UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

National Consumer Cooperative Bank

(12 U.S.C. Section 3001 et. seq.)		52-1157795
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
601 Pennsylvania Avenue, N.W., North Building, Suite 750, Washington, D.C.		20004
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (202) 349-7444

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 for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See Definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of September 30, 2010: Class B 1,795,981; Class C 254,373.

 

 

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Balance Sheets — September 30, 2010 (unaudited) and December 31, 2009			1
Condensed Consolidated Statements of Operations (unaudited) — for the three and nine months ended September 30, 2010 and 2009			2
Condensed Consolidated Statements of Comprehensive Loss (unaudited) — for the nine and three months ended September 30, 2010 and 2009			3
Condensed Consolidated Statements of Changes in Members’ Equity (unaudited) — for the nine months ended September 30, 2010 and 2009			4
Condensed Consolidated Statements of Cash Flows (unaudited) — for the nine months ended September 30, 2010 and 2009			5-6
Condensed Notes to the Consolidated Financial Statements (unaudited) — September 30, 2010			7-36
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited) — for the nine and three months ended September 30, 2010 and 2009			37-54
Item 3 Quantitative and Qualitative Disclosures about Market Risk			55
Item 4T Controls and Procedures			55
PART II OTHER INFORMATION
Item 1 Legal Proceedings			55
Item 1A Risk Factors			55
Item 6 Exhibits			56
Signatures			57
Exhibit 31.1
Exhibit 31.2
Exhibit 32

NATIONAL CONSUMER COOPERATIVE BANK

		September 30, 2010				December 31, 2009
		(Unaudited)
Assets
Cash and cash equivalents		$	220,447			$	258,406
Federal funds sold			4,326				7,684
Total cash and cash equivalents			224,773				266,090
Restricted cash			3,179				179
Investment securities
Available-for-sale			48,089				29,805
Held-to-maturity			387				387
Loans held-for-sale ($30.1 million and $1.8 million recorded at fair value, respectively)			45,149				35,730
Loans held-for-investment			1,379,374				1,693,689
Less: Allowance for loan losses			(43,221	)			(36,468	)
Net loans and lease financing			1,336,153				1,657,221
Other assets			108,466				104,125
Total assets		$	1,766,196			$	2,093,537
Liabilities and Members’ Equity
Liabilities
Deposits		$	1,117,498			$	1,253,954
Borrowings			428,815				614,553
Other liabilities			34,613				40,441
Total liabilities			1,580,926				1,908,948
Members’ equity
Common stock			205,035				205,035
Retained deficit — unallocated			(19,551	)			(19,650	)
Accumulated other comprehensive loss			(214	)			(796	)
Total members’ equity			185,270				184,589
Total liabilities and members’ equity		$	1,766,196			$	2,093,537

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
Interest income
Loans and lease financing		$	20,093			$	26,734			$	66,086			$	81,823
Investment securities			393				785				1,098				2,485
Other interest income			622				544				1,736				1,603
Total interest income			21,108				28,063				68,920				85,911
Interest expense
Deposits			5,301				6,650				16,411				21,759
Borrowings			5,049				13,297				19,225				26,301
Total interest expense			10,350				19,947				35,636				48,060
Net interest income			10,758				8,116				33,284				37,851
Provision for loan losses			2,151				12,182				11,009				36,967
Net interest income (loss) after provision for loan losses			8,607				(4,066	)			22,275				884
Non-interest income
Gain on mortgage banking activities and loan sales			7,234				3,150				15,344				9,914
Servicing fees			970				714				3,976				3,066
Letter of credit fees			828				1,161				2,479				3,422
Real estate loan fees			418				137				1,005				473
Other			1,079				596				2,511				2,104
Total non-interest income			10,529				5,758				25,315				18,979
Non-interest expense
Compensation and employee benefits			7,377				7,339				23,487				22,903
Provision for losses on unfunded commitments			1,831				4,026				1,574				6,502
Occupancy and equipment			1,555				1,668				4,564				5,037
Contractual services			1,328				3,063				6,104				5,874
Loan costs			1,284				968				3,377				2,532
FDIC premium			978				535				2,810				1,992
Information systems			915				986				3,078				3,237
Corporate development			177				289				497				833
(Loss) gain on sale of investments available-for-sale			—				(5	)			—				89
Other-than-temporary impairment losses (OTTI) (all OTTI is credit-related)
Gross impairment losses			—				2,312				—				3,792
Less: impairments recognized in other comprehensive income (before taxes)			—				—				—				(158	)
Net impairment losses recognized in earnings			—				2,312				—				3,634
Lower of cost or market valuation allowance — loans held-for-sale			20				698				(20	)			289
Other			693				663				2,057				1,728
Total non-interest expense			16,158				22,542				47,528				54,650
Income (loss) before income taxes			2,978				(20,850	)			62				(34,787	)
Income tax provision (benefit)			75				889				(37	)			(32	)
Net income (loss)		$	2,903			$	(21,739	)		$	99			$	(34,755	)
Distribution of net income (loss)
Patronage dividend accrual		$	—			$	(97	)		$	—			$	—
Retained earnings (deficit)			2,903				(21,642	)			99				(34,755	)
		$	2,903			$	(21,739	)		$	99			$	(34,755	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK

		For the nine months ended
		September 30,
		2010				2009
Net income (loss)		$	99			$	(34,755	)
Other comprehensive loss:
Non-credit portion of OTTI			—				(158	)
Recognition of unrealized losses due to OTTI			—				3,792
Remaining change in unrealized holding gain before tax on available-for-sale investment securities and interest-only non-certificated receivables			597				332
Tax effect			(15	)			(116	)
Comprehensive income (loss)		$	681			$	(30,905	)

		For the three months ended
		September 30,
		2010				2009
Net income (loss)		$	2,903			$	(21,739	)
Other comprehensive income (loss):
Recognition of unrealized losses due to OTTI			—				2,312
Remaining change in unrealized holding loss before tax on available-for-sale investment securities and interest-only non-certificated receivables			(55	)			(116	)
Tax effect			(3	)			(22	)
Comprehensive income (loss)		$	2,845			$	(19,565	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK

														Accumulated
						Retained				Retained				Other				Total
		Common				Earnings				Deficit				Comprehensive				Members’
		Stock				Allocated				Unallocated				Loss				Equity
Balance, December 31, 2009		$	205,035			$	—			$	(19,650	)		$	(796	)		$	184,589
Net income			—				—				99				—				99
Unrealized gain on available-for-sale investment securities and interest-only non-certificated receivables, net of taxes			—				—				—				582				582
Balance, September 30, 2010		$	205,035			$	—			$	(19,551	)		$	(214	)		$	185,270
														Accumulated
						Retained				Retained				Other				Total
		Common				Earnings				Earnings				Comprehensive				Members’
		Stock				Allocated				Unallocated				Loss				Equity
Balance, December 31, 2008		$	197,784			$	7,154			$	25,008			$	(4,432	)		$	225,514
Adjustment to opening balance			—				—				77				(77	)			—
Balance, January 1, 2009			197,784				7,154				25,085				(4,509	)			225,514
Net loss			—				—				(34,755	)			—				(34,755	)
Non-credit portion of 2009 OTTI			—				—				—				(158	)			(158	)
2008 patronage dividends distributed in stock			7,251				(7,154	)			(97	)			—				—
Recognition of unrealized losses due to OTTI			—				—				—				3,792				3,792
Remaining change in unrealized gain on available-for-sale investment securities and interest-only non-certificated receivables, net of taxes			—				—				—				216				216
Balance, September 30, 2009		$	205,035			$	—			$	(9,767	)		$	(659	)		$	194,609

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK

		2010				2009
Cash flows from operating activities
Net income (loss)		$	99			$	(34,755	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provision for loan losses			11,009				36,967
Provision for losses on unfunded commitments			1,574				6,502
Amortization and writedown of interest-only receivables and servicing rights			5,054				9,583
Depreciation and amortization, other			1,726				6,172
Gain on mortgage banking activities and loan sales			(15,344	)			(9,914	)
Net impairment losses recognized in earnings			—				3,634
Loss on sale of investments available-for-sale			—				89
Purchases of loans held-for-sale			(246,968	)			(141,018	)
Loans originated for sale, net of principal collections			(387,153	)			(351,378	)
Lower of cost or market valuation allowance			(20	)			289
Net proceeds from sale of loans held-for-sale			846,345				497,665
Increase in other assets			3,161				8,544
Decrease in other liabilities			(6,695	)			(1,652	)
Net cash provided by operating activities			212,788				30,728
Cash flows from investing activities
Increase in restricted cash			(3,000	)			—
Purchase of investment securities
Available-for-sale			(25,000	)			(8,016	)
Proceeds from maturities or repayments of available-for-sale securities			18,750				7,176
Proceeds from the sale of available-for-sale securities			—				10,902
Net decrease in loans held-for-investment			78,390				28,145
Purchase of premises and equipment			(169	)			(155	)
Net cash provided by investing activities			68,971				38,052
Cash flows from financing activities
Net decrease in deposits			(137,178	)			(65,258	)
Increase in borrowings			—				189,515
Repayment of borrowings			(185,738	)			(101,699	)
Incurrence of debt amendment costs			(160	)			(3,392	)
Incurrence of financing costs			—				(3,425	)
Net cash (used in) provided by financing activities			(323,076	)			15,741
(Decrease) increase in cash and cash equivalents			(41,317	)			84,521
Cash and cash equivalents, beginning of period			266,090				39,971
Cash and cash equivalents, end of period		$	224,773			$	124,492

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK

Supplemental schedule of non-cash investing and financing activities:		2010				2009
Loans transferred to other real estate owned		$	6,542			$	4,909
Loans held-for-sale transferred to loans held-for-investment, at the lower of cost or market			2,656				3,788
Loans held-for-investment transferred to loans held-for-sale, at the lower of cost or market			214,510				21,464
Exchage of loans held-for-sale for investment securities			11,462				—
Supplemental information:
Interest paid		$	34,524			$	40,347
Income taxes paid			277				599

The accompanying notes are an integral part of these condensed consolidated financial statements.

NATIONAL CONSUMER COOPERATIVE BANK
CONDENSED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2010
(Unaudited)

1. BASIS OF PRESENTATION

The Company has condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles, or GAAP, in the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to the Company’s financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, debt covenants and compliance projections, other-than-temporary impairment evaluations, deposit flows, demand for mortgage, commercial and other loans, real estate values, performance of collateral underlying certain securities, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing products and services.

The National Consumer Cooperative Bank (“the Company”) is a financial institution, organized under the laws of the United States, that primarily provides financial services to eligible cooperative enterprises or enterprises controlled by eligible cooperatives throughout the United States. A cooperative enterprise is an organization owned by its members and 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. The Company is structured as a cooperative institution whose voting stock can only be owned by its borrowers or those eligible to become its borrowers (or organizations controlled by such entities).

The Company operates directly and through its wholly owned subsidiaries, NCB Financial Corporation and NCB, FSB. This Form 10-Q provides information regarding the consolidated business of the Company and its subsidiaries and, where appropriate and as indicated, provides information specific to the Holding Company, NCB Financial Corporation or NCB, FSB. In general, unless otherwise noted, references in this report to the Company refer to the Company and its subsidiaries collectively. The chart below provides specific explanations of the various entities that may be referenced throughout this Form 10-Q:

Entity		Principal Activities
The Company		Financial institution that primarily provides financial services to eligible cooperatives or enterprises controlled by eligible cooperatives. Unless otherwise indicated, references to the Company are references to the consolidated business of the Company and its subsidiaries.
NCCB (“Holding Company”)		References to the “Holding Company” are references to the legal entity of the National Consumer Cooperative Bank alone and not its subsidiaries.
NCB Financial Corporation		Intermediate holding company, wholly owned subsidiary of the Company and owner of NCB, FSB.
NCB, FSB		Federally chartered and Federal Deposit Insurance Corporation (“FDIC”)-insured thrift institution that provides a broad range of financial services to cooperative and non-cooperative customers. NCB, FSB is a wholly owned subsidiary of NCB Financial Corporation and is an indirect wholly owned subsidiary of the Company.

The Company originates various types of loans. The following are the primary types of such loans.

•   Consumer Loans		Consumer Loans, including auto loans, include unsecured or secured loans to individuals primarily for personal use. If secured, Consumer Loans are secured by collateral other than real estate.
•   Commercial Loans		Commercial Loans include unsecured or secured loans to businesses (including small business “SBA Loans” and loans to retailer members of wholesaler cooperatives), franchises, community associations, cooperative housing corporations (unsecured only) and other entities to refinance debt or fund capital improvements. Commercial Loans to businesses and franchises are primarily secured by personal property, rents or other cash flows. Commercial Loans to community associations (“Community Association Loans”) are secured by an assignment of condominium or homeowner assessments, accounts and rents and the association’s rights to collect them.
		Commercial loans that are used for purposes other than the development and/or ownership of non-residential real property but are secured by non-residential real property are categorized as Real Estate — Commercial Loans.
•   Real Estate — Residential Loans		Residential Real Estate Loans include Single-family Residential Loans, Share Loans, Cooperative Loans and Multifamily Loans.
		Single-family Residential Loans are loans to individuals or investors to purchase, refinance, construct or improve residential property consisting of one to four dwellings and are secured by the underlying real estate.
		Share Loans are loans to individuals or investors living in a cooperative housing corporation (created for the sole purpose of owning and managing a residential apartment property for the benefit of its resident shareholders) to finance the purchase or refinance a share within the cooperative. The share or stock certificate serves as collateral for the loan.
		Cooperative Loans are loans to cooperative housing corporations to refinance existing debt or fund capital improvements to the common areas of the entire building. The Company’s Cooperative Loans are secured by the first or second mortgage in the land and buildings and by an assignment of all leases, receivables, accounts and personal property of the cooperative housing corporation.
		Multifamily Loans are loans to businesses or investors to purchase, refinance, construct or improve residential property consisting of five or more dwellings (e.g. apartment housing, student housing, senior housing) and are secured by the underlying real estate.
•   Real Estate — Commercial Loans		Commercial Real Estate Loans are loans to businesses (including small businesses “SBA Loans”) or investors for general borrowing purposes or to purchase, refinance, construct or improve non-residential property (e.g. retail centers, office buildings, industrial properties or self storage warehouse) and are secured by the underlying real estate.

2. ESTIMATES AND ACCOUNTING POLICIES

Estimates

The preparation of financial statements in conformity with GAAP 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 net interest income, non-interest income and non-interest expense. The Company’s more significant estimates include: valuation of financial instruments, valuation of interests retained as a result of loan sales, allowance for loan losses, evaluation of investments for other-than-temporary impairment (OTTI) and measurement of impairment, and valuation of deferred tax assets. While the Company believes the estimates and assumptions are reasonable based on historical experience and other factors, actual results could differ from those estimates and these differences could be material to the financial statements.

Accounting Policies

The following accounting policies comprise those that management believes involve estimates, judgments and assumptions that are the most critical to aid in fully understanding and evaluating the Company’s reported financial results: fair value measurements, other-than-temporary impairment of investments, allowance for loan losses and reserves for unfunded commitments, servicing assets and interest-only receivables, derivative instruments and hedging activities, and income taxes.

The assumptions involved in applying these policies are discussed in the Company’s Annual Report on Form 10-K. Management evaluates these accounting estimates and assumptions on an on-going basis. As of September 30, 2010, the Company has not made any significant changes to the estimates and assumptions used in applying its critical accounting policies from its audited 2009 financial statements.

New Accounting Standards

The FASB issued new guidance regarding transfers and servicing of financial assets and extinguishments of liabilities. This standard requires more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concepts of a “qualifying special-purpose entity,” and a “guaranteed mortgage securitization,” changes the requirement for derecognizing financial assets, and requires additional disclosures. During the nine months ended September 30, 2010, the Company transferred loans to Fannie Mae and several other institutions. These loans were evaluated for sale accounting under the application of this new guidance. The Company has adopted and applied the provisions of this standard as of January 1, 2010.

The FASB issued new guidance regarding the consolidation of variable interest entities. This standard changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance, the obligation to absorb the expected losses of the entity as well as the right to receive the expected residual returns of the entity. The Company is not the primary beneficiary with respect to any variable interest entity.

The FASB amended its guidance regarding subsequent events so that SEC filers, as defined in the Accounting Standards Updates (ASU), no longer are required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements.

The FASB amended guidance regarding Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of the amendment is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. In addition, the amendment requires an entity to disclose credit quality indicators, past due information, and modifications of its financing receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.

The FASB amended guidance regarding Fair Value Measurements and Disclosures. The objective of the amendment is to provide a greater level of disaggregated information and more robust disclosures about valuation techniques and inputs to fair value measurements. The amendment requires new disclosures for changes in sources for fair value measurements and clarifies existing disclosures to disaggregate classes of assets and liabilities as well as disclose valuation techniques and inputs. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

3. SIGNIFICANT RISKS AND UNCERTAINTIES

Adverse Economic Conditions

The operating results of the Company depend largely on conditions in the credit markets and capital markets, national economic conditions as well as economic conditions in the geographic areas where the Company’s borrowers reside or operate their business.

Although the Company believes that the negative impact of the financial markets on its financial condition has subsided to some degree, very challenging economic conditions over the past few years, including declining real estate values and increasing unemployment and commercial real estate vacancy rates, have had and may continue to have an adverse impact on the quality of the Company’s loan portfolios. These conditions have caused deterioration in the quality of the loan portfolios, including: (i) an increase in loan delinquencies, (ii) an increase in non-performing assets and foreclosures, and (iii) a decline in the value of the underlying collateral. A further worsening of these conditions would exacerbate the adverse effects on the profitability and capital levels of the Company, and the Holding Company and NCB, FSB, individually.

Despite the continuation of challenging economic conditions into 2010, the Company has continued its loan origination and sale activities to Fannie Mae and other willing buyers.

In 2009, the Holding Company violated certain financial covenants required under its revolving credit facility and senior note agreements and as a result, these agreements have been amended on several occasions and required the payment of various fees and higher interest costs. The incurrence of these fees and higher interest costs have further adversely impacted the results of the Company’s operations and its capital levels.

The Company has taken actions to raise liquidity and repay the amounts due under the revolving credit facility and senior note agreement and reduced the aggregate outstanding balance to $29.7 million at September 30, 2010 from $215.5 million at December 31, 2009. Although the Holding Company was not required to fully repay the amounts due under the revolving credit facility and senior note agreement by June 30, 2010, if it failed to do so, the Holding Company was required to pay a fee of 2% of the outstanding debt balance as of June 30, 2010. Accordingly, the Holding Company paid $0.8 million which is included in interest expense for the nine months ending September 30, 2010 in the accompanying condensed consolidated statements of operations. On October 25, 2010, the Holding Company paid-off the final $29.7 million of its aggregate outstanding debt that was under its two senior debt agreements, the revolving credit facility dated May 1, 2006 and the Note Purchase and Uncommitted Master Shelf Agreement date December 28, 2001. See Note 14 for more information on the Company’s borrowings and debt maturities.

Regulatory Matters

As disclosed in and filed as exhibits to the Company’s 2009 Form 10-K, on March 15, 2010 the following agreements and orders were entered into (together referred to as the “OTS Actions”):

•

The Holding Company entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (“the Order”) with the Office of Thrift Supervision (“OTS”) on March 15, 2010. In addition to other requirements, the associated OTS order required the Holding Company to submit to the OTS a Business Plan within 45 days, and an updated Liquidity Risk Management Program within 30 days, both for review and comment. These items have been submitted to the OTS, and the OTS has responded with a written non-objection as contemplated by the order. The associated order also provides that the Holding Company pay no cash dividends or redeem or repurchase any equity stock and shall not incur, issue, renew, rollover or increase any debt, without prior approval of the OTS.

•

NCB Financial Corporation entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist with the OTS on March 15, 2010. The associated order provides that NCB Financial Corporation pay no cash dividends or redeem or repurchase any equity stock and shall not incur, issue, renew, rollover or increase any debt, without prior approval of the OTS.

•

NCB, FSB entered into a Supervisory Agreement with the OTS on March 15, 2010. The principal elements of this agreement provide that NCB, FSB not increase its total assets during any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter without prior approval and shall not declare or pay any dividends or make any other capital distribution without prior approval. Additionally, NCB, FSB was required to submit a Business Plan within 45 days and a Liquidity Risk Management Program within 30 days for OTS review and comment. These items have been submitted to the OTS, and the OTS has responded with a written non-objection as contemplated by the Supervisory Agreement.

The Holding Company and its subsidiaries continue transacting normal banking business. The Company has been actively engaged in responding to the concerns raised by the OTS and believes that the Holding Company, NCB Financial Corporation and NCB, FSB are in compliance with the OTS Actions. However, if the financial condition of the Company weakens, the OTS may, upon further inspection, issue additional actions and require the Company to sell assets to increase liquidity, raise capital, or take other steps as they consider necessary.

Capital Levels

The Holding Company and NCB Financial Corporation do not have depositors and are not subject to regulatory capital requirements. However, NCB, FSB, as a federally chartered and federally insured savings bank, is subject to various regulatory capital requirements.

Under the regulatory guidelines, NCB, FSB was “Well Capitalized” as of September 30, 2010 and December 31, 2009. The following table summarizes NCB, FSB’s capital requirements (ratios and dollars) (dollars in thousands):

																		To be Well Capitalized
										For Capital								Under Prompt Corrective
		Actual								Adequacy Purposes								Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
As of September 30, 2010:
Tangible Capital (to tangible assets)		$	166,085				11.42	%		$	21,818				1.50	%			N/A				N/A
Total Risk-Based Capital (to risk-weighted assets)			181,188				14.67	%			98,805				8.00	%		$	123,506				10.00	%
Tier I Risk-Based Capital (to risk-weighted assets)			165,738				13.42	%			N/A				N/A				74,104				6.00	%
Core Capital (to adjusted tangible assets)			166,085				11.42	%			58,180				4.00	%			72,726				5.00	%
As of December 31, 2009:
Tangible Capital (to tangible assets)		$	157,124				9.89	%		$	23,834				1.50	%			N/A				N/A
Total Risk-Based Capital (to risk-weighted assets)			173,911				12.68	%			109,742				8.00	%		$	137,178				10.00	%
Tier I Risk-Based Capital (to risk-weighted assets)			156,724				11.42	%			N/A				N/A				82,307				6.00	%
Core Capital (to adjusted tangible assets)			157,124				9.89	%			63,557				4.00	%			79,446				5.00	%

Management’s Actions and Going Concern Considerations

In order to maintain compliance with the OTS Actions, the Company has taken actions to preserve capital and to enhance liquidity levels, and the Holding Company, specifically, has reduced its aggregate debt outstanding by fully repaying the revolving credit facility and senior note. The Company can give no assurances that it will be able to continue to preserve and enhance capital and liquidity, reduce other debt levels or reduce its exposure to contingent liabilities.

The Company remains vulnerable to general economic and operating conditions adversely impacting the Company’s borrowers, and the value of the real estate and other property that collateralize the Company’s loans. If the general economic and employment conditions, consumer demand and real estate market conditions do not improve or decline further, then the level of non-performing assets may not continue to decrease and may even increase.

As of September 30, 2010, the Company maintained liquid assets totaling $318.0 million as follows: cash balances totaling $224.8 million; investments totaling $48.1 million; and loans held-for-sale totaling $45.1 million. The majority of the cash on hand is held by NCB, FSB. Dividends from NCB, FSB to the Holding Company would require approval by the OTS at this time.

If the Holding Company, NCB Financial Corporation or NCB, FSB were to engage in unsafe and unsound banking practices, or NCB, FSB’s regulatory capital levels deteriorate, the OTS has various enforcement tools available to them including the issuance of capital directives, orders to cease engaging in certain business activities and the issuance of modified or additional orders or agreements, and could seek receivership of NCB, FSB.

As indicated above, NCB, FSB is not permitted to declare or pay any dividends or make any other capital distributions to the Holding Company without prior approval of the OTS. Currently, the Holding Company is not making any new loan originations or commitments and continues to perform its obligations under existing contracts and agreements.

4. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The composition of cash, cash equivalents and restricted cash is as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Cash		$	219,683			$	251,922
Cash equivalents			764				6,484
Total cash and equivalents			220,447				258,406
Federal funds sold			4,326				7,684
Restricted cash			3,179				179
Total		$	227,952			$	266,269

As of September 30, 2010, the Company’s restricted cash includes $3.0 million of cash required to be reserved for treasury management services provided by a third-party banking institution and $179 thousand of cash required to be reserved under the Company’s lease agreement for its New York office (included in restricted cash as of December 31, 2009.)

5. INVESTMENT SECURITIES

The composition of available-for-sale investment securities and interest-only non-certificated receivables (included as a component of other assets) are as follows (dollars in thousands):

		September 30, 2010
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Interest-only non-certificated receivables		$	25,061			$	149			$	(1,018	)		$	24,192
U.S. Treasury and agency obligations			21,123				117				(12	)			21,228
Mortgage-backed securities			23,371				456				(18	)			23,809
Collateralized mortgage obligations (“CMO’s”)			2,839				220				(31	)			3,028
Equity securities			52				—				(28	)			24
Total		$	72,446			$	942			$	(1,107	)		$	72,281

		December 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Interest-only non-certificated receivables		$	25,971			$	201			$	(1,321	)		$	24,851
U.S. Treasury and agency obligations			12,783				203				—				12,986
Mortgage-backed securities			12,981				85				—				13,066
CMO’s			3,637				110				(24	)			3,723
Equity securities			52				—				(21	)			31
Total		$	55,424			$	599			$	(1,366	)		$	54,657

The following tables present the duration of unrealized losses recognized on available-for-sale investment securities and interest-only non-certificated receivables (dollars in thousands):

		September 30, 2010
		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Interest-only non-certificated receivables		$	817			$	(30	)		$	18,651			$	(988	)		$	19,468			$	(1,018	)
U.S. Treasury and agency obligations			10,048				(12	)			—				—				10,048				(12	)
Mortgage-backed securities			570				(18	)			—				—				570				(18	)
CMO’s			87				(12	)			84				(19	)			171				(31	)
Equity securities			—				—				26				(28	)			26				(28	)
Total		$	11,522			$	(72	)		$	18,761			$	(1,035	)		$	30,283			$	(1,107	)

		December 31, 2009
		Less than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Interest-only non-certificated receivables		$	1,111			$	(139	)		$	21,073			$	(1,182	)		$	22,184			$	(1,321	)
CMO’s			78				(24	)			—				—				78				(24	)
Equity securities			—				—				29				(21	)			29				(21	)
Total		$	1,189			$	(163	)		$	21,102			$	(1,203	)		$	22,291			$	(1,366	)

The Company’s investment securities in an unrealized loss position are evaluated for other-than-temporary impairment on a quarterly basis. The Company’s management evaluates the cause of declines in the fair value of each security within each segment of the investment portfolio. The results of those evaluations are as follows:

Interest-only non-certificated receivables

The interest-only non-certificated receivables have been valued using discount rates derived from the commercial mortgage servicing rights market. The interest-only non-certificated receivables are in an unrealized loss position primarily due to changes in the credit spreads demanded by market participants from the time the asset was acquired to the balance sheet date. See note 7 for further disclosure related to key economic assumptions used to value these instruments. Each of the interest-only non-certificated receivables is collateralized only by Cooperative Multifamily Loans originated by the Company. These loans were generally originated at low loan to value ratios and the historical loss experience with respect to these loans has been minimal. The Company does not view these assets as a source of short-term liquidity and does not intend to sell nor believes it will be required to sell these instruments prior to the full recovery of the amortized cost basis of these assets. Consequently as of September 30, 2010, the unrealized losses on the interest-only non-certificated securities are considered temporary in nature.

CMO’s

In evaluating the CMO’s for other-than-temporary impairment, management monitors the credit support of each of the bonds held by the Company, the delinquency and default rates of the underlying collateral mortgages, and the credit ratings of each of the bonds. Although there have been no cashflow interruptions on any of the five CMO securities through September 30, 2010, the financial condition and credit quality of certain underlying issuers or collateral has deteriorated over time. Prior to 2010, the Company had recognized aggregate OTTI on the CMO’s of $3.2 million. The Company projects expected cashflows based on updated estimates of delinquencies, default rates and severity of losses in the event of default and other factors. As of September 30, 2010 the Company does not expect any further deterioration in future cash flows from the CMO’s and the Company does not intend to sell nor is it probable that the Company will be required to sell the CMO investment securities prior to the recovery of the carrying value. Consequently as of September 30, 2010, the unrealized losses on the CMO’s are considered temporary in nature.

The Company did not recognize any OTTI on its available-for-sale investment securities or its interest-only non-certificated receivables during the three and nine months ended September 30, 2010. The company recognized $2.3 million and $3.6 million of OTTI on its available-for-sale investment securities during the three and nine months ended September 30, 2009, respectively.

The tables below presents a roll-forward of the credit-related losses recognized in earnings (dollars in thousands):

		For the three months ended				For the nine months ended
		September 30, 2010				September 30, 2010
Beginning Balance		$	3,171			$	3,171
Credit impairments of interest-only receivables and CMO securities			—				—
Ending Balance		$	3,171			$	3,171

		For the three months ended				For the nine months ended
		September 30, 2009				September 30, 2009
Beginning Balance		$	2,937			$	1,692
Adjustment to opening balance			—				(77	)
Adjusted Beginning Balance		$	2,937			$	1,615
Additions:
Initial credit impairments			2,143				3,465
Subsequent credit impairments			169				169
Ending Balance		$	5,249			$	5,249

The maturities of available-for-sale U.S. Treasury and agency obligations investment securities are as follows (dollars in thousands):

		September 30, 2010
						Weighted
		Amortized				Average				Fair
		Cost				Yield				Value
Within 1 year		$	12,709				0.85	%		$	12,752
After 1 year through 5 years			8,014				0.60	%			8,041
After 5 years through 10 years			85				5.76	%			102
After 10 years			315				5.62	%			333
Total		$	21,123				0.85	%		$	21,228

Substantially all of the CMO’s and mortgage-backed securities have maturity dates greater than 10 years. The remaining contractual principal maturities for mortgage-backed securities were determined assuming no prepayments.

Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.

6. LOANS HELD-FOR-SALE

Loans held-for-sale by category are as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Consumer Loans		$	3,093			$	22,186
Commercial Loans			1,520				1,650
Residential Real Estate Loans			40,536				11,894
Total		$	45,149			$	35,730

The Company has elected to measure, at the time of origination, certain Cooperative and Multifamily Residential Real Estate Loans that were held-for-sale, at fair value. Electing to use fair value allows for a better offset of the change in fair value of the loan held-for-sale and the forward loan sale commitment derivative used to economically hedge the loan without the burden of complying with the requirements of derivative accounting standards. Unrealized gains and losses for these identified loans are included in earnings. The Company has elected the fair value option for $30.1 million and $1.8 million of Residential Real Estate Loans as of September 30, 2010 and December 31, 2009, respectively.

7. LOAN SALES

During the periods presented, the Company sold Commercial, Residential Real Estate and Consumer Loans. Most Residential Real Estate and Commercial Loan sales to Fannie Mae are sold with the servicing retained by the Company; therefore the Company records a Mortgage Servicing Right (“MSR”) at the time of sale in addition to a non-certificated interest-only receivable. The sale of Commercial and Residential Real Estate Loans generated a total of $5.3 million and $4.3 million in retained interests for the nine months ended September 30, 2010, and September 30, 2009, respectively. The Company does not retain servicing or any other interests on Consumer Loan sales.

In total, the Company generated a gain on mortgage banking activities and loan sales of $15.3 million for the nine months ended September 30, 2010 compared with $9.9 million for the nine months ended September 30, 2009. Included in this amount are the fair value adjustments for the undesignated derivatives for the interest rate locks and forward loan sales utilized in the Company’s mortgage banking activities. The amount of the fair value adjustment is $1.7 million and $0.3 million for the nine months ended September 30, 2010 and 2009, respectively.

The following table summarizes the cash flows received from loan sale activity and retained interests for the nine months ended September 30, (dollars in thousands):

		2010				2009
Net proceeds from Consumer Loan sales		$	266,299			$	140,567
Net proceeds from Commercial and Residential Real Estate Loan sales (1)			580,046				357,268
Servicing fees received			5,676				4,986
Cash flows received on interest-only receivables (2)			5,085				10,520

During 2010, $2.7 million of Consumer Loans, originally held-for-sale as of December 31, 2009, were transferred at the lower of cost or fair value to held-for-investment as the market for these loans was extremely limited.

During 2010, the Company transferred $214.5 million of loans that were classified as held-for-investment to loans held-for-sale due to its change in intent to sell these loans to provide liquidity and repay borrowings. These loans were subsequently sold at insignificant gains. Of these loans sold, $176.1 million were Residential Real Estate Loans, $7.8 million were Commercial Real Estate Loans, $28.4 million were Commercial Loans and $2.2 million were Consumer Loans. During 2009, the Company sold $168.5 million of loans. Of these total loans sold, $149.1 million were Residential Real Estate Loans and $19.4 million were Commercial Loans.

During 2010, the Company transferred $11.5 million of Residential Real Estate Loans to a trust created by Fannie Mae. The trust holds only the loans transferred by the Company, and the loans have been fully guaranteed by Fannie Mae. The trust issued mortgage-backed securities fully collateralized by the transferred loans. In exchange for the transfer, the Company retained 100 percent of these beneficial interests issued by the trust, as well as the contractual right to continue to service the loans. The transfer meets the definition of a sale, and as a result, the Company recognized a $0.5 million gain on the transfer for the nine months ended September 30, 2010.

During 2010, the Company transferred a 90 percent interest in a Commercial Loan with an unpaid principal balance of $9.5 million to a participating interest holder. The remaining 10 percent interest has been retained by the Company. The cash flows from the loan are divided proportionately between the Company and the participating interest holder based on their ownership interest, and the Company has not provided any guarantees with respect to the transferred portion. The transferred portion meets the definition of a participating interest; and the Company has accounted for the transfer of the participating interest as a sale, and recorded a gain of $0.4 million for the nine months ended September 30, 2010. The Company retained the right to service the participating portion of the loan.

MSRs are periodically tested for impairment. The impairment test is segmented into the risk tranches, which are stratified, based upon the predominant risk characteristics of the loans such as loan balance, interest rate, length of time outstanding, principal and interest terms and amortization terms. Activity related to MSRs was as follows (dollars in thousands):

		Share and Single-family Residential								Multifamily, Cooperative and
		Loans								Commercial Real Estate Loans								Total
		2010				2009				2010				2009				2010				2009
Balance at January 1		$	4,158			$	2,878			$	10,330			$	10,374			$	14,488			$	13,252
Additions			885				1,594				2,054				650				2,939				2,244
Amortization			(898	)			(913	)			(1,053	)			(778	)			(1,951	)			(1,691	)
Change in valuation allowance(1)			(134	)			184				383				(413	)			249				(229	)
Balance at September 30		$	4,011			$	3,743			$	11,714			$	9,833			$	15,725			$	13,576

Changes in the valuation allowance for MSRs (included as a component of other assets) were as follows (dollars in thousands):

		Share and Single-family Residential								Multifamily, Cooperative and
		Loans								Commercial Real Estate Loans								Total
		2010				2009				2010				2009				2010				2009
Balance at January 1		$	—			$	(184	)		$	(941	)		$	(442	)		$	(941	)		$	(626	)
Additional write-downs			(134	)			(259	)			(218	)			(488	)			(352	)			(747	)
Recoveries			—				443				601				75				601				518
Balance at September 30		$	(134	)		$	—			$	(558	)		$	(855	)		$	(692	)		$	(855	)

The Company utilizes a third-party valuation service to estimate the fair value of its MSRs. The MSR valuation process combines the use of sophisticated discounted cash flow models to arrive at an estimate of fair value at the time of the loan sale and each subsequent balance sheet date. The key assumptions used by our vendor for the valuation of MSRs are mortgage prepayment speeds, the discount rate of residual cash flows and the earnings rate of principal and interest float, escrows and replacement reserves. These variables can and generally will change from quarter to quarter as market conditions and projected interest rates change. Multiple models are required to reflect the nature of the MSR of the different types of loans that the Company services.

Key economic assumptions used in determining the fair value of MSRs at the time of sale for the nine months ended September 30, were as follows:

		2010				2009
Weighted-average life (in years):
Share and Single-family Residential Loans			4.3				5.5
Multifamily, Cooperative and Commercial Real Estate Loans			5.0				7.3
Weighted-average annual prepayment speed:
Share and Single-family Residential Loans			18.3	%			16.0	%
Multifamily, Cooperative and Commercial Real Estate Loans			2.0	%			4.8	%
Residual cash flow discount rate (annual):
Share and Single-family Residential Loans			10.1	%			10.0	%
Multifamily, Cooperative and Commercial Real Estate Loans			13.5	%			9.0	%
Earnings rate P&I float, escrows and replacement reserves:
Share and Single-family Residential Loans			1.5	%			3.0	%
Multifamily, Cooperative and Commercial Real Estate Loans			2.7	%			3.0	%

Key economic assumptions used in measuring the period-end fair value of the Company’s MSRs and the effect on the fair value of those MSRs from adverse changes in those assumptions are as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Fair value of mortgage servicing rights:
Share and Single-family Residential Loans		$	4,011			$	4,867
Multifamily, Cooperative and Commercial Real Estate Loans			13,278				11,214
Weighted-average life (in years):
Share and Single-family Residential Loans			3.1				4.2
Multifamily, Cooperative and Commercial Real Estate Loans			5.9				6.2
Weighted-average annual prepayment speed:
Share and Single-family Residential Loans			26.2	%			20.7	%
Multifamily, Cooperative and Commercial Real Estate Loans			2.6	%			2.6	%
Impact on fair value of 10% adverse change:
Share and Single-family Residential Loans		$	(316	)		$	(312	)
Multifamily, Cooperative and Commercial Real Estate Loans			(78	)			(61	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans			(602	)			(629	)
Multifamily, Cooperative and Commercial Real Estate Loans			(155	)			(121	)
Residual cash flows discount rate (annual):
Share and Single-family Residential Loans			10.3	%			10.3	%
Multifamily, Cooperative and Commercial Real Estate Loans			9.7	%			9.2	%
Impact on fair value of 10% adverse change:
Share and Single-family Residential Loans		$	(100	)		$	(149	)
Multifamily, Cooperative and Commercial Real Estate Loans			(405	)			(336	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans			(195	)			(289	)
Multifamily, Cooperative and Commercial Real Estate Loans			(790	)			(657	)
Earnings rate of P&I float, escrow and replacement:
Share and Single-family Residential Loans			1.5	%			2.8	%
Multifamily, Cooperative and Commercial Real Estate Loans			2.8	%			2.8	%
Impact on fair value of 10% adverse change:
Share and Single-family Residential Loans		$	(27	)		$	(51	)
Multifamily, Cooperative and Commercial Real Estate Loans			(371	)			(330	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans			(54	)			(102	)
Multifamily, Cooperative and Commercial Real Estate Loans			(742	)			(659	)

For non-certificated interest-only receivables, the Company estimates fair value both at initial recognition and on an ongoing basis through the use of discounted cash flow models. The key assumptions used in the valuation of the Company’s interest-only receivables at the time of sale are the life and discount rate of the estimated cash flows which are as follows:

		September 30,
		2010				2009
Weighted-average life (in years)			6.9				9.4
Weighted-average annual discount rate			9.00	%			9.00	%

Key economic assumptions used in subsequently measuring the fair value of the Company’s interest-only non-certificated receivables and the effect on the fair value of the interest-only non-certificated from adverse changes in those assumptions are as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Fair value		$	24,192			$	24,851
Weighted-average life (in years)			5.7				8.9
Weighted average annual discount rate			9.00	%			9.00	%
Impact on fair value of 10% adverse change		$	(1,314	)		$	(683	)
Impact on fair value of 20% adverse change			(1,908	)			(1,335	)

All of the sensitivities above are hypothetical and should be used with caution. The effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another factor, which might compound or counteract the sensitivities.

The unpaid principal balance of loans serviced for others is not included in the accompanying consolidated balance sheets. Changes in the portfolio of loans serviced for others are as follows (dollars in thousands):

		2010				2009
Balance at January 1		$	5,845,743			$	5,550,592
Additions			502,747				351,619
Loan payments and payoffs			(258,465	)			(240,365	)
Balance at September 30		$	6,090,025			$	5,661,846

8. LOANS HELD-FOR-INVESTMENT

Loans held-for-investment by category are as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Consumer Loans		$	14,051			$	17,367
Commercial Loans			482,512				616,343
Real Estate Loans:
Residential			542,862				680,736
Commercial			339,924				379,086
Leases			25				157
Total		$	1,379,374			$	1,693,689

9. IMPAIRED LOANS

A loan is considered impaired when, based on current information, it is probable the Company will be unable to collect all amounts due under the contractual terms of the loan. Outstanding principal of loans considered impaired totaled $108.6 million and $97.7 million as of September 30, 2010 and December 31, 2009, respectively. Of these amounts $24.3 million and $24.7 million were evaluated for impairment and determined to need no reserve. The aggregate average balance of impaired loans was $104.3 million and $73.6 million for the nine months ending September 30, 2010, and the year ending December 31, 2009, respectively. The interest income that was due but not recognized on impaired loans was $4.2 million and $4.7 million for the nine months ended September 30, 2010 and September 30, 2009, respectively.

As of September 30, 2010 and December 31, 2009, the Company’s impaired loans included $26.2 million and $26.3 million, respectively of loans still accruing interest because the borrower is making timely debt service payments; however, the loans were impaired due to actual or probable deterioration in the financial condition or performance of the borrower or due to a decline in the value of the collateral. The remaining $82.4 million and $71.4 million, respectively of loans are not accruing interest because the debt service payments were at least 90 days delinquent.

Due to significant changes in the current valuations of the properties collateralizing certain loans, the Company restructured $14.4 million of impaired loans with an aggregate reserve of $5.1 million during the nine months ended September 30, 2010. After the restructurings and charge-offs, the aggregate unpaid principal balance of the restructured loans was $11.4 million with an aggregate reserve of $2.8 million as of September 30, 2010.

As of September 30, 2010 reserves were deemed to be adequate to cover the estimated loss exposure related to the impaired loans and there were no commitments to lend additional funds to borrowers whose loans were impaired.

During the third quarter of 2010, the Company sold $19.0 million of impaired loans with a carrying amount of $13.3 million, net of specific reserves, to a participating investor. The Company recognized a $1.0 million gain on the sale of these loans.

10. ALLOWANCE FOR LOAN LOSSES

The following is a summary of the components of the allowance for loan losses (dollars in thousands):

		September 30, 2010				December 31, 2009
Allowance on impaired loans		$	24,377			$	14,347
Allowance on non-impaired loans			18,844				22,121
Total allowance for loan losses		$	43,221			$	36,468

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

		2010				2009
Balance as of January 1		$	36,468			$	27,067
Charge-offs
Consumer Loans			(2,936	)			(5,196	)
Commercial Loans			(3,279	)			(13,584	)
Real Estate Loans (Commercial and Residential)			(2,909	)			(1,691	)
Total charge-offs			(9,124	)			(20,471	)
Recoveries
Consumer Loans			638				477
Commercial Loans			347				733
Real Estate Loans (Commercial and Residential)			128				13
Total recoveries			1,113				1,223
Net charge-offs			(8,011	)			(19,248	)
Provision for loan losses			11,009				36,967
Provision reclassification			3,755				—
Balance as of September 30		$	43,221			$	44,786