changes in market interest rates. For example, the gap position reflects only the prepayment assumptions pertaining to the current rate environment. Assets tend to prepay more rapidly during periods of declining interest rates than during periods of rising interest rates. Because of this and other risk factors not contemplated by the gap position, an institution could have a matched gap position in the current rate environment and still have its net interest income exposed to interest rate risk.

      The following tables set forth the expected maturity and repricing characteristics of NCB’s consolidated assets, liabilities and derivative contracts at December 31, 2004 and 2003.

See Table 8 and Table 9

      Table 8 indicates that on December 31, 2004 NCB had gaps (as a percentage of total assets) of positive 9.31% and 10.00% at the one year and 180 day time horizons, respectively. Table 9 indicates that on December 31, 2003, NCB had a positive gap (as a percentage of total assets) of 15.48% and 14.29% at the one year and 180 day time horizons, respectively.

Table 8

INTEREST RATE SENSITIVITY