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

For the quarterly period ended September 30, 2010


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

Commission File Number 2-99779

National Consumer Cooperative Bank

(Exact name of registrant as specified in its charter)


(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

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)


	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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)


	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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
For the nine months ended September 30, 2010 and 2009
(in thousands)
(Unaudited)


									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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2010 and 2009
(in thousands)
(Unaudited)


	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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2010 and 2009
(in thousands)
(Unaudited)


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


(1)		For the nine months ended September 30, 2010, $12.0 million of the net proceeds represent mortgage-backed securities recorded in exchange for loans. See discussion below for more info.

(2)		The 2009 cashflows received on interest-only receivables includes cashflows received from certificated interest-only receivables which were all sold during the fourth quarter of 2009.

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


(1)		Any recoveries do not exceed amortized cost.

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

During 2009, deteriorating economic conditions, including declining real estate values and increasing unemployment and commercial real estate vacancy rates, had an adverse impact on the quality of the Company’s loan portfolios. These conditions 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. Although economic conditions have slightly begun to improve during 2010, the Company’s loan portfolio continues to be negatively impacted.

During 2009, the Company recognized a provision for unfunded commitments of $3.8 million related to the probable expected loss on standby letters of credit with borrowers. During 2010, these borrowers drew on, and the Company funded, the standby letters of credit creating a loan receivable. The provision associated with these borrowers was reclassified from the reserve for unfunded commitments (see Note 11) to the allowance for loan losses.

11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND GUARANTY OBLIGATIONS

The Company is a party to financial instruments with off-balance sheet risk. These financial instruments may include undrawn lines of credit and standby letters of credit and 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 exposure that the Company has in particular classes of financial instruments. The Company may require collateral or other security to support off-balance sheet financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other parties to the undrawn lines of credit and standby letters of credit issued is represented by the contract or notional amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Undrawn Lines of Credit

In the normal course of business, the Company makes commitments to extend lines of credit to customers 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. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral varies, but may include accounts receivable, inventory, property, plant and equipment, and residential and income-producing commercial properties. Since many of the commitments are expected to expire without being partially or completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. As of September 30, 2010 and December 31, 2009, the Company had outstanding undrawn lines of credit of $673.6 million and $764.9 million, respectively.

Standby Letters of Credit

Standby letters of credit can be either financial or performance-based. Financial-based standby letters of credit obligate the Company to disburse funds to a third party if the customer fails to repay an outstanding loan or debt instrument. Performance-based standby letters of credit obligate the Company to disburse funds if the customer fails to perform a contractual obligation, including obligations of a non-financial nature. For the Company’s standby letters of credit issued in connection with certain variable rate municipal bonds, the Company can be called upon to fund the amount of the municipal bond in the event the holder seeks repayment and the bond cannot be sold to another purchaser. As of September 30, 2010, issuance fees associated with the standby letters of credit range from 0.80% to 4.25% of the commitment amount and mature throughout 2010 to 2016.

As of September 30, 2010 and December 31, 2009, a liability of $3.9 million and $4.4 million, respectively, related to the Company’s obligation to stand ready to perform under outstanding standby letters of credit and is presented as other liabilities, and a corresponding asset of $3.3 million and $5.2 million, respectively, was presented as other assets in the condensed consolidated balance sheet related to the issuance fees from the standby letters of credit. The stand-ready obligation is initially recognized at fair value and subsequently amortized over the term of the letter of credit.

Subsequent to the initial recognition of the stand-ready obligation, the Company monitors its standby letters of credit for future probable loss in the event these letters are drawn upon by the customer. In the event that a customer draws on its letter of credit, then the amount previously recognized for the specific stand-ready obligation is reclassified to the reserve for losses. This evaluation considers whether the customer is a borrower under another lending arrangement with the Company and the current status of that lending arrangement.

As of September 30, 2010 and December 31, 2009, the Company had a reserve for losses on standby letters of credit of $8.0 million and $9.3 million, respectively. As of September 30, 2010, the Company had outstanding standby letters of credit with a total commitment amount of $208.5 million of which $89.6 million were for borrowers with other lending arrangements that are classified as criticized. As of December 31, 2009, the Company had outstanding standby letters of credit with a total commitment amount of $245.2 million of which $73.4 million were classified as criticized.

The following is a summary of the activity in the reserve for losses on undrawn lines of credit and standby letters of credit, which is included in other liabilities (dollars in thousands):


	2010
Balance as of January 1	$	10,403
Provision for losses on unfunded commitments		1,574
Provision reclassification *		(3,755	)

Balance as of September 30	$	8,222


	2009
Balance as of January 1	$	2,675
Provision for losses on unfunded commitments		6,502

Balance as of September 30	$	9,177


*		See Note 10 for information regarding this reclassification.

12. OTHER ASSETS

Other assets consisted of the following (dollars in thousands):


	September 30,		December 31,
	2010		2009

Interest-only non-certificated receivables, at fair value	$	24,192	$	24,851
Mortgage servicing rights		15,725		14,488
Premises and equipment, net		11,119		11,957
Federal Home Loan Bank stock		9,651		9,651
Accrued interest receivable		8,248		9,101
Other real estate owned		8,123		2,315
FDIC prepaid premium		5,407		7,957
Fees receivable from standby letters of credit		3,261		5,163
Other prepaid assets		4,696		2,864
Derivative assets		4,695		1,419
Debt issuance costs		3,285		4,687
Equity method investments		3,375		3,046
Other		6,689		6,626

Total other assets	$	108,466	$	104,125

The FHLB of Cincinnati, with whom NCB, FSB banks, has not reduced dividends or provided notice that they have suspended stock redemptions therefore, the decision of some Federal Home Loan Banks (FHLB) to reduce dividend payments and restrict redemptions of stock has not affected the Company.

13. DEPOSITS

Deposits, all of which are held by NCB, FSB, consisted of the following (dollars in thousands):


	September 30, 2010					December 31, 2009
			Average					Average
	Balance		Rate Paid			Balance		Rate Paid
Non-interest bearing demand deposits	$	104,842		—		$	141,493		—
Interest-bearing demand deposits		208,826		0.60	%		211,228		1.06	%
Savings deposits		8,685		0.28	%		8,930		0.27	%
Certificates of deposit		795,145		2.33	%		892,303		2.25	%

Total deposits	$	1,117,498		1.77	%	$	1,253,954		1.78	%

The scheduled maturities of certificates of deposit with a minimum denomination of $100,000 are as follows (dollars in thousands):


	September 30, 2010		December 31, 2009
Within 3 months	$	138,403	$	116,558
Over 3 months through 6 months		105,135		104,160
Over 6 months through 12 months		138,016		164,624
Over 12 months		302,137		382,023

Total certificates of deposit	$	683,691	$	767,365

The Emergency Economic Stabilization Act of 2008 included a provision for an increase in the amount of deposits insured by the FDIC to $250,000. Effective July 21, 2010, the increase of deposit insurance coverage to $250,000 is permanent, under legislation passed on that date.

As of September 30, 2010, NCB, FSB had one depositor with deposits in excess of 5% of NCB, FSB’s total deposits. This depositor had 9.4% or $105.0 million of NCB, FSB’s total deposits of which $4.0 million are maturing within three months. The remaining $101.0 million have maturities ranging from three months to 76 months. The aforementioned depositor has pooled a larger number of individual depositors and placed the aggregate funds with NCB, FSB. All of the related individual deposits are within the $250,000 threshold to be fully insured as of September 30, 2010.

NCB, FSB had $423.5 million and $589.1 million of brokered deposits all relating to certificates of deposit as of September 30, 2010 and December 31, 2009, respectively. Of the $423.5 million of brokered certificates of deposit, $98.3 million mature within three months and $325.2 million has a maturity ranging from four months to 63 months. The Company is actively working to decrease its brokered deposit concentration.

Deposit interest expense is summarized as follows (dollars in thousands):


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
Interest-bearing demand deposits	$	334	$	632	$	1,446	$	2,051
Savings deposits		7		6		19		18
Certificates of deposit		4,960		6,012		14,946		19,690

Total deposit interest expense	$	5,301	$	6,650	$	16,411	$	21,759

14. BORROWINGS

The carrying amounts and maturities of the Company’s various debt instruments are as follows (dollars in thousands):


	Balance			Balance
	September 30,			December 31,						Maturity Date as of
Type	2010			2009			Interest Rate			September 30, 2010

Revolving credit facility	$	18,038		$	128,394			13.50	%	Repaid October 2010

Long-term FHLB		10,000			10,000			5.80	%	June 2011
Long-term FHLB		10,000			10,000			3.55	%	June 2011
Long-term FHLB		20,000			20,000			5.63	%	July 2011
Long-term FHLB		25,000			25,000			1.42	%	August 2011
Long-term FHLB		10,000			10,000			4.42	%	June 2012
Long-term FHLB		10,000			10,000			4.40	%	June 2013
Long-term FHLB		10,000			10,000			4.54	%	June 2013
Long-term FHLB		10,000			10,000			3.18	%	March 2014
Long-term FHLB		20,000			20,000			3.20	%	March 2014
Long-term FHLB		20,000			20,000			3.22	%	August 2014

		145,000			145,000

Senior notes		11,662			87,092			13.50	%	Repaid October 2010

Temporary Liquidity Guarantee Program debt		25,000			25,000			2.74	%	February 2012
Temporary Liquidity Guarantee Program debt		63,688			63,688			2.09	%	May 2012

		88,688			88,688

Subordinated debt — Class A (current)		23,989			23,989			4.79	%*	December 2010
Subordinated debt — Class A (non-current)		90,000			90,000			2.18	%*	October 2020

Junior subordinated debt		51,547			51,547			3.20	%	January 2034

Debt valuation and discount		(109	)		(157	)


Total borrowings	$	428,815		$	614,553


*		Weighted average interest rate

Revolving Credit Facility and Senior Notes

The Holding Company has reduced its aggregate debt outstanding on the revolving credit facility and senior note to $29.7 million at September 30, 2010 from $215.5 million at December 31, 2009.

On October 25, 2010, 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.

Federal Home Loan Bank Borrowings (FHLB)

NCB, FSB has a pledge agreement with the FHLB requiring advances to be secured by eligible mortgages or investments. NCB, FSB’s borrowing capacity is determined by several factors including: the market value of eligible collateral, asset quality, capital, earnings, liquidity, credit ratings and approval by the FHLB. Changes in these factors could increase or reduce the available capacity. Any amendments to the revolving credit and senior note agreements have not impacted NCB, FSB’s ability to borrow from the FHLB.

As of September 30, 2010, the total FHLB facility was $197.1 million of which $145.0 million of debt borrowings and $15.1 million in letters of credit were outstanding. As of December 31, 2009, the total FHLB facility was $205.9 million of which $145.0 million of debt borrowings and $23.5 million in letters of credit were outstanding.

NCB, FSB has granted a blanket security interest to the FHLB of the following: Share and Single-family Residential Loans, Multifamily Loans, Commercial Real Estate Loans, Home Equity Lines of Credit and specifically assigned Investment Securities. NCB, FSB submits a quarterly certification to the FHLB specifying the eligible loan collateral. As of September 30, 2010, based on the last quarterly certification of June 30, 2010, NCB, FSB had pledged the following eligible loan collateral to the FHLB: Share and Single-family Residential of $224.4 million, Multifamily of $14.0 million and Commercial Real Estate of $85.3 million. As of December 31, 2009, based on the last quarterly certification of September 30, 2009, NCB, FSB had pledged the following eligible loan collateral to the FHLB: Share and Single-family Residential of $382.0 million and Multifamily of $32.5 million. As of September 30, 2010 and December 31, 2009, NCB, FSB had $32.4 million and $12.2 million of investments specifically pledged to the FHLB, respectively.

Subordinated Debt

On December 31, 1981, the Holding Company issued unsecured subordinated debt to the U.S. Treasury (“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.

The following table shows, pursuant to the Amended Financing Agreement, the amortization schedule of the Class A notes (dollars in thousands):


Debt Amortization
	Beginning				Periodic
Year	Balance		Annual Amortization		Amortization		Ending Balance
2010	$	113,989	$	—	$	23,989	$	90,000
2011		90,000		5,000		—		85,000
2012		85,000		5,500		—		79,500
2013		79,500		6,050		—		73,450
2014		73,450		6,655		—		66,795
2015		66,795		7,320		—		59,475
2016		59,475		8,053		—		51,422
2017		51,422		8,858		—		42,564
2018		42,564		9,744		—		32,820
2019		32,820		10,718		—		22,102
2020		22,102		—		22,102		—

Total			$	67,898	$	46,091

The Amended Financing Agreement provides for the deferral of principal payments. In the event that a scheduled amortization payment is not made by the end of the applicable year, the rate on any note that is repriced prior to such deferred payment being made will reprice at the then-current treasury rate for the tenure of that note plus 700 basis points. At the same time, the rate on the remaining notes increase by 100 basis points and increase by an additional 100 basis points each six month period (up to a maximum add-on of 700 basis points over the treasury rate) as long as the deferred payment remains unpaid. Once the deferred payment is made, the rate on all of the notes returns to the contract rate of the treasury rate plus 100 basis points.

The Class A notes and all related payments are subordinate to any secured and unsecured notes and debentures thereafter issued by the Holding Company, but the notes and subordinated debt issued by the Holding Company, that by its terms are junior to the Class A notes, have first preference with respect to the Holding Company’s assets over all classes of stock issued by the Holding Company. Under the Bank Act, the Holding Company 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.

15. DERIVATIVE FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s derivative instruments are recorded gross as a component of other assets and other liabilities on the condensed consolidated balance sheet as follows (dollars in thousands):


	September 30, 2010
	Asset Derivatives					Liability Derivatives
	Balance Sheet	Contract/Commitment		Estimated		Balance Sheet	Contract/Commitment		Estimated
	Location	Amounts		Fair Value		Location	Amounts		Fair Value

Derivatives not designated as hedging instruments:
Forward sales commitments:
Single-family Residential and Share Loans	Other assets	$	8,733	$	22	Other liabilities	$	11,094	$	(55	)
Cooperative and Multifamily Loans	Other assets		47,465		519	Other liabilities		61,221		(2,005	)
Rate lock commitments to extend credit:
Single-family Residential and Share Loans	Other assets		12,455		321	Other liabilities		—		—
Cooperative and Commercial Real Estate Loans	Other assets		79,121		3,833	Other liabilities		—		—


Total derivatives not designated as hedging instruments		$	147,774	$	4,695		$	72,315	$	(2,060	)


	December 31, 2009
	Asset Derivatives					Liability Derivatives
	Balance Sheet	Contract/Commitment		Estimated		Balance Sheet	Contract/Commitment		Estimated
	Location	Amounts		Fair Value		Location	Amounts		Fair Value

Derivatives not designated as hedging instruments:
Forward sales commitments:
Single-family Residential and Share Loans	Other assets	$	9,669	$	137	Other liabilities	$	377	$	(1	)
Cooperative and Multifamily Loans	Other assets		31,450		480	Other liabilities		8,300		(109	)
Rate lock commitments to extend credit:
Single-family Residential and Share Loans	Other assets		6,843		88	Other liabilities		2,198		(21	)
Cooperative and Commercial Real Estate Loans	Other assets		21,050		714	Other liabilities		16,950		(154	)

Total derivatives not designated as hedging instruments		$	69,012	$	1,419		$	27,825	$	(285	)

Changes in the fair values of the Company’s undesignated derivative instruments are recorded in earnings as a component of the gain on mortgage banking activities.

The fair value of the Company’s rate lock commitments to borrowers includes, as applicable:

•

the assumed gain/loss of the expected loan sale to the investor;

•

the effects of interest rate movements between the date of rate lock and the balance sheet date; and

•

the estimated fair value of the cash flows associated with servicing the loan

The fair value of the Company’s forward sales contracts to investors solely considers effects of interest rate movements between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The methodologies and inputs used to value all of the Company’s derivative instruments are discussed in Note 16. The effect of the changes in fair value of the Company’s derivative instruments included in the gain on mortgage banking activities in the condensed consolidated statements of operations is as follows (dollars in thousands):


	For the three months ended September 30, 2010
	Assumed Gain		Interest Rate			Servicing		Total Fair Value
	(Loss) From		Movement			Rights		Adjustment
	Loan Sale		Effect			Value		Gain/(Loss)

Forward sales commitments
Single-family Residential and Share Loans	$	—	$	27		$	—	$	27
Cooperative and Multifamily Loans		—		763			—		763
Rate lock commitments to extend credit:
Single-family Residential and Share Loans		35		(29	)		32		38
Cooperative and Commercial Real Estate Loans		305		(349	)		62		18

Total fair value measurement, September 30, 2010	$	340	$	412		$	94	$	846


	For the nine months ended September 30, 2010
	Assumed Gain		Interest Rate			Servicing		Total Fair Value
	(Loss) From		Movement			Rights		Adjustment
	Loan Sale		Effect			Value		Gain/(Loss)

Forward sales commitments:
Single-family Residential and Share Loans	$	—	$	(170	)	$	—	$	(170	)
Cooperative and Multifamily Loans		—		(1,857	)		—		(1,857	)
Rate lock commitments to extend credit:
Single-family Residential and Share Loans		33		112			17		162
Cooperative and Commercial Real Estate Loans		1,169		1,854			251		3,274

Total fair value measurement, September 30, 2010	$	1,202	$	(61	)	$	268	$	1,409

16. FAIR VALUE MEASUREMENTS

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 and the derivative instruments used to economically hedge the loans without the burden of complying with the requirements of derivative accounting standards. Unrealized gains and losses for these identified loans are included in earnings. Of the $40.5 million and $11.9 million of Residential Real Estate Loans held-for-sale disclosed in Note 6, the contractual principal amount of loans for which the Company has elected the fair value option totaled $30.1 million and $1.8 million as of September 30, 2010 and December 31, 2009, respectively. The difference in fair value of these loans compared to their principal balance was $0.5 million and $23 thousand and was recorded in gain on mortgage banking activities as of September 30, 2010 and December 31, 2009, respectively.

•

U.S. GAAP establishes a fair value hierarchy for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

•

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the Company’s annual report as of December 31, 2009 on Form 10-K. There have been no changes in these methodologies from December 31, 2009.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	September 30, 2010
					Significant
	Quoted Prices in Active		Significant Other		Unobservable		Balance as of
	Markets for Identical Assets		Observable Inputs		Inputs		September 30,
	(Level 1)		(Level 2)		(Level 3)		2010
Assets
Interest-only non-certificated receivables	$	—	$	—	$	24,192	$	24,192
U.S. Treasury and agency obligations		21,228		—		—		21,228
Mortgage-backed securities		—		23,809		—		23,809
CMO’s		—		—		3,028		3,028
Equity securities		24		—		—		24
Derivative instruments		—		4,695		—		4,695
Loans held-for-sale		—		30,103		—		30,103

Total	$	21,252	$	58,607	$	27,220	$	107,079


Liabilities
Derivative instruments	$	—	$	2,060	$	—	$	2,060

Total	$	—	$	2,060	$	—	$	2,060

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	December 31, 2009
					Significant
	Quoted Prices in Active		Significant Other		Unobservable
	Markets for Identical Assets		Observable Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2009
Assets
Interest-only non-certificated receivables	$	—	$	—	$	24,851	$	24,851
U.S. Treasury and agency obligations		12,986		—		—		12,986
Mortgage-backed securities		—		13,066		—		13,066
CMO’s		—		—		3,723		3,723
Equity securities		31		—		—		31
Derivative instruments		—		1,419		—		1,419
Loans held-for-sale		—		1,773		—		1,773

Total	$	13,017	$	16,258	$	28,574	$	57,849


Liabilities
Derivative instruments	$	—	$	285	$	—	$	285

Total	$	—	$	285	$	—	$	285

There were no transfers of assets or liabilities between Level 1 and Level 2, or from Level 2 to Level 3 during the periods presented.

The tables below summarize the changes in fair value for all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in thousands):


	For the nine months ended September 30, 2010
	Interest-Only Non-			Collateralized Mortgage
	certificated Receivables			Obligations

Balance at December 31, 2009	$	24,851		$	3,723
Total gains or (losses) (realized/unrealized):
Included in earnings		—			—
Included in other comprehensive income		311			79
Purchases, issuances, settlements and fundings		2,438			—
Write down of asset due to prepayment		(25	)		—
Principal repayments		—			(798	)
Amortization		(3,383	)		24
Transfers out of Level 3		—			—

Balance at September 30, 2010	$	24,192		$	3,028


	For the nine months ended September 30, 2009
	Interest-Only						Collateralized
	Certificated			Interest-Only Non-			Mortgage
	Receivables			certificated Receivables			Obligations
Balance at December 31, 2008	$	27,854		$	27,264		$	3,938
Total gains or (losses) (realized/unrealized):
Included in earnings (1)		(2,143	)		—			(1,491	)
Included in other comprehensive income		2,053			(322	)		1,951
Purchases, issuances, settlements and fundings		—			2,041			—
Write down of asset due to prepayment		—			(15	)		—
Principal repayments		—			—			(286	)
Amortization		(4,358	)		(3,291	)		2
Transfers out of Level 3		(23,406	)		—			—

Balance at September 30, 2009	$	—		$	25,677		$	4,114


(1)		These losses included in earnings have been recognized as OTTI losses on the Company’s condensed consolidated statements of operations for the year ended December 31, 2009.

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis. That is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). A description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis as of September 30, 2010 and December 31, 2009 are disclosed in the Company’s annual report on Form 10-K as of December 31, 2009. There have been no changes to these methodologies through September 30, 2010.

The following tables summarize the fair value of instruments measured on a non-recurring basis (dollars in thousands):


	September 30, 2010
	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical Assets		Observable Inputs		Unobservable Inputs		September 30,
	(Level 1)		(Level 2)		(Level 3)		2010
Assets
Loans held-for-sale	$	—	$	6,484	$	—	$	6,484	⁽¹⁾
Mortgage servicing rights		—		—		5,432		5,432	⁽²⁾
Impaired loans		—		—		64,731		64,731	⁽³⁾

Total	$	—	$	6,484	$	70.163	$	76,647


	December 31, 2009
	Quoted Prices in Active		Significant Other		Significant
	Markets for Identical Assets		Observable Inputs		Unobservable Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2009
Assets
Loans held-for-sale	$	—	$	29,494	$	—	$	29,494	⁽¹⁾
Mortgage servicing rights		—		—		7,059		7,059	⁽²⁾
Impaired loans		—		—		83,094		83,094	⁽³⁾

Total	$	—	$	29,494	$	90,153	$	119,647


(1)		Only loans held-for-sale with fair values below cost and for which the fair value option has not been elected, are included in the table above.

(2)		Mortgage servicing rights are accounted for at amortized cost and tested on a quarterly basis for impairment. The impairment test is segmented into the risk tranches, which are stratified, based upon the predominant risk characteristics of the loans. The table above only includes the fair value of the strata of mortgage servicing rights that were impaired as of the balance sheet date. None of these impairments were considered other-than-temporary at September 30, 2010 and December 31, 2009.

(3)		This amount represents the fair value of impaired loans for which a valuation allowance has been recognized.

Guidance 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 resulting 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 purposes of this disclosure as of September 30, 2010 and December 31, 2009:

Cash and cash equivalents — The carrying amount approximates fair value.

Loans held-for-investment — The fair market value of adjustable rate loans is estimated by discounting the future cash flows 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. This method of estimating fair value does not incorporate the exit price concept in a fair value measurement and is appropriate for this specific disclosure.

Deposit liabilities — The fair value of demand deposits, savings accounts, and certain money market deposits is determined using a discounted cash flow approach and considers the value of the customer relationship. The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposits of similar remaining maturities.

Borrowings — The fair value of borrowings 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 the Company. In determining the fair value of the Company’s borrowings, the Company considered its own credit worthiness and ability to repay the outstanding obligations upon their contractual maturity.

The following table summarizes the carrying amount and fair value of the financial instruments that the Company has not measured at fair value on a recurring basis (dollars in thousands):


	September 30, 2010				December 31, 2009
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and cash equivalents	$	224,773	$	224,773	$	266,090	$	266,090
Held-to-maturity investment securities		387		378		387		372
Loans held-for-sale		45,149		45,912		35,730		35,846
Loans held-for-investment, net		1,336,153		1,323,757		1,657,221		1,618,271
Financial Liabilities:
Deposits		1,117,498		1,138,639		1,253,954		1,279,749
Borrowings		428,815		354,960		614,553		527,888


	Contract or				Contract or
	Commitment		Estimated		Commitment		Estimated
Off-Balance Sheet Financial Instruments:	Amounts		Fair Value		Amounts		Fair Value
Undrawn commitments to extend credit	$	673,611	$	3,368	$	764,888	$	3,824
Standby letters of credit		208,532		5,246		245,165		7,728

17. SEGMENT REPORTING

The Company’s reportable segments are strategic business units that provide diverse products and services within the financial services industry. The Company has five reportable segments: Commercial Lending, Real Estate Lending, Warehouse Lending, Retail and Consumer 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 and community association loans (included in Commercial Loans in Note 8) nationally, with a concentration in New York City. The Warehouse Lending segment originates Residential and Commercial Real Estate Loans for sale in the secondary market. The Retail and Consumer Lending segment provides traditional banking services such as lending and deposit gathering to retail, corporate and commercial customers. The Other segment income consists of the Company’s unallocated administrative income and expense and net interest income from investments and corporate debt after allocations to segments. The Other segment assets consist mostly of unallocated cash and cash equivalents, investment securities, Federal Home Loan Bank stock, premises and equipment and equity investment securities. The Company evaluates segment performance based on earnings before taxes. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies.


	For the three months ended September 30:
							Retail and
	Commercial		Real Estate		Warehouse		Consumer					Consolidated
2010	Lending		Lending		Lending		Lending		Other			Company
Net interest income:
Interest income	$	5,987	$	9,294	$	1,284	$	4,150	$	393		$	21,108
Interest expense		1,363		5,358		218		2,299		1,112			10,350

Net interest income		4,624		3,936		1,066		1,851		(719	)		10,758

Provision (benefit) for loan losses		1,568		354		—		229		—			2,151

Non-interest income		1,245		1,081		7,587		184		432			10,529

Non-interest expense:
Direct expense		835		956		1,149		487		5,527			8,954
Overhead and support		1,761		1,996		2,376		1,071		—			7,204

Total non-interest expense		2,596		2,952		3,525		1,558		5,527			16,158


Income (loss) before taxes	$	1,705	$	1,711	$	5,128	$	248	$	(5,814	)	$	2,978


Total average assets	$	396,123	$	676,825	$	88,296	$	331,427	$	322,251		$	1,814,922


Total assets	$	388,772	$	647,726	$	71,932	$	331,949	$	325,817		$	1,766,196


	For the three months ended September 30:
									Retail and
	Commercial			Real Estate			Warehouse		Consumer						Consolidated
2009	Lending			Lending			Lending		Lending			Other			Company
Net interest income:
Interest income	$	7,782		$	11,700		$	1,623	$	6,580		$	378		$	28,063
Interest expense		2,418			11,490			1,095		3,046			1,898			19,947

Net interest income		5,364			210			528		3,534			(1,520	)		8,116

Provision for loan losses		7,321			2,648			—		2,213			—			12,182

Non-interest income		1,332			417			3,323		354			332			5,758

Non-interest expense:
Direct expense		1,336			953			947		506			6,865			10,607
Overhead and support		4,301			3,090			2,868		1,676			—			11,935

Total non-interest expense		5,637			4,043			3,815		2,182			6,865			22,542


(Loss) income before taxes	$	(6,262	)	$	(6,064	)	$	36	$	(507	)	$	(8,053	)	$	(20,850	)


Total average assets	$	527,852		$	857,395		$	94,272	$	506,107		$	227,215		$	2,212,841


Total assets	$	525,503		$	858,934		$	79,995	$	485,865		$	206,722		$	2,157,019


	For the nine months ended September 30:
							Retail and
	Commercial		Real Estate		Warehouse		Consumer					Consolidated
2010	Lending		Lending		Lending		Lending		Other			Company
Net interest income:
Interest income	$	19,952	$	30,002	$	3,680	$	14,189	$	1,097		$	68,920
Interest expense		4,684		19,053		1,148		7,367		3,384			35,636

Net interest income		15,268		10,949		2,532		6,822		(2,287	)		33,284

Provision for loan losses		6,817		2,747		—		1,445		—			11,009

Non-interest income		3,298		3,704		12,145		1,234		4,934			25,315

Non-interest expense:
Direct expense		2,659		2,942		4,545		1,448		18,644			30,238
Overhead and support		3,973		4,138		6,964		2,215		—			17,290

Total non-interest expense		6,632		7,080		11,509		3,663		18,644			47,528


Income (loss) before taxes	$	5,117	$	4,826	$	3,168	$	2,948	$	(15,997	)	$	62


Total average assets	$	436,986	$	696,227	$	86,953	$	381,200	$	328,757		$	1,930,123


Total assets	$	388,772	$	647,726	$	71,932	$	331,949	$	325,817		$	1,766,196


	For the nine months ended September 30:
									Retail and
	Commercial			Real Estate			Warehouse		Consumer					Consolidated
2009	Lending			Lending			Lending		Lending		Other			Company
Net interest income:
Interest income	$	24,597		$	34,813		$	4,498	$	20,810	$	1,193		$	85,911
Interest expense		7,104			23,820			2,243		12,169		2,724			48,060

Net interest income		17,493			10,993			2,255		8,641		(1,531	)		37,851

Provision for loan losses		13,131			19,243			—		4,593		—			36,967

Non-interest income		3,949			2,646			10,081		1,263		1,040			18,979

Non-interest expense:
Direct expense		4,042			2,607			3,045		1,549		17,976			29,219
Overhead and support		9,069			5,863			6,772		3,727		—			25,431

Total non-interest expense		13,111			8,470			9,817		5,276		17,976			54,650


Income (loss) before taxes	$	(4,800	)	$	(14,074	)	$	2,519	$	35	$	(18,467	)	$	(34,787	)


Total average assets	$	552,468		$	850,897		$	87,620	$	513,648	$	185,794		$	2,190,427


Total assets	$	525,503		$	858,934		$	79,995	$	485,865	$	206,722		$	2,157,019

18. PROVISION FOR INCOME TAXES

Pursuant to its Charter, the Holding Company and its subsidiaries are subject to federal income taxes for certain activities only. The federal income tax provision is determined on the basis of non-patronage income generated by NCB, FSB and reserves set aside for dividends on Class C stock. All of NCB, FSB’s income is subject to state taxation. The income tax provision for the three months ended September 30, 2010 and September 30, 2009 was $75 thousand and $0.9 million, respectively. The income tax benefit for the nine months ended September 30, 2010 and September 30, 2009 was $37 thousand and $32 thousand, respectively. NCB, FSB’s effective weighted average state tax rate was approximately 6.1% as of September 30, 2010 compared to 5.3% as of September 30, 2009. The effective combined tax rate for both federal and state tax was 59.7% as of September 30, 2010 compared to less than 1% as of September 30, 2009 resulting from the impact of business activities that do not qualify as patronage income under the Internal Revenue Code as amended by the Act with respect to the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and statistical data presented in this document and the December 31, 2009 audited consolidated financial statements and the accompanying notes included in the Company’s recent Annual Report on Form 10-K.


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.

Third Quarter 2010 Summary

The Company’s financial results continue to reflect the challenging economic and operating conditions, and the residual effect of the recession that the U.S. economy has faced prior to and during 2009 continues to impact the Company’s borrowers. Increased cost of funds, fees and amortization of debt costs related to the Holding Company’s amendments to its revolving credit facility and senior note agreements have also negatively impacted the Company’s 2010 financial results to date.

During 2010 economic conditions improved to some degree. The Company has experienced more favorable operating results in 2010, reversing the trend of losses from the nine months ended September 30, 2009 primarily because of a significant decrease in the Company’s provision for loan losses from 2009. The decrease in the provision for loan losses was primarily the result of a stabilization in the credit quality of the Company’s loan portfolio during the nine months ended September 30, 2010.

Debt Amendments

As of June 30, 2009, the Holding Company was in default under its senior note purchase agreement and its revolving credit facility due to a violation of certain financial covenants. On February 23, 2010, the Holding Company entered into amendments to each of the senior note purchase agreements and the revolving credit facility agreement that extended certain waivers and modifications established during 2009, removed substantially all of the financial covenants compliance requirements and established a payment amortization schedule with a final maturity of December 15, 2010.

The Holding Company was required to reduce the aggregate principal through paydowns such that the maximum aggregate debt outstanding was (1) $68.0 million on April 30, 2010, (2) $60.0 million on June 30, 2010 and (3) $30.0 million on September 30, 2010. 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. As of September 30, 2010 the Holding Company was in full compliance with the remaining financial covenants.

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.

In February of 2010, the Company amended both agreements to extend the final maturity date to December 15, 2010. The Holding Company was able to make the final payments more than seven weeks ahead of the final maturity date in order to reduce the interest expense that had been accruing under each facility at 13.5%.

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 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 requested to submit a Business Plan within 45 days and a Liquidity Risk Management Program within 30 days for OTS review and comment. These items were submitted to the OTS, and the OTS has responded with a written non-objection as contemplated by the Supervisory Agreement.

Results of Operations
For the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009
Overview

The Company’s net income for the nine months ended September 30, 2010 was $0.1 million compared to a net loss of $34.8 million for the nine months ended September 30, 2009.

Total assets decreased 15.6% or $327.3 million to $1.77 billion as of September 30, 2010, from $2.09 billion as of December 31, 2009 as the proceeds from loan curtailments and loan sales were used to reduce outstanding borrowings.

The annualized return on average total assets was less than 0.1% for the nine months ended September 30, 2010 and -2.1% for the nine months ended September 30, 2009. The annualized return on average members’ equity was 0.1% and -21.2% for the nine months ended September 30, 2010 and 2009, respectively.

Selected Financial Data
(Dollars In Thousands)


	For the three months ended						For the nine months ended
	September 30,						September 30,
Profitability	2010			2009			2010			2009
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		10,529			5,758			25,315			18,979
Non-interest expense		16,158			22,542			47,528			54,650
Net income (loss)		2,903			(21,739	)		99			(34,755	)

Ratios
Net yield on interest earning assets		2.59	%		1.52	%		2.54	%		2.39	%
Return on average assets		0.6	%		-3.9	%		0.0	%		-2.1	%
Return on average members’ equity		6.4	%		-41.1	%		0.1	%		-21.2	%
Efficiency ratio		75.9	%		162.5	%		81.1	%		96.2	%


	September 30,			December 31,
Supplemental Data	2010			2009
Loans held-for-sale	$	45,149		$	35,730
Loans held-for-investment		1,379,374			1,693,689
Total assets		1,766,196			2,093,537
Total borrowings		428,815			614,553

Fulltime equivalent employees		240			248

Ratios
Average members’ equity as a percentage of average total assets		9.5	%		9.6	%
Average members’ equity as a percentage of average total loans and lease financing		11.6	%		10.7	%

Net average loans and lease financing to average total assets		79.9	%		87.6	%
Net average earning assets to average total assets		88.3	%		94.7	%


	September 30,			December 31,
Credit Quality	2010			2009
Allowance for loan losses	$	43,221		$	36,468
Non-accrual loans		82,333			71,401
Real estate owned		8,123			2,315
Total non-performing assets		90,456			73,716

Ratios
Allowance for loan losses to loans outstanding		3.0	%		2.1	%
Non-performing assets as a percentage of total assets		5.1	%		3.5	%
Non-performing assets as a percentage of total loans held-for-investment		6.6	%		4.4	%

Net Interest Income

The primary source of the Company’s revenue is net interest income, which is the difference between interest income on earning assets (primarily loans and securities) and interest expense on funding sources (including interest bearing deposits and borrowings). Earning asset balances and related funding, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Non-interest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of non-interest bearing sources of funds is captured in net yield on interest earning assets, which is calculated as net interest income divided by average earning assets.

Net interest income for the nine months ended September 30, 2010, decreased $4.6 million or 12.1% to $33.3 million compared with $37.9 million for the nine months ended September 30, 2009. The net yield on interest earning assets increased from 2.39% for the nine months ended September 30, 2009 to 2.54% for the same period in 2010.

For the nine months ended September 30, 2010, interest income decreased by $17.0 million or 19.8% to $68.9 million compared with $85.9 million for the nine months ended September 30, 2009. The decrease resulted primarily from a $222.7 million decrease in average Residential and Commercial Real Estate Loan volume and a decrease of $155.2 million in average Consumer and Commercial Loan volume. Average yields on all loan types did not vary significantly year-over-year; however, the average yield on investment securities and cash equivalents decreased 156 basis points from the nine months ended September 30, 2009 to the nine months ended September 30, 2010.

Interest expense for the nine months ended September 30, 2010, decreased $12.4 million or 25.9% from $48.1 million for the nine months ended September 30, 2009 to $35.6 million for the nine months ended September 30, 2010.

Variable interest rates, to which NCB, FSB’s deposits are tied, have decreased significantly from the nine months ended September 30, 2009 to the nine months ended September 30, 2010 which is the primary cause of the $5.3 million year-over-year decrease in deposit interest expense. Specifically, NCB, FSB’s cost of deposits has decreased 49 basis points from 2.27% for the nine months ended September 30, 2009 to 1.78% for the nine months ended September 30, 2010. NCB, FSB’s average total deposits have also decreased slightly year-over-year and NCB, FSB’s brokered deposits, all relating to certificates of deposit, decreased $165.6 million from December 31, 2009 to September 30, 2010. As of September 30, 2010, of the $423.5 million of brokered certificates of deposit, $98.3 million mature within three months and $325.2 million have a maturity ranging from four months to 63 months. The Company is actively working to decrease this concentration of brokered deposits.

Interest expense on borrowings decreased $7.1 million or 26.9% from September 30, 2009 to September 30, 2010. The decrease in interest expense for the nine months ended September 30, 2010 from the nine months ended September 30, 2009 was primarily attributable to a $175.6 million decrease in average borrowing balances for the nine months of 2010 as compared to the nine months of 2009. The Holding Company aggressively repaid its senior note and revolving credit facility debt during 2010 in compliance with requirements in the most recent debt amendments. The decrease in average balances more than offset the impact of the Holding Company’s $0.8 million charge to interest expense during the nine months ended September 30, 2010 as a result of not fully repaying all amounts due under the revolving credit facility and senior note debt agreements as of June 30, 2010.

See Table 1 and Table 2 for detailed effects of changes in rates and balances outstanding by specific product type and their effects on interest income and interest expense for the nine months ended September 30, 2010 and September 30, 2009.

Table 1
Changes in Net Interest Income
For the nine months ended September 30,
(Dollars in thousands)


	2010 Compared to 2009
	Change in average			Change in			Increase (Decrease)
	volume			average rate			Net**
Interest Income
Real Estate (Residential and Commercial) Loans	$	(8,910	)	$	80		$	(8,830	)
Consumer and Commercial Loans and Leases		(6,919	)		12			(6,907	)

Total loans and lease financing		(15,829	)		92			(15,737	)
Investment securities and cash equivalents		166			(1,553	)		(1,387	)
Other interest income		(145	)		278			133


Total interest income		(15,808	)		(1,183	)		(16,991	)


Interest Expense
Deposits		(705	)		(4,643	)		(5,348	)
Borrowings		(7,015	)		(61	)		(7,076	)


Total interest expense		(7,720	)		(4,704	)		(12,424	)


Net interest income	$	(8,088	)	$	3,521		$	(4,567	)


**		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.

Table 2
Rate Related Assets and Liabilities
For the nine months ended September 30,
(Dollars in thousands)


	2010								2009
				Income /		Average						Income /		Average
	Average Balance*			Expense		Rate/Yield			Average Balance*			Expense		Rate/Yield
Assets
Interest earning assets
Real Estate (Residential and Commercial) Loans*	$	1,010,163		$	40,454		5.34	%	$	1,232,860		$	49,284		5.33	%
Consumer and Commercial Loans and Leases*		574,858			25,632		5.95	%		730,054			32,539		5.94	%

Total loans and lease financing*		1,585,021			66,086		5.56	%		1,962,914			81,823		5.56	%
Investment securities and cash equivalents		138,281			1,098		1.06	%		126,233			2,485		2.62	%
Other interest income		24,167			1,736		9.58	%		26,354			1,603		8.11	%

Total interest earning assets		1,747,469			68,920		5.26	%		2,115,501			85,911		5.41	%


Allowance for loan losses		(43,469	)							(36,056	)

Non-interest earning assets
Cash		145,403								40,623
Other		80,720								70,359

Total non-interest earning assets		226,123								110,982

Total assets	$	1,930,123							$	2,190,427


Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	1,229,897		$	16,411		1.78	%	$	1,276,321		$	21,759		2.27	%
Borrowings		482,024			19,225		5.32	%		657,670			26,301		5.33	%

Total interest bearing liabilities		1,711,921			35,636		2.78	%		1,933,991			48,060		3.31	%

Other liabilities		34,901								37,702
Members’ equity		183,301								218,734

Total liabilities and members’ equity	$	1,930,123							$	2,190,427

Net interest earning assets	$	35,548							$	181,510

Net interest revenues and spread				$	33,284		2.48	%				$	37,851		2.10	%
Net yield on interest earning assets							2.54	%							2.39	%


*		Average loan balances include non-accrual loans.

Non-interest Income
(dollars in thousands)


	Non-interest income for the nine
	months ended September 30,
	2010		2009
Gain on mortgage banking activities and loan sales	$	15,344	$	9,914
Servicing fees		3,976		3,066
Letter of credit fees		2,479		3,422
Real estate loan fees		1,005		473
Other		2,511		2,104

Total	$	25,315	$	18,979

Total non-interest income increased $6.3 million or 33.4% from $19.0 million during the nine months ended September 30, 2009 to $25.3 million for the nine months ending September 30, 2010. This was driven primarily by an increase of $5.4 million gain on mortgage banking activities and loan sales from $9.9 million for the nine months ended September 30, 2009 to $15.3 million for the nine months ending September 30, 2010. The increase in the number and aggregate principal of loans previously held-for-investment and loans originated as held-for-sale coupled with increases in margins on sales resulted in the increase in gain on mortgage banking activities and loan sales.

Principal balances of multifamily cooperative and commercial real estate cooperative loans sold were $296.5 million and $184.8 million for the nine months ended September 30, 2010 and September 30, 2009 respectively. Gain recognized on these sales were $7.8 million and $6.4 million for the nine months ended September 30, 2010 and September 30, 2009 respectively. Gain recognized on loans that have been forward sold were $1.7 million and $0.3 million for the nine months ended September 30, 2010 and September 30, 2009 respectively.

Principal balances of single family residential and share loan residential loans sold were $131.3 million and $158.8 million for the nine months ended September 30, 2010 and September 30, 2009 respectively. Gain recognized on these sales were $2.6 million and $3.0 million for the nine months ended September 30, 2010 and September 30, 2009 respectively.

Principal balances of loans held for investment that were transferred to loans held for sale and subsequently sold totaled $140.8 million nine months ended September 30, 2010 with a gain recognized on these sales of $2.2 million.

Consumer Loan sales represent the sale of participations in auto loans. The Company purchases and sells these notes that are held-for-sale within a 30 day cycle. The primary economic benefit to the Company of this program is the net interest income it earns while these notes are on the balance sheet for this 30 day period. Unpaid principal balance of Consumer Loans sold were $0.3 million and $0.1 million for the nine months ended September 30, 2010 and 2009, respectively.

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 a specific reserve, to a participating investor. The Company recognized a $1.0 million gain on the sale of these loans.

The increase in servicing fees from the nine months ended September 30, 2009 to the nine months ended September 30, 2010 is primarily the result of the recapture of income from the recovery of previous impairments on the Company’s MSRs, coupled with an increase in the volume of loans serviced by the Company.

The decrease in letter of credit fees from the nine months ended September 30, 2009 to the nine months ended September 30, 2010 reflects a decrease in the outstanding balance of the Company’s letters of credit from September 30, 2009 to September 30, 2010.

Non-interest Expense
(dollars in thousands)


	Non-interest expense for the nine months
	ended September 30,
	2010			2009
Compensation and employee benefits	$	23,487		$	22,903
Contractual services		6,104			5,874
Occupancy and equipment		4,564			5,037
Loan costs		3,377			2,532
Information systems		3,078			3,237
FDIC premium		2,810			1,992
Provision for losses on unfunded commitments		1,574			6,502
Corporate development		497			833
Lower of cost or market valuation allowance — loans held-for-sale		(20	)		289
Loss on sale of investments available-for-sale		—			89
Other-than-temporary impairment losses (OTTI) (all OTTI is credit-related)
Gross impairment losses		—			3,792
Less: impairments recognized in other comprehensive income (before taxes)		—			(158	)

Net impairment losses recognized in earnings		—			3,634
Other		2,057			1,728

Total	$	47,528		$	54,650

Non-interest expense for the nine months ended September 30, 2010 decreased by $7.2 million compared to the nine months ended September 30, 2009 primarily because there has been no OTTI thus far during 2010 compared to the $3.6 million of OTTI during this same time in 2009.

The provision for unfunded commitments is based on our expected losses for these commitments. Estimates of projected losses coupled with a decline in the aggregate outstanding commitment expense resulted in a decrease in the provision for the 2010 period as compared to the 2009 period. The $0.8 million increase in loan costs is primarily due to losses and legal fees incurred for a loan the company repurchased from Fannie Mae due to a title deficiency.

Compensation and employee benefits expense increased $0.6 million to $23.5 million for the nine months ended September 30, 2010 from $22.9 million for the prior corresponding period. Retention bonuses given to certain employees during 2010 more than offset a reduction in the number of employees.

Credit Quality

Since December 31, 2009, the allowance for loan losses increased by $6.7 million, or 18.4% to $43.2 million. This included $1.1 million of loan recoveries received and $9.1 million of loans charged off. The allowance for loan losses represented 3.1% and 2.2% of loans held-for-investment, as of September 30, 2010 and December 31, 2009, respectively. The allowance as a percentage of non-performing assets was 47.8% as of September 30, 2010 compared with 49.5% as of December 31, 2009.

Of the $11.0 million provision for loan losses, $4.9 million is related to Commercial Loans, $3.9 million is related to Real Estate Loans and $2.2 million is related to Consumer Loans. Net charge-offs were 0.6% and 1.8% of the loans held-for-investment balance for the periods ended September 30, 2010 and December 31, 2009, respectively.

Table 3
IMPAIRED ASSETS
(dollars in thousands)


	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009

Real estate owned	$	8,123		$	6,660		$	5,397		$	2,315		$	3,553
Impaired loans		108,570			106,305			104,563			97,748			147,001


Total	$	116,693		$	112,965		$	109,960		$	100,063		$	150,554


As a percentage of loans held-for-investment		8.46	%		7.76	%		7.15	%		5.91	%		7.97	%

During 2009, deteriorating economic conditions, including declining real estate values and increasing unemployment and commercial real estate vacancy rates, adversely impacted the quality of the Company’s loan portfolios resulting in (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. Although economic conditions appear to have stabilized during 2010, the Company believes that certain of its borrowers remain under stress and the Company’s loan portfolio continues to be negatively impacted. The decrease in the provision for loan losses for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 is partially the result of a reduction in the number of classified loans, the repayment of classified loans and rating upgrades to certain other adversely classified loans.

During 2009, the Company recognized a provision for unfunded commitments of $3.8 million related to the probable expected loss on certain standby letters of credit with borrowers. During 2010, these borrowers drew on, and the Company funded, these standby letters of credit creating a loan receivable. The provision associated with these borrowers was reclassified from the reserve for unfunded commitments (see Note 11) to the allowance for loan losses.

Standby Letters of Credit

As of September 30, 2010, the Company had outstanding standby letters of credit with a total commitment amount of $208.5 million of which $89.6 million were classified as criticized. As of December 31, 2009, the Company had outstanding standby letters of credit with a total commitment amount of $245.2 million of which $73.4 million were classified as criticized. During 2010, the Company funded two standby letters of credit in the aggregate amount of $9.8 million. In connection with the fundings, the related provision for the standby letters of credit was transferred from the reserve for unfunded commitments to the allowance for loan losses as of September 30, 2010. During 2009, one letter of credit was funded in the amount of $6.9 million with an expected loss of $5.1 million recognized and charged-off.

Results of Operations
For the three months ended September 30, 2010 compared to the three months ended September 30, 2009
Overview

The Company’s net income for the three months ended September 30, 2010 was $2.9 million compared to a net loss of $21.7 million for the three months ended September 30, 2009.

The annualized return on average total assets was 0.6% and -3.9% for the three months ended September 30, 2010 and 2009, respectively. The annualized return on average members’ equity was 6.4% and -41.1% for the three months ended September 30, 2010 and 2009, respectively.

Net Interest Income

Net interest income for the three months ended September 30, 2010, decreased $2.7 million or 33.3% to $10.8 million compared with $8.1 million for the three months ended September 30, 2009.

For the three months ended September 30, 2010, interest income decreased by 24.9% or $7.0 million to $21.1 million compared with $28.1 million for the three months ended September 30, 2009. The decrease resulted primarily from a $288.7 million decrease in average Residential and Commercial Real Estate loan balance and a decrease of $181.5 million in average Consumer and Commercial Loan balance. Average yields on all loan types did not vary significantly year-over-year; however, the average yield on investment securities and cash equivalents decreased 106 basis points from the three months ended September 30, 2009 to the three months ended September 30, 2010.

Interest expense for the three months ended September 30, 2010, decreased $9.5 million or 48.1% from $19.9 million for the three months ended September 30, 2009 to $10.4 million for the three months ended September 30, 2010.

Variable interest rates, to which NCB, FSB’s deposits are tied, have decreased from the three months ended September 30, 2009 to the three months ended September 30, 2010 which is the primary cause of the $1.3 million year-over-year decrease in deposit interest expense. Specifically, NCB, FSB’s cost of deposits has decreased 23 basis points from 2.06% in the three months ended September 30, 2009 to 1.83% in the three months ended September 30, 2010.

Interest expense on borrowings for the three months ended September 30, 2010 decreased $8.2 million or 62.0%. The decrease in interest expense for the three months ended September 30, 2010 from the three months ended September 30, 2009 was primarily attributable to a $231.7 million decrease in average borrowing balances for the third quarter of 2010 as compared to the third quarter of 2009. The Holding Company has been aggressively paying down its senior note and revolving credit facility debt during 2010 in compliance with requirements in the most recent debt amendments. The decrease in average balances more than offset the impact of the Holding Company’s $0.8 million charge to interest expense during the three months ended September 30, 2010 as a result of not fully repaying all amounts due under the revolving credit facility and senior note debt agreements as of June 30, 2010.

See Table 1 and Table 2 for detailed effects of changes in rates and balances outstanding by specific product type and their effects on interest income and interest expense for the three months ended September 30, 2010 and September 30, 2009.

Table 1A
Changes in Net Interest Income
For the three months ended September 30,
(Dollars in thousands)


	2010 Compared to 2009
	Change in average			Change in average			Increase (Decrease)
	volume			rate			Net**
Interest Income
Real Estate (Residential and Commercial) Loans	$	(3,747	)	$	(215	)	$	(3,962	)
Consumer and Commercial Loans and Leases		(2,692	)		13			(2,679	)

Total loans and lease financing		(6,439	)		(202	)		(6,641	)
Investment securities and cash equivalents		18			(410	)		(392	)
Other interest income		(46	)		124			78


Total interest income		(6,467	)		(488	)		(6,955	)


Interest Expense
Deposits		(649	)		(700	)		(1,349	)
Borrowings		(3,615	)		(4,633	)		(8,248	)


Total interest expense		(4,264	)		(5,333	)		(9,597	)


Net interest income	$	(2,203	)	$	4,845		$	2,642


**		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.

Table 2A
Rate Related Assets and Liabilities
For the three months ended September 30,
(Dollars in thousands)


	2010								2009
	Average			Income /		Average			Average					Average
	Balance*			Expense		Rate/Yield			Balance*			Income / Expense		Rate/Yield
Assets
Interest earning assets
Real Estate (Residential and Commercial) Loans*	$	959,696		$	12,366		5.15	%	$	1,248,349		$	16,328		5.23	%
Consumer and Commercial Loans and Leases*		520,766			7,727		5.94	%		702,305			10,406		5.93	%

Total loans and lease financing*		1,480,462			20,093		5.43	%		1,950,654			26,734		5.48	%
Investment securities and cash equivalents		157,129			393		1.00	%		152,358			785		2.06	%
Other interest income		23,832			622		10.44	%		25,795			544		8.44	%

Total interest earning assets		1,661,423			21,108		5.08	%		2,128,807			28,063		5.27	%


Allowance for loan losses		(45,633	)							(43,449	)

Non-interest earning assets
Cash		117,501								53,572
Other		81,631								73,911

Total non-interest earning assets		199,132								127,483

Total assets	$	1,814,922							$	2,212,841


Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	1,157,368		$	5,301		1.83	%	$	1,290,780		$	6,650		2.06	%
Borrowings		441,344			5,049		4.58	%		673,076			13,297		7.90	%

Total interest bearing liabilities		1,598,712			10,350		2.59	%		1,963,856			19,947		4.06	%

Other liabilities		34,680								37,302
Members’ equity		181,530								211,683

Total liabilities and members’ equity	$	1,814,922							$	2,212,841

Net interest earning assets	$	62,711							$	164,951

Net interest revenues and spread				$	10,758		2.49	%				$	8,116		1.21	%
Net yield on interest earning assets							2.59	%							1.52	%


*		Average loan balances include non-accrual loans.

Non-interest Income
(dollars in thousands)


	Non-interest income for
	the three months ended
	September 30,
	2010		2009
Gain on mortgage banking activities and loan sales	$	7,234	$	3,150
Servicing fees		970		714
Letter of credit fees		828		1,161
Real estate loan fees		418		137
Other		1,079		596

Total	$	10,529	$	5,758

Non-interest income for the three months ended September 30, 2010 increased by $4.8 million compared to the three months ended September 30, 2009 primarily due to the year-over-year increase in the gain on mortgage banking activities and loan sales. The increase in the number and aggregate principal of loans previously held-for-investment and loans originated as held-for-sale coupled with increases in margins on sales resulted in the increase in gain on mortgage banking activities and loan sales.

Principal balances of multifamily cooperative and commercial real estate cooperative loans sold were $131.8 million and $84.7 million for the three months ended September 30, 2010 and September 30, 2009 respectively. Gain recognized on these sales were $3.9 million and $3.1 million for the three months ended September 30, 2010 and September 30, 2009 respectively. A gain was recognized on loans that have been forward sold were $0.4 million for the three months ended September 30, 2010 compared with a loss of $0.7 million for the three months ended September 30, 2009.

Principal balances of single family residential and share loan residential loans sold were $27.7 million and $40.1 million for the three months ended September 30, 2010 and September 30, 2009 respectively. Gain recognized on these sales were $0.9 million and $0.8 million for the three months ended September 30, 2010 and September 30, 2009 respectively.

Principal balances of loans held for investment that were transferred to loans held for sale were $50.7 million for the three months ended September 30, 2010 with a gain recognized on these sales of $1.6 million.

The Consumer Loan sales represent the sale, at par, of participations in auto loans. The Company purchases and sells these notes that are held-for-sale within a 30 day cycle. The primary economic benefit to the Company of this program is the net interest income it earns while these notes are on the balance sheet for this 30 day period. Unpaid principal balance of Consumer Loans sold were $72.2 million and $60.7 million for the three months ended September 30, 2010 and 2009, respectively.

The increase in servicing fees from the three months ended September 30, 2009 to the three months ended September 30, 2010 is primarily the result of the recapture of income from previous impairments on the Company’s MSRs, coupled with an increase in the loans serviced by the Company.

The decrease in letter of credit fees from the three months ended September 30, 2009 to the three months ended September 30, 2010 reflects a decrease in the outstanding balance of the Company’s letters of credit from September 30, 2009 to September 30, 2010. The Company is making an effort to reduce its exposure on letters of credit by not committing to new letters of credit.

Non-interest Expense
(dollars in thousands)


	Non-interest expense for
	the three months ended
	September 30,
	2010		2009
Compensation and employee benefits	$	7,377	$	7,339
Provision for losses on unfunded commitments		1,831		4,026
Occupancy and equipment		1,555		1,668
Contractual services		1,328		3,063
Loan costs		1,284		968
FDIC premium		978		535
Information systems		915		986
Corporate development		177		289
(Loss) gain on sale of investments available-for-sale		—		(5	)
Other-than-temporary impairment losses (OTTI) (all OTTI is credit-related)
Gross impairment losses		—		2,312
Less: impairments recognized in other comprehensive income (before taxes)		—		—

Net impairment losses recognized in earnings		—		2,312
Lower of cost or market valuation allowance — loans held-for-sale		20		698
Other		693		663

Total	$	16,158	$	22,542

Non-interest expense for the three months ended September 30, 2010 decreased by $6.4 million compared to the three months ended September 30, 2009.

Decreases evident in the table above include: (1) no OTTI during 2010 as compared to $2.3 million recognized during the three months ending September 30, 2009; (2) a $2.2 million decrease in the provision for losses on unfunded commitments because of a decline in the dollar amount of letters of credit and commitments outstanding as of September 30, 2010 compared to September 30, 2009, coupled with stabilization in the credit quality of the company’s unfunded commitments during 2010 and (3) a $1.7 million decrease in contractual services due to the decrease in legal fees and the reduction of costs related to the restructuring of debt.

During 2010 NCB, FSB agreed to retention bonuses for some of its employees which are subject to continued employment and a non-compete agreement. The Company expensed $0.3 million of retention bonuses during the three months ending September 30, 2010. The employees must be employed on each of the payment dates to receive payment.

Liquidity and Capital Resources

As of September 30, 2010, the Company believes that it has adequate liquidity to meet all its obligations. As of September 30, 2010, the Company had cash on hand of $224.8 million, investments of $48.5 million and loans held-for-sale of $45.1 million. Dividends from NCB, FSB to the Holding Company require OTS consent at this time. The following describe the Company’s primary sources and uses of liquidity as of September 30, 2010:

•

The Company continues to generate cash through the receipt of scheduled and unscheduled repayments on loans receivable.

	•		During 2010, the Company sold $168.8 million of loans that were held-for-investment. Of these loans sold, $130.4 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 that were held-for-investment. Of these total loans sold, $149.1 million were Residential Real Estate Loans and $19.4 million were Commercial Loans.

	•		With respect to NCB, FSB, FHLB available unused borrowing capacity was $36.9 as of September 30, 2010 which was a $0.5 million decrease from $37.4 million as of December 31, 2009. As of September 30, 2010, the FHLB of Cincinnati, with whom NCB, FSB banks, has not provided notice of any potential dividend cancellations.

	•		FRB unused borrowing capacity was $57.1 million and $78.0 million as of September 30, 2010 and December 31, 2009, respectively.

	•		In addition to funding operations and debt service, liquidity will fund the maturity and withdrawal of certificates of deposit, specifically brokered deposits. NCB, FSB’s brokered deposit balances were $423.5 million and $589.1 million or 37.9% and 47.0% of total deposits as of September 30, 2010 and December 31, 2009, respectively. NCB, FSB intends to continue to reduce its concentration of brokered deposits with some combination of growth in non-brokered deposits, cash on hand, proceeds from the delivery of loans held for sale and the receipt of interest and principal payments on loans held-for-investment.

	•		The Company has a Liquidity Policy and a Liquidity Contingency Plan, both board approved and continually monitored that addresses NCB, FSB’s cashflow needs. Specifically, the cash flow needed to satisfy maturing certificates of deposit would be derived from repayments on loans held-for-investment, proceeds from the sale of loans held-for-sale, loan maturities and issuance of new certificates of deposit. Maturing certificates of deposit are further supported by unused FHLB borrowing capacity which was $36.9 million and $37.4 million as of September 30, 2010 and December 31, 2009, respectively and unused borrowing capacity from the Federal Reserve Bank (“FRB”) which was $57.1 million and $78.0 million as of September 30, 2010 and December 31, 2009, respectively.

Sources and Uses of Funds

The Company’s principal sources of funds are loan sale proceeds, loan interest and principal payment collections, deposits from customers and debt borrowings. The principal uses of funds are retirement of debt, loan originations, repayment of debt and purchases of investment securities.

Cash Provided by Operating Activities. The Company’s net cash provided by operating activities for the nine months ended September 30, 2010 was $212.8 million compared to $30.7 million for the nine months ended September 30, 2009. This $182.1 million change was primarily due to a $348.6 million increase in net proceeds from the sale of loans held-for-sale, partially offset by a $26.0 million decrease in the provision for loan losses and a $141.8 million net increase in cash used for the purchase and origination of loans held-for-sale.

Cash Provided by Investing Activities. The Company’s net cash provided by investing activities for the nine months ended September 30, 2010 was $69.0 million compared to $38.1 million for the nine months ended September 30, 2009. This $30.9 million change was primarily due to a $50.3 million decrease in cash used to originate loans and lease financing, net of principal collections partially offset by a $3.0 million increase in restricted cash and a $16.3 million net decrease in cash provided from available-for-sale investment activities.

Cash (Used in) Provided by Financing Activities. The Company’s net cash used in financing activities for the nine months ended September 30, 2010 was $323.1 million compared to $15.7 million of cash provided for the nine months ended September 30, 2009. The $338.8 million increase in cash used was primarily due to a $84.0 million net increase in cash used to repay debt borrowings, a $189.5 million decrease in debt borrowings and a $71.9 million decrease in cash provided by deposit activities.

Interest-Bearing Liabilities

Table 4
Interest-Bearing Liabilities
(including accrued interest)
(dollars in thousands)


	September 30,		December 31,
	2010		2009		% Change
Deposits	$	1,119,543	$	1,256,046		-10.9	%
Borrowings		431,422		617,611		-30.1	%

Total	$	1,550,965	$	1,873,657		-17.2	%

The decrease in deposits, all of which are held at NCB, FSB, from December 31, 2009 to September 30, 2010 was a result of efforts to reduce brokered certificates of deposit and use the proceeds from sales of loans to reduce borrowings. The weighted average rate on deposits was 1.8% as of September 30, 2010 and December 31, 2009. The average maturity of the certificates of deposit as of September 30, 2010 was 16.6 months compared with 17.7 months as of December 31, 2009.

The decrease in borrowings, including accrued interest, from December 31, 2009 to September 30, 2010 was primarily a result of the required debt pay downs in accordance with the revolving credit facility and senior note agreement amendments.

As of September 30, 2010, the Company has the following contractual debt maturities:


	Amount
2010	$	53,689
2011		65,000
2012		98,688
2013		20,000
2014		50,000
2015 and thereafter		141,547

Total payments	$	428,924

Patronage Dividends

Under the National Consumer Cooperative Bank Act, the Company must make annual patronage dividends to its stock-holding patrons, which are those cooperatives from whose loans or other business the Company derived interest or other income during the year with respect to which a patronage dividend is declared. The Company allocates its patronage dividends among its patrons generally in proportion to the amount of income derived during the year from each patron. The Company stockholders, as such, are not automatically entitled to patronage dividends. They are entitled to patronage dividends only in the years when they have patronized the Company, and thus the amount of their patronage is not determined by the number of shares they hold. Under the Company’s current patronage dividend policy, patronage dividends may be paid only from taxable income and only in the form of cash, Class B or Class C stock, or allocated surplus.

The cash portion of each patronage refund, if any, is determined by the Company’s Board of Directors based upon its determination of the capital requirements of the Company and other factors, in its discretion.

In light of financial losses in 2009, on August 5, 2010, the Company’s Board of Directors determined not to declare a stock or cash dividend with respect to 2009 activities.

Contractual Obligations

The Company has various financial obligations, including contractual obligations that may require future cash payments. Further discussion of the nature of each obligation is included in Notes 13 and 14 of the Notes to the Consolidated Financial Statements.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

Discussion of the Company’s commitments, contingent liabilities and off-balance sheet arrangements is included in Note 11 of the Notes to the Consolidated Financial Statements. Commitments to extend credit do not necessarily represent future cash requirements, as these commitments may expire without being drawn on based upon the Company’s historical experience.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference to the discussion contained under the caption “Overview” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


ITEM 4T.		CONTROLS AND PROCEDURES

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated its disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 15d-15. 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.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The risk factor described below updates the risk factors in Part 1, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The risks and uncertainties described below are not the only ones that the Company faces. Additional risks and uncertainties may also impair the Company’s business operations.

Recently enacted regulatory reforms could have a significant impact on the Company’s business, financial condition and results of operations.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Although certain provisions of the Dodd-Frank Act will not apply to banking organizations with less than $10 billion of assets, such as the Company, the changes resulting from the legislation will impact the Company’s business. The Dodd-Frank Act will permit the Company to pay interest on business checking accounts, which could (i) cause the Federal Reserve Board to amend its Regulation D establishing reserve requirements for depository institutions, and (ii) significantly reduce or eliminate the need for depository institutions to offer sweep account products. Additionally, effective July 6, 2010, regulatory changes in overdraft and interchange fee restrictions may reduce the Company’s non-interest income. The Company is currently in the process of evaluating this regulatory change, but has not fully quantified the full impact. Compliance with the Dodd-Frank Act’s provisions may curtail the Company’s revenue opportunities, increase its operating costs, require the Company to hold higher levels of regulatory capital and/or liquidity or otherwise adversely affect its business or financial results in the future. Management is actively reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on the Company’s business, financial condition, and result of operations. However, because many aspects of the Dodd-Frank Act are subject to future rulemaking, no assurance can be given as to the ultimate effect that the Dodd-Frank Act or any of its provisions may have on the Company, the financial services industry or the nation’s economy.

Item 6. Exhibits

The following exhibits are filed as part of this report:


Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Exhibit 32		Section 1350 Certifications

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

NATIONAL CONSUMER COOPERATIVE BANK

Date: November 15, 2010


	By:	/s/ Richard L. Reed
		Richard L. Reed,
		Executive Managing Director, Chief Financial Officer

	By:	/s/ David Sanders
		David Sanders
		Senior Vice President, Corporate Controller

NATIONAL CONSUMER COOPERATIVE BANK /DC/ 10-Q