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 September 30, 2002 Commission file number 2-99779

National Consumer Cooperative Bank
(Exact name of registrant as specified in its charter)

United States of America
(12 U.S.C. Section 3001 et seq.) 52-1157795
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1725 Eye Street, NW, Suite 600, Washington, D.C. 20006
------------------------------------------------------
(Address of principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.

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

Outstanding at September 30, 2002
---------------------------------

Class C 223,114
- --------------------------------
(Common stock, $100.00 par value)

Class B 1,180,819
- --------------------------------
(Common stock, $100.00 par value)

Class D 3
- --------------------------------
(Common stock, $100.00 par value)

1

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

INDEX

2

NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(Unaudited)

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 STATEMENT 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)

7

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Supplemental schedule of investing and financing activities:

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

8

NATIONAL COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
September 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 nine months ended September 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 loan losses and is increased by the
provision for loan losses and recoveries of previous losses. The provision for
loan losses is charged to earnings to bring the total allowance for loan
losses to a level considered by management as adequate.

At September 30, 2002, this reserve totaled $16.7 million, or 2.1% 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 September 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

9

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 September 30, 2002, NCB's portfolios of cash, cash equivalents and
investment securities had an average adjusted maturity of approximately 472 days
with interest rates in those portfolios varying from 1.930% to 8.125%.

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

10

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

Restricted cash of $3.0 million and $3.8 million at September 30, 2002 and
December 31, 2001, respectively, is held by a trustee for the benefit of
certificate holders in the event of a loss on certain loans sold in 1992 and
1993. At September 30, 2002 and December 31, 2001, the combined remaining
balance of 1992 and 1993 loans totaled $7.1 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.

During September 2002 the remaining restricted cash balance of $6.1 million
was released to NCB as the original MBIA Loan Purchase program was effectively
closed as NCB repurchased the remaining loans sold to MBIA under the terms of a
Loan Purchase and Sale Agreement dated (February 1, 1995 as amended).

Finally, restricted cash of $4.1 million as of September 30, 2002 and
December 31, 2001 is held for the benefit of Rabobank International under the
terms of the Loan Purchase and Sale Agreement, dated June 20, 2001, for the
current Loan Purchase Program. The restricted cash is in the form of an Equity
Reserve Account 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

11

Impaired loans, representing non-accrual loans at September 30, 2002 and
December 31, 2001, totaled $7.7 million and $5.7 million, respectively, and
averaged $8.0 million and $3.3 million, respectively. Specific allowances of
$0.3 million and $0.5 million were established at September 30, 2002 and
December 31, 2001, respectively. During 2002 and 2001, the interest collected on
the non-accrual loans was applied to reduce the outstanding principal.

At September 30, 2002 and December 31, 2001, there were commitments of
$10.3 million and $0, respectively, to lend additional funds to borrowers whose
loans are impaired.

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

6. Allowance for Loan Losses

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

The allowance for loan losses as a percentage of average loans and lease
financing, excluding loans held for sale, as of September 30, 2002 and December
31, 2001 was 2.1% and 2.5%, respectively. The allowance during the period was
impacted by loans charged-off of $6.0 million, recoveries of loans previously
charged-off of $0.3 million and the provision of $1.8 million. The $6.0 million
of loans charged-off includes $1.9 million from one borrower, which was
charged-off in September. In addition, $1.7 million in reserves was
reclassified in the second quarter to a separate reserve for contingent
liabilities to cover exposures on unused lines of credit and letters 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

12

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 NCBSB 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 after allocations to
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.

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

14

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

15

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 and futures contracts to hedge loan
commitments prior to actually funding a loan. During the commitment period, the
loan commitments and related interest rate swaps and futures contracts 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
all of its counterparties.

16

Market risk is the adverse effect that a change in interest rates or
comparative currency values has on the fair value of a financial instrument or
expected cash flows. NCB manages the market risk associated with the interest
rate hedge contracts by establishing formal policy limits concerning the types
and degree of risk that may be undertaken. Compliance with this policy is
monitored by management and reported to the Board of Directors.

Accounting for Derivatives

All derivatives are recognized on the balance sheet at fair value. When a
derivative contract is entered into, NCB determines whether or not it qualifies
as a hedge. If it does, NCB designates the derivative as (1) a hedge of the fair
value of a recognized asset or liability or (2) a hedge of actual or forecasted
cash flows.

When entering into hedging transactions, NCB documents the relationships
between the hedging instruments and the hedged items to link all derivatives
that are designated fair value or cash flow hedges to specific assets and
liabilities on the balance sheet. NCB assesses, both at inception and on an
on-going basis, the effectiveness of all hedges in offsetting changes in fair
values or cash flows of hedged items.

NCB discontinues hedge accounting prospectively when (1) the derivative is
no longer effective in offsetting changes in fair value or cash flows of a
hedged item; or (2) the derivative matures or is sold, terminated or exercised.

When hedge accounting is discontinued because the derivative no longer
qualifies as an effective fair value hedge, it will continue to be carried on
the balance sheet at its fair value and the hedged asset or liability will no
longer be adjusted to reflect changes in fair value. When hedge accounting is
discontinued because it is probable a forecasted transaction will not occur, NCB
will continue to carry the derivative on the balance sheet at its fair value and
any gains or losses accumulated in other 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 futures 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):

17

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 $11.9 million at September 30, 2002 representing the
estimated cost of replacing, at current market rates, all outstanding swap
agreements where the counterparty owes NCB and a repatyment risk exists. 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.

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

18

9. Loans Sold With Recourse

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 September 30, 2002 and December
31, 2001. The unpaid principal balance of the loans covered by the Agreement was
$294.5 million as of September 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, Goodwill and Other Tangible Assets, eliminates amortization
of goodwill associated with business combinations completed after September 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 and our analysis
indicated that goodwill was not impaired.

19

NATIONAL COOPERATIVE BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

SUMMARY

NCB's net income for the nine months ended September 30, 2002 was $16.6
million. This was a $7.8 million increase compared with $8.8 million for the
nine months ended September 30, 2001. The variance resulted from an increase in
gain on sale of loans and an increase in net excess yield income (included in
other non-interest income) of $11.5 million and $1.6 million, respectively. The
variance was partially offset by a $2.0 decrease in net interest income,
and an increase in non-interest expense of $2.6 million and a $1 million
increase in accrued contributions to affiliate NCB Development Corporation.

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. There was not contribution to NCBDC
in 2001 while in 2002 a $1 million contribution was made to fund certain
business activities.

Total assets were $1.19 billion at September 30, 2002, an increase of $28.0
million from $1.17 billion at December 31, 2001. This resulted primarily from an
increase in loans held for sale.

The annualized return on average total assets was 1.9% for the first nine
months of 2002 compared with 1.0% for the same period in 2001. The annualized
return on average equity for the period ended September 30, 2002 and 2001 was
13.13% and 7.20%, respectively.

NET INTEREST INCOME

Net interest income for the first nine months of 2002 was $24.3 million, a
decrease of 7.7% or $2.0 million compared with $26.3 million over the same
period a year ago, as net margin declined from 3.08% in 2001 to 2.86% in 2002.

For the nine months ended September 30, 2002, interest income decreased
18.1% or $12.1 million to $54.7 million from $66.8 million in the prior year's
period. The majority of the decrease was due to the lower yields on the
loans and lease portfolios.

Interest expense decreased 24.9% or $10.0 million to $30.4 million for the
nine months ended September 30, 2002 compared with $40.4 million for the nine
months ended September 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 $7.3 million from 2001, and interest
expense on long-term borrowings decreased $2.7 million from 2001.

For the three month period ended September 30, 2002, net interest income
was $8.3 million, a decrease of 11.8% or $1.1 million from $9.4 million for the
same period in 2001.

20

Interest income decreased 22.8% or $5.1 million to $17.4 million for the
three months ended September 30, 2002 compared with $22.5 million for the same
period ended September 30, 2001. The decrease in interest income was due to
lower yields on the loans and lease portfolios.

For the three month period ended September 30, 2002, interest expense
decreased 30.6% or $4.0 million to $9.1 million compared with $13.1 million for
the three month period ended September 30, 2001 due to lower short-term interest
rates and increased funding from deposits.

For the three months ended September 30, 2002, the average rate on interest
earning assets was down 148 basis points to 6.20% from 7.68% for the same period
ended September 30, 2001. The average rate on interest bearing liabilities, for
the quarter ended September 30, 2002, was down 157 basis points to 3.82% from
5.39% for the period ended September 30, 2001.

NON-INTEREST INCOME

Non-interest income for the nine months ended September 30, 2002 of $26.0
million increased 100.5% or $13.0 million from $13.0 million for the same period
last year. Non-interest income is composed of gains from sales of blanket
mortgages and share loans to secondary market investors, servicing fees, net
origination fees on loans sold, excess yield income, management fees and
advisory and debt placement fees. The majority of the increase resulted from
gains on loans sold.

For the nine months ended September 30, 2002, gain on sale of loans was
$15.8 million, an increase of 260.8% from $4.4 million for the same period last
year. The increase resulted from the timing and volume of loans sold. Total
loans sold were $440.3 million and $321.2 million for the periods ended
September 30, 2002 and 2001, respectively.

NCB had losses as a result of SFAS 133 (Accounting for Derivative
Instruments & Hedging Activities) of $1.3 million for the third quarter of 2002
and year to date losses of $0.9 million. We expect that a substantial portion of
the third quarter loss will essentially be recovered in the fourth quarter upon
the sale of loans that are currently out of correlation with their respective
hedges.

Servicing fee income for the nine months ended September 30, 2002 increased
13.1% or $0.3 million to $2.7 million compared to $2.4 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 $2.5 billion as of
September 30, 2002 and 2001, respectively.

Other non-interest income for the nine months ended September 30, 2002
increased 20.6% or $1.3 million to $7.5 million compared to $6.2 million for
the prior year. The increase resulted primarily from higher excess yield
income on retained interests in sold loans.

Non-interest income for the three months ended September 30, 2002 of
$4.5 million increased 22.9% or $0.9 million from $3.6 million for the same
period last year. The increase is attributed primarily to $1.2 million higher
gains on loans sold offset by a $0.9 million higher loss as a result of SFAS
133 (included in gain on sale of loans). In addition, loan fees related to
commercial and real estate loans were higher by $0.5 million due to higher
loan origination volume.

21

NON-INTEREST EXPENSE

Non-interest expense for the nine months ended September 30, 2002
increased 9.8% or $2.6 million to $29.6 million compared with $26.9 million
for the nine months ended September 30, 2001. Compensation and employee
benefits, which remains the single largest component of non-interest expense,
increased 8.5% or $1.3 million from the prior period. The increase is
attributable to an increase in staff (from 218 at September 30, 2001 to 244
at September 30, 2002), primarily in volume-related operating groups, as well
as normal salary adjustments. Compensation and employee benefits accounted
for 54.4% and 55.1% of non-interest expense for the nine months ended
September 30, 2002 and 2001, respectively. Contractual services increased
28.5% or $0.1 million to $4.5 million at September 30, 2002 from $3.5 million
at the same period a year ago.

Non-interest expense as a percentage of average assets increased to 3.3%
on an annualized basis for the nine months ended September 30, 2002 compared
with 3.1% for the same period a year ago.

Non-interest expense for the three months ended September 30, 2002 of
$9.3 million decreased 4.3% or $0.4 million from $9.7 million for the same
period last year due primarily to lower occupancy and equipment costs.

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

23

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

24

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

For the nine months ended September 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.

25

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

For the three months ended September 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.

26

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 was $1.3
million for the nine months ended September 30, 2002 and 2001.

CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES

Cash, cash equivalents and investment securities (including restricted
cash) totaling $120.1 million at September 30, 2002 decreased $15.5 million or
11.4% from $135.6 million at year-end 2001 primarily due to funding of loans.
As a percentage of earning assets, cash, cash equivalents and investment
securities decreased to 10.4% at September 30, 2002 from 11.9% at December 31,
2001.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses at September 30, 2002 was $16.7 million, down
by 24.8% from $22.2 million at December 31, 2001. The allowance during the
period was impacted by loans charged-off of $6.0 million, recoveries of loans
previously charged-off of $0.3 million and the provision of $1.8 million. The
$6.0 million of loans charged-off includes $1.9 million from one borrower, which
was charged-off in September. In addition, $1.7 million in reserves was
reclassified in the second quarter to a separate reserve for contingent
liabilities to cover exposures on unused lines of credit and letters of credit.
NCB's annualized provision for loan losses as a percentage of average loans and
leases outstanding was 0.31% for the nine months ended September 30, 2002 and
0.30% for the nine months ended September 30, 2001.

The allowance for loan losses as a percentage of average loans and lease
financing, excluding loans held for sale, was 2.1% at September 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.

Total impaired assets (non-accruing loans and real estate owned) increased
35.1% from $5.7 million at December 31, 2001 to $7.7 million at September 30,
2002. Impaired assets as a percentage of loans and leases outstanding, excluding
loans held for sale, was 0.98% at September 30, 2002 compared with 0.69% at
year-end 2001. The allowance for loan losses as a percentage of impaired assets
decreased to 217% at September 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 $2.2 million to $960.6 million at
September 30, 2002 from $962.8 million at December 31, 2001.

For the first nine months of 2002, deposits at NCB, FSB (NCBSB) increased
25.1% to $278.9 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 9.5 months at September 30, 2002 compared with 9.9 months at
December 31, 2001. Deposits are a major portion of interest bearing liabilities
representing 29.0% and 23.1% as of September 30, 2002 and December 31, 2001,
respectively.

At September 30, 2002, total short-term and long-term borrowings (including
subordinated debt) decreased 7.9% or $58.2 million to $681.7 million in
comparison to December 31, 2001 of $739.9 million. NCBSB had advances of $29.8
million and $0 from the Federal Home Loan Bank at September 30, 2002, and
December 31, 2001, respectively. At September 30, 2002, included in the
short-term borrowings were revolving lines of credit of $44.5 million;
commercial paper with a face value of $144.2 million and $45.4 million in
borrowings from cooperative customers. At December 31, 2001, included in the
short-term borrowing were revolving lines of credit of $50.5 million; commercial
paper with face value of $190.6 million and $16.1 million in borrowings from a
related entity and cooperative customers. Long-term debt decreased 22.3% from
year-end 2001 due to the maturity of $70.0 million long-term facilities. At
September 30, 2002, there was unused capacity under short-term and long-term
facilities of approximately $133.4 million and $231.0 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 September 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

(a) Within the 90-day period prior to the date of this report, the Company's
management, including its Chief Executive Officer and Chief Financial
Officer, evaluated the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are functioning
effectively to provide reasonable assurance that the Company can meet its
obligations to disclose in a timely manner material information required to
be included in the Company's reports under the Exchange Act.

(b) There have been no significant changes in the Company's internal controls
or in other factors which could significantly affect those internal
controls subsequent to the date the Company's management carried out its
evaluation.

29

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 legal proceedings and unasserted claims of which the Company's
aware will not have a material impact on its financial condition or future
operations.

NCB has filed a complaint against another financial institution for breach of
its obligations to NCB under a Participation Certificate dated March 6, 2000.
Under this agreement NCB purchased a $5 million participation in a loan made
by the financial institution.

Item 2. EXIBITS

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

Exhibit 99 - Additional exhibits

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

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

30

SIGNATURES

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: November 14, 2002

By: /s/ RICHARD L. REED,
-----------------------
Richard L. Reed,
Managing Director,
Chief Financial Officer

By: /s/ E. MICHAEL RAMBERG
-----------------------
E. Michael Ramberg
Vice President,
Corporate Controller

31

CERTIFICATIONS

I, Charles E. Snyder, Chief Executive Officer of National Consumer
Cooperative Bank, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National
Consumer Cooperative Bank (the "registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that

32

could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002

/s/ CHARLES E. SNYDER
Charles E. Snyder
Chief Executive Officer

33

I, Richard L. Reed, Chief Financial Officer of National Consumer
Cooperative Bank, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National
Consumer Cooperative Bank (the "registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

34

6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ RICHARD L. REED
Richard L. Reed
Chief Financial Officer

35