NATIONAL CONSUMER COOPERATIVE BANK /DC/ - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the fiscal year ended December 31, 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 N.W., Suite 600 Washington, D.C. 20006
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(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 /X/ No / /.

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. /X/

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

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.

(Cover Continued on Next Page)

(Cover Continued)

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

INDEX

PART I

Item 1 Business..............................................................1

Item 2 Properties...........................................................11

Item 3 Legal Proceedings....................................................11

Item 4 Submission of Matters to a Vote of Security Holders..................12

PART II

Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters...............................................12

Item 6 Selected Financial Data..............................................13

Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................14

Item 7A Quantitative and Qualitative Disclosures about
Market Risk.......................................................33

Item 8 Financial Statements and Supplementary Data..........................44

Item 9 Changes in and Disagreements with Accountants,
on Accounting and Financial Disclosure............................87

PART III

Item 10 Directors and Executive Officers of the Registrant...................87

Item 11 Executive Compensation...............................................97

Item 12 Security Ownership of Certain
Beneficial Owners and Management..................................98

Item 13 Certain Relationships and Related Transactions.......................99

Item 14 Controls and Procedures.............................................106

PART IV

Item 15 Exhibits, Financial Statement Schedules
and Reports on Form 8-K..........................................106

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 makes 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
the NCBDC.

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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 three shares 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., 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
Financial Corporation, NCB Retail Finance Corporation, NCB 1, Inc., EOS
Financial Group, Inc., previously named NCB Financial Advisors, Inc., NCB
Funding Corporation, NCB NetPlatform, Inc. and NCB Franchise Services, Inc.,
also know as FRANDATA, maintain offices in Lewes, Delaware. NCB, FSB, previously
named NCB Savings Bank, FSB, maintains its principal office in 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

ELIGIBILITY REQUIREMENTS

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

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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, typically 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.

LENDING AUTHORITIES

The Board of Directors establishes its policies governing the lending
operations in compliance with the Act and the policies are carried out by
management. Management in turn adopts and implements guidelines and procedures
consistent with stated Board directives. Lending policies and guidelines are
reviewed regularly by the Board of Directors and management 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.

COOPERATIVES OF PRIMARY PRODUCERS

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. The total dollar volume
of loans outstanding to any producer cooperative may not exceed 20% of the
amount available for loans to all producer cooperatives.

INTEREST RATES

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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.

INTEREST RATES FOR REAL ESTATE LOANS

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.

INTEREST RATES ON COMMERCIAL LOANS

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.

FEES

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 charged to the borrower.

UNDERWRITING

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

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operations. This analysis focuses on determining the predictability of future
cash flows as a primary source of repayment.

SECURITY

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.

LOANS BENEFITING LOW-INCOME PERSONS

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 2002,
NCB and NCBDC either directly funded or arranged the funding of over $191.6
million to borrowers meeting the low-income definition.

LOANS FOR RESIDENTIAL PURPOSES

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, 2002, approximately 10.8% of NCB's total assets consisted of loans
which qualify under the residential cap.

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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.

NCB 1, Inc. ("NCB 1") is a Delaware chartered wholly-owned, special purpose
corporation subsidiary of NCB that holds credit enhancement certificates related
to the securitization and sale of cooperative real estate loans. NCB and NCB 1
are parties to an agreement under which each agrees not to commingle the assets
of NCB 1 with those of NCB.

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 is required by its certificate of incorporation to have at
least two directors independent of NCB and to avoid commingling its assets with
those of NCB.

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 Funding Corporation ("NCBFDC") is a Delaware chartered wholly-owned,
special purpose corporation subsidiary of NCB that participates in the
securitization and sale of real estate loans. NCBFDC is required by its
certificate of incorporation to have at least two directors independent of NCB
and to avoid commingling its assets with those of NCB.

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NCB NetPlatform, Inc. ("NCBNPI") is a Delaware chartered wholly-owned
subsidiary of NCB that builds and offers Internet technology platforms.

NCB Franchise Services, Inc., also known as FRANDATA, is a Delaware
chartered wholly owned subsidiary of NCBNPI that is in the information services
business.

Capital Avenue, Inc., a Delaware chartered wholly-owned subsidiary of NCB
is an Internet-based company that marketed products and services to customers
through alliances with independent insurance agencies, insurance companies and
other insurance entities. NCB is in the process of causing it to be dissolved.

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. NCB is examined
annually by the Farm Credit Administration, but that agency has no regulatory or
enforcement powers over NCB, and the General Accounting 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. NCB,
FSB is regulated by the Office of Thrift Supervision. 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.
Section 1467a.

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

7

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.

AGREEMENT CONCERNING CLASS A NOTES

Following passage of a technical amendment to the Act, NCB entered into, as
of December 21, 1989, a Financing Agreement with the U.S. Treasury to govern the
interest rates payable on the Class A notes until their final redemption on
October 31, 2020. Pursuant to the Financing Agreement, NCB has issued to the U.S
Treasury four replacement Class A notes. As of December 31, 2002, the face
amounts and current maturities of the outstanding replacement notes were as
follows:

When each note matures NCB has the right to borrow again from the Treasury
the maturing amount under the same terms and conditions. At each maturity date,
the interest rate to be paid upon the note for the succeeding period will be
calculated by the U.S. Treasury based upon the prevailing interest rates for
Treasury obligations of comparable maturities. NCB intends generally to avail
itself of this right. Thus, until the final redemption of the Class A notes, NCB
would have outstanding to the U.S. Treasury four tranches of Class A notes in
the maturities stated above. In November 1994, however, NCB adopted a
Capitalization and Patronage Refund Policy (amended in April 2002) that
contemplates the probable retirement of $25 million of Class A notes in 2010,
$25 million in 2015 and the remaining balance in 2020.

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FURTHER INFORMATION

For financial information concerning NCB's strategic business units, please
see note 23 to the Consolidated Financial Statements.

Further information about NCB can be found on NCB'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
Financial Corporation, NCB Retail Finance Corporation, NCB 1, Inc., EOS
Financial Group, Inc., previously known as NCB Financial Advisors, Inc., NCB
Funding Corporation, NCB NetPlatform, Inc. and NCB Franchise Services, Inc.,
also known as FRANDATA, maintain offices in Lewes, Delaware. NCB, FSB maintains
its offices in 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, 2002 was $2,693,714 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.

Minimum future rental payments, assuming present leased office space is
retained for the next 5 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

NCB is not involved in any pending legal proceedings, other than ordinary
routine litigation incidental to its business.

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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 2002.

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 will also repurchase, at
par value, any shares of Class B stock that it is required to repurchase from
holders by the terms of the contracts under which such stock was originally sold
by NCB. At December 31, 2002, the stock required to be repurchased was
approximately 28 shares. 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 4.41% during 2002. 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

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NCB's Board of Directors. On April 26, 2001, the Board declared a cash dividend
of $0.66 per share of Class C stock payable on or before June 30, 2001 to
holders of record as of March 31, 2001. On April 25, 2002, the Board declared a
cash dividend of $1.13 per Class C stock payable on or before June 30, 2002 to
holders of record as of March 31, 2002. In November, 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 three shares are outstanding and NCB has no present intention to
issue any additional shares of such stock. 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, 2002 there were 1,825 holders of Class B stock, 461
holders of Class C stock, and 3 holders 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 the Act, 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

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loan amount and thereafter in Class C stock. Under the current patronage refund
policy, NCB generally intends to pay a minimum 40% 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 60% to those patrons with stock holding of 10% or more of their
loan amount. NCB will also distribute 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. 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,
2002 of approximately $18.2 million of which $8.0 million will be distributed in
cash and $10.2 million will be distributed in Class B or Class C stock.

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ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)

* Capital includes members' equity and subordinated debt
** Excludes deferred hedge gains and SFAS No. 133 valuation
*** Includes loans held for sale

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2002 AND 2001 FINANCIAL SUMMARY

NCB's net income for the year ended December 31, 2002 was $17.5 million.
This was a 39.6% or $5.0 million increase compared with $12.5 million for the
year ended December 31, 2001. The primary factors affecting this increase were a
$3.0 million decrease in net interest income; a $1.8 million decrease in the
provision for loan losses; a $12.4 million increase in gain on sale of loans;
and a $2.0 million increase in contributions to NCB Development Corporation
(NCBDC).

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 were no contributions to NCBDC
in 2001 while in 2002 a $2.0 million contribution was accrued to fund certain
business activities.

Total assets increased 6.3% or $73.2 million to $1.24 billion at December
31, 2002 from $1.17 billion at December 31, 2001. The growth in assets was
primarily the result of a $61.6 million increase in investment securities and a
$19.2 million increase in net loans and lease portfolio and loans held for sale.

The return on average total assets was 1.45% in 2002 compared with 1.11% in
2001. The return on average members' equity was 10.29% in 2002 compared with
7.89% in 2001.

NET INTEREST INCOME

Net interest income for the year ended December 31, 2002 decreased $3.0
million or 8.6% to $31.2 million compared with $34.2 million for the year ended
December 31, 2001.

For the year ended December 31, 2002, interest income decreased 14.1% or
$12.0 million to $73.3 million compared with $85.3 million for the year ended
December 31, 2001. Most of the decrease resulted from lower yields on the loans
and lease portfolios. Due to the decrease in short-term interest rates during
2002, the average yield on NCB's commercial loan portfolio declined to 6.81% in
2002 from 8.40% in 2001. The yield on total average earning assets declined to
6.34% in 2002 from 7.73% in 2001. The average volume of interest earning assets
increased 4.8% during 2002 to $1.16 billion compared to $1.10 billion during
2001.

Interest expense decreased $9.1 million or 17.8% from $51.1 million
during 2001 to $42.0 million in 2002. The decline in interest

14

expense resulted despite a slight increase in the amount of average interest
bearing liabilities in 2002 compared with 2001. During 2002, NCB's average
short-term borrowings decreased from $322.1 million in 2001 to $278.1 million in
2002. In addition, average deposit volume increased from $169.3 million in 2001
to $276.1 million in 2002. Finally, average long-term notes payable, increased
from $262.9 million in 2001 to $247.9 million in 2002. In total, the overall
yield on total interest bearing liabilities declined from 5.46% in 2001 to 4.25%
in 2002 as a result of a decline in short-term interest rates during 2002.

SEE TABLE 1 & TABLE 2

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. Those credit facilities exceeding delegated lending authority for
each team are approved by senior management in an attempt to ensure the quality
of lending decisions. Financial analysis of the industries and regions serviced
is regularly performed by the various lending teams that keep abreast of
economic events and market conditions throughout the United States.

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 developed 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 possible
credit 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 268% at December 31,
2002 compared with 390% in 2001. The allowance for loan losses was deemed
adequate as of December 31, 2002. The provision for loan losses was $1.3 million

15

in 2002 compared with $3.1 million in 2001 due to the improved credit quality
throughout the year. The provision as a percentage of average loans and leases
financing, excluding loans held for sale, was 0.1% and 0.3% in 2002 and 2001,
respectively.

The allowance for loan losses decreased 34.4% to $14.6 million as of
December 31, 2002 from $22.2 million a year earlier. The allowance during
2002 was impacted by loans charged-off of $8.0 million, recoveries of loans
previously charged-off of $0.7 million and the provision of $1.3 million.
Additionally, $1.7 million in reserves was reclassified during 2002 to a
separate reserve for contingent liabilities to cover exposures on unused
lines of credit and letters of credit. The allowance as a percentage of loans
and lease financing, excluding loans held for sale, was 1.9% at December 31,
2002, compared to 2.7% at December 31, 2001.

16

TABLE 1
CHANGES IN NET INTEREST INCOME
(dollars in thousands)

* 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.

17

TABLE 2
RATE RELATED ASSETS AND LIABILITIES
(dollars in thousands)

* Based on monthly balances. Average loan balances include nonaccrual loans.

18

Total impaired assets (non-accruing and foreclosed real estate (REO))
decreased to $5.4 million at December 31, 2002 from $5.7 million at December 31,
2001. NCB had no foreclosed real estate at December 31, 2002 or December 31,
2001. At December 31, 2002 and 2001, impaired assets as a percentage of total
capital were 3.1% and 3.5%, respectively.

SEE TABLE 3, TABLE 4, & TABLE 5

The majority of NCB's loans are to cooperatives in industries such as
owner-occupied multi-family residential housing, food distribution, health care,
and financial services. 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.

SEE TABLE 4

NON-INTEREST INCOME

Total non-interest income increased $13.3 million or 61.4% from $21.6
million during the year ended December 31, 2001 to $34.9 million for the year
ended December 31, 2002. Non-interest income is composed of loan fees, gains or
losses on sale of loans to secondary market investors, servicing fees, excess
yield income, and other income.

Gains on sales of loans of $20.9 million in 2002, which represented 59.7%
of non-interest income, increased 145.9% or $12.4 million from $8.5 million in
2001. The increase resulted from improved investor spreads and higher volume of
loans sold in 2002 compared with 2001. Loan sales in 2002 and 2001 were $619.3
million and $477.5 million, respectively. NCB maintains a conservative interest
rate risk policy; accordingly, warehoused loans were fully hedged in 2002 and
2001.

Servicing fee income remained a stable source of non-interest income for
NCB in 2002. NCB's servicing fee income increased from $3.3 million in 2001 to
$3.7 million in 2002 due to growth in the volume of loans serviced which
increased from $2.5 billion as of December 31, 2001 to $2.9 billion as of
December 31, 2002. Excess yield income, which is income derived from the
portions of loans sales retained by NCB, increased by $1.7 million or 92.0% in
2002 to $3.6 million from $1.9 million in 2001 due to the increase in the volume
of retained interests in 2002 compared with 2001.

19

Loan fees include those fees which NCB earns related to the extension of
credit, including commitment fees, letter of credit fees, and late and
pre-payment penalty fees. In addition, loan fees include fees earned by NCB
from the administration of its grocery loan conduit program. During 2002,
loan fees increased $2.1 million due to higher loan and lease prepayment
fees, letter of credit fees, commitment fees and fees from the conduit
program, however these gains were offset by a $2.9 million higher write downs
on the interest only receivables due to early loan payoffs.

Finally, other non-interest income, which includes items such as financial
advisory fees, management fees and other sources of miscellaneous income,
increased by 96.6% to $2.8 million in 2002 from $1.4 million in 2001.

In total, non-interest income amounted to 52.8% of total net revenue (net
interest income plus non-interest income) in 2002 compared with 38.8% in 2001.

TABLE 3
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)

20

TABLE 4
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)

**In 2002, 2001 and 2000, there was no allocation since the cash reserves
maintained at NCB, FSB for these leases were more than sufficient to cover
the required allowance.

21

TABLE 5
IMPAIRED ASSETS
(dollars in thousands)

NON-INTEREST EXPENSE

Non-interest expense for the year ended December 31, 2002 increased 13.1%
or $5.1 million to $43.6 million compared with $38.5 million for the prior year.
Compensation and employee benefits remain the single largest component of
non-interest expense, which increased 15.7% or $3.1 million from prior period.
The increase is attributable to an increase in staff (from 215 at December 31,
2001 to 231 at December 31, 2002). Salaries and benefits, inclusive of
contributions made to NCBDC, accounted for 50.0% of non-interest expense in 2002
compared with 51.1% in 2001. During 2002, contractual services increased 1.0% or
$0.05 million to $5.6 million from $5.5 million in 2001. The increase in other
expenses resulted from increased loan and lease processing and servicing costs
and other non-recurring charges. 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 $2.0 million and $0 to NCBDC in 2002 and 2001,
respectively. Non-interest expense, inclusive of NCBDC contributions, as a
percentage of average assets was 3.8% and 3.4% in 2002 and 2001, 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 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.

22

Note 19 to the consolidated financial statements contains' additional
discussions of NCB's tax status.

NEW ACCOUNTING STANDARDS

SFAS 145 "Rescission of FASB Statements 4, 44, and 64, Amendment of FASB
Statement 13, and Technical Corrections as of April 2002," (SFAS 145) was
issued in May 2002. SFAS 145 rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that statement,
FASB Statement 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This statement also rescinds FASB Statement 44, "Accounting
for Intangible Assets of Motor Carriers" and amends FASB Statement 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions. This statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meaning, or describe their applicability under changed conditions.
This statement does not affect NCB at the present time, but will be complied
with when and if it becomes necessary.

SFAS 146 "Accounting for Costs Associated with Exit or Disposal
Activities," (SFAS 146) was issued in June 2002. It addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity." Unlike EITF 94-3, SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, instead of at the date of an
entity's commitment to an exit plan. This statement does not affect NCB at
the present time, but will be complied with when and if it becomes necessary.

SFAS 147, "Acquisitions of Certain Financial Institutions, an amendment
of FASB Statements 72 and 144 and FASB Interpretation 9" was issued in July
2002. It removes acquisitions of financial institutions from the scope of
both FASB Statement 72 and FASB Interpretation 9, except for transactions
between two or more mutual enterprises. Instead, it requires that
acquisitions of financial institutions be accounted for in accordance with
SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets." This statement does not affect NCB at the present time,
but will be complied with when and if it becomes necessary.

SFAS 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement 123," was issued in December 2002. It
amends SFAS 123, "Accounting for Stock-Based Compensation" to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provision of that statement to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions

23

with respect to stock-based employee compensation. This statement does not
affect NCB at the present time, but will be complied with when and if it becomes
necessary.

On January 22, 2003, the FASB directed its staff to prepare a ballot
draft of SFAS 149, "Accounting for Certain Financial Instruments with
Characteristics of Liabilities and Equity." (SFAS 149) The final statement is
expected to be issued in early 2003. SFAS 149 establishes standards for
issuers' classification as liabilities in the statement of financial position
of financial instruments that have characteristics of both liabilities and
equity, including financial instruments that are mandatorily redeemable on a
fixed or determinable date. This statement does not affect NCB at the present
time, but will be complied with when and if it becomes necessary.

In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantors, including Indirect Guarantees of Indebtedness of
Other: an Interpretation of FASB Statements No. 5, 57 and 107 and rescission of
FASB Interpretation No. 34". Under FIN 45, a liability must be recognized at the
inception of certain guarantees whether or not payment is probable. When the
guarantor has assumed a "stand-ready" obligation, the fair value of the
guarantee must be recorded as a liability. This interpretation was effective at
December 31, 2002, with the disclosure provisions of FIN 45 effective in 2002
and the accounting provisions effective in 2003.

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 ("FINS 46"), "Consolidation of Variable Interest Entities:
an interpretation of ARB No.51." This interpretation addresses the issue of
consolidation of variable interest entities, which were previously commonly
referred to as special-purpose entities ("SPEs"). Generally, in a variable
interest entity the equity investment at risk is not sufficient to allow the
entity to function without subordinated financial support from other parties
that absorb some of the expected losses and the equity investors do not have the
essential characteristics of a controlling financial interest, as defined.
According to FIN 46, if a business has a controlling financial interest in a
variable interest entity, the assets, liabilities and operating results of the
variable interest entity should be consolidated with the business even if the
business does not have voting control of the variable interest entity. FIN 46
applies immediately to variable interest entities created after January 31, 2003
and to interests in variable interest entities acquired after that date. FIN 46
also applies to the first interim of fiscal periods beginning after June 15,
2003 for those variable interest entities in which a business holds an interest
that was acquired before February 1, 2003. NCB is currently evaluating the
impact FIN 46 will have on its operations.

24

2001 AND 2000 FINANCIAL SUMMARY

NCB's net income for the year ended December 31, 2001 was $12.5 million.
This was a 70.8% or $5.2 million increase compared with $7.3 million for the
year ended December 31, 2000. The increase resulted from a 126.4% or $12.1
million increase in non-interest income, which was partially offset by a
decrease in net interest income and higher non-interest expenses.

Total assets increased 6.7% or $72.9 million to $1.2 billion at December
31, 2001 from $1.1 billion at December 31, 2000. The growth in assets was the
result of a $30.0 million increase in cash and cash equivalents and a $77.5
million increase in loans available for sale. NCB's portfolio of loans and
leases held to maturity declined $57.5 million.

The return on average total assets was 1.11% in 2001 compared with 0.66% in
2000. The return on average members' equity was 7.9% in 2001 compared with 4.87%
in 2000.

Net interest income for the year ended December 31, 2001 increased $2.0
million or 6.3% compared with the year ended December 31, 2000.

For the year ended December 31, 2001, interest income decreased 8.5% or
$7.9 million to $85.3 million compared with the year ended December 31, 2000.
Most of the decrease resulted from lower interest rates earned on NCB's
commercial loan portfolio as well as a decline in the average volume of earning
assets outstanding in 2001 compared with 2000. In response to the significant
reduction in short-term interest rates during 2001, the average yield on NCB's
commercial loan portfolio declined to 8.40% in 2001 from 9.19% in 2000. The
yield on total average earning assets declined to 7.73% in 2001 from 8.56% in
2000. The average volume of interest earning assets increased 1.3% during 2001
to $1.103 billion compared to $1.089 billion at December 31, 2000.

Total interest expense declined $10.0 million or 16.4% from $61.1 million
during the twelve months ended December 31, 2000 to $51.1 million during the
same period in 2001. The decline in interest expense resulted despite a slight
increase in the amount of average interest sensitive liabilities in 2001
compared with 2000. During 2001, NCB's average short-term borrowings increased
slightly from $308.3 million in 2000 to $322.0 million in 2001. In addition,
average deposit volume increased from $136.5 million in 2000 to $169.3 million
in 2001 with most of that growth occurring in floating-rate money market
accounts rather than fixed rate certificates of deposit. Finally, average
long-term notes payable, which are predominately fixed rate, declined from
$291.0 million in 2000 to $262.9 million in 2001. In total, the overall yield on
total interest bearing

25

liabilities declined from 6.58% in 2000 to 5.46% in 2001 as a result of the
significant decline in short-term interest rates during 2001.

Weak operating results among certain borrowers in the retail food and
telecommunications segments of NCB's loan portfolio caused a decline in credit
quality in 2001. The allowance as a percentage of impaired assets was 390% at
December 31, 2001 compared with 827% in the prior year. However, the allowance
for loan losses was deemed adequate as of December 31, 2001 and an increase in
the provision over 2000 levels was not considered necessary due to a credit
enhancement in the form of a letter of credit provided to secure credit
facilities granted to members of a wholesale grocer. The provision for loan
losses was $3.0 million in 2001 compared with $3.2 million in 2000. The
provision as a percentage of average loans and leases outstanding was 0.3% in
2001 and 2000.

The allowance for loan losses increased 4.6% to $22.2 million as of
December 31, 2001 from $21.3 million a year earlier. The strength of the
allowance is reflected in its percentage to loans and leases outstanding, which
was 2.7% at December 31, 2001 compared to 2.4% at December 31, 2000.

Total non-interest income increased $12.0 million or 126.4% from $9.6
million during the year ended December 31, 2000 to $21.6 million for the year
ended December 31, 2001. Non-interest income is composed of loan fees, gains or
losses on sale of loans to secondary market investors, servicing fees, excess
yield income, and other income.

Non-interest expense for the year ended December 31, 2001 increased 30.8%
or $9.1 million to $38.5 million compared with $29.5 million for the prior year.
Compensation and benefits increased 24.4% or $3.9 million from last year. The
increase was due to higher employee count and increased incentive-based
compensation accruals and regular annual merit increases.

Under the provisions of the Act, NCB makes tax deductible, voluntary
contributions to NCBDC. These contributions are discretionary and are based on
the approval of NCB's Board of Directors. There were no contributions to NCBDC
in 2001 and 2000 to fund certain business activities. Non-interest expense as a
percentage of average assets was 3.4% in 2001 compared with 2.6% in 2000.

2002 AND 2001 FOURTH QUARTER RESULTS

Net income for the fourth quarter of 2002 decreased 76.3% or $2.9 million
to $0.9 million compared with $3.8 million for the prior year's quarter. The
decline resulted primarily from a decrease in net interest income of $1.5
million due to the reclassification of debt placement fee, a negative provision
for loan losses resulting from improved loan quality, and an increase of $0.8
million in non-interest income partially offset by an increase in non-interest
expense of

26

$3.6 million. The increase in the non-interest income resulted from higher net
gains on a higher volume of loans sold. The increase in the non-interest expense
was due to higher compensation and employee benefit costs.

SEE TABLE 6

SOURCES OF FUNDS

CAPITAL MARKETS ACCESS

NCB maintains credit facilities provided by a consortium of banks. At
December 31, 2002 and 2001, NCB had $350.0 million and $328.0 million,
respectively, of committed revolving lines of credit, of which $23.0 million and
$31.0 million were outstanding, respectively. In addition, NCB had uncommitted
bid lines of $27.5 million and $32.5 million at December 31, 2002 and 2001,
respectively. Total outstanding under these bid lines were $27.5 million and
$19.5 million at December 31, 2002 and 2001, 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 a $174.4 million line with FHLB under its cash management
advance program as of December 31, 2002. There were outstanding advances of $4.8
million and $0 at December 31, 2002 and 2001, respectively.

NCB developed a program under which it borrows, on a short-term basis, from
certain of its customers. At December 31, 2002 and 2001, the short-term
borrowings outstanding were $18.0 million and $16.1 million, respectively.

In 1999, NCB received Board approval to issue up to $250 million in
commercial paper. At year-end 2002 and 2001, face values of $148.4 million and
$190.6 million, respectively, were outstanding.

Usage on all short-term borrowings, as measured by average outstanding
balances during the year, decreased from $322.1 million in 2001 to $278.1
million in 2002. The reason for the decrease was largely due the increased use
of deposits to fund real estate loans.

In 1999, NCB received Board approval to issue up to $400 million under a
medium-term note program. As of December 31, 2002 and 2001, NCB had $104.0
million and $154.0 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, 2002 and 2001.

27

As of December 31, 2002, unused capacity under the short-term and long-term
facilities of approximately $160.6 million and $231.0 million, respectively, is
sufficient to meet anticipated disbursements in 2003.

NCB's loan sale activity is another source of funding. NCB originates most
of its real estate loans, including share loans originated by NCB, FSB, for sale
into the secondary market. In 2002, NCB sold $619.3 million of cooperative real
estate, commercial and share loans compared with $450.2 million in the prior
year.

Since 1995, NCB has utilized securitizations with MBIA to provide
additional funding and liquidity for NCB's retail member grocery portfolio.
Under the facility, NCB sold eligible retail term loans to NCBRFC. NCBRFC in
return sold the purchased term loans to MBIA's Triple-A-One Funding
Corporation, a commercial paper conduit. Triple-A-One Funding Corporation
funded the purchase by issuing commercial paper backed by the purchased term
loans. In July 2001, NCB reduced the size of the facility from $56 million in
2000 to $13 million in 2001 and subsequently structured a new $136 million
facility with Nieuw Amsterdam Receivables Corporation (NARC, a subsidiary of
Rabobank International). During 2002 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 Program and Sale Agreement, dated February
1, 1995 (as amended). Under the new NARC facility, NCB sold eligible retail
term loans to NCBRFC. NCBRFC in turn sold the purchased term loans to NARC.
NARC, in turn, funded the purchase by issuing commercial paper backed by the
purchased term loans.

In December 2000, NCBFDC was created to facilitate the sale of real estate
loans. Under a $150 million conduit facility structured with Credit Suisse First
Boston (CSFB), NCB sells eligible real estate loans to NCBFDC, which in turn
sells interest in the loans to eligible purchasers. At December 31, 2002 and
2001, interests sold totaled $0 and $63.5 million, respectively.

In 2003, NCB expects to sell approximately $731.0 million of commercial,
real estate, and share loans in the secondary market, some of which will be
originated subsequent to December 31, 2002.

28

TABLE 6
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
(dollars in thousands)

29

DEPOSITS

At NCB's wholly owned subsidiary, NCB, FSB, deposits increased 65.5% to
$368.9 million in 2002 from $222.9 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, 2002 and 2001 were 2.3% and 3.5%, respectively. The
average maturity of the certificates of deposit at December 31, 2002 was 11.5
months compared with 9.9 months at the same period in the prior year. Although
NCB relies heavily on funds raised through the capital markets, deposits are a
major portion of interest bearing liabilities - 36.9% in 2002 compared with
23.1% in 2001. Management anticipates that deposits will represent an increasing
portion of its funding structure.

USES OF FUNDS

LOANS AND LEASES

Loans and leases, including loans held for sale, outstanding increased 1.2%
to $1,010.0 million at year-end 2002 from $998.5 million in 2001.

The commercial loan and lease portfolio decreased 16.1% to $472.7 million
at December 31, 2002 compared with $562.8 million in 2001. Total commercial loan
and lease originations declined 26.7% from $165.3 million in 2001 to $121.3
million in 2002 due in large part to the weaker economic environment in 2002.

NCB's real estate portfolio increased 31.8% to $279.1 million at the end of
2002 from $435.7 million at same period last year. The real estate portfolio is
substantially composed of multifamily blanket mortgages and single-family share
loans. The increase resulted primarily from the decline in interest rates in
2002, particularly in the second half of the year. As a result, the volume of
loans available for sale increased 46.3% to $258.2 million at December 31, 2002
from $176.5 million at December 31, 2001.

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, 2002 and 2001, $242.2 million and $134.7
million of real estate loans are secured by real estate in New York City,
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 liens and, in several
rare circumstances, unsecured loans to residential cooperative corporations. 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.

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.

For 2003, NCB expects disbursements in its commercial and real estate lines
of business to be approximately $136 million and $809 million, respectively.

SEE TABLE 7

31

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES

Cash, cash equivalents, and investment securities increased 38.9% or $52.8
million to $188.4 million at December 31, 2002, compared with $135.6 million in
2001. Growth resulted primarily from increased investment securities held by
NCB. NCB held FNMA mortgage backed securities of $55.1 at December 31, 2002
compared to $0 at December 31, 2001. Cash, cash equivalents, and investment
securities represent 15.9% of interest earning assets in 2002 compared with
11.9% in 2001.

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 purpose of the ALCO is to develop and implement strategies, including the
buying and selling of derivative instruments such as interest rate swaps and
financial futures contracts, and to ensure sufficient reward for known and
controlled risk.

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

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.

NCB's asset liquidity is generally provided by maintaining near-cash and
short-term investments that can be converted to cash at little or no cost. 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, 2002, NCB held $72.0
million in cash and cash equivalents compared with $67.7 million in cash and
cash equivalents at year-end 2001. These funds are normally used to fund
business operations.

At December 31, 2002 and 2001, NCB had $29.6 million and $27.2 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 1.1 and
1.7 years for 2002 and 2001, respectively.

32

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. In fact, NCB has been
instrumental in developing the secondary market for loans made to cooperatives.

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.

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. The overall interest rate risk position and strategies are
reviewed by executive management and NCB's Board of Directors on an ongoing

33

basis. NCB has traditionally managed its business to reduce its overall 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 21 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, 2002
and December 31, 2001 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).

34

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

1. Target balances for various asset and liability classes which are
solicited from the management of the various business units.

2. Prepayment assumptions, which are generated by the analysis of
historical relationships and management.

3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and management.

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, 2002 and 2001 were positive $101.4 million or
8.18% of assets and positive $36.3 million or 3.13% 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, 2002 and 2001.

SEE TABLE 8 AND TABLE 9

Table 8 indicates that on December 31, 2002 NCB had gaps (as a percentage
of total assets) of positive 8.18% and 11.00% at the one year and 180 day time
horizons, respectively. Table 9 indicates that on December 31, 2001, NCB had a
positive gap (as a percentage of total assets) of 3.13% and negative 0.59% at
the one year and 180 day time horizons, respectively.

35

TABLE 7
MATURITY SCHEDULE OF LOANS
(dollars in thousands)

36

TABLE 8
INTEREST RATE SENSITIVITY
(dollars in thousands)

* Includes loans held for sale, net of allowance for loan losses

37

TABLE 9
INTEREST RATE SENSITIVITY
(dollars in thousands)

* Includes loans held for sale, net of allowance for loan losses

38

CAPITAL

NCB's strong capital position should support growth, continuing access to
financial markets, and allow for greater flexibility during difficult economic
periods.

Historically, NCB has maintained a strong capital structure. NCB's average
equity to average assets was 14.1% in 2002 compared with 14.0% in 2001. When
including NCB's subordinated debt, NCB's average total capital to average assets
was 29.6% and 30.2% in 2002 and 2001, respectively. The Act limits NCB's
outstanding debt to ten times its capital and surplus (including the
subordinated debt). As of December 31, 2002, NCB, FSB maintained capital levels
well in excess of regulatory requirements.

PATRONAGE POLICY

Each year, NCB declares patronage dividends approximately equal to its
taxable net income thereby substantially reducing its Federal income tax. In
September 2002, NCB distributed $12.8 million to its active member-borrowers. Of
this total, approximately $5.7 million was distributed in cash.

CRITICAL ACCOUNTING POLICIES

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a valuation allowance which management
believes to be adequate to cover estimated loan and lease financing losses
inherent in the existing portfolio. A provision for loan losses is added to the
allowance and charged to expense. Loan and lease charge-offs, net of recoveries,
are deducted from the allowance. When a portion of a loan is deemed
un-collectible, a full or partial charge-off against the allowance for loan
losses is made. The factors utilized by management in determining the adequacy
of the allowance include, but are not limited to, the following: the present and
prospective financial condition of the borrowers and the values of any
underlying collateral; evaluation of the loan and lease financing portfolio in
conjunction with historical loss experience; portfolio composition; and current
and projected economic conditions. The allowance for loan losses is maintained
at a level believed by management to be adequate to absorb expected losses
inherent in the loan portfolio at the balance sheet date. Changes in economic
conditions and economic prospects of borrowers can occur quickly; consequently,
losses that NCB ultimately realizes could differ from the estimates made by
management.

A loan is considered impaired when, based on current information, it is
probable NCB will be unable to collect all amounts due under the contractual
terms of the loan. When a loan is impaired, NCB measures impairment based on the
present value of the expected future cash flows discounted at the loan's

39

effective interest rate; or, the fair value of the collateral, less estimated
selling costs, if the loan is collateral-dependent and foreclosure is probable.
NCB establishes specific allowances for impaired loans.

SERVICING ASSETS AND INTEREST-ONLY RECEIVABLES

Effective April 1, 2001, NCB adopted SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,"(SFAS No. 140) which supersedes, but generally retains, the
requirements of SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS No. 125) which
supercedes but generally retains, the requirements of SFAS No. 122, "Accounting
for Mortgage Servicing Rights". These statements require that entities that
acquire servicing assets through either purchase or origination of loans and
sell or securitize those loans with servicing assets retained must allocate the
total cost of the loans to the servicing assets and the loans (without the
servicing assets) based on their relative fair value.

Servicing assets, stated net of accumulated amortization, are amortized in
proportion to the remaining net servicing revenues estimated to be generated by
the underlying loans.

Under SFAS No. 140, servicing assets are assessed for impairment based on
lower of cost or fair value. In addition, mortgage servicing assets must be
stratified based on one or more predominant risk characteristics of the
underlying loans and impairment is recognized through a valuation allowance for
each impaired stratum.

Interest-only strips are created when loans are sold servicing retained
and a portion of the interest retained by NCB does not depend on the servicing
work being performed. The interest-only strips are amortized to interest income
using the interest method. The interest-only strips are carried at the lower of
aggregate cost or market in accordance with Emerging Issues Task Force Issue No.
99-20, "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets" (EITF No. 99-20).

NCB continually updates the assumptions used in determining the fair
value and required amortization of interest-only strips. As a result of the
updated assumptions used to reflect current market data, the interest-only
receivable amortization in 2002 was $561 thousand lower than what would have
been recorded using previous assumptions. The lower amortization is reflected in
the Consolidated Statements of Income as $264 thousand higher interest income on
investment securities for certified interest-only strips and $297 thousand
higher excess yield on non-certificated interest-only strips.

40

Substantially all interest-only receivables pertain to blanket loans
made to cooperative housing corporations as first mortgages. These mortgages
are typically structured with prepayment lockouts followed by prepayment
penalties, yield maintenance provisions, or defeasance through maturity. In
calculating interest-only receivables, NCB discounts the cash flows through
the lockout or defeasance period. Cash flows beyond the lockout or defeasance
period are discounted only to the extent that NCB is entitled to receive the
prepayment or yield maintenance penalty.

Interest-only receivables that are certificated have been included as
investment securities consistent with SFAS No. 115. Interest-only receivables
that are not certificated are included as other assets.

Gains or losses on sales and securitizations and sales depend, in part, on
the previous carrying amount of the loans involved in the transfer and are
allocated between the loans sold and the retained interests based on their
relative fair value at the date of sale. Since quoted market prices are
generally not available, NCB usually estimates fair value of these interest-only
receivables by determining the present value of future expected cash flows using
modeling techniques that incorporate management's best estimates of key
variables, including credit losses, prepayment speeds, prepayment lockouts and
discount rates commensurate with the risks involved. Gains on sales and
securitizations are reported in non-interest income.

The fair value of the interest-only receivables is determined using
discounted future expected cash flows at various discount rates, with no credit
losses assumed. In an effort to maximize the value of interest-only receivables,
most cooperative mortgages have very strict prepayment restrictions. The most
common prepayment protection is a lockout period, followed by either a fixed
percentage penalty, or some form of yield maintenance. Interest-only receivables
are valued through the entire lockout period and up to the estimated point of
prepayment by the borrower. For loans that do not have prepayment options, the
related interest-only receivable is adjusted at the time of prepayment.

The original discount rate varies for each loan sale transaction. The
discounted rate of future expected cash flows is equal to a spread over the
benchmark index that the respective loans were priced. For quarterly valuations,
the index is adjusted to reflect market conditions. An appropriate spread
determined by Management is added to the index to determine the current discount
rate.

The assumption of no credit losses is unique to NCB in that the collateral
that backs all of the interest-only receivable, has extremely low loan-to-value
ratios (weighted average ratio below 35%) and a historical zero default rate. No
NCB securitized mortgage, past or present, has ever resulted in credit loss.
Moreover, only one NCB securitized mortgage has ever gone 90 days late.

41

The weighted average life of each interest-only receivable will vary with
the mortgage terms that back the transaction.

Interest-only receivables that are subject to prepayment risk such that NCB
may not recover substantially all of its investment are recorded at fair value
with subsequent adjustments reflected in other comprehensive income or in
earnings if the fair value of the interest-only receivable has declined below
its carrying amount and such decline has been determined to be other than
temporary.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001, NCB adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," as amended, and recorded a
cumulative effect gain of $1.7 million (SFAS 133) to recognize the fair value of
interest rate swaps with an offsetting cumulative effect loss of $1.7 million to
recognize the change in fair value of related hedged debt due to changes in
benchmark interest rates. Additionally, NCB recorded a cumulative effect loss of
$4.5 million to recognize derivatives at fair value and a cumulative effect gain
of $4.6 million 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
majority of its counterparties.

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

Accounting for Derivatives

All derivatives are recognized on the balance sheet at fair value. When
a derivative contract is entered into, NCB determines whether or not it
qualifies as a hedge. If the derivative contract qualifies as a hedge, 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 as either 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 earnings.

Prior to the adoption of SFAS 133, interest rate derivative contracts
were accounted for by the deferral method if designated as hedges and expected
to be effective in reducing risk. The resulting gains or losses were deferred
and recognized in income along with effects of the related hedged asset or
liability. If the hedge was no longer deemed to be effective, hedge accounting
was discontinued; previously unrecognized hedge results and the net settlement
upon closeout were deferred and amortized over the life of the hedged asset or
liability. If the hedged asset or liability settled before maturity of the
interest rate derivative contract and the derivative contract was closed out or
settled, the net settlement amount was accounted for as part of the gains and
losses on the hedged item.

INCOME TAXES

The Act provides that NCB shall be treated as a cooperative and subject to
the provisions of Subchapter T of the Internal Revenue Code. Under Subchapter T
and the Act, NCB issues its member-borrowers patronage dividends, which are tax
deductible to NCB thereby reducing its taxable income. NCB has determined that
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. The Act also provides that NCB is
exempt from state and local taxes with the exception of real estate taxes.
Certain NCB subsidiaries, however, are subject to federal and state income
taxes.

NCB provides for income taxes under SFAS No. 109, "Accounting for Income
Taxes." The asset and liability approach of SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the financial statement carrying
amounts of the existing assets and liabilities and their respective tax bases.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NCB's financial statements and notes thereto are set forth beginning on the
following page. NCB is not subject to any of the requirements for supplementary
financial information contained in Item 302 of Regulation S-K.

42

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Members of National Cooperative Bank:

We have audited the accompanying consolidated balance sheet of National
Cooperative Bank and subsidiaries as of December 31, 2002 and the related
consolidated statements of income, comprehensive income, changes in members'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The 2001 and 2000 consolidated financial statements were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated
March 29, 2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Cooperative Bank and subsidiaries as of December 31, 2002, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

Mclean, Virginia
March 28, 2003

43

Report of Independent Public Accountants

To the Board of Directors and
Members of National Cooperative Bank:

We have audited the accompanying consolidated balance sheets of National
Cooperative Bank and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, comprehensive income, changes in
members equity, and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Cooperative
Bank and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.

Vienna, Virginia
March 29, 2002

Note: This is a copy of the audit report previously issued by Arthur Andersen
LLP in connection with the National Cooperative Bank's filing on Form 10-K for
the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit
23.2 for further discussion.

44

NATIONAL COOPERATIVE BANK
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

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

45

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

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

46

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

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

47

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

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

48

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

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

49

NATIONAL COOPERATIVE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

Supplemental schedule of investing and financing activities:

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

50

NATIONAL COOPERATIVE BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

National Consumer Cooperative Bank, doing business as National Cooperative
Bank (NCB), is a U.S. Government-chartered corporation organized under the
National Consumer Cooperative Bank Act (the Act). NCB provides loans and
financial services primarily to cooperatives. NCB Capital Corporation (NCBCC),
previously named NCB Mortgage Corporation, a wholly owned subsidiary,
originates, sells and services real estate and commercial loans for
cooperatives. NCB Financial Corporation (NCBFC), a wholly owned subsidiary, is
the holding company of NCB, FSB, previously known as NCB Savings Bank, FSB, a
federally-chartered thrift institution. NCB 1, Inc. (NCB 1), a wholly owned
subsidiary, is a special purpose corporation that holds credit enhancement
certificates related to the securitization and sale of cooperative real estate
loans. NCB Retail Finance Corporation (NCBRFC), a wholly owned subsidiary,
purchases and sells commercial loans. EOS Financial Group, Inc., previously
known as NCB Financial Advisors, Inc. (NCBFA), a wholly owned subsidiary,
provides independent, fee-based financial consulting services to the nonprofit
community, including educational institutions, museums, membership groups and
community-based organizations. NCB Funding Corporation (NCBFDC), a wholly owned
subsidiary, is a special purpose corporation that participates in the
securitization and sale of real estate loans. NCB NetPlatform, Inc. (NCBNPI), a
wholly owned subsidiary, builds and offers Internet technology platforms. NCB
Franchise Services, Inc., also known as FRANDATA, a wholly owned subsidiary of
NCBNPI, is in the information services business. Capital Avenue, Inc., a wholly
owned subsidiary, is an Internet-based, company that marketed products and
services to customers through alliances with independent insurance agencies,
insurance companies and other insurance entities. NCB is in the process of
causing Capital Avenue, Inc., to be dissolved.

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 makes deductible, voluntary contributions to NCBDC.

Borrowers from NCB, under section 108 of the Act, are required to own Class
B stock in NCB. Stock owned by a borrower may be cancelled by NCB, at NCB's sole
discretion, in case of certain events, including default.

51

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of NCB and its
subsidiaries. All significant inter-company balances and transactions have been
eliminated. The consolidated financial statements of NCB do not include the
assets, liabilities or results of operations of NCBDC.

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flow, cash equivalents include cash on
hand, amounts due from banks, federal funds sold and overnight investments.
Cash equivalents have original maturities of 90 days or less.

INVESTMENTS

Securities are accounted for under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115
requires, among other things, for NCB to classify and account for debt and
equity securities as follows:

Available-for-sale securities that will be held for indefinite periods of
time, including those that may be sold in response to changes in market interest
rates and related changes in the security's prepayment risk, needs for liquidity
and changes in the availability and the yield of alternative investments are
classified as available-for-sale. These assets are carried at fair value.
Unrealized gains and losses are determined on an aggregate basis, excluded from
earnings and reported as other comprehensive income. Gains and losses on the
sale of available-for-sale securities are determined using the adjusted cost of
the specific security sold and are included in earnings.

Held-to-maturity securities that management has the positive intent and
ability to hold until maturity are classified as held-to-maturity and are
reported at amortized cost.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

52

Effective January 1, 2001, NCB adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133) as amended, and
recorded a cumulative effect gain of $1.7 million gain to recognize the fair
value of interest rate swaps with an offsetting cumulative effect loss 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 loss of $4.5 million to recognize derivatives at fair value
and a cumulative effect gain of $4.6 million 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 Activities

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

53

counterparty. NCB uses master netting agreements with the majority of its
counterparties.

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

Accounting for Derivatives

All derivatives are recognized on the balance sheet at fair value. When a
derivative contract is entered into, NCB determines whether or not it qualifies
as a hedge. If the derivative contract qualifies as a hedge, 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 as either 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 earnings.

Prior to the adoption of SFAS No. 133, interest rate derivative contracts
were accounted for by the deferral method if designated as hedges and expected
to be effective in reducing risk. The resulting gains or losses were deferred
and recognized in income along with effects of the related hedged asset or
liability. If the hedge was no longer deemed to be effective, hedge accounting
was discontinued; previously unrecognized hedge results and the net settlement
upon

54

closeout were deferred and amortized over the life of the hedged asset or
liability. If the hedged asset or liability settled before maturity of the
interest rate derivative contract and the derivative contract was closed out or
settled, the net settlement amount was accounted for as part of the gains and
losses on the hedged item.

LOANS AND LEASE FINANCING

Loans are carried at their principal amounts outstanding, except for loans
held for sale which are carried at the lower of cost or market as determined on
an aggregate basis. NCB discontinues the accrual of interest on loans when
principal or interest payments are ninety days or more in arrears or sooner when
there is reasonable doubt as to collectibility. Loans may be reinstated to
accrual status when all payments are brought current and, in the opinion of
management, collection of the remaining balance can reasonably be expected.

Leasing operations consist principally of leasing equipment under direct
financing leases expiring in various years through 2007. All lease financing
transactions are full payout direct financing leases. Lease income is recorded
over the term of the lease contract which provides a constant rate of return on
the unrecovered investment. Lease financing is carried net of unearned income.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a valuation allowance which management
believes to be adequate to cover estimated loan and lease financing losses
inherent in the existing portfolio. A provision for loan losses is added to the
allowance and charged to expense. Loan and lease charge-offs, net of recoveries,
are deducted from the allowance. When a portion of a loan is deemed
uncollectible, a full or partial charge-off against the allowance for loan
losses is made. The factors utilized by management in determining the adequacy
of the allowance include, but are not limited to, the following: the present and
prospective financial condition of the borrowers and the values of any
underlying collateral; evaluation of the loan and lease financing portfolio in
conjunction with historical loss experience; portfolio composition; and current
and projected economic conditions. The allowance for loan losses is maintained
at a level believed by management to be adequate to absorb expected losses
inherent in the loan portfolio at the balance sheet date. Changes in economic
conditions and economic prospects of borrowers can occur quickly; consequently,
losses that NCB ultimately realizes could differ from the estimates made by
management.

A loan is considered impaired when, based on current information, it is
probable NCB will be unable to collect all amounts due under the contractual
terms of the loan. When a loan is impaired, NCB measures impairment based on the
present value of the expected future cash flows discounted at the loan's
effective interest rate; or, the fair value of the collateral, less estimated

55

selling costs, if the loan is collateral-dependent and foreclosure is probable.
NCB establishes specific allowances for impaired loans.

LOAN-ORIGINATION FEES, COMMITMENT FEES, AND RELATED COSTS

Loan fees received and direct origination costs are accounted for in
accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized as an adjustment to interest income over the
contractual life of the loans or, with respect to loans held for sale, as an
adjustment to gain on sale of loans. Fees relating to expired commitments are
recognized as non-interest income. If a commitment is exercised during the
commitment period, the fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield.

SERVICING ASSETS AND INTEREST-ONLY RECEIVABLES

Effective April 1, 2001, NCB adopted SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,"(SFAS No. 140) which supersedes, but generally retains, the
requirements of SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS No. 125) which
supercedes, but generally retains, the requirements of SFAS No. 122, "Accounting
for Mortgage Servicing Rights". These statements require that entities that
acquire servicing assets through either purchase or origination of loans and
sell or securitize those loans with servicing assets retained must allocate the
total cost of the loans to the servicing assets and the loans (without the
servicing assets) based on their relative fair value.

Servicing assets, stated net of accumulated amortization, are amortized in
proportion to the remaining net servicing revenues estimated to be generated by
the underlying loans.

Servicing assets are assessed for impairment based on lower of cost or fair
value. In addition, mortgage servicing assets must be stratified based on one or
more predominant risk characteristics of the underlying loans and impairment is
recognized through a valuation allowance for each impaired stratum.

Interest-only strips are created when loans are sold servicing retained and
a portion of the interest retained by NCB does not depend on the servicing work
being performed. The interest-only strips are amortized to interest income using
the interest method. The interest-only strips are carried at the lower of

56

aggregate cost or market in accordance with Emerging Issues Task Force Issue No.
99-20, Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets" (EITF No. 99-20).

NCB continually updates the assumptions used in determining the fair
value and required amortization of interest-only strips. As a result of the
updated assumptions used to reflect current market data, the interest-only
receivable amortization in 2002 was $561 thousand lower than what would have
been recorded using the previous assumptions. The lower amortization is
reflected in the Consolidated Statements of Income as $264 thousand higher
interest income on investment securities for certified interest-only strips
and $297 thousand higher excess yield on non-certificated interest-only
strips.

Substantially all interest-only receivables pertain to blanket loans made
to cooperative housing corporations as first mortgages. These mortgages are
typically structured with prepayment lockouts followed by prepayment penalties,
yield maintenance provisions, or defeasance through maturity. In calculating
interest-only receivables, NCB discounts the cash flows through the lockout or
defeasance period. Cash flows beyond the lockout period are discounted only to
the extent that NCB is entitled to receive the prepayment or yield maintenance
penalty.

Interest-only receivables that are certificated have been included as
investment securities consistent with SFAS No. 115. Interest-only receivables
that are not certificated are included as other assets.

Gains or losses on sales and securitizations depend, in part, on the
previous carrying amount of the loans involved in the transfer and are allocated
between the loans sold and the retained interests based on their relative fair
value at the date of sale. Since quoted market prices are generally not
available, NCB usually estimates fair value of these interest-only receivables
by determining the present value of future expected cash flows using modeling
techniques that incorporate management's best estimates of key variables,
including credit losses, prepayment speeds, prepayment lockouts and discount
rates commensurate with the risks involved. Gains on sales and securitizations
are reported in non-interest income.

The fair value of the interest-only receivables is determined using
discounted future expected cash flows at various discount rates, with no credit
losses assumed. In an effort to maximize the value of interest-only receivables,
most cooperative mortgages have very strict prepayment restrictions. The most
common prepayment protection is a lockout period, followed by either a fixed
percentage penalty, or some form of yield maintenance. Interest-only receivables
are valued through the entire lockout period and up to the estimated point of
prepayment by the borrower. For loans that do not have prepayment options, the
related interest-only receivable is adjusted at the time of prepayment.

57

The original discount rate varies for each loan sale transaction. The
discounted rate of future expected cash flows is equal to a spread over the
benchmark index that the respective loans were priced. For quarterly valuations,
the index is adjusted to reflect market conditions. An appropriate spread
determined by Management is added to the index to determine the current discount
rate.

The assumption of no credit losses is unique to NCB in that the collateral
that backs all of the interest-only receivable has extremely low loan-to-value
ratios (weighted average ratio below 35%) and a historical zero default rate. No
NCB securitized mortgage, past or present, has ever resulted in credit loss.
Moreover, only one NCB securitized mortgage has ever gone 90 days late.

The weighted average life of each interest-only receivable will vary with
the mortgage terms that back the transaction.

Interest-only receivables that are subject to prepayment risk such that NCB
may not recover substantially all of its investment are recorded at fair value
with subsequent adjustments reflected in other comprehensive income or in
earnings if the fair value of the interest-only receivable has declined below
its carrying amount and such decline has been determined to be other than
temporary.

OTHER ASSETS

Foreclosed property pending disposition is carried at fair value less
estimated costs to sell. Included in other assets is goodwill in the amount of
$101,793 which is tested annually for impairment.

Premises and equipment are carried at cost less accumulated depreciation
and include equipment owned under lease financing arrangements. Leasehold
improvements are amortized on a straight-line basis over the terms of the
leases. Furnishings, equipment, and software are depreciated using an
accelerated method over seven, five, and three years, respectively.

INCOME TAXES

The Act provides that NCB shall be treated as a cooperative and subject to
the provisions of Subchapter T of the Internal Revenue Code. Under Subchapter T
and the Act, NCB issues its member-borrowers patronage dividends, which are tax
deductible to NCB thereby reducing its taxable income. NCB has determined that
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. The Act also provides that NCB is
exempt from state and local taxes with the exception of real estate taxes.
Certain NCB subsidiaries, however, are subject to federal and state income
taxes.

58

NCB provides for income taxes under SFAS No. 109, "Accounting for Income
Taxes." The asset and liability approach of SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the financial statement
carrying amounts of the existing assets and liabilities and their respective
tax bases.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the 2002
presentation.

2. CASH AND CASH EQUIVALENTS

The composition of cash and cash equivalents at December 31, are as
follows:

3. INVESTMENT SECURITIES

The composition of available-for-sale investment securities at December 31,
is as follows:

Interest-only receivables substantially pertain to blanket loans to
cooperative housing corporations.

The maturities of available-for-sale investment securities at December 31
are as follows:

The composition of held-to-maturity investment securities at December 31,
is as follows:

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In 2002 and 2001, mortgage-backed securities held-to-maturity had a
weighted average yield of 7.1% and 9.4%, respectively, and mature within five
years.

In 2002, 2001 and 2000, available-for-sale securities totaling $0,
$232,085 and $2,369,713, respectively, were sold resulting in a loss of $0,
$797 and $15,624, respectively. There were no sales of securities classified
as held-to-maturity during 2002, 2001 and 2000. NCB held no callable
investment securities at December 31, 2002, 2001 and 2000.

4. LOAN SERVICING

Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
December 31, 2002 and 2001 are $2.9 billion and $2.5 billion, respectively.

5. LOANS AND LEASE FINANCING

Loans and leases outstanding by category at December 31, are as follows:

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6. RECEIVABLES SOLD WITH RECOURSE

Restricted cash of $0.8 million and $3.8 million at December 31, 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. During 2002 the Series 1992 loans were terminated. The balance of the 1993
loans sold was $5.7 million at December 31, 2002. At December 31, 2001, the
combined remaining balance of the 1992 and 1993 loans was $30.4 million. The
restricted cash will become available to NCB I, Inc. as the principal balance of
the respective loans decreases. The loans sold have original maturities of ten
to fifteen years.

In addition, restricted cash of $10.0 million at December 31, 2001, is held
for the benefit of MBIA Insurance Corporation (MBIA) in the event of certain
loans sold under the terms of the Loan Purchase Program and Sale Agreement.
During 2002 the $10 million in restricted cash 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 Program and
Sale Agreement, dated February 1, 1995 (as amended).

Restricted cash of $4.1 million at December 31, 2002 and December 31, 2001,
is held for the benefit of Rabobank International under the terms of the
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.

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
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 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 Agreement (as subsequently amended
for additional sales) was approximately $12.4 million as of December 31, 2002
and December 31, 2001. The unpaid principal balance of the loans covered by the
Agreement was $293.2 million as of December 31, 2002 compared with $298.2
million as of December 31, 2001. Since the inception of the Agreement, NCB has
not been

62

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.

7. IMPAIRED ASSETS

Impaired loans, representing the nonaccrual loans at December 31, 2002
and 2001, totaled $5.4 million and $5.7 million, respectively. At December 31,
2002, included in the allowance for loan losses is $1.4 million which relates
to total impaired loans of $5.4 million. The average investment in imparied
loans was $7.9 million and $3.3 million at December 31, 2002 and 2001,
respectively. Specific allowances of $1.0 and $1.4 were established at
December 31, 2002 and 2001, respectively. During 2002 and 2001, the interest
collected on the nonaccrual loans was applied to reduce the outstanding
principal.

At December 31, 2002 and December 31, 2001, there were commitments of
$5.6 million and $0, respectively to lend additional funds to borrowers whose
loans are impaired.

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

8. ALLOWANCE FOR LOAN LOSSES

The following is a summary of the activity in the allowance for loan
losses:

The allowance for loan losses was 1.9%, 2.7% and 2.4% of loans and lease
financing, excluding loans held for sale, at December 31, 2002, 2001, and 2000,
respectively.

9. TRANSACTIONS WITH RELATED PARTIES

Section 103 of the Act, as amended, requires that twelve of the fifteen
members of NCB's Board of Directors be elected by holders of Classes B and C
stock and that they have actual cooperative experience. NCB stock is, by law,
owned only by borrowers and entities eligible to borrow. The election rules

63

require that candidates for the Board of Directors have experience as a director
or senior officer of a cooperative organization that currently holds Class B or
Class C stock. NCB has conflict of interest policies which require, among other
things, that a Board member be disassociated from decisions which pose a
conflict of interest or the appearance of a conflict of interest. Loan requests
from cooperatives with which members of the board may be affiliated are subject
to the same eligibility and credit criteria, as well as the same loan terms and
conditions, as all other loan requests.

In addition, NCB through its subsidiary, NCB, FSB, enters into transactions
in the normal course of business with its directors, officers, employees, and
their immediate family members.

For the year ended December 31, 2002, activity related to loans to
affiliated cooperatives, directors, officers, employees, and their immediate
family members is as follows:

During 2002, 2001 and 2000, NCB recorded interest income of $8.4 million,
$8.9 million, and $12.6 million, respectively, on loans to related parties.

10. PREMISES AND EQUIPMENT

Premises and equipment are included in other assets and consist of the
following as of December 31:

11. LEASES

Minimum future rental payments on premises and office equipment under
non-cancelable operating leases having remaining terms in excess of one year as
of December 31, 2002 are as follows:

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Rental expense on premises and office equipment in 2002, 2001, and 2000 was
$2,693,714, $2,334,863 and $1,667,526, respectively.

During 2001, NCB deferred incentives received in connection with the
headquarters lease for office space. These incentives are being amortized over
the ten-year life of the lease. At December 31, 2002 and 2001, the un-amortized
lease incentives totaled $2,858,360 and $2,778,891, respectively.

12. DEPOSITS

Deposits as of December 31, are summarized as follows:

65

The remaining contractual maturities of certificate accounts at December
31, are as follows:

13. SHORT-TERM BORROWINGS

REVOLVING CREDIT FACILITIES

At December 31, 2002, NCB had $350.0 million of committed revolving lines
of credit available of which $23.0 million was outstanding. $175.0 million of
this facility is available until February 11, 2005 and the remaining $175.0
million is available until February 11, 2003. In addition, NCB had bid lines
available and outstanding of $27.5 million at December 31, 2002.

At December 31, 2001, NCB had $328.0 million of committed revolving lines
of credit available of which $31.0 million was outstanding. $154.0 million of
this facility is available until May 23, 2003 and the remaining $174.0 million
is available until May 22, 2002. In addition, NCB had $32.5 million of
uncommitted bid lines, $19.5 million of which was outstanding at December 31,
2001.

Interest expense from borrowings under the revolving line of credit
facilities was $1,982,333, $5,764,995 and $4,295,418, in 2002, 2001 and 2000,
respectively.

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The following is a summary of the borrowings under the facilities for the
years ended December 31:

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* Defined as available capacity under revolving lines of credit less 100% of
commercial paper backup and the amounts outstanding under the customer
short-term borrowings program.

Borrowing rates under the revolving credit facility are based on the prime
rate, federal funds rate or the London Interbank Offered Rate (LIBOR) and vary
with the amount of borrowings outstanding. As of December 31, 2002 and 2001,
commitment fees for the line of credit ranged between 0.175% and 0.200%,
respectively, of the commitment balance. Total commitment fees paid for
revolving credit facilities were $945,574, $1,112,364, and $1,211,000, in 2002,
2001 and 2000, respectively. All borrowings under the facility, which are
outstanding at expiration of the facility, are due at that time.

At December 31, 2002, NCB is required under these revolving line of credit
agreements to maintain $25.0 million of cash, cash equivalents, and investments
and have, among other items, total members' equity plus subordinated debt of not
less than $322.6 million.

OTHER SHORT-TERM BORROWINGS

In an effort to reduce NCB's cost of funds, NCB developed a program under
which it borrows, on a short-term basis, from certain customers. At December 31,
2002 and 2001, the short-term borrowings outstanding totaled $17.5 million and
$16.1 million, respectively. NCB also has a commercial paper program in place to
further reduce NCB's cost of funds. At December 31, 2002 and 2001, commercial
paper totaled $148.2 million and $189.9 million, respectively.

NCB, through its subsidiary NCB, FSB, 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. These eligible mortgages had

68

outstanding principal balances totaling $241,410,490 and $131,959,768 at
December 31, 2002 and 2001. Outstanding advances at December 31, 2002 and 2001
were $4.8 million and $0 million, respectively. Interest expense on the advances
for the years ended December 31, 2002 and 2001 were $148,113 and $3,767,
respectively.

During 2002 and 2001, NCB did not enter into any reverse repurchase
agreements. There were no reverse repurchase agreements outstanding at December
31, 2002 and 2001.

The carrying amounts of short-term borrowings at December 31 are as follows
(dollars in thousands):

14. LONG-TERM DEBT

NCB has entered into various agreements for the extension of credit with
third parties. At December 31, 2002 and 2001, under its medium-term note
program, NCB had approval to issue up to $400.0 million. As of December 31, 2002
and 2001, NCB had $104.0 million and $154.0 million, respectively, outstanding
under this program. In addition, as of December 31, 2002 and 2001, NCB had
outstanding $115.0 million and $143.3 million, respectively, of private
placements issued to various institutional investors. The majority of the
long-term debt has semi-annual interest payments.

At December 31, 2002, NCB is required under these lending agreements to
maintain $25.0 million of cash, cash equivalents and investments and have among
other things, total members' equity plus subordinated debt of not less than
$322.6 million.

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The following is a schedule of outstanding long-term debt at December 31,
2002:

The following is a schedule of outstanding long-term debt at December 31,
2001:

NCB has entered into a series of interest rate swap agreements which have a
combined notional amount of $40 million. The effect of the agreements is to
convert $40 million of the long-term debt from a weighted average fixed rate of
6.99% to a floating rate based on LIBOR.

The interest rate swap agreements are tied to the three month LIBOR rate
plus a spread which reprices throughout the year. At December 31, 2002, the
three month LIBOR was 1.38%. These agreements, with a notional amount of $40
million, expire in 2006.

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15. SUBORDINATED DEBT

On December 31, 1981, NCB issued unsecured subordinated debt to the U.S.
Treasury in the amount of $184.3 million as provided in the Act, as amended, in
the form of Class A notes in full redemption of the Class A Preferred stock
previously owned by the Government. At December 31, 2002 and 2001, the current
balance of the subordinated debt was $182.5 million. The Class A notes and all
related payments are subordinate to any secured and unsecured notes and
debentures thereafter issued by NCB, but the notes have first preference with
respect to NCB's assets over all classes of stock issued by NCB. NCB currently
cannot pay any dividend on any class of stock at a rate greater than the
statutory interest rate payable on the Class A notes.

The Class A notes require that proceeds from the sale of Classes B and C
stock be applied annually toward the repayment of the notes. In 2002 and 2001,
no payments were made. In February 1993 and November 1994 (amended in April
2002), NCB adopted plans to maintain a schedule to ensure accumulation of the
funds needed to repay the Class A notes that mature on October 31, 2020. This
involves the creation of a reserve fund and the issuance of preferred stock or
subordinated debt. Total contributions to the fund, including interest thereon,
would approximate $100.0 million. The remaining $80.0 million would be obtained
through the issuance of preferred stock or subordinated debt. In accordance with
these plans, NCB had designated investments, at fair market value, totaling
$12.8 million and $11.4 million, respectively, including accrued interest at
December 31, 2002 and 2001.

The Act states that the amount of NCB borrowings which may be outstanding
at any time shall not exceed 10 times the paid-in capital and surplus which, as
defined by the Act, includes the subordinated debt.

The annual interest payments for each tranche are determined in accordance
with the following schedule which also includes the carrying amounts, excluding
hedge gains, and respective estimated fair values of the subordinated debt at
December 31, (dollars in thousands):

NCB has entered into a series of interest rate swap agreements totaling $50
million which have the effect of converting a portion of the subordinated debt
from a fixed rate of 5.85% to a floating rate based on LIBOR.

The interest rate swap agreements are tied to the three-month LIBOR rate
that reprices at different times throughout the year. At December 31, 2002, the
three-month LIBOR rate was 1.38%. The five year interest rate swap agreements
expire in 2005.

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16. COMMON STOCK AND MEMBERS' EQUITY

NCB's common stock consists of Class B stock owned by its borrowers, Class
C stock owned by entities eligible to borrow from NCB, and Class D non-voting
stock owned by others.

The changes in each class of common stock are described below:

Members' equity includes the three classes of common stock, allocated and
unallocated retained earnings, and accumulated other comprehensive income.
Allocated retained earnings have been designated for patronage dividend
distribution, whereas unallocated retained earnings have not been designated for
patronage dividend distribution.

17. REGULATORY CAPITAL AND RETAINED EARNINGS OF NCB, FSB

In connection with the insurance of deposit accounts, NCB, FSB 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

73

various operating restrictions, limitations on liability growth,
limitations on deposit account interest rates, and investment restrictions.

NCB, FSB's capital exceeded the minimum capital requirements at December
31, 2002 and December 31, 2001. The following table summarizes NCB, FSB's
capital at December 31, 2002 and 2001:

The Office of Thrift Supervision regulations impose certain restrictions
on NCB, FSB's payment of dividends. At December 31, 2002, because NCB, FSB's
capital exceeded the minimum capital requirements, substantially all retained
earnings were available for dividend declaration without prior regulatory
approval.

18. EMPLOYEE BENEFITS

Substantially all employees are covered by a non-contributory, defined
contribution retirement plan. Total expense for the retirement plan for 2002,
2001, and 2000 was $612,791, $607,892, and $521,435, respectively.

NCB maintains an employee thrift plan organized under Internal Revenue Code
Section 401(k) and contributes up to 6% of each participant's salary.
Contributions and expense for 2002, 2001, and 2000 were $541,945, $461,357, and
$435,232, respectively.

Effective January 1, 1997, the Board of Directors approved the Executive
Long-Term Incentive Plan (the Plan) to provide incentive compensation to certain
key executives of NCB. The Plan's terms were revised by the Board of Directors

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effective January 1, 1999. NCB expensed $1,855,002, $480,413, and $540,000 for
the Plan in 2002, 2001, and 2000, respectively.

19. INCOME TAXES

Each year under the Act, NCB must declare tax deductible patronage
refunds in the form of cash, stock, or allocated surplus which effectively
reduce NCB's federal income tax liability. In 2003, NCB is required to make
patronage dividend payouts of approximately $18,200,000. The anticipated
cash portion of the 2002 patronage dividend is included in patronage
dividends payable at December 31, 2002. The anticipated stock portion of the
patronage dividend of 2002 earnings to be distributed has been added to
allocated retained earnings at December 31, 2002. Patrons of NCB receiving
such patronage dividends consent to include them in their taxable income.

The provision for income tax expense for the years ended December 31,
consists of the following:

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences for the years ended
December 31,:

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Deferred tax assets net of liabilities, included in other assets, are
comprised of the following at December 31, 2002 and 2001:

Management has concluded that it is more likely than not that all
deferred tax assets will be realized based on NCB's history of earnings and
management's expectations that NCB will generate sufficient taxable income in
future years to offset the reversal of temporary differences.

20. INCOME AVAILABLE FOR DIVIDENDS ON STOCK

Under existing senior debt agreements, the aggregate amount of cash
dividends on Class C or Class D stock, together with patronage dividends
payable in cash, is limited to the sum of $15,000,000 plus 50% of NCB's
consolidated adjusted net income accumulation (or minus 100% of NCB's
consolidated adjusted net income in the case of a deficit) from January 1,
1992 through the end of the most current fiscal year ended. If the aggregate
amount of cash dividends and patronage dividends payable in cash exceeds the
limitation previously described, total patronage dividends payable in cash
and cash dividends payable on any calendar year may not exceed 20% of NCB's
taxable income for such calendar year. At December 31, 2002, the aggregate
income available for dividends on stock was approximately $75.5 million and
the aggregate cash dividends paid was approximately $46.5 million.

Notwithstanding the above restriction, NCB is prohibited by law from paying
dividends on its Class C stock at a rate greater than the statutory interest
rate payable on the subordinated Class A notes. Those rates for 2002, 2001, and
2000 are 4.41%, 5.28% and 6.30%, respectively. Consequently, the amounts
available for payment on the Class C stock for 2002, 2001, and 2000 are
$983,704, $1,169,080,

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and $1,387,134, respectively. In addition, under the Act and its bylaws, NCB may
not pay dividends on its Class B stock.

21. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND DERIVATIVE
FINANCIAL INSTRUMENTS

NCB is a party to financial instruments with off-balance sheet risk.
These financial instruments may include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the balance sheets. The contract amounts of those instruments reflect the
extent of involvement, but not exposure, that NCB has in particular classes
of financial instruments. Unless noted otherwise, NCB does not require
collateral or other security to support off-balance sheet financial
instruments.

NCB's exposure to credit loss in the event of nonperformance by the other
parties to the commitments to extend credit and standby letters of credit
written is represented by the contract or notional amounts of those instruments.
NCB uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. For interest rate swap
transactions, forward commitments, and financial futures contracts, the contract
or notional amounts do not represent exposure to credit loss.

In the normal course of business, NCB makes loan commitments which are not
reflected in the accompanying financial statements. The commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being completely
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. NCB evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
NCB upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral varies but may include accounts receivable; inventory;
property, plant and equipment; and residential and income-producing commercial
properties.

Standby letters of credit can be either financial or performance-based.
Financial standby letters of credit obligate NCB to disburse funds to a third
party if the customer fails to repay an outstanding loan or debt instrument.
Performance letters of credit obligate NCB to disburse funds if the customer
fails to perform a contractual obligation including obligations of a
non-financial nature. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.

Guarantee fees associated with the standby letters of credit range from
0.875% to 2.25% of the commitment amount. The standby letters of credit mature
throughout 2003 to 2007.

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The contract or notional amounts and the respective estimated fair value of
NCB's commitments to extend credit and standby letters of credit at December 31,
are as follows (dollars in thousands):

At December 31, 2002, there is no liability recorded in the Consolidated
Balance Sheet for the stand-by letters of credit.

The above commitment amounts are not reflected in the Consolidated Balance
Sheet and many of the commitments will expire without being drawn upon. Such
commitments are issued only upon careful evaluation of the financial condition
of the customer.

DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING

NCB uses derivative financial instruments in the normal course of business
for the purpose of reducing its exposure to fluctuations in interest rates.
These instruments include interest rate swaps, financial future contracts, and
forward commitments. Existing NCB policies prohibit the use of derivative
financial instruments for any purpose other than managing interest rate risk.

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 for the years ended December
31, (dollars in thousands):

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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 $9.0 million at December 31, 2002 representing the
estimated cost of replacing, at current market rates, all outstanding swap
agreements. NCB does not anticipate nonperformance by any of its counterparties.
Income or expense from interest rate swaps is treated as an adjustment to
interest expense/income on the hedged asset or liability.

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

The contract or notional amounts and the respective estimated fair value of
NCB's financial future contracts and interest rate swaps at December 31, are as
follows (dollars in thousands):

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22. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available for
identical or comparable instruments, fair values are based on estimates using
the present value of estimated cash flows using a discount rate commensurate
with the risks involved or other valuation techniques. The resultant fair values
are affected by the assumptions used, including the discount rate and estimates
as to the amounts and timing of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, accordingly, the fair values may not represent actual values of the
financial instruments that could have been realized as of year end or that will
be realized in the future.

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:

CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value.

INVESTMENTS - Fair values are based on quoted market prices for identical
or comparable securities.

LOANS AND LEASE FINANCING - For adjustable rate commercial loans that
reprice frequently and with no significant changes in credit risk, fair values
are based on carrying values. The fair market value of other adjustable rate
loans is estimated by discounting the future cash flows assuming that the loans
mature on the next repricing date using the rates at which similar loans would
be made to borrowers with similar credit quality and the same stated maturities.
The fair value of fixed rate commercial and other loans and leases, excluding
loans held for sale, is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit quality and for the same remaining maturities. The fair value of loans
held for sale is based on market prices for similar loans sold in the secondary
market adjusted for differences in loan characteristics.

INTEREST-ONLY RECEIVABLES - The fair value of interest-only receivables is
estimated by discounting the future cash flows using current market investor
pass-through rates for similar securities.

DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using a discounted cash flow calculation that applies interest rates

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currently being offered on certificates of deposits of similar remaining
maturities.

SHORT-TERM AND OTHER BORROWINGS - The carrying amounts approximate fair
value.

LONG-TERM DEBT - The fair value of long-term debt is estimated by
discounting the future cash flows using the current borrowing rates at which
similar types of borrowing arrangements with the same remaining maturities could
be obtained by NCB.

SUBORDINATED DEBT - The fair value of subordinated debt is estimated by
discounting the future cash flows using the current borrowing rates at which
similar types of borrowing arrangements with the same remaining maturities could
be obtained by NCB.

INTEREST RATE SWAP AGREEMENTS - The fair value of interest rate swaps is
the estimated amount that NCB would receive or pay to terminate the swap
agreements at the reporting date, taking into account current interest rates and
the current creditworthiness of the swap counterparties.

FINANCIAL FUTURES AND FORWARD CONTRACTS - The fair value of interest rate
futures is based on the closing price of the Chicago Board of Trade at December
31, 2002 and 2001. The fair value of forward commitments is based on current
market prices for similar contracts.

COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN - The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and committed rates. The
fair value of guarantees and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting date.

ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE - The carrying
value of accrued interest payable is deemed to approximate fair value.

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The estimated fair values of the NCB's financial instruments as of December
31, 2002 and 2001 are as follows (dollars in thousands):

23. 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, Consumer and Local Lending and Other. The Commercial Lending segment
provides financial services to cooperative and member-owned businesses. The
Real Estate Lending segment originates and services multi-family cooperative
real estate loans nationally, with a concentration in New York City. The
Warehouse Lending segment originates real estate and commercial loans for
sale in the secondary market. The Consumer and Local Lending 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.

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NCB evaluates segment performance based on net income before taxes. The
accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies in the most
recent annual report. Overhead and support expenses are allocated to each
operating segment based on the 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 years ended December 31,
2002, 2001 and 2000 (dollars in thousand):

24. LOAN SALES AND SECURITIZATIONS

NCB sells and services commercial loans and commercial and residential real
estate loans. Interests in the securitized and sold loans are generally retained
in the form of senior interest-only strips, escrow accounts and mortgage
servicing rights.

During 2002, NCB sold receivables in securitizations of mortgage loans and
retained interest-only receivables, and servicing rights, which are both
considered retained interests in the securitization transactions. In 2002, NCB
sold $517.8 million in mortgage securitization transactions, which resulted in
retained interests of $17.4 million. The proceeds from NCB's 2001 sales of
receivables in securitized mortgage loans were $326.1 million and generated a
total of $15.3 million in retained interests.

NCB receives annual servicing fees of 0.08 percent per annum to service
loans totaling $2.9 billion in 2002 and $2.5 billion in 2001.

The following table reflects the cash flows received from securitized
trusts for the years ended December 31,(dollars in thousands):

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Retained interest due to securitization activity is comprised of the
following for the years ended December 31, (dollars in thousand):

The amounts below reflect the sensitivity of the fair value of
interest-only receivables to 100 and 200 basis points adverse conditions at
December 31, 2002 (dollars in thousands):

Impact of 100 basis points adverse change $ (1,709)
Impact of 200 basis points adverse change (3,323)

25. SUBSEQUENT EVENTS

On January 2, 2003, NCB reassumed the recourse obligation under an
agreement with Fannie Mae covering $122.3 million in loans sold by NCB to Fannie
Mae. As collateral for the associated recourse, NCB was required to deposit $4.9
million in a restricted cash account with a designated custodian.

On January 8, 2003, NCB made a private offering of $50.0 million of 5.5%
senior notes due January 8, 2009.

On January 24, 2003, NCB sold $55.1 million in Fannie Mae mortgage-backed
securities (MBS). The securities had been obtained in a swap of loans for MBS in
December 2002. The sale of the securities generated a net gain of $2.6 million.

On February 11, 2003, NCB extended its commitment on $175 million in
revolving lines of credit from February 11, 2003 to May 12, 2003.

26. LEGAL PROCEEDINGS

NCB is involved in various litigation arising from the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on NCB's consolidated financial
position, results of operations, or liquidity.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS,
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of NCB and the positions held by each
are as follows:

* Harry J. Bowie's term expires when he is replaced by another Presidential
appointee representing low-income cooperatives. The President has appointed
Alfred A. Plamann to fill that Board position. Although the Senate has held
hearings, the Senate has not yet voted on Mr. Plamann's appointment.

Kirby J. Erickson was the Senior Executive of HealthPartners, Inc., parent
company of HealthPartners Obligated Group, from November 2000 until January
2002. Prior to that, he was Executive Vice President of Group Health Inc.
(GHI)/HealthPartners, Inc. since 1992. He also had served in various capacities
since 1965 at Aetna Health Plans, United Health Care, Inc., Fairview Community
Hospitals and Fairview Southdale Hospital.

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Charles E. Snyder was named President and Chief Executive Officer of NCB in
January 1992. He had been Corporate Vice President and Chief Financial Officer
of NCB from 1983 to December 1991.

Michael J. Mercer has been the President of Georgia Credit Union Affiliates
since 1985 and Vice Chairman of the Association of Credit Union League
Executives since 1997. He was also one of the founders of the Credit Union
Service Corporation and is its former Chairman.

Harry J. Bowie has been the President and Chief Executive Officer of Delta
Foundation, Inc., a community development corporation located in Greenville,
Mississippi, since 1986. He has also served as a Director of the Southern
Regional Council located in Atlanta and the Housing Assistance Council located
in Washington, D.C.

William F. Casey, Jr., is the President and Treasurer of the Co-operative
Central Bank and President of Co-operative Bank Investment Fund since April
2000. At the Co-operative Central Bank, he also held the positions of Executive
Vice President and Treasurer for 14 years and Financial Vice President for 6
years.

Rafael E. Cuellar has been President and Chief Financial Officer of ECO &
Sons, Inc. since 1996. Prior to that he was a Lieutenant in the U. S. Navy for
nine years. Mr. Cuellar has served on the Board of Directors of the Bergen
County Hispanic Chamber of Commerce, the New Jersey State Chamber of Commerce,
the North Jersey Regional Chamber of Commerce and the William Paterson
University Foundation, et. al.

Dean Janeway has been President and Chief Operating Officer of Wakefern
Food Corp. since 1995. Previously, he was Executive Vice President of Wakefern
for five years and held various Vice President positions in Merchandising,
Dari-Deli and Frozen Food at Wakefern. He has served since 1992 on the Board of
Directors of the National Grocers Association and was elected Chairman in 1997.

Jackie Jenkins-Scott is the President and Chief Executive Officer of the
New England Hospital d/b/a Dimock Community Health Center for the past 20 years.
Prior to her position with Dimock, she served as Director of the Roxbury Court
Clinic and held several positions with the Commonwealth of Massachusetts,
Department of Public Health from 1973 to 1977. She has been a Board Member of
the Massachusetts League of Community Health Centers and a member of the
National Association of Community Health Centers, Inc.

H. Jeffrey Leonard has been President and founding shareholder and Director
of GEF Management Corporation since 1989. He is also the President of Global
Environment Fund since 1989 and is the Chairman of the Board of Beacon House
Community Ministry since 1994. Prior to the founding of GEF Management, he
served as Vice President at World Wildlife Fund and Conservation Foundation.

89

Stephanie McHenry has been director of Minority Business Development of
Greater Cleveland Growth Association and Executive Director of Northern Ohio
Minority Business Council since 1998. She is also a board member of NCB
Development Corporation.

Stuart M. Saft is the Chairman of the Council of New York Cooperatives and
Condominiums and a Board Member of the National Association of Housing
Cooperatives. He is also the Chairman of the New York City Workforce Investment
Board. Additionally, he is the head of the Real Estate Department at Wolf,
Haldenstein, Adler, Freeman & Hertz, LLP. He was a board member for 15 years at
Park 86 Apartment Corp.

Michael D. Scott is a Senior Advisor at the U.S. Department of the
Treasury. Prior to joining the Bush Administration, he worked extensively in
investments, capital markets, corporate finance, corporate strategy, commercial
finance and lending.

Walden Swanson is the Chief Executive Officer of Community Consulting Group
Cooperative, Inc., which provides consulting services to cooperatives. He was
previously a Manager at Wheatsville Food Co-op from 1976 to 1978. He was also a
board member at National Cooperative Business Association and a resident and
board member at Whitehall Housing Cooperative.

Peter C. Young the Executive Director of Area Cooperative Educational
Services for more than 25 years before his retirement in 2002. He was a member
of the Board of Trustees and the Finance Committee of CT Hospital
Association/Workers Compensation Trust. He was also the Fiscal Agent (Treasurer)
and was a member of the Governing Board of the American Association of
Educational Service Agencies.

Thomas K. Zaucha has been the President and Chief Executive Officer of the
National Grocers Association (NGA) since 1982. He served as President and Chief
Executive Officer of the Grocers Fixtures & Equipment Company from 1978 to 1982
prior to its merger with NGA. He is also currently serving as a Board Member of
NCB Retail Finance Corporation and Cooperative Development Foundation.

Steven A. Brookner is the Chief Executive Officer of NCB, FSB since
November 2001 and a Managing Director at NCB responsible for overseeing the real
estate originations, capital markets, servicing and investor reporting functions
of NCB. From 1997 through September 1998, he was a Managing Director responsible
for strategic initiatives and new product development. Previously, he was a
shareholder and officer of Hamilton Securities Group for one year and Co-Founder
and Principal of BNC & Associates, a financial and management consulting firm,
for five years.

90

Charles H. Hackman is a Managing Director and Chief Credit Officer of NCB.
He was formerly Corporate Vice President and Chief Financial Officer from 1992
to 1994. He was Corporate Vice President, Credit Policy, of NCB from 1984 to
1992, President of NCB Financial Corporation since its inception in 1988 until
2000 and NCB Capital Corporation, starting in 1999.

Mark W. Hiltz is a Managing Director and Chief Risk Officer of NCB. He was
a Corporate Vice President and Manager of Special Assets from 1994 to 1998 and a
Senior Vice President of the Special Assets Department from 1986 to 1994.
Previously he was Vice President of Loan Administration from 1983 to 1986 and
General Auditor from 1982 to 1983.

Richard L. Reed is a Managing Director and Chief Financial Officer of NCB.
He is also the President of NCB Financial Corporation starting in 2001. He was
named Senior Vice President and Chief Financial Officer in 1994. Prior to that,
he was Vice President and Treasurer from 1992 to 1994. He was Vice President,
Treasury from 1989 to 1992.

Thomas C. Shoettle was named President and Chief Executive Officer of NCB
Savings Bank, FSB, now named NCB, FSB in 1997 and is currently President and
Chief Operating Officer. He was the Executive Vice President of the Savings Bank
from 1995 to 1996. Previously, he served for eight years as Vice President,
Commercial and Residential Lending and Regional Manager with Merchants National
Bank and for three years as Manager, Special Assets with Farm Credit System

NON-INCUMBENT NOMINEES FOR DIRECTORSHIPS

Bruce E. Douglas
David I. Ferber
Grady B. Hedgespeth
William A. Herring
Rosemary K. Mahoney
Vernon Oakes
Richard A. Parkinson
Alfred A Plamann
Andrew Reicher

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Bruce E. Douglas, Ph.D. has been the executive director of Capitol Region
Education Council for two years and served as the assistant executive director
of Capitol Region Education Council for three years. Dr. Douglas holds a
doctoral degree in educational leadership, University of Connecticut, Storrs,
Connecticut, a master of arts history degree - medieval studies at Trinity
College, Hartford, Connecticut and a bachelor of science degree in history and
secondary education at Central Connecticut State University.

David I. Ferber is a senior partner at Robson Ferber Frost Chan & Essner,
LLP and head of the firm's corporate law practice. Mr. Ferber served as
treasurer and council member at the Village Community School in New York, New
York. Mr. Ferber received a bachelor's degree in economics from the University
of Pennsylvania, Wharton School of Finance and his bachelor of law degree at New
York University School of Law in New York, New York.

Grady B. Hedgespeth is the president and executive director of the ICA
Group in Brookline, Massachusetts. He received his bachelor of arts degree with
honors in economics at the University of Virginia in Charlottesville, Virginia.
Mr. Hedgespeth also received a master's degree in public policy at JFK School of
Government, Harvard University, in Cambridge, Massachusetts.

William A. Herring is the president and chief executive officer of the
Cincinnati Central Credit Union in Cincinnati, Ohio. Mr. Herring served as
chairman of the board of directors for American Share Insurance for 25 years, as
well as, chairman of the board of directors for Ohio Credit Union League. He
received his bachelor's degree at the University of Cincinnati in Cincinnati,
Ohio.

Rosemary K. Mahoney is the board chair and consultant of MainStreet
Cooperative Group LLC. Ms. Mahoney is a director of the National Cooperative
Business Association. She received her bachelor of science degree in
agricultural business from Illinois State University in Normal, Illinois and her
master of science degree at the University of Illinois in Champaign-Urbana,
Illinois.

Vernon Oakes is the owner of Oakes Management, Inc. in Washington, DC.
Mr. Oakes represented East Capitol Gardens as an agent and 801 P Street, New
Hope Cooperative. He earned a bachelor's degree in mathematics and chemistry
from Bluefield State College and a master's degree in mathematics from Penn
State University and a master's degree in finance and marketing at Stanford
University.

Richard A. Parkinson is the president and chief executive officer of
Associated Food Stores, Inc. in Salt Lake City, Utah. Mr. Parkinson also served
as a member of the executive committee of the board at Associated Food Stores.
He

92

received his Bachelor of Science degree in business administration at Brigham
Young University in Provo, Utah.

Alfred A. Plamann is the President and Chief Executive Officer of Unified
Western Grocers, formerly known as Certified Grocers of California, Ltd. He was
the Senior Vice President and Chief Financial Officer of Certified Grocers from
1989 to 1993. He has served in an executive capacity with Atlantic Richfield Co.
(ARCO) and has served on the Board of Directors of several of the Unified's
subsidiaries. Additionally, he has served on the Board of Directors of the
National American Wholesale Grocers Association (NAWGA) and the California
Grocer's Association (CGA), and has been a member of the Industry Relations
Committee of the Food Marketing Institute (FMI).

Andrew Reicher has been the executive director of the Urban Homesteading
Assistance Board, Inc. (UHAB) since 1981. He received a master's degree in
architecture at the University of California, Berkeley and a bachelor of arts
degree in liberal arts, with honors, at Bowdoin College in Brunswick, Maine.

COMPOSITION OF BOARD OF DIRECTORS

The Act provides that the Board of Directors of NCB shall consist of 15
persons serving three-year terms. An officer of NCB may not also serve as a
director. The President of the United States is authorized to appoint three
directors with the advice and consent of the Senate. Of the Presidential
appointees, one must be selected from among proprietors of small business
concerns that are manufacturers or retailers; one must be selected from among
the officers of the agencies and departments of the United States; and one must
be selected from among persons having extensive experience representing
low-income cooperatives eligible to borrow from NCB. Rafael E. Cuellar is the
Presidential appointee from among proprietors of small business concerns.
Michael D. Scott is the Presidential appointee from among the officers of U.S.
agencies and departments. Harry J. Bowie is the Presidential appointee from
among persons representing low-income cooperatives.

The remaining 12 directors are elected by the holders of Class B and Class
C stock. Under the bylaws of NCB, each stockholder-elected director must have at
least three years experience as a director or senior officer of the class of
cooperatives that he or she represents. The five classes of cooperatives are:
(a) housing, (b) consumer goods, (c) low-income cooperatives, (d) consumer
services, and (e) all other eligible cooperatives. At all times each class must
have at least one, but not more than three, directors representing it on the
Board.

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Only holders of NCB's Class B and Class C stock have voting rights, and
they vote as one class under the terms of the weighted voting system adopted by
NCB to comply with the Act. The NCB by-laws and election rules policy provide
that (1) each stockholder of record who is also a borrower from NCB (a
"borrower-stockholder") is entitled to five votes, (2) each borrower-stockholder
is entitled to additional votes, up to a total of 120, based on a formula
measuring the proportion that such borrower-stockholder's patronage with NCB
bears to the total patronage during a period of time fixed by the election
rules, and (3) each stockholder who is not a borrower from NCB shall receive one
vote, and non-borrower stockholders as a class shall receive at least 10% of the
votes allocated.

The by-laws and election rules further provide that, notwithstanding any
allocations of votes which would otherwise result from the foregoing rules (1)
no stockholder shall be entitled to more than 5% of the total voting control
held by all stockholders, (2) the total votes allocated to any class of
cooperatives shall not exceed 45% of the total, and (3) no stockholder which is
a "developing cooperative" shall be entitled to more than five votes. A
developing cooperative is defined as a cooperative that is in a developmental or
fledgling state of operation and that does not have members who are ultimate
consumers or primary consumers.

NCB has reserved the right to alter its voting policy at any time to comply
with the requirement of the Act that its voting system should not result in: (1)
voting control of NCB becoming concentrated with larger, more affluent or
smaller, less affluent organizations, (2) a disproportionate concentration of
votes in any housing cooperatives or low-income cooperatives or consumer goods
and services cooperatives, or (3) the concentration of more than 5% of the
voting control in any one Class B or Class C stockholder.

NCB may refuse to honor any stockholder's voting rights, except to the
extent of one vote, if the stockholder is more than 90 days late on any payment
to NCB at the time such rights would otherwise be exercised.

COMMITTEES OF THE BOARD

The Board of Directors directs the management of NCB and establishes the
policies of NCB governing its funding, lending, and other business operations.
In this regard, the Board has established a number of committees, such as
Audit/Risk Management, Compensation, Cooperative Services, Development
Banking/Low Income, Executive/Strategic Finance, Nominating and Strategic
Planning Committees.

The Audit/Risk Management Committee shall assist the Board of Directors in
fulfilling its statutory and fiduciary responsibilities. It is responsible for
overseeing all examinations and audits, monitoring all accounting and financial

94

reporting practices, determining that there are adequate administrative and
internal accounting controls and assuring that NCB, its subsidiaries and
affiliate are operating within prescribed policies and procedures and in
conformance with the applicable conflict of interest policies. The members of
the committee are Stuart M. Saft (Chair), Stephanie McHenry, and Walden Swanson,
William Casey, Jr. and Michael D. Scott.

The Compensation Committee is responsible for assuring that the senior
executives are compensated effectively in a manner consistent with the stated
compensation strategy of NCB, internal equity considerations, competitive
practice and the requirements of appropriate regulatory agencies. The Committee
shall also communicate to the members the compensation policies and the
reasoning behind such policies. The members of the committee are Michael J.
Mercer (Chair), Kirby J. Erickson, Harry J. Bowie, and Jackie Jenkins-Scott.

The Cooperative Services Committee is responsible for providing input to
management regarding the development of a Cooperative Services Strategic Plan
and making a recommendation regarding adoption of the plan to the Board of
Directors, providing regular feedback to NCB management as management tests,
implementing and validating components of the plan and provide regular reporting
to the Board of Directors on progress made with the Strategic Plan. The members
of the committee are Thomas K. Zaucha (Chair), Dean Janeway, H. Jeffrey Leonard
and Peter C. Young.

The Development Banking/Low Income Committee is responsible for evaluating
NCB's best efforts to achieve 35% of loans outstanding to low income
cooperatives in accordance with established policies and for recommending to
management ways in which NCB can further leverage its resources to have maximum
impact on low income communities. The Committee is also responsible for
collaborating with NCB Development Corporation (NCBDC) to establish a plan for
the creation and implementation of a development banking strategy that
integrates and focuses resources across NCB and NCBDC, resulting in a range of
development banking financial services that can be delivered to low income
communities and other community development financial institutions. The members
of the committee are H. Jeffrey Leonard, Dean Janeway, Stephanie McHenry, Walden
Swanson and Rafael E. Cuellar.

The Executive/Strategic Finance Committee exercises all powers of the Board
of Directors when waiting for the next regular meeting will adversely affect the
best interests of NCB, authorizes actions on fast moving issues when authority
is granted by the entire board, reviews and approves loans in excess of
management authority and loan policy exceptions, serves as the appeal authority
for loan turndowns, recommends nominees to the Board to fill unexpired terms of
previously elected board members and reviews and recommends for board approval
the consolidated annual budget. The members of the committee are Kirby J.
Erickson (Chair), Harry J. Bowie, Jackie Jenkins-Scott, Michael J. Mercer and
Stuart Saft.

95

The Nominating Committee annually oversees the election for NCB directors.
The committee also periodically drafts election rules on behalf of the Board of
Directors. The members of the committee are Peter C. Young (Chair),
William F. Casey, Jr., and Thomas K. Zaucha.

The Strategic Planning Committee monitors and reviews all NCB related
entities' planning activities delegated to them by the board. The members of the
committee are the full Board of Directors.

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ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF THE OFFICERS

The following table sets forth the compensation during the last three
fiscal years of NCB's Chief Executive Officer and its four other most highly
compensated executive officers.

* The "All Other Compensation" reported for 2002 consists of NCB's
contributions to the defined contribution retirement plan accounts of the named
officers; NCB's matching contributions to the 401 (k) plan accounts of the named
officers, and NCB's payments of insurance premiums for the named officers as
follows:

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EMPLOYMENT-RELATED CONTRACT

NCB has entered into a severance agreement with Charles E. Snyder,
President and CEO. Under the Agreement, in the event of a termination of Mr.
Snyder's employment as President of NCB for any reason other than termination
for cause or voluntary resignation, NCB will provide to Mr. Snyder a severance
benefit, which is generally for an 18-month period at a rate equal to his salary
(including deferred compensation) in effect at the time of termination of
employment (or in certain circumstances his salary 60 days prior to notice). In
addition, for the first six months, he will be entitled to certain other
benefits. The agreement provides for a resignation allowance in the amount of
one year's salary payable over three years after voluntary resignation. The
agreement includes other terms and conditions, including non-competition
provisions and reductions under certain circumstances.

COMPENSATION OF THE BOARD

Under the Act, directors appointed by the President from among proprietors
of small businesses and from persons with experience in low-income cooperatives,
are entitled to (1) compensation at the daily equivalent of the compensation of
a GS18 civil servant (now "Senior Executive Service") which amounted in 2002 to
$531.54 a day, and (2) travel expenses. Typically, they receive compensation for
no more than nine days a year. Directors elected by shareholders are entitled to
(1) annual compensation of $10,000, (2) $1,000 for the chairman of each
committee, (3) $1,000 for each board meeting attended, (4) $250 for each
committee meeting attended up to two meetings only, and (5) travel expenses. The
Chairman of the Board is entitled to an additional $8,000. Directors of
subsidiary corporations are entitled to (1) $500 for each board meeting
attended when not held in conjunction with NCB board meetings and (2) travel
expenses.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

STOCK OWNERSHIP OF CERTAIN STOCKHOLDERS AND MANAGEMENT

Several of NCB's stockholders own in excess of 5 percent of the outstanding
shares of NCB's Class B or Class C stock. The shareholders purchased a portion
of this stock in connection with sizable loans made by NCB to them and received
a portion of the stock as patronage dividends from NCB. NCB's voting policy,
however, does not allocate voting rights solely based on the number of shares of
Class B or Class C stock held and prohibits any one stockholder from being
allocated more than five percent of the votes allocated in connection with any
stockholder action.

99

The following table shows those cooperatives that owned more than 5 percent
of NCB's Class B or Class C stock as of December 31, 2002.

(1) Included in the above are 4,841.24 shares and 2,769.48 shares of Class B
and C stock, respectively, held of record by Central Minnesota Group Health Plan
that is affiliated with GHI.

Because the Act restricts ownership of NCB's Class B and Class C stock to
eligible cooperatives, NCB's officers and directors do not own any Class B or
Class C stock, although cooperatives with which they are affiliated may own such
stock.

ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

CERTAIN TRANSACTIONS

The following table sets forth information concerning certain transactions
by which NCB and its subsidiaries have made loans or leases to organizations
with which NCB directors or executive officers are affiliated. The first column
lists the name of the director or executive officer who is related to the loan
or lease recipient. The second column sets forth the name of the organization to
which the loan or lease was made. (Loans labeled as "personal" were made to the
named director or officer). The last three columns list loan balances and
interest rates as of the specified dates. The text following the table further
describes the nature of the transactions set forth in the table.

The following loans and leases were made in the ordinary course of NCB's
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of uncollectability
or present other unfavorable features.

100

101

102

103

NCB has a $6 million committed line of credit facility and a $7.5 million
bid line with The Co-operative Central Bank of which Mr. Casey is the President
and Chief Executive Officer.

NCB has two outstanding commercial loans with HealthPartners Obligated
Group (HPOG), which includes Group HealthPartners (GHI), HealthPartner/
Administrator, Inc. (HPAI), and Central Minnesota Group Health Plan, Inc.
(CMGHP). HealthPartners, Inc. (HPI) is the parent company of HPOG. Mr. Erickson
is Senior Executive, Corporate Project Management for HPI. These loans were used

104

to fund a new healthcare center and refinance an existing term loan.
Mr. Erickson retired from HealthPartners in December 2001.

NCB has loans to members of Wakefern Food Corp. Wakefern guarantees some of
these loans. Dean Janeway is President and CEO of Wakefern. The loans were for
store renovation, equipment, real estate, inventory, and working capital. Some
of these loans have been sold in the capital markets.

NCB has entered into agreements with Grocers Capital Company (GCC) and
United Resources, Inc. (URI), finance subsidiaries of United Western Grocers
(UWG) of which Mr. Plamann is President and Chief Executive officer, to purchase
member loans originated by GCC and URI. NCB also provides a line of credit to
GCC. In 2000, NCB agreed to modify its financing arrangements with GCC and URI.
Finally, GCC and UWG provide guarantees on several loans to members of UWG, some
of which have been sold and are not reflected on NCB's books.

NCB has a $2.5 million line of credit with Area Cooperative Educational
Services of which Mr. Young was the Executive Director until his retirement. The
line of credit is for working capital needs.

NCB has two loans outstanding with Hilltop Properties. Hilltop Properties
is a member of the National Grocers Association of which Mr. Zaucha is
President. The loans were used for a real estate refinancing, to purchase
furniture, fixtures, equipment and inventory and to remodel a store.
Additionally, NCB originated four loans with Greenwich Associates, a real estate
company which leases property to D'Agostinos Markets, a chain grocery operation
and member of the National Grocers Association. The loans were made to refinance
the real estate whose primary tenants are the D'Agostinos Markets. NCB has sold
these commercial real estate loans in the secondary market.

NCB has lease financing to National Cooperative Business Association of
which Mr. Snyder, President and CEO of NCB, is a Board Member. The lease
financing is for business furniture and equipment. Also available is a $500
thousand working capital line of credit.

H. Jeffrey Leonard is President of GEF Management Corporation. NCB has made
an ESOP loan to GEF.

NCB believes that the foregoing transactions contain terms comparable to
those obtainable in an arm's length transaction. NCB had determined that these
loans are in accordance with its lending policies, were properly approved and

105

were within the applicable regulatory limitations and any or all were evaluated
for disclosure in the financial statements.

106

PART III
ITEM 14. 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.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K

Financial Statements:

(a)(1) The following financial statements are filed as a part of this report.

Financial Statements as of December 31, 2002, 2001, and 2000.

107

(a)(2) Not applicable

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements, or the notes thereto.

EXHIBITS:

(a)(3) The following exhibits are filed as a part of this report.

108

*(n) 10.13 NCB Executive Long-Term Incentive Plan

(m) 10.23 Note Purchase Agreement with Prudential Insurance Company of
America (Dec. 1999)

(n) 10.25 Note Purchase and Uncommitted Master Shelf Agreement with
Prudential (Dec. 2001)

109

(p) 10.31 Split Dollar Agreement with Chief Executive Officer

(q) 10.32 Fourth Amended and Restated Loan Agreement with Fleet Bank as
Agent

*(r) 10.32 NCB Executive Short-Term Incentive Plan for 2002

*(s) 10.33 Award Agreement under Executive Long-Term Plan for 2002

(o) 13 2001 Annual Report

(aa) 21.1 List of Subsidiaries and Affiliates of the NCB

(aa) 23.1 Consent of KPMG LLP

(aa) 23.2 Explanation concerning abscence of current Written Consent of ARTHUR ANDERSEN LLP

(a6) 24.1 Power of Attorney by Dean Janeway

(k) 24.3 Power of Attorney by Kirby J. Erickson

(k) 24.5 Power of Attorney by Jackie Jenkins-Scott

(g) 24.7 Power of Attorney by Harry J. Bowie

(k) 24.8 Power of Attorney by Michael J. Mercer

(k) 24.9 Power of Attorney by Peter C. Young

(k) 24.10 Power of Attorney by Thomas K. Zaucha

(n) 24.11 Power of Attorney by Stephanie McHenry

(f) 24.12 Power of Attorney by Stuart M. Saft

(aa) 24.14 Power of Attorney by Walden Swanson

(aa) 24.15 Power of Attorney by Michael D. Scott

(aa) 24.16 Power of Attorney by Rafael E. Cuellar

(aa) 24.17 Power of Attorney by Willliam F. Casey, Jr.

(aa) 24.18 Power of Attorney by H. Jeffery Leonard

110

(aa) 99.1 Certification
(aa) 99.2 Certification

(aa) 99.3 Registrant's 2003 Election Materials

* Exhibits marked with an asterisk are management contracts or compensatory
plans.

(a) Incorporated by reference to the exhibit of the same number filed as part
of Registration Statement No. 2-99779 (Filed August 20, 1985).

(b) Incorporated by reference to the exhibit of the same number filed as part
of Amendment No. 1 to Registration Statement No. 2-99779
(Filed May 7, 1986).

(c) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1989 (File No. 2-99779).

(d) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's quarterly report on Form 10-Q for the three months
ended June 30, 1992 (File No. 2-99779).

(e) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1994 (File No. 2-99779).

(f) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1995 (File No. 2-99779).

(g) Incorporated by reference to Exhibit 10.16 filed as part of the
registrant's annual report on Form 10-K for the year ended
December 31, 1989 (File No. 2-99779).

(h) Incorporated by reference to Exhibit 4.1 filed as part of Amendment No. 1
to Registration Statement No. 333-17003 (Filed January 21, 1997).

(i) Incorporated by reference to Exhibit 4.2 filed as part of Amendment No. 1
to Registration Statement No. 333-17003(Filed January 21, 1997).

(j) Incorporated by reference to Exhibit 4 to the registrant's report on Form
8-K filed February 11, 1997 (File No. 2-99779).

111

(k) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1997 (File No. 2-99779).

(l) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's quarterly report on Form 10-Q for the quarter ended
June 30,1999 (File No. 2-99779).

(m) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended
December 31, 1999 (File No. 2-99779).

(n) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's annual report on Form 10-K for the year ended December,
2001 (File No. 2-99779).

(o) Incorporated by reference to the exhibit of the same number filed as part
of the registrant's quarterly report on Form 10-Q for the quarter ended
March 31, 2002 (File No. 2-99779).

(p) Incorporated by reference to exhibit 17 filed as part of the registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 2002
(File No. 2-99779).

(q) Incorporated by reference to exhibit 20 filed as part of the registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 2002
(File No. 2-99779).

(r) Incorporated by reference to exhibit 28 filed as part of the registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 2002
(File No. 2-99779)

(s) Incorporated by reference to exhibit 99 filed as part of the registrant's
quarterly report on Form 10-Q for the quarter ended September 30, 2002
(File No. 2-99779)

(aa) Filed herewith

Reports on Form 8-K

(b) The Registrant did not file any report on Form 8-K during the last quarter
of 2002.

112

SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.

NATIONAL CONSUMER COOPERATIVE BANK

DATE: MARCH 31, 2003 BY /s/ Charles E. Snyder
-----------------------------------------
Charles E. Snyder
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:

113

William F. Casey, Jr.

*/s/ H. Jeffrey Leonard Director 3/31/03
---------------------------------
H. Jeffrey Leonard

*/s/ Dean Janeway Director 3/31/03
---------------------------------
Dean Janeway

*/s/ Jackie Jenkins-scott Director 3/31/03
---------------------------------
Jackie Jenkins-Scott

*/s/ Stephanie Mchenry Director 3/31/03
---------------------------------
Stephanie McHenry

*/s/ Stuart M. Saft Director 3/31/03
---------------------------------
Stuart M. Saft

*/s/ Peter C. Young Director 3/31/03
---------------------------------
Peter C. Young

*/s/ Thomas K. Zaucha Director 3/31/03
---------------------------------
Thomas K. Zaucha

* By /s/ Richard L. Reed
-------------------
Richard L. Reed
(Attorney-in-Fact)

114

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT

With this report, the registrant is furnishing to the Commission for its
information the registrant's election materials for its 2003 annual meeting. The
registrant has not yet distributed the 2002 annual report to security holders
and will furnish such report to the Commission when it is sent to security
holders.

INDEX TO EXHIBITS

Exhibit No. Description
- --------------------------------------------------------------------------------
3.3 Bylaws of NCB

4.1 Election rules of NCB

21.1 List of Subsidiaries and Affiliates of NCB

23.1 Consent of KPMG LLP

23.2 Explanation concerning abscence of current Written
Consent of Arthur Andersen

24.14 Power of Attorney by Walden Swanson

24.15 Power of Attorney by Michael D. Scott

24.16 Power of Attorney by Rafael E. Cuellar

24.17 Power of Attorney by William F. Casey, Jr.

24.18 Power of Attorney by H. Jeffery Leonard

99.1 Certification

99.2 Certification

99.3 Registrant's 2002 Election Materials

115